EBIX - Ebix Inc

[siddharth18]

http://seekingalpha.com/article/1624642-ebix-management-discusses-q2-2013-results-earnings-call-transcript?part=single

 

my quick take:

 

-the answer on the buybacks is pure garbage.  I hate management speak, but basically I think they said they’d rather pay down the credit facilities first, then buyback stock.  Morons.  I’d use the credit facilities for the buybacks...basically the exact opposite.

 

-sounds like they might be about to sign 1 or 2 huge deals in the 10-15M/year revenue range.  This would be amazing. They only do deals at about 40% op margins.

 

-the goldman explanation was terrible.

 

-Raina doesn’t seem overly concerned with the lawsuits….or he is a good actor.

 

-The growth seems far from over.

 

 

6 times earnings. Still seems like less than half price.

 

I agree. Raina did seem nonchalant, and not just during this CC, but during this entire ordeal. Much has been spoken about him not fighting back or going after the shorts and I feel like he could (and should!) do a better job vociferously protecting his reputation. If you read his interview here (http://www.fool.com/investing/general/2010/10/01/interview-with-ebix-ceo-robin-raina.aspx) you see when he talks about shorts - " I respect the shorts. I am not going to go and beat them in any way" basically that they are free to voice their opinion and the strong results will basically make them go away OVER TIME. He also didn't say anything about bloomberg's money laundering article on today's conference call. I think that he thinks that it's so ridiculous and out there, that it's not even worth talking about it.

 

Regarding buybacks - of course they should use cash to buyback. Ironically, when shorts complain about them issuing stock for acquisition in the past (at much higher market prices than now), well that actually can be accretive if the engage in buybacks NOW.

 

Compare this to the management of Outerwall, Inc (fka Coinstar, Inc.) that's in a similar but not quite desperate situation. Shorts (mostly Chanos, and others who jumped on the bandwagon) have been raiding that name too for almost 2 years. It was among the top 10 most shorted company in NASDAQ. They raised money via debt and instituted an annual $100M stock buyback program and are aggressively buying back stock each quarter.

 

Company is still doggedly maintaining their operating margin, pursuing more wins and focusing on the business - which I like.

 

 

that was a great interview by Jeff Van Rhee. But I didn't realize that's what conference calls were for? lol

 

Hmm? Did you see where the operator says "I'm not showing any further questions." Because there was no one on the call. Surely Daniel Yu wasn't on the call...right?

 

For all the bashing, you'd think he had some nerve to ask tough questions to the management right? Or would that pierce his veil of anonymity?

[bookie71]

I agree with the debt pay off.  Get rid of debt then you can do anything you want with the free cash flow.

jmpo

[Guest wellmont]

when you spend 20 minutes with one friendly soft balling interviewer, of course nobody is going to wait through that. besides listening to the cc you run the risk of falling under the RR "spell". lol so not surprised that there were no questions. the truth will be revealed in the fullness of time. :)

[mankap]

Good thing is that revenue and operating margin are intact.

I would like Ebix to be more aggressive in settling the cases that they can and fighting others.

RR said for the peak case, fraud has been thrown out by the court and now it is a breach of contract case.

I still see DOJ case a big risk.

I expect buyback to increase in coming months.

I do not expect any acquisition in near future.

[siddharth18]

I still see DOJ case a big risk.

 

Bloomberg said there's a DOJ investigation, FBI money laundering investigation, etc, but EBIX has only confirmed an investigation by Attorney General of Atlanta, right? And that attorney general's investigation has to do with "pending shareholder class action lawsuit."

[blainehodder]

December 3, 2012 and April 16, 2013, the Company received subpoenas from the Securities and Exchange Commission (the “SEC”) in connection with the conduct by the SEC of a non-public fact-finding inquiry and investigation and seeking documents relating to the issues raised the matter styled In re: Ebix, Inc. Securities Litigation, and in an online news article based on unnamed sources, published on November 3, 2012 speculating about the existence of such an investigation. Additionally, on June 6, 2013, the Company was notified that the U.S. Attorney for the Northern District of Georgia had opened an investigation into allegations of intentional misconduct. The Company has cooperated with the government in connection with these investigations and expects to continue to do so. The amount of time needed to resolve these investigations is uncertain, and the Company cannot predict the outcome of these investigations or whether the Company will face additional government investigations, inquiries or other actions. Subject to certain limitations, the Company is obligated to indemnify current and former directors, officers and employees in connection with ongoing governmental investigations and any future government inquiries, investigations or actions. These matters could require the Company to expend significant management time and incur significant legal and other expenses and could result in civil and criminal actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company, which could have a material effect on the Company's financial condition, business, results of operations and cash flow.

 

 

SEC is investigating, as is the DOJ... But it all circles back to the Copperfield/Gotham short "research"

[siddharth18]

December 3, 2012 and April 16, 2013, the Company received subpoenas from the Securities and Exchange Commission (the “SEC”) in connection with the conduct by the SEC of a non-public fact-finding inquiry and investigation and seeking documents relating to the issues raised the matter styled In re: Ebix, Inc. Securities Litigation, and in an online news article based on unnamed sources, published on November 3, 2012 speculating about the existence of such an investigation. Additionally, on June 6, 2013, the Company was notified that the U.S. Attorney for the Northern District of Georgia had opened an investigation into allegations of intentional misconduct. The Company has cooperated with the government in connection with these investigations and expects to continue to do so. The amount of time needed to resolve these investigations is uncertain, and the Company cannot predict the outcome of these investigations or whether the Company will face additional government investigations, inquiries or other actions. Subject to certain limitations, the Company is obligated to indemnify current and former directors, officers and employees in connection with ongoing governmental investigations and any future government inquiries, investigations or actions. These matters could require the Company to expend significant management time and incur significant legal and other expenses and could result in civil and criminal actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company, which could have a material effect on the Company's financial condition, business, results of operations and cash flow.

 

 

SEC is investigating, as is the DOJ... But it all circles back to the Copperfield/Gotham short "research"

 

Oh I see. Yes Attorney General of Northern District of Georgia is investigating. But I didn't know it was used interchangeably as Department of Justice? I thought DOJ meant the US DOJ in Washington - (Eric Holder's) office...  :o

[blainehodder]

I was using them interchangeably, but you are correct.  Basically I see it as them covering their ass. An article comes out alleging fraud in your district... You don't understand accounting, so you announce an investigation to look like you are doing your job.

[bookie71]

Partners with Intel

http://finance.yahoo.com/news/ebix-parteners-intel-create-medical-113830355.html

[blainehodder]

In case you haven't read the updated Class Action, I got Jacob A Goldberg of the well respected Faruqi and Faruqi class action firm to send me a copy.

 

If you thought the short articles were written poorly, you really need to take a look at this! I am honestly shocked this wasn't immediately tossed.  You've got to love the boys at Faruqi and Faruqi for helping us with this opportunity!

Amended_Complaint-Filed1.pdf

[siddharth18]

In case you haven't read the updated Class Action, I got Jacob A Goldberg of the well respected Faruqi and Faruqi class action firm to send me a copy.

 

If you thought the short articles were written poorly, you really need to take a look at this! I am honestly shocked this wasn't immediately tossed.  You've got to love the boys at Faruqi and Faruqi for helping us with this opportunity!

 

Copperfield research provided a lot of fodder for that complaint I see.

[blainehodder]

In case you haven't read the updated Class Action, I got Jacob A Goldberg of the well respected Faruqi and Faruqi class action firm to send me a copy.

 

If you thought the short articles were written poorly, you really need to take a look at this! I am honestly shocked this wasn't immediately tossed.  You've got to love the boys at Faruqi and Faruqi for helping us with this opportunity!

 

Copperfield research provided a lot of fodder for that complaint I see.

 

Absolutely.  Siddharth18 if you haven't read the EBIX motion to dismiss, you need to read that for a laugh as well.

 

I am amazed the suit wasn't tossed with predjudice.  The motion to dismiss is spot on (and hilarious). Some highlights:

 

As discussed below, the CAC fails to allege even the most basic facts

necessary to state a cognizable claim under the securities laws. Instead, the CAC

Case 1:11-cv-02400-RWS Document 28-1 Filed 01/12/12 Page 5 of 24

- 5 -

relies on conclusory allegations that do not pass muster under the Reform Act.

Under the Reform Act and other applicable law, the CAC should be dismissed with

prejudice.

 

. .” Id.  Beginning with paragraph 125, the CAC devotes the vast majority of the

 

following 118 paragraphs (covering almost 70 pages) to a long list of sundry block

 

quotes taken directly from press releases, SEC filings, and earnings call transcripts

 

for Ebix’s quarterly and year-end earnings releases from the First Quarter of 2009

 

through the First Quarter of 2011.  At the end of each block quotation, the CAC

 

states an unadorned legal conclusion that Defendants’ statements were false and

 

misleading.

 

 

Verbatim reproduction of these long passages without ever specifying which

 

particular statements were allegedly false or misleading does not meet the

 

requirements of the Reform Act.  See, e.g., In re 2007 Novastar Fin. Inc., Sec.

 

 

Plaintiffs utterly fail to allege with

particularity how the international tax strategy that Ebix employed during the Class

Period was improper or illegal. The CAC instead cobbles together a flimsy GAAP

argument with respect to the tax strategy. It is settled law, however, that mere

allegations of GAAP violations do not constitute cognizable securities law claims.

 

You really need to read it all.

Ebix_MTD.pdf

[blainehodder]

Of course, you should also read the denial of motion to dismiss if you haven't yet. See the attached pdf. I'm most concerned about the taxation issues.

 

 

Denial_of_MTD.pdf

[siddharth18]

Of course, you are probably all interested in the denial of motion to dismiss as well. See the attached pdf.

 

Anyone else notice that Faruqi & Faruqi happen to be leading lawsuits against MagicJack, and Tangoe?  Both have been attacked by Copperfield.  It seems fairly clear to me that Faruqi is working for Copperfield.

 

Faruqi is your typical ambulance chasing law firm hoping for a quick settlement. They file lawsuits after lawsuits regardless of their merit or probability of a successful outcome. Basically throw everything at a wall and see what sticks.

 

See how many suits they file every day. It's like a well organized shakedown ring:

https://www.google.com/search?q=faruqi+and+faruqi&oq=faruqi+and+&aqs=chrome.1.69i57j0l3.5115j0&sourceid=chrome&ie=UTF-8#bav=on.2,or.r_cp.r_qf.&fp=dfb43096d1a03446&q=faruqi+llp&safe=active&tbm=nws

 

From forbes:

 

Faruqi & Faruqi is a little Wall Street law firm that makes a living on the fringes of the securities-litigation business. Specifically, lawyers there specialize in extracting fees from corporations who find it less expensive to pay them off than to litigate.

 

 

This is the same law firm that sued over Berkshire Hathaway's 2011 purchase of Wesco Financial:

As is typical, Faruqi & Faruqi lobbed a suit at Berkshire after the deal was announced, accusing Berkshire of underpaying and demanding a costly, court-overseen appraisal of the transaction.

 

Full article: http://www.forbes.com/sites/danielfisher/2013/03/14/faruqi-faruqis-clouded-reputation-takes-another-hit-with-sex-suit/

 

 

The funny thing is that you could probably get some good long ideas (like EBIX) by just looking at the companies Faruqi is targeting considering how ridiculous some of these cases are.

[blainehodder]

Pretty good update on the situation by Sunil Shah.

 

http://seekingalpha.com/article/1640422-ebix-navigating-through-the-legal-maze-to-the-upside

[siddharth18]

 

http://i.imgur.com/FoGULMG.png

 

http://www.wkrb13.com/markets/209708/investors-purchase-large-volume-of-put-options-on-ebix-ebix/

 

http://i.imgur.com/7dRJegJ.png

[cemadh]

Gotham City or some other short seller bought 36000 Oct 2013 Strike 6 puts. That represents 3.6 million shares! That is a BIG position.

My question is - why Strike 6? The put buyer(s) stands to make a lot more money buying Strike 7 or Strike 8 puts. In the larger scheme of things (given the size of the position), those strikes would not have cost much more and the pay off would have been a lot more if EBIX crashes to zero or near zero or some number below $6.

 

This leads me to believe that the put buyer is protecting a long position and he/she knows or expects that some kind of verdict on the SEC case is coming out in the next few weeks.

[no_free_lunch]

The $6 puts exceed the payoff on the $7 puts at $4.  At $0 you are looking at double the total payoff with the $6 puts.  It sounds like they have conviction that it will crash.  It seems foolish to me to put such a short time frame on it but the math at least works.

[cemadh]

The $6 put price is $0.07. The $7 put price is $0.15

At a stock price of $0, the $7 put pays $6.85 and the $6 put pays only $5.93.

 

The $7 put is superior to the $6 put for all stock prices below $6.85. For stock prices above $7 both are worth $0.

 

See attached payoff payoff table.

EBIX.xlsx

[siddharth18]

The $6 put price is $0.07. The $7 put price is $0.15

At a stock price of $0, the $7 put pays $6.85 and the $6 put pays only $5.93.

 

The $7 put is superior to the $6 put for all stock prices below $6.85. For stock prices above $7 both are worth $0.

 

See attached payoff payoff table.

 

I'm no expert at options pricing but you're paying $7 for a put contract (to sell 100 shares) with strike price of $6 and you're paying $15 (twice the price) to sell 100 shares at strike price of $7.

 

If you had to allocate $15,000 to the puts and knew the stock was $0, you can either buy:

 

(a) 2500 puts of strike price 6 or

(b) 1000 puts at strike price 7

 

Hence you'd go with (a), right?

[blainehodder]

Daniel Yu is at it again. New article this morning.

[Liberty]

Daniel Yu is at it again. New article this morning.

 

http://seekingalpha.com/article/1702352-ebix-new-problems-emerge-in-singapore-sweden-and-india

[siddharth18]

Well...who could see THAT coming?? :D :D :D

[blainehodder]

Looks like he got a bit aggressive with the 6 buck strikes. Hahaha.

[blainehodder]

In other news...

 

The Lawsuit (which has already been denied class status), should no longer be a risk, since the Meyer v. Greene (St. Joe Einhorn Short) decision by the US Court of appeals. 

 

The US Court of Appeals for the Eleventh Circuit recently issued an important decision that addresses two types of allegations that plaintiffs routinely rely on to plead loss causation in federal securities fraud cases. In Meyer v. Greene, 2013 US App. LEXIS 4187 (11th Cir. Feb. 25, 2013), the Eleventh Circuit appears to have become the first federal court of appeals to rule definitively that the mere announcement of an investigation by the US Securities and Exchange Commission (“SEC”) followed by a decline in a company’s stock price is insufficient to plead loss causation. The Court also ruled, consistent with decisions from other federal circuits, that a negative third-party analyst presentation is not a corrective disclosure for purposes of pleading loss causation if the presentation is based on publicly available information.

 

http://www.skadden.com/newsletters/Inside_the_Courts_June_2013.pdf

 

The link necessary to plead loss causation cannot be established.  The plaintiff can’t be awarded damages based on a third party “Analyst” report based on public information.  The irony here, is that Faruqi leans so heavily on the Copperfield report (which refers to already public SEC docs) that they will be unable to switch gears.

 

That should relieve some of the cash burn from the legal fees.  Skadden doesnt come cheap.