EBIX - Ebix Inc

[enoch01]

"We see ourselves as primarily a Growth stock"

 

Is this statement bothersome to any one?

 

Please elaborate on what you find bothersome.

 

 

Why on earth is he commenting on the behavior of the stock?  What is a "growth stock" anyway?  Public equivocation between the business and the stock is a red flag for me.

 

I have no position.  There's easier ways to make money these days than trying to tease out this hairball.

[alpha231616967560]

The words that Robin Raina chose are not brilliant, but I think that he was trying to convey that the company is focused on growth, that they recognize that dividends are usually not paid out at this stage in a company's growth cycle, and that they'll continue to focus most of their resources on acquisition and organic growth.

 

He might have said something else to convey this sentiment, but in the end this is an attempt, at least in part, to thwart the short sellers, so maybe it is not so inaccurate to refer to the stock instead of the company.

 

Inferring anything about the management's attitude about stock vs. business from that sentence, is, IMHO, a bit far fetched.

[enoch01]

He might have said something else to convey this sentiment, but in the end this is an attempt, at least in part, to thwart the short sellers, so maybe it is not so inaccurate to refer to the stock instead of the company.

 

Probably you're right: it is, at least in part, an attempt to thwart short sellers.  This makes me even more suspicious, since there should be no rational need to thwart them.  Ebix shouldn't be reliant on regular funding, for example.  I mean, in the same release Raina talks about how solid the balance sheet is and their tremendous cash generation capabilities.  So I would say, just buy back oodles of the "growth stock", instead of trying to show strength / thwart the shorts by declaring a 1% annual dividend.

[alpha231616967560]

Probably you're right: it is, at least in part, an attempt to thwart short sellers.  This makes me even more suspect, since there should be no rational need to thwart them.  Ebix shouldn't be reliant on regular funding, for example.  I mean, in the same release Raina talks about how solid the balance sheet is and their tremendous cash generation capabilities.  So I would say, just buy back oodles of the "growth stock", instead of trying to show strength / thwart the shorts by declaring a 1% annual dividend.

 

I agree. The logic is screwy. But the way that small caps such as EBIX are tossed around is a bit screwy also. The fact that the company lost 1/2 its market cap as the result of a well executed but factually flawed short article on Seeking Alpha is not on my list of things that should be. Personally, I also would have preferred that they would have kept buying back shares, but this decision seems relatively harmless...

 

 

[Guest Hester]

There should be no need to "kill" the shorts. That's not how companies should be run, with the purpose of trying to create a short squeeze in their stock. EBIX doesn't even need funding, or they shouldn't. Why should they care? What are they gonna lever up the company to pay a dividend now?

 

The way Raina acts and talks strike me as manipulative. This is not a cash rich stock with dollars just flowing out of it. Yet they are spending money like they are. Does anybody really think that issuing a dividend, at this stage in EBIX's life, is anything but a manipulative ploy to buoy the share price? A shor seller issues a critical report on their stock and they go from a share issuing/acquisition making machine to a company who wants to do nothing but buy back stock and pay dividends. If I didn't know any better I'd think Raina was making decisions based on the wrong things.

 

If they don't stop making acquisitions this stops being a growth stock. The organic growth, or lack thereof will be the only thing left. This stock is, however, selling at a growth multiple when you consider that margins are compressing and they still don't pay any taxes. I question whether it's "cheap."

[Liberty]

TMFTypeoh asks:

Any thoughts on paying a one-time, special dividend? I would think that would scare some of the shorts away, at least in the short term. It might give some credibility to EBIX as a legit business as well.

 

Raina:

 

As regards dividends, at this point nothing is ruled out. Let us wait and watch.

One thing is pretty clear: that the Board has committed to purchasing $100 million of Ebix stock from the open markets and retiring that stock. Once Ebix has purchased $75 million or more of its stock, I intend to recommend to the Board to increase the purchase authorization to $160 million from $100 million.

 

We are buying our own stock because we see this as an accretive transaction for our shareholders, and because we see this as buying stock in a company that is producing 40% or more in operating margins, and is still trading at rather low cash multiples. We are not buying the stock because we want to support our stock price or drive the shorts out. That would be knee-jerk, or rather short-term, thinking, and we prefer to think about our shareholders' interests in the long term.

 

Lastly, after being in existence for 35 years, powering hundreds of thousands of users across the globe, powering hundreds of billions of insurance premiums, or having majority of the blue chip names of the insurance and financial world as customers or having 30 + offices across the world with customers in 69 countries or having one of the highest customer retention rates in the insurance industry or producing 11 years of consistent growth in terms of cash, income, revenues and EPS for a business that a decade back was a $12 million revenue business with a $19 million loss; if Ebix still needs a dividend to prove to a particular investor that it is a legit business, then something is wrong with the world we live in today. Dividend payment or non-payment should be a rational decision based on growth strategy and merits, rather than proving anything to anybody.

 

Raina's words aren't always well chosen - kind of the 'english as a second language' curse on top of not being a polished communicator in the first place - but I believe that his business and capital allocation instincts and models are very solid, and that's what matters to me.

 

While I would have preferred more buybacks without a dividend, at the rate at which cash flow is growing, this small dividend will look even smaller soon and the vast majority of capital is still going to buybacks and acquisitions. Any loss from tax inefficiencies can probably be compensated by a higher share price to make acquisitions, which would free cash for buybacks.

 

Maybe Raina and I don't mind a low stock price, but employees and acquirees that are incentivized with stock probably mind more, and losing good talent (or potential acquirees) because of this would be bad, and that has to be factored in.

[Guest Hester]

I agree. The logic is screwy. But the way that small caps such as EBIX are tossed around is a bit screwy also. The fact that the company lost 1/2 its market cap as the result of a well executed but factually flawed short article on Seeking Alpha is not on my list of things that should be. Personally, I also would have preferred that they would have kept buying back shares, but this decision seems relatively harmless...

 

What about the report was factually flawed?

[Liberty]

What about the report was factually flawed?

 

Pretty much everything, but I won't write a 10-page essay here.

[alpha231616967560]

What about the report was factually flawed?

 

Here are two good sources that I thought did a good job of answering this question:

 

http://seekingalpha.com/article/260820-craig-hallum-research-report-provides-counterpoint-to-copperfield-claims

 

http://crystalequityresearch.blogspot.com/2011/03/short-sale-saga.html

 

 

[Liberty]

The way Raina acts and talks strike me as manipulative. This is not a cash rich stock with dollars just flowing out of it. Yet they are spending money like they are. Does anybody really think that issuing a dividend, at this stage in EBIX's life, is anything but a manipulative ploy to buoy the share price? A shor seller issues a critical report on their stock and they go from a share issuing/acquisition making machine to a company who wants to do nothing but buy back stock and pay dividends. If I didn't know any better I'd think Raina was making decisions based on the wrong things.

 

A company with around 160m revenue and 60m in cash coming in isn't cash rich? What's cash rich to you?

 

They haven't stopped making acquisitions and they've said they have a strong pipeline there, but their favored way to finance those is now cash & debt rather than stock. Buying back stock when it is very undervalued is a good capital allocation decision, not manipulation. And while I disagree with the dividend, it is small and can have important side benefits as mentioned above.

 

If they don't stop making acquisitions this stops being a growth stock. The organic growth, or lack thereof will be the only thing left. This stock is, however, selling at a growth multiple when you consider that margins are compressing and they still don't pay any taxes. I question whether it's "cheap."

 

If you read what has been written in this thread earlier, you'll see why EBIX makes acquisitions and why it generates lots of growth (whether it's labelled organic or not doesn't matter to me). As for the taxes, they had NOLs of 60m and a large part of their IP is created and hosted in India and Singapore (they haven't transfered any IP outside of the US). Of course they pay low taxes, they're partly in low tax jurisdiction (mostly to take advantage of less-expensive but high-quality indian engineering talent, but the taxes are a good side benefit), there's nothing strange about it. Margins aren't compressing, they're expanding with each new customer (the beauty of software), but they are reinvesting anything above 40% into new salespeople for about the next year.

[Guest Hester]

What about the report was factually flawed?

 

Pretty much everything, but I won't write a 10-page essay here.

 

Lol, ok.  ;D

[enoch01]

Raina's words aren't always well chosen - kind of the 'english as a second language' curse on top of not being a polished communicator in the first place - but I believe that his business and capital allocation instincts and models are very solid, and that's what matters to me.

 

Any rational CEO, regardless of their native tongue, ought to be able to recognize if their company is a bargain.  I see no rational need to thwart the shorts if this company spits out the cash like they continually claim and is so cheap.

 

Instead of declaring a 1% dividend, I would expect the insiders to attempt to take this company private at the current price.

[Liberty]

What about the report was factually flawed?

 

Pretty much everything, but I won't write a 10-page essay here.

 

Lol, ok buddy.  ;D

 

Sorry, I don't feel I have to convince you, and it took me many dozens of hours to get familiar with EBIX management and business model (yes, it's a complex business to understand, which can be dangerous, but it also gives an edge to the people who take the time to do their homework), and I can't easily replicate that gestalt of information for you, so I don't feel it's worth the effort. But the two links posted by Alpha above are a good starting point.

[Liberty]

Any rational CEO, regardless of their native tongue, ought to be able to recognize if their company is a bargain.  I see no rational need to thwart the shorts if this company spits out the cash like they continually claim and is so cheap.

 

Instead of declaring a 1% dividend, I would expect the insiders to attempt to take this company private at the current price.

 

They've increased buybacks from 15m to 100m (and they said they're going to push it to 160m when they reach 65m) and Raina spent half a million of his own money to buy stock back. It's not like the small dividend is the first thing they did...

 

They might not have the resources to take it private, and personally, I hope they don't.

[enoch01]

 

They've increased buybacks from 15m to 100m (and they said they're going to push it to 160m when they reach 65m) and Raina spent half a million of his own money to buy stock back. It's not like the small dividend is the first thing they did...

 

They might not have the resources to take it private, and personally, I hope they don't.

 

Granted they are buying back a lot.  But, Raina's purchase increased his holdings, what, 1%?  I'd discount that pretty heavily.

 

It's easy to borrow money these days.  It ought to be very easy given their purported cash flow generation.  Less than $500M and they can buy back everything they don't own, at a market premium, right?

 

Instead they declare a 1% dividend to demonstrate their strength?  I don't buy it.  Nope.  They are trying to squeeze the shorts, which doesn't make sense.

[Liberty]

Granted they are buying back a lot.  But, Raina's purchase increased his holdings, what, 1%?  I'd discount that pretty heavily.

 

I don't think he's a wealthy man. He bought his 4 million EBIX shares for pennies, and I don't think he has much money outside of that. A lot of his cash seems to go to his foundation.

 

It's easy to borrow money these days.  It ought to be very easy given their purported cash flow generation.  Less than $500M and they can buy back everything they don't own, at a market premium, right?

 

Instead they declare a 1% dividend to demonstrate their strength?  I don't buy it.  Nope.  They are trying to squeeze the shorts, which doesn't make sense.

 

Maybe they'll consider going private at some point, but it's also possible that they've been sitting there and going "this crazy undervaluation will end any day now..". Maybe if it continues for long enough they'll make that move. I hope not, but we'll see.

 

As for the dividend, I agree it's not the best decision, but it's definitely not crazy, and far from anything as bad as the average company does day-in and day-out...

 

Another possibility is that Raina is looking ahead and seeing acquisitions slow down because he'll have bought his way into most of the sectors he wants to be in, and growing into these beachheads organically and opening new offices in greenfields markets where there is no strategic players to acquire (ie brazil) will be less expensive than doing it by acquiring, so that would free up lots of cash, meaning a dividend would make more sense.

[enoch01]

Maybe they'll consider going private at some point, but it's also possible that they've been sitting there and going "this crazy undervaluation will end any day now..". Maybe if it continues for long enough they'll make that move. I hope not, but we'll see.

 

This is what I continue to not understand, and why I am growing more curious.  Why would they hope for the "crazy undervaluation" to end?  It can only mean they need/want their stock to act as currency, right?

[Liberty]

This is what I continue to not understand, and why I am growing more curious.  Why would they hope for the "crazy undervaluation" to end?  It can only mean they need/want their stock to act as currency, right?

 

I didn't mean that they're sitting around and going "omg I hope the stock goes back up soon or we're screwed".

 

I meant more like: When the stock takes a dive for what you consider to be no good reason, your first reflex isn't "let's go fill some paperwork to take this baby private" but rather something like "wow, that probably won't last long, look at how strong the business is doing.. guess it's a good opportunity for some buybacks".

 

They win either way: Stock down, buybacks. Stock up, use it as currency (a la Teledyne and Berkshire).

 

I still disagree with the dividend, I'd rather have seen more buybacks because it's a more efficient way of returning capital to shareholders, but the buybacks will still be much bigger than the dividend, and the dividend is not bad per se, it's just sub-optimal.

[mankap]

Ebix has said that they will still use 90% of cashflow for growth and buyback.

 

''We see ourselves as primarily a Growth stock and thus intend to invest 90% of our cash towards growth initiatives and share repurchases."

 

This means that they will use only 10% of cashflow for dividend and use 90% of cashflow for buyback and acquisition.This should not have a big impact on the amount that can be used for buyback.At cashflow rate of $80m , it means that they will use $8m for dividend and $72m for buyback and acquisition.

Robin has said that he will recommend increasing the amount of buyback to $160m.I think they have spent $60m till now.They still have $100m to go.That is still lot of buyback.

[FFHWatcher]

Why do people continually go back and forth and back forth about companies that they are not invested in and have no plans of ever investing in?  If they really think a company is a poor investment, than short it or buy puts.  If they like it, think it is a good investment, then buy the stock or call options.  I don't see why anyone who is not long or short discusses a company at length with no vested interest.  I don't see anything being said that is educational and if it is educational and insightful than it is being brought forward to closed minds.  I am missing something here.

[DCG]

''We see ourselves as primarily a Growth stock "

 

 

THIS is what I hate about Raina, and part of the reason I sold out of Ebix a while back. He constantly refers to Ebix as a stock, rather than a company. I worry that he runs the company around trying to increase the stock price in the short term, rather than growing the business. I worry that he is too focused on meeting/beating analyst etimates on a quarter to quarter basis, and companies that do that sometimes tend to fudge the numbers to do that.

[Liberty]

Isn't another benefit of not going private that the stock is liquid, so that makes it much easier to incentivize employees with stock and to make acquisition with stock (preferably when it's over-valued, and always when you're getting something more valuable than what you're giving away)? Going private would remove that flexibility.

[Liberty]

THIS is what I hate about Raina, and part of the reason I sold out of Ebix a while back. He constantly refers to Ebix as a stock, rather than a company. I worry that he runs the company around trying to increase the stock price in the short term, rather than growing the business. I worry that he is too focused on meeting/beating analyst etimates on a quarter to quarter basis, and companies that do that sometimes tend to fudge the numbers to do that.

 

Wow, what you describe is basically the opposite of my impression of Raina. Most of his moves are very long-term oriented, he constantly talks about the long-term and growing the fundamentals of the business and a strategy that unfolds over years, and how the story is the business, not the stock, and he almost never gave guidance over the past 10 years, never had shiny annual letters, rarely had analyst conferences, doesn't take calls from individual analysts afaik, etc.

 

Have you listened to all the conference calls on the site? After listening to a man speak for tens of hours and over half a decade, you get a pretty good idea of what he says, and if what he says one year happens the next, and I certainly haven't heard any of what you mention.

[DCG]

THIS is what I hate about Raina, and part of the reason I sold out of Ebix a while back. He constantly refers to Ebix as a stock, rather than a company. I worry that he runs the company around trying to increase the stock price in the short term, rather than growing the business. I worry that he is too focused on meeting/beating analyst etimates on a quarter to quarter basis, and companies that do that sometimes tend to fudge the numbers to do that.

 

Wow, what you describe is basically the opposite of my impression of Raina. Most of his moves are very long-term oriented, he constantly talks about the long-term and growing the fundamentals of the business and a strategy that unfolds over years, and how the story is the business, not the stock, and he almost never gave guidance over the past 10 years, never had shiny annual letters, rarely had analyst conferences, doesn't take calls from individual analysts afaik, etc.

 

Have you listened to all the conference calls on the site? After listening to a man speak for tens of hours and over half a decade, you get a pretty good idea of what he says, and if what he says one year happens the next, and I certainly haven't heard any of what you mention.

 

Yeah, I've listened to a good amount of their conference calls (haven't heard the last few, but listened to them all during the couple years I owned shares). There are a lot of things I like about Raina, but calling the company a growth stock is not something I want to hear any CEO say. And it's not like he's just said it once. He's said it a few times.

 

You know the company better than me, so I hope you're right for the sake of you and any other shareholders on here.

[alpha231616967560]

THIS is what I hate about Raina, and part of the reason I sold out of Ebix a while back. He constantly refers to Ebix as a stock, rather than a company. I worry that he runs the company around trying to increase the stock price in the short term, rather than growing the business. I worry that he is too focused on meeting/beating analyst etimates on a quarter to quarter basis, and companies that do that sometimes tend to fudge the numbers to do that.

 

I am surprised that this one line has caused such a fuss. I think that it is just semantics. I'm a whole lot more interested in what the CEO / company does than what he / it says. Any CEO is part politician, part strategist, etc. and may have a number of reasons for using certain language, including an inadvertent choice. I don't see this sentence "We see ourselves as primarily a Growth stock" reflected in the actions of management.

 

For DCG and others who have mentioned this, can you give any examples of actions that correspond to management's short-term view of the company?