Israeli Pegasus spyware maker scrambles to survive global scandal

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Pegasus spyware manufacturer, NSO Group, takes extreme measures while awaiting a worldwide political controversy that threatens its future, to appease creditors holding around $400 million in debt. 

According to a source with knowledge on the matter, the Israeli company cut 15% of its workforce and raised prices by about 20% to stem a cash bleed that is expected to run into the tens of millions of dollars this year, despite being blacklisted in the US on accusations that its Pegasus phone-hacking tool was used by foreign governments to spy on dissidents.

This comes months after the potential sale to defense contractor L3Harris Technologies Inc. failed. Such a transaction would have included NSO's non-Pegasus products and likely involved either shutting down Pegasus or converting it into strictly defensive technology.

New measures give the NSO some time after breaching terms on its debt agreements, said undisclosed sources while discussing the company's private financial information. 

Read next: Israeli spyware firm NSO "cannot be counted on": HRW

Many of its clients lost or severed connections with the company after claims surfaced in 2018 that their software had been used against civilians, including an associate of murdered writer Jamal Khashoggi. 

The sale of NSO to L3Harris, with a value of $700 to $800 million, was stalled as a result of disagreements over the new owner's jurisdictions, the access to NSO's underlying code, which "Israel" wanted to prevent, and the relocation of key personnel and other transfer issues, according to a source. 

Executives expect the company to earn revenue of between $150 million and $170 million this year, down from earlier forecasts of roughly $200 million, according to the source. This is much less than the approximately $250 million it recorded in 2018, right before being acquired in a leveraged buyout by private equity company Novalpina Capital and management.

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According to a person familiar with the plan, management hopes to break even this year and produce enough cash to continue paying interest and principal amortization on obligations next year.

NSO is still in breach of its lending covenants since some financial measures fall outside of lender criteria. The organization has not provided an official forbearance agreement, but given the nature of the assets, creditors' power to foreclose is limited.

Cash Bleed

NSO has denied various charges of abuse and claimed that it terminates service when clients abuse it, yet the hacking and spying continue in different regions across the world.

A corporate spokesperson declined to comment on this article. Some of the creditors' representatives did not reply to calls for comment. L3Harris' spokesman declined to comment.

According to the individual, the company let off roughly 120 staff in August and raised costs for consumers in the nations where it is still permitted to operate. Meanwhile, it continues to pursue the sale of some of its non-Pegasus products in order to raise funds.

Read next: Khashoggi's wife to sue NSO for spying on her alongside KSA, UAE