NXL call themselves a ‘force for good’ in the world of data. Essentially, they have investigative analytics and intelligence software used by law enforcement, legal firms, and corporations to transform huge amounts of unstructured data into actionable insights with speed, scalability, and forensic accuracy. They’ve been going for 20 years, have a market capitalisation of $1.5bn and should generate around $240m revenue this year with earnings (EBITDA) of ~$65m.
Early last week, they provided a 1H25 trading update where they downgraded guidance for ACV, which is annual contract value, or the average annual revenue generated from each customer contract – not a good update and this has led to a big drop in the shares, which were already on the skids having traded to ~$8 in October 24. While the guidance was soft, we don’t this changes the thesis on NXL.
Firstly, the ACV guide is softer vs the prior period, but not by a lot. NXL’s 11-16% constant currency growth compares to (~15% reiterated at AGM). In dollar terms that is a ~$3m impact, unfortunate but certainly not thesis changing. As NXL moves more into Enterprise and moves existing customers from old plans to new plans, some delays are to be expected, and we think this is the case.
- In the shorter term, the revised guidance for FY25 still implies a very strong 2H growth. We reiterate that we think the underlying thesis for owning NXL still stacks up i.e. it is still growing at scale and delivering operating leverage, which means revenue growing quicker than costs.
MM is bullish NXL ~$4.50, & it remains on the Hitlist for the Emerging Companies Portfolio
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