As at June 30 Nuix had 483 staff,of which 151 were in engineering and 49 were product,internal documents reveal.
The review rated key products including the Nuix Engine and Nuix Workstation “red” status as a “lack of engineering capacity prohibits our ability to capture additional market share.”
The internal review raises questions about whether Nuix’s core technology is up to the task of executing the growth strategy laid out in the prospectus.
In the year to June 2020 – six months out from the float – internal documents reveal furious cost-cutting saw an exit of key personnel. Staff churn hit 35 per cent,with almost 30 per cent leaving engineering and savage cost-cutting in the key product area.
This would wreak havoc on the quality of the business,but allow Nuix to keep costs down. Or as one trader would later say “dress the pig in the gown and sell it like it’s a princess.”
‘Can’t innovate’
A day after Nuix announced an earnings downgrade on April 21,Nuix executives told a meeting of engineers that the company had spent $6.8 million less on R&D than it had budgeted. While this would have helped Nuix’s reported profits,the company was now changing course with plans to hire 50 new staff.
One former senior Nuix executive,who asked for anonymity,described Nuix as the next AMP in waiting. “Like AMP,it can’t innovate and the culture is so bad it is hard to recruit,” he said.
Nuix spent the first half of 2020 in dispute with its auditor,PwC,over its treatment of R&D claims worth tens of millions of dollars.
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Documents obtained under an FOI request show that Nuix auditor PwC told ASIC,which had queried the reason Nuix’s 2019 accounts were delayed,that “FY19 audit has experienced delays due to research and development issues on the company’s end.”
A due diligence report prepared for the sale process,dubbed Project Truth,dated September 20 outlined PwC’s concerns over what could be up to $42 million in R&D costs over-claimed.
In September 2016 Nuix had applied for an R&D advance from AusIndustry over three years for a research project known as Endpoint on the basis that 55 per cent of “total actual and reasonably anticipated expenditure” would be in Australia.
It turned out only 9 per cent of the expenditure was in Australia,with 91 per cent spent in the US.
PwC noted management’s explanation for this but said if the ATO investigated and made an adverse finding,“in addition to paying back the R&D benefit,the Commissioner may impose penalties of up to 80 per cent as well as shortfall and general interest charges”.
Nuix regarded its position as defensible and before signoff,forwarded its tax returns to Macquarie Group,its then 76 per cent owner,for review.
In its 2020 accounts Nuix management wrote confidently “it is probable that . . . the Australian Taxation Office will accept the tax treatment for the Endpoint project”.
Nuix did not directly answer questions put to it by the joint investigation. In a statement it said,“Nuix has in place robust processes to measure forward indicators of performance in order to ensure that it keeps the market fully informed and has done so on a timely and regular basis.”
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