Thank you for standing by, and welcome to the Nuix Limited First Half 2024 Results Presentation. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Jonathan Rubinsztein, Chief Executive Officer. Please go ahead.
Good morning, and thank you for joining us today for Nuix's first half 2024 results. I'm Jonathan Rubinsztein, Nuix's CEO, and I'm joined by our Chief Operating Officer and Chief Financial Officer, Chad Barton. I'll open this morning's call with a few messages and metrics of this result before handing over to Chad to talk through the financial results in more detail. Following that, I'll provide an update on our core strategic growth initiative, the Nuix Neo platform, and related use case solutions. Lastly, I'll make some comments in relation to the outlook and our strategic objectives for the full year. If we move to slide three, as I've shared before, we've been on a journey of transformation at Nuix, investing in the best of what we do and innovating and improving where we needed to do better.
Just to give you some context behind these results, some of the changes that we've implemented included new people, including a new leadership team, new product, Nuix Neo , which I'll say more about later, new sales process, and a new way of engaging our customers, new licensing models, new support and services, and new brand, all of which have strengthened the business and are showing in the financial results. If we move to slide four, who is Nuix? Firstly, a quick reminder of who we are. Some listeners might be familiar with this slide. Nuix is a leading provider of investigative analytics and intelligence software that empowers customers to be a force for good by finding truth in the digital world. We have over 20 years of experience with the ability to process more than 1,000 file types.
Our talented team of more than 400 people around the world service around 1,000 customers. To further broaden the reach of our offering, we work with about 100 partners around the world. Moving on to slide five, Nuix's powerful proprietary engine underpins our offering, helping customers make sense of massive amounts of structured and unstructured data. We make data searchable and actionable at speed and scale with forensic accuracy. Our customers rely on us to help with challenges as diverse as criminal Investigations, Data Privacy, e-discovery, regulatory compliance, and insider threats. Moving to slide six, turning to the half-year results, there are some key messages that I'd like to highlight today. Firstly, as we outlined in our update to the market last month, we are continuing to drive growth in ACV, stat revenue, and underlying EBITDA.
We had a very expensive trial during the half that meant our legal fees were elevated, impacting our statutory EBITDA for the half. We have had a further improvement in NDR with customer upsell more than offsetting an uptick in customer churn. Underlying cash flow for the half was positive, in line with our strategic objective to be underlying cash flow positive for the full year. First half 2024 was a particularly important time for the next stage of our strategic evolution with the successful launch of our unified platform, Nuix Neo , along with the first use case solutions to our early adopters.
Lastly, we take the opportunity to reiterate the FY 2024 strategic objectives that we shared with the market at the full year result in August, targeting 10% ACV and Stat revenue growth in constant currency, the successful rollout of Nuix Neo and associated solutions to early adopters, broadened sales focus to further drive new business, revenue growth to exceed operating cost growth, and finally, underlying cash flow positive for the full year. Turning to slide seven, our financial metrics dashboard. ACV at the end of the half came in at AUD 199.6 million, slightly above the upper end of the range we provided last month. This outcome is a pleasing 17.3% higher than the same time last year.
Stat revenue rose by 12.3% on the PCP. This increase in statutory revenue was achieved despite a moderation of multi-year deals compared to last year.
Both ACV and revenue growth have been driven primarily by increased sales to Nuix's broad existing customer base. Growth in the top line, combined with a continued focus on the cost base, meant that we were able to grow underlying EBITDA by 12.8% to AUD 28.4 million. This is in keeping with our strategic objective for the full year to grow our revenue faster than operating costs. We claimed in January that non-operational legal costs were particularly elevated due to the ASIC trial, which occurred during the half, and that had weighed on our statutory EBITDA, which is down 17.6%. Our net dollar retention, or NDR, has risen to 110.1% from 103.1% a year ago, while customer churn has ticked up a little higher to 5.7% compared to 4.8% a year ago and 5.3% at the full year results.
As I mentioned earlier, continued upsells to our customer base more than offset the small increase in churn during the half. Lastly, we finished the year with AUD 24 million in cash with no debt as we flagged last month. I'll now hand over to Chad to talk through the financial results in more detail.
Thanks, Jonathan, and good morning, everyone. Turning to slide nine and drilling down a bit further on the strong ACV growth, in first half 2024, ACV rose to AUD 199.6 million, up 17.3% on the prior year, and up 7.6% in the six-month period since the full year result. ACV growth has been driven by a number of factors. Pleasingly, Nuix Neo sales contributed around a fifth of the growth from the standing start this financial year. Upsells to existing customers of our component products contributed the largest driver of growth at 40%. We sell to new customers and price increases, both contributing about a fifth of the growth each. Other ACV, which includes perpetual licenses and services, also lifted on services into key government and corporate customers.
Turning to the regional performance on slide 10, it's great to again see all regions reporting double-digit ACV growth with key government customer wins across each region. North America, which makes up more than half our ACV, rose 18.7% on PCP. The region also saw solid new business sales to corporates and achieved a key new government win for the Nuix Neo product. EMEA ACV rose 13.5% as a result of strong upsell achieving key advisory and government accounts. The EMEA region also achieved new business wins in government. Asia Pacific rose 18.8% with strong upsell in the key government accounts, including significant Nuix Neo Investigations migration.
Once again, Asia Pacific achieved a strong uplift in SaaS usage driven by Australian law firms. Speaking of SaaS, on slide 11, we can see the continued strength in the Nuix Discover SaaS product, up over 33% on PCP.
While SaaS continues to grow strongly, it does display some variability depending on the usage patterns. With this in mind, we've commenced a project to migrate pay-as-you-go accounts to minimum commit contracts to drive a more predictable ACV growth in the future. Slide 12 shows Nuix statutory revenue. For the half, revenue rose by 12.3% or 9.3% in constant currency. Importantly, this statutory revenue increase has been achieved despite multi-year deals falling to 24% from 29% in the PCP. A falling multi-year deal experience is a headwind in statutory revenue frameworks, and importantly, this year's outcome was achieved despite this headwind. The falling multi-year deal experience is a combination of several factors, including increasing appetite from customers for annual deals, combined with a focus by us on more appropriate pricing in out-of-year for multi-year deals.
Subscription revenue, the generally recurring component of our revenue stream, represented 95% of total revenue.
Sales for brand new customers came in at AUD 4.6 million, lower than PCP, with the average order value from new customers also lower. Accordingly, the revenue growth achieved during the half was primarily from Nuix's expensive existing customer base, including sales of Nuix Neo . Slide 13 highlights Nuix's R&D spend for the half. As you can see, our R&D spend fell 10% compared to the PCP. This outcome is due to a range of initiatives, along with increasingly focused spend on particular areas of revenue-generating capacity. The total R&D spend proportion of revenue fell to 27%, which is a marked fall from 34% a year ago and 33% at the full year result. This low proportion has been accelerated by higher revenue and a lower R&D spend in the period.
We do have further investment to do in R&D, and in a general sense, we expect R&D to land a couple of percentage points higher as a proportion of revenue in the near term. You'll also notice a higher expense amount in the first half, and that was an outcome of the nature of the work leading into the commercialization of new Nuix Neo solutions, as it's an expense item that has resulted on our statutory EBITDA. Once again, R&D spend for the half has been entirely funded by underlying cash flow. On FedRAMP, our U.S. team has been particularly active over the last 12 months, and this overall level of busyness has meant that the FedRAMP ready status that we advised to the market in late 2022 has lapsed.
Our intention is to continue with this investment, regain the ready status, especially given we've previously met the requirements of various controls and formalized a partnership with a government agency in due course. On slide 14, you can see the income statement. Underlying EBITDA is up 12.8% on the PCP or up 9.7% in constant currency, driven by revenue growth and a continued focus on costs. Note that we've previously excluded Topos operating costs from underlying EBITDA prior to full integration and revenue generation of that business. We have now included those Topos costs in the underlying EBITDA measure. You can see the Topos adjustment about halfway down the table. Naturally, without these extra costs, the underlying EBITDA increase would have been even more pronounced.
The cost of goods sold declined, you can see on the table, was achieved through lower hosting fees following an optimization plan, and accordingly, the gross margin is lifted through 89%. Sales and distribution costs are higher than the PCP on the incorporation of Topos headcount and a few other items. It's worth noting that we're cycling a low number in the PCP, and this outcome for the first half 2024 at around 34% of revenue is in line with our expectations and also in line with the historical proportion of revenue. I've already spoken about R&D, with the Topos headcount inclusion there is a little change in R&D expense line.
G&A costs are running about the same as we would expect them to be, around 18% of revenue in line with the FY 2023 outcome. As a proportion of revenue, this has been trending down over time.
As flagged in our January update to the market, non-operational legal fees were particularly elevated during the half, primarily related to the ASIC federal court hearing, which occurred during the period. These costs amounted to AUD 11.2 million compared to AUD 2.4 million in the PCP and compared to approximately AUD 10 million we estimated in the January update. We expect non-operational legal costs to be significantly lower in the second half of the current financial year. Naturally, the high level of non-operational legal costs during the period has weighed on our statutory profit with EBITDA down 11.8% to AUD 17.2 million and net loss after tax of AUD 4.8 million for the half. Slide 15 shows the underlying EBITDA walk for the first half 2024.
This graphically shows the operating leverage achieved in the business in the half, with revenue growth outpacing cost growth, even including the Topos adjustment.
We remain committed to realizing further operating leverage in the business, as evidenced by our full year strategic objective of growing revenue faster than our operating costs. Slide 16 shows our underlying free cash flow for the year. One of our strategic objectives for the full year is to achieve positive underlying cash flows for the full year, and you can see from this slide that the first half outcome has put us in good position to achieve this. For the first half, we achieved an underlying free cash flow positive outcome of AUD 6.6 million compared to AUD 500,000 cash outflow in the PCP, and for your reference, the 12 months prior to that figure was a cash outflow of AUD 5.7 million. We continue to make strong gains in the way cash is generated and utilized in the business.
In that year, the items that sit outside of underlying cash flow: the Rampiva cash acquisition payment made in July, as well as the cash payments associated with non-operational legal expense. On slide 17, as we've done previously, I'd like to make some quick comments about the quality of Nuix's customer base. Nuix's customer base remains highly diversified with a generally long tenure. As we've highlighted before, around 85% of ACV is generated outside of Australia, with no individual customer representing more than 4% of ACV. Our customer relationships are strong, with just under 40% of our customers having been with us for more than 10 years.
And as Jonathan mentioned earlier, our net dollar retention from existing customers has improved further from 103% in the PCP to 110% this half, indicating that we continue to provide and create value for our customer base.
Before I hand back to Jonathan, I'd like to make some comments about a really important development in relation to our capital base, which we announced today. I'm pleased to announce that Nuix has signed a AUD 30 million revolving credit facility agreement with a global bank. The facility has a maturity of three years and is for general corporate purposes of the company, other than costs associated with litigation, arbitration, or administrative proceedings. While we have no current needs for the debt facility, as we've been funding our business out of cash flow, having this sort of flexibility around our capital base really broadens our growth options in the context of our build, buy, or partner approach to growing the business.
It represents a significant further strengthening of our capital base and gives us more ammunition to pursue our growth strategy. You can find more information about the facility in a separate release we've made to the ASIC this morning. I'll now hand back to Jonathan.
Thanks, Chad Barton. Software companies are only as strong as their products, and we are fortunate to have the most powerful processing engine of its kind. What we have done in Nuix Neo is to synchronize all our technology around our patented Nuix Engine to make the process of data collection, processing, enrichment, analysis, and review faster, easier, and smarter. All of this has been enriched with our proprietary AI in NLP that makes the process of understanding the data more intelligent and more incisive. Customers told us that while they loved our products, there was friction in between them, and we've smoothed that out to make the process of understanding data and taking actions on it as fast and easy as possible. We have also systematised the most common use cases for our software and created end-to-end solutions.
Insights that we've gathered from our customers have been poured into our Data Privacy Investigations and soon-to-be-launched legal solutions, so they are powered with common workflows, tuned AI language models that are specific to the challenge, meaning the solutions are turnkey and reduce time to answers. The acquisition of Rampiva last year means that the automation and orchestration of enterprise data is taken up a level again. All this in less than 12 months from inception. I'm pleased today to revisit the product roadmap that we outlined at the full year results and provide a progress update. In line with plans previously articulated earlier in the half, the first of these product solutions, Data Privacy, was launched. The Data Privacy solution provides customers with forensic depth and defensibility to analyze sensitive data and protect businesses and customers.
Use cases include cyber breach notification, data protection, personally identifiable information (PII), and regulatory compliance. Late in the half, the second use case, Investigations, was launched. The investigation solutions allow our users to apply an array of collaborative AI techniques to quickly make connections between digital evidence and human behavior in a single platform. Use cases include fraud and economic crime, counterterrorism, serious and organized crime, regulatory Investigations, public inquiries, and employee misconduct. Both of these solutions were delivered in line with a planned timetable. Development is progressing on the third Nuix Neo use case solution planned for FY 2024, namely Legal Processing, which is expected to be launched in the second half of this financial year to early adopters.
Moving to the Nuix Neo early adopter program slide, we've been clear from the start that during FY 2024, we would partner with a small number of early adopters in the launch of our Nuix Neo rollout, and I'm pleased to provide an update on that rollout today. By December, Nuix was working with eight early adopter customers with an average Neo ACV of more than AUD 500,000 per customer, being a 2x to 3x multiple of the previous typical non-Neo deal size. This early adopter group comprises of seven existing customers who have either upgraded their existing packages or migrated completely to Nuix Neo and one brand new customer out of North America.
While it is still early days in terms of solutions rollout, we are very pleased with the incremental growth that Nuix Neo is providing, already contributing more than AUD 4 million of ACV since its inception this half. In line with our strategy, all Nuix Neo customer packages include Nuix Advantage subscriptions, offering right-sized customer support in addition to the purchase solutions. And lastly, during the half, Nuix engaged select customers in relation to Nuix Neo Pathway, collaborating with these customers to create a plan to transition to Nuix Neo solutions on a timetable that suits their organizational requirements. Now looking at the Nuix Neo roadmap.
Looking forward, we are excited about the next steps for Nuix Neo . In the first half, we delivered on our timetable and core objectives. Looking to the second half, we expect further momentum in our Data Privacy and newly launched investigation solutions.
We will launch our new Legal Processing solution and engage in further discussions with select customers in relation to the Nuix Neo Pathway. We will also further consider the FY 2025 landscape, including further solution releases and more widespread adoption of solutions beyond the early adopter group. I'm incredibly proud of what has been created here. In first half 2024, we took the first steps in launching a new offering to our customer base that has already yielded early financial results and will become the cornerstone of our growth strategy moving forward. Now moving to the outlook slide. During the first half 2024, we delivered on what we set out to do, and I'm pleased to revisit and reiterate the strategic targets we set for the full year.
For the full year, we're targeting around 10% ACV and stat revenue growth in constant currency.
At the halfway mark, we remain confident in delivering on this objective. We did have a very strong end to the second half of last financial year, so we will continue to drive further growth into the current half to maintain our momentum. We have delivered on the first part of Nuix Neo rollout and associated solutions and will continue this into the next half with the launch of Legal Processing. We will continue to couple the power of our AI and our engine and build on our differentiation in the market. Sales of our new Nuix Neo platform, while still in the early adopter phase, have been encouraging, and we are working with the sales team to make sure that they have the required tools to be able to articulate the sales and value proposition clearly and compellingly.
We expect to see further operating leverage in the business in the second half, and we will remain on track for revenue growth to exceed our operating cost growth. Lastly, you saw that our underlying cash flow for the half represented a significant uplift from PCP, coming in with a solid positive underlying cash flow performance for the half. This sets us up well to achieve our objective of being underlying cash flow positive for the full year. In closing, I'm very pleased to share today the progress we've made over the first half 2024, including further momentum in our financial metrics and the progress we've made on Nuix Neo . I'm pleased with the performance from all regions, but the strength in America's business is particularly noteworthy given it represents more than half of our business.
As ever, there remains more to do, but I remain excited and optimistic about our trajectory. I want to thank the Nuix team for really delivering during the half, along with the financial momentum we have created in the business. The strategic foundation that we have set will provide the basis for growth into the medium and longer term. I'll now hand back to the operator for Q&A.
Thank you. If you wish to ask a question, please press star, then one on your phone, and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you're using a speakerphone, please pick up the handset to ask your question. Once again, to ask a question, please press star, one on your phone. The first question today comes from Jules Cooper from Shaw and Partners. Please go ahead.
Thank you. Jonathan, look, really strong results, particularly for Nuix Neo , particularly as you really only had essentially one product available in the period. I guess, could you perhaps comment on some of the feedback that you might be getting from those early adopters around the products and how they sort of fit with their requirements, and whether that's giving you any more confidence around what the demand profile may look like once it sort of is generally available?
Thanks, Jules. Yeah, great question. At the moment, we are very happy with the Neo rollout. As you know, we're in an early adopter phase, so. But also reminding the reality is that we only released the first version of No , which was our Data Privacy solution, in July, and then more recently, end of December, we released our forensic investigation solution. So we're happy with kind of the early adopter program. In terms of our customer product market fit, look, the reality is that we can even see the product market fit in terms of the sale process. So the one new customer that we did sell to, it was a tender process where there was an incumbent. And again, in a very open tender process in a large government organization, we wanted a Data Privacy solution.
So we're, at the moment, again, early days, but we think that, again, the fit seems pretty good. The other scenario out of the eight, we had one large advisory that bought a breach response tool. They went to market that actually selected a breach response tool, and we came quite late to the selection process, and again, won that in an open kind of tender situation. So again, I think we're going well. It is early stage, and we're feeling positive around where we sit.
That's excellent. Thank you for those insights. I guess if I just follow up on two more. The second, on the legal costs, slightly higher than the January update provided, I guess, is that just sort of timing related? And if possible, are you able to sort of provide a perspective on what you think significantly lower might look like in the second half?
Thanks, Jules. Yeah. So yes, a little bit higher than what we said, which was in very early January. I think 12th of January, we gave the trading update. We did have a couple more late invoices come through from counsel, unfortunately, which is why it is up a bit higher than where we set on the 12th of January. Cost for the second half, really, it does depend on timing of judgments for the ASIC case and also case management hearings on class action, but expect to be well below where we were in the first half. We think at the moment, the best estimates circle somewhere between AUD 4 million-AUD 5 million in the second half.
Okay. Thank you. That's appreciated. And then I guess lastly, the debt facility, you've made the comment that you don't need that facility today, but I guess just the strategic thinking around what this added flexibility might open up for the business and just kind of what motivated the securing of this facility?
Yeah. So thanks on that one, Jules, as well. So yeah, as you saw in the first half, underlying free cash flow, we generated AUD 6.6 million in the first half. So you can see operationally, we are very strong in cash generative in the first half. And some of the reason why our cash reduced in the first half was on the payment of the acquisition for Rampiva, the first tranche of payment for Rampiva. So you can see the facility we've established is to give us some more flexibility. We've been very clear over the years about a build-by-all partner strategy we have to developing our products. And so this facility enables us to think and have some more firepower to use debt and consider using debt and equity in terms of potential M&A moving forward.
Not that we're saying that we have anything on our plate right now. We're always kind of scanning the market when things come up, but there's nothing on our plate right now. But this does give us that flexibility moving forward.
Awesome. Okay. Thank you for answering the questions.
Thanks, Jules.
Thank you. Once again, to ask a question, please press star, one on your phone. The next question comes from John Marrin from CLSA. Please go ahead.
Hey, Jonathan. Chad Barton. Nice work, and congrats on getting all that legal stuff in the rearview mirror. Just have a couple questions. On that slight rise in customer churn, can you just talk a little bit about what you're seeing in terms of the reasons for that churn?
Sure. Thanks for that. Look, when we look at churn, I guess what we do is we absolutely look at churn in tandem with our NDR. And so at the moment, churn is within the range that we're comfortable with. It's on the slightly higher side of the range. However, again, looking at it in tandem with NDR, I think the reality is that we've seen our NDR move quite significantly, and we're pretty happy with the NDR. And again, the reality is that there can be some churn, which is actually so first of all, there's a chunk of churn which is actually not customer churn but often a project ending. And so a great example might be Dieselgate where the project ends, and they need less of the Nuix software.
And then specifically, some of the churn although some of the churn has been higher in North America, we've also got a bunch of net new or new contracts within our existing customers, which has more than offset that churn. And again, that is part of our strategy, which is really to be very specific. There are segments potentially of our market that are fairly expensive to service, and so we're just being very specific around which segments we focus on. But again, the net is it's within our range and certainly not outside any kind of key areas. And we are very happy with our NDR, which is tracking in the right direction.
Okay. Thanks for that. And in terms of your sales force efficiency and optimization, obviously, you've done a ton of work. Just curious if you could speak to what else is left to do on that front, and is there any extra muscle that you have to build as you push harder into the enterprise customer base, perhaps with Investigations or with legal?
Matt, I think that's a great question. So, absolutely. I think we're comfortable with where we're at, but certainly, we're not comfortable. This is certainly not the endpoint. In particular, and you've hit the nail on the head, there is a fairly significant shift in capability from selling components to selling an enterprise sale platform. In fact, right now, today, we have a bunch of our sales organization going through our internal sales training, which is, we're using a challenger sales methodological approach. So, that really is an uplift in our sales capability. I think we've still got a fair way to go. We're certainly not where we want to be from a long-term perspective.
Certainly, in terms of the growth that we've made, I think we're pretty comfortable with the growth that we've made in the kind of capability over the last year to year and a half.
Okay. Thanks, Jonathan. And one final one for me, I think, on R&D spending. Obviously, good to see some efficiency and operating leverage there. And can you just address the plan, maybe on a longer basis, on that R&D spend going forward and as a percentage of sales, perhaps, or and then also on the mix between capitalized and expensed as we model it several years out?
Yeah. Thanks, John. I'll take that one for you. So yeah, R&D spend as a percentage of revenue came in at 27% for the half. That is lower than where we've kind of guided the market to over the last year. Our expectation is and somewhat dependent, obviously, on revenue growth as well, but somewhere around 29% or 30% we see as a long-term kind of in or medium to long-term investment rate as a percentage of revenue for R&D spend. So that is our expectation. So what you hear from that is we expect it to be up a bit higher in the second half as well from that. In terms of capitalization rate, again, it's a factor of the work that the team is doing every particular half within that.
So this half was down, was pretty consistent as a percentage to last half within it as a percentage of what was capitalised within the team. And it does, just, John, depend on the products, as I said. My expectation is that will probably continue to trend down a little bit over the next few years as a percentage of revenue. You've seen in the last couple of years, that's trended down. I think we're over 72% at one stage, down around 66% to 67%. My guess is it'll probably be somewhere between 60% to 66% over the medium term where the capitalisation rate should be.
Okay. That was very helpful. Thanks, Chad. All right. Well, congrats, guys, on a good report, and appreciate it.
Thanks, John.
Thank you. Once again, to ask a question, please press star, one on your phone. We'll pause for a moment to allow parties to enter the queue. At this time, we're showing no further questions. I'll hand the conference back to Jonathan for closing remarks.
Well, I'd like to thank everyone for making the time to listen to our results. We are pleased with the momentum in the business, and certainly, it's been a positive start in the Nuix Neo journey. Look forward to seeing some of you face to face in the not too distant future. Thanks very much for your time.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.