As bearish sentiment begins to creep back into the ASX today, one stock has been hit harder than most.
The Nuix Ltd [ASX:NXL] is trading 16.77% share price lower at time of writing. Falling rather dramatically after the company announced some revised financial figures.
Suffice to say, as the falling share price infers, it was not a positive revision.
An unfortunate result for a stock that only listed back in December. Bringing the stock to its lowest levels ever.
Let’s dig into the details…
Shifting customer needs leads to lower sales
First of all, if you’re unfamiliar with Nuix, they’re a software company.
Their key areas of expertise are in data analysis and digital forensics. Offering a range of solutions that aim to turn unstructured data — emails, social media, and other internal communications — into meaningful information.
And with roughly 1,000 customers across 79 countries, they have a strong customer base.
However, in a rather unfortunate turn of events, it seems some customers are now in need of different types of solutions. As Nuix notes, the transition to largely remote working environments has forced some of its key clients to require more flexible licensing solutions.
As management puts it:
‘During April, a significant and larger than expected number of Nuix’s customers, including one of its largest, elected to transition from module-based subscription licenses to consumption and SaaS license models, resulting in a shift in both revenue and ACV [annualised contract value] profiles.’
Now, whether this is a convoluted way of trying to say sales results were lower than expected is unclear. But when it comes to the actual figures, it seems pretty clear that that is what has happened.
Nuix states that pro-forma revenue will now be $180–185 million for FY21. Down from the initial $193.5 million forecast presented in its IPO.
ACV forecasts took an even bigger hit, down to $168 –$177 million. A substantial drop from the $199.6 million predicted in the IPO.
So whether this license transition will lead to better sales results down the road is unclear, but right now it isn’t looking great. Suggesting that customers are opting for cheaper agreements or potentially opting out entirely.
Again, only Nuix has the full details and is unlikely to be sharing it anytime soon.
They did make sure to stress that this short-term road bump won’t diminish their long-term outlook, though. Stating that ‘it does not, however, diminish Nuix’s growth prospects’.
Which investors will certainly be hoping is true.
Fortunately, there was some good news from this forecast too!
Nuix has lifted its FY21 EBIDTA estimate to $64.6–66.6 million. A slight improvement over the $63.6 million forecast from their prospectus.
So, at the very least there was some good news for shareholders today.
What’s next for Nuix Share Price?
The challenge for Nuix now is to ensure that this ‘unexpected’ change doesn’t become a trend. After all, it is hard to know whether more customers will opt to change their license agreements in the coming months as well.
For that reason, management will need to shore up its offering. Finding a way to ensure it is retaining its customers and finding new ways to improve the pivotal ACV stat.
Investors on the other hand will need to decide whether they believe in the reaffirmed growth prospects. Because despite managements comments, doubts will now creep into the conversation.
Having said all of this, it is hard to deny that Nuix is in a high-growth industry.
As long as they can provide a compelling product and licensing structure, then they should fare well in the long run.
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For Money Morning