Nuix (ASX:NXL) share price falls to new low on results but there are reasons for optimism

Here's how Nuix is performing…

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Key points

  • Nuix shares are falling on Monday following the release of its half year results
  • This is despite the company growing its key ACV metric during the half
  • Management appears confident its strategies will drive growth in the future

The Nuix Ltd (ASX: NXL) share price is trading lower on Monday following the release of its half year results.

In morning trade, the investigative analytics and intelligence software provider's shares are down almost 7% to a new low of $1.32.

Nuix lower on half year results

  • Revenue down 1.5% over the prior corresponding period to $84 million
  • Annualised contract value (ACV) up 1.7% to $164.5 million with low churn of 4.1%
  • Consumption ACV up 24.6% to $27.1 million
  • EBITDA down 56.4% to $13.8 million
  • Net loss of $2.3 million
  • Net cash of $52.5 million

What happened during the first half?

During the six months ended 31 December, Nuix reported a 1.7% increase in ACV to $164.5 million.

The main driver of its growth was its North American business, which performed strongly thanks to a combination of upselling and new business. This includes large new deals and three key advisories renewed on multi-year deals. Pleasingly, Nuix's US Government team recorded strong growth on key renewals.

This offset weakness in the EMEA segment, which had a challenging half. It reported lower new business and upselling compared with the prior corresponding period. Management notes that this was partly driven by important contract wins in the prior period.

Finally, in the Asia Pacific region, the company's growth was driven by strong renewals, particularly in the Government sector, driven by Regulators and Defence. Strong SaaS revenue growth is also being experienced in the region.

One thing that weighed on its margins during the half was its increased spend on research and development (R&D). Total R&D spend rose 29% to $28.8 million, which represents 34% of revenue. This was driven partly by Nuix continuing to develop its integrated SaaS platform, as well as the incorporation of the Topos Natural Language Processing capabilities.

Management commentary

Nuix's new CEO, Jonathan Rubinsztein, is optimistic on the company's future.

He commented: "Since joining Nuix late last year, I've had the opportunity to meet with many of our people and customers. It's clear that Nuix has great technology and talented people, and this has allowed us to solve a broad range of customer problems. The market potential continues to grow and expand into new industry sectors and use cases for our technology. We are continuing to evolve and improve our solutions and business models to capitalise on these expanded opportunities."

Mr Rubinsztein highlighted three key focuses for the company that will aim to drive growth in the future.

The CEO explained: "We are focused on three horizons of change. Firstly, we will look to build on our strengths, with an immediate focus on driving competitiveness, commercial performance and customer relationships in our core business. Beyond that we have an opportunity for robust medium term growth through anticipating the needs of enterprise customers and building out our cross-solution platform to make the best of Nuix easily accessible. Lastly, over the longer term, we need to solve for the future. We will undertake longer-range investment and prioritise the innovation pipeline for new ways to use our technologies."

"I am excited about Nuix's future. The strategies the organisation is currently putting into place are the right ones to leverage Nuix's remarkable technology and people to drive growth," he concluded.

I was fortunate to have the opportunity to talk to Mr Rubinsztein following the release.

The key takeaways from that chat were the sizeable total and serviceable addressable market opportunities the company has, the quality of its technology, and how the whole team at Nuix are aligned with the belief that its software can help create a better world.

All in all, Mr Rubinsztein is sounded optimistic on the future and confident that Nuix is back on the right track again.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Nuix Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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