EBIX - Ebix Inc

[Guest wellmont]

this company has almost no tangible assets. :) and no tangible net worth. :)

[Guest wellmont]

yet shares outstanding are 3m higher now than 3 years ago. why would that be if they bought back $100m of stock? 

I actually took a look. shares outstanding are about 2m more in Q12013 vs Q12010.

 

From the 2012 10-K it looks that during 2010-2012, the following happened (slightly rounded figures):

 

started: 34.5M shares.

 

around 3M of stock options exercised and deferred stock vested.

 

almost 4m issued to acquire businesses.

 

around 5m repurchased (hence the 100m in cash for repurchases)

 

around 0.7m were converted from bonds to stock.

 

end of 2012 number: 37m shares.

 

 

Conclusion: still can't see the problem here.

 

 

  because they pay no taxes and they cut half the employees of the acquired company.

Yeah.... so? (they do pay a bit of taxes, 10-12% rate projected forward)

 

 

  they don't invest in marketing or r & d.

Wrong. Open a P&L man.

 

Around 40M$ in R&D and marketing expenses in 2012.

 

I don't know of a strategy of buying companies that don't make money ever working (and then magically turning them into companies that do). who does that? it just lacks common sense.

You use their client relations(that you just acquired) to get your own business to make money by offering them your pre-existing product. Then you make money.

 

No one said that these acquisitions necessarily make any money from their former products as stand-alones.

 

so they spent $100m on repurchases and have more shares out now than before. that tells me they issued stock to buy companies and issued stock for compensation. as you point out.

 

they don't invest at the same rates as peers do.

 

you can't make a silk purse out of a sow's ear.

[Edward]

this company has almost no tangible assets. :) and no tangible net worth. :)

What, like Microsoft minus cash?  ;D Completely worthless, that one. Don't mind the 30B$ Cash from Operations, move along....

[Guest wellmont]

this company has almost no tangible assets. :) and no tangible net worth. :)

What, like Microsoft minus cash?  ;D Completely worthless, that one. Don't mind the 30B$ Cash from Operations, move along....

 

so all this makes sense to you? none of these red flags bother you?

[Edward]

so they spent $100m on repurchases and have more shares out now than before. that tells me they issued stock to buy companies and issued stock for compensation. as you point out.

An increase in 2m in 3 years from 35m to 37m shares, or 40m shares without buyback. 35 to 40 is 14% increase in 3 years assuming no buyback. That's not nothing, but where's the big deal exactly compared to the cash they spent acquiring shares and companies.

 

they don't invest at the same rates as peers do.

Maybe, I would like to know what peers exactly.

 

so all this makes sense to you? none of these red flags bother you?

Of course there are a lot of questions that need answering and some things do not make sense to me. Such as their disclosure regarding the SEC investigation.

 

However I always get back to basics.

 

Such as whether the FCF is real or not. It sure looks real if you look at the Cash Flow statements since 2000. The company just didn't issue enough shares or debt to get even close to covering the acquisitions and share buybacks. So the only way I see it could be done is if the FCF was indeed what it looked to be in the financials.

 

This is the main question here really, everything else is either fluff or of lesser importance.

 

 

[Guest wellmont]

so they spent $100m on repurchases and have more shares out now than before. that tells me they issued stock to buy companies and issued stock for compensation. as you point out.

An increase in 2m in 3 years from 35m to 37m shares, or 40m shares without buyback. 35 to 40 is 14% increase in 3 years assuming no buyback. That's not nothing, but where's the big deal exactly compared to the cash they spent acquiring shares and companies.

 

they don't invest at the same rates as peers do.

Maybe, I would like to know what peers exactly.

 

so all this makes sense to you? none of these red flags bother you?

Of course there are a lot of questions that need answering and some things do not make sense to me. Such as their disclosure regarding the SEC investigation.

 

However I always get back to basics.

 

Such as whether the FCF is real or not. It sure looks real if you look at the Cash Flow statements since 2000. The company just didn't issue enough shares or debt to get even close to covering the acquisitions and share buybacks. So the only way I see it could be done is if the FCF was indeed what it looked to be in the financials.

 

This is the main question here really, everything else is either fluff or of lesser importance.

 

Edward be very very careful here. That's all I'm saying.

[Edward]

Edward be very very careful here. That's all I'm saying.

Well, I am my good man :) I actually sold at 20.8$ right after the GS buyout annoucement, no position at the moment.

 

Now waiting to get more clarity on some things from management.

 

Thanks for the discussion though!

[ItsAValueTrap]

If you had the time and inclination, you could try to verify the existence of their software.

 

For example, people say good things about Winflex:

http://www.insurance-forums.net/forum/life-insurance-forum/thoughts-winflex-t12520.html

 

It seems unlikely that this is a complete scam.  However, sometimes unethical people will do something absolutely crazy like run off with all your money ("chinese reverse merger style"), pull a bernie madoff, pull a barry minkow, etc.

 

2- IMO this is more of a long than a short. 

 

But the new share repurchase plan seems like it is unfair to shareholders.  Shares of Ebix are trading at a depressed price because there is doubt over the company.  If everything is fine with Ebix, they should disclose all material information to shareholders before buying shares.  Otherwise Ebix is trading with a huge advantage over investors.  I can't get comfortable with management's integrity.

[siddharth18]

But the new share repurchase plan seems like it is unfair to shareholders.  Shares of Ebix are trading at a depressed price because there is doubt over the company.  If everything is fine with Ebix, they should disclose all material information to shareholders before buying shares.  Otherwise Ebix is trading with a huge advantage over investors.  I can't get comfortable with management's integrity.

 

At this point, Raina and the company sound like a broken record. How many more times will he have to say the "allegations are without merit" ? This is the third time the company is under fire and especially unfortunate at that (I say unfortunate because all hell broke loose on the eve of the acquisition).

 

I do not at all consider it unfair to shareholders. Long term shareholders (who really believe in the company) should be rejoiced that the buyback has the potential to be executed at these depressed prices. The only parties disgruntled about the buyback would be those that are shorts that want to ride on this self-fulfilling prophecy of EBIX being a "house of cards."

 

 

Otherwise Ebix is trading with a huge advantage over investors.

 

Who does Ebix really belong to? The long term shareholders. So you mean the long term shareholders have a huge advantage over those that want to get rid of the shares at today's depressed prices?

 

I can't get comfortable with management's integrity.

 

I fail to see the connection with management's integrity. What would have more integrity - them saying "all is well, carry on" or conduct a buyback? Actions speak louder than words. Actually conducting a buyback will speak volumes than any "clarification," imo. Remember Herbalife's buyback after Einhorn's attack? After Ackman's attack? They said they were legitimate but no one wanted to listen and they bought back the stock anyway. Did they have an advantage over investors in buying back?

 

You have to realize the power of incentives here. Raina holds millions of shares here and would he really want to use up company's cash if he didn't believe these were fire-sale prices?

[VAL9000]

If you had the time and inclination, you could try to verify the existence of their software.

 

For example, people say good things about Winflex:

http://www.insurance-forums.net/forum/life-insurance-forum/thoughts-winflex-t12520.html

 

It seems unlikely that this is a complete scam.  However, sometimes unethical people will do something absolutely crazy like run off with all your money ("chinese reverse merger style"), pull a bernie madoff, pull a barry minkow, etc.

 

 

Just piling on here.  I work close to this industry and have run into Ebix more than zero times.

 

They do have real, paying customers.

 

[Liberty]

Just piling on here.  I work close to this industry and have run into Ebix more than zero times.

 

They do have real, paying customers.

 

Their customers are many of the biggest banks and insurance companies. Before they let a company run a money-making part of their back-office, I'm pretty sure they make them jump through all kinds of hoops and dig pretty deep.

[woltac]

If insiders knew that it is fraud, why would they not sell.

Insiders have not sold much.They are still holding the shares.

Insiders in growth companies constantly sell but that is not the case here.

They have the most to lose.

If it goes to zero, Robin Raina loses the most.

Ebix has paid for acquisitions mostly with cash.They spent 100m on buyback.

You can fake Income statements and earnings, but how do you create cash.

 

Isn't selling to GS the ultimate cash out?  Instead of selling shares piece-meal why not sell all at once?

 

I have no clue if this is a fraud, all I know is I've read some of the articles that point out inaccuracies and some of the statements, and there are way too many red flags to invest.  There are MANY companies just as cheap without the same accusations, I would go for something cheap and clean, why bother with potential fraud?

 

+1

 

The probability of a total loss is not worth the risk for me.

 

Rule #1: Never lose money.

Rule #2: Do not forget rule #1.

 

[Martian]

Clarification requested.

 

Last fall in early November, the statement from the short seller came out, stating that they were being investigated by the US Attorney in Atlanta.  Within a few days, Raina and EBIX issued a statement that that was untrue: that they had received no letter or other indication that they were being investigated

 

Recently, I think it came out that the US Attorney did send them a letter in late November, 2012 that they were investigating them.

 

My question is this: Did EBIX make that fact known immediately after they received that letter?

 

Ebix filed a bunch of SEC correspondence letters they received. But there was no investigation. SEC required some clarifications which is normal for any company.

 

http://www.sec.gov/Archives/edgar/data/814549/000000000012064591/0000000000-12-064591-index.htm

 

http://www.sec.gov/Archives/edgar/data/814549/000000000013002804/0000000000-13-002804-index.htm

 

 

 

 

[Martian]

Correlation is not causation. Just because ebix has similar issues as the fraud companies, it does not mean it is one of them.

 

It is a serial acquirer so it must be a fraud:  For ebix It is difficult to get insurance clients just by marketing. Their model is to get the customers from the acquisitions and up-selling their other modules.

 

 

Ebix acquires crappy companies: The goal is to pay fair/low price for the companies acquired and to get the customers.

 

 

There is no organic growth: It is very low and sometimes difficult to find out. well, if ebix acquires crappy companies with no income and there is no organic growth where the money is coming from and why the eps is growing? 10k claims 80% of cash flow is reoccurring.  Does it mean Raina is faking the cash flow and the money in the bank? dividends,  share buy backs and the cash paid for acquisitions are not real?

 

 

Ebix issued lot of shares: In the conference call Raina told that he does not want to issue shares to pay for the acquisition. He prefers cash. But sometimes he had to issue shares because the acquired companies want them.  The increase in stocks does not tell the whole story. The shares issued bought real companies and they  were not just stock options for the employees. 

 

 

Raina sold the company to cash out: He sold the company to GS and kept his shares. Actually he sold out others. well, if he is running a fraud, will he open the books to GS of all the companies? will he agree to stay and keep running the ponzi scheme under the nose of GS ?? well, that needs some guts.

 

 

It does not pay enough taxes. It has tax holidays in India and Singapore. In 10K Ebix told that it will go up after 2015.

 

 

There are too many red flags:  In early days, I think Munger and Buffett had a very complex structure involving Blue Chip Stamps and were investigated. If somebody said it sounds fishy and sold them it is their loss. Raina is no Buffett , but what are facts that point to it is a fraud. Raina has answered the Gotham City's questions in the conf call.

 

 

From the known facts and  *considering* the cash is real, I don't think it is fraud. But if something completely new comes up, then all bets are off. But these are same issues recycled in the past 3 years and nothing came out of them.

 

[ItsAValueTrap]

Actions speak louder than words. Actually conducting a buyback will speak volumes than any "clarification," imo.

Nevermind I think that they have disclosed enough information in their SEC filings regarding the SEC inquiry.  I should have read them first.

 

*No position, though I think I'd much rather be long than short.

[Kraven]

Until a couple days ago I never paid any attention to this one.  I look at cheap stocks, not ones that are fairly valued that I'm hoping will grow.  Add fraud allegations on top of that and it was an easy pass for me.  However, when it started getting killed a couple days ago I started to take a look.  Based purely on the numbers, at current prices this would be a home run.  I hear the screams.  "Of course the numbers look good!  It's a fraud!"

 

The contrarian in me is troubled by things that "everyone" knows is true or will happen.  It's strange to me that a company could be a fraud and "hiding" in plain sight.  These allegations have been made for a couple years now and there have been investigations by any number of people, yet nothing has come of it.  When I think about other high profile frauds, once the allegations got loud it all quickly crumbled.  Think Enron, WorldCom, etc.  I'm not talking about a lonely voice in the distance which turned out to be right.  I'm talking about true publicity. 

 

I have looked at a number of the allegations made by Gotham.  Other than think about them, I have not done any independent research. I am not sure it's possible to ever truly know these things from the outside without access to the internal books.  There is indicia of behavior and clues, that is it.  The allegations here all strike me as a combination of an insular company run by an (internally) powerful leader that has grown quickly and is attempting to combine disparate acquisitions from all over the world.  Mix in some cultural and accounting differences and some control problems, and it's easy to see how issues could arise.  So I can visualize a situation where there are problems, but where they don't arise out of evil, but out of a place of mistakes and differences. 

 

I think about the Goldman buyout or lack thereof.  People can say what they want and I know there have been failures in the past, but anything Goldman not only set out to buy, but agreed to buy, would have been diligenced to death.  Their lawyers on this deal were Davis Polk.  They are one of the finest firms in the world and known to be ultra conservative.  The fact that the merger was called off due to the US Attorney probe doesn't surprise me.  Even though it's just a rehash of old claims, Goldman has enough problems as it is.  They don't need to walk into another one.  Truth doesn't matter (I'm not saying the allegations are true or not, I have no idea).  It's all about perception.  When you're Goldman, you can't take the chance and even if you can, why would you want to.  For some (relatively) dinky little company, now they have Goldman as a deep pocket?  I can see an order coming directly from Blankfein telling them to cease and desist all activities.

 

I think those on this thread discussing the merits of how good the company is are missing the point at this stage of things.  When a stock is hammered like this the question isn't about whether they are a wonderful compounding machine and are going to be performing at a high level in 10 years.  The question is simply did the price fall too far and is it worth today more than the current price. 

 

I find it all very interesting and am going to continue to think about it.  If this is a fraud, it's one of the more elaborate that has been perpetrated.  As mentioned before, Enron and WorldCom, entities which dwarfed the size of EBIX, crumbled pretty quickly.  Yet, Robin Raina has been able to dance around it and evade true detection for years while being investigated.  Seems a bit far fetched. 

 

At the end of the day, we don't know what we don't know.  I am not claiming it is or isn't a fraud.  I have no idea.  But I like to look at the opposite side of things that everyone knows to be true.

[Hielko]

Not all frauds crumble fast when they get a lot of publicity. Remember Allied Capital?

[Kraven]

Not all frauds crumble fast when they get a lot of publicity. Remember Allied Capital?

 

I do.  My recollection (could be wrong) is that the fraud there was at a single business unit and wasn't widespread.  In any case, not all of anything is ever 100%.  I would have to say too the ability to turn up the heat, if you will, is greater today than it was then.  But then again, who knows.  EBIX could very well be a massive fraud crawling with cockroaches.  I have no idea.  I would think though in this kind of situation, Goldman, Davis Polk, their forensic accountants, etc would have had to be blind or willfully ignorant.  That would be a very strange situation.  It's one thing to have swept things under the rug in years past, but in the post financial crisis current environment, I would find that difficult to believe. 

[VAL9000]

The fact that the merger was called off due to the US Attorney probe doesn't surprise me.  Even though it's just a rehash of old claims, Goldman has enough problems as it is.  They don't need to walk into another one. 

 

This is the thing that I can't get past.

 

Goldman walked away from EBIX over a fairly minor concern that the team being acquired consistently denies has merit.  My gut tells me this was just an excuse to call off the deal, not the real reason.  The real reason is probably that it wasn't worth what they said they'd pay for it.

 

Your point about where the price is relative to where it should be is well noted, too.  An interesting way to answer this question is to ask - how much of an over-payment was GS willing to stomach?  50%?  100%?  Then reverse engineer Goldman's estimation of the value from there.  They probably have the best understanding in the world right now.  If 50% was the threshold then EBIX is worth about $13 a share.  At 100% it's $10.  EBIX trades for less than both of those now.

 

 

[twacowfca]

Clarification requested.

 

Last fall in early November, the statement from the short seller came out, stating that they were being investigated by the US Attorney in Atlanta.  Within a few days, Raina and EBIX issued a statement that that was untrue: that they had received no letter or other indication that they were being investigated

 

Recently, I think it came out that the US Attorney did send them a letter in late November, 2012 that they were investigating them.

 

My question is this: Did EBIX make that fact known immediately after they received that letter?

 

Ebix filed a bunch of SEC correspondence letters they received. But there was no investigation. SEC required some clarifications which is normal for any company.

 

http://www.sec.gov/Archives/edgar/data/814549/000000000012064591/0000000000-12-064591-index.htm

 

http://www.sec.gov/Archives/edgar/data/814549/000000000013002804/0000000000-13-002804-index.htm

 

We may be talking apples and oranges.  There appears to be nothing in the record about their receiving a Wells notice or something similar from the SEC last November.  However, recent public filings have established that they did receive a letter from the US Attorney about their investigation of EBIX on or about November30, 2013.  Earlier that month they had issued a strong statement that they had not received any notice about being the object of a formal investigation by the US government.

 

In view of the strong public denial of knowledge of an investigation they had issued earlier that month, it seems to me that receipt of a letter from the US Attorney about their investigation of EBIX later that month was quite material to the trading of EBIX shares as soon as received, especially in view of their earlier denial of knowledge of a formal investigation.  If that is correct, that highly material information should have been disclosed to the market immediately.

[SFValue]

Clarification requested.

 

Last fall in early November, the statement from the short seller came out, stating that they were being investigated by the US Attorney in Atlanta.  Within a few days, Raina and EBIX issued a statement that that was untrue: that they had received no letter or other indication that they were being investigated

 

Recently, I think it came out that the US Attorney did send them a letter in late November, 2012 that they were investigating them.

 

My question is this: Did EBIX make that fact known immediately after they received that letter?

 

Ebix filed a bunch of SEC correspondence letters they received. But there was no investigation. SEC required some clarifications which is normal for any company.

 

http://www.sec.gov/Archives/edgar/data/814549/000000000012064591/0000000000-12-064591-index.htm

 

http://www.sec.gov/Archives/edgar/data/814549/000000000013002804/0000000000-13-002804-index.htm

 

We may be talking apples and oranges.  There appears to be nothing in the record about their receiving a Wells notice or something similar from the SEC last November.  However, recent public filings have established that they did receive a letter from the US Attorney about their investigation of EBIX on or about November30, 2013.  Earlier that month they had issued a strong statement that they had not received any notice about being the object of a formal investigation by the US government.

 

In view of the strong public denial of knowledge of an investigation they had issued earlier that month, it seems to me that receipt of a letter from the US Attorney about their investigation of EBIX later that month was quite material to the trading of EBIX shares as soon as received, especially in view of their earlier denial of knowledge of a formal investigation.  If that is correct, that highly material information should have been disclosed to the market immediately.

 

Thats the point i was trying to make in my previous post. It could all be rationalized with a " its very entreprenerial cost cuting mentality , controls are deficient but cash flows are real"....or there is deliberate fraud of some sort....

 

Blommberg reporter knew about the probe before company was notified (according to the 10Q)...

[Guest wellmont]

red flag #167

 

No sales in Europe. No assets in Europe.

[Guest wellmont]

can someone explain this and why they did it? my understanding is that for less than 2 years of borrowing, RRF got $6.8 million for loaning $5m? why would a company Gushing fcf need to do this with a related party?

 

On August 25, 2009, we entered into an unsecured Convertible Note Purchase Agreement (the “Rennes Agreement”) with the Rennes Foundation (“Rennes” or the “Holder”). As a result of the transactions consummated by the Rennes Agreement the Company issued a Convertible Promissory Note (the “Rennes Note”) with a date of August 25, 2011 (the “Maturity Date”) in the original principal amount of $5.0 million, which was convertible into shares of Ebix common stock at a price of $16.67 per share, subject to certain adjustments as set forth in the Rennes Note. The Rennes Note has a 0.0% stated interest rate. In accordance with the terms of the Rennes Note, as understood between the Company and the Holder, upon a conversion election by the Holder the Company must satisfy the related original principal balance in cash and may satisfy the conversion spread (that being the excess of the conversion value over the related original principal component) in either cash or stock at option of the Company. Previous to this transaction Rennes has been and continues to be a beneficial owner of the Company, with a beneficial ownership percentage of approximately 9.7%. In April 2011 the Rennes Foundation elected to fully convert the Note. The Company settled this conversion election by paying $5.00 million in cash with respect to the principal component, and paying $1.8 million in cash with respect to the conversion spread. Rolf Herter, a member of our Board of Directors, is also a director of the Rennes Foundation.

[Guest wellmont]

why is ebix giving money to to rrf?

 

For 2011, the Company made a matching grant pursuant to its 401(k) Plan of $3,676, and provided a grant of $5,000 to the Robin Raina Foundation as well as a matching grant of $11,000 to the same. For 2010, the Company made a matching grant pursuant to its 401(k) Plan of $3,676, and provided a grant of $23,000 to the Robin Raina Foundation as well as a matching grant of $11,000 to the same. For 2009, the Company made a matching grant pursuant to its 401(k) Plan of $3,675, and paid a conveyance expense of $6,000.

 

Rahul Raina, is the Company’s Assistant Vice President of Business Process Outsourcing and the brother of Robin Raina, our Chairman of the Board, President, and Chief Executive Officer. During 2011 he was paid a salary of $120,000 and received no cash bonus or share-based compensation awards. During 2010 he was paid a salary of $120,000 and he received a cash bonus in the amount of $25,000. Previously Rahul Raina was granted options to purchase 225,000 shares of our common stock with an exercise price of $0.74 per share, which is equal to the fair market value of the common stock underlying the stock options at the original grant date. The options had a four year vesting period from the date of grant and expire ten years from the date of grant. This grant was not subject to any of the Company's approved stock compensation incentive plans. The expense for these options had been earlier fully recognized in the Company's financial statements. The options are presently fully vested and during the year 2011 48,000 options were exercised. As of December 31, 2011 there are 130,000 of such options that are outstanding but unexercised.

 

why didn't ebix give directly to the Alabama disaster relief fund?

 

Consistent with Ebix’s corporate mission of giving back to the communities in which we operate our business, during the year ended December 31, 2011 Ebix donated $5 thousand to the Robin Raina Foundation, a non-profit 501© charity in support of the Alabama Disaster fund.

[bookie71]

I think that their auditors would have been looking at these suggestions of fraud very closely.  If not they are looking at one heck of a liability.

jmho