EBIX - Ebix Inc

[Guest Hester]

Haha, thanks for the support guys. I'll try to keep it up, and I plan to stick around for a while.

[Liberty]

Think this might have been mentioned in the previous thread that was lost, so I'm reposting it here for archival purposes:

 

April 1st investor conference, audio + slides:

 

http://www.ebix.com/2011_Investor_CEO_CFO.zip

 

Audio's terrible and Robin's definitely not a polished public speaker, but there's lots of interesting stuff. He talks about why they make acquisitions, auditors, taxes, etc. No irrefutable proof of anything in there, but it provides some color.

 

Update: And a transcript of Q1 call while I'm at it: http://www.ebix.com/investors/text_11_Q1.pdf

[Liberty]

Ebix Inc. (EBIX) said it plans to seek board approval to expand its share repurchase authorization to $75 million after its current $45 million buyback program is completed.

 

The insurance-industry software maker, which has been producing solid growth even as the industry is struggling, had just tripled the size of a prior program to the current $45 million level in early April. The company on Wednesday said that it has purchased about one million of its shares at a total cost of $20.4 million since late March. Ebix had 39.5 million shares as of May 10, according to a filing with the U.S. Securities and Exchange Commission.

 

http://online.wsj.com/article/BT-CO-20110608-706806.html

[Guest Hester]

Ebix Inc. (EBIX) said it plans to seek board approval to expand its share repurchase authorization to $75 million after its current $45 million buyback program is completed.

 

The insurance-industry software maker, which has been producing solid growth even as the industry is struggling, had just tripled the size of a prior program to the current $45 million level in early April. The company on Wednesday said that it has purchased about one million of its shares at a total cost of $20.4 million since late March. Ebix had 39.5 million shares as of May 10, according to a filing with the U.S. Securities and Exchange Commission.

 

http://online.wsj.com/article/BT-CO-20110608-706806.html

 

We'll see if they go through with such a massive buyback. The real question is do they stop acquisitions? If they don't, they will have to finance them with debt, so long as their buying back massive amounts of stock. This could become highly levered really fast, and that magnifies the effect the red flags could have.

 

If they stop acquiring and just buyback a ton of stock, and can keep at least a small level of organic growth, I think it throws a huge wrench in the short thesis. Although, the stock would lose some growth investors and may languish.

 

Somehow I doubt they'll stop acquisitions, but I'll be watching with interest.

[Liberty]

Indeed, I'll also be watching for that over the next year.

 

In my opinion, Robin has shown to be a great capital allocator over the past decade. He doesn't overpay for anything, and he must think EBIX stock is really cheap to do these relatively big buybacks and spend half a million of his money on the stock (he has 4 million shares with a cost around $0.78 and almost hasn't sold any).

 

My understanding is that in this industry, back-end systems aren't upgraded very often, and when they are, they stick around for a long time. It's been especially tough since the recession because insurers aren't spending on IT. EBIX does acquisitions in good part to get access to clients, because while the clients of, say, a CRM vendor are worth X to that company, they can be worth much more than X to EBIX because once it has a foot in the door to then cross-sell a lot of stuff to them (plug-in its exchanges in the CRM, etc). And if you take a company that was already profitable, then get more out of its customers and cut costs significantly by using the existing Indian facilities for development (and over time rewrite all IP over there, which is advantageous from a taxation perspective), you start to get pretty good economics (with highly recurring revenues and sustainably high-margins).

 

Organic growth is probably good, but not spectacular. That could change in a hard insurance market, and the company has said that they're now at a size and visibility that allows them to be in the race for deals that they wouldn't have been considered for previously, so there could be a "rich gets richer" effect that helps in that regard. They've clearly said that their strategy is to target the 100 biggest carriers and distributors in the US (and the same in other markets I'm sure), and once they've got enough of these big fish on their exchanges, the rest will almost take care of itself because there'll be a whole ecosystem that will then benefit greatly by joining the exchanges (and they've opened the standards of their exchanges, so that if they win that war and become infrastructure, third party vendors can connect their software on their exchange and insurers not even dealing with EBIX directly will end up paying them pay-per-transaction fees). They're also positioning themselves to move into the health sector, so that's also something to watch.

 

Will definitely be interesting to see how this develops...

[mankap]

I was kind of expecting that Ebix will increase the buyback.

For next 3 qtrs ADAM impact will seen in the revenue and Cashflow numbers.So we will see the growth for the next 3 qtrs over yoy numbers without any new acquisition also.

In the last press release Ebix has said that they have set the target of 43% for operating margin as compared to 40% before.They achieved 43% operating margin in last qtr. Increase in margin and reduction in shares will add around 0.15 to EPS in 2011.

I do not think taking on $50m debt to make another acquisition will make them levered.This will be less than 1 year FCF.

[Liberty]

Ah, well, Robin says it better than I did:

 

 

Question - Why does Ebix make Acquisitions?

 

Answer  - Ebix makes acquisitions, not to run the businesses of the companies we

acquire, but to obtain customers, relationships and/or products which fit into our

platform and make it easier to cross-sell new and existing products to new and existing

customers, which, in turn, drives organic growth.  This is a fairly common practice

among technology/software driven service providers.  This practice allows growing

technology/software driven service providers to add to their product and service platform without the expense of making large marketing expenditures to obtain new

clients.

 

The insurance industry is traditionally a relationship-based industry and, as such,

averse to change. With a view towards providing end-to-end, seamless transactions

across different channels, products, processes and geographies, we decided to make

opportunistic acquisitions that gave us access to these disparate strategic processes,

channels and regions and also provided us a relationship entry point across various

niche client bases.  As a result of these acquisitions, we have firmly established our

footprint, establishing true “value creation.”  In essence, these products and customers

are added to our existing platform providing for broader reach and leverage within our

industry, allowing us to provide for  broad of end-to-end functionalities  - because of

these acquisitions.

 

A good example of one such strategic acquisition would be our acquisition of E-Z Data,

Inc. (“E-Z Data”) in October 2009.  The acquisition of E-Z Data provided Ebix access to

tens of thousands of life and annuity users utilizing E-Z Data’s SaaS based customer

relationship management (“CRM”) applications.  The interfacing of EZ Data’s CRM into

our existing life and annuity exchanges made it possible for every E-Z Data user to get

quotes, illustrations, and research metrics from multiple insurance companies in

addition to being able to electronically transmit commission, installments, accounting

and policy data with any of these insurance companies for which they carried licenses. 

The acquisition of E-Z Data also gave us an opportunity to cross-sell not only our

exchanges to this large user base but also to cross-sell the new CRM applications to

our pre-acquisition exchange clients.

 

http://www.ebix.com/investors/text_11_Q1.pdf

[mankap]

Well said.

 

Vertafore is in the same market segment as Ebix.They build Software solutions for P&C Insurance companies.

Its revenue is 288m, no. of employees are 1150 and was sold to TPG ( PE firm) for $1.4B in 2010.

It is a highly leveraged company with $550m in debt.

Looking at revenue nos. and no. of employees , I think its margin cannot be better than Ebix.

 

http://www.ibtimes.com/articles/28133/20100611/tpg-strikes-1-4-billion-private-deal-to-buy-software-provider-vertafore.htm

 

 

 

[Liberty]

Whoa, talk about a reversal in the secondary market in the past couple days. It might turn out to only be temporary, but it does show the power of publicly announcing that you're ready to use more than a whole year worth of cash to buy back shares...

[bargainman]

After the massive drop, someone sold a boat load of put options.  I wouldn't be surprised if the ones who caused the massive drop weren't the same ones who sold the puts. 

[Liberty]

Here we go again:

 

http://www.bloomberg.com/news/2011-06-30/ebix-inflated-earnings-as-software-maker-ignored-bad-debt-lawsuit-alleges.html

[Liberty]

And the reaction from EBIX:

 

http://www.rttnews.com/Content/QuickFacts.aspx?Id=1657368&SM=1

 

Rather than increase share buybacks to 75m (which was 3x more than they originally asked for this year) like they had mentioned previously, they're increasing them to 100m.

[alpha231616967560]

Hmm. The SA article was very easy to blow off because of the obvious bias of the author and the flimsy flimsy "facts", but this has me a lot more concerned. This is the second time that this type of suit has been brought. I'm having a hard time dismissing this one...

[given2invest]

It's a small amount of revenue and they very much have an agenda, they want to be paid out their earn out.  Still, can't see myself touching this one. 

 

 

[mankap]

I think this is an effort by disgruntled elements who sold the company in 2009 to extract more money from Ebix.The lawsuit is to get additional $1.5m from Ebix. There is a dispute on how much revenue former peak division generated for Ebix in 2010.

Former CEO of Peak has filed a lawsuit to get additional $1.5m.I can connect the dots now.I think the earlier short attack was also linked to this effort to get more money from Ebix

[doc75]

Hmm. The SA article was very easy to blow off because of the obvious bias of the author and the flimsy flimsy "facts", but this has me a lot more concerned. This is the second time that this type of suit has been brought. I'm having a hard time dismissing this one...

 

Agreed.   Though I suppose the success of the previous lawsuit likely increases the likelihood of a similar lawsuit.  

 

The decision on the first suit was made in April.  The 2nd suit was filed May 24.  Very interesting that it was filed over a month ago and yet today's article drops the stock 10%.   I don't even remember hearing about the first suit.

 

The decision on the first suit is interesting reading.  Here's the document:

 

http://docs.justia.com/cases/federal/district-courts/california/casdce/3:2010cv00762/320814/17/

 

The $ amounts of the misstated financials are trivial for a co of EBIX's size, and the $ amounts of the lawsuits are also pretty small.  My concern isn't that EBIX is a fraud, but rather that management is cutting corners in every conceivable way and really doesn't have good internal controls.  

 

It also seems strange that the billing dept for a company of this size had only 2 people until very recently, and has now been expanded to 5.  (Small number to start, and crazy expansion.  How could they feel that 2 were sufficient, only to decide now that they need to double that plus more?)  Raina may enjoy being a one-man-show but shareholders don't.

 

Even if management truly does have all its financial cards in order,  I don't like the idea of a company that has built itself on acquisitions developing a reputation for screwing over the previous owners of the acquired companies (for rather trivial amounts, I might add).  EBIX recently granted the CEO (Raina) an extra $300,000 bonus, on top of some already stellar compensation.  What were they doing in court fighting over a similar amount of money with a defense that the court deemed to "make little sense"?

 

 

 

 

 

 

[doc75]

 

I should add to my previous post that I know a fellow whose co was bought by Google.  He did very well by it, but there were plenty of disputes over the "earn outs", and he increasingly felt he was getting shafted by a deep-pocketed player. 

 

I say this because it seems to me that Google enjoys a solid reputation as a "good corporate citizen", and obviously the $ amounts they were dickering over in this case were beyond trivial to a company of their size.  So maybe this type of thing is common.

 

(I also only heard one side of this story, so my account of it is inherently biased against Google.)

[alpha231616967560]

The $ amounts of the misstated financials are trivial for a co of EBIX's size, and the $ amounts of the lawsuits are also pretty small.  My concern isn't that EBIX is a fraud, but rather that management is cutting corners in every conceivable way and really doesn't have good internal controls.  

 

Yes - this is my sense also, especially since this is what they were dinged for by their auditor back in 2003 or so (insufficient internal controls). 

[Guest Hester]

Even if these suits were without merit, the fact that there has been two now, one successful, will surely give pause to future companies that EBIX acquires. This is a blow to EBIX's roll-up strategy, as good acquirees may be discouraged by this.

 

 

[doc75]

Even if these suits were without merit, the fact that there has been two now, one successful, will surely give pause to future companies that EBIX acquires. This is a blow to EBIX's roll-up strategy, as good acquirees may be discouraged by this.

 

Exactly what I was thinking.  Raina must know this.

 

I remember reading an article a while back about some serious sour grapes after an EBIX acquisition.  In that case, the sourness was entirely because EBIX basically fired everyone from the old company (which apparently wasn't an expected move).  It may well have been the company involved in the current lawsuit -- I can't remember. 

 

At that time I was also thinking about the implications of sour past purchases on future purchases... but figured that as long as promises weren't broken and the owners were happy with selling, then it was no different from many other corporations that grow and outsource work.

 

[doc75]

I've been curious for a while about EBIX and, in particular, CEO Robin Raina.  I'm having trouble sleeping tonight so I'm going to write up a few observations.

 

If you do a web-search for Raina you get all sorts of hits regarding his path to riches, his charity work and (lately) his role in producing the documentary film "Delli", which is currently enjoying some critical acclaim.  I also found an obscure third-party account of him stepping in to break up a fight at charity concert he was holding for his foundation.

 

I have a strong aversion to gushing sentiment about public figures, so I find most of the articles written about Raina to be hard to swallow.  To my cynical ears, most interviews with him make him seem self-obsessed and immodestly modest.  Basically every article portrays this man as some type of Mother Theresa / Howard Stark hybrid. 

 

His interviews are full of epithets and cliches regarding charity and poverty, with a lot of talk about why he became involved in charitable work and how it goes hand-in-hand with business. If you look at the webpage of his eponymous charitable foundation, you'll find much more of the same, along with plenty of pictures of Robin and more gushing sentiment from various Indian celebrities.  The page is very out of date and you wonder if it's still active.

 

The Copperfield report questioned the scope of the Robin Raina Foundation, claiming that his charity was vastly overstated.  Based on the picture I was developing of Raina, I was quick to let my cynicism take over and also question the scope and motivations of his charity. 

 

But earlier today I came across his personal Facebook page. It's now clear to me that he is either one of the greatest charlatans of our time, or he truly is a tireless advocate for the poor and an ardent supporter of "compassionate capitalism".  I think the man may simply be one of those guys who essentially never sleeps and keeps his fingers in every slice of pie... making EBIX a bit of a one-man-show as far as management is concerned. I'm even half-convinced that he writes all the press releases for EBIX.  (Has anyone else ever noticed the poor grammar and numerous typos/errors?)  I don't think this is good for the company.  Just an observation.

 

You can find his Facebook page for yourselves if you're interested, but below I've copied one exchange that I think is somewhat illuminating.  A user questions the logic behind the Foundation's home-building project, and Robin's response is either 100% fraud or 115% human.  I hope it's the latter, and I applaud him for what the RRF has done in either case.  (The Facebook page is *far* more impressive than the official RRF website.)

 

 

Question posed:

 

I may not be getting the whole story here: a significant number of people were displaced because of an upcoming sporting event so to help these people you are giving away 6000 homes to them. Would it not have been better to have made a real estate development company, tooken out a loan, put those underpriviledgred people to work and rented the homes giving them work at the same time by making them building it. In that, you'd also be training them and giving them a skill they can then go on to improve thier own fortunes with. The way to fight to fight poverty as you have stated u want to do is to give people control over their own finanical well being. not giving them hand outs and charitable donations. ~Commercialism over charity."

 

Robin's reponse:

 

Good thoughts but not practical. We looked at all kinds of possibilities before starting this project to build 6000 free homes for them. The people in Bawana are civic citizens like you and me are. They are equally hardworking and at times a lot more hard working than most of us. They work 14 hour days to earn a living. Most of them are already construction workers. Some of them work as day laborers already to build these homes that we are building. They own the land that the houses are being built on. A construction worker makes Rs. 180 ($4 per day) on the day that he/she gets any work - that does not allow that person to pay for his family's well being or food leave aside any rents. These folks feel the same like you and I do - the intense cold in winters, the rainy season and the extreme heat in Delhi - all mandate that a citizen of Delhi at least has shelter. They have the same desire to identity and self respect like all of us - but we have the opportunities and they don't. There are no homes in Bawana (whatever is available would cost more than 60% of their monthly income) to rent and they cannot afford it anyways. Each one of them owned their own piece of land, given for Rs. 7000 ($150) by the Government, to be paid in installments over 7 years. They cannot leave that piece of land and go elsewhere - so they built grass huts and lived in inhuman conditions, with fires happening every other week causing innumerable deaths. The houses had to be built on their land. As regards their vocational training for occupation, of course we run multiple training centers to train them in all kind of areas so that they can have a future. They are taught embroidery, textile design, candle making, stitching, crafts, computer training, equipment repair, makeup, hair saloon training etc. in addition to being trained on healthcare, fighting any violence, bank handling etc. We also offer micro-credit finance for them to start their own occupations/business. We demand that for them to have a home built by us they commit to putting all their kids in schools in the area. We also run schools with breakfast,lunch, clothing, healthcare etc for their kids. Charity is a complete cycle that feeds on providing a whole set of related services not just money.We understand that!! Life in the slums is a bit more complex than you can imagine - complex situations need complex solutions - ground realities are different from what people imagine without stepping in into these slums. I am a big believer in compassionate capitalism and believe in creating institutions that can feed on themselves. Having a home is something that you and me take for granted - these people need at least a shelter over their heads and that is what we are doing. The foundation's main focus is education and a bight future for the underprivileged children but if they did not have a home, they keep moving like nomads with no permanent education for their kids. That has changed with permanent housing and their kids actually go to school in one place now and have a shot at a decent future where they can be like all of us and stand on their own feet. Thanks for your thoughts.

[Liberty]

Doc75, in your research have you listened to the investor presentation from a couple months ago? It gives some good color on Raina (esp. if you listened until the end):

 

http://www.ebix.com/investors/Inv_call_11_Q1.mp3

 

Also, I've suspected for a while that a lot of image problems are cultural differences, and some stuff is lost in translation, so to speak. I think that some things you do and say in an interview in India will look weird and 'off' to someone in the US, f.ex.

 

 

UPDATE: I linked the wrong file. I meant this one: http://www.ebix.com/2011_Investor_CEO_CFO.zip

[Liberty]

http://www.businesswire.com/news/home/20110701005599/en/Ebix-Announces-Accelerated-Plan-Double-Exchange-Sales

 

The Company announced that it plans to hire a total of 44 new sales personnel in the Exchange arena in the United States in 2011. The Company said that it has already hired 14 new Exchange sales personnel in the United States in 2011.

 

Making the announcement, the Company’s Corporate Human Resources Vice President Darren Joseph said, “Over the last few months, we have successfully managed to bring in 14 very high quality sales managers at various levels into our Exchange group. Now, our focus is to accelerate our hiring efforts over the next few months to hire 30 more Exchange sales personnel experienced in selling insurance and SaaS based software services.”

 

Mr Joseph said, “Our plan is to hire a healthy blend of senior and mid level sales managers. Almost 50% of the 14 new sales personnel who have already joined are senior sales personnel with rich sales management experience in the insurance and SAAS software service industries. We intend to make all the remaining 30 new employment hirings with a similar blend of domain knowledge and on-demand sales expertise.”

[doc75]

Doc75, in your research have you listened to the investor presentation from a couple months ago? It gives some good color on Raina (esp. if you listened until the end):

 

http://www.ebix.com/investors/Inv_call_11_Q1.mp3

 

Also, I've suspected for a while that a lot of image problems are cultural differences, and some stuff is lost in translation, so to speak. I think that some things you do and say in an interview in India will look weird and 'off' to someone in the US, f.ex.

 

Liberty:  Yes, I did listen to that.  And I share your feelings about cultural differences.  Since you're interested, you may want to go to the facebook page and look for his response to someone's claim that he does the charity work for the tax benefit.  His response is kind of funny.

 

Even if we grant Raina lots of "good guy" points, I hope he is getting the picture that the market doesn't trust a company with loose controls, or even the appearance thereof.

[Liberty]

Even if we grant Raina lots of "good guy" points, I hope he is getting the picture that the market doesn't trust a company with loose controls, or even the appearance thereof.

 

Totally. I'm hoping that this is a problem that can be overcome, and that Robin is smart enough to hire more good people to help in that and eventually switch to a top notch auditing firm to quiet the critics (I wouldn't be surprised if this happened when the contract with their current firm runs out).

 

The way I see it, if EBIX had none of those issues (and I'm not convinced most are real, but appearances do make it easy to make the company look bad), we wouldn't even be talking about it because it would be so expensive that none of us would want to touch it (it would be another CRM or whatever). Sadly, what makes EBIX attractive and unattractive are kind of the same things at the moment.. I'm hoping it turns out to be a kind of salad oil phase and that we're eventually left with just the amazing business and none of the issues.