Subex LtdQ3 FY22IT - Software

Subex Ltd

Q3 FY22 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

N/A

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 3

→The company expects steady growth in Monthly Recurring Revenue (MRR), which stood at USD 2.3 million as of September-end.
→Quarterly recurring revenue from MRR is approximately USD 7 million, with a one-time revenue backlog of USD 14.7 million.
→There is an anticipated significant increase in MRR by March following new deal closures.
→New business lines, particularly those associated with the Hyper Sense AI platform, are expected to drive revenue growth.
→Current new business contribution is under 10% but targets reaching 10-15% revenue share to attract more investors.
→Revenue growth is expected to rise gradually over the next two quarters with QoQ MRR growth becoming more visible.
→Despite short-term dips due to subscription model transition and customer budget squeezes, long-term sales growth is projected due to increased customer base and new product adoption.
→Growth in new areas projected to be about 3x of last year's performance by year-end.

Category 3

→The company is transitioning from a license to a subscription-based business model, with focus on growing Monthly Recurring Revenue (MRR), currently at US$2.3 million as of September 2022.
→Management expects gradual MRR growth quarter-on-quarter, with significant increases anticipated around Feb-March 2023 as new deals start to contribute.
→Overall revenue growth is expected to be moderate initially, with MRR growth being the key performance indicator stabilizing before overall revenue improvement.
→EBITDA was marginally positive in Q2 FY23, but net losses are still reported; free cash flow is negative due to operating losses.
→Management requests investor patience through this transition period, aiming for steady growth from new business streams and products.
→Employee costs are controlled and are unlikely to scale linearly with revenue growth, aiding margin improvement when revenues expand.
→No immediate top priority on new institutional investments, but engagements continue to strengthen financial stability.

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Yes

→The company is engaging with investors, including institutional investors, with the intent to bring them in.
→However, raising funds through investors is not the top priority at the moment.
→There is no explicit mention of current or immediate plans for new fundraising through debt or equity.
→The focus appears to be on business transformation, growing monthly recurring revenue (MRR), and achieving steady growth.
→Management is monitoring costs and optimizing business operations to improve financial health before pursuing significant fundraising.

→The company no longer reports a traditional order book or 12-month order backlog as it's no longer relevant to the new subscription-based business model.
→Instead, the key metric is Monthly Recurring Revenue (MRR); as of end September, MRR stood at US$2.3 million.
→The contracted backlog (one-time revenue) is about US$14.7 million.
→This backlog corresponds to one-time revenue and does not reflect the recurring subscription revenue.
→The focus is on growing the MRR quarter-on-quarter as new business areas and the Hyper Sense platform scale.
→Some new deals are expected to start generating Monthly Recurring Charges (MRC) revenue by February-March, leading to significant MRR growth from the March quarter.
→Overall, the company views MRR as the critical measure for orderbook/pending revenue visibility moving forward.

→The company is focusing on a major transformation towards cloud adoption and fully integrated cloud solutions, especially targeting tier one and tier two customers.
→There is a significant investment in developing the Hyper Sense AI platform and new digital trust products.
→The focus is on building and executing in high-growth large areas with future revenue growth expected from March onwards.
→Capex or strategic investments are not explicitly detailed on page 23, but the ongoing product development and cloud infrastructure indicate continued capital allocation in technology and platform enhancements.
→The company is managing costs tightly, especially engineering and employee-related expenses, which are largely static but optimized.
→Investor engagement is ongoing to potentially bring institutional investors on board, but it is not the top immediate priority.

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