Subex Limited (532348) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY 2022 Earnings Conference Call of Subex Limited. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the conference to Mr. G. V. Krishnakanth. Thank you, and over to you, sir.

Thank you very much. Good afternoon to everyone who have joined the earnings call for the period ended December 31, 2021. Now I'd like to introduce the members of the management who are present on the call. Along with me, I have Mr. Vinod Kumar, Managing Director and CEO; Mr. Suresh Chintada, Chief Technology Officer; Mr. Sumit Agarwal, Chief Financial Officer; and Mr. Himanshu Singhal, Financial Controller of the company. I would like to start the conference call by going through the safe harbor clause. Certain statements in this call concerning our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but not limited to fluctuations in earnings, our ability to successfully integrate acquisitions, competition in our area of business, client concentration, liability for damages in our contracts, withdrawal of tax incentives, political instability, unauthorized use of our intellectual property and general economic conditions affecting our industry. With this, now I would like to hand over this call to Mr. Vinod Kumar for his speech. Thank you.

Good afternoon. Thank you all for taking time for this call. I hope all of you and your families are safe and doing well. As you would have seen from the results announced yesterday, the revenue for the quarter stood at INR 87.7 crores, EBITDA at INR 8.63 crores and PAT at INR 2.1 crores. The last quarter was a tough one for a variety of reasons for us. But the good part is that we did quite well around the new areas of Sectrio, our security portfolio and IDCentral, our SaaS-based identity solution. To take a step back, 3 years back, we embarked on a strategy to expand our offerings from fraud, revenue assurance and interconnect billing products, specifically offered to telco through a wider digital trust portfolio to a multi-vertical bucket. It was very important for a sustainable growth of the company that we plan this expansion strategy. In line with that, we added our security portfolio, now called Sectrio and identity analytics portfolio, now called IDCentral. Now these areas were significantly affected due to the pandemic and as most of the new sunrise projects were put on hold. But we used that period to communicate extensively to the market and educate them about the need for such digital trust solutions as you grow the digital economy. On our core, we conceptualized HyperSense platform that will serve as a base platform for all of our products and also help us to offer it as an augmented analytics platform to our customers. Now I also want to remind you all that ours is predominantly a product business, meaning we need to generate a specific interest on our product for us to get the business from our customers. It's unlike services, an IT services company, that can participate irrespective of the nature of IT projects a customer might have. Having said this, our effort around the new areas are starting to show dividends. In the case of Sectrio, we had to quickly have the capabilities to cater to an OT market as we were seeing delays in IoT deployment due to the supply chain and COVID-related challenges. This has worked very well. And last quarter, we signed up 3 customers in India, Middle East and Americas. In India, in the enterprise segment, we signed up a major manufacturer with multiple sites. We also won a contract from a major public sector undertaking. These are very critical wins for us, and once implemented, these will be key references for us to leverage and grow our security business in India. Similarly, we have had 3 wins in Oman, Qatar and Mexico. These wins clearly prove our ability to compete and win in the operational technology area, along with IoT technology. Now coming to IDCentral, the identity analytics solution, we are only focused on 2 markets of India and Indonesia. We have onboarded 4 customers in Q2. In Q3, we onboarded 7 customers. The API cost, which is a parameter on which our revenues are dependent, also have doubled during the course of the quarter. We expect this trend to continue. It's clearly getting into the profile of a fast-growing SaaS business. Unfortunately, the overall numbers are still heavily dependent on our core business and does not convey the progress that we are making in these new areas. Hence, I thought that it was important to provide these details. Now coming to the core. We took a very important decision to move a subscription-based model -- to move to a subscription-based model space from a license-based model with HyperSense. We hope that we can easily convert all the upgrade opportunities into subscription model engagement. However, it is clear that we underestimated the challenges of this conversion. Directionally, everybody, including our customers agree that it's the right thing and want to move to this model but getting the alignment of procurement, finance and other stakeholders are taking significantly more time. This has resulted in delayed order intake on our core areas and has had an impact on our short-term revenues. We've had some effect on our Q3 revenues and also have an impact on our contracted backlog. To be clear, we have not lost any deals that we are competing on. In fact, our HyperSense platform has made our position significantly stronger. However, we have a longer process on account of model change and hence, taking additional time. So this is a temporary situation, and once we secure these delayed contracts, the contracted revenues will increase, and we will be able to drive the expected revenues from our core areas. Let me also cover briefly the security incident that we had in December. There was a breach of our IT parameter by a ransomware threat actor. We were able to recover almost all data and bring back all the services without any impact to our customer operations. As the breach affected our test and development environment, we had to take some precautionary step to take a shutdown of our infra and sanitize currently. This had some impact on the ongoing projects and its deliveries. Our awareness of the space and preparedness to face certain eventuality enabled us to quickly bring back our operations. So in summary, we were able to overcome this incident with very little impact. Now coming to the talent side. We have added some significant capability to our senior management team. Sumit Agarwal has joined us as our new CFO. His experience of handling both IT and new-age businesses would be very beneficial for Subex. We have also onboarded Vivek Chandok as our technology solutions head, wherein he will lead the new use case development on HyperSense for our customers. We have also onboarded Warren Dumanski as the Head of our North American business. Warren is very familiar with our domain and have had a very interesting stint in product companies, wherein he was instrumental in growing the North American businesses. So now we have a full team in the senior leadership to drive the execution of our growth strategy. I will now request to Suresh, our CTO, to provide you a quick update on the HyperSense portfolio evolution.

Thanks, Vinod. Good afternoon, everyone. Hope everyone is doing well and staying safe. So what I wanted to give a brief overview of what's happening on the HyperSense in the last 9 months. Since our launch over the last 9 months, we have crossed several milestones with HyperSense. We continue to add more capabilities based on our road map and the feedback we are getting from our customers. Today, HyperSense is fully certified on the Google Cloud platform, and we intend to complete certifications on Microsoft Azure and other platforms in the coming quarters. The API framework is being strengthened to align with the industry standard TM Forum, and we have that in our immediate road map. And in line with our digital trust vision, we have built explainable AI capabilities into the platform. This makes it easier for business users to understand what decisions are being taken by the ML models that are in the platform. We recently concluded an initial definition of a trust framework for AI systems by leading the effort at TM Forum along with other telco partners. The AI trust framework also won a coveted award at the TM Forum digital transformation World Summit last year. And speaking of accolades, HyperSense has seen positive recognition in a very short time that we have seen. Beyond the awards at the TM Forum, HyperSense has also won the prestigious pipeline award for our innovation in AI. So HyperSense have also been covered significantly across the media and we have also been getting a great response from the analyst community as well. And of course, for us, this is just the beginning of our journey with HyperSense. We have recently launched HyperSense AI Studio as a SaaS-based offering. And today, this offering is available for a free trial on our website. I'm glad to say that several telcos and non-telco enterprise users are showing interest in trying it out to solve multiple use cases. HyperSense forms a vital part of our technology road map, and we are currently working towards rolling out traditional for management and business assurance solutions on the platform. This migration to HyperSense should unlock tremendous value to our customer base. In fact, the first customer on HyperSense is now live and we plan to launch our full fraud management offerings into HyperSense during this quarter. So overall, we are confident that we now have a powerful and robust platform to help our customers enhance their decision-making capabilities and solve problems faster. So Vinod, I'll give it back to you.

Thank you. That was a very brief on our business and some of the developments that we have had during the course of last quarter. Now probably, we can move to the question and answer, please. Thanks.

[Operator Instructions] Our first question from [ Mr. Deepak Ojha from Radhe Capital ].

Just to correct, [ Deepak Chokhani from Rade Capital ]. There's a lot of frustration among the retail investors, including me. Every quarter, we dial in with the hope that -- with lots of hope from you guys that next quarter will be good, next quarter will be good, it just doesn't happen. And now we've reached a stage where forget the top line, even the bottom line is -- and the EBITDA is taking a beating. While you have very nicely stabilized the company, got it back, repaid the debt and all, but I guess the fire or the basic ingredients to take the company to the next level is just completely missing. How long will this go on? And is it -- and this question I asked last time as well that isn't this a time for us to partner with a bigger company or a group which can take this company to the next level or just completely sell this company to a better kind of a corporate or a group which can take it to the next level? I mean, how long will we as investors -- you see it's been 7, 8 quarters, I don't know. I mean just 0 growth. Yes, that's it from my side.

Okay. [ Deepak ], thanks for that question. Look, I think it's fair to say that we had some challenges with our core business this quarter for what -- because of the transition that we are doing. As I mentioned in my brief, we sort of, I would say, that underestimated the challenges of conversion. That being said, as I've painted the picture of the new areas, the new areas, which we started the engagement about 3, 4 quarters back because of we had to put a stop to it in the bulk of the last year. Now that has started showing good results with some of these key wins in these markets, which we are focused on. Now from a change of mix of the composition, I think that as we start showing you the details of some of the new areas, I'm sure that you will get the confidence that some of these new areas are growing nicely into a growing business. Obviously, they are different. I mean, the model -- and it's a SaaS-based business. So therefore, some of the characteristics and some of the way you look at those things are different. But I'm sure that you will see that it is growing into a very nice SaaS-based growth business. We have set the expectation that starting by the end of this year, we will add into our presentation, the detail some of the specific details or metrics on which those we are measuring the progress of those initiatives. And we still feel that we will -- I mean, we were waiting for it to get to a particular stage for us to provide that view. I think that by end of this quarter, that is by the end of this financial year, we would be able to come back to you with that detail, which will give you the sense that they are growing into a new a fast-growing business. Now with respect to the time, as I mentioned, these are product-based business. Obviously, the dip in the core is something which we have corrected very swiftly. But I think that incremental growth will have to come from these new areas. So we are in the right path. It will take a while more. I'm not going to give any specific guidance on numbers, et cetera. But as we set the expectation, we will provide you some of the specifics on the metrics of the new business at the end of this quarter, which will give you a sense of how we are progressing in those areas, [ Deepak ].

Well, that's pretty useful, sir. Honestly, I'm not a techy guy to understand the specific which you just spoke. But can't we do something different apart from can't we partner with some global majors? Can we tie up with someone other than what we are doing existing just to scale it up? I mean something different has to be done, I guess.

Look, I think in the markets that we are operating, we do have the right kind of partnerships. And as I said, this is -- the security, identity, et cetera, just sort of in the markets of India and Middle East. It's just growing. And we are -- we have seen the tenders coming in. There was a complete stoppage, but we have seen the 2 wins that I told in India, both came as a part of RFI. So we have started seeing the RFPs coming back again for the new areas. This is something which we have been working for quite a while. So as we go along, you will see a lot more, let's say, contribution from the new areas on to our overall revenue. And that is where -- that is how we will take the company to the next core. So to answer your question again, we do have the right kind of partnerships in these geographies for us to scale the business. And also, we have signed up with some global partners over some areas. So for example, we are now in most of the -- we have threat -- our threat intel is a very important piece for us. Now we have signed up with almost all the major platforms to carry our threat intel like Sentinel of Microsoft, and there are other platforms that have started carrying our threat intel to -- for their customers to subscribe to. So both with the specific geographies that we are currently focused on and the global marketplace, we are -- both we are dealing with it. But as I said, as we go along, you will see the contribution of these new areas, making some impact to the overall revenue. And by the end of this quarter, we will be providing some metrics which will give you the sense as to what we are talking. It is -- we are definitely doubling the number of customers that we are acquiring for these new areas on a quarter-on-quarter basis. These are SaaS-based business, so their overall revenue at this point in time is not very sizable. But if we are able to get that quarter-on-quarter growth as we go along, it will get into a very nice subscription-based growth business.

That's great, sir. All the best. Just one last. Is this the worst -- I mean is this quarter the worst ? I know you can't give guidance. But we as investors, if you can't give the guidance, we need to know, is this the worst? Will things improve from here on?

Look, I think let's put it this way. The investments that we are doing around the new areas will continue to happen. Now we had a bit of a challenge with respect to conversion of these our core contracts. And we will -- we hope that with -- as Suresh mentioned, the new fraud management is being released by the end of this quarter. That will also fast track some of these upgrades that we are talking about. So I guess that from our -- the contracted backlog should start going up as we end this quarter based on the order booking that we are expecting this quarter. So from a spend perspective -- from a cost perspective, we don't expect the cost to go up at least in the next few quarters. But as we start seeing our new business going up, then we will start putting more muscle, particularly around the marketing, et cetera. And also, once we have got a particular stage in these markets, we will start expanding to other markets. At this point in time, I said that we are very specific on India, Middle East and Americas, but there's a lot of market out there which we want to cater to, which we will slowly do that. So to answer your question, I think that once we get this conversion sorted out, which is I'm talking about converting this -- our existing subscription -- license-based deals, engagements to subscription-based engagements, things will start stabilizing for our core areas. We are at it. And definitely, we will see some progress during the course of this quarter towards those conversions. The new areas, things are looking reasonably well, but it will take its own time for us to grow into a SaaS business, because it's purely a subscription-based pure SaaS businesses that we are talking about. As with any SaaS business, it will take time. But the good part is that every time we secure a customer, the monthly revenue keeps on adding and that's a whole way to look at it, saying that we are building a much more sustainable growing business from a license-based business that we are currently.

Got it. Understand, sir. All the best. But I guess if this is -- I hope this is the worst and hopefully, things improve. But I guess somewhere then, if not, we should start exploring probably a potential strategic sale of the company to a potential new buyer.

[Operator Instructions] The next question from [ Mr. Kumar Singh from JM Investment ].

Yes. See, I have a first question. The other expense...

Mr. Singh? I'm sorry, sir, his number got disconnected. We'll get in touch with him. We'll move on with the next question. It comes from Mr. Pratap Maliwal from Mount Infra Finance Private Limited.

I just wanted to ask, in Q2, we had some delays that were reported over a potential softer Hadoop's vendor who are going maybe from licensing to open-source. Are those delays behind us? And in Q3, the delays that we've had, are they related? Or is there any other delays that we're getting regarding transition of customers? And secondly, my second question was that last quarter, we had got some color on the order book that you had and it was showing a positive growth. So can we please get some color on the order book this time and when those -- we can expect those revenues to start flowing in? If you can please answer those 2 questions.

Okay. Thank you. On the issues with respect to the open-source things, I'm very pleased to let you know that those things have been sorted out. In fact, we have convinced the customer to move into our HyperSense platform in view of some of the other platforms they were considering. Now that -- so to clarify that part, that is behind us, and we have just started the deployment of some of these things. There is some more work to do with their contracting, et cetera, because we'll have to redo the contracts, et cetera. But at least in principle, we have got agreement from all the customers to move in this direction and some of them have already started that. The second question, if I understand that, is that the contracted booking has come down. When will it come back? If that is the question, you will see a progress on that coming back to the level it was or near about that level. We hope to catch up our contracted backlog to the level it was during the course of this quarter. If that was the question, then that is the answer, but if there is anything else, please come back.

No, sir. I was just asking -- yes, yes, I was just asking the added color that -- some more details on the order book that like last time we had given, I believe, it was 38% Y-o-Y, so if you can just give us a comparative figure like that.

All right. Okay. So this -- I don't have that comparison. Let me come back to you specifically on that. But I definitely -- I can clarify that this time because if you see that our contracted overall backlog or contracted backlog it has shown a dip of about 6, 6-odd million, $6 million, so that is the tune to which the contracted backlog has come down from the where it -- that a level it was. So we did have a challenge because all the customers have put on -- I mean they do not want to upgrade anymore to our old platform. So therefore, they want to -- all of them want to move to the HyperSense platform. HyperSense platform, we are not keen to provide it on a license model. We were insisting that it has to be on a subscription model. Now we don't want to -- again, we don't want to take a short-term view and change the model because this is very, very important for us to get all our customers into a subscription-based model. So my -- so that dip is to the tune of about $6 million when you look at the overall contracted revenue, and that will be more or less Pratap as we go through this quarter.

We have [ Mr. Kumar Singh ] back in the call. [ Mr. Kumar Singh from JM Investment ].

Yes. See, I have a first question related to other expenses. Every quarter, other expenses is going up. What is the reason for that? And out of that other total expenses, what is the contribution in that for ForEx loss?

Himanshu?

Kumar, this is Himanshu. Thank you for the question. So yes, the other expenses normally it stays linear. This quarter, we have seen some growth in the -- on the other expense side. It has majorly increased in on account of the travel getting increased because this quarter we know travel has opened up, so we, our sales people and others are on the field now. So that is one of the extra thing which you will see compared to previous quarter. Other than that, there are a few repairs and maintenance and rental expenses on the servers which has gone up. This is on account of the new platform which Vinod and Suresh told. So there's a level of investment going on those fronts, which we have seen this time. So those are the high-level things. Other than that, we have not seen any major things. In terms of ForEx, this quarter, we didn't have major ForEx gain or the loss. Total it was less than -- like it was very, very minimal. So compared to previous quarter, it was nothing. So that's about ForEx, there's no contribution from ForEx side.

No. I have basic question. See, your turnover is very meager. Why you are indulging in ForEx hedging?

Okay. So I'll answer that. If you see only the ForEx hedging part, I will be glad to tell you that we have gained through doing hedging. So hedging is something which gives me a cover over the normal exposure which we have from the ForEx end. So on an yearly basis, I have gained -- or the company has gained around INR 73 lakhs till YTD December. Out of that -- and the total losses, throughout the losses for the complete year is somewhere around -- okay, for the quarter losses, quarter losses is INR 24 lakhs, which is comprising of a gain of INR 25 lakhs for this quarter. So hedging is giving us a benefit.

See, what happened last quarter, your CFO told they have a INR 2 crore ForEx loss in other expenses in the investor call, okay? So if INR 2 crore on an EBITDA of INR 10 crore is a INR 2 crore loss, that means there is no financial control at all.

Look, I think as Himanshu clarified this time that on the other expenses, the increase is primarily on account of the increase in travel and some of the server-related things on account of HyperSense that we are incurring. There is no impact or whatsoever in the ForEx loss. We do a very small hedging. I mean, we have very small amount of hedging we started doing recently. And that has so far -- we have been very cautious there and it has been positive. Now with respect to the ForEx losses that you are talking about last quarter, now that is account on the variation between the pound, U.S. and INR because we do have our offices in other -- in U.K. and there and some of the money that is received from there in those entities. And when we convert for reporting purposes. There is an impact of this ForEx that will come into the picture. So I think other than that, the hedging all a very small portion. And so far, hedging has been positive whenever from the point that we started. The impact of particularly the -- as I mentioned, the total expense -- I mean, the other expenses is on account of travel, and we expect that to slightly go up as we go in the current quarter also because our teams have started traveling again. And probably, we'll get into a kind of a steady-state mode in a couple of quarters and the travel will be on full swing.

See, my second question is related to ESOP. Is there any possibility to link ESOP to the growth of the company in terms of turnover as well as profit? Because what is happening, your employees are selling ESOP shares left and right, and there is no growth in the company. So there has to be some link between the growth of the company and ESOP selling.

Look, I think the ESOPs was -- we allocated the ESOP way back in 2019 and 2020. That is when the ESOPs were allocated. And today, whatever you have some sales that you are seeing is post vesting of tender, it was a vesting of 2 years. So I think some of the employees are getting the ESOPs fee of now. And though some of them have liquidated for their personal reasons. Now on the new allotment, whatever we are talking about, it is what some of the -- some people who have left their ESOPs have come back to the pool, and that has been reallocated to some key employees, particularly in the operating level. So at this point in time, we are not -- we don't have any more ESOP pool or anything. It's something in the same pool that we -- as you recall, we bought something from the market and allocated it that period of time. So we hope to come up with a new ESOP thing and there, some of these considerations are being -- I mean we will look into some of these aspects that you mentioned.

See, it should be win, win for both shareholders as well as employees. Otherwise, what is happening? Employees are making money. Shareholders are not making money.

So that is where I'm clarifying. These ESOPs have been allocated in FY 2019 and 2020. Post that we have not had any fresh scheme. The reallocation is only when somebody has left the company, that ESOP come back to the company that has been reallocated to some of the new people. And all these new people again the vesting is again after -- and like, for example, we allocated some portion that came into the pool. We allocated it in the Board meeting yesterday. That will get vested over the next 3 years and things like that. So we have not had any new ESOP scheme, [ Kumar ], it is the old one that you are seeing from 2019 and 2020.

Our next question is from [ Mr. Aniruddha Jinturkar from HCO Consultancy ].

So Vinod, my -- the first question is, have you lost any customers while transition from license to subscription model?

No, absolutely not. We have not -- in fact, we have already converted some of them, particularly the -- some groups and some large customers who are already used to doing in SaaS-based businesses. But you know that we have a very large customer presence in the EMEA region, Middle East, APAC, et cetera, and those are the cases where we are taking more time. So to answer your question, we have not lost any customers.

Okay. Okay. And Vinod, if we compare to Subex or some of our competitors, so they run into the thousands of customers while we have only like limited 200-plus customers. So then the basic reason for such a wide difference?

Okay, look. I think if you look at our core products, in our core areas, the only customers that we have is our telco. So our core products primarily cater to Tier 1, Tier 2 telcos. So if you look at India, we can only have 4 customers, right? I mean Jio, iVodafone and Airtel. So all the 3 of our customers. So our core products, we have about close to about 200 customers. These are mainstream Tier 1 telcos in about 90-plus countries. Now for our new products, that is IDCentral and et cetera, now we are adding almost 4 to 4% customer as I told we added 4 customers Q2; 7 customers in last quarter. And there, we will have a lot more customer addition. So as we -- in 1 year, if I look at the total number of customer, it will be significantly more than the 200 that we had on the core, because these are SaaS-based engagement where we will have a -- the ticket price is also very, very small compared to our core business but the number of customers will be quite large.

But Vinod, considering the competition in Americas and EMEA region, so will it be possible? I mean how possible it is to keep adding the -- or maintaining the run rate?

So with respect to our core business, where our addressable size, I would put it about maybe about 600 to 650 telcos. That's pretty much the universe there. And there, that is sort of -- we have some of the other telcos have our competition. And the way we grow in our core products is to -- is by grabbing more market share. And that's happening actually with the HyperSense, that's one more thing that we are doing is that we are able to go and pitch a different model, which is very different to the model that we have to our competition accounts as well. So if you look at our core area, we are talking about a customer -- addressable customer base of 600 to 650, I'm talking about telcos. And there, we now have the added ability to take in 5% augmented analytics platform. Now for our new area, with IDCentral, et cetera, the number of customers will be thousands, like, for example, security, just about every enterprise will be a customer for us. And there, we have taken a very specific focus. I mean, decision to address certain segments. So in India for security, we are looking at the very large enterprises, manufacturing and the public infrastructure -- critical infrastructure. Those are the focus areas for us, the banks, the large banks and things like that. So I think it is -- if you look at the core that is addressable market, it's telcos. And every Tier 1, Tier 2 and large Tier 3 are our typical customers. And for our new areas, it's a wider segment, much wider segment that we are catering to.

Okay. So Vinod, can we expect like in the next 3 to 4 years, more than 50% of the revenues coming from non-telco customers?

Next 5 years, yes.

Okay. Okay. And last question from my side is, like if you compare ourselves to competitors, so competitors have grown significantly due to the inorganic ways. So are we looking for any acquisition opportunity or something?

Look, our competition has not grown. They have grown as a company because they have bought into other areas. So for example, if we are looking at fraud and RA, if you look at our fraud and RA business, they have not grown. But they have gone -- I mean suppose if they have go and buy an activation or a billing. Now that would give us a growth of that company. But if you look at the domain per se fraud RA interconnect domain, I do not think that they have grown just by acquisition. So as a company, if you look at company, they have revenues, they have other streams they are other product lines they have launched. And therefore, those are coming as their revenue. So that's where we are. So from a competing -- from a customer standpoint, that is not giving them any advantage. But it's true that they are able to carry a larger portfolio to customers and able to compete in areas where we cannot compete at this point in time because we don't have that product range.

The next question from Mr. Ravi Mehta from Deep Financial.

Yes, just a very basic question. As we are seeing the challenges of moving to the SaaS model in the core business, just on the unit economics, how does -- it would work like, say, INR 100 deal split into 40 license, 40 maintenance -- and maybe 40 implementation and 20 maintenance, how would that deal convert if we are moving to the subscription model? Just to get some flavor on how the revenue trajectory can be on the core side going ahead as we transform to the SaaS model?

Okay. So if you look at a new customer, because new and old, we judge it very differently. If you talk about a new customer, today, if you look at, we are very good at license implementation and then thereafter, we get annuity on an ongoing basis. Now the change is that for a new customer, there is no more license and they give us kind of an annual subscription that will -- if I have to equate it, that will primarily cover the support and the license part of it. Implementation, if at all any, based on the effort it is charged at the actors. So there is no change with respect to the implementation side. So for the new customer, I think the only difference is that in a typical license deal, the entire revenue of license, the perpetual revenue of license comes in a period of 9 months, whereas in this case of the new -- in the new model, I mean, if I equate that, it will come over a period of 3 years. But the advantage here is that at the end of 3 years, if the license gets renewed, I get an opportunity for us to resell that part because it's coming on a continuous basis. Whereas in the case of a perpetual license after 3 years, then they get their license perpetually. So in the short term, you will find that there is an impact. If you profile the customers, the same revenue comes over a longer duration. But in the long term, you will find that it helps us to sustain the revenue and we don't have to -- there no lumpiness whenever we get a contract. So that is it when it comes to a new customer. For an existing customer, if you look at today, what we get is primarily the annuity and the upgrade when we come -- annuity that includes pretty much license for upgrade, but we get the implementation revenue. Now what the change is that in view of the annuity, the subscriber -- the customer will have to pay a subscription. That will be annuity plus license. This is equally applicable for existing customers. So there is a different pricing when we look at a new customer and an existing customer, because the existing customers have already paid up for the license. So we want to migrate them to this model. However, the big change is not from that angle from a customer angle also the -- it moves from a CapEx line item to an OpEx line item. So that is something which a customer will have to manage from a budgeting standpoint. So from a revenue standpoint, I think for new customers, that definitely there is an impact with respect to getting revenues over a longer period of time. For an existing customers to an upgrade, the impact is much lesser because our subscription will more or less match with the annuity that they are paying on an ongoing basis.

Okay. So for existing customers, it's annuity is equal to kind of your subscription as you would move them to the subscription model?

It will not be equal to, it will be an annuity plus plus as a subscription fee, because we are providing some additional value on account of this thing, because there is no upgrade and things like that. So it will be annuity plus plus for our existing customers. And implementation in both cases are at an actual. So based on the efforts and the cost, the implementation will be attached.

Correct. So since your core segment is a matured business, so you would be dealing more with the existing customers or you're still adding new? Because in that case, probably the revenues should have not taken a hit as it's looking like so, yes.

So I think it is not the revenue. So it is not a court of -- some of the upgrade things that we have, we can upgrade contracts, right? And upgrade contracts have got 2 components. It's not the subscription and all. I mean if you look at our upgrade contract, I'm just giving you a sense of that. Our upgrade contract is typically have a clear revenue of about anywhere from $250,000 to $0.5 million is the cost to upgrade because we have to upgrade their systems, the implementation effort, et cetera. So it's not the license part, which is there said. The implementation part is where it is getting winded because the upgrades are not coming through.

Okay. Okay. And any reason it's not coming through? Is it because of moving to the...

Exactly. It's a moving to the subscription model because it's a contracting, and it's a completed procurement will have to be -- it's a new contracting. So that is taking some additional time. It's not a I mean a smooth upgrade, a smooth kind of SOW kind of thing. It requires a legal -- everybody to get involved to review the contract, et cetera. Now the big advantage is that in this new model, if there is some additions, et cetera, the metering will happen, right? So if the volume goes up, the metering, et cetera, will go up. So therefore, all these things will had to be brought into the contract. Otherwise, there is no point in just converting AMC into subscription then there is no point. So there are many other things that need to be captured when they move their subscription, so that if there is any upsides, we get that, and that's where it is taking plan.

Our next question from Mr. Rattan Joneja from CoValue Technologies.

I want to understand the relationship with Microsoft Sentinel, where you're bringing in threat intelligence to them. And I want to understand the opportunity very clearly.

Okay. So look, I think just first, let me tell you what is Sentinel. When it comes to IoT OT because of the large honeypot network that we have, we are generating a lot of threat intel. Now these threat intel forms part of our product, it's a core of our product, which is preventing our customers from any threat. Now we have had many requests from our customers to -- some of the customers, partners, et cetera, that they are very keen because they have an existing -- their own internal intel, et cetera. So many of them will subscribe to these threat intel with the intent of strengthening their existing infrastructure. So we saw an opportunity primarily to engage and also showcase some of our capabilities. And therefore, we have started offering this threat intel as a kind of a subscription. It's something like you could call it as a a subscription for an antivirus or anything like that. Now we have started on it, so somebody can come on to our website and sign up, and they will get to a threat intel in a particular split screen, which they can integrate into their existing security infrastructure. Now alternatively, some of these -- some of our customers also go to platforms of marketplaces to buy such threat intel. So Sentinel is such a marketplace where many customers go to get different types of threat intel. So what we have done with Sentinel, Microsoft Sentinel is that we have integrated our threat intel into their marketplace. So any of the customers who are using the marketplace for Sentinel, going forward, they'll be able to find our Sectrio threat intel feed and can subscribe from that marketplace. So what this has done for Subex is that it has significantly expanded our reach because we would not have been able to get to all those customers. But because of this integration, a lot more customers are knowing about our threat intel feed, and they have started subscribing to it. There are other platforms similar to that of Sentinel platform, marketplace platforms, and we are also working with many of those platforms to integrate our threat intel feeds in their marketplace.

Is there any success?

We have -- so the -- this is a very small subscription fees. We have started getting -- it is a monthly subscription, I think, around starting with an individual subscription of around $500 kind of thing. So the idea is that it is primarily to increase the visibility more than anything else. So to that extent, it has given us a lot of -- and there is a trial period also. So we have just started. It's not a mainstream revenue at this point on. It is more for us to promote and more as a marketing channel for us at this point in time. But once it gets to a particular scale, we will look at seeing whether we need to consider that as a big business. At this point in time, it is for them to get a sense or a taste of some of the intelligence that we have with us.

Okay. My second question is you're presenting a very large opportunity in the presentation, $500 million, et cetera. To address even some small portion of the opportunity don't think that we need to raise money?

So there are 2 aspects to it. That covers the entire market across all verticals. Our current focus -- this is for the HyperSense, augmented analyst platform. Our current focus is primarily to telco. And I think that once in the telco, I think we have the reach for us to get to that place and telco, there is no -- there are many multi-vertical players, but there is no telco focused player, and that's a gap that we are trying to break. So with respect to catering for telcos, we do not think that we will need additional capital. But if you want to go a multi-vertical bid when it comes to HyperSense, we definitely would need additional capital to go that growth. So at this point in time, we are focused on telcos with HyperSense.

The next question comes from Mr. Aditya Sharma from ICICI Prudential Mutual Fund.

I just wanted to understand how are we using that INR 120-odd crores of cash balance that we have. Are we just -- is it just sitting somewhere earning us nothing? Or are we sort of thinking of using it in a much more efficient manner?

Look, at this point in time, we have -- I mean, there was an earlier question as to what is the capital requirement. So some of these initiatives are very large and which requires -- I mean, I'm talking about the new areas. Once you start looking to a particular scale, we were particular level, both with respect to the product maturity and the product market fit, there will be a need for us to significantly scale towards that we will raise capital. So I think that we have bought a marked a bit of the capital towards those growth initiatives. We have also started looking at some investments into early technologies, which can help us in completion of our digital trust portfolio. That's another thing that we are focused on finding technologies which are kind of futuristic, which can help us solve the digital trust issue. So that's another area and where some of the capital will go. And the rest of the capital at this point in time, I mean, we are parking some FDs and things like that. But primarily, we are looking at the needs for our growth both in new areas and some of the investments that will require for us to get preferential access to technology. Those activities are going on, and that capital has been earmarked for those purposes.

[Operator Instructions] Our next question from [ Mr. Raj Kumar Ojha ]. He's an individual investor.

Sir, my question is what holds Subex for not launching IDCentral in other countries. We also -- please enlighten us the progress of blockchain with partner Tech Mahindra.

Okay. So with respect to the IDCentral, I think the -- for us to make a big road into the market, there is a lot of pre-integration that we will have to do in individual markets. So for example, in the market of India, we are currently our IDCentral that most of the databases, big locker and things like that. And so we are enabling the customers on both in KYC and many of those things. So at this point in time, based on the the kind of the product, the work we have done, we want to be very focused on a few markets make an impact, make a sizable, let's say, impact in those markets before branching into new areas. Otherwise, it would be very difficult because we have to -- it's not the product -- the core of the product can be used, but before the launch, we have to do a lot of study of the market and then pick the market, there is a need and also have the required infra for us to make sense of this digital identity. If you go to our market and there are no databases, nothing, then this will not be very impactful. So that's the reason. But for sure, we will start expanding as we go on. That's point number one. With respect to the blockchain with Tech Mahindra, we have had some interactions with our customers, but I think we have not got any commercial success as yet. And that is also because of the fact that there's a blockchain in the telcos, it's going to be a completely different change altogether because this relationship was primarily for the telcos. Having said that, we have made significant progress in moving the blockchain, particularly for the partner settlement and such areas. We are also -- and as you have seen one of our announcements that we have working very closely with Saudi Telecom, and in their innovation lab, we are co-innovating them. We are preparing a solution for them in the blockchain area. So that relationships, we are moving forward, but we have not had any success. But we have had engagements with several customer innovation teams, direct customer innovation labs to look at solving many of their problems you're saving or blocking.

Sir, how many HyperSense projects presently we are implementing? And how many projects we will implement in this quarter? This is my last question.

Sure. We are -- as of now, we are implementing 4 projects HyperSense. And this quarter, once we have the front line, we are expecting the fraud management to the full version of the fraud management to be released by March time frame. So we have started the preparation work. But as we end this quarter, we will have almost close to 8 projects that we want to be doing on HyperSense.

We have the next question from [ Mr. Amit Mishra ]. He's an individual investor.

Welcome onboard, Sumit, if you are around. So first question, Vinod, if you can just walk us through on this, the thing you announced in Q2 and recently, we received the postal ballot for internal restructuring with the -- you are buying a subsidiary but it's already 99% fully-owned subsidiary. So -- and you're supposed to -- there was an amount mentioned there, INR 95 crores. So is it some internal rebalancing of accounts or you have to actually pay someone? [indiscernible].

No, no, no. Yes, to clarify, so this was a -- if you look at our stand-alone entity, Subex Limited, you will find that all the businesses are sitting in 2 LLPs. And if you look at the accounts of Subex Limited, it's not a true reflection of what we are doing. So therefore, it was felt that we will move all the assets from one -- some of the back assurance LLP onto Subex Limited. This was solving one of many issues for us. And so this is on account of that movement of the assets come to the balancing to Subex Limited. There is no cash earn. I mean, technically, there will be some cash through the system, I mean, within the business then, but there is no payment to anybody outside the group company or anything like that. It's just moving of assets...

So overall cash will remain the same yes, with the company?

That is correct. That is correct. That is correct.

Okay. Just a second question on revenues. Basically, we -- okay, we touched upon through various attendants. But 3 quarters in a row now, we have seen year-on-year de-growth. I understand the point that there is issue of conversion from license to subscription-based services. But what I don't understand that you have firm contracts in place. You're providing them services and the services attract your fees basically. So what is actually causing the revenue shortfall? Is it you are losing some clients? Or is it some on-site presence issue? Can you just give some more details on why we continue to be in the cycle of de-growth? It's very disheartening.

Yes. Look, I think if you look at our business, about 60% to 65% of the revenue comes from annuity and managed services, and that reminds us saying there is -- maybe there will be some movement here and there. By and large, that remains the same, and it does not have an impact. Now the impact is more on the rest of that 35% that comes from new projects and new projects are net new projects from new logos and upgrades and other work that we do for existing customers. Now the upgrades is where I think that the whole -- that 35% comes primarily from upgrades and securing new customers, and that is where we are impacted.

Sorry, Vinod, yes I heard this before in the previous question. But if they don't upgrade, they are still using our services for existing or the previous installation they are still using out services?

Yes, so there is no...

So the upgrade is not happening, yes.

No, no, no. There is no impact. So if a customer does not get upgrade, all they have to pay us is annuity on managed services because that's how it goes. So the upgrade is when we get to upgrade a new version and there is additional revenue on top of managed services or AMC. And that is where getting it is elongated. So if you look at the AMC and management, there is no contraction. It's just going on and we are doing the service. And it's more interest for us to go and show new features, new capabilities and upgrade the customer to our latest version, because there are some changes that happens in the customer environment also to facilitate such upgrades. So that is getting...

So there is no client loss?

No. No, there is no client loss. They continue to use our existing product, the existing version. It's just that they want to get into a new HyperSense version, and that's a new model kind.

And also, we are still okay for $15 million to $20 million top line for new areas, you said like 2, 3 years, in 2, 3 years last year.

Yes.

So basically, that would be December 2023. So are you still going with that target? Or is there any revision to that?

Look, I think I don't -- again, I don't want to give any guidance, but I think as we start giving you the details, probably it will give you the sense of the growth that we are having on the new areas. But I think I'm quite encouraged with the progress that we have done last quarter with respect to the customer addition in the new areas around our new products, because it's very important for us to get the first customers and convert them. And these are large enterprise customers they have competed and won.

Can you give a quick breakdown of new areas, basically S2 and S3, what they are contributing right now in this quarter? [indiscernible] impact.

Look, so at this point in time, it is -- so if you look at our overall number on our overall consisting about last year $1.5 million contribution. And this year, we expect that to grow much higher than that. But again, I think let's wait for a quarter more than we provide the details so that we can clearly understand that. Because some of the metrics are very different. For IDCentral and all, it is the growth or quarter-on-quarter growth that will give you a trend of the future thing rather than the absolute EBITDA and things like that. So the metric is different. So that is why we are preparing. We just want to get the right time for you to provide that. We will provide you by the end of this quarter.

We'll move with the next question. It comes from [ Mr. Abhishek Kale ]. He's an individual investor.

Am I audible?

Yes.

One question. On a scale of 1 to 10 of fair level of confidence in delivering double-digit numbers starting Q4 and the quarters ahead. No further questions.

Look, I think I don't want to give any guidance at this point in time. I just want to stick with that stand. However, as I told you, we will provide you the metrics that will give you the growth that we have on the new areas because it's very, very important for us to understand that the growth of the company will depend on the growth of the new areas, and we will have to stabilize. And we do -- once we have the HyperSense coming onboard, we will be able to also compete in that. But the incremental -- the breakout growth for the company should happen from the new areas. So my request is that wait for the end of this quarter. We will provide you the stats on how the both IoT, IDCentral and also in the HyperSense, things are growing up and that we should be able to -- you should be able to build to get a view from that.

Sir, we have the next question from [ Mr. Mohammad Ashraf ]. He is an individual investor.

Mr. Vinod, just I wanted to know only one thing. From last 3 to 4 quarters, we are looking at your revenue is significantly going down and expenses is going up. And my second question that how many times we have to -- how many quarters we have to expect that you will improve your revenue and profit margin?

Okay. Look, I think as I said that we will start providing you details of all these our new areas starting this quarter end. So that will be -- you will be able to size up yourself how we are growing and the quarter-on-quarter growth that we are having in the new areas, albeit from very small revenue number. But I think that 2 things that I want to say that our new areas, we have started adding customers now, and we are sort of almost doubling the customers every quarter. And if you continue on that, and our intent is to focus on the specific market and ensure that, that trend continues rather than spreading too thin into different markets. So that will help us to grow our revenues as we go along. But the specifics, again, as I said, I will provide you, as we will provide you as we end this financial year.

Our next question from [ Mr. Asit Kothi ]. He's an individual investor.

Yes. Sir, what I would want to ask you, sir, is -- I have too many questions, but I'll limit only 2. The first question is with regards to the business has sales in support people being transferred to Subex. Over there, in the comment, it is mentioned only the people, the product are not being transferred. Can you throw a light on that, sir?

This is Himanshu. I hope you are referring -- are you referring to the results and the notes in the results we have given.

Yes.

Wherein the core team hasn't transferred. So to answer this, this is the old event. We have done this last year, wherein a strategic move was done. All the support functions, financial support functions, all the non-billable functions were transferred at a corporate level, because they were not specific to a particular IP or a logo. So that's why earlier to that, they were with respective LLP. Strategic decision was taken that they should be catering to the corporate level. And that's why these people were transferred from the respective subsidiaries to the parent to the listed entity. And that is the standard business practice follower. So we followed the same and we did that. That was a onetime exercise. And after that, we are continuing with this.

No, but then what is the value of developed technologies in those subsidiaries currently?

Currently, it is...

Are they all -- yes, yes, sorry.

The developed technology intangible stands at around INR 80 crores in the respective LLP.

Value of the development technology is INR 80 crores?

Yes.

Okay. And sir, with regards to I mean say what Vinod had said earlier also that even in last meeting I had asked this question and sir said that we would be getting that to you, but we never heard about it. With regards to segment-wise numbers?

Yes. So I think I was very clear last time also, we will provide the details by the end of this quarter. It may not be sectorial numbers, because some of these new areas will be -- the metrics are very different. It may not be the revenue at all. It might be the API ports and different kinds of metrics are relevant for those business. So we will provide the details by the end of this quarter, and that's what we have told last time as well, and we will provide that. By the end of this quarter, for IDCentral and each of the new areas, we will look the metrics internally that we are tracking, because it is getting to 1 or 3, 4 quarters, we are starting monitoring that, and we have seen the growth, and that's what we will provide you as we end this part. I mean along with our...

Now to understand that the new regime of subscription, if I'm buying the license from you, sir, after 3 years, that becomes perpetually mine. That's what I think I have understood during the discussion. So if I have bought a license worth INR 1 crore from you. After 3 years, I would be only paying maybe AMC or something, nothing more than that?

Not even after 3 years, after year 1, immediately you try the license and you only pay AMC from next year. There is no more license you need to pay because you own the license.

Okay. So I would only pay the AMC kind of thing?

Correct, AMC. AMC you have to pay.

Right. Now when I'm moving from the license to subscription, what impact I would have on my balance sheet as a customer?

No, look, I think that is where it is. You have the license, you have the perpetual license. But we are asking them to get on to a new contract of HyperSense, which is on a subscription-based model. So they will continue to own the license. Technically, they can continue to loan the license, but they will not be using that license. In lieu of that, they will be moving into a subscription-based service, which provides the same capability of license and running it. So that's how it is. They will continue to own that license. They will not boost.

No, I got that, sir. But when I have paid INR 1 crore, so how would you make that deal whereby what kind of percentage of that INR 1 crore I would be paying year-on-year as a subscription?

All right. Okay. So look, I think that's something which we have -- we are a price book. I mean, it is not -- we have not exactly priced that way that you are paying INR 1 crore and INR 1 crore will come over 3 years. That's not it work. Based on the many other dimensions, right? One dimension is what is R&D cost. What is the value that we deliver, what is the market other competitors from being competitive. Based on that, we have come with a subscription price which takes care of if you dissect the subscription price, you will find that within that the technology element and as support is included in that. Now we are not going to split that and show the customer or anything like that. And that will get charged month after month as long as the customer uses that service. So you could -- I mean for kind of a last estimate perspective, you could say that -- I mean, if I look at any -- it's similar to you buy an Amazon desk services versus a server, you will find that maybe about 1.5 to 2.5 years, you would -- if you pay the monthly charges, you would pay up for the full cost and thereafter, you're getting charged therein again. But there are advantages of this, right? You get all the new versions. You don't have to pay for any new versions. The upgrade is much more smoother. All the capabilities come to you. You don't have to wait for the capabilities, all the capabilities. It's like if any of the ad update happens in any of a Google Pay or anything, it automatically comes to you. So that's a new kind of thing. So it's a shift that they have to make. Obviously, it is progressive. It gives them more capability, but they will have to take that decision to move from a license to a subscription model.

So sir, correct me if I'm wrong. My yearly revenue as Subex, my yearly revenue from the license business would get divided into 2.5 to 3 years or maybe 4 years proportionately in subscription model?

That's correct. That is correct. But the only thing is paying subscription can license can be -- we will get the same thing again, whereas in the case of a perpetual license, we don't have that opportunity.

Fine. So basically, I would take an immediate hit on a bottom line and top line in terms of value. My clients remains with me, but since I'm moving from a license to a subscription, 1/4 of my license revenue would come into my book for the current year?

Yes. For a new customer yes, that is correct.

No, I'm talking about the old customers.

No. In the old customer, that's not the case. Old customers, we have already got the license. There is no more license they have to pay. They are paying normally their annual maintenance. So in view of the annual maintenance, they will have to pay the annual maintenance plus the delta on top of it to move to HyperSense.

Okay.

You get me because they don't have to pay -- an existing customer does not have to pay any more license. They are paying me the annual maintenance, which they will continue to pay. But for the moving to HyperSense, book for the technology element, they will have to pay a delta on top of that.

And normally, the AMC is 15% or 10% of the value of the license?

That's correct. About 15%, 15% is an average, yes.

So my AMC revenue is getting comped off and which is getting replaced by subscription fees?

Correct. The AMC is getting replaced -- for an existing customer my AMC revenue will get replaced with a subscription. And our expectation is, that, that subscription will be more than the AMC revenue.

Ladies and gentlemen, that would be the last question for today. I would now like to hand over the floor to the management for closing comments.

We thank you all for taking time for attending this call and your continued interest in Subex. You can always reach out to us at Investor Relations at subex.com if you need any further clarification. Thank you, stay safe, and take care.

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a good day, everyone.