Nuix Limited (NXL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nuix 1H '25 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Jonathan Rubinsztein, Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining us today for Nuix's first half '25 results. I'm Jonathan Rubinsztein, Nuix's CEO. Also, with me today is Nuix's CFO, Peter McClelland. Turning to today's agenda. I'll make some opening comments around key messages and metrics, followed by Peter, who will talk through the financial results in more detail. After that, I'll make some further comments on Nuix Neo strategy, as well as outlook before taking some Q&A. Turning to Slide 3. I'd like to begin by reflecting on Nuix's strategic transformation. As shared with you on previous occasions, Nuix is on a multiyear transformation journey. We have made significant improvements in the operations across almost all aspects of the company, revitalized our culture and in all service of relentless focus on our customers. In the last 3 years, we have seen pleasing results across our strategic priorities. We have transformed our product offering and embraced AI into our core proposition. We have simplified our business operations and strengthened our culture. We noted at the AGM and at last month's update that our sales are not linear across the year. My job as a CEO is to drive for executional excellence each year, each half, each quarter, whilst also keeping the organization steadfast and focused on the longer-term strategy to ensure sustainable growth. Today, I will share the results of the half year and also update on progress against our longer-term strategy and share my confidence for the future of this Australian tech success story. Turning to Slide 4. Before we begin on results, a quick reminder of who we are. Nuix develops AI-powered advanced intelligent software solutions. With over 20 years of experience, Nuix delivers advanced data analysis solutions for industries demanding precision and insight, including eDiscovery, regulatory compliance, data governance, cybersecurity and forensic investigations. We operate on a global scale with more than 80% of our annual contract value, ACV, coming from outside Australia. With a team of over 400 employees worldwide, we cater to a high-quality customer base, 85% of whom have been with us for over 5 years. Our robust technology foundation paired with our extensive technology pipeline and global presence positions us well for future growth. Slide 5. The key messages I wanted to highlight today are: One, our ACV growth in line with market update we provided last month; two, further growth in cash EBITDA in line with our full year objective to grow revenue faster than operating costs; three, continued momentum in the rollout of Nuix Neo; four, lift in R&D investment to drive future growth; five, underlying cash flow positive for the half, in line with our objective to be underlying cash flow positive for the full year; and six, lastly, we finished the year with $30.7 million of cash in the bank. Slide 6. Turning now to our financial metrics dashboard. ACV at the end of the year came in at $216.2 million, a rise of 8.3% on the same time last year. Stat revenue at $105.2 million is up 6.9% on PCP. Net dollar retention, which is a key measure of the growth in spend from our existing customer base, dipped during the half to 109.6%, and we'll have more to say about that shortly. You'll notice that we have 3 measures of EBITDA on the page. Cash EBITDA is closest to the way that management thinks about running the business. Cash EBITDA incorporates the full R&D development spend, both expensed and capitalized, but excludes nonoperational legal costs and restructuring costs. Cash EBITDA rose by 30.6% on a PCP basis to $13.4 million. Underlying EBITDA is identical to cash EBITDA, except that only the expense proportion of R&D is included, not the capitalized component. You'll note the divergence between the performance of underlying EBITDA and cash EBITDA. This is driven by a big change in the expense component of research and development, which we'll come to shortly. Incorporating the impacts of nonoperational legal costs and restructuring costs, you can see that statutory EBITDA is down 10.8% in the half to $15.3 million. I'll now hand over to Peter to talk through the financial results in more detail.

Thanks, Jonathan, and good morning, everyone. As Jonathan mentioned in his opening comments, ACV is in line with the guidance we provided to the market last month, coming in at $216.2 million for the half. That represents an 8.3% growth on PCP and 2.2% in the 6-month period since June. There are a number of elements that make up ACV, but particularly noteworthy is the further growth in the recurring component subscription ACV, which in line with our strategy to grow subscription ACV is up 13.3% on the PCP and now represents 97% of total ACV. Partially offsetting this is the fall in other ACV. Other ACV includes one-off perpetual licenses, which we have stated we're moving away from. Other components are short-term projects and services, which by their nature, can fluctuate across periods. Slide 9 shows the ACV walk over a 12-month period. Traditional component sales are higher on customer upsell as well as further growth in the Rampiva and Advantage. Nuix Neo has been a significant growth contributor over the year with an incremental $14.9 million to ACV, and Jonathan will discuss Neo further later in the presentation. Discover SaaS ACV is relatively flat year-on-year with normal fluctuations in usage. However, in the half, we have also seen growth partially offset by some churn in smaller customers and the conclusion of several finite projects. Lastly, you can see the impact of cycling some of those one-off ACV items in the other column, as we cycled away from perpetual licenses and one-off services favoring subscription models. You can see that's weighed on the ACV growth to the tune of about $8 million. Turning to Slide 10. Here, we've highlighted the trends in net dollar retention and churn. As mentioned, NDR reflects the lift in ACV achieved from Nuix's existing customer base over a 12-month period. While an NDR of 109.6% shows we're achieving growth with existing customers, it has dipped during the half due to lower degree of upsell compared to previous halves. We saw an uptick in churn to 5.4% during the half with some uplift in North America corporate and also a singly large customer churn in EMEA on the completion of a project. That said, churn remains within longer-term ranges. NDR is an important metric for us. We have more work to do in lifting this metric further. Some of the strategic initiatives that Jonathan will discuss shortly will help in driving higher NDR outcomes in future periods, particularly as we chase higher-value contracts. Turning to Slide 11. Here, we highlight the regional ACV performances. North America has moderated from the very strong growth we saw last year with good upsell achieved in advisory and government, partially offset by the roll-off in perpetual sales that we've noted previously. The North American team continues to achieve Nuix Neo growth in all sectors. EMEA is essentially flat over the 12 months. While there's been some good upsell in government, this was offset by a loss in corporate with one large project completion in particular, weighing on growth. That said, EMEA saw good momentum in Nuix Neo sales with particular success in Neo investigations. Asia Pacific produced strong growth over the 12-month period to be up 17.4%, driven by strong growth and upsell in both corporate and government. In terms of Nuix Neo, the APAC team was particularly successful in selling to corporate, including securing a significant multi-solution deal during the half. Turning to Nuix's revenue for the half. You can see that revenue grew by 6.9% on the PCP. Multiyear deals represent 22% of revenue, down from 24% in the prior year. However, subscription component of revenue remains high at 94%. At the end of FY '24, we flagged an uptick in R&D investment during FY '25, and you can see that shown on Slide 13. R&D spend rose by 7.2% compared to PCP, excluding some restructuring costs, which were incurred during the period. What is worth noting for the half was the shift in the expense versus the capitalized components of R&D compared to the prior period. In this half, the expense proportion of R&D was higher due to the increased activity on customer improvements and further research on new Horizon 3 development opportunities. This mix will fluctuate based on product development cycles. As we've noted previously, management focuses very strongly on the entire R&D spend and the prioritization of this spend based on business needs and product development cycles. This entire spend is incorporated in the cash EBITDA measure, but this mix shift in expense versus capitalized R&D has weighed on our underlying and statutory EBITDA outcomes, which we'll come to shortly. Also, and importantly, consistent with prior periods, the entire R&D investment is funded from underlying cash flows. Turning to Slide 14. As we just noted, the cash EBITDA incorporates the full research and development investment spend, including the capitalized component, but excludes net nonoperating legal costs and restructuring costs. Cash EBITDA is the measure of EBITDA that most closely represents the way management thinks about running the business. And here, you can see that in H1 FY '25, cash EBITDA rose by 30% to $13.4 million with an associated margin of 12.7%. Importantly, as Jonathan alluded to earlier, this aligns with our full year objective of revenue growth to exceed operating cost growth. Turning to Slide 15. We are conscious that there are 3 measures of EBITDA in the pack, in line with what was presented in the full year results. This slide shows the relationship between each measure of EBITDA. On the left-hand side, you can see the walk to achieve the 30% growth in cash EBITDA with revenue growth exceeding cost growth. The only difference between the cash EBITDA and the underlying EBITDA is the capitalized component of R&D. Statutory EBITDA incorporates the impacts of nonoperating legal costs as well as the restructuring costs we mentioned. Going forward, we'll probably simplify this a little, but the focus from a management perspective will remain on cash EBITDA, as we've outlined today. On Slide 16, you can see the income statement, which again reflects the walk between these measures of EBITDA that I've noted. I won't go through all the individual components, but it is again worth calling out the revenue growth in excess of operating cost growth. Separate to that and a bit further down the table, you'll see that net nonoperating legal costs for the half were $9.6 million. You'll also notice that the restructuring costs of $2.2 million are slightly higher than the R&D amount we mentioned earlier. That is because there are some elements of the restructure that have impact on areas not accounted for in R&D. Here, you can see the full impact of this restructuring program on the P&L. Turning to Slide 17. You can see the growth in underlying cash flow for the half to $7 million from $6.6 million in the prior period. This is important because it means we're well placed on our strategic objective of delivering positive underlying cash flow for the year. Naturally, nonoperating legal payments continue to weigh on our cash flow, as well as some of the early payments associated with the restructuring program we've talked about. As Jonathan mentioned, we closed the half with a cash balance of $30.7 million compared to $24 million in the PCP. We retained our debt facility of $30 million with only $750,000 utilized for property-related guarantees. I'll now hand back to Jonathan.

Thanks, Peter. Now turning to Slide 18, which is a strategy update. I'll talk you through our product, innovation and customer strategy. Those familiar with Nuix will be aware that Nuix Neo is a core element of our growth strategy, and you've seen that as part of today's results. For those that are new to or revisiting the Nuix story, just a quick recap on what Nuix Neo actually is. At the start of FY '24, we launched Nuix Neo as the key building block of our renewed strategy. Nuix Neo leverages the power of the patented Nuix engine in an AI-enriched single-platform offering. This represents a critical step change in our customer offering, making the process of data collection, processing, enrichment, analysis and review faster, easier and smarter. Now going to Slide 20. The Nuix Neo platform simplifies common uses of our software by using AI models tailored to specific challenges, particularly around data privacy, forensic investigations and legal processing and review. It helps customers make smarter and clearer sense of their data with our unique AI technology, combined with our unique automation and orchestration technology. Moving to Slide 21. Peter touched on the growth in Nuix Neo earlier in the financial section, and I thought I just wanted to spend a moment here talking about a little more. Nuix Neo growth continued its strong momentum in the half, growing to $18.9 million of ACV across 46 customers. As we saw previously, a significant driver of growth again in this half has been the take-up of new incremental Neo solutions by customers, who already had existing Nuix products. This is an important part of our growth strategy, offering new products to our existing customers alongside the ones they already have from us. During the half, we had particular success in selling Nuix Neo Investigations, as well as securing a significant customer win incorporating several Neo solutions. Importantly, Nuix Neo was also the driver of securing new customers to Nuix in each region. Nuix Neo sales are good generators of ACV and revenue growth. The average Nuix Neo sale is 2x to 3x the size of a non-Neo sale. This difference highlights the substantial advantages the Nuix Neo platform offers to customers and reflects our strategic shift towards targeting larger enterprise customers, who can fully leverage our comprehensive solutions. Turning to Slide 22. At our Investor Day at last year's Accelerate Conference, we highlighted the substantial R&D program underway for FY '25. During the first half, our technology team made very significant progress on key deliverables for the year, and we remain on track for release of important new developments and updates for customers in this current half. We continue to invest in our Discover SaaS product. Very soon, our Discover SaaS customers will be able to access cognitive AI capabilities, as part of our offering, driving a step change in value for this customer cohort. This is just one element of our Discover road map. We remain very committed to our component customers, who we know really value our offering. Also, during this half, we will release version 10 to this important customer set, which will incorporate upgrades to engine, workstation and Investigate. Turning to Nuix Neo. The Semantic Search capabilities that we showcased at the Investor Day will be available to customers in this half. Semantic Search is an advanced search technique that understands the meaning and context of words rather than just simply matching keywords. Semantic Search delivers more relevant search results by considering the intent behind the query. Alongside this important development is a very broad-ranging program of work to further upgrade and enhance the Nuix Neo offering. This includes updated dashboards, incorporating further AI models, including non-English markets and further automated workloads, making Nuix Neo even more attractive to our customers. Lastly, our customers have different needs, so we offer flexible deployment options. Customers can deploy our software behind their own firewall on a private cloud or in a public cloud. We are on track this half to launch Nuix Neo Local. Nuix Neo utilizes Kubernetes for containerized deployment, significantly reducing deployment time and making it easy for customers to add new solutions or capabilities. These developments will further enhance our customer offering, and we look forward to sharing them with our customer base over the rest of this half. Moving to Slide 23. You heard Peter talk about restructuring costs earlier, and I just wanted to provide a bit more color on the technology restructure program that we have enacted. In essence, this project is about concentrating our development hubs and technology spending globally. This means core technology hubs in Sydney, Washington, D.C., Pittsburgh and London with additional work through our technology partner in India. The program will make our technology delivery more efficient by reducing cross-region dependencies and co-locating teams working on the same projects, as well as enhancing our customer support by bringing customer-facing teams together. Moving to Slide 24. We are taking the next steps in our AI journey with Nuix Neo soon incorporating a deep learning framework. This will allow it to create, understand and use mathematical vectors, unlocking significant power and value for our customers. The first feature of this framework is Semantic Search, which I mentioned a moment ago, providing more relevant search results by considering the intent behind the queries. Additionally, this framework will enable the integration of public language models, allowing customers to use services like transcription, translation and advanced image and text analysis. Nuix Neo will also support customers' proprietary AI models and public Gen AI providers, allowing them to integrate their own AI models with our solutions. Earlier this month, we successfully achieved a patent for the deep learning technology for training AI, which demonstrates the leading-edge nature of our innovation in this area. This technology underpins Nuix Neo and will unlock further material value for our customers and growth opportunities for our company. It's important to add here that as a technology company with significant AI capabilities, Nuix carries a responsibility to use those capabilities thoughtfully and transparently. We remain fully committed to delivering responsible AI, that is AI that is explainable and defensible. Moving to Slide 25. We know that Nuix's existing technology stack is incredibly powerful and the investments that we are making will make our software an even more valuable tool in solving very complex data problems in a responsible way. As part of our strategy, we are deliberately targeting larger, more enterprise-style content. These customers can take better advantage of the power of our offering, particularly as we continue to invest in the technology advances associated with Nuix Neo and the deep learning framework. As we've noted in the short term, that increasing focus on higher-value contracts has meant the lengthening of the procurement cycle for some of our customers. In the medium and longer term, focusing on larger and more complex contracts will enable Nuix to better leverage and realize full further value from its powerful technology. This approach will help the company take full advantage of the rapid growth in data volumes and the evolving methods of extracting further meaning from complex data sets. As we pivot to focus more on these larger, more complex contracts, we'll continue to invest in programs associated with training and upskilling our sales force, as well as simplifying migration mechanisms for customers, who want to move further up our technology curve. We're not shy about chasing some of these larger contracts. The potential for Nuix, as we move further towards these larger, more enterprise-style customers has the potential to be very significant for us. And importantly, we have the technology foundations to compete in these spaces. Moving to Slide 27. Turning to our strategic targets for FY '25. Last month, we updated the market that based on the first half outcome, our expectation is for 11% to 16% ACV growth in constant currency over the full year. That expectation has not changed. You might recall previously that we articulated a target of 15% ACV growth in constant currency for the full year. While we still aim to achieve that within the band of expectations based on what we've talked about with the variability of the procurement cycles, the 11% to 16% range we provided last month more accurately reflects our current expectations around the potential full year outcome. A core target is the successful rollout of Nuix Neo. And as you've heard today, we have significant momentum in that rollout. The enhancements that we are making to Nuix Neo will continue to underpin the attractiveness of our offering. We are on track to deliver revenue growth in excess of our operating cost growth. You saw in Peter's section how even a relatively subdued top line environment for the half, we still delivered further growth in cash EBITDA. We remain on track for this strategic target for the full year. Similarly, we are on track to deliver an underlying cash flow positive outcome for the full year, with the first half experience leaving us well placed to deliver on this target. In closing, I want to reiterate the advances we are making in our technology offering, while positioning the organization for further growth. We have a lot to execute on in the current half, but the team is energized, and the strategy is being executed to plan, which makes us very excited about what we can achieve over the rest of the financial year and beyond. I'll now hand back to the operator for Q&A. Thank you.

[Operator Instructions] The first question today comes from Jules Cooper from Shaw and Partners.

All right. Fantastic. The guidance, Jonathan, implies a stronger second half. I guess, particularly with respect to Neo, would you just be able to talk a little bit more about the pipeline, the sales cycles you're seeing and what drives your confidence on achieving that stronger second half? That would be helpful. And maybe just framing the upper and lower bounds of that guidance range in terms of those growth markers would be helpful as well.

Thanks, Jules. Yes. So as mentioned, what we have seen is in terms of existing customers migrating to Neo, it is -- it has taken slightly slower than we expected. And that kind of makes sense. It's quite logical that from a components out to a more sophisticated and more complex platform, there is more kind of work to be done in moving our customers over. However, we really have now moved in and started to simplify that journey and the pricing and the commercials. So that's how we've been kind of driving that. The other reality also is that we've been chasing some of the larger enterprise-type Neo opportunities. And so, we do have a strong pipe in that area, both of the larger enterprise-style Neo opportunities. And so again, 1 or 2 of those landing has -- so you asked the range. The reality is 1 or 2 of those larger style enterprise deals by them closing or not closing in the full year can make the difference between 2 or 3 ACV points, which is significant. Again, as you can see, though, we are pretty confident about H2, just simply given the pipe and the momentum that we have with Neo.

And maybe just one follow-up. You've been specific in the commentary around Neo that you're seeing particular strength in investigations. Could you maybe comment on legal? And is it still just a little bit early in the gestation of that to be making specific comments? Or is there a reason why it was left out essentially?

Yes. No, look, in H1, we had strength in our investigation solutions. I think that's partly because we have a fairly big demographic of investigations in Europe and EMEA, we had a fair amount of growth. I think we'll -- in terms of legal, again, it's the latest solution or the most recent solution that we've released. And again, a lot of those legal solutions, I would suggest going into H2, we've got a bunch of the large third-party data providers that process data on behalf of other people, and we're expecting to see growth in our legal solution. But yes, I think it's just a function of the -- when we released what. And certainly, in terms of the legal solution, we're seeing a lot of interest in those larger data processes, if you want.

The next question comes from Andrew Johnston from MST Access.

First question, Jonathan, the extra R&D expenditure, can you talk about where that's going specifically? And which products are you putting more of that money into?

Andrew, I think as we flagged before at the beginning of this year, we are leaning into our R&D spend. Our R&D spend still is certainly within the range that we expected. In terms of focus area, first of all, there's been a big focus on, as you know, getting these 3 solutions out. So getting out of data privacy, forensic investigation and now the legal solution. So that's been the core focus. And by the way, that is the start of that journey. So those platforms still that's kind of, if you want, the first version. So in terms of H1, there's been a lot of focus on building out and driving those existing platforms. Those are really V1 of those solutions. And then secondly, we've also had a fairly big focus on some of our Horizon 3 solutions we've got. In Horizon 3, we are very excited about, and you might have seen we achieved a patent on our deep learning framework. And so, we're super excited about some solutions coming out of the Horizon 3 area. And then finally, we've also invested in our version 10, which is giving our existing customers on components choice to stay on the components. And the reason why that's important is there is a shift from component to platform. And sometimes you don't have the time to do the work or the reality of how you deploy those components are that you still want access to what are the best components in the analog space, if you want. And so, we've invested in an upgrade to V10, again, giving our customers the ability to a, stay on the component world and upgrade to version 10 of the components or then move into one of the solutions, the new solutions that we built.

Okay. Great. Just two more questions, if I could. So just quickly, so the first half '25 revenue growth was obviously lower than the ACV growth. Is this a function simply of the lower level of multiyear deals? And so, if we see 1 or 2 of those large multiyear enterprise deals come through in the second half, will we see -- are we likely to see revenue growth then exceed ACV growth because obvious implications obvious for EBITDA, obviously?

Yes. So it's Peter. The short answer to that is, yes, that's correct. I mean, your revenue growth is a factor of your multiyear deals and hence, the sort of the timing of when those deals fell. We're not really giving guide as to the relativity between ACV growth and revenue growth in the second half. But it is fair to assume that a couple of larger enterprise multiyear deals would have a significant impact, not just on ACV, but clearly a much greater significant impact on your stat revenue for that period. So that is one of the balancing act. We're constantly looking at what is the right level of ACV and stat revenue growth.

Okay. Great. Thanks, Peter. And finally, Jonathan, you mentioned with Neo, the take-up has been slightly slower than expected, complexity, et cetera, and how you're driving the things you're driving to now are looking to reduce that complexity. You mentioned simplified pricing. You answer this may well be we don't want to go into details. But I'm just wondering if you can give any more detail about how the reduction in the complexity of pricing is -- how you see that playing out and affecting Neo growth?

Yes. So the take-up hasn't been slower. The migration to take-up has been slower. So -- and I know that might sound semantic, but in reality, just moving from components to platform, there is a broader technology stack. There is a degree of implementation, and that process has been slightly slower. And so, what we've tried to do is really just simplify the commercials around that and make it easier and reduce any friction if you want, in particular, figuring out how you can migrate. So we've actually deployed a local platform solution, which means that the deployment of Neo is literally -- if you take the whole world of components, we're deploying components would take days, weeks or even months. We're getting our local platform deployment in under an hour. So we're making technically the deployment simpler and then also just a very simple migration path from a commercial perspective. So there is a pathway to Neo and there's a full Neo. And we're just simplifying those to make it abundantly clear and pricing the value appropriately. And I think that will make a big difference in H2.

Okay. No, that's great. That clarifies it a bit. So Jonathan, then is it fair to say that the slightly slower-than-expected growth in Neo is around the conversion of existing customers to Neo? How about the take-up by completely new customers of Neo? Is that sort of in line with where you were expecting, say, 6 and 12 months ago?

Yes. I don't think this is -- I mean, we're positive and excited about the take-up in Neo. We -- as you can see, we had 23 customers in H1. So I think it's just a function of the timing and when the deals fall, but we are very -- and then in terms of net new also, we are excited about those opportunities. And as I mentioned also, those opportunities are more of the enterprise style type opportunities. So they are bigger than the average kind of 2x, 3x deals in components that we spoke about.

[Operator Instructions] The next question comes from Wei Sim from Jefferies.

I've just got a few questions related to kind of like how we should think about balance sheet and cash flow going forward. So I might just rattle them off and see how you'd like to answer them. Just firstly, in regards to the restructuring costs that we saw coming through in the first half. Is there more of that to come through in the second half and going out? So just in terms of the R&D investment, how should we think about what's been budgeted over the next 18 months and capitalization versus expensing of that? And I appreciate we've got kind of like a bank facility, which is largely untapped, but how do we think -- how should we think about, I guess, potential cash burnout into '26?

Firstly, in terms of the restructuring costs, I just want to really highlight that that's not a cost-out program. That was around the reorganization of the tech team to make sure that as we're sort of really looking at the contemporary development of our product or product sets that we've got the right teams in the right locations. So that program was put in place to consolidate some of the regional offices to bring back into some central positions. In terms of the cash flow impact, a lot of that expense that's in the P&L hasn't yet been paid out. So we've recognized the obligations that have come out of those restructuring programs. So that is a cash flow that will largely flow into the second half of this financial year. In terms of your question around the R&D spend, I suppose the first point is management very much focuses on the spend in totality, not the mix between what gets capitalized and what gets expensed. So that spend that you saw in the first half, excluding the restructuring costs of about $28.6 million is around the run rate. We did flag at the -- coming into this financial year that the spend would be higher. And I think somebody asked some questions to Jonathan earlier on around that. We focus very much on that, the management's cash EBITDA targets are all focused on managing the totality of the spend. That said, the mix between what gets capitalized and what gets expensed will be very much delivered by or determined by where we're at in the product life cycle in the first half. We probably had a higher amount of expenses we were focusing on some of the customer developments. And as Jonathan mentioned before, the increased spend in Horizon 3 development type activity. But I would anticipate, as we move forward, somewhere the expense component will probably sit somewhere between 30% to sort of 50% of the total R&D spend, but the spend level will remain -- in sort of totality will remain around where we are. In terms of the bank facility, can you just go back over the question? Again, I wasn't quite sure what you were asking.

No, it wasn't really a question related to that. But just understanding how, I guess, the cash balance should be looking over the next 12 to 18 months is really what I'm trying to get at. Obviously, we had, I guess, our cash balance go down about $8 million this half. And so, just how we should think about, I guess, the risk of needing more capital or more cash going forward?

Yes. No, look, we're comfortable with the positions we've given guidance to, or you indicated positive net operating cash delivered by the business over the half. I mean your bank balance, your cash at bank, if you actually go back and have a look at the sort of the walk in terms of underlying cash for the half, you can see that the underlying cash is actually -- or sorry, underlying cash delivered is positive for the half. What did weigh a little bit on that cash flow in the half was the payments related to the ongoing legal issues. There was some timing around when expensed in the prior year to where the cash flows were sort of impacted into the first half. So we're anticipating that we'll continue to deliver strong operating cash flows. It will then just be around the timing of those legal cases. But effectively in the first half, a lot of the matters have sort of progressed through the first half.

And in terms of operating cash flow, it is definitely more weighted towards H2 just as a function of kind of different payments of things like STIs and other things like that, that make quite a big cash out and then also insurance payments also that are impacted. So in reality, the H2 is more from an operating cash flow perspective, more cash flow generative.

Okay. Got it. Thanks, Jon. Sorry, Peter, before you mentioned a lot of the restructuring costs being expensed, but not having actually paid out. So what's that delta that we're looking at in H2? And just coming back to that question on restructuring, is there more to come through or that's kind of one and done?

No. That's -- I mean, in terms of the restructuring program, that's done. So that you won't see that flowing into -- you won't see any more of those programs underway. There was only a small component in the first half that was actually paid out in cash. So a larger amount of that $2.2 million will flow into cash flows in the second half. You can actually see the cash flow bridge how much came out in the first half. It was $400,000 of cash flow relative to the expense that went through the P&L.

And I will just -- the one thing is that this restructuring is strategic. So the intent is how do we build a more efficient kind of engineering organization. And what we had was a bunch of people scattered around the world in different offices that just made it very different -- difficult, both from a time zone and a collaborative perspective. So what we've done is we've actually taken 40 people and moved them primarily from different regions into the Australian engineering area and into some offshoring areas to give us really scale and efficiency and get them together. So I think the outcome should be very positive, but this is a one-off -- without a doubt, this is a one-off restructuring, and that's why we've called it out as well.

Okay. Got it. If I can just entertain one more question. Regarding the customers' upsell taking longer, totally understand that. I'm just wondering like how it works with customers in the sense that if they are an existing customer and negotiations are taking a bit longer, how long can they ultimately stay on their existing contract before, I guess, it lapses, or something needs to be done in order to essentially force them to upgrade or come to a conclusion.

So look, it's a good question. The intent is not to force our customers to do anything. And hence, we've actually created version 10. But what can happen is you're not -- you're looking at the component world and thinking there is a bit of engineering, there's a bit of work I've got to do internally. And hence, I might still upgrade, but I'll stay on components -- sorry, I might renew, but stay on components, and I might upgrade in the next year or the year after whenever that contract is due. So it's less around me kind of forcing the customers to upgrade, but it's more around giving choice and also managing the Neo move. And really that -- so our key learnings there is engage early with our existing customers because it does take a while. And then the second one, which I mentioned earlier, was really just try and simplify the commercials so that the move from a component to platform is easier to digest and move forward.

The next question comes from Sinclair Currie from Moelis Australia.

Look, I was just interested in some of the, I guess, dynamics of moving the larger customers over to Neo. And I was just trying to understand within that sort of framework, are those customers -- are you looking to displace established either third party or those customers' own proprietary, I guess, tools as part of that process? And does that elongate, to an extent, some of those discussions you need to have to get them over the line?

So I would suggest that almost all of the customers have something that they're solving the problem with. And often that something is actually a combination of components. So -- and so, they have a bunch of components that they have put together, they've kind of aggregated and created a workflow of some sort. And so therefore, we are often trying to replace what is a set of components, sometimes our own components or sometimes a collection of our components and other components into a platform, where we are trying to say, here's an integrated platform, single sign-on, one data set, a simpler end-to-end user interface, enterprise automation across all of those components and our AI built into that full platform, but that's what we're typically replacing versus I've got X,Y,Z. But inevitably, they are solving the -- they have a set of technology components and our value proposition. And what we're saying is we believe that our platform is up to 10x better in terms of simplicity, in terms of ease of use and in terms of speed and accuracy.

Sure. Okay. That's cool. And just you mentioned insurance in the second half, just to clarify, that's payments of claims you've made under your policies for some of these legal expenses. Am I interpreting that correctly?

No, this is just kind of the timing of when outgoings happen. So we're just talking about when cash outgoings happen and insurance is one. And the other one is, as I said, our STIs to our team gets paid, I think, in August or September. So in terms of half-on-half cash outgoings, those are kind of some quite big deltas between H1 and H2 from an operating cash flow perspective.

Thank you. At this time, we're showing no further questions. I'll hand the conference back to Jonathan for any closing remarks.

Look, I'd like to thank everyone. I know it's a busy day for everyone. I really appreciate your time and look forward to catching up with some of you later and some of the one-on-ones that we have later. Thank you very much.

Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.