As data analysis specialist Nuix prepares to release its full year earnings on Monday, we look at whether the year’s most plagued IPO still has further to fall.

Nuix (ASX:NXL) is Exhibit A on what investors’ distrust could do to a company with a solid business model.

The NXL share price has been soaring close to $12 as recently as February, before its rapid descent to the $2.76 it’s currently trading at.


Nuix price chart. Source Google.


To put this debacle in perspective, Nuix was a glamour stock when it listed in December 2020 amid much fanfare.

It was billed as ASX’s biggest IPO listing of 2020, a $1.7bn float that surged to a $2.5bn market cap by the end of its first trading day.

Founded in 2000 by the still incumbent chief scientist David Sitsky, the company’s self-proclaimed vision is to “find the truth from any data in the world”.

The company’s proposition has always been fundamentally sound – a cutting edge technology designed to process and make sense of lots of unstructured data using artificial intelligence, sold to thousands of government and corporate clients.

Its patented software has been used in high-profile cases like the Panama Papers and the Royal Banking Commission investigations back home, according to the prospectus.

So what went wrong?


Timeline of Nuix’s downfall

The Nuix stock price kept soaring and by early February, it had reached an all time high of $11.86, well above its IPO price of $5.31.

But the first sign that something had gone amiss was February 26, when its earnings missed the half-year prospectus forecast.

Nuix reported half-year FY21 revenue of $85.3 million, which was 40 per cent off from its full year FY21 forecast.

At the time, the company explained that several headwinds outside its control were affecting earnings, including a change of guard in the US government in November, and a weaker US dollar.

But it assured investors that everything was okay by reaffirming full year guidance as per the prospectus.

Nevertheless, the stock price plummeted by more than 30% that day from $8.97 to $6.06, and led to media articles questioning the credibility of its prospectus estimates.

Nuix responded by releasing a statement to the ASX on March 8, saying that its prospectus forecast was still intact, and that it had strong pipelines going forward.

But shortly after, the company made a U-turn and on April 21, it downgraded full year revenue to $180-185m range, vs the $193.5m forecast.

That was to be the first of two downgrades it announced this year.

The market never likes forecast downgrades and Nuix’s share price kept plunging. By the end of April, it was trading at just $4.14.

Just five weeks later, on May 31, Nuix announced its second downgrade, saying that full year revenue would now come in even lower at the $172m-182m range, although EBITDA would remain unchanged.

In context, the downgrade itself was not overly significant, but it was the lack of visibility surrounding the management team that now concerned investors.

Particularly so when there are two forecast downgrades within the space of a month.

Questions were starting to be asked about its corporate governance, or lack of it.

Nuix responded quickly by establishing a new independent board sub-committee, and appointing Oliver Harvey as its Governance and Compliance head.

Harvey spent 12 years at corporate regulator ASIC, and his appointment was clearly a move to instil investor confidence.

By the end of May however, the NXL share price had dropped to $2.77, down almost 50% from its listing price.

Things were about to get worse for the company over the following months, as scandal after sandal was unravelled that also entangled its major investor, Macquarie Group (ASX:MQG).



The last two months saw top management at Nuix being fired or being asked to stand down.

Former CFO Stephen Doyle, along with his brother and father, are currently the subject of a criminal investigation by the ASIC for potential insider trading,

ASIC alleged that Doyle had passed on news of impending downgrades to his brother and father.

It’s believed that millions of dollars had been saved by the Doyles by selling Nuix shares prior to the downgrade announcement.

Questions are also being asked about gaps in the company’s records that allowed Anthony Castagna, a former Macquarie Bank consultant who was employed by Nuix, turn his initial $3000 investment into an $80m windfall.

Meawnhile, CEO Rod Vawdrey resigned in June, and there are reports now that he’s being investigated for his previous role at Fujitsu Australia.

Macquarie Group also found itself in the centre of things.

The bank had made profits of $565m when it sold down its Nuix stake during the IPO, and shared more than $19m in IPO fees. It’s still a 30% shareholder of Nuix as of today.

Regulators are currently exploring the bank’s role in the IPO, and whether it had misled investors when making revenue projections in the prospectus.

At Macquarie’s general meeting held on August 19, the bank distanced itself from the accusations.

“At the time of the IPO, we all had no reason to believe that the prospectus forecasts would not be achieved. Circumstances appear to have changed quickly after listing,” said Macquarie CEO Shemara Wikramanayake.


Is Nuix still a good buy?

Despite all the issues surrounding the company, some fund managers still see value.

Taking a punt on the company was ECP Asset Management, which crossed the threshold with three purchases worth over $3 million in July.

ECP has taken advantage of the recent share price plunge to top up a stake that is now above 5 per cent.

Stockhead’s attempt to get a comment from the fund manager was unsuccessful, but ECP had told SMH earlier the rationale behind its purchase was that it saw Nuix as having a big opportunity to expand its market beyond the current clientele.

“While the issues ventilated in the press are not ideal, and the company needs to work through those issues systematically, nothing yet suggests that our thesis is broken,” ECP director Jared Pohl told SMH.

The fund manager also said it saw a clear upside to Nuix’s transition from module-based subscription contracts, to consumption-based contracts.

That transition was indeed flagged during Nuix’s first downgrade announcement in April.

Essentially, Nuix said that it was moving from a modular-basis consumption model where customers pay a fixed price to use as much as they want from the service, into a SaaS model where customers would pay based on usage.

Analysts believe this would impact short term revenue negatively, but is the right revenue model to use going forward.

Other analysts are also optimistic about the stock, saying much of the earlier problems were caused by distrust in the previous management, and that a new management would give a new direction.  The company is presently searching for a new CEO.

It’s also worth noting that Nuix’s contract completions are typically weighted towards the end of the financial half years, and last year more than 30% of its half year revenue was signed in December 2020.

In the bigger picture, Nuix is playing in the right industry, as big data and artificial intelligence will be two of the fastest growing sectors globally.

All eyes are now on Nuix’s full year earnings announcement, which is expected to be released on Monday.



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