A dark cloud over Nuix Ltd (ASX: NXL) shares remains and there may be thunderstorms around the corner. The Australian Securities and Investments Commission has issued notices – what does this mean for Nuix shares?
NXL share price
ASIC issues notices
According to the Australian Financial Review, ASIC has issued Section 19 notices to Nuix and Macquarie Group Ltd (ASX: MQG).
These notices enable ASIC to gather specific information and documents, which will shed further light on whether Nuix overstated its forecasts. On top of this, ASIC has the power to call upon directors and relevant parties to be privately examined.
ASIC is also obtaining further information to get a better understanding of Macquarie’s level of control over Nuix in the lead up to the initial public offering in December 2020.
Issues present prior to the IPO
It seems like Nuix’s management team had a tendency of over-promising and under-delivering before the IPO.
A joint investigation carried out by the AFR, The Age and the Sydney Morning Herald revealed internal emails showing Nuix CEO, Rod Vawdrey emphasised the need to, “provide Macquarie with the best view” of prospective earnings in April 2019.
This approach didn’t work as the board lost faith in the internal forecasts, notably the $180 million revenue figure for 2019.
Management went back to the drawing board and came up with a new full-year forecast of $167 million for 2019. But Nuix again underperformed as it recorded $150 million.
In October 2019, Nuix CFO, Stephen Doyle complained to the board as sales were tracking 20% below the forecast for the December half-year. Doyle noted he did not see much benefit in discussing numbers on a forecast call when “as a group, we cannot predict our numbers“.
What now for Nuix?
These snippets of email correspondence provide a small insight into potentially serious issues.
First, it appears management was struggling to forecast actual revenue, which makes me think twice about their understanding of the business.
Secondly, there appears to be a communication issue between management and the board.
Investors should note this is based on limited evidence gathered by major news publishers, so there could be documents that may justify management’s actions.
But there are definitely issues that remain unresolved and my colleague, Lachlan Buur-Jensen highlights what needs to be done for the Nuix share price to revive.
If you are on the hunt for ASX small-cap shares, check out the Rask Rockets Beyond program. You might want to hurry – the mission is opening to new members this Thursday night!
