Breaking Down Nuix (ASX: NXL)

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We’re covering one of the darlings in Australian tech - Nuix. Nuix has been in the crosshairs of the media since its IPO late last year. In large part, due to steep declines in its share price following a hyped IPO, a pending law suit from a former CEO and its slowed financial performance.

  • Nuix and the problem it solves for customers globally
  • Nuix’s recent financial performance and why its share price has declined
  • Nuix’s shift to a consumption-based pricing model

Source: Nuix


What is Nuix?

Nuix is a provider of investigative analytics and intelligence software with a vision of "finding truth in a digital world". While this itself is an admirable purpose, it doesn’t actually describe what Nuix does - so in true Fresh Capital style, we’re breaking it down for you.


The Nuix platform takes structured and unstructured data, and converts this data into something that is searchable and links to other relevant pieces of documentation. Nuix leverages a binary search platform, which means that it stores data as 0s and 1s. This enables the Nuix algorithm and engine to search content rapidly and easily scale its search algorithm as it analyses more and more data. In short, it makes stuff searchable.

Who are Nuix’s customers?


Nuix plays in a number of key market segments but predominately in Government, large corporates and professional services firms. Some of Nuix’s customers include well recognised companies such as AIG, Amazon, Barclays, Grant Thornton, Jaguar Land Rover, Thomson Reuters and the “Big 4” accounting / consulting firms.

In addition to Nuix’s private sector customers, Nuix’s solutions are used by government and public sector organisations globally, including the Australian Securities and Investments Commission (ASIC), the Securities and Exchange Commission (SEC) and the United States Department of Justice.

How is Nuix used?


Nuix has been used in investigations into some headline events over the last 15 years, including the Panama Papers, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry in Australia, organised crime rings, corporate scandals and terrorist activities.

During the Panama Papers investigation, Nuix was used to analysis over 2.6 terabytes of data including emails, images, PDFs and other documents. The Panama Papers are an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca. The documents contained inside information on the ways the rich exploit secretive offshore tax regimes.

Nuix helped the ICIJ efficiently search, analyse and cross reference Mossack Fonseca’s clients across these documents as well as further investigate the financial arrangements of high profile politicians and public figures who were using offshore companies.

How has Nuix performed?


Prior to its IPO, Nuix’s revenue was growing at a respectable ~24% between FY18-20, but importantly its EBITDA (earnings before interest, taxes, depreciation, and amortization) was growing at a considerably faster pace - growing at 96% between the same time period. This is strong bottomline growth for a tech company.

Nuix’s strong EBITDA growth over this time period shows how effectively the business has managed to scale without incurring a major increase in operating expenses. Over this time period, Operating Expenses decreased from ~90% of revenue in FY18 to ~68% of revenue in FY20. R&D costs doubled over this period but Nuix has maintained operational discipline and held other Operating Expenses steady to provide strong EBITDA growth.

On a macro lens, Nuix is benefiting from a number of key trends in the industry that has helped Nuix to grow to its current size:

  • Proliferation of unstructured data - As consumers and businesses increase the number of apps they use on a daily basis, unstructured data has permeated the hard drives and cloud servers everywhere.
  • Growth in data volumes - Along with the increase in unstructured data, the numerous app and mobile devices used has led to an increase in volumes of data stored. Gone are the days of pens and paper!
  • Focus on governance, risk and compliance (GRC) - The growing need for increased GRC and tightening controls from policy makers has driven a need for tools that can quickly perform analysis and investigate connections between unstructured and structured data.
  • Consequences of data breaches - Similar to the focus on GRC, the increased scrutiny has also led to an increase in the severity of the consequences of data breaches. These consequences are three-pronged - with organisations facing consequences from both regulators, the media and shareholders.
  • Increasing levels of digitisation and automation - Lastly, the need for organisations to transform the way they work; augmenting their services with technology to improve speed and efficiency of search and analysis has undoubtedly driven Nuix’s growth.

So if Nuix has performed well, why has it declined significantly over the past few months?


Nuix’s share price has taken a beating, declining from a high of $11.86 high to around $2.50. This has been driven by a number of key concerns for Nuix, including a reduction in its forecast earnings and growth for FY21:

  • Downgrade in performance - Since the release of its IPO prospectus, Nuix has downgraded its forecast revenue twice - the first was a downgrade from $193m to around $180m, and then again to around $173m. This is concerning for shareholders because Nuix is struggling to meet the growth it promised in its IPO
  • Shifting business model - Nuix is shifting from a licensed based model (provided either on-premises or through the cloud) to a consumption model, in which customers pay based on the amount of data they use, and moving to a SaaS model that allows customer to use the Nuix engine on Nuix’s cloud rather than on-premises
  • Inability to hire and retain talent - Staff turnover is estimated to be ~35%, with Nuix’s engineering team being severely understaffed (a review of Nuix’s workforce found that they needed ~90 FTE to enable Nuix to continue to build a differentiated offering in the market)
  • Issues with PwC (Nuix’s auditor) regarding a R&D grant Nuix was in a dispute with PwC over a R&D tax incentive claim, with a document arising that outlined PwC’s concern that Nuix may have overclaimed their 40m R&D grant
  • Lawsuit from former CEO - Nuix’s former CEO, Eddie Sheehy is currently bringing an action against Nuix for over $200m in damages over the value of share options held by the former CEO

To sum up these concerns, Nuix has shown an inability to deliver on the guidance it provided to shareholders at the time of its IPO, maintain a culture and workforce within the business to build a differentiated product in market, and execute on its shift to a consumption-based pricing model.

So what’s our final verdict on Nuix?

Nuix is an interesting case given its strong historical performance, particularly because of its EBITDA growth over the past two years. What needs to be believed about Nuix is that it can deliver on the shift to consumption and “fix its house” when it comes to both its former CEO and its workforce.

During our podcast episode, we dive into the shift to consumption and what this means for Nuix’s long term future. Be sure to check it out!

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