Nuix Limited (Nuix, the Company, ASX: NXL) provides investigative analytics and intelligence software that enables organisations to simply and quickly gain meaningful insights from vast amounts of structured and unstructured data.
The Company provides a software platform that uses a powerful proprietary data processing engine to assist clients in solving complex data challenges. The software platform provides users with a detailed, contextualised and legally defensible way of viewing and interacting with data. It does this by collecting, processing and reviewing vast amounts of structured and unstructured data, and making it searchable and actionable at scale and at speed with forensic accuracy.
Nuix Neo platform is driving growth
Nuix Neo is Nuix’s proprietary data intelligence platform that uses Artificial Intelligence (AI) to solve complex data challenges by processing all types of unstructured data to create structured and searchable assets. It does this by combining AI with machine learning-driven natural language processing technology that uses a proprietary pre-trained language model to read, interpret, and analyse unstructured text. Unstructured, raw data is of minimal commercial value, however structured, contextualised data in this data-driven, digital age is considered to be “currency”.
Nuix Neo operates at a “forensic level”, and works across different mediums, including emails, text messages, social media, and other human-generated content.
Nuix software is used by local government agencies, law firms, corporations and advisories. It helps organisations to address the challenges of compliance and governance, forensic fraud investigation, litigation, and data security.
Nuix Neo has been rolled out to early adopters throughout FY24 with the rollout gathering momentum in the second half-year.
Operating leverage explains the 90 percent Gross Profit Margin
Nuix seeks to achieve revenue growth that exceeds operating cost growth. During FY24, total revenue increased from $182 million to $220 million, an increase of $38 million. Operating expenses increased by $21.5 million in the same period. The Company’s Gross Profit Margin, as measured by total revenue minus Cost of Goods Sold was 90 percent in FY24. The high Gross Profit Margin and revenue growing faster than operating costs provides operating leverage, which reflects the Nuix underlying business model of “build it once and sell it many times”.
Key to appreciating Nuix’s long-term and stable earnings prospects is to consider the Company’s revenue in terms of Annualised Contract Value, which is the annualised “run rate” of Nuix’s contract value. This measure adjusts for the volatile impact of multi-year transactions on statutory revenue. Statutory revenue includes the majority of multi-year deal revenue up front, while Annualised Contract Value revenue smooths these multi-year deal contracts across relevant years.
Statutory revenue in FY24 was $220.6 million, while Annualised Contract Value revenue was $211.5 million. Of this statutory revenue amount, 95 percent or $200.8 million was recurring subscription revenue, of which about $60 million relates to contracted revenue for terms of more than 12 months duration.
North America accounted for $114.2 million of Annualised Contract Value revenue, while Europe, Middle East, and Africa accounted for $53.3 million and Asia Pacific $44.1 million.
FY25 strategic targets
Nuix is targeting 15 percent growth in Annualised Contract Value in FY25 on the back of the continued successful rollout of Nuix Neo. This outcome will again deliver revenue growth comfortably above operating cost growth and support the Company’s 90 percent Gross Profit Margin.
Nuix does not pay dividends. The franking credits available to the Company at 30 June 2024 were only $669,000. This suggests that shareholder dividends are unlikely in the near-term.
Nuix ended the 2024 financial year with $38 million cash and no debt, implying that shareholders are unlikely to be diluted with an equity raising anytime soon. The Company has an undrawn $30 million revolving debt facility to drive growth as part of the Company’s build, buy or partner approach.
The continued successful rollout of Nuix Neo and product adjacencies and the recurrent nature of the Company’s contracted revenue should support consistent shareholder value accretion in the medium-term.
