EBIX - Ebix Inc

[keerthiprasad]

i thought the results were very good...and we saw a big drop....now another 10% drop????

 

It seems like the shorts are really doing this one in.    Honestly, I used to think that their performance was too good to be true, but am now a believer.  

[Liberty]

This is starting to draw my attention... In short, what is happening here?

 

My understanding of the situation is that they're suffering from a crisis of confidence from many shareholders, a kind of salad oil scandal, if you will. The stock has been going up so fast in the past 10 years that they no doubt picked up a lot of shareholders who don't know or don't care about fundamentals, they just saw a chart going up and wanted on that ride.

 

So when the shorts attacked with that anonymous piece full of insinuations, half-truths, and outright lies, this scared a lot of people. And when you have 10M shares in float and 15M are traded in a day, this also smells of market manipulation, but I don't know enough about how that would work to be sure..

 

Anyways, I feel like we've been seeing the aftershocks of that since then. It's created a vicious cycle where the technical analysts and other non-fundamentals/value shareholders have been losing their nerve and overselling, even on good news like the past Q.

 

I don't think this'll be fixed soon, as Ebix doesn't seem very good at PR, but what matters to me is what the company will be worth in 5 years. My timing was pretty bad since I bought most of what I had before the short attack, but I console myself by thinking that this will allow lots of buybacks at 'fat pitch' prices, and that I'll be able to pick up a bit more than I would otherwise have.

[Liberty]

   Honestly, I used to think that their performance was too good to be true, but am now a believer.  

 

This sentence is a bit ambiguous. You are now a believer that their past performance was too good to be true, or the reverse?

[Liberty]

i thought the results were very good...and we saw a big drop....now another 10% drop????

 

 

I wonder if it's because the Motley Fool article that came out an hour ago linked to the seeking alpha piece. It seems like every time this one resurfaces, the stock drops a lot on high volume.

 

Update: Whoa, back to -3%. Looks like the company started its buyback machine.

[keerthiprasad]

   Honestly, I used to think that their performance was too good to be true, but am now a believer.  

 

This sentence is a bit ambiguous. You are now a believer that their past performance was too good to be true, or the reverse?

 

I'm a believer in their performance.  Just bought a nice chunk the other day.

 

Not sure if it could be the SA article again, the volume is very high early in the day...

[given2invest]

Hi Biaggio

Insiders hold 25% of the shares and Insiders+Institutions hold 67% of shares.The public holding is around 33% shares.( around 10m).At today's market price it is around 200m.Ebix has cashflow of 60m and growing.Ebix can buy entire float with public with 3 year's worth of cashflow at today's price.

 

No horse in this race but you're looking at this wrong.  The float should be calculated as all holdings outside of insiders/board members.  Institutional shares are no different than your shares or my shares - they can (and do) sell at anytime. 

 

 

 

[Liberty]

Ebix felt the need to release this today:

 

ATLANTA, GA – June 3, 2011 – Ebix, Inc. (NASDAQ: EBIX) a leading international supplier of On-Demand software and E-commerce services to the insurance industry, today reaffirmed a positive outlook for the year 2011 and beyond.

 

The Company decided to issue this release in response to the sudden stock price drop today. The Company confirmed the following –

 

1. The Company’s financial health is in better shape than ever, as reflected in our operating cash flows of $52.8 million in 2010. The Company continues to generate strong cash flows and expects to post strong cash flow growth numbers in 2011.

2. The Company expects to continue to be consistent in its growth trajectory in 2011

3. The Company’s sales bookings continue to be strong with Exchange transactions numbers continuing to improve quarter over quarter.

4. The Company posted GAAP operating margins of 39% and non-GAAP operating margins of 43% in Q1 of 2011. The Company is focused on growing its operating margins and is looking at the 43% operating margin number as a new benchmark for itself.

5. The Company is not aware of anything negative within the Company that should result in a sudden price drop.

 

The Company also confirmed that it has continued to buy back its stock from the market as per the allowed guidelines. The Company reiterated that while it already has a share buyback authorization from the Board for $45 million, the Ebix Board is committed to increasing the authorization once the Company utilizes this buyback authorization of $45 million.

 

Update: There's also this: http://online.wsj.com/article/BT-CO-20110603-709335.html

[JAllen]

It's such an ongoing short-effort  that it smells of a fairly big group attempting to truly affect the fundamentals of the company; or to seriously and permanently damage it in some way. 

 

I don't really get it.

 

We're long.....

[prunes]

I'm hoping that someone who *doesn't* own EBIX but who has been following the story can it can chime in on the SA short thesis and rebuttal. The most compelling part of the argument in my opinion centered around organic growth. Because the company is a hodgepodge of so many businesses it is difficult to formulate a true organic growth number--the question becomes, "over what period?" I found the rebuttal argument to be somewhat unsatisfying. Yes, it demonstrated that ~10% organic growth occurred in the most recent fiscal year, but it still doesn't deny the fact that a large portion of the stellar revenue growth the company seen is due to acquisitions, and if one isn't aware of this, the financials can be very misleading. Further, the company *is* poor in its disclosures, based on what I can tell.

 

Regarding the tax rate, I'm not a tax guy, but I find it interesting that when you benchmark the company versus its peers that its tax rate is so low. It sounds like this is due to acquired NOLs and that the tax rate will increase going forward so that it will be more in line with competitors.

 

Finally, the other big sticking point in my mind is the auditor. I understand that the CEO is supposedly very aggressive when it comes to costs. But a credible auditor is imperative if you're going to be a public company. If not, you might as well take the company private. That the quality of the auditor progressed from KPMG to BDO to two no name firms, well, that definitely makes me squirm.

 

The rest of the Copperfield piece seems primarily to be innuendo/filler. However, I'm still not comfortable regarding the above. HarryLong, if you're reading this thread, you seem to have a good track record dealing with fraud and insurance so this should be your sweet spot. Thoughts?

[prunes]

Robin bought 30,000 shares today: http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001209191-11-032896.txt&FilePath=\2011\06\03\&CoName=EBIX+INC&FormType=4&RcvdDate=6%2F3%2F2011&pdf=

[Liberty]

The rest of the Copperfield piece seems primarily to be innuendo/filler. However, I'm still not comfortable regarding the above. HarryLong, if you're reading this thread, you seem to have a good track record dealing with fraud and insurance so this should be your sweet spot. Thoughts?

 

I can't speak for HarryLong, but I'll point you to this:

 

http://seekingalpha.com/article/199567-high-conviction-stellar-free-cash-flow-growth-from-this-it-provider

[biaggio]

The rest of the Copperfield piece seems primarily to be innuendo/filler. However, I'm still not comfortable regarding the above. HarryLong, if you're reading this thread, you seem to have a good track record dealing with fraud and insurance so this should be your sweet spot. Thoughts?

 

I can't speak for HarryLong, but I'll point you to this:

 

http://seekingalpha.com/article/199567-high-conviction-stellar-free-cash-flow-growth-from-this-it-provider

 

Check out comments in seeking alpha from reader http://seekingalpha.com/user/895312/comments

 

Does anyone on board work for insurance company using EBIX product have any opinion on the product? Or any other scuttlebutt? Any insurance brokers out there?

 

Here is video of CEO on FOX in April http://video.foxbusiness.com/v/4645052/ebix-ceo-on-company-growth-government-regulation.

 

I have not bought any but have been following the story.

 

Is market giving long term investors a gift?

 

I wish I was directly familiar with their product.

 

There was an argument that it was only growing organically at single digit rate-if so seems to be selling at a discount to fair value.

 

Other thing was that recent 10Q shows AR growing faster then revenue.

[Guest Hester]

I spent a couple of hours looking at EBIX after reading the Copperfield report 2 months ago, with shorting in mind. I passed on shorting and definitely wouldn't go long. For all this short selling and/or manipulation people are alleging, the borrow is surprisingly easy (E*Trade has it, with no hard to borrow fees of course).

 

My problem with the Copperfield piece was the organic growth issue. Copperfield argued margins were too high because sales/marketing and R&D is too light. But, even with what seems like shockingly low expense ratio's in these categories, they are producing SOME organic growth, validating the low ratios. This spooked me. The recent insider buying would spook me as a short as well.

 

The other Copperfield points, namely the promotional/highly paid CEO, auditor issues, and the tax issue I think are all valid. I read the Craig/Hallum report and thought they were right on the organic growth issue but had very very weak counter points to the auditor/tax issues.

 

The tax issue is a real risk and cannot be ignored. I think one has to go even further than discounting current owner earnings by applying a tax rate to it, because there is a real high risk of penalties/back taxes as the Copperfield piece noted.

 

Honestly, I can't see why anyone would go long after seeing the auditor changes. That isn't a red flag, that is a red flag mountain. There are tens of thousands of public stocks in the US, hundreds of thousands if one is willing to look international. There is no need to even bother with companies with that kind of auditor history. Odds are working against you, as the stock performance of companies with that many troubling auditor changes, and with CEO's who attack shorts, is atrocious (FFH is the exception on the latter). This is not just my experience, but is pretty well documented in academic studies. (I will provide links if anyone doubts). Why not buy stocks in areas which are shown to outperform, and put the odds in your favor? Think spinoffs, net-nets, and mutual deconversions.

[Liberty]

Hester, can you elaborate on why you think the tax issues are real? AFAIK, EBIX creates or rewrites all of its IP in India and Singapore where they have legitimate low tax rates. That's perfectly legal afaik.

[ShahKhezri]

Owned the stock at 22, sold it at 22 after the big run-up and the subsequent Copperfield research.  The Auditor change was a flag, but I gave benefit to the CEO. 

 

What made me think twice was Buffet's "Integrity, Intelligence and Energy" quote, Raina is sharp and apparently doesn't sleep; that shouldn't make a difference, but if there is some perception that he lacks integrity, that's a big issue (especially one where the CEO IS the company).  I might look at it again, I really enjoy investing in toll-road businesses.

[Guest Hester]

Hester, can you elaborate on why you think the tax issues are real? AFAIK, EBIX creates or rewrites all of its IP in India and Singapore where they have legitimate low tax rates. That's perfectly legal afaik.

 

Liberty,

 

I think the tax issue risk is real. Meaning, the probability that an adverse tax ruling on EBIX happens is well above zero. I'm not sure about the probability of a penalty or back taxes, and am not a lawyer, so I really don't know.

 

But I think Copperfield's point was that they are pretty explicitly just filtering revenue into India to avoid taxes, and Craig-Hallum's point was as you mentioned. I don't buy the Craig-Hallum counterpoint, and I think EBIX's strategy toes the line. If it were as easy as housing some employees and your IP overseas, and enjoy their tax rates regardless of the revenue experienced in that country, then I think much more companies would do it. Going from a 35% tax rate to a 5-10% rate expands net income quite a bit. I'm no expert, and regardless of the legality of it, I think there is a material chance that the Government tries to crack down on tax dodging and although it may be legal now, make it illegal in the future. Even with no government involvement, EBIX's tax rates will go up as the NOL's run out and the Indian tax holiday ends. Therefore that must be modeled into current earnings, which some people that I've seen weren't doing.

 

I'll grant you that this issue isn't so clear on either side, unlike the auditor issue. It's also not a deal breaker in either direction.

[keerthiprasad]

I don't buy the tax issues.  They have actually structured an international company to appropriately manage tax liabilities. I think its ridiculous that the shorts have pointed out EBIX specifically when many larger and better-known corporations pay almost nothing in taxes.  Honestly, it probably doesn't matter because if the US government decides to do something about it, they will have to go after IBM, GE, Exxon, etc. first: http://www.businessinsider.com/12-companies-skating-by-barely-paying-anything-in-taxes-2011-6?op=1

 

I will admit that the auditor situation does not leave the best impression and is rather questionable.

[beerbaron]

I have decided to put it in the too hard to analyse pile. My best decisions were often my omissions...

 

BeerBaron

[mankap]

Ebix is selling cheap for a reason.The reason is doubts created by the seeking alpha article.Otherwise it will not be selling for a Cashflow yield of 10%.You do not get opportunities to buy such a company at such cheap prices every day.

You cannot fake revenue and other accounting nos. but you cannot fake cash. Cashflow is real and they have been using it for buyback and acquisition.

Ebix tax rate for last qtr was 9.8% which is higher than GE and many other S&P 500 companies.

Ebix gets 30% of its revenue outside US where tax rates are lower.They have tons of NOLS.So its tax rate will be <35% for a long time.The company has given guidance that the tax rate will be 10-12% for next 1-2 years.

The key is to weigh risk/reward ratio.What is the risk you are taking and reward you expect.

 

 

[bargainman]

http://www.fool.com/investing/general/2010/10/01/interview-with-ebix-ceo-robin-raina.aspx

 

Do a search for "auditor".  I'm not sure of all the details of the auditor changes but it doesn't sound so bad coming from the CEO's point of view (unsurprisingly of course...)

[Liberty]

I read that a while ago, bargainman, thanks for reminding me of it. Quoting part of it here for convenience:

 

So from my perspective, I think of the shorts the same way. They are making decisions for themselves. I would like to believe they are making the wrong decisions, but when you look at it, ultimately I have gone through some of the documents and so on, and one of the things that has been talked about is Ebix has had frequent auditor changes. That has been one of the main topics of discussion. The implication is that Ebix probably has had bad relations with their auditors. I will address that as directly as I can.

 

Who has been our auditor in the last, let's say, eight years? In eight years, our international auditor was BDO. What they don't remember is when we moved from BDO in the U.S. to another firm. BDO is still our auditor for six years-plus in all other countries where they were. If we had bad relations, BDO would not be our auditor in Australia, Singapore, Sweden, and so on. They are still our auditor.

 

Has another previous auditor, HA&W, had bad relations with us? I will tell you something which you probably don't know. The main partner on our account, with HA&W, just nominated my CFO Robert Kerris for the CFO of the Year in Atlanta Business Chronicle. That doesn't look like a partner who was unhappy with us. He was the partner throughout on our account. Also, HA&W still works for us. They do our FAS109, help us with FIN48, and so on.

 

Our present auditors, I think I will let them talk about it, but we have a fantastic relation with them. They recently nominated us for an exemplary client award. The website is ClientAdvisorAwards.com. So I think that was one of the topics that was talked about by the shorts.

[Guest Hester]

That was one of the most promotional "interviews" I've seen in some time.

"So Robin, you have obviously had some really extraordinary achievements. I am curious, as a younger person, how did you become you?"

 

"And you have obviously taken Ebix to incredible heights in just the past decade, and yet you also harbor this strong desire to do right by humankind and the underprivileged."

 

" I personally benefit from listening to that, and I think our members are certainly going to benefit from knowing what makes Ebix tick. We are always asking, what is Ebix's special sauce? Why is it so different and why has its performance been so good?"

 

"Robin that is just really commendable what you are doing. It is just fantastic."

 

It's amazing the composure the motley fool kept in the presense of such a god.

 

More on point, Raina's auditor argument really didn't add much. Copperfield already basically refuted this argument in their research:

 

On conference calls, the CEO has stated that some of these former accounting firms have performed non-audit work as evidence that his company is not an accounting fraud. We would remind investors that Arthur Andersen was not put out of business because of their consulting work at Enron or E&Y was not charged with fraud at Lehman because of their tax work, it was because of the audit practices and procedures (the sacred cow of the Big Four business). We believe it is well known that accounting firms are much more judicious selecting audit clients, and much less so with non-assurance engagements.

 

Raina also conveniently didn't mention KPMG, the largest of their many auditors, who resigned over "inadequate documentation for certain unusual transactions (including the basis for the Company’s accounting conclusions), and internal control matters," among many other things.

 

A roll-up with consistent acquisitons, a promotional CEO, who has internal control problems. I think I'll pass for now.

 

 

 

 

 

[Myth465]

Hester you appear to be on a roll, welcome to the board.

[Liberty]

Hester you appear to be on a roll, welcome to the board.

 

Indeed, welcome to our little club!

[given2invest]

Hester you appear to be on a roll, welcome to the board.

 

Ditto.  I really hope you stick around and keep posting.