Subex Losses Narrow

Subex, the revenue assurance vendor, has announced Q3 results with losses reduced from the previous quarter. Whilst the software giant based in Bangalore may have turned a corner, there is still a long way to go before the company’s profit and loss statement returns to full health. Thanks in part to the acquisition of Syndesis, Subex’s revenues have grown greatly, but so have costs. At the end of Q3 in 2005, personnel costs represented 45% of revenues. In 2006, the equivalent ratio was 59% and in 2007 personnel costs represent 72% of revenues. This has depressed margins. Other costs have also grown. Debt finance costs Subex thirteen times what it did in 2005. So whilst Subex is a much bigger business, it will need to severely slim its cost base if it is to generate strong cashflows and get EPS back to the levels enjoyed in previous years. Subex’s shareholder presentation confirms that Syndesis integration is on track and that cost restructuring is being acheived. However, it is hard to tell if cost cutting will be enough. Whilst Subex is upbeat about its order pipeline, there is no indication in the data as to whether the competitive environment is improving or worsening. If Subex has reduced prices to secure its orders, then margins will be eroded at a fundamental level which cannot be easily compensated for through cost reduction. However, if competition is eroding margins, then Subex’s competitors will be in the same boat. Subex at least has the right strategy for dealing with stormy weather. So long as it can keep cashflows on an even keel, building and diversifying its revenue streams is the right strategy.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.