The Australian Securities and Investments Commission (ASIC) is taking legal action against data intelligence software company Nuix (ASX: NXL), alleging continuous disclosure breaches connected to downgraded performance forecasts in 2021.
Having listed on the ASX in early December 2020, almost three months later the company reaffirmed prospectus forecasts for FY21 of $193.5 million in revenue - an estimate that was progressively lowered in April and May, before the final result announced in August ended up being down almost 9 per cent on that original projection.
In a reiteration of IPO forecasts in March 2021 that was upbeat about how Nuix was tracking on renewals, upselling and new customer acquisition, then CEO Rod Vawdrey emphasised the group had been trusted by leading global organisations for 15 years.
"As a newly listed company we are committed to building the same long-term trust with the market. The fundamentals of our business remain strong supported by our powerful processing engine and sticky customer base," he said at the time, when NXL shares were trading just shy of their IPO price of $5.31 but had already plummeted from highs that were more than double that level.
However, against the backdrop of two revised forecasts that followed, NXL shares would fall in half again leading up to the announced departure of Vawdrey and CFO Stephen Doyle in mid-June.
In the first of those downgrades, in April the company revised its FY21 revenue forecast by $13.5 million at the lower end of the new guidance range, attributing the expected decline to a "near-term negative impact" on revenue from a larger than expected shift amongst customers from module-based subscription licenses to consumption and Software-as-a-Service (SaaS) license models.
The group explained this shift did not diminish Nuix’s growth prospects, which remained strong "as evidenced by ongoing increases in new customer acquisition and retention".
When the FY21 results were announced in August, statutory revenue stood at $176.1 million, and whilst pro forma EBITDA was actually above the IPO forecast at $66.7 million, in statutory terms earnings had more than halved to $30.2 million.
What followed was the continued deterioration of investor confidence in the tech company, whose shares are now trading at 60.5c at the time of writing.
The contested circumstances that led to this grim scenario have prompted three class actions against Nuix, and several investigations by ASIC, two of which were dropped by the corporate watchdog earlier this year in relation to financial statements and its prospectus.
But ASIC has pressed on with its third investigation and the staff at the corporate watchdog appear to believe they have a case, commencing proceedings in the Federal Court alleging misleading or deceptive conduct when prospectus forecasts for revenue and annualised contract value (ACV) were reaffirmed on 26 February 2021 and 8 March 2021.
ASIC alleges that at the time of these announcements, Nuix was aware that ACV for financial year 2021 was likely to be materially below forecast, which made those announcements misleading and gave rise to the need for corrective disclosure.
"Nuix was a newly listed technology company with a complex business model. This meant investors relied heavily on the company making accurate and timely disclosures regarding its earnings," ASIC chair Joseph Longo said.
Nuix shares totalling $1.2 billion were traded during the period of the alleged contraventions.
"Nuix’s ACV result at the end of the first half showed that, far from growing rapidly at 18.5 per cent as the company had forecast for the full year, Nuix’s underlying business as measured by ACV had essentially shrunk by almost 4 per cent over the first half," Longo said.
"It took the company over a month, until 26 February 2021, to disclose this material information to the market. Nuix had an obligation to promptly disclose this information."
ASIC has also brought proceedings against members of the Nuix board during the period concerned - Jeffrey Bleich (chair), Rodney Vawdrey, Susan Thomas, Daniel Phillips and Sir Iain Lobban - for alleged breaches of their directors’ duties.
The regulator claims Nuix’s directors breached their duties by failing to take reasonable steps to prevent Nuix from making misleading statements and breaching its continuous disclosure obligations.
The watchdog is seeking declarations, pecuniary penalties and disqualification orders from the Federal Court.
ASIC has also concluded its investigation into suspected insider trading in relation to trading in Nuix shares in 2021 and has decided no further action will be taken.
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