Subex Limited (532348) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '23 Earnings Conference Call of Subex Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over 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 quarter ended June 30, 2022. Now I would like to introduce the members of the management who are present for the call. Along with me, I have Mr. Vinod Kumar, Managing Director and CEO; and Mr. Sumit Agarwal, Chief Financial Officer of the company. I would like to start the conference by going through the safe harbor clause, certain statements in this call concerning our future growth prospects are forward-looking statements, which involves 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, including, but not related 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 intellectual property and other general economic conditions affecting our industry. So with this, I now hand over this call to Mr. Vinod Kumar to take it forward. Thank you.

Thank you, Krishnakanth. Good afternoon, everyone. I thank you all for joining the call. As you would have seen from the Q1 results published the revenue for the quarter stood at INR 83.3 crores. The PAT is INR 5.5 crores. We have clarified in the notes that during the quarter ended in June 30, an amount of INR 8.66 crores was provided on a conservative basis and doubtful debt was INR 16 crores from 1 of our customers. So even though we have provided, we are confident that we will recover the borrowed amount. So while the EBITDA is at least INR 7 million, the normalized EBITDA, if you consider this onetime provision, will be INR 9.4 crores, that would be about 11.4%. The cash and cash equivalent at the end of the quarter stood at around INR 100 crores. So overall, the quarter has gone in line with our expectations. We had also completed the restructuring of moving the assets from Subex Assurance LLP to Subex Limited, and the effect of this change has happened in this quarter. In the last call, we covered the recognition that we have got around 5% HyperSense AI from industry experts and analysts like Gartner. We are seeing various enterprises slowly understanding the value of [ multi-personal ] AI/ML platform. Let me explain the problem that we are solving with HyperSense AI. Just about every enterprise understands the need to embrace AI/ML, that is the artificial intelligence and machine learning. For a variety of reasons and all [ CXOs ] want their enterprise to be artificial -- AI/ML oriented. However, the reality is that only about 15% of the AI models built ever get into production. So if you look at it in the first place, there are very few team members who can do AI/ML. And on top of that, 85% of all these teams generate never get into production. This is the current global scenario. In some sectors like telcos, the situation is even worse. There are 3 main reasons for this particular situation. One, the data science are doing the -- using AI to generate results -- business results, it is difficult and time consuming. The second reason is that data scientists hard to find. And the third is that there is a tough gap between the business and the data science team. Now all these 3 issues are solved by this new category of solutions called multi-personal AI/ML platform. First of all, such platform make business line AI or AI/ML easier. Secondly, due to the no-code drag-and-drop functionalities, these -- such platforms enables normal people with minimum training to do data science. We call such people, citizen data scientist. Thirdly, a lot of focus is going into explaining the AI results, which helps in better collaboration between data science on the business teams. As you can appreciate, the only pragmatic approach to build an AI enterprise is to adopt a multi-personal AI/ML platform. Enterprises are realizing it and slowly adopting it. Subex multi-personal AI/ML platform is called HyperSense AI. We are arguably the only such provider with a specific focus on telcos. Now we are in various stages of engagement with telcos around HyperSense AI. There are 2 areas that we are focusing when it comes to telcos. One is their own internal views. That is how you can leverage HyperSense AI to solve telcos' need for an AI and ML. Another important aspect is that with 5G, almost all mainstream telcos are building a portfolio of digital services that they can offer to enterprise. AI services will be a very important part of that offering. AI will be integral for monetizing 5G technology. And therefore, every telco who is building an enterprise portfolio will need to have a platform around which they can build this AI services. As I had alluded earlier, Subex with HyperSense AI is probably, at this point in time, the only provider of a multi-personal our AI/ML platform to telcos. So our recent announcement with Jio Platform is also around this where we would be supporting Jio Platform to create an AI offering underpinning our platform. We have set up the training and support capabilities to back and scale such engagements with large strategic partners. Now coming to our core business around fraud RA and partner settlements, we are doing reasonably well. The upgrade cycles are slowly starting on the back of 5G technology rollout and related upgradations. As we have been communicating, we are slowly moving our customers to our high percentage platform whenever there is an upgrade opportunity. If you look at our overall activities, we are putting all efforts around our core to build a solid business around AI with strategic partnerships and enablement. We are in the early cycle of adoption, but it will get adopted and we are well positioned as and when the market opts to open, particularly in the Enterprise segment with wide -- a widespread adoption of the AI platforms. On Sectrio and IDcentral, our focus is on adding more customers. Coming to IDcentral. There have been a reduction in the AI pool, particularly from our crypto-based customers. But we expect this to change as we onboard more customers in the mid-tier segment in the quarters to come. Further, we have also onboarded the first telco customers for IDcentral in Africa. Now this is a very interesting use case where many regulators are stipulating specific criteria for onboarding customers digitally. And we are seeing this growing trend starting from Africa. So this is again a segment which we are focused with our IDcentral portfolio. Now the ROC base, which was earlier platform based delivery are coming to an end. And from Q2, most of the deliveries will be on HyperSense platform. So we will see a shift to subscription-based revenue starting quarter 2. So just to summarize, the focus continues to be on building the new areas with the right kind of partnerships. This is our future, and we will make it work for all stakeholders. Your continued support means a lot to us and also thanks for the same. Thank you very much, and we will now open up for questions.

[Operator Instructions] The first question comes from Pratap Maliwal from Mount Intra Finance.

Can you hear me?

Yes, Pratap. Go ahead.

I have a question regarding the recent deal that we had regarding our tie-up with the Jio Platform. So could you just help us understand what is the nature of the tie-up? And what is the monetization schedule? When can we maybe expect revenues to start flowing in? And what is the nature of this tie-up and then how the revenue will [indiscernible] to us? And when will we [indiscernible]

Okay. So as I had indicated, most of the telcos are looking at creating a portfolio of services around AI, particularly to monetize 5G because the 5G, along with the connectivity, 5G will create a lot of new opportunities for such telcos in the enterprise segment. Now we have got this engagement with Jio. Thereby we will be supporting them in the AI service -- in the creation of AI services. So just to take an example, Jio would carry a plethora of services around connectivity, analytics, security, et cetera. And the Jio services around AI, we would be a platform which will be supporting that. Now this is something which we have similar discussions going with several telcos around the world, and we hope that we will have many such announcements for several markets announced in the quarters to come. Now with respect to the monetization, we have already clarified that HyperSense AI is a subscription-based pricing based on the consumption of the platform. So when Jio starts offering this to their customers based on the consumption, we will have a revenue share agreement between Jio and Subex. Now Jio, we are expecting -- I mean, I think there is a specific time lines. We are yet to determine. But as soon as Jio starts offering some of these services and when our platform gets used by their customers, we will start seeing the revenue coming from this engagement.

Okay, sir. Another question I had was in our disclosure, we've seen that there's been a provision made of INR 86.6 million, doubtful debt of one of the receivables as you pointed also. So I just wanted to ask, what has actually caused this? Is this maybe in the geography was the client? And I just wanted to understand that this is INR 86.6 million, then it seems to be around 10% of our revenue. So it will be maybe fair to assume that [indiscernible] telco a major client of ours and maybe what actually led this [indiscernible], could you please clarify?

Okay. So this is -- as I clarified, it's a provision that we have made on a conservative basis. We are quite confident that we have resolved this matter. The reason for this is -- there are several reasons came together. One was some -- the Forex issue that was faced by this particular customer. And the geography, where the customer operates, that was one. There were some change of the management. And because of some of these challenges, we had some delays on the deliveries as well. So overall, I think all these things resulted in a delay in receiving the collections from this customer. And as a part of our corporate governance, we have a particular process, whereby if it delays over a particular period in time, we will take a provision on that. So I just want to reiterate that we are reasonably confident that we will get this collections done. But it is taking time, and as a part of the corporate governance, we felt that it is better for us to make this provision. So it's just a onetime activity and it is from 1 of the customers in the larger [indiscernible].

Okay. So can we maybe expect the entire amount to be reflected in the next quarter itself? Or would there be an idea of phased recovery of this amount?

We're expecting it to be a phase recovery, but some part of it will definitely come in the next quarter, yes.

Okay, sir. And 1 -- another question I had was regarding that we had a recent call out of a deal win for fraud management in HyperSense. I believe the figures were $3.5 millions over 5 years. So just so you understand how does the revenue actually start with [indiscernible] firstly, have we hope any portion of the revenues in the current numbers reflected. And secondly, how the revenue model changes versus if this was a previous [indiscernible] deployment versus the current deployment, how is the revenue actually model changes? Could you please help us understand?

Yes. So this is HyperSense, and therefore, it is going to be a subscription basis. So earlier, if you look at -- if you have an off-base employment, this whole -- of the bulk of the $3.5 million would have been recognized within the 12 to 18 months time frame. Now that has got changed, and this will get now recognized over a figure of 5 years. Now while the -- so because it's a subscription-based rather than a license and license and implementation. So that's a major change that happened. But the most important thing is not, which is a particular thing, we have the HyperSense already deployed. And once we start -- once the customer, this is primarily around the HyperSense management side of things. But once the platform is done, we will work with our customers to boost other rate cases outside of fraud management onto these platforms, which will come with a different commercial because the platform can be used for a plethora of use cases, and that is exactly what we are trying to do with most of our customers. So while from a recognition of revenue perspective for the 12 to 18 months, this will get a spread to 5 years. But opportunities that and like the earlier platform, this allows us to move more and more use cases on top of this platform, which will come with additional subscription outside this $3.5 million that we have [indiscernible].

Okay. And has the revenue started flowing in? Or when it maybe flowing in, Sir?

No, it will start flowing once we start the -- once we complete the deployment. We have started the deployment, and it will -- some time during the next quarter. It will -- some part of it will get commissioned and then the revenue will start kicking in.

The next question comes from Dipesh Sancheti from Manya Finance.

Am I audible?

Yes Dipesh, go ahead.

My first question is actually for the Jio Platforms [indiscernible] already answered. Now I wanted to just understand, our revenues from Indian market is around 2%. We are having Airtel, Vodafone, Jio now. So practically the entire telecom market -- Indian telecom market as our customers. So going ahead, what revenue share are we looking from the Indian market?

Look, I think as you can -- if you look at our core business, which is primarily aimed at the telcos at this point in time. So far, our opportunity exists when there is an upgrade cycle. That is when we upgrade our existing installations to support the new, let's say, technology or when we have a new product and we have a new sales to the telcos. That's what our revenue stream is other than the normal annual annuity base support revenues. So now with HyperSense, this changes, and we do have the ability to -- on a constant basis, provide new services to our customers. So I think while -- for the near-term, I would say that the percentage of revenue will be around on our core areas. But as we start taking the solutions to the enterprise segment through our telco partners, we will see that changing by and by. So this is for our core. But our new areas of IDcentral and Sectrio, the focus is predominantly the Indian market or that is probably 1 of the 2 markets that we are focused on. So as those revenues go up, we will see a larger portion of the overall revenue coming from the Indian contribution. So to summarize, overall, in the short term, we will see that percentage of revenue will be around that, but it will start growing as the enterprise business and the new product business starts growing for Subex.

So as I understand, as new technology like 5G locking will develop in India. That is the time Subex will actually kickstart with getting more revenues from them?

Yes, because we feel the same opportunities elsewhere also. But as a percentage because of the new areas, as the Sectrio and IDcentral, we are only focused on India. So once that starts revenue -- that starts generating revenue than the overall revenue from India will start increasing as a percentage.

And when do you expect that to actually kickstart?

Look, I think this -- for this year, we see that it will be there about in the 3% to 5% range. But as we start significantly scaling the Sectrio and IDcentral revenue, that will change. That will be towards next year -- next year onwards.

Next year. And if you can just throw in some numbers, like as investors, we really want a few numbers to come out. What is the expectation of how much revenue are we expecting? Nothing binding, but point is there is -- a revenue guidance, which is -- which can be expected from these telcos? Then it will be easier for us to judge how our investments should go.

Dipesh, I understand where you're coming from, but we are not giving any specific guidance details. So I think what we can provide you is the fact that this is definitely multi-personal AI platform is a growing segment, really growing segment, very, very fast-growing segment. Early days of adoption, and this is not just with telcos only, right? This is going to be adopted by across every enterprises, and telco will be a provider of such services to every enterprise so we are aligned with telcos and other major players who opt -- going to be a provider in this space of AI thing. It's a huge market. So I think as you would slowly see, we will start announcing this relationship, partner, strategic partnerships in various markets. And we are aligned with large partners, which will have a much higher reach and that's our focus. So I wouldn't need to want to provide a specific guidance at this point in time, but I just want to paint the picture of what where we are taking, Dipesh.

Okay. And also, we've seen the Sectrio customers. We have even SBI. So are we looking at tapping at other banks, Indian Banks, especially?

Yes. And Sectrio, we are only focused on 3 markets at this point in time. India, Saudi Arabia and UAE, and Saudi Arabia and Mexico. These are the only 3 markets that we are focused at this point in time, and India is a very, very key market. Based on some of the key wins that we have in the -- both in the government and the enterprise segment, we are -- we have increased results. And we have started seeing the RFPs coming out based on the work that we have done in the last few quarters. And we -- as we go along, we will start announcing the customers that we are winning. We are expecting -- as I mentioned in my briefing, the current effort in both Sectrio and IDcentral is to add customers so that we can establish as a key player when it comes to OT/IoT security in this and Identity analytics in these markets.

Yes. My last question actually is a hypothetical one. Just the last one. Generally, it has seen that Jio takes a stake into all its technology providers. It has been seen throughout the Jio's journey. Is there any talk -- is there any possibility going ahead since we are -- we just removed our promoters from the promoter list. Is there any possibility ahead?

Look, at this point in time, we are in the early days of building these partnerships on and ensuring that from a portfolio standpoint, we are providing the right support to it. So at this point in time, there's nothing. Our focus is around -- at this point in time, our focus is to keep this AI services only to the market and make a big success out of it, Dipesh.

[Operator Instructions] We have the next question from [ Jagdap ] an individual Investor.

See, we have observed in last 8 quarters that before every quarter results, Subex is announcing some partnership. But it is not updating investors in subsequent quarters. What is the revenue generated from such partnership. Last year, we have announced Snowflake partnership. So what is the revenue generated from Snowflake partnership in last 1 year, that is never updated in subsequent quarters? What is the reason for that? See, all these new announcements every just before the quarterly results, divert attention in the investor call into new areas where you don't have numbers. So what is the reason for doing all these things? That is the first question. Second question is, there is a reduction of 15%. That means INR 18 crores from cash and cash equivalent in the last 3 months. What is the reason for this large reduction in the cash and cash equivalent? These are the 2 questions.

Sure. So first on the partnership, I don't think that at this point in time, we are providing the breakups of revenues from individual customers or individual partnerships. The idea of this partnership is not just from an investor standpoint alone. This is -- these partnership are announced from a market -- from a trade perspective as well because we want to announce this partnership so that it helps us to go and build a portfolio to get [indiscernible] to the customers. So this is something which we are -- I mean, in this particular case, both Jio and Subex decided to announce this partnership, we wanted to...

I'm not talking about Jio. Because Jio, You will not have a number today. I'm asking about Snowflake, which is announced last year.

Right. So I think all these partnerships are announced so that initiate the go-to-market activities, and that is what the partnership. And the timing of that is not -- is based on when we conclude the partnerships, and it's got nothing to do with any other matters. So that's point number one. And we do not providing any customer or partner-specific revenue contributions. And at this point in time, at least, we don't have any plan to provide that. Whatever we are providing at this point in time is a region-specific. And overall, the product-specific details is what we are focused on. Coming back to the cash result part of it. I think 1 of the -- we did have some spend that was going on the CapEx side of these things because we have initiated -- we have expanded the new offices. And also there's a bit of a timing issue on some of the collections coming on to -- coming into -- moving from June to the July time frame. So those are the reasons why there's a short movement of the -- and there's some collections from both from June to July timeframe. So those are the reasons why have been a reduction of almost close to about INR 18 crores when it comes to the cash equivalent. But those 2 things will come back as we gets into this quarter.

But are you going to upgrade next quarter that whatever money is drawn from the cash and cash equivalent is returned back to the cash and cash equivalent?

We will provide the details of what is the cash equivalent at the end of the next quarter, and that's something which we are reporting as a normal thing in our investor deck. So that will get reported, and that should give you the view of how things are.

Do you mean to say that there is no revenue from Snowflake in last 1 year?

Sorry, can you come again?

Do you mean to say that there is no revenue from Snowflake partnership in last 1 year?

We are leveraging that partnership and not only with that. All the partnerships that we are leveraging to significantly progress HyperSense. And the HyperSense success we have today, we have already had 7 customers already in HyperSense. And we are leveraging our cloud and other partners significantly to make progress on this matter. At this point in time, while we have announced a few things based on the go-to-market strategy, we are also working with several other hyperscalers to ensure that we have a very tight relationship with most of them. And as you will see going forward, we will start announcing the other ones, I'd say. So HyperSense, these partnerships are the primary 2 go-to-market avenues for us to take HyperSense to the market. So most of the revenue that we are getting from HyperSense are related to the common efforts between our effort and some of these partnership efforts to come.

That's the same thing I'm asking, is there any revenue from Snowflake? Yes or no?

I would not -- as I already clarified, we will not be providing any specific information on any partnerships or any customer-related things, which is not -- we are unable to provide those details because of the confidentiality that we have signed customers and partners.

We are not asking customer. We are asking whether revenue is generated from partnership or not.

That's what I'm clarifying. We would not be able to provide because of confidentiality that we have signed with these partners as well. So the specifics of this relationship.

So this INR 83 crores whatever revenue is there, what the percentage is from old business and what percentage is from new business?

If we talk about the new business, if you are talking about the IDcentral and -- IDCentral and the Sectrio part of it. We generated close to about USD 0.25 million from these 2 lines of business. From quarter-to-quarter million will translate to USD 0.25 million. I mean that that's what USD 250,000 is what we generate. USD 250,000 is what we generated from these 2 product lines in the quarter 1.

So it is less than 4%.

Yes. correct.

The next question comes from Amit Mishra, an individual investor.

Am I audible?

Yes Amit, go ahead.

Congrats on showing growth in the quarter, seasonally weaker quarter. So good performance there. But bottom line is still we need to see like how we get [indiscernible] margins gone down quite a bit. I have just 1 -- a few questions I already answered. I was just a specific question to Jio Platform partnerships that you announced recently. Our PR says that JPL will offer its cloud native 5G core to telcos globally along with Subex's HyperSense. So I want to see how it will be operationalized because JPL being a subsidiary of Reliance itself to the telco won't there be split of interest with other telco clients when we take JPL JV with Subex HyperSense. While dealing with 5G on it [indiscernible] data and everything. So I want to see like what's the plan, what's the road map for this? Is it just subscription to telcos or it's open to other enterprises [indiscernible].

Look, I think it's a Jio Platform strategy question that we're asking or maybe I will not be the right person to answer that. But on the question, in general, we have cases. I can go into...

Vinod, sorry, just -- just let me read again. This is from the PR. So I want to be very clear with...

I'll clarify. I'll clarify...

I just -- yes, I just read from the PR it says that JPL will [indiscernible] cloud-native 5G core [indiscernible] I just want to specifically understand that.

Yes. So if you look at globally, the trend has been set by a company called Rakuten. Actually it is called Rakuten Communications Platform, which is an operator in Japan. And Rakuten have had wins across the board for their platform. So I think things are getting more and more opened up and people are looking at leveraging some of these platforms and the cloud late nature of such platforms to both reduce their operational costs and have quicker go-to-market. Now so therefore, I think our focus is -- we are supporting our customers similar to Jio in ensuring that when it comes to AI, we're providing a robust platform with all the enablement so that they can create a it is required as the right service offerings, both to their potential telco customers and also for the enterprise customers. So that's where our focus is. And our focus, as I told you that we are -- our focus is a lot of enablement like which today, we have enabled in some telcos, we have enabled more the entire technology team on our platforms where they are able to generate use cases without any support from Subex using our platform. So that is precisely where we are going and I'm -- this is where I think our focus will be.

I understand, but I see conflict of interest JPL being a subsidiary of Reliancce, with other telcos, okay, I understand the solutions can be taken to other enterprises outside telco ecosystem. Okay. And second question is -- your second question is on IDcentral. I saw you provided some numbers the presentation. And I saw ARR of INR 46,000 in this quarter. So it has been like 5 quarters. And I think the ramp-up has been very slow. So I want to hear like future road map there, like what sort of expectations you have not guidance per se, but what sort of expectation? And are there like it's very competitive in India and the market [indiscernible]. And some bits on Sectrio because there is not at excess the clients on Sectrio. These are 2 focus areas, new focus areas. So we want to hear more on this, please.

Yes. So on the -- let me start with IDcentral. IDcentral, as I mentioned, some of our -- we did have a dip in the number of API calls that we had in this quarter on account of the low activity from the crypto customers. But by and large, from MRR or ARR standpoint, I guess that, that is getting bridged because we have started also onboarding telco customers where the ARRs is significantly higher. If you recall, our ARR -- our MRR used to be something like, on average, used to be $850 to $1,000 per month, but from a telco customers we are talking about upwards of $10,000. So therefore, that is a nice segment, and we have had the first stuctures. We have gone in production in 1 of the customer, and we have a lot in the pipeline in a similar one. So it is competitive. And I guess where we are focused is on to ensure that we are able to provide the right cost and much higher accuracy so that we can swap the customers from their existing providers to our customers. We started with smaller tier customers. We are getting into the mid-tier customers as we see. And it will stabilize and we will -- our intent is to get into a -- this gets to a kind of $100,000 MRR is our near-term objective. And with the telco addition that is -- we still hope to get to our internal time lines that we have kept for ourselves for getting the $100,000 MRR. With respect to the Sectrio, as I told you...

Just very quickly, Vinod, why I asked this question and IDcentral is recently, L&T Infotech, the partnered with [indiscernible] to deliver intelligent identity solution. I think other players are also like existing competition is there and there are new players coming in with specific partnerships. So if we -- like ours has been a bit slow, I would say, I understand we have made progress, but are we losing the grip in the market? Because like we have to scale up quickly [indiscernible] each and everyone to push?