Nuix
Annual Report 2019

Plain-text annual report

IMPORTANT NOTICE - Financial statements for the financial year ended 30 June 2019 These financial statements are historical financial statements for Nuix Limited ACN 117 140 235 (Nuix) for the financial year ended 30 June 2019 (FY19). These financial statements were prepared by Nuix as special purpose financial statements. The financial statements for FY19 were subsequently restated by Nuix. The restated amounts are presented as comparatives in the consolidated annual report of Nuix for the financial year ended 30 June 2020 (FY20). All readers of the financial statements for FY19 should do so with reference to the restated comparatives for FY19 in the consolidated annual report of Nuix for FY20, including the notes and details explaining the restatements. L\337854023.1 nuix.com NUIX PTY LTD AND CONTROLLED ENTITIES ANNUAL REPORT 30 June 2019 ABN 80 117 140 235 nuix.com FINDING TRUTH IN A DIGITAL WORLD Nuix Pty Ltd and Controlled Entities Annual Report Contents Nuix Technology Target Markets ............................................................... 5 Corporate Directory .................................................................................... 6 Chairman’s Report ..................................................................................... 7 CEO’s Message ......................................................................................... 9 Business Overview ................................................................................... 11 Director’s Report ...................................................................................... 14 Income Statement .................................................................................... 17 Balance Sheet .......................................................................................... 18 Change in Equity ...................................................................................... 19 Cash Flow ................................................................................................ 20 Notes to the Consolidated Financial Statements ...................................... 21 1. 2. 3. 4. 5. 6. 7. 8. 9. Statement of significant accounting policies ................................................. 21 Financial risk management ........................................................................... 36 Segment information ..................................................................................... 39 Profit for the year .......................................................................................... 39 Sales ............................................................................................................. 39 Other income ................................................................................................ 40 Income tax expense ...................................................................................... 40 Cash and cash equivalents........................................................................... 42 Trade and other receivables ......................................................................... 42 10. Other current assets ..................................................................................... 43 11. Property and equipment ............................................................................... 44 12. Intangible assets ........................................................................................... 45 13. Trade and other payables ............................................................................. 46 14. Deferred revenue .......................................................................................... 46 15. Provisions ..................................................................................................... 47 16. Borrowings .................................................................................................... 47 17. Issued capital ................................................................................................ 48 18. Equity ............................................................................................................ 48 19. Dividends ...................................................................................................... 49 20. Auditors’ remuneration .................................................................................. 50 21. Leasing commitments ................................................................................... 50 22. Related party disclosures ............................................................................. 51 PAGE 3 of 63 Nuix Pty Ltd and Controlled Entities Annual Report 23. Share-based payments ................................................................................. 53 24. Cash flow information ................................................................................... 56 25. Parent entity financial information ................................................................ 57 26. Business comibination .................................................................................. 58 27. Events after the reporting date ..................................................................... 59 Director’s Declaration ............................................................................... 60 Independent Auditor’s Report ................................................................... 61 Shareholder Information ........................................................................... 62 PAGE 4 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Nuix Technology Target Markets PAGE 5 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Corporate Directory Directors Daniel Phillips – Non-Executive Director and Chairman, Non-Independent David Standen – Non-Executive Director, Non-Independent Roy Frank Grady – Non-Executive Director, Independent Mark Warren de Ambrosis – Non-Executive Director, Non-Independent Jeffrey Bleich – Non-Executive Director, Independent Rod Vawdrey – Executive Director, Non-Independent Anthony Castagna* – Non-Executive Director, Non-Independent *re-appointed as Director last 8 August 2019 Group Chief Executive Officer Rod Vawdrey Chief Financial Officer Stephen Doyle Registered Office and Share Registry Nuix Pty Ltd Level 27 1 Market Street SYDNEY, NSW 2000 Telephone: +61 2 9280 0699 Facsimile: +61 2 9212 6902 Company Secretaries Stephen Doyle Brian Krupczak Auditors Total comprehensivfor the year Legal Advisors Bankers Financiers PricewaterhouseCoopers One International Towers Watermans Quay, Barangaroo SYDNEY NSW 2000 DLA Piper Australia 140 William Street Melbourne VIC 3000 PO Box 4301 Australia Commonwealth Bank of Australia Business Banking Level 8, 201 Sussex Street SYDNEY NSW 2000 Commonwealth Bank of Australia Business Banking Level 8, 201 Sussex Street SYDNEY NSW 2000 Website Address www.nuix.com PAGE 6 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Chairman’s Report Dear Shareholder, The Board of Nuix Pty Ltd (hereafter referred to as ‘Nuix’ or ‘Group’ or ‘Company’) is pleased to present the Annual Report of the Company and its subsidiaries for the financial year ended 30 June 2019. This year, the Group earned total sales of $150,120,898 (2018: $120,118,636), representing 25% growth. The Group achieved a full-year profit after tax of $14,685,930 compared with $10,989,512 in the previous year. OUR ASSETS AND CAPABILITIES Nuix's key assets are: • its range of software applications that enable organisations to make fact-based decisions from human- generated data; and • the extensive knowledge of its global team of industry experts. Our software, built around the patented Nuix Engine, enables users to search, correlate, analyse and report on data at massive scale and in hundreds of formats. BUSINESS AND INDUSTRY OVERVIEW Organisations are finding themselves unprepared to investigate, manage, secure, de-risk and utilise the massive amounts of human-generated data they hold. This poses commercial, competitive and legal risks. Nuix technology is uniquely positioned to help organisations: • manage the data; • comply with legal and regulatory obligations; • minimise the losses that result from external and insider data breaches; and • exploit the data to create value. OUR GROWTH STRATEGY We plan to make our software a ubiquitously available platform for solving essential risk, compliance and security challenges. The key elements of our strategy are briefly outlined below: Extend our technological capabilities We intend to continue to invest heavily in our product development efforts to deliver additional features and solutions that address existing customer needs and new end-markets. We focus on attracting and retaining thought leaders and engineering talent who can expand the Nuix core engine into adjacent product and technology areas that enable organisations to further investigate, secure and unlock the value of their data. Drive incremental revenue from existing customers We will continue to cultivate incremental sales from our existing customers through increased use of our software. This will be achieved by additional deployments and new use cases in processing, investigation and analysis of data. PAGE 7 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Chairman’s Report (continued) Develop products that enable organisations in adjacent markets to use our software in different ways We believe there is a significant opportunity to leverage our core engine into new solutions that help organisations investigate, manage, secure and unlock the value of their data in specific markets and use cases. Training and certification services (across our range of solutions) and consulting services (notably in cybersecurity and insider threat management) are growing opportunities. Grow our user and partner ecosystem to target new use cases, drive operational leverage and deliver more targeted, higher value solutions Our user community, includes advisory firms, litigation support vendors, corporations, government and law enforcement agencies. We believe this ecosystem can provide significant operating leverage to extend our software’s functionality to new use cases. We will continue to invest in Original Equipment Manufacturer (OEM) and strategic relationships that enable new channels to market and extend our integration with third-party products. In addition, we expect that OEM vendors and managed service providers will invest in and create customised application functionality based on our core engine. Acquire and productise knowledge to deliver repeat engagements Through our thought-leadership and partner ecosystem, we will deliver targeted solutions to early adopters who solve the most complex unstructured data problems, and create products and solutions to be resold to industry verticals. Deliver world-class customer service We are determined to continue to delight our customers with our passionate can-do customer service culture. OUR PLANS Looking towards 2020 and beyond, we are focused on continuing to deliver strong year-on-year revenue growth. On behalf of the Board, I would like to thank the entire talented, passionate and committed Nuix team for their efforts during the year, as well as acknowledge and thank our shareholders for their ongoing support during the last financial year. We look forward to the exciting next chapter in Nuix’s history. SIGNED: __________________________________ Daniel Phillips Chairman Sydney, Australia 22 June 2020 PAGE 8 of 63 Nuix Pty Ltd and Controlled Entities Annual Report CEO’s Message Nuix is a unique and dynamic business, with more than 2,000 customers across government, regulators, advisories, law firms and enterprises in over 75 countries – directly and through our growing partner network. Our patented Nuix Engine – a proprietary technology for supercharged data processing – enables our customers to solve the world’s most complex risk, compliance and security challenges. Nuix achieved solid growth again in 2019 with a strong contribution from the Ringtail legal review platform, which we acquired from FTI Technology in September 2018. To harness our expertise in eDiscovery and investigations, we have reinvented Ringtail as Nuix Discover and Nuix Web Review & Analytics as Nuix Investigate. We are continuously enhancing our product strategy, capturing innovation and empowering our people so we can remain a leader in our industry. We have pushed into new geographic markets, specifically Germany, Japan and New Zealand. We have also reinforced our organisation’s structure and operating models and continued to invest in our long-term vision. A STRONG FOUNDATION FOR GROWTH In FY19, Nuix achieved 25% year on year growth to AU$150 million. A highlight was significantly increasing Nuix Discover (formerly Ringtail) revenue – a double-digit contribution to the FY19 total – in just nine months. Now that we have completed the integration of Ringtail technology and resources, we anticipate Nuix Discover will deliver significant growth in FY20. As we exited the last financial year, Nuix formed a new Executive Committee and united the company under refreshed vision, mission and strategic goals to embrace changing market opportunities and new use cases that will drive growth in FY20 and beyond. We continue to invest in improved processes and systems with the completed rollout of the Agile development model; ongoing improvements to customer relationship management processes; and the first customer implementations of our cloud licensing model. We added more than 100 team members across development, distribution and supporting functions to help us increase new customer and partner acquisition and strengthen our product development. Our renewed vision and mission will signal a clear market position while guiding our strategic direction and underpinning our decision-making. Nuix Vision: Finding Truth in a Digital World. Nuix Mission Statement: Nuix creates innovative software that empowers organizations to simply and quickly find the truth from any data in a digital world. We are a passionate and talented team, delighting our customers with software that transforms data into actionable intelligence. FINDING TRUTH IN A DIGITAL WORLD We are experiencing huge market appetite for solutions that address the constantly evolving risks and threats of the modern data-driven world. Processing, storing and regulating data are constantly becoming more complex, forcing corporations and governments to increase their investments in identifying risk and ensuring data quality, governance and compliance. This presents Nuix with growing opportunities to provide enterprise-wide solutions; address big data and corporate hygiene issues across key highly regulated industries; and deepen our relationships with global advisories, litigation support vendors, systems integrators and risk consulting firms. PAGE 9 of 63 Nuix Pty Ltd and Controlled Entities Annual Report CEO’s Message (continued) Just as our customers are converging their teams to manage risk, compliance and security, we are providing a powerful, intuitive solution that gives them a ‘single pane of glass’ view of all their data and an always-on platform to solve a wide variety of business problems. FY19 marked an important maturation in Nuix’s journey. Nuix is poised to continue our track record of growth, with a well-defined product roadmap, vision and value proposition, which we continually reinforce to our customers, partners, investors and our people. I am confident that we will continue to exceed our own high standards of excellence. SIGNED: __________________________________ Rod Vawdrey Group CEO Sydney, Australia 22 June 2020 PAGE 10 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Business Overview Nuix has more than 2,000 customers worldwide across the private and public sectors. These customers rely on Nuix solutions to solve their complex data problems including law enforcement and enterprise investigation, governance and compliance, hyperscale data processing and cybersecurity. CUSTOMERS Advisory firms such as Accenture, BDO International, Consilio, Deloitte, Enigma Advisory Group, EPIQ, Ernst & Young, FTI, Grant Thornton, KPMG, M&A Treuhand, PwC, RSM, Seclorum GmbH, and Venturecorp Development use Nuix software to deal with massive volumes of digital evidence and numerous digital exhibits. These firms use Nuix solutions to deliver efficient and cost-effective services such as investigation, legal discovery and information governance to their clients. Litigation support vendors such as 3B Data Security, Data Narro, Enhanced Litigation Management Systems, Exiger, FRONTEO, H5, Incident Response Solutions, Innovative Discovery, Kroll Ontrack, Law In Order, LDM Global Australia, Lighthouse eDiscovery, Lynaza, Rapu, Ricoh, and Sentre Consulting use Nuix software primarily to process large volumes of digital evidence for the clients such as law firms and enterprises, and make it available for early case assessment. Nuix software makes it possible for internal and external legal teams to collaborate on a single case and divide up stages of large, complex processes. Using Nuix Web Review & Analytics, they can make evidence available to clients, wherever they are, earlier in the data processing workflow than competing legal discovery technologies. Law firms including Archer & Greiner, Arthur Cox, Baker & McKenzie, Bereskin & Parr, Egerton McAfee Armistead & Davis, Fredrikson & Byron, Herbert Smith Freehills, KE-IP, Morgan Lewis & Bockius, Nelson Mullins, Paul Weiss, Post & Schell, Rajah & Tann Singapore, Reed Smith, Stanley & Schmidtt, and Zerbe Miller Fingeret Frank & Jadav use Nuix eDiscovery in similar ways to litigation support vendors, processing data for early case assessment and legal review. Nuix software allows them to handle a wider variety of data formats at a much larger scale than competing technologies. Nuix also helps law firms to gain control of highly sensitive client data and minimise the risk of data breaches. International, national, state and local law enforcement agencies around the world face increasing pressure in the digital era. They must handle large-scale, highly complex investigations with data stored in large numbers of computers, mobile devices and cloud data sources. Nuix law enforcement customers include Australian Federal Police, Bundeskriminalamt (German Federal Police), Competition Bureau Canada, Criminal Investigation Bureau-National Police Agency, Czech Republic Ministry of Interior - Police Presidium, Direction du Renseignement et de la Sécurité de la Défense, Dutch Police, Federal Bureau of Investigation, Gendarmerie Nationale (France), Geneva Police, Guardia di Finanza (Italy), Hellenic Police, HM Revenue and Customs, Indonesian State Intelligence Agency, Korea Defense Security Support Command, Landeskriminalamt (German State Police), London Metropolitan Police, Ministry of Defence (Israel), Ministry of Defence (Pakistan), National Cyber Crime Unit (UK), NATO Support and Procurement Agency (NSPA), New Jersey State Police, National Security Agency, NSW Crime Commission, New York City Department of Investigation, Polizeipräsidium Oberbayern Süd (Germany), Police Scotland, Saudi Ministry of Interior, Regional Prosecutor's Office in Warsaw (Prokuratura Regionaln), Singapore Ministry of Home Affairs, Turkish National Police Intelligence, US Army - 513th MI Brigade, and US DOJ - National Security Division. ----------------------------------------------------------------------------------------------------------------------------- --------------------- According to an OECD report, the average regulatory enforcement case takes 7.3 years. An Australian Federal Police officer commented “Shaving just two years off this results in a huge return on investment on much-needed resourcing – including storage of data and investigation team churn.” PAGE 11 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Business Overview (continued) Federal, state, and local government agencies including Attorney General’s Department, Agencia de Defensa de la Competencia de Andalucía, Agency for the Protection of Competition of Montenegro, Audit Office of New South Wales, Australian Bureau of Statistics, Australian Department of Health, Australian Department of Foreign Affairs and Trade, Australian Department of Human Services, Australian Taxation Office, Chester County District Attorney's Office, Department of Interior-US Fish & Wildlife Service, District of Columbia Inspector General, Executive Office for US Attorneys, Executive Office of the President (USA), Idaho Department of Transportation, Egypt Cert, Florida State Board of Administration, Gobierno Navarra, Government Technology Agency of Singapore (GovTech), House- Committee on Natural Resources, Independent Commissioner Against Corruption- Northern Territory, and the Ministry of Presidential Affairs UAE, National Science Foundation OIG, New York City Law Department, NSW Department of Education and Training, Office of the Registrar of Indigenous Corporations, Scottish Government, Social Security Administration OIG, State of Massachusetts OIG, State of Wyoming - Dept of Environmental Quality, Telecommunications Authority- Dubai, The Board of Audit and Inspection of Korea, Transport Canada, U.S Department of State: -Honduras- American Embassy Tegucigalpa, US Department of State, US House-Committee on Transportation and Infrastructure, US House-HPSCI, and Welsh Government use Nuix software to find evidence of fraud by extracting and comparing information from multiple internal sources such as email and file shares, as well as public intelligence sources such as social media. Financial regulators such as Australian Securities and Investments Commission, Canada Revenue Agency, China Securities Regulatory Commission, Federal Trade Commission (US), Financial Conduct Authority (UK), Federal Deposit Insurance Corporation, Hong Kong Securities and Futures Commission, Inland Revenue (New Zealand), Internal Revenue Service (US), Income Tax Department-New Delhi, Internal Revenue Service, Korea Fair Trade Commission, National Treasury SA, Oberfinanzdirektion Niedersachsen (Germany), Portuguese Securities Market Commission, Securities and Exchange Surveillance Commission (Japan) and U.S. Securities and Exchange Commission face challenges with rapidly changing technology; it is hard to establish connections between vital facts among massive data volumes, noise, disparate systems and multiple suspects. Nuix software helps them by processing and managing incoming information, finding the specific data necessary to complete investigations and uncovering patterns within and across cases. Banking, financial services and insurance companies including AIG, American Express, Citigroup, Commonwealth Bank of Australia, Credit Suisse, Danske Bank, Deutsche Bank, Dun & Bradstreet, HSBC, Macquarie, Morgan Stanley, NASDAQ, National Australia Bank, Prudential Travelers Insurance, QBE, UniCredit Bank AG, Western Union and Westpac use Nuix software to detect and prevent fraud and corruption, identify and block insider threats and comply with privacy regulations. The financial services industry is already heavily regulated and this burden is increasing with the tightening of privacy regulations around the world, for example the European Union General Data Protection Regulation and the Australian Notifiable Data Breaches Act. Nuix software helps to reduce investigation times, resulting in decreased regulatory liability and more effective program management. Telecommunication providers such as Bell Canada, Comcast, O2 UK , Optus, Saudi Telecom, Telstra, Verizon and Vodafone hold large volumes of highly sensitive information about their customers, which is a tempting target for external data breaches and insider threats. In the context of privacy regulations, telcos need to minimise the threats of data breaches and respond quickly and effectively when they happen. Nuix uniquely assists this process by providing transparency into a wide variety of data sources including email systems, file shares, archives, databases and other high-risk locations. This enables telcos to locate high-value and high-risk information, conduct regular sweeps for sensitive data, and reduce the gap between security incidents and their detection and remediation. PAGE 12 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Pharmaceuticals and healthcare providers including Abbott Laboratories, Allergan, Blue Cross Blue Shield North Carolina, Bupa, Endo Pharmaceuticals, Humana, Pfizer, Nebraska Medicine, and UnitedHealth Group use Nuix software to scan and index their email servers and other storage systems, identify intellectual property and ensure these high-value materials are not being stolen, for example in the emails of departing employees. Commercial customers from industries such as energy, information technology, manufacturing, media and entertainment, and utilities include 3rd Eye Techno Solutions Pvt Ltd., Adidas, AGL, Amazon, Archer Daniels Midland, Axxera, Betsson, Biogen Idec, Boston Globe, BPHA, CBS Corporation, Caterpillar, Chevron, Cybershield, Duke Energy, Deutsche Post AG, Dollar Tree, Eskom, Future Com, General Motors, Hancock Prospecting, Hochschule Wismar, Ingram Micro, Intel, Jaguar Land Rover, Landmark Group, Mediacom Communications, MGM Resorts International, Microsoft, National Grid, NCR Global, Pact Group, Page Group, Paycom Corporation, Peabody Energy, Petrobras, Petros, Procter & Gamble, Raytheon, Rio Tinto, Salesforce, Samsung, Shell International, Shimuzi Corporation, Sony Pictures, Suncor Energy, Tabcorp, Tata Consultancy Services, Tatweer Petroleum, TechnipFMC, The Document Group, Today Translations, Toyota, Universal Entertainment, Vale BR, Valeo Spain, Walmart, Walt Disney, and Welsh Water. These companies use Nuix software for enterprise investigations, detecting fraud and corruption, collecting evidence for legal and regulatory matters, data migration and protecting data from breaches. Non-commercial enterprises such as schools, universities, and non-government organisations include DC Resources Inc., Harper Adams University, International Federation of Red Cross and Red Crescent Societies (Switzerland), International Labour Organization, and Naif Arab University for Security Sciences. PAGE 13 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Directors’ Report The directors present their report on the consolidated entity (hereafter referred to as ‘Nuix’ or ‘Group’ or ‘Company’) consisting of Nuix Pty Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2019. Directors and company secretary The following persons were directors of Nuix Pty Ltd during the year and up to the date of this report unless otherwise stated: • Daniel Phillips (Non-Executive Director and Chairman) • David Standen (Non-Executive Director) • Roy Frank Grady (Non-Executive Director) • Mark Warren de Ambrosis (Non-Executive Director) • Jeffrey Bleich (Non-Executive Director) • Rod Vawdrey (Executive Director) • Anthony Castagna (Non-Executive Director) The company secretaries are Stephen Doyle and Brian Krupczak, who were appointed to the position of company secretary in 2011 and 2015, respectively. Anthony Castagna was re-appointed as Director last 8 August 2019. Operating results The profit of the Group for the financial year after providing for income tax amounted to $14,685,930 (2018: $10,989,512). Review of operations A review of the operations of the Group during the financial year and the results of those operations follows: Sales EBITDA* NPAT** Operating cash flow Working capital 2019 2018 150,120,898 120,118,636 40,795,419 25,366,979 14,685,930 10,989,512 18,474,290 21,561,928 50,709,440 30,179,463 Orders backlog *EBITDA - Earnings before Interest, Tax, Depreciation and Amortisation ** NPAT - Net Profits after Tax 21,110,232 6,404,691 A five-year summary of financial performance is provided below: 2018-2019 MOVEMENT 25% 61% 34% -14% 68% 230% Summary 2015 2016 2017 2018 2019 Total Revenue 74,224,534 101,923,960 102,090,636 120,118,636 150,120,898 EBITDA NPAT 19,672,764 25,050,009 22,604,344 25,366,979 40,795,419 13,449,635 14,025,129 8,544,585 10,989,512 14,685,930 PAGE 14 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Directors’ Report (continued) The Group manages operating performance by reference to key operational metrics, a sample of which are above disclosed. Total current assets are disclosed throughout the financial statements, however, management also reviews these balances in conjunction with ‘Orders backlog’ which it considers an important operating metric. Orders backlog represents future committed “sales orders”, that have not been booked as revenue nor debtors. This is considered when analysing the Group’s liquidity and is also the litmus test for customer sentiment demonstrating the willingness of customers to enter into long-term contractual relationships with Nuix. Significant changes in state of affairs On 9th September 2018, Nuix North America, Inc acquired from FTI, Ringtail’s business assets for consideration of USD $53,943,901. Ringtail eDiscovery software delivers a unique visual approach to many phases of eDiscovery from early case assessments and investigations to document review and trial preparation. The acquisition has increased the Group’s market share and boost revenue growth. Principal activities The principal continuing activities of the Group during the financial year were the development, sales, marketing and distribution of software. No significant change in the nature of these activities occurred during the year. Events since the end of the financial year The COVID-19 coronavirus outbreak was declared a pandemic by the World Health Organisation on 11 March 2020. The outbreak and the response of governments in dealing with the pandemic is interfering with general activity levels within the community and the economy. The scale and duration of these developments continue to remain uncertain as at the date of this report. The Group does not consider it practicable to provide a quantitative or qualitative estimate of the potential impact of the outbreak on the Group at this time however does not believe it would be material or adverse. No other matter or circumstance has arisen since 30 June 2019 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. Likely developments and expected results of operations Likely developments in the operations of the Group and the expected results of those operations in future financial years are not included in this report. Environmental regulation The Group’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or any other territories of Australia or territory in which it operates. PAGE 15 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Directors’ Report (continued) Meetings of directors The numbers of meetings of the company’s board of directors held during the fiscal year ended 30 June 2019, and the numbers of meetings attended by each director were: Daniel Phillips David Standen Roy Frank Grady Mark Warren de Ambrosis Jeffrey Bleich Rod Vawdrey Full meetings of directors A 7 7 7 7 7 7 B 7 7 7 7 7 7 A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year Dividends paid or recommended There were no dividends paid or declared since the start of the financial year and up to the date of this report. Insurance of officers Nuix Pty Ltd insure the directors and secretaries of the company and its Australian-based controlled entities, and the general managers of each of the divisions of the Group. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Indemnifying officers or auditor No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an auditor of the Group. This report is signed in accordance with a resolution of the Board of Directors. SIGNED: __________________________________ Daniel Phillips Chairman Sydney, Australia 22 June 2020 PAGE 16 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Income Statement CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2019 Sales Cost of goods sold Gross profit Sales and distribution Research and development General and administration Other income Other gains - net Operating profit Finance costs Share based payments expense Profit before income tax Income tax expense Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year NOTES 5 6 4 4 4 7 18 18 2019 $ 2018 $ 150,120,898 120,118,636 (13,607,584) (10,354,915) 136,513,314 109,763,721 (57,801,522) (53,575,892) (6,607,097) (4,015,335) (51,751,642) (37,771,103) 960,035 763,149 1,023,487 407,340 22,336,575 15,571,880 (894,918) (743,115) (149,818) (1,167,751) 21,291,839 13,661,014 (6,605,909) (2,671,502) 14,685,930 10,989,512 1,776,047 375,955 16,461,977 11,365,467 The financial statements should be read in conjunction with the accompanying notes. PAGE 17 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Balance Sheet CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the year ended 30 June 2019 NOTES 2019 $ 2018 $ Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Property and equipment Intangible assets Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Deferred revenue Current tax liabilities Provisions Other liability Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Borrowings Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 8 9 10 11 12 7 13 14 15 7 15 16 17 18 18 27,331,898 44,900,443 9,316,380 26,998,317 34,251,863 1,769,109 81,548,721 63,019,289 3,117,793 3,014,832 167,566,178 75,680,533 665,732 2,157,393 171,349,703 80,852,758 252,898,424 143,872,047 14,639,295 19,642,982 11,973,369 9,635,257 965,505 437,620 3,261,112 2,616,504 - 507,463 30,839,281 32,839,826 7,430,965 5,132,522 543,391 526,514 25,681,820 20,000,000 33,656,176 25,659,036 64,495,457 58,498,862 188,402,967 85,373,185 104,227,205 17,809,218 2,625,042 699,177 81,550,720 66,864,790 188,402,967 85,373,185 The financial statements should be read in conjunction with the accompanying notes. PAGE 18 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Change in Equity CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2019 ISSUED CAPITAL $ OPTION BUY-BACK RESERVE $ SHARE OPTION RESERVE $ FOREIGN CURRENCY TRANSLATION RESERVE $ RETAINED EARNINGS $ TOTAL EQUITY $ Balance at 1 July 2017 8,801,888 Profit for the year Reserve option buy-back Foreign currency reserve - - - Contributions of equity 9,007,330 Employee share options - - - (6,176,255) - - - 3,511,320 1,811,947 55,875,278 70,000,433 - - 8,459 - 1,167,751 - - 375,955 - - 10,989,512 10,989,512 - - - - (6,176,255) 384,414 9,007,330 1,167,751 Balance at 30 June 2018 17,809,218 (6,176,255) 4,687,530 2,187,902 66,864,790 85,373,185 Profit for the year Foreign currency reserve - - Contributions of equity 86,417,987 Employee share options - - - - - - - - 149,818 - 14,685,930 14,685,930 1,776,047 - - - - - 1,776,047 86,417,987 149,818 Balance at 30 June 2019 104,227,205 (6,176,255) 4,837,348 3,963,949 81,550,720 188,402,967 The financial statements should be read in conjunction with the accompanying notes. PAGE 19 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Cash Flow CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2019 Cash flows from operating activities Receipts from customers (inclusive of GST and VAT) 135,920,234 111,138,416 NOTES 2019 $ 2018 $ Payments to employees and suppliers Interest received Interest paid Income tax paid Net cash provided by operating activities Cash flows from investing activities Purchase of plant and equipment Payments for / acquisition of intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issuance of shares Proceeds from borrowings Net cash provided by financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of financial year Exchange differences on cash and cash equivalents Cash and cash equivalents at end of financial year (116,329,933) (88,582,591) 69,750 2,024 (860,968) (736,415) (324,793) (259,506) 18,474,290 21,561,928 (1,258,856) (2,183,972) (109,135,234) (26,564,140) (110,394,090) (28,748,112) 19 24 11 12 86,417,987 9,007,330 16 5,681,820 5,000,000 92,099,807 14,007,330 180,007 6,821,146 8 26,998,317 20,341,298 153,574 (164,127) 27,331,898 26,998,317 The financial statements should be read in conjunction with the accompanying notes. PAGE 20 of 63 nuix.com Notes to the Consolidated Financial Statements For the year ended 30 June 2019 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Nuix Pty Ltd and its subsidiaries. These special purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board. The Company is a for-profit entity for the purpose of preparing the financial statements. The financial report has been prepared in accordance with the accounting policies disclosed below which the directors have determined are appropriate to meet the needs of members. Such accounting policies are consistent with the previous period unless otherwise stated. Nuix Pty Ltd is a company limited by shares, incorporated and domiciled in Australia. The financial statements were authorised for issue by the Board of directors on 22 June 2020. a. Basis of preparation The financial report has been prepared on an accrual basis and is based on historical costs. (i) Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2018. (ii) Historical cost convention These financial statements have been prepared under the historical cost convention. (iii) Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 1(y). b. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Nuix Pty Ltd (‘Nuix’ or ‘Group’ or ‘Company’) as at 30 June 2019 and the results of all subsidiaries for the year then ended. Nuix Pty Ltd and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. PAGE 21 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 The acquisition method of accounting used to account for business combinations by the Group and is disclosed in Note 1(e). Intercompany balances on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively. c. Segment report As the Group has prepared special purpose financial statements, disclosure of segment information is not required. d. Income tax The income tax expense or benefit for the period is the tax payable or receivable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. (i) Current tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income. (ii) Deferred tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. PAGE 22 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. e. Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: fair values of the assets transferred liabilities incurred to the former owners of the acquired business • • • equity interests issued by the group • • fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non- controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the: consideration transferred, • • amount of any non-controlling interest in the acquired entity, and • acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. f. Plant and equipment Each class of plant and equipment is carried at historical cost less accumulated depreciation and impairment losses. The depreciable amount of all fixed assets is depreciated on a straight-line basis over their useful lives commencing from the time the asset is held ready for use. Leased assets are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the assets. PAGE 23 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 The depreciation rates used for each class of depreciable assets are: CLASS OF FIXED ASSET Plant and computer equipment Furniture and fixture Leasehold improvement DEPRECIATION RATE 33% 20% 20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting period date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the statement of comprehensive income. g. Leases Leases of plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (Note 21). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. h. Financial instruments Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each reporting date. (i) Financial assets at fair value through profit and loss Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. PAGE 24 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Initial recognition and measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in profit or loss within other income or other expenses in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in profit or loss as part of revenue from continuing operations when the Group's right to receive payments is established. Interest income from these financial assets is included in the net gains/ (losses). Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amounts are recognised in other comprehensive income. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed is recognised in profit or loss. Impairment AASB 9 introduced a new impairment model which is the new expected credit loss (ECL) model which involves a three-stage approach whereby financial assets move through the three stages as their credit quality changes. The stage dictates how an entity measures impairment loss and applies the effective interest rate method. A simplified approach is permitted for financial assets that do not have a significant financing component (eg trade receivables). On initial recognition, entities will record a day-1 loss equal to the 12-month ECL (or lifetime ECL for trade receivables), unless the assets are considered credit impaired. The Group applies the simplified approach to measuring ECL which uses a lifetime expected loss allowance for all trade receivables as the assets does not contain significant financing component. Current trade and term receivables are non interest-bearing loans and generally on 30-45 days payment terms. A provision for impairment is recognised before the credit loss is incurred based on the relevant loss rates applied to outstanding balances of trade receivables. Impairment testing of trade receivables is described in Note 1(q) and Note 9(a). i. Impairment of non-financial assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication PAGE 25 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed at each reporting date for intangible assets with indefinite lives and intangible assets not yet available for use. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. j. Intangibles assets (i) Goodwill Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units (CGUs) or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments. (ii) Customer contracts Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer contracts are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of projected cash flows of the contracts over their estimated useful lives. At present, there are no customer contracts recorded within the financial statements. (iii) Software Software comprises computer software purchased from third parties which are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs associated with maintaining computer software programs are recognised as an expense when as incurred. PAGE 26 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (iv) Intellectual property Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets classified as “intellectual property” when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Research expenditure is recognised as an expense as incurred. Development costs previously recognised as expenses are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life. The amortisation rates used for each class of assets are: CLASS OF FIXED ASSET Software Intellectual Property AMORTISATION RATE 33% 10% k. Foreign currency transactions and balances (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Nuix Pty Ltd’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operations. Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs. All other foreign exchange gains and losses are presented in the income statement on a net basis within other income or other expenses. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. PAGE 27 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (iii) Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: ▪ Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, ▪ Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and ▪ all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. l. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year, which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. m. Borrowings Interest bearing bank loans are recognised when issued at fair value, less transaction costs, using the amortised cost method. Any difference between the cost and principal value is recognised in the consolidated income statement over the period of the interest-bearing liability on an effective interest basis. n. Provision Make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are measured using the best estimate of amounts required to settle the obligation at the end of each reporting period. The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. PAGE 28 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 o. Employee benefits (i) Short term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Other long-term employee benefits obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Retirement benefit obligations Employees of the Group are entitled to benefits from the Group’s superannuation plan on retirement, health insurance plan and 401K. The Group’s superannuation plan has a defined contribution section. The defined benefit section provides defined lump sum benefits based on years of service and final average salary. The defined contribution section receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. (iv) Share-based payments Share-based compensation benefits are provided to employees via the Nuix Employee Option Plans and employee share schemes. The fair values of options granted under the Employee Option Plans are recognised as share-based payments expense with a corresponding increase in equity reserves. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. The Nuix Employee Option Plans are administered by the Nuix Compensation Committee. When the options are exercised, the Committee transfers the appropriate amount of shares to the Option Holder. The proceeds received, net of any directly attributable transaction costs, are credited directly to equity. PAGE 29 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (v) Bonus plans The Group recognises a liability and an expense for bonuses by way of a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (vi) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits as an expense. p. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. q. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 – 45 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an on-going basis. Debts, which are known to be uncollectible, are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, financial reorganisation, default or delinquency in payments (more than 120 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss within general and administration expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. r. Revenue recognition The financial reporting standard on revenue from contracts with customers establishes a new five-step model to account for revenue arising from contracts with customers before revenue can be recognised. Identify contracts with customers; • Identify the separate performance obligation; • • Determine the transaction price of the contract; • Allocate the transaction price to each of the separate performance obligations, and; • Recognise the revenue as each performance obligation is satisfied. PAGE 30 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Revenue is recognised at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer (which excludes estimates of variable consideration that are subject to constraints, such as right of return exists, trade discounts, volume rebates and changes to the transaction price arising from modifications), net of any related sales taxes and excluding any amounts collected on behalf of third parties. An asset (goods or services) is transferred when or as the customer obtains control of that asset. A performance obligation is satisfied and revenue recognized when control of the promise good or service is transferred to the customer. A customer obtains control of a good or service if it has the ability to direct the use of and obtain substantially all the remaining benefits from the good or service. The Group evaluates the transfer of control primarily from the customer’s perspective, which reduces the risk that revenue is recognized for activities that do not transfer control of a good or service to the customer. The Group recognises revenue at the point in time that control of the license is transferred to the customer. This occurs when a customer is able to use and benefit from the license but not before the beginning of the stated license period. One consideration in the recognition of revenue in the software industry is the use of temporary keys that can be turned off by the licensor automatically if the license expires or the customer does not make payments as required. The Company generally recognise revenue on the provision of a temporary key as long as this is customary, and it is not used only for demonstration or trial purposes and the customer has control of the software. The Company does make use of temporary keys; however, control passes to the customer when they obtain the temporary key and therefore revenue is recognised at this point. Temporary keys are used generally by the Company and not just for the provision of a trial or demonstrations. Revenue is recognised for the major business activities as follows: (i) Software license fee and software usage revenue Revenue is recognised when a performance obligation is satisfied and when control of the promised goods or services is transferred to the customer. When considering the performance obligation in relation to the provision of software, it can be either a right to access (revenue recognised over time) or a right to use (revenue recognised when software transferred). Software will be recognised as a right to access when it meets the below three criteria: 1) There is an expectation (contracted or otherwise) that significant activities will be undertaken to affect the IP of the software; 2) The license holder is exposed to the positive or negative effects of the changes made under point 1; 3) The activities do not result in the transfer of a good or service to the license holder as the activities. In Nuix’s case, the software provided is updated on an ongoing basis, however the key functionality of the software is not changed. The software could be held stable and still provide the same benefit to the customers who have purchased licenses. There is also no contractual obligation under the End User License Agreement (EULA) to update customers with the new substantial functionality of the software. As a result, it is appropriate that recognition of annual license sales as a right to use (upfront recognition) is appropriate. PAGE 31 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (ii) Maintenance and support revenue Deferred revenue is recognised over time as it is earned. However, to the extent that Nuix has fulfilled all its obligations under the contract, the income is recognised as being earned at the time when all Nuix’s obligations under the contract have been fulfilled. (iii) Services and training revenue Revenue from a contract to provide consulting and training services is recognised by reference to the percentage of completion of the contract. The percentage of completion of the contract is determined by reference to the proportion of work performed (costs incurred to date) to estimated total work performed (total contract costs). When the percentage of completion cannot be estimated reliably, contract revenue is only permitted to be recognised to the maximum extent of the contract costs incurred, which is likely to be recovered. An expected loss on a contract is recognised immediately in the Consolidated Statement of Comprehensive Income at inception. (iv) Sale of goods Revenue from the sale of goods (hardware) is recognised at the point of delivery as this corresponds to the transfer of control of the goods to the customer. (v) Interest income Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (vi) Recognition of government grant approach for the R&D incentive scheme The Group applies the Government Grant Approach to recognise incentives from R&D. This approach recognises the benefit relating to R&D costs recorded in the income statement in the year it is incurred as Government Grant Income with the benefit relating to R&D costs capitalised into intangibles recorded as Deferred Income in the balance sheet with this amount then unwound to Government Grant Income in line with the amortisation period of the intangible. s. Government grants Grants from the government are recognised in Other Income at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. t. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. u. Goods and services tax Revenues, expenses and assets are recognised net of the associated goods and services tax (GST), unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or PAGE 32 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. v. Comparative figures When required by Australian Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. w. New accounting standards and interpretation In the current year, the Group has adopted all of the measurement and recognition requirements of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of the new and revised standars has resulted to the following changes Group’s accounting policies: (a) AASB 15 – Revenue from Contracts with Customers The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018 which resulted in changes in accounting policies and revenue recognition process. Previous revenue recognition policy states that the Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's revenue streams. In the current revenue recognition policy, the Group now applies the new five-step model to account for revenue arising from contracts with customers before revenue can be recognised as disclosed in Note 1(r). This accounting policy change does not result to changes in the amounts recognised and disclosed in the financial statements as the previous accounting treatment for deferred revenue component of multi-year license contracts and the new revenue standard is not materially different. (b) AASB 9 – Financial Instruments AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, and impairment of financial assets. The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies and adjustments to the amounts recognised for the loss allowance in the financial statements. The new accounting policies are set out in Note 1(h). The Group was required to revise its impairment methodology under AASB 9 for trade receivables. The Group applied the simplified approach to measuring ECL which uses a lifetime expected loss allowance for all trade receivables as the assets does not contain significant financing component. This resulted in the recognition of bad debts for trade receivables by $1,168,022 in the current period (Note 9). PAGE 33 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods and have not been early adopted by the Group as follows: Standard / Interpretation Effective for annual reporting periods on or after Expected to be initially applied in the financial year ended AASB 16 - Leases 1 January 2019 30 June 2020 The Group’s assessment of the impact of this new standard and interpretation is set out below: (i) AASB 16 – Leases: AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of $12,769,839, see Note 21. Of these commitments, approximately $35,000 relate to short-term leases and $4,400 to low value leases which will both be recognised on a straight-line basis as expense in profit or loss. Some of the commitments may be covered by the exception for short-term and low-value leases. For the remaining lease commitments, the Group expects to recognise right-of-use assets of approximately $10.3M on 1 July 2019, lease liabilities of $10.6M (after adjustments for prepayments and accrued lease payments recognised as at 30 June 2019) and deferred tax assets of $90,000. Overall net assets will be approximately $210,000 lower, and net current assets will be $2.9M lower due to the presentation of a portion of the liability as a current liability. The Group expects that net profit after tax will decrease by approximately $90,000 for FY2020 as a result of adopting the new rules. Adjusted EBITDA is expected to increase by approximately $3.8M, as the operating lease payments were included in EBITDA, but the amortisation of the right-of-use assets and interest on the lease liability are excluded from this measure. Operating cash flows will increase and financing cash flows decrease by approximately $3.5M as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. x. Parent entity financial information The financial information for the parent entity, Nuix Pty Ltd, disclosed in Note 25 has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Nuix Pty Ltd. PAGE 34 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (ii) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. There were no financial guarantees during the year (2018: Nil). (iii) Share-based payment expense The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as an inter-Group charge to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an expense in the subsidiary undertakings, with a corresponding credit to equity. y. Critical accounting estimates and assumptions The Directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. (i) Revenue recognition The Group offers certain arrangements whereby a customer can purchase the right to use a software licence, together with 1 to 5 years maintenance and support. When such multiple element arrangements exist, the amount recognised as revenue upon the sale of the right to use a software licence is the fair value of the licence in relation to the fair value of the arrangement taken as a whole. The revenue relating to the maintenance and support element, which represents the fair value of the servicing arrangement in relation to the fair value of the arrangement as a whole, is recognised over the service period. The fair values of each element are determined based on the current market price of each of the elements when sold separately. To the extent that there is a discount on the arrangement, such discount is allocated between the elements of the contract in such a manner as to reflect the fair value of the elements. Infrequently, third party hardware and software is on-sold to customers and in such instances the amount recognised as revenue is the actual cost paid to the third party plus mark-up. (ii) Share based payment expense Management judgment is applied in determining the fair value of options issued under the employee option plan. There are inherent difficulties is determining market volatility for an unlisted entity. Furthermore, the vesting of options under the plan occurs over a period that does not always coincide with the reporting period. In order to avoid complexities surrounding the proration and reporting of options vested and exercisable at the end of year. Management has reported options vested and exercisable only where the vesting end date has completed in full. PAGE 35 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (iii) Useful life of intangible assets The Group capitalises development time as an intangible asset on a monthly basis and amortises it immediately over an estimated useful life of 10 years. The Group estimates the useful life of the intangible asset to be at least 10 years based on the expected enhancements and technical obsolescence of such assets. As at 30 June 2019, the carrying amount of intangible assets was $167,566,178 (2018: $75,680,533). The 30 June 2019 carrying amount is inclusive of intangible assets aquired from FTI’s Ringtail assets (Note 26) amounting to $65,340,596 broken down as follows: Intellectual property Goodwill Brand Less: Accumulated amortisation 2018 $ 65,045,044 5,004,098 712,276 (5,420,822) 65,340,596 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks including: ▪ market risk (including currency risk, interest rate risk and price risk), ▪ ▪ credit risk, and liquidity risk The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk to determine market risk. Risk management is carried out by the corporate finance department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, and use of derivative financial instruments, non-derivative financial instruments and investment of excess liquidity. a. Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar, British Pound and European Euro. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. Management has set up a policy requiring Group companies to manage their foreign exchange risk against their functional currency. PAGE 36 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows: 2019 2018 USD EURO GBP USD EURO GBP Cash and cash equivalents 21,663,337 2,742,221 2,095,050 8,405,412 3,675,672 3,291,501 Trade receivables 18,863,642 3,456,957 5,150,855 18,206,379 2,308,150 2,194,531 Trade payables 3,294,431 224,980 741,500 2,073,460 34,970 496,810 The Group’s exposure to other foreign exchange movements is not considered material. Sensitivity As shown in the table above, the Group is primarily exposed to changes in USD exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar. Impact on profit after tax of +/- 10% change of USD against AUD will result to an increase / (decrease) of $366,700/ ($366,700) for the fiscal year ended 30 June 2019 (2018: $348,642 / [$348,642]) b. Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions and outstanding receivables and committed transactions. For all customers in all instances the Group retains title over the software. A permanent licence key to use the software is not issued until full payment is received, thus reducing risk of impairment to accounts receivable. Compliance with credit limits for wholesale customers are regularly monitored by Corporate Finance. Sales to retail customers are required to be settled by using major credit cards, mitigating credit risk. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions. (i) Trade receivables past due but not impaired As at 30 June 2019, trade receivables of $4,444,617 (2018: $2,867,387) were past due but not impaired. These relate to a number of smaller clients for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 1 – 3 months 4 – 6 months Over 6 months 2019 $ 2,960,025 222,702 1,261,890 4,444,617 2018 $ 2,103,303 521,004 243,080 2,867,387 The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due. PAGE 37 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 c. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through adequate committed credit facilities to meet financial obligations as and when they fall due. At the end of the reporting period the Group held deposits at call of $27,331,898 (2018: $26,998,317) that are expected to expeditiously generate cash inflows for managing liquidity risk. The Company manages operating performance by reference to key operational metrics including ‘Orders backlog’. Orders backlog represents future committed “sales orders”, namely not booked as revenue, unbilled revenue nor debtors. As at 30 June 2019 Orders backlog was $21,110,232 (2018: $6,404,691). Management monitors rolling forecasts of the Group’s liquidity reserve as discussed above and cash and cash equivalents (Note 8) on the basis of forecasted cash flows. This is generally carried out at a Group level by Corporate Finance. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these and monitoring balance sheet liquidity ratios against internal requirements. The below page analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not considered material. CONTRACTUAL MATURITIES OF FINANCIAL LIABILITIES LESS THAN 6 MONTHS 6-12 MONTHS BETWEEN 1-3 YEARS $ $ $ CARRYING AMOUNT LIABILITIES At 30 June 2018 Trade payables Borrowings At 30 June 2019 Trade payables Borrowings 3,800,099 - 3,800,099 5,519,328 - - - - - - - 3,800,099 20,000,000 20,000,000 20,000,000 23,800,099 - 5,519,328 25,681,820 25,681,820 5,519,328 - 25,681,820 31,201,148 d. Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes in accordance with AASB 9 Financial Instruments. The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant. PAGE 38 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 3. SEGMENT INFORMATION Description of segments and principal activities The Group’s strategic steering committee, consisting of the chief executive officer and the chief financial officer that examines the Group’s performance both from a product and geographic perspective and has identified that the Group is considered as one reportable segment as a whole. The business activities and products that each geographic division have are the same and operating results are regularly reviewed by the entity’s chief operating decision maker as a whole and not by geographic division. 4. PROFIT FOR THE YEAR The profit for the year has been arrived at after charging the following items: Share based payments expense costs Employee option expense Finance costs Interest expense Other (gains) / losses – net 2019 $ 2018 $ 149,818 1,167,751 894,918 743,115 Realised and unrealised foreign exchange (gain) (1,023,487) (407,340) Expenses (included in General and administration) Bad Debt Expense Rental expense on operating leases Amortisation of intangible assets Depreciation 5. SALES Software Services Hardware 1,168,022 493,061 3,614,465 2,820,209 17,140,718 8,743,596 1,537,693 2,221,279 2019 $ 2018 $ 141,160,898 112,750,593 8,479,982 6,414,473 480,018 953,570 150,120,898 120,118,636 PAGE 39 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 6. OTHER INCOME Government grant income Bank interest a. Government grants NOTES (a) 2019 $ 2018 $ 890,285 761,125 69,750 2,024 960,035 763,149 Government grants recognised as other income for the current financial year relates to research and development activities. 7. INCOME TAX EXPENSE (a) Income tax expense Current tax Current tax on profits for the year Total current tax expense Deferred income tax Increase in deferred tax assets Increase in deferred tax liabilities Total deferred tax expense Income tax expense 2019 $ 2018 $ 10,396,013 2,523,030 10,396,013 2,523,030 (1,491,661) (2,298,443) (3,790,104) 300,253 (151,781) 148,472 6,605,909 2,671,502 PAGE 40 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 (b) The numerical reconciliation of income tax expense to prima facie tax payable: Profit before income tax expense Tax at the Australian tax rate of 30% (2018: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Share-based payments Interest expense Foreign exchange gains and loss Difference in overseas tax rates Research and development Other Income tax expense Deferred tax balances (i) Deferred tax assets The balance comprises temporary differences attributable to: Employee benefits Research and development Others Total deferred tax assets (ii) Deferred tax liabilities The balance comprises temporary differences attributable to: Intellectual property Research and development Employee benefits Deferred revenue Other Total deferred tax liabilities 2019 $ 2018 $ 21,291,839 13,661,014 6,387,552 4,098,304 94,064 80,143 38,392 350,325 65,254 184,264 (237,816) (476,485) (828,098) (1,167,477) 1,284,863 (169,525) (198,302) (228,047) 6,605,909 2,671,502 2019 $ 2018 $ 386,937 309,854 404,955 1,913,376 (126,160) (65,837) 665,732 2,157,393 2019 $ 2018 $ 28,197,664 22,640,833 (20,649,819) (16,740,530) (423,242) (330,343) (481,735) (304,311) 788,097 (133,127) 7,430,965 5,132,522 All movements in the deferred tax assets and deferred tax liabilities were recognised in profit and loss. PAGE 41 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 8. CASH AND CASH EQUIVALENTS This account consists of cash in bank amounting to $27,331,898 (2018: $26,998,317). The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents aforementioned. 9. TRADE AND OTHER RECEIVABLES NOTE 2019 $ 2018 $ Trade receivables 31,719,762 26,970,220 Provision for impairment of trade receivables (a) (456,202) - Unbilled revenue Total trade and other receivables 13,636,883 7,281,643 44,900,443 34,251,863 The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short-term nature of the balances. (a) Provision for impairment of receivables AASB 9 introduced a new impairment model which is the new expected credit loss (ECL) model which involves a three-stage approach whereby financial assets move through the three stages as their credit quality changes. The stage dictates how an entity measures impairment loss and applies the effective interest rate method. A simplified approach is permitted for financial assets that do not have a significant financing component (eg trade receivables). On initial recognition, entities will record a day-1 loss equal to the 12-month ECL (or lifetime ECL for trade receivables), unless the assets are considered credit impaired. The Group applied the simplified approach to measuring ECL which uses a lifetime expected loss allowance for all trade receivables as the assets does not contain significant financing component. A provision for impairment is recognised before the credit loss is incurred based on the relevant loss rates applied to outstanding balances of trade receivables. These amounts have been included in the general and administration expenses. The amount of the provision was $456,202 (2018: nil). The individually impaired receivables mainly relate to smaller clients who experienced financial distress. During 30 June 2019, $711,820 (2018: $564,704) was written off as uncollectable. As a percentage of total Group revenue, the provision for impairment recognised during the year is negligible. The ageing of receivables is as follows: 1 – 3 months 4 – 6 months Over 6 months 2019 $ 2018 $ 29,545,024 26,206,136 630,180 1,544,558 521,004 243,080 31,719,762 26,970,220 PAGE 42 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Movements in receivables provision: As at 1 July Provision for impairment recognised Receivables written off as uncollectable As at 30 June 2019 $ 2018 $ - 71,643 1,168,022 493,061 (711,820) (564,704) 456,202 - Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. a. Foreign exchange and interest rate risk Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 2(a)(i). b. Fair value and credit risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables outlined above. Refer to Note 2 for more information on the risk management policy of the Group and the credit quality of the entity’s trade and other receivables. 10. OTHER CURRENT ASSETS Prepayments Other receivables Total other current assets 2019 $ 2018 $ (a) 9,064,528 1,583,882 251,852 185,227 9,316,380 1,769,109 (a) FY2019 balance is inclusive of Ringtail data centre amounting to US$7,450,000. PAGE 43 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 11. PROPERTY AND EQUIPMENT OFFICE & COMPUTER EQUIPMENT FURNITURE LEASEHOLD & FIXTURE IMPROVEMENT TOTAL At 1 July 2017 At cost 7,798,158 462,548 2,107,254 10,367,960 Accumulated depreciation (5,595,689) (233,059) (1,498,933) (7,327,681) Net book amount 2,202,469 229,489 608,321 3,040,279 Year ended 30 June 2018 Opening net book amount Forex difference – cost Forex difference – accumulated depreciation Additions Write off – cost Write off – accumulated depreciation 2,202,469 229,489 608,321 3,040,279 259,608 14,804 46,466 320,878 (250,106) 1,018,232 - - (12,392) 558,555 (15,819) 11,073 (41,774) 607,185 (3,531) 3,531 (304,272) 2,183,972 (19,350) 14,604 Depreciation (1,626,990) (130,423) (463,866) (2,221,279) Closing net book amount 1,603,213 655,287 756,332 3,014,832 At 30 June 2018 At cost 9,075,998 1,020,088 2,757,374 12,853,460 Accumulated depreciation (7,472,785) (364,801) (2,001,042) (9,838,628) Net book amount 1,603,213 655,287 756,332 3,014,832 Year ended 30 June 2019 Opening net book amount Forex difference – cost Forex difference – accumulated depreciation Additions Disposals Depreciation 1,603,213 355,715 655,287 51,538 (318,901) (19,175) 373,437 - 9,976 (2,579) 756,332 75,261 (52,729) 518,410 - 3,014,832 482,514 (390,805) 1,551,525 (2,579) (1,123,730) (205,905) (208,059) (1,537,694) Closing net book amount 889,734 489,142 1,089,215 3,117,793 At 30 June 2019 At cost 9,805,150 1,079,023 3,351,045 14,884,920 Accumulated depreciation (8,915,416) (589,881) (2,261,830) (11,767,127) Net book amount 889,734 489,142 1,089,215 3,117,793 PAGE 44 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 12. INTANGIBLE ASSETS GOODWILL SOFTWARE INTELLECTUAL PROPERTY BRAND TOTAL At 30 June 2018 At cost Accumulated amortisation Net book amount Year ended 30 June 2019 Opening net book amount Forex difference – cost Forex difference – accumulated amortisation & impairment - - - - - - 1,748,628 95,637,385 (1,573,346) (20,132,134) 175,282 75,505,251 175,282 75,505,251 61,008 2,880 (59,248) (113,511) - - - - - - 97,386,013 (21,705,480) 75,680,533 75,680,533 63,888 (172,759) Additions Amortisation 5,004,098 301,067 103,117,793 712,276 109,135,233 - (251,160) (16,889,559) - (17,140,718) Closing net book amount 5,004,098 226,949 161,622,855 712,276 167,566,178 At 30 June 2019 At cost Accumulated amortisation & impairment 5,004,098 2,110,703 198,758,058 712,276 206,585,135 - (1,883,754) (37,135,203) - (39,018,957) Net book amount 5,004,098 226,949 161,622,855 712,276 167,566,178 Impairment test for Goodwill and Brand (intangible assets with indefinite useful life) The Group acquired Goodwill as part of the acquisition of Ringtail in September 2018 (see Note 26). The Group tests whether goodwill has suffered any impairment this fiscal year ended June 30, 2019. The recoverable amount of the CGU was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budget approved by management and extrapolated using the estimated growth rates stated below covering a five-year period. These growth rates are a combination of historical data and forecast of the CGU. PAGE 45 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Assumptions used in determining the value in use: Assumption Approach used in determining values Revenue growth rate Operating expenditures rate EBITDA margin Net profit before tax Depreciation and amortisation Income tax expense Working capital Capital expenditures Average annual growth rate over the five-year forecast period; based on past performance and management’s expectations of market development. Average percentage based on sales over the five-year forecast period; based on past performance and management’s expectation of market development. Historical average effective income tax rate Average historical rates based on revenue and operating expenses Expected cash costs in the CGU. This is based on the historical experience of management, and the planned refurbishment expenditure. No incremental revenue or cost savings are assumed in the value-in-use model as a result of this expenditure. 13. TRADE AND OTHER PAYABLES Sundry payables and accrued expenses Trade payables Payroll tax and other statutory liabilities Total trade and other payables 2019 $ 5,858,936 5,519,328 3,261,031 2018 $ 5,060,809 3,800,099 10,782,074 14,639,295 19,642,982 All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. Information about the Group’s exposure to foreign exchange risk is provided in Note 2(a)(i). 14. DEFERRED REVENUE Deferred revenue is recognised over the period during which the service is provided. Reseach and development Annual license and maintenance Maintenance Professional service Total deferred revenue 2019 $ 5,839,186 997,220 4,676,114 460,849 2018 $ 5,722,660 191,009 3,302,383 419,205 11,973,369 9,635,257 PAGE 46 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 15. PROVISIONS Current Annual leave Long service leave Non-current Long service leave Make good obligation 2019 $ 2018 $ 3,093,508 167,604 3,261,112 241,525 301,866 543,391 2,476,241 140,263 2,616,504 230,255 296,259 526,514 The current portion of these liabilities represents the Group’s obligations to which the employee has a current legal entitlement. These liabilities arise mainly from accrued annual leave entitlements at the reporting date. A provision has been recognised for employee benefits relating to long service leave for employees. In calculating the present value of future cash outflows in respect of long service leave, the probability of long service leave being taken is based upon historical data. The measurement and recognition criteria for employee benefits have been included in Note 1(o). Nuix is required to restore the leased office at 1 Market Street in Sydney and Unit 17C in Cork Airport Business Park in Cork to the original condition at the end of the respective leases. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. 16. BORROWINGS Non-current Bank Loans (a) Secured liabilities NOTE 2019 $ 2018 $ (a) 25,681,820 20,000,000 Nuix Pty Ltd utilised the cash facility of $25,681,820 out of $30,000,000 ($20M AUD and $7.5M USD). The financing is provided by Commonwealth Bank of Australia (CBA) with interest repayable on a quarterly basis over the term of the loan. The facility is secured over the Group’s assets. Drawdown made during 2019 was $4,000,000 USD (2018: $5,000,000 AUD). PAGE 47 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 17. ISSUED CAPITAL 265,400,633 (2018: 217,390,649) fully paid ordinary shares (a) 104,227,205 17,809,218 NOTE 2019 $ 2018 $ The issued shares do not carry a par value. Movements in issued capital Balance as at 1 July 2017 Shares issued during 2018 Balance as at 30 June 2018 Shares issued during 2019 Balance as at 30 June 2019 *weighted average price NUMBER # ISSUE PRICE* $ AMOUNT $ 212,389,650 5,000,999 217,390,649 48,009,984 265,400,633 1.80 1.80 8,801,888 9,007,330 17,809,218 86,417,987 104,227,205 Ordinary shares participate in dividends and the proceeds upon winding up of the Company, proportionately to the shareholding. At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. a. Capital risk management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements aside from debt covenants. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. 18. EQUITY a. Share-based payments The share-based payments reserve is used to recognise: • • • the grant date fair value of options issued to employees but not exercised, the grant date fair value of shares issued to employees, and the grant date fair value of shares issued to shareholders. PAGE 48 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 b. Movement in reserves Share option reserve As at 1 July Share based payment costs As at 30 June Option buy-back reserve As at 1 July Buy-back of options As at 30 June Foreign currency translation reserve As at 1 July Foreign currency translation reserve As at 30 June Total Reserves c. Retained earnings Retained earnings Net profit for the year Total retained earnings 19. DIVIDENDS 2019 $ 2018 $ 4,687,530 149,818 4,837,348 3,511,320 1,176,210 4,687,530 (6,176,255) - (6,176,255) - (6,176,255) (6,176,255) 2,187,902 1,776,047 3,963,949 1,811,947 375,955 2,187,902 2,625,042 699,177 2019 $ 2018 $ 66,864,790 55,875,278 14,685,930 10,989,512 81,550,720 66,864,790 During the year the Directors did not declare an interim dividend (2018: Nil) and have not recommended a final dividend be paid after 30 June 2019 (2018: Nil). Franking credits arising from the payment of income tax, by the parent entity, Nuix Pty Ltd, during the years ended 30 June 2019 and 30 June 2018 are represented below. Franking credits Franking Credits Attributable To Parent Entity Franking credits available for subsequent financial years based on a tax rate of 30% (2018: 30%) Parent Entity 2019 $ 2018 $ 668,772 668,772 PAGE 49 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 The amounts represent the balance of the franking account as at the end of the reporting period, adjusted for: • • • franking credits that will arise from the payment of the amount of the provision for income tax, franking debits that will arise from the payment of dividends recognised as a liability at the reporting date (2018: Nil), and, franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date (2018: Nil). Franking credits attributable to the parent entity only are represented above. If the distributable profits of the subsidiaries were paid as dividends the consolidated amounts would include franking credits. The jurisdictional income tax paid by the subsidiaries is set out below: Nuix North America Inc. Nuix Technology UK Ltd Nuix Philippines Regional Operating Headquarters Nuix Ireland Ltd 20. AUDITORS’ REMUNERATION PricewaterhouseCoopers Australia Audit and other assurance Other assurance Total for audit and other assurance Taxation services Total for taxation services Total for PricewaterhouseCoopers Australia 2019 $ 2018 $ 228,584 87,363 8,846 - 245,032 - 3,790 10,684 324,793 259,506 2019 $ 2018 $ 279,800 405,200 685,000 14,000 14,000 699,000 225,000 27,000 252,000 14,000 14,000 266,000 It is the Group’s policy to engage PricewaterhouseCoopers Australia on assignments in addition to their statutory audit duties where their expertise and experience with the Group are important. These assignments are principally tax advice. It is the Group’s policy to seek competitive tenders for all major consulting projects. 21. LEASING COMMITMENTS Lease commitments: Non-cancellable operating leases: Group as lessee The Group leases various offices under non-cancellable operating leases expiring within one to three years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. PAGE 50 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Commitments in relation to finance leases are payable as indicated in the table below. Within one year Later than one year but not later than five years Later than five years Minimum lease payments 22. RELATED PARTY DISCLOSURES a. Parent entity 2019 $ 2018 $ 3,697,060 2,689,960 5,624,911 5,929,130 3,447,868 3,826,660 12,769,839 12,445,750 The parent entity within the Group is Nuix Pty Ltd. The ultimate parent entity is Macquarie Group Limited. b. Interests in other entities Place of business/ country of incorporation Ownership interest held by the Group Ownership interest held by non-controlling interests Principal activities Name of entity 2019 2018 2019 2018 Nuix North America, Inc USA 100% 100% Nuix Ireland Ltd Ireland 100% 100% Nuix Pte Ltd Singapore 100% 100% Nuix Holding Pty Ltd Australia 100% 100% Nuix USG Inc. Nuix Technology UK Ltd USA UK 100% 100% 100% 100% Nuix Philippines ROHQ Philippines 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Sale of Software Sale of Software Sale of Software Holding Company Sale of Software Sale of Software Business Support c. Transactions with other related parties The parent entity enters into commercial arm’s length distribution and reseller agreements between the Group subsidiaries and other Macquarie Group Limited’s related parties. These agreements are entered into on normal and commercial terms. PAGE 51 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 d. Loans to / from related parties Loan (from) / to Nuix Ireland Ltd to Nuix UK* Balance at 1 July Payments received Interest charged Balance as 30 June Loan to Nuix Ireland Ltd to Nuix USA** Balance at 1 July Loans advanced Payments received Interest charged Balance as 30 June Loan to Nuix USA** to Nuix USG Balance at 1 July Loans advanced Interest charged Balance as 30 June 2019 $ 2018 $ (1,060,061) 91,668 (2,458,958) (1,194,437) 22,646 42,708 (3,496,373) (1,060,061) 3,828,155 14,518,389 341,092 - - (11,041,276) 94,733 351,042 4,263,980 3,828,155 1,881,927 1,375,892 2,136,311 417,937 - 88,098 73,004 1,881,927 Loan to / (from) Nuix Regional Operating Headquarters to Parent Balance at 1 July Loans advanced Interest charged Balance as 30 June Loan to / (from) Parent to Nuix USA** Balance at 1 July Loans advanced Interest charged Balance as 30 June (75,203) (102,981) 367,008 18,573 310,378 14,178 13,600 (75,203) 7,125,410 12,527,654 (12,440,596) 19,784,307 144,477 (218,301) 5,546,721 7,125,410 PAGE 52 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 d. Loans to / from related parties (continued) 2019 $ 2018 $ (893,454) (13,709,030) - 12,546,897 (4,319,458) 90,718 268,679 (5,122,194) (893,454) 144,404 237,191 (234,236) 8,116 (81,716) - 2,144,557 3,761 2,148,318 (82,354) 10,433 144,404 - - - - Loan from Parent to Nuix Ireland Ltd Balance at 1 July Loans advanced Payments received Interest charged Balance as 30 June Loan (from) / to Nuix Singapore to Parent Balance at 1 July Loans advanced Interest charged Balance as 30 June Loan from Parent to Nuix UK* Balance at 1 July Loans advanced Interest charged Balance as 30 June *Nuix UK is an abbreviation for Nuix Technology UK Ltd **Nuix USA is an abbreviation for Nuix North America Inc. 23. SHARE-BASED PAYMENTS a. Employee Share Option Plan (ESOP) The establishment of the Nuix Pty Limited ESOP was approved by the Board of Directors on or around fiscal year 2012. The ESOP is designed to align the interests of eligible employees more closely with shareholders and provide greater motivation and incentive for them to focus on the Company's longer- term goals. Under the plan, participants are granted Options which may only be exercised if the Relevant Requirement has been met. Participation in the plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. To be eligible to receive an Option Invitation, an Employee must have at least six months continuous employment with the Company at the time invitations are issued, not be on a Performance Improvement Plan and not be employed as an Intern. Options are granted under the plan for no consideration and carry no dividend or voting rights and are Non-statutory Stock Options. Option holders cannot assign, transfer, sell or otherwise deal with the Options granted under the Plan without Board of Directors’ approval. The amount of Options that vest depends upon the vesting rules of the respective Plan rules (generally three to five years). The Options vest in a series of successive equal monthly instalments beginning on PAGE 53 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 the first anniversary of the Vesting Commencement Date, subject to the Optionholder’s continued employment with the Company. Once vested, the Options become exercisable following the consummation of a Corporate Transaction / Liquidity Event (as defined in the Plan rules) or a date determined by the Board. However, under some earlier Plan rules, Options are exercisable for a period of three years once they become fully vested. Following the exercise of the Options, a vested Option is converted into one ordinary share within a certain number of business days as determined by the Plan rules (generally ten to fifteen business days). The exercise price of options is determined by a combination of internal and external valuation methodologies and presided over by the Board of Directors. Set out below are summaries of options granted under the plan: Average Exercise Price Per Number of Share Options As at 1 July Granted during the year Exercised during the year Sold Forfeited during the year As at 30 June Vested and exercisable at 30 June 2019 2018 $ # $ # 0.81 2.40 - - 1.46 1.33 0.01 42,597,100 0.72 52,591,250 20,936,900 2.30 1,530,000 - - (4,007,450) 59,526,550 0.12 (3,959,150) - - 0.80 (7,565,000) 0.81 42,597,100 15,368,900 0.01 15,368,900 PAGE 54 of 63 Nuix Pty Ltd and Controlled Entities Annual Report Notes to the Consolidated Financial Statements (continued) For the year ended 30 June 2019 Share Options outstanding at the end of the year have the following expiry date and exercise prices Grant Date FYE 2006 FYE 2007 FYE 2008 FYE 2009 FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 Total Last Exercise Date Weighted Average Exercise Price Share Options Share Options (Post Split) (Post Split) 30 June 2019 30 June 2018 LE < APR15 < MAR16 < MAR17 LE LE &

Continue reading text version or see original annual report in PDF format above