Subex, the Indian revenue assurance vendor, has released the figures for the third quarter of FY13; see their press release here.
The figures show improvement from the depressed numbers presented in the last quarter, with Q3 revenues worth USD16.6mn. A million dollar net profit was reported, reversing last quarter’s net loss. Oddly, Subex’s press release described the net profit as a 113% improvement – to describe this as a percentage improvement must surely be an error, and mistakes like this send the wrong message to numerate analysts. Half of this quarter’s net profit stemmed from a beneficial forex fluctuation, and forex swings should always be stripped out when trying to understand Subex’s underlying performance. However, even a superficial review would conclude that year-on-year revenues continue to be well down, and they are not going back to historic levels. In other words, today’s Subex is two-thirds of the business it previously appeared to be.
There was evidence of increased cost-cutting in Subex’s operations, with employee costs being squeezed further. Finance costs crept upwards. And the notes to the accounts repeated last quarter’s revelation of a USD6.6mn tax bill which the company is appealing against.
Previously I argued that Subex needs to pursue a new strategy, in order to bolster confidence in its new management. So far, these results indicate that Subex is on course to slim down to being a business that generates roughly $60mn revenues a year, with enough margin to just about break even whilst covering its current interest costs. Management may have stopped the internal bleeding and put the patient in a stable condition, but that is not the same as a turnaround to genuine business health. Some of Subex’s problems are undoubtedly due to a decline in the market for its core offerings. That begs an important question that Subex’s management team needs to answer. What markets and offerings have they identified which will generate the future growth needed to compensate for current markets and offerings that are in decline? Tough decisions are needed in tough times. It is not enough to pursue a strategy of breaking even if your core market has stopped growing. If you only do that, then one single shock – like an expected tax bill – can push the company under.