For the second time in three months, Nuix Ltd (ASX: NXL) has issued a response to media publications. As a result, the Nuix share price has fallen 9.51% to $3.14.
NXL share price
A chequered history revealed
A joint investigation by The Sydney Morning Herald, The Age and The Australian Financial Review published today raises concerns over governance and questions the credibility of its past years’ financial accounts.
In summary, the investigation details savage cost cuts pre-IPO with Nuix losing 30% of its engineering department in addition to internal documents showing staff churn over 35% indicating staff dissatisfaction.
Moreover, the article reveals former founder and director Tony Castagna served a year in prison before being acquitted of tax fraud and money laundering.
Finally, in 2019, six senior executives presented a new vision labelled ‘Nuix 2.0’ over concerns the company had “lost focus, lost customer-centricity and stopped innovating”. CEO Rod Vawdrey’s resignation was also demanded.
Nuix responds
In response to the investigation, management reinforced Nuix’s strong market position and confidence in its long-term prospects.
As of March 31, the number of new customers and total order value is higher than the previous comparable period. Sales remain subdued due to changes in preferences from module-based subscription licenses to more flexible consumption-based licensing.
The response failed to address missed budget forecasts, high levels of staff turnover, ‘Nuix 2.0 vision’ or staff surveys outlining morale problems.
However, it did confirm Castagna has provided consulting assistance to Nuix.
My take
After arguably the largest hyped IPO of 2020, Nuix had encountered a number of issues.
First was the revenue miss in the HY21 results resulting from currency headwinds and shift to consumption-based licenses.
Next was the revised FY21 forecasts only six months after issuing its prospectus.
Then today’s investigation has cast doubt over the credentials of management.
Clearly, the prevailing sentiment in the market is negative. The share price is down over 70% from its high in January.
For me, the proof is in the pudding. If management can execute and deliver sales growth in future results, much of the current media noise will recede. However, if guidance is missed consecutively this will only add fuel to the fire.
I’ll be waiting for the full-year results in August before making an investment decision. Hopefully, management can execute the revised forecasts.
If you are interested in other ASX growth ideas, I suggest signing up for a free Rask account and accessing our full stock reports.
