Nuix Ltd (ASX: NXL) shares fell 17.8% yesterday after downgrading guidance for the third time since listing on the ASX last year.
In just over four months, Nuix’s market valuation has now tumbled by more than 76% on the back of multiple downgrades and a media investigation that raised concerns over governance and financial reporting quality.
NXL share price
FY21 guidance
Nuix is now expecting FY21 pro-forma revenue between $173-$182 million, down from $193.5 million from its IPO prospectus.
Annualised contract value (ACV) is expected to be between $165-172 million, down from $199.6 million.
Pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA explained) is expected to be unchanged – somewhere between $64.6-66.6 million.
Reasons for downgrade
Management indicated there are various factors that led to its forecasts being revised. In particular, it noted the expected timing of the closure of various upsell opportunities was one key factor.
Other potential headwinds up until 30 June include customer negotiations of product and licence types, the timing of deals and potential foreign exchange (FX) movements.
CEO Rod Vawdrey said that the company expects to capture most of the revenue under current negotiation by financial year-end or early into FY22.
My take
It’s been another tough day for shareholders of Nuix, who had high expectations.
Nuix was promoted as a high-growth company that floated with a $1.8 billion market capitalisation with shares trading at 9x projected revenue.
Given FY21 revenue is expected to come in flat compared to FY20, I can see why Nuix’s shares have fallen to the extent they have.
Management has noted the shift from on-premise models to consumption-based models has been a key factor behind the recent shift in its revenue and ACV profile.
This is clearly turning out to be a major roadblock in Nuix’s growth plan, but it somehow didn’t make the list in the top risks section as part of its prospectus. While consumption-based licences might indeed bode well with its long-term strategy, I do find management’s communication with shareholders less than satisfactory.
As part of the Rask investment philosophy, I try to look for companies with aligned management teams that have a demonstratable track record.
Nuix isn’t investable for me at the moment on governance issues alone, so I’ll be sitting on the sidelines for now.
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