Ebix, Inc.
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Company Representatives:]

Robin Raina - Chairman, President and CEO Ash Sawhney - President, Insurance Services, North America Steve Hamil - Executive Vice President and CFO Darren Joseph - Corporate Vice President

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Ebix Inc., First Quarter Financial Results and Investor Conference Call. At this time all participants are in listen-only mode. . I would now like to hand the conference over to your speaker today, Mr. Darren Joseph, Corporate Vice President of Ebix. Thank you. Please go ahead.

[Darren Joseph:]

Thank you. Welcome everyone to Ebix Inc. 2021 First Quarter Earnings Conference Call. Joining me to discuss the quarter is Ebix's Chairman, President and CEO, Robin Raina; President, Insurance Services, North America, Ash Sawhney; and Ebix's EVP and CFO, Steve Hamil. Following our remarks we’ll open up the call to your questions.

[Steve Hamil:]

Thanks Darren. We have and continue to operate in unpredicted times. The COVID-19 global pandemic continues to stifle economic activity impact to our businesses across the globe. India has been hit by the second wave of the virus in Q1, 2021 with devastating consequences and impact on the population, while Brazil is getting hit at present by the third wave of virus infections. The three countries that today are impacted the most by COVID-19 in terms of deaths, the U.S., India and Brazil are three of our most important markets. At Ebix we have had to deal with our share of pain as well, but the results that we have produced in the first quarter provide positive evidence that Ebix is prepared to survived this global economics seizure and thrive once our world returns to normal economic rhythms.

[Ash Sawhney:]

Thanks Steve and Darren. I will provide a summary of the Q1 North America results and updates on the outlook for full year 2021, which was recently discussed during the Q4, 2020 release. Our North America revenue was down by approximately $4 million sequentially as compared to Q4, 2020, because of a $4 million seasonal, traditional drop in the Continuing Medical Certification business in the first quarter of every year, and this sequential drop of approximately $1 million in underwriting exchange revenues. Offset to some of these were healthy gains in life and annuity and health exchanges. The remaining business units stayed steady. The medical certification business is cyclical in nature. Q4 tends to be the highest revenue quarter and Q1 the lowest. Each quarter in the year, then tends to report upward trends sequentially. We expect to continue the year-on-year growth for this division for 2021 with all the new initiatives we announced in the last quarter. The drop in underwriting exchange revenues is largely attributed to the slowdown in deliveries on projects due to the worsening of the COVID-19 situation in India. While we believe the slowdown is temporary, it may take a few quarters to come back to normal for this business unit, in light of the fact that we are still in the midst of the worst COVID-19 crisis in India. The life and annuity exchange grew 8% sequentially. This was a result of broad based increase in transactional volumes. March transactional volume in our exchange was the highest we have seen in several years. We are seeing this trend continuing in Q2. We also saw our health exchange grow by 14% sequentially. This was largely due to an increase in partner revenue during this period, which can vary from quarter-to-quarter. All the major business lines stayed steady during Q1. The risk compliance business added 10 new customers in Q1. Prominent among these were Rooms To Go, one of the largest independent U.S. furniture retailers; Keya Homes, they are the 10th largest private home builder in the U.S.; MWH Constructors, a global project delivery company; and Teal-Jones, the largest privately owned timber harvesting and primary lumber product manufacturing company in British Columbia.

[Robin Raina:]

Good morning everyone. I believe that Darren, Ash and Steve have captured the quarter in detail. Let me summarize by saying that these are unprecedented times and I'm pleased that Ebix has managed to keep its head high during such times and continues to deliver top line growth and healthy operating income numbers. It is no easy task to deal with the onslaught of issues brought in by COVID-19. Clients are delaying their new deal decisions. On site consulting related to product implementation is basically non-existent; staffing availability has been rather challenging; and a few product lines like travel, foreign exchange, e-learning, etc. are operating at 10% or lower levels because of the direct impact of COVID-19. As I sit here, relaying statistical performance numbers to you in terms of Ebix’s performance in the quarter, there is one thing that no statistical performance can answer for. In the last 30 days, we have lost 11 young employees forever to COVID-19 leaving behind their spouses, children and parents in despair for the rest of their lives. Let me read out an email from one of our Ebix software architects that captures the sense of the emotional roller coaster that our staffers are today dealing with. This email was written yesterday by one of our colleagues after the passing away of one of our Senior Software Professionals, Sudhindra a few days back to COVID-19. To quote certain excerpts from his letter, “12 years ago when I first got introduced to Sudhindra, he was curious and eager and explorative, and these are traits I never saw leave him. He would always come back. He would always come with a set of questions, keen to bounce ideas and have a pleasing flexibility to his mind ready to absorb and adapt. He did bring perspectives which showed that he had keenly applied his mind, but was never doctrinaire and ever ready to follow the evidence. I can never fail to remember the broad smile he brought every time he came around. Can’t even remember if he every frowned. Always jovial, always sharp, collaborative, always ready to take ownership, ready to help others, ready to broaden his perspective, ready to step-up, read to lead. Don’t remember anybody every having one complain to make about him. He was a perfect team man, elevating the energy of the team and driving everyone towards success. I don’t know what went wrong. Don’t know why he’s no more with us; don’t know why we could not save him from the one trouble he got into. It should have never happened. Don’t every let him leave your hearts. He was one our best and dearest colleagues and a close friend to so many of us. He will be a ringing void. I still feel I’ll be looking around for him. Can’t believe he’ll not be there anymore when I dial his number to check on something. This has been such a hard month for us, to see so many of our colleagues across divisions and locations, all young lives in full bloom depart untimely to this wretched malady. Our hearts go out to their families and let’s keep a close eye on all the others who maybe afflicted and do best – and do what best we can, so that we don't have to lose anyone anymore. We will miss you Sudhindra badly and thank you for all that you did for us.” I read this out as sometimes we get lost in numbers and don't a true perspective on the behind the scenes sweat and blood that goes into the fundamental of running an operation in such time and still delivering. I salute each of my employees across the world. I don’t have words to express my heartfelt condolences to the loved ones of the 11 employees we have lost to this pandemic. As a company, Ebix will stand up for each of these families in terms of some financial help. Also The Robin Raina Foundation has volunteered to fund the cost of educating the children of each of these employees through their graduation studies. We are painfully aware that nothing we do can ease the pain of these employees in any manner. I am quite proud of the Q1 2021 company results and feel good about the fundamental drivers that will take Ebix to the next level in coming years. In the short term, we continue to work through the targeted IPO of our EbixCash business in India. The next three short term steps in that direction are

[Operator:]

Understood. Your first question comes from the line of Jeff Van Rhee from Craig-Hallum. Your line is open.

[Jeff Van Rhee:]

Great! Thanks for taking my questions guys, a couple for me. I guess as I look at – Robin as I look at the EbixCash business ex the payment cards, brutal time in India with COVID and what's going on. Do you have any sense of how that business behaved sequentially, namely I think ex payments it was running, you know call it $30 million in Q3, Q4, maybe bottomed around $17 million in Q2. Obviously we're starting to lift our head here, but going to get hit again. Does it go as low as it did in Q2 down to 17 or 18 or just any sense of what happens there?

[A - Robin Raina:]

Jeff, did you say – is this question related to the payment solutions business or the overall business? I lost you somewhere.

[Jeff Van Rhee:]

It’s EbixCash ex payments, so EbixCash ex the payments.

[Robin Raina:]

Okay, got it. So look, our – if you take the payment business out, EbixCash actually grew almost 10% sequentially with respect to Q4. At the same time we are nowhere near where we need to be, partly because what has happened with the second wave of COVID infections, it’s been brutal in India. I mean, it's just beyond anything that I have ever seen. We are at a point where making travel is basically non-existent right now. Foreign exchange – we – so I don't expect any improvements in travel in Q2 – at least in Q2. However, I do expect some improvement in the foreign exchange area, simply because as vaccinations are starting to happen internationally, the students are going back to school and what that is prompting is education remittances. We are a leader in that market since we account for 30% educational remittances out of India, so we expect a lot of that business to pick up in Q2 and onwards. So presently, if businesses like – as countries like Dubai for example vaccinate, we will see our foreign exchange business pick up and so on, because we are getting ready to kind of deploy our platform in Dubai for example. So I think it is – we are clearly presently affected by COVID. So if you take the non-payment solutions areas, we expect to do steady state business in the technology businesses; we expect improvements in the bus exchange technology area; we expect improvements in the foreign exchange area. I expect a slight downward trend in the travel arena for the time being and I expect you know we have substantial improvements to continue in the payment solutions arena, so I think that’s where we are. Even in the technology businesses, what is starting to – what is hurting us a little bit in terms of – we should have shown a lot more growth in the technology businesses, but what is starting to happen is – and majority of our clients, our financial institutions are banks. So if we already have an order, a deal with them, and we are in the midst of an implementation, then we can continue clocking revenue or increase revenue. However, no bank is signing brand new deals until the situation improves, because this is not really a big priority for them to start laying down a new agenda for the bank. They don't think this is the right time to do it, so that is slowly impacting us that any new deals, all new deals have been put on hold. I'll give you an example, that even in the bus exchange arena, wherein we have been negotiating really substantial deals, that can really move the needle in terms of revenue and profitability, and many of these deals are with the Government of India, with state roadways undertakings, basically deploying, let’s say a platform, an e-ticketing, a bus from their platform for let’s say 38,000 buses in a particular state, just an example. And today what has happened is with COVID coming in, that's not anymore a big priority for the government. It is priority to the extent that if busses are going to apply then they will need that system, but right now busses aren’t applying. That's not a big priority for them, because they don't want to put people in buses. So that reality is those kind of thing. Budgets have been put on hold in these kinds of business areas. So the answer is a little bit complicated, because the ground there is – at present there is almost a complete curfew in India. If you go around India, Singapore is now starting to you know kind of close the country in a way, because they started – the number of impacts have started to increase. Indonesia and Philippines have never come out of the onslaught of COVID. So it has impacted all the Southeast Asian countries. You know nations. We do business in 44 countries from India. So it clearly has impacted our business, but I think the good news is the diversity of the business shows that we have kept most of these businesses outside payment solutions, our steady state. If you take – I mean clearly travel and Forex are directly related, and e-learning are directly related to COVID and I don’t see an immediate solution even in the e-learning area, because I don’t see how any parent would put a kid into school even if – look, the way vaccinations Jeff are going, the Government of India is basically claiming that they will be able to do the first level of close to 1 billion vaccinations by year end. What it means is, if they do 1 billion vaccinations by year end, that will virtually mean 500 million people vaccinated, because they are calling two vaccinations, the two doses as one, you know they are calling that. 1 billion means 500 million people, which means you have impacted 45% percent of the people. And so having said that, however if they can achieve you know even a decent number, even once they start getting to 25% to 30% coverage, I think it will have a dramatic impact on our business and on all businesses, simply because you know the hub – if they can even revolve the hub of these epicenter of COVID, which is in places like Mumbai, places like Delhi, then things will change. Delhi today is right now vaccinated. Today’s data is that Delhi’s vaccinated only, it’s 10% right. However there’s some positive news that has emerged in the last few days out of Delhi that the positivity rate is coming down. You know there are more availability of beds, which seems like positive signs, but we are far from a stage where I could tell you that, you know that India is starting to conquer the pandemic.

[Jeff Van Rhee:]

Great! And just one last for me. I think as it relates to the staffings, it sounds like you know pretty severe staffing issues. Just how much of a risk is it and you’ve obviously got some big projects in play, JP Morgan and others, and it sounds like you're going to do some things to get some people in there right away. Just talk a bit more about the staffing.

[A - Robin Raina:]

So Jeff, it was mainly in one city. Then there’s all kinds of reason, right, but mainly in one city, Hyderabad. We do not have any other issues. We don’t have any major issues in any other place. There will be issues, but we have been able to handle them. It’s mainly in Hyderabad, but that’s a very large development base for us and we have been making arrangements to handle that, so we should be able to handle it. I do not see that as a huge issue. It did have an impact on our revenues in Q1, but hopefully we will make up for a decent part of it in Q2 or for most part of it in Q2. We have made arrangements for that, so I do not – I wouldn’t read much into it in the staffing levels. At least in the – you know it’s mainly Hyderabad. We don’t have those issues in other development centers across the world or anywhere else in India. We’ve been able to handle all our hosting facilities, development operations, virtually everything. It’s only been in Hyderabad for all kinds of varied reasons.

[Jeff Van Rhee:]

Got it. That's it for me, thanks.

[Robin Raina:]

Thank you.

[Operator:]

Your next question comes from the line of Chris Sakai with Singular Research. Your line is open.

[Chris Sakai:]

Hi Robin! Good morning.

[Robin Raina:]

Hi Chris!

[Chris Sakai:]

I had a question regarding EbixCash’s M&A opportunities. I wanted to see you know if you thought this would be a good time in India to gain market share.

[A - Robin Raina:]

Look, that’s a great question. At the same time, thankfully I’ll tell you that we do not, right now we're not planning to do anything you know on the M&A side, at least on the EbixCash side in India. Now you could see us possibly do with something in the U.S., but again you know if we do anything we’ll think through it in a very sensible manner and so on. In India right now the part of the reason we don’t want to – we don’t want to take our eyes off the focus that we have today. We have – we are clearly wanting to head towards our IPO and as we head towards that IPO, if I make a – let’s say we’ve made an M&A today, what will happen is we need to file our DHRP. We need to get our number clear, our numbers audited and we have like two auditors doing the dual audio and whilst they did do the dual audit, we are going to file working with analysts, working with lawyers, we’re going to file the red herring document as we call it in the U.S., the DHRP document with the Securities and Exchange Commission of India. Now when you do that, when you make any acquisition it complicates things a lot, because it changes everything and it is not advisable, particularly from an investment banker’s perspective, to do anything and during the time when you’re making an acquisition, when you’re filing an IPO. It will complicate things. It is a lot of different – it will prolong the process, elongate the process considerably. So I wouldn’t right now, while I agree with you that there is still an opportune time and it’s actually a very good question Chris, because I will tell you what is happening today. If you look at the areas which are getting badly hit, which is travel and foreign exchange, the market is getting wiped off. Smaller players are dying. They are evaporating because they are not able to stand up to the onslaught. They are not able to retain their staffing levels and it’s happening in both travel and foreign exchange. So what is starting to happen is a lot of these players are out there. Either what we are trying to do, we are trying to just pick up this business, easy business. What I mean by that is, rather than making an acquisition we think this is an open opportunity for organic growth for us. So we are trying, keeping our eyes focused and trying to go after each of these opportunities, where in a particular company it’s starting to fold. A lot of companies have approached us in the present time, trying to – clearly wanting to come under the Ebix umbrella, partly but especially in the travel and foreign exchange sectors, simply because they are unable to fund the working capital, fund the employee costs right now. So having said that, it is normally a reasonable opportunity, but we also feel that what will happen as we come out of the COVID, that companies who were profitable, who have a profitable business are the only ones who will be able to keep their head high or you have to be very adequately funded by a fantastic institutions, because then that is also becoming difficult. For some of these players who are making losses, it is not easy to lineup a bank who will want to support a travel players or a foreign exchange player in times like this. So it is an opportune time also, but at the same time unfortunately we think that the best way to handle this is simply not making an acquisition from an EbixCash perspective, but simply trying to organically pick this business up by talking to each of these founders, each of these players, and seeing maybe there is an easier way to do this without even buying the business.

[Chris Sakai:]

Okay, great. So then I guess after the IPO would there be more opportunities for mergers?

[Robin Raina:]

There would absolutely be. Once you have an IPO and hopefully we are – hopefully we are able to generate a pretty solid amount of money and one of the users of cash would be to continue to fund our growth, both organically and inorganically, so absolutely.

[Chris Sakai:]

Okay, great. Thanks Robin.

[Robin Raina:]

Thank you, Chris.

[Operate:]

. There are no more questions at this time presenters, please continue.

[Robin Raina:]

Thanks Jeff. I think that brings us to the end of the call. Thanks everyone for participating in the call. We look forward to talking to each one of you during the second quarter 2021 Investor Call. With that, I’ll close the call. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.