Subex Limited (532348) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 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 has joined the earnings call for the quarter ended September 30, 2022. And 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; Mr. Sumit Kumar (sic) [ Sumit Agarwal, ] Chief Financial Officer of the company. I would like to start the conference call by going through our 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 are not limited to, fluctuations in earnings, our ability to successfully integrate acquisitions, competition in our areas 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. So with this, I now hand over the call to Mr. Vinod Kumar to take it forward.

Good afternoon, everyone. Thank you for attending this call. As we have announced the results today, the financial results for Q2, The revenue for quarter 2 of FY '23 stood at about INR 74.5 crores. This is a drop from the quarter 1 level of around 10%. The EBITDA was marginally positive, but we also have a loss after tax, about INR 5 crores. So overall, it was a difficult quarter. What is in line with our expectation is that the full impact of the license, the subscription model change is flowing into this number. But what was not expected is some additional headwinds regarding the budget skews and some service reduction requests from our customers, which I will elaborate as we go through the briefing. But before we discuss the core business, I wanted to cover the progress that we are making on the young and growing part of our business. Let me start with IDcentral. As probably some of you would have seen from our investor presentation, we have added 11 more customers to IDcentral range of products, and currently, the total number of the customers that we have is about 33. Now, we have made significant improvement to the products and also have managed to reduce the cost of our service with better deals with our partners. We have passed some of these savings to our customers, and all these reasons have resulted in an increased number of pull of our API. And from start to date, we have -- this quarter, we have crossed 10 million API pulls on our platform. What is also significant is that we have launched a face matching feature wherein with list of, let's say, defaulters or fraudulent customers, with photos, we are able to match the new applicants. And even if the, let's say, data are different like name, et cetera, are different, if there is a match in the photo with a very high degree of accuracy, we are able to detect them and thereby preventing these fraudsters or defaulters getting into the platforms again. So this is definitely an improved capability that we have brought into the market. So overall, I think if you look at both from the API pulls and the number of customers, it is getting into the profile of a growing SaaS business, and we expect this growth to continue in the quarters to come. Now let us move Sectrio, the IoT OT security portfolio. The major update is that we have won our first electric utility in the country. We have won the deals from BESCOM. Now this is a very, very important sector for us, so with the kind of digitization that is happening and the exposure that we are seeing of this sector in the cyber tech, et cetera, this is a very important sector that we are focused on, and this particular win will help us to significantly improve our positioning in this segment. We are also making good progress in the manufacturing and particularly infrastructure areas in UAE and Mexico, which are the 2 other markets that we are currently focused, in addition to India, as a market prospect here. With HyperSense AI, our augmented multi-person AI/ML platform, we have -- in addition to EMEA, where we had a strong presence in the telco area, we have also a specific focus to get through to the North American market. And in line with that, we have currently 2 POCs underway with Tier 1 operators in North America, and we hope to complete this in the next quarter. So overall, for HyperSense AI, which is our multi-person AI/ML platform also, the progress have been good and we have several POCs going on, and we expect -- and these are -- at this point time, we are only focused on telco segment. And POCs and the contracting telcos take time, but I guess we are quite hopeful that some of these POCs will even be able to conclude quickly and convert them into commercial success. So overall, I guess that on the new areas, this has started -- we have started adding customers. And growth is also in line with our expectation. And our overall expectation is that as we end this year, the new part of the business would grow about 3x of what it was last year. Now let me come to the core where we have a bit of a challenge. As I mentioned, on account of this inflationary pressures in various markets, we have seen some headwinds whereby there is budget skews from some of our customers. And therefore, that resulted in some request for reduction of some of the services, particularly the managed services that we are offering. These reductions are like movement of some on-site resources to offshore and moving some 24/7 operations to 7/5 and things like that. So this has definitely resulted in a hit in our revenue, and we expect this particular -- it will at least take 2, 3 quarters for them to streamline and get back to the service levels that we were offering them till last quarter. Now in addition to that, as we have been communicating, we have worked for this hyper -- or on account of all of our products moving to HyperSense platform, we are significant -- we are fundamentally changing the business model from a license plus implementation to a subscription-based model. And the full impact of this license to subscription change is flowing into our financials at this point in time. So -- but this was expected, and we have been communicating for the last couple of quarters that we would have this, therefore a small dip because whatever we are executing in a period of 12 to 15 months, that will become [ and executing ] and recognizing the revenue over 12 to 15 months, we will get actually -- it will get recognized over a larger period of maybe 3 to 5 years then. The advantage being that we will be able to secure a lot more customers and also can convert some of the competition. So I guess that the impact of this change is flowing into our financials, plus the headwind of some reduction of services have resulted in a lower overall revenue for this quarter. However, I think it is important for us to see our business going forward as a subscription-based business. And therefore, the construct of our business would be MRR, which is a monthly recurring revenue, and one-time revenue. So I just wanted to provide you a baseline as to where we are today with respect to both the monthly recurring revenue and one-time revenue backlog. Our monthly recurring revenue as on September end stood at $2.3 million, which means that the if you look at from a quarterly standpoint, it should be something like $2.3 million into 3x, that's almost close to $7 million, will be the quarterly recurring revenue. And our backlog for one-time revenue stood at $14.7 million. So this $14.7 million will get executed as we implement these projects. These are primarily the implementation, change requests and things like that, which will get executed in maybe 3 to 4 quarters. So our intent is that the $2.3 million MRR, monthly recurring revenue, is something which we will start reporting quarter-on-quarter. And our intent will be as we grow the subscription business, this $2.3 million MRR will grow from that level going forward. So that's our expectation. So in line with some of the reduction of services that we faced this quarter, we have been able to redeploy our talent against open head counts, against attrition and such things. And therefore, you will notice that even with the yearly increments which we typically did in quarter 2, our overall employee cost pretty much remained at the pre-increment level. So we have been swift to reallocate these resources against attrition, and therefore, maintaining the employee cost at the Q1 level even post-increment. Coming to talent and people side, like what we are seeing, witnessing overall as an industry, we are seeing a higher than usual attrition level. And our focus is not -- is to retain our key talent. It's not easy, but what is helping us is the work that we are doing, levering in cutting-edge technology like AI, ML, and et cetera. So in summary, the revenue dip from the last quarter to this quarter is on account of the impact of the license to subscription model change fully flowing into the financials and also the reduction on account of headwinds that we talked about. There are some MS services have been reduced on account of budget skews that operators have made. These budget skews, just to clarify, it's not on our products, it's across the board they are looking at these budget skews. The next aspect is that as we convert to a subscription-based business, it's important to see our overall business constituting of a monthly recurring revenue and a one-time revenues. Our current monthly recurring revenue is about $2.3 million per month and the one-time revenue backlog stands at about $14.7 million. The intent is to have this monthly recurring economy grow on a quarter-on-quarter basis. And the new areas have started crossing decent growth, and we expect this to continue. I know that the results are not what we had expected, but back to some of the steps that we have taken -- but we are taking all the necessary steps to ensure that we are getting a steady growth path. We request your patience and also thank you for your support, and we will need a lot of them as we go through this transition and ensure that the company will [ stick with ] the next phase of growth. With that, I would open to the questions, please.

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

So I just wanted to ask regarding the HyperSense transition. So you mentioned you're doing 2 POCs in North America. So are these for existing customers? Or are these entirely new customers that we're targeting?

These are with existing customers, but for new areas. This is not for our core hyper core products, but this is for the new platform, HyperSense AI/ML platform. So we are doing a POC for use cases which are AI/ML specific. Nothing related to fraud, RA, et cetera, which is our core area. So these are with our existing customers but new areas.

Okay. And I think in the recent past, you have called out HyperSense to be -- for fraud management to be in the area of $3.5 million. So I just wanted to understand, had the deal been for us traditional license implement support model, then what would have been the deal size? Just trying to gauge the delta that we get from the transition from the traditional to the new model to HyperSense. What would the deal size be?

So the deal size would have been, let us say, maybe it would happen around $2.5-odd million that would have been recognized over a period of 18 months or so. But what we do with this is that this is over a larger period. However, we have the ability to -- if you look at the original construct, we [indiscernible] $2.5 million, and thereafter, we get probably an annuity of, say, $200,000 per year or something of that nature. But in this case, once we have started -- once the implementation is over, it happened, and we are expecting the implementation to get completed by about March time frame. From then onwards, on an ongoing basis, we will start getting the MR fee starting then until we continue the service, so that's the advantage that we have. And the second advantage we have is now that they have the HyperSense platform, we can also start moving additional use cases on top of the platform, which will come with an increase in the monthly recurring charges.

Okay, sir. And the number of customers that you transitioned to HyperSense, I believe it was 7 customers in Q1? What's the number? Any update on that front?

So we have signed up another 3 more at this point in time, these are primarily for the conversion of our existing ROC platform into HyperSense platform. But I didn't announce that [ at this juncture ]. As I told you, we also have several POCs going on for HyperSense AI like the 2 North American POCs I was referring to. Those are independent of these conversions of ROC to HyperSense platform that we clarified.

Okay. And just one final question from my side, please. The last quarter, we had made a provision regarding 86.6 million regarding a customer. So have you started recovery on that front?

Not as yet. We are still working on it. There is a region and some of the ForEx challenges is not allowing us to make progress, but we are expecting that we would make progress, some progress during the quarter -- during the course of this quarter.

Next question comes from [ Mahesh Kumar, ] an individual investor.

Vinod and CFO. So my question -- first question is related to the cash in the balance sheet. The announcement given to the BSE on 14th of November, Page #11, says cash on -- in the balance sheet as on 30th September is INR 54 crores. Whereas your presentation which is submitted to the BSE yesterday says total cash in the balance sheet is INR 85 crores. Which is the correct number?

So the fact -- Sumit here. So we do have money sitting into the investment accounts, which is the highly liquid cash. It's in the form of mutual funds and FDs. So what we reported in -- in the balance sheet, if you see as per the statutory books of account, that is shown under the investment line, which is a highly liquid. So what we have reported is the consolidated cash balance is INR 85 crores, though the cash and cash balance is INR 54 crores as you rightly put it. So both are considered as the liquid cash.

So what is the reduction in the cash in this quarter? See, last quarter, there was INR 17 crore reduction in the cash. What is the reduction in this quarter?

So this quarter, obviously, there is a loss which is translating down to the cash loss, which is represented in the cash flow as well. And plus, there is a delay in the collections as well, which is like money has been piled up into the working capital due to some challenges around on delaying collections and things. So that is largely the thing more in the business loss, while the other amount has touched slightly into the working capital. If you see our DSO, it has also slightly increased. And the whole idea is this quarter, we are just working out more thing to get this back to the normal.

Now all these finances are going haywire. Is it due to the poor financial control or lack of talent in the finance department?

Yes. So I think that the 2 aspects, as Sumit mentioned, there is -- our revenues have come down. So if you look at from a cost perspective and if you look at the increase and typically, if you look at historically, Q1 to Q2, there is a -- in line with the increase of the overall increment that is Subex -- the expenses go up. So I think that...

I'm not asking about that. My question is very pointed. DSO is going higher, it is at 111 days. See, this all reflects poor finance control or the finance department doesn't have the required talent to drive SaaS business. Which is the correct situation?

Okay. So I think this has got nothing to do with the talent that we have in the finance department. It is -- DSO of 90, it is not that DSO have gone very bad. It has gone from 90 to this 100 days. And this is also bit of a timing issue on when we completed the project, and then we could get this money and things like that. And as Sumit clarified, as this quarter, we are expecting the collections to be more than the billing because some of the collections that did not come in quarter by September, has already -- we have already collected in October. So I think that we will be back on track. And you will see that as we end the quarter in December, we are expecting our balanced cash position to improve from the INR 85 crore level.

See, Vinod, every quarter, you are telling these things. Next quarter, we will be on track. But we are not coming on track for last 8 quarters.

So I think, [ Mahesh ], if you look at what we have been communicating, is that there is a change in the business model. And therefore, there will be a kind of as we have seen with every company that has gone through that transition, there would be adjustment of the revenue. And it will -- and that is why I think that we have currently reached the baseline position where we are able to report that this is our baseline sort of MRR, and we expect to grow from there. Now what has happened is a bit of an unexpected things this time. As I mentioned, it's some reduction of services. That's something -- when we are delivering about 100% SLA compliance, that's not something that we expected. But we've got [ feet ] on us, and we are now trying to see that even with that, we are trying to swiftly move the cost to the appropriate areas and thereby manage the situation. So I can say you from a qualitative standpoint, as already mentioned, we are giving you much more facts at this point in time on the customers that we are adding, the MRRs that we are booking, and I understand. I understand that you have been very patient and it has taken more than what we expected. But that's where we are, [ Mahesh ]. I hope that it is not pointed to anything, but in some of these challenges that we just mentioned.

No. See, what is my suggestion, either you get a good talent from outside, abroad, so that they will drive the business properly. See, what is happening, every quarter you are coming up with new excuse, which is not correct. See, we have been waiting for last 12 years in Subex. So see, every quarter coming up with new excuse is not correct. That actually diminishes the credibility of the management.

Absolutely. So look, I understand your feelings, but I think what we are telling is not exclusive per se. We have been as transparently communicating the...

That is okay. Transparently, you're communicating. But we should anticipate problem in advance, now that is what is management.

So look, I think that is what I'm saying that we are now in a position to say that this is the baseline MRR that we have. And therefore, I think we are reasonably confident going forward we will be able to sort of show the quarter-on-quarter growth. I would not say the full impact of the license to subscription has been -- has flown into the account. We are still doing that conversion. But by and large, we now have the growth in the new areas and HyperSense, et cetera. And we are reasonably confident that we would be able to mitigate some of the conversion-related issues. Conversion, meaning model-related issues on an ongoing basis for the quarter-on-quarter [ base ]. So I request a bit more patience from your end. I understand the feelings beyond your -- behind your question. But I am requesting you to be a bit more patient so that we can show this quarter-on-quarter MRR growth, [ Mahesh. ]

No. See, we can wait. We have already waited for 12 years. So you can give wait for 1 quarter, wait for 2 quarters. See, it's coming up every quarter with new excuse. It's not correct, actually.

So I understand. I don't know what more to explain it to you, but I guess that I understand where you are coming from. But I guess that I just told you, we are taking this as the baseline MRR. So from there onwards, we should be able to start showing a growth [ Mahesh. ] And we are -- overall, from a revenue expectation, let me also take this opportunity to set expectations. We are not saying that the revenue will come up very quickly. But I guess that from now onwards, we will see the MRR gradually going up as we start completing this implementation. So for example, the deal that the earlier that Pratap mentioned. Now, that revenue has yet to flow into the financials, even though it's a large deal. So I guess it will start happening from March kind of time frame. So however, we are executing for -- executing in full throttle. So that's why I think I'm still confident that we will start slowly showing the growth. But I fully understand the sentiment behind your question, [ Mahesh. ]

Okay. So actual cash is INR 85 crores? It is not...

I'm sorry to interrupt you, sir.

That's correct. That is correct.

Next question comes from [ Mangesh Chakta ], an individual investor. There is no response. Next question comes from [ Rohan Kamat ] from [ Rohan Finance Capital. ]

I want to know about why here promoters are not holding any single shares? Day by day, you are selling only the shares, in the -- and that is -- yes, ESOP also. The employees know that they will -- you will bring the wrong result?

Okay. So on the promoter side, I think the promoters -- promoters sort of exited in 2012. So I guess if you're referring to the recent reclassification, it is just a technical aspect. But the promoters of the company literally liquidated everything around 2012 time frame. Regarding the ESOP aspect, let me just clarify that part again. ESOP has been like, allotted in FY 2018 and 2019 time frame, and that got tested. And those tested over a period of time and then there is an exercise period and people based on the cash flow, et cetera, are liquidating or kind of exercising that share. With respect to the liquidation, there are 2 aspects for that. First, based on cash flow, some Subexians have liquidated. But also please understand that we have a lock-in period of 6 months, and therefore, even though some of the Subexians have already left Subex, but because of the 6 months then they are a related party, and then we keep reporting their exits for a period of 6 months. So some of the recent things that we are seeing as an ongoing listing is not from existing Subexians. They are from past Subexians, and they are exiting because like -- rather, we are reporting because of a related party. But by and large, [ it has quite a ] cash flow. We are very -- from a compliance standpoint, we have completed compliance on that aspect. And at least we are going along with my core team, are quite bullish on the opportunities in front of us, and we are driving this. And probably some of the progress, even though qualitative, we are making -- which I just explained, should give you the confidence that as we are fully behind believing some of those new opportunities under our portfolio, and we are going ahead with that thing.

Even I want to know about recently about Jio deal. You have won the Jio deal, but there's no performance in the financial growth, still now.

Jio is a partnership engagement. It's not a deal deal, in the sense. We have -- we are engaging on a partnership to take product to the market. We are in the phase of putting the products together and creating the common portfolio, et cetera. So it's not a deal where we execute and get the revenue. It was a partnership deal. And as I said, we -- I mean, we have -- there are a lot more partnership deals that we are working on. But as you will see as we go along, the improvement in the MRR, the monthly recurring revenue, as I have clarified in the earlier -- against the earlier questions.

Recently you have done that Jio deal. How much amount of your deals have done that? Which you have partners, you have partnered with many deals, but you are not disclosing that to how much crores you have on the deal.

I don't think that those are things that we intend to provide specifics on because that means we have confidentiality that does not allow us to go into the specifics of those aspects. But I can tell you that almost all the new areas that we have talked about, IDcentral, Sectrio and HyperSense AI, our go to -- most of the revenues are -- a large part of the revenue that we are talking today is coming through partners one way or another. So our partnership is our main go-to-market for these new products.

Even you have showed that in the presentation, that your IDcentrals are growing, but here are -- in this last consecutive quarterly, 8 quarters that as [ Mahesh ] said that there is no performance in this company, and we are still struggling for this because we have bought around very high level. But the companies are still -- you are hoping us that, quarter-on-quarter, but there is no growth in this company. And other side, all the IT companies are growing, but this company, I have seen that there is no growth in this company. Please let me know about it.

So this is a product business, these are new products. So I think it is -- it will take some time for us to establish this as a business, and we are also going through this transformation, as I mentioned. So you should expect that because of the -- I mean, with the change in the model, it will have a dip in our revenue and then we started going in. And as I mentioned, we are now reporting the base MRR of $2.3 million. And we are reasonably confident that going forward, we will start growing from that level of monthly recurring revenues.

In each and every quarter, you are saying that we are growing from the quarter-on-quarter, quarter-on-quarter, but there is no growth. But still I am -- we are facing this struggle in this company. I think there is some issue in this new placement. I think there is a good chance of a broader [ power cell ] to replace here, I think.

Okay. I hear you, but as I said, I don't know what I can respond to that question. But I guess that what I clarified is our current plans and our thoughts on these matters.

It is better that we know for the next time, please...

Sorry to interrupt you. [Operator Instructions] Next question comes from [ Abhishek Kali ], an individual investor.

Vinod, in the past conference calls, right, we had mentioned that we have installed Sectrio on 500 devices of SBI. Have you made any further progress in that regard?

No. We have not because we have -- we are now working -- okay. Now, I've been [ at Sectrio and ] I'm not able to give specifics of it, but we are working on the redundancy side at this point in time. And once the redundancy side is complete, we will look at expanding to other -- expanding to further devices.

Okay. And one more thing, and I mean, this is more of a comment. But it seems like the Chairman, right, the Board Chairman has probably lost interest in the company because of the immense amount of selling that we have seen from Anagha Investments Advisory or Ican, both are controlled by Mr. Singhvi, right? So it's phenomenal to see that retail investors are holding on, and the Chairman has probably lost confidence in our abilities to deliver. I mean, I don't know how to make out of it. But if you -- I mean, you have done -- the current management is still so strong and is so bullish about our products and everything that we are doing, right? Then why is it not translating into people holding onto the company shares that they have, at least the Subex employees? I'm not talking about the people who have left the company and who you are reporting as related party transactions. I'm talking specifically about the people who are still working for the company. So, I mean, I don't know what to make out of it. Your comments on this, please?

Look, I think with respect to our engagement with the Board and Chairman is fully on. We just came out of a 2 days of intense exercise of looking at all aspects of the business and all aspects of this transformation. So I can very, very with large conviction says that the Board is fully engaged because this is a very big transformation that we are trying to do. And a new stack, new platform, some of the things we are doing for the first time, so there's a lot of guidance that we need. And so we have very, very deep engagement with the Board and the Chairman on this matter. With respect to the ESOP, et cetera. As I clarified, it is purely on the cash flow requirement, things like that. So Subexians who are exiting Subex, please understand that you also see a similar buy happening in many cases. That is because some of them are exiting to exercise towards the end of the -- to the end of the exercise period. They are liquidating some to collect money to generate money to exercise more. So I think by and large, you will see that, [ Abhishek ], the team has stuck on and it's not that in this market, there are no other options. Because all of us believe that this is a huge opportunity that we have with HyperSense AI and the digital trust portfolio that we have created, [ Abhishek ].

Vinod, if I may ask one more question. Sorry, if I've exceeded my time.

Go ahead, [ Abhishek ].

Okay. So what is the ballpark time frame that you think the company will need to have things fall in place in the way you have envisioned them? Is it 12 months or 24 months? Yes, sorry.

So I think we will have the revenues, the MRR and one-time revenues around slightly -- slight growth from the current quarter for the next couple of quarters. And thereafter, by February, March time frame, some of the new deals we now see will start kicking in. And therefore, you will see a significant increase from the MRC from the current level starting March kind of time frame. So if you compare the current MRR of $2.3 million that we reported at the end of September versus the MRC that we would get to by the end of March, you would find that there is a significant increase. And assuming that MRC, there is always slight concern, slight contraction, but that will be augmented with addition. So if you can take a view that the March MRC is something which we can carry forward and there is a growth from $2.3 million to what we are going to report in March as the MRC, that should be a validation that the new business model and the new revenue streams are kicking in, [ Abhishek ]. So that's the time that I would say that overall revenue will be pretty much in line with what we're reporting now. If you look at the March MRC revenue in itself, which is what is the most important metric as a subscription-based company, you will see that there will be a significant increase on the MRR that we report by March '23.

So Vinod, if I've understood it correctly, you are asking us to consider having patience for 2 quarters, right? And then we will start to see improvements in our numbers, am I right in understanding? Sorry for the [ charge, ] Vinod.

That is correct.

[Operator Instructions] Next question comes from [ Nishit Magani ], an individual investor.

I have one question, basically. Your -- the revenue this quarter, the income was about INR 75 crores to INR 80 crores, something like that. And employee benefit expenses which are about INR 52 crores. Is there any possibility of reduction in employee benefit expenses? Because ultimately, we are showing loss in consolidated. Or is it going high or something like that, which is uncontrollable by the management team or something like that? I find that INR 52 crores is quite -- is okay, if your revenue is about INR 150 crores or INR 120-odd crores, INR 100 crores. But INR 50 crores to INR 75 crores, so your margin is -- your employee benefit expense, what does that include as well? I just wanted to know about it.

Yes. So I'll initially overall explain, and maybe I'll give it to Sumit to explain the specifics. See, we are a product entity. So what you would see that our large cost, the engineering cost and our -- relating to our support cost is pretty much static, and it doesn't vary widely with respect to the revenue. Obviously, if the revenue goes up significantly, I think we may have to add the support cost. But the bulk of the cost that we have is on the engineering and the creation side of this. As a product company, it is pretty much static. So I guess the issue today is not with respect to the cost because I guess that cost is, by and large, optimized. It is [indiscernible] is due to the lack of the revenues thing. So my view is that even if you see the revenue growing up to INR 100 crores from the INR 75 crores, the increase that you will see from the employee cost from the INR 52 crores, that will be not in the -- leading up to the growth in the revenues that we would have. Now, that is the overall thing because the product company has this scenario. But on the specifics of what constitutes the employee, that line item, I'll ask Sumit to clarify.

Yes. Thanks, Vinod. So basically, employee benefit expenses largely comprises of the cost associated to the employee salaries, plus it has the cost associated to us, the stock options and other things, which is the P&L charge. Having said that, just to add on Vinod's thing, if you see year-on-year number, there is a reduction in the employee cost. And largely, as Vinod has mentioned, the bulk of this employee cost belongs to on our -- the product side or the team side to that. So there is a reduction, though there is a cost inflation or in the increments, which is -- comes in, we are able to control or contain the cost in the line of a revenue reduction and all. So that is what I can just say. Definitely, there will be always a scope of improvement, which we are closely monitoring it. And just ensure the -- our bench utilization to the extent is high to control the cost, yes.

Okay. My second question is to Vinod. Are we looking for any investors? Because about -- in 2020, we were looking for investors.

Yes. So we have addressed, we are engaging the investors with the intent to bringing the investors -- institutional investors and likes of them. But again, I guess, that is not our top priority at this point. Our priority is to build all the effort on getting the HyperSense AI. And once we start driving on that -- and just to add to that, these 3 new areas that we talked about are high-growth, large areas. The space is very big, and it's high growth. And our belief is that once we start executing and the numbers are flowing. I mean, today at this point in time, the overall contribution is about -- will be under 10% even as we end this year. But once we start getting much closer to 10%, 15% of our overall revenue, I definitely think that we will get a lot more attraction from some of these investors. We are having a reasonable inbound and we are engaging with them, but that is a business as usual thing. But the specific effort, we would hold on to before we start really firing on all these 3 new areas.

Next question comes from [ Sanjay K. ], an individual investor. There is no response. Next question comes from Amit Mishra, an individual investor.

I've been going through the presentation. I couldn't find this time order book in 12-month order backlog. If you can just tell what is the number for that?

Yes. So Amit, the reason why they have removed that because it's no longer relevant for the new thing. And the way we should look at is that you have the MRR that we mentioned, that we are currently saying that our MRR are offset by -- as of end of September is $2.3 million, and the back contracted backlog is around $14.7 million.

Right. Okay. So you are covering that in the MRR, the legacy business and also the new areas, right?

That's correct. That's correct. All the MR -- because going forward, we see our business as subscription business. They are the overall total contracted backlog that's now mixed in the MRR, ARR as a one-time revenue [indiscernible].

Makes sense. What was the free cash flow for H1?

So our cash balance is...

Free cash flow, yes.

So see, if you see the -- obviously, because of the losses around, our operating cash itself is a negative. So I'll not say there's a free cash flow per se.

Right, right. Okay. So one question on the business side, Vinod. So we were having this difficulty on the upgrade business, right? The upgrade side of the business on the legacy, because we were moving to HyperSense. How is it coming along? Because we were having issue like clients trying to save or not moving to HyperSense, because they were still on [indiscernible] side and also not moving to the -- if you can give a sense of where we are heading in the legacy business?

No -- in the legacy side, initially, we had some challenges with respect to convincing them on the subscription model. It is not the -- the challenge was not to convince them of the value proposition of HyperSense. It was primarily the revenue model. I guess by and large, we are not seeing that because one of the trends that we are seeing globally is a massive adoption of moving into the cloud, cloud adoption and telco. And in fact, this is perfect. We are probably the only ones today in the market in our core demand which is offering a fully -- our fully-integrated cloud solution. So therefore, I don't see that we are seeing much anymore. There is a very, very small footprint customers here and there, we hear that, but our focus now is on Tier 1, Tier 2s, and we are selecting the customers at this point that we are pursuing.

Why I'm asking this is because this has completely destroyed our top line, you know? Because 30% of the legacy business you advised earlier comes from the upgrade business. And see, only the Q1 is kind of a seasonally lowest quarter, and we see some uptick in Q2 and Q3, Q4 being the best. So I understand that because now we are moving to subscription, it's just -- it's going to change. The profile will change a little bit. But how we are going to make up for the lost business on the upgrade side? Are the new contracts which you are getting on HyperSense, they are sort of compensating? It's all encompassing in terms of the scale of the contract? Is it more? Is it less? So -- because this is a [indiscernible] phase, so we cannot read what's going on. So can you please explain?

So Amit, our clear view is that it will compensate and we will have a lot more engagement both with our existing customers, new areas. As I told you, we have opened up 2 new POCs in new areas with 2 large Tier 1 North American customers, and that these are in brand-new areas which we never had. And that's the capability that we have as a company at this point in time, that beyond fraud, RA and partner billing, we have an ability to engage with the customer on brand new areas like marketing, networks, prediction, digital side. Because everywhere, there is a requirement for AI and ML we can cater to. So definitely, our view is that once we -- as we have baselined this MRR, it will grow. And by quarter 4 end, MRR, that will be pretty much -- we believe that some of the resetting, that the dip, that the dip will kind of streamline. And from there onwards, we should be able to see the month-on-month growth and which will translate to quarter-on-quarter growth, Amit.

And are we happy -- this is the last question, Vinod. Are we happy with our portfolio, or are we working on more products? We have cash in books, any acquisitions or new products that you have in mind or working upon?

At this point -- look, at this point in time, we are focused on these products. And they have an opportunity to -- if you look at Sectrio, we are focused on 3 markets. And the next step is for us to expand into other geographies when it comes to Sectrio. Same is the case in identity analytics. We are focused on only India, because the Indian opportunity is very large. Now the next opportunity is for us to expand into other areas. When it comes to HyperSense, while we are currently started with telco, there is an opportunity for us to -- immediately, the product can immediately cater to markets outside telco like gaming, for example. So we are already talking to and some gaming companies are interested in working with us. So I guess that there's a lot of opportunity for us to expand the new portfolio both into new geographies and new verticals, and that will be our near-term focus. And even if we have to do some strategic things, it would be more around big areas rather than absolutely new products.

The is the very last question, sorry to add one more, if I can. The equity base is quite high for Subex. Is the Board concerned about this? Or we have some plan in future to restructure somehow this time? For the revenue side, I mean.

Yes. So I think no plan, nothing that we have discussed, nothing that can be shared at this point in time. As we start executing, we -- I'm quite confident that we will have a lot more interest from key investors to come and hold a larger portion of our company. So I guess that we are continuing engaging, and that's a business as usual thing. But nothing -- no specific restructuring or anything of that we have planned at this point in time, Amit.

Next question comes from [ Aishwarya Gupta ], an individual investor.

Vinod, on Slide #27, you mentioned that we applied for 2 patents in the U.S. I wanted to ask, when did we apply? What's the date of application? And when do we expect the response?

So I don't exactly remember the date. I think we have applied during -- 1 last year and 1 early this year. At this point in time, we are having what we call as an office action. We actually are -- we got some queries and that getting clarified and things like that, so we are in that phase. We don't have a particular timeline of as to when we get it, but at least, the office action has started. We're getting some queries, and that has been responded at this point in time. And both of them are related to the AI and most things that we are working on.

Okay. My second question is on liveliness detection. So I see many people also do liveliness detection, and one of our patents is regarding liveliness detection. So I wanted to ask you, how is it different from others? And what are we trying to tell by this patent? How is it helping us?

Yes. So I presume you understand liveliness detection. But for the benefit of others, that it is to ensure that we just speak and by -- even typically, you see that some people are asking me to [ read free ] something, et cetera. So our intent is that we would -- we don't want to do that. We just take a photo. And from that photo, by understanding some of the specific aspects, we are able to detect that. At this point in time, based on what we understand from the market, our accuracy is fairly high. And we are -- I would say that we are one of the best in the market today. At least when it comes to India, we are one of the best when it comes to liveliness detection. Some of the new things that we are getting, liveliness detection and the face match, these are the 2 things that we are differentiating. And most of the customers that we have secured this quarter, we have secured about 11 this quarter, all of them are from existing users. So it is -- we have swapped out competition or we have been inducted into that with the existing competition. So we are quite high with respect to accuracy, the specific technical aspects of how we are differentiating. If you are keen, you can send a note to us, and we can share the details, [ Aishwarya. ]

Last question, if I may. You've said in the con call that there are some people leaving the company, and we understand that product companies and especially in the domain of product upgradation, we need talent, right? So how are we internalizing this problem?

Okay. So look, I think based on where we are and where we are in the -- from a market parity, et cetera, standpoint, we have a fair -- I would say that we have focused our full effort to ensure that the key talent and exceptional performance is where we are focused on. Because that is not to say that we are not really stopping attrition, but it's not practical to stop all attrition. So therefore, our focus is on the key and exceptional performance. That said, we have also started the intern program with our IT and some IoT, so that we have increased the intake at that level. And we have also streamlined our training setup so that we can bring them into production -- in their productive nature much more faster than what we used to do in the past. With the work -- when it comes to HyperSense, we are trying to develop a community. And therefore, we have spent a lot of effort in creating the training, et cetera, so that we can develop the community, and that is also helping us to internally bring up the people up to speed. I'm not saying that it's a happy situation to manage attrition, but I get that reality -- it's become a reality, and we are just focusing our efforts on holding on to the key and talented people. And once we have good intake of good freshers coming in, with these experienced people, we are trying to bring them up to speed. It's not an easy task, but that's the approach that we are currently taking. Also, I would say that we are lucky that we have very good concept about [indiscernible] because we are working on some of the high end of technology, and we are doing some cool works with respect to platform, cloudification and [ whatnot ], which is a flavor of this year. Flavor of the [ town ], even. So I think those are benefits that we are articulating to some of these talents.

The next question comes from [ Ravi Khan ], an individual investor.

I have one clarification and 2 questions. Regarding the contracted backlog of $14 million, what is the time frame during which this will be executed?

Okay. The time frame will be about 3 to 4 quarters. Again, it depends on the execution, and execution depends on -- from the customer and things like that. But by and large, we would -- with a little bit in 4 quarters, we should be completely executing the current backlog. Maybe about -- bulk of it will get executed by -- in 3 quarters, and there's some portion, maybe 10% also will go into the fourth quarter.

Okay. So we can say that $2.3 million of MRC and approximately $3.5 million of contracted backlog, that should be our revenue for the next 3 to 4 quarters?

By and large. Except for, as I said, at this point in time, we are finding a big -- our customers are finding it very, very difficult for them to procure and provide the hardware for some of these new projects. But that is a dependency that we are seeing causing supply chain -- overall supply chain issues. That's the only dependency that we have. Otherwise, your assessment is right.

I have 2 basic questions. We understand that the company has been going through a huge transition. And as you have explained and that is one of the reasons the revenues are also going down. What I want to understand is during this process, have we created any technological or business moats that will help us stand vis-a-vis competition? Because what I understand is that we are a very small company, and we have very small marketing budgets vis-a-vis competition. So what is -- what are the moats that we have created during this process which will help us stand vis-a-vis the competition in the future?

Yes. So the moat that we are creating is on the product itself, where we are -- taken a lot of focus on having ease of use as our very important aspect. While you might [ see ] that ease of use a moat, at least in the enterprise business that we have, it definitely is. And we have worked over the last 2 years to take the perspective, look at what is the marked solutions out there and bring that as a differentiating advantage. So that's where I think. It's not to say that competition is -- rather, our other competitors will not -- cannot catch up. But we definitely think that, that's an advantage and an advantage at the very least that we have. And that's where I think the execution during the course of the next 12 months will be very, very key. And as we start -- another aspect, as I mentioned, is the kind of community development that we are doing in our segment, and this gives us much more advantage in our space. Our intent is also to develop a community around it so that it feeds on itself, and we can create a library of some of the controls, et cetera. So much more advantage, we can translate that into a significant moat. To start with, it will be the ease of use. But as we start acquiring customers, the community and some of the shared library, et cetera, will also hack us a moat, [ Ravi. ]

Okay. Sir, my final question is a very basic question, and part of the reason why all the investors and analysts are here. Sir, how do we value our company? See, the problem is for a valuation exercise to be done, we need to have a revenue guidance, we need to have a growth rate, or we have to have some concrete time lines. And the management is reluctant to share any of those.

Yes. [indiscernible]

Sir, let me complete. Even your [indiscernible] is confusing. In 2015, you used to give a complete deadline that by 2017, we will achieve $50 million in revenue. But the company is still struggling to achieve that. So sir, I would just like to know, can you give us some ballpark figure of the vision you have there for 3 years on [ the month ] of FY '25? What is the kind of revenue that you're envisioning also, say, FY '30? So at least we know that even if you can't give us a very specific point of direction due to the business exigencies or compulsion, at least we have a broad direction. Or at least we can break out some valuations on based on -- we need some foundation to base our values on the call.

Yes. I appreciate where you're coming from. And I guess that give us some more time because as we said, that we are not -- while we are figuring out through the transition and we believe that we have got to a baseline thing. And I said that at this time until March, by that time frame, we should have a kind of predictable growth of MRR. And thereafter, our also effort is that at least to the tune of 2, 3 quarters, we should be able to clearly articulate that this is what monthly capital is coming through at the bare minimum. So I think give us time to March and I'll probably report to you, [ Ravi. ]

But I'd like to defer, sir. Even in your March con call, you had said that by the end of September quarter, we will be in a concrete position to share the future guidance.

No. Let me clarify that. I don't think that I have mentioned that. What we mentioned was that by beginning of this year, we will provide you with stats with respect to the new areas, and we have started providing the stats with respect to the new areas. Now, what we're saying is that now, we have started providing for our core area also. What is the subscription, what is the MRR and what is the one-time revenue we're looking at. And what I'm seeing is that by December time frame, looking at from now to December, we will completely -- we can identify all other nuances of this new subscription business. And I think that we will be -- I believe capture, based on if we execute and we get -- if things go as our plan, we'll be in a better position to size that up, and let me come back to you during that quarter. But at this point, it will be very, very difficult for me to give the guidance, [ Ravi ], so.

It's okay. Can you please share us with the broad vision that you have, where you see the company in FY '25 or FY '30 in terms of revenue?

Look, I think what I can say is that our core will be around this area, so we are talking about core being the 3 products that we have, fraud, business assurance and the partner billing, will be pretty much in the ballpark area that we are having currently there. And the incremental growth will happen about new areas, new areas being Sectrio, IDcentral and mainly HyperSense AI. HyperSense is probably the -- I personally, I'm very, very encouraged and I put my[indiscernible] HyperSense AI because the next decade, I believe, will be that for AI and we have created a platform which we think that we can compete in the global space. And I guess if [ later ] we are able to convert some of these POCs in the Tier 1 markets in markets in North America, that will be a validation as well. So I think by -- in another 3 years' time, we have our -- my objective would be to say that Subex will be a fast-growing AI/ML platform company that will take us to a very good revenue size and also a very good overall market capitalization as well.

What will be defined as fast growing?

Sorry, come again?

Sir, what would be defined as fast growing growth rate?

Well, again, you are asking the same question multiple ways.

Because I'm not getting any [indiscernible] baseline value from the firm.

So I understand. So that is why I'm saying that that information, give us time until March, and probably will come back to you. I'm not saying that I -- we will give it but I think we will be in a much better position to take a view on that. Which at this point in time, it's difficult for us because we are just having this transition, and we already have some difficulty over the last 2 quarters. But I guess that we have baseline now, so just give us some more time for us to get in tune at this time, and then we will start communicating that.

Sir, I understand your point that...

Sorry to interrupt you.

Not my point [indiscernible].

Hold on, hold on. Go ahead. Go ahead, [ Ravi ].

Sir, I understand your point. I understand your compulsion, but I would also like the management to empathize with the investors. The issue is we don't have clarity for another 6 months. And given the volatile state in this market, it can create mayhem for the portfolio or the portfolio of the investors who have been invested for the company for a long time. In my particular case, I have been with the company for 5 years. And prior to that, I had been with the company for 15 years.

No, I understand, [ Ravi ]. So I think while I appreciate where you are coming from, we have some difficulty at this point in time. So as I said, like -- at least now, we are clarifying the MRR and [indiscernible].

Sir, because the very purpose of organizing this con call is to address the sentiment of the investors.

Yes, yes. So I hear you, I hear you. I'm just saying that give us some more time so that we can also find [indiscernible]. Because we -- we also don't want to make a mistake and setting the wrong expectation, [ Ravi ]. So appreciate our -- from our side as well, because we are going through this transition, right. So I guess that we will -- now that we have started communicating the base metrics, we will continue to communicate the growth that we are doing. That should give you some indication. But on the future prediction, at least, at very least, you should give us time until March to come back on some of the new metrics that we are talking about, yes.

Thanks very much and I wish you all the best.

That would be the last question for the day. Now I'd like to hand over the floor to Mr. Vinod Kumar for closing comments.

Okay. Thanks, Sunavak. I thank all the investors and analysts who have participated in the call, and thank you for your continued interest. As I said, this is a very interesting period that we have. Quite challenging, but we are fully seeing the opportunity in front of us, and we are pressing ahead with the strategy and execution of our digital trust strategy. And we will keep you posted, and if you have any further clarifications, kindly reach out to us at [email protected] (sic) [ [email protected] ] , and we will provide clarifications as required. Thank you very much, again.

Thank you, sir. Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and for using [ Dusaba's ] conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.