Why the Nuix (ASX:NXL) share price is crashing 16% lower today

The Nuix Ltd (ASX: NXL) share price is crashing lower on Wednesday after downgrading its guidance just weeks after reaffirming it…

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The Nuix Ltd (ASX: NXL) share price is crashing lower on Wednesday following the release of an update to its guidance for FY 2021.

At the time of writing, the investigative analytics and intelligence software provider’s shares are down 16% to $4.27.

What did Nuix announce?

According to the release, 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 Software-as-a-Service (SaaS) license models.

This has resulted in a shift in both revenue and Annualised Contract Value (ACV) profiles.

In addition to this, Nuix revealed that some of its law firm, advisory and service provider customers have also recently informed it of a reduced add-on (upsell) requirement for existing licenses.

This is because of both their unutilised license capacity in the current climate, as well as the recovery in legal case backlog being slower than anticipated.

Management notes that the accelerated switch to consumption licenses, including SaaS, is primarily driven by changing customer business models. This is being caused in part by a shift from office settings to remote working environments and the need to have flexible global licensing to manage projects in line with data privacy and sovereignty requirements.

Nuix notes that it also reflects the attractiveness for many customers of a decision by the company to provide greater choice in deployment. This includes on-premise and in the cloud hybrid solutions, which assists customers as they evaluate their transition toward consumption licenses.

What impact will this have on its guidance?

The above factors have led to Nuix downgrading its guidance just over six weeks after reaffirming it following media criticism.

Nuix is now expecting pro forma revenue of $180 million to $185 million in FY 2021. This compares unfavourably to its guidance of $193.5 million.

The company’s ACV is now expected to be in the range of $168 million to $177 million this year. This falls well short of its forecast of $199.6 million.

One slight positive, though, is that its pro forma EBITDA is expected to be $64.6 million to $66.6 million, which is higher than its guidance of $63.6 million.

Nuix’s CEO, Rod Vawdrey, commented: “Over the last 18 months, Nuix has enabled its customers to move from module-based subscription licenses to more flexible consumption-based licensing models. The increasing rate of adoption of consumption licenses has had a positive impact on new business and existing retention notwithstanding a transitory downward impact on FY21 revenue. Giving our customers the choice in how they consume Nuix is a key competitive advantage.”

“The fundamental revenue drivers for Nuix are strong and underpinned by a growing order book and pipeline. It reflects the underlying strength of the Nuix software offering, a sticky, loyal customer base, strong growth in new business and an increase in order size. We look forward to shareholder participation in Nuix’s Investor Day in May.”

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia has recommended Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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