Full year results for Subex, the Indian RA vendor, confirmed the increasing profitability of their business. Profits before tax and exceptionals were INR882M (USD20M), up INR573M (USD13M) on the previous year. Subex exceptionals are always driven by forex fluctuations, so there is little gained by analysing them, other than to comment that FY10 received a big boost from the fall in the dollar, whilst exceptionals were relatively small for Subex in FY11, with a similar exchange rate at both the start and end of the year. One item hidden in the detail is that, despite the improving fundamentals, shareholders were down after factoring in transfers to the restructuring reserve.
Focusing on the core of the business, growth in product sales more than offset a decline in services, leaving total sales up at INR4828M (USD108M) compared to INR4631M (USD104M) in FY10. The big driver for profitability was once again Subex’s relish for cutting costs; operating expenses were cut by over 9%, to INR3515M (USD79M).
Subex’s marketing pitch is also fundamentally strong. Put simply, they supply the tools for business optimization, which = revenue assurance + fraud management + credit risk management + cost management + partner settlement + data integrity management, bound together through their ROC platform. As noted in their analyst presentation, Subex is benefiting from cross-sell and up-sell as much as landing new customers, and a coherent series of offerings can only help that. In many ways, I prefer the pitch of ‘optimization’ over that of ‘assurance’ or ‘intelligence’, as it focuses the customer’s mind on the end goal and leaves Subex more wiggle-room for extending their suite in future. In contrast, assurance is a more negative concept (essentially it means comfort that things are not wrong) whilst intelligence begs the question of what is being provided other than generic business intelligence.
In the detail, the key points are that: Subex is benefiting from a strengthening order pipeline, especially for RMS; managed services are a growth area; and that the geographic split of revenues saw a fall in the Americas and compensating rise in EMEA, with Asiapac unchanged. Half the FY11 product revenues came from EMEA, which broadly reflects the historic importance of this region to Subex. Like their major global rivals, I am sure Subex would like to see more business coming from the Americas, where they face stiffer competition from local challengers that specialize in key subsets of the optimization portfolio. North American cost management and partner settlement are two areas where Subex would especially benefit from gaining some market traction.
In summary, FY11 sees Subex further along the same upward curve that I have previously observed. But you can judge for yourself – the results are here and the analyst pack is here. Subex has changed tack from being a company that used to pursue explosive growth to one that prioritizes improving profits. They have a mature strategy that befits mature times.