Ebix, Inc.
Q4 2020 Earnings Call Transcript

Published: 30 Apr 2021

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Ebix 2020 Financial Results Investor Call. . I'd now like to turn the conference over to your host, Mr. Darren Joseph, Corporate Vice President.

[Darren Joseph:]

Thank you. Welcome, everyone, to Ebix, Inc.'s 2020 Annual Results 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 will open up the call for your questions. Now let me quickly cover the safe harbor. Some of the statements that we make today are forward looking, including, among others, statements regarding Ebix's future investments, our long-term growth and innovation, the expected performance of our businesses and our use of cash. These statements involve a number of risks and uncertainties that might cause actual results to differ materially from those projected in the forward-looking statements. Please note that these are -- forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements made today is contained in our SEC filings, which list a more detailed description of the risk factors that may affect our results.

[Steven Hamil:]

Thanks, Darren. Good morning. The last few months have provided Ebix with some challenges. But I've seen some incredible dedication and effort by our employees to overcome these challenges to complete the 2020 audit and the 10-K preparation. I'd like to thank all of our employees for their continued dedication to Ebix and especially those employees that have shown incredible work ethic and were directly involved with successful completion of our 2020 audit. Ebix continued to experience negative impacts from the COVID-19 pandemic during the fourth quarter of 2020. The company's foreign exchange, travel, remittance and e-Learning businesses experienced in excess of a 70% decline in year-over-year revenues during the fourth quarter of 2020, which is consistent with the third quarter of 2020 and an improvement from an approximately 90% decline year-over-year in the second quarter of 2020. Despite the negative impact due to COVID-19, the company delivered Q4 2020 adjusted EBITDA, adding back both noncash stock compensation and the Q4 impairment charge related to our EHAE joint venture, of $38.8 million, which is flat year-over-year and for which we are proud of in lieu of the challenges faced from COVID-19. For the fiscal year 2020, excluding the $6.2 million impairment charge recorded at EHAE, Ebix generated $150.5 million of EBITDA plus noncash stock comp. 2019 adjusted EBITDA, given how negatively COVID-19 impacted some of our key businesses -- I'm sorry, sorry, I apologize. While that is a 13% decrease from comparable 2019 adjusted EBITDA, given how negatively COVID-19 impacted some of our key businesses during 2020, this level of adjusted EBITDA speaks volumes as to the diversity of Ebix and the resilience of our solutions and services globally. Darren provided an overview of the revenue results for the quarter saw a focus on more details around the operating results. Gross margin in the fourth quarter of 2020 was 32.1%, a decline from 44.3% in Q3 2020 and 63.7% in Q4 2019. For the fiscal year 2020, gross margin was 45.1% compared to 64.7% in 2019. This decrease in gross margin in Q4 2020 and for the 2020 fiscal year was driven by increased sales of EbixCash's prepaid gift cards in India.

[Ash Sawhney:]

Thank you, Steve and Darren. I will provide a summary of the Q4 2020 performance for North America and the narrative of the accomplishments for the full year. I will also provide a perspective on the future outlook. I am pleased to say that we closed Q4 on a high note. Our North America revenues compared to Q3 grew by 6%. We saw strong contributions from our medical certification business as well as our P&C exchange, life illustration exchange and CRM exchange businesses. These were partially offset by a sequential decline in our health exchange, annuity exchange and underwriting exchange revenues.

[Robin Raina:]

Thanks, Ash. Good morning. I just want to start by acknowledging the efforts and sacrifices being made by Ebix employees across the world in these pandemic head times. While I sit here announcing these results, many of our employees are in ICU fighting life and death because of COVID-19. Two of our employees passed away in the last 96 hours. I'm painfully aware of the devastating effects of COVID-19 on our staff and their loved ones. India is presently in the midst of the worst phase of the pandemic, and it's rare now to find a family that is unimpacted by the disease in India. In spite of all that, business continues, and our employees continue to find ways to do their best for the company while ensuring that our clients get the top-class uninterrupted service that Ebix is known for. I'm highly indebted to our staff across the world for their services to the company. As we announce these results, let me remind you that Ebix has an incredible record in terms of consistency with 22 years or 88 quarters of financial performance to speak for itself. 2020 was no different with the company's consistency record impact both for the year and the quarter. The credit for this goes to the splendid effort put in by our 9,000-plus employees worldwide. I'm incredibly humbled by their effort. Despite the efforts -- despite the effects of COVID-19 on our businesses worldwide, I am pleased to be reporting another great quarter and a year for Ebix on many fronts. Our record top line of $647.5 million in constant currency revenues and $625.6 million in GAAP revenues. Record quarterly top line of $228.1 million in constant currency revenues and $222.1 million in GAAP revenues and annualized run rate that is approaching $900 million for the first time. Q4 2020 revenues grew 44% sequentially and 52% year-over-year. Full year operating cash flows of $100.4 million -- were $100.4 million as compared to $60.8 million in 2019. Q4 2020 non-GAAP operating margins were at 41.2%, excluding the lower-margin payment solutions business. This has been our 21st consecutive year of sequential growth. Let's remember, these results are in spite of our travel, foreign exchange, e-Learning, remittance and consulting businesses being impacted severely besides the overall delay in the pace of new deals being granted by clients on account of COVID-19. These numbers also exclude the additional impact of foreign exchange variations, which on a constant currency basis would have added approximately $6 million to our fourth quarter 2020 revenues and accordingly would have resulted in an additional increase in our income. Also, what was encouraging about the fourth quarter 2020 results was the fact that our revenues grew sequentially in most of the geographies of our business. India revenues grew sequentially by 65%, U.S. revenues had a sequential increase of 6%, Australia had a sequential increase of 23%, Singapore had a sequential increase of 18%, and New Zealand had a sequential increase of 15%. Brazil was the only country that had a sequential decrease of 8%. Except for India, all the geographical revenue increases were in the area of insurance exchanges, while India primarily means financial exchanges to us at present. Ash, Darren and Steve discussed the revenues and expenses in quite a bit of detail. So let me just talk about some of the COVID-19-affected businesses that can give us increases as COVID-19 effects reduce worldwide. Our revenues in the travel and foreign exchange area have been down approximately 85% because of the effects of COVID-19. In numerical terms, that decrease translates to revenue of approximately $180 million a year in the pre-COVID-19 period. EbixCash has been the undisputed leader in the foreign exchange sector in India. Foreign exchange business is driven primarily by international travel and educational remittances. Both have been severely impacted because of COVID-19. EbixCash has been the market leader in the overseas students segment, serving every fourth student traveling overseas for education purposes. We cover little over 32% of student market share in India. We have been tapping this segment through our association with all large educational loan providers, such as HDFC Credila, Avanse, Auxilo and InCred. That translates to $1.5 billion in transaction value as COVID-19 effects subside in the U.S. and U.K. These transactions will be back as student fees need to be remitted for them to study in these countries. We are payment processing partners for international payment companies, such as PayMyTuition, PaytoStudy, , Western Union and Global Pay. Recently, we added Flywire to that list. Also, we have deep association with regional and national educational consultants for processing university fee payment and student maintenance through our branches situated across India. While it is hard to draw a line in the sand, we expect the overseas education segment to grow at a substantial rate, providing us the opportunity to increase the market share by innovating payment solutions offering for the student segment. In line with our endeavor for innovating this student permit solutions business, we are in the process of introducing the digital Know Your Customer module for allowing customers to complete the KYC or Know Your Customer verification process online and to enable paperless transactions. This would enable us to improve the customer journey and increase our footprint in new geographies without having new infrastructure. In the corporate travel segment, we are the largest service partner to more than 100 companies in the Fortune 500 category, which range across various industries, such as IT, ITES, software services, manufacturing and services industry. The corporate segment predominantly uses the prepaid travel card as a convenient mode for carrying foreign exchange. The corporate travel card market is estimated at around $4.5 billion with EbixCash having a substantial share. We have been the pioneer for digitizing the corporate travel segment by introducing Forex requisition system for allowing corporate employees to book foreign exchange at their convenience, along with digitally managing the auto processing request. We have been servicing more than 900-plus multinational companies and large corporates and close to 1,700 plus mid-sized corporates with a regional presence through our foreign exchange network. Going forward, with the introduction of a prepaid travel card, we would be able to add more value in our proposition to the corporate. In the COVID-19-affected times, most of the smaller players in the foreign exchange area are finding it hard to sustain themselves, and the larger foreign exchange players have increased their percentage share of the market. EbixCash in recent times has signed an exclusive arrangement with Chennai Airport besides signing up new large corporate names, like Cognosante and TCS. We have gone slow in certain international airport opportunities as we prefer to wait for the international travel to become more normalized. Again, this could be a meaningful 8-digit revenue area for us annually once international travel resumes. We believe that our foreign exchange business is extremely well placed to possibly dominate the India market as the effects of COVID-19 subside. We see this as a matter of time. In the travel business area, we have spent the last few quarters focusing on automating our travel technologies further with a view to use digital means to increase our expanse, both in the B2B and B2C space. On a pre-COVID-19 basis, we have been a leading player in key international geographies, like Philippines and Indonesia besides India. As international travel resumes, we will be uniquely positioned with our technology to empower travel agents across all these geographies. Also, we have spent time in recent times to make our hotel technology better and more agile. All of that positions us well for the more normalized times than at present. In the area of remittances, we just added the entire 8,000 strong network of Muthoot agents to our MoneyGram remittance distribution network. We also added 13,000 Unimoni agents to our MoneyGram remittance distribution network. Both these additions are expected to significantly increase the remittance revenues. We are presently exploring the ability to bring digital transactions straight through from overseas into digital cards, e-wallets and plastic cards. That's a substantial revenue opportunity for EbixCash with our worldwide partners keen to work with us in this area. MoneyGram alone brings close to $1 billion in digital transactions annually to India that EbixCash doesn't have access to at present. In the area of transport management systems, EbixCash bus exchange technology initiative is focused on deploying end-to-end bus exchange solutions for bus roadways companies in India while powering integrated transport management systems across their entire portfolio of buses and bus depots. Recently, Ebix bus exchange division won the build-own-operate order to deploy and maintain one such solution across more than 2,000 roadways buses for the city of Pune. Each of these deals tend to be a multimillion-dollar recurring revenue opportunities. We are presently at advanced stages of many such deals that can contribute strongly to our numbers. Most of these deals have been delayed because of COVID-19 and the lack of bus travel. As effects of COVID-19 subside, this business will be back strongly as buses comprise the primary mode of travel in India and the bus travel market has been growing at an average rate of 27% annually before COVID-19. This is an area where a multiyear contract for just one state could mean $40 million in revenues. Our e-Learning businesses have also been affected quite adversely with schools closed indefinitely because of COVID-19. It has created an economic crisis for schools with parents not willing to pay fees during these COVID-19-affected days. Accordingly, schools have curtailed their budgets on e-Learning. This business will be back as schools resume and is thus a good future opportunity for us with our expanse in e-Learning across the country and our solutions that today address more than 16,000 courses prescribed by Indian government's National Counsel for Educational Research and Training, NCERT. Our BSE-Ebix joint venture for insurance exchange is another one large opportunity that, in a more normalized world, could be quite lucrative. In the area of insurance distribution, Ebix joint venture with Bombay Stock Exchange positions it as a gateway for insurance carriers to sell insurance to India's vast population, combining EbixCash 320,000 physical outlets across the country with BSE's strong national network. Basically, we want to sell insurance through any distribution outlet that has a relationship with the consumer and the last mile reach -- and use their last mile reach even if they have never sold insurance. We feel that we can make it succeed as we have 3 key ingredients already for it to succeed. One, the backing of a joint venture partner, Bombay Stock Exchange, with their reach of 300,000 terminals and financial brokers and institutions all across the country who can now sell insurance; two, EbixCash already has an existing outlet base of thousands of distribution outlets across 3,200 cities ready to sell insurance and it gives these outlets a new tool to maximize their income; three, insurance technology and functionality is Ebix core strength and an integral part of our DNA helical structure. That technology has been built for key product lines already, and we believe that this JV is well placed to embrace the opportunity ahead of it. Let me now talk through a number of things that we are focused on as a company. We are focused on continuing to reduce our debt, and towards that we made an additional $25.6 million in term loan payments related to our senior secured credit facility since 31st of December 2020. As of 31st December 2020, we have already paid our debt down by $31.4 million as compared to 31st December 2019. As of 31st December 2020, we had cumulatively spent $117.7 million on interest payments, tax payments, term loan payments, acquisition-related activities, dividends, earn-out payments and reduction of working capital facilities, et cetera, and still, our cash, cash equivalents, short-term investments and restricted cash were at $138.6 million as of 31st of December 2020 versus $112.7 million as of 31st of December 2019. We are pleased with that as it speaks to the fundamental strength of our businesses. We are now targeting the EbixCash IPO for the first quarter of 2022. Accordingly, we are now getting the process started, leading to the filing of the DHRP red herring document with the Securities and Exchange Board of India. We have already hired 4 of the leading investment banks in India, namely ICICI, Axis, Edelweiss and State Bank of India CAP, providing us a dream team from an India perspective. We are in the midst now of adding an international investment banker as the fifth investment banker. We are also soon hiring an international audit firm to serve as dual auditors for EbixCash going forward and for the EbixCash IPO. This will ensure that our EbixCash results are signed off by 2 audit firms of repute, one national and one international firm, providing further solidity to our IPO. Lastly, great companies do more than just creating great products and great services. They establish integrity, transparency and trust as their prime values. We have always endeavored to do that with our shareholders, our customers, our partners and our most priced assets, our employees. We are proud of the fact that Ebix has a strong record over the last 2 decades on that front. We may see crests and troughs in terms of perception. But finally, Ebix has always emerged fundamentally stronger than before out of every such perception event. I have always believed that to become gold, you first need to pass through fire. That has been the Ebix journey for me over the last 2 decades. In closing, I want to thank our customers, our partners and our employees for their continued trust in us and for contributing to an outstanding fourth quarter and just exceptional full year results. Thanks, everyone, for that. With that, I will now pass the call back to you, Angela, to open it up for questions. Thank you.

[Operator:]

. Your first question is from the line of Jeff Van Rhee with Craig-Hallum Capital.

[Unidentified Analyst:]

. On for Jeff. My first one, I guess, is for you, Ash. As I look at the North America business, the insurance exchanges was up, I guess, about $6.5 million sequentially. Just what all drove that? How much of that was JPMorgan related? And then on the RCS, that had about a little over $2 million decline sequentially. Just what drove that as well?

[Ash Sawhney:]

Sure. So the increase, Jeff, was in several different areas. I would say the JPMorgan impact has actually yet to set in. Just to give some context, we did a pilot launch in Q4. And Q2 is when -- Q2 of 2021 is when all of their carrier partners come on to the platform. That's when we start to see the incremental upticks. But remember, last year and the year before, we added many, many other customers to the platform, and it takes a little while for them to get onboarded and the transactions to start hitting. So we are seeing strong growth across many of our groups. On the RCS side, the core risk compliance business stayed steady. The areas where we saw a decline were mainly on the consulting side and that also in the noncore insurance consulting. We believe that business has flattened out. We added a number of new customers on the consulting side, and we expect that we'll continue to expand our relationships with them. The medical business, as I mentioned, it is cyclical. Q4 is historically a strong quarter for us, but this was exceptionally strong. Kudos to the team, we totally transformed the business. We have, like I said, drawn digital. We had the best quarter we've had in almost 10 years, and I see us continuing to build on that foundation that we have very successfully launched in 2020.

[Robin Raina:]

So to add to what Ash said regarding us, yes, I want to just emphasize, Ash, during his talk, talked through the Data Glove relationship, and we expect that to make a meaningful impact to our RCS revenues. Their relationship with Microsoft, they're a Microsoft partner. Their relationship can result in large deals, very recurring deals, which can give us additional sources of revenues from our existing client. It's a cross-selling opportunity. We see this as a possible game changer in the consulting market. So we do expect -- we have high expectations from that relationship.

[Unidentified Analyst:]

Great. Very helpful. Robin, I guess, the payments, the prepaid/gift cards business, I think, is probably roughly $130 million in Q4, if I have it right. And I know you expect the strength to persist in COVID. But just how -- what's the expected trajectory from here, Q1, 2, 3 and so on in '21 from that $130 million base in Q4?

[Robin Raina:]

Look, it's very difficult to have a crystal ball to predict what will happen. But I will tell you that until COVID stays, this business will keep going up. But once COVID subsides and the effects of COVID come down, I would see a reasonable decline in this business in terms of overall numbers. There is a spurt in the market primarily driven by -- I think there are a number of factors that have driven this increase. Some of them will go away, which is mainly the COVID -- effects of COVID, but then there are certain things that will stay. One of the factors was Government of India -- India is a very cash-based economy. One of the ways Government of India felt that they should encourage people to use prepaid cards was they allowed people to not do a KYC and launch -- and they introduced this concept of cards, which were below the value of approximately $130 where a consumer doesn't need to do a KYC. So what that did was, that really brought in a spurt in terms of people looked at those cards like cash. Having said that, one of the key factors that we draw people to use these cards was the usage of the -- where do you use these cards. Today, what has happened is, earlier if you -- India is an economy wherein if you want to pay your electricity or your telephone bill or your cable bill or for that matter, virtually, every utility in India, most of the utilities are -- in most of the cities are actually government-driven. In earlier days, people used to stand in a queue and pay their bills. And believe it or not, that was there till a few years back and then Government of India introduced this concept of make -- allowing people at -- to make these payments digitally. So today, people make these payments using these kind of cards, these gift cards at low values, even in lower-middle class can have these cards or low -- and an underprivileged could have these cards, and they use them digitally to make these payments to pay for their utilities, for their services, for the power, gas, electricity and so on. That really brought in a spurt in this business. So if I had a crystal ball, I would basically say that we -- this business will continue to be -- increase in the first quarter and possibly the second quarter depending on -- considering the effects of COVID seem -- don't seem to be subsiding in India at present, and India is going through the worst phase actually at present as I -- as we speak at this minute. But as I'm very hopeful that, look, the vaccinations are going to continue. It's a large country, but as vaccinations continue, I think the effects of COVID are going to reduce. And when that happens, we might see a somewhat downward trend. How much, it is very hard for me to predict at this minute.

[Unidentified Analyst:]

Got it. Very helpful. In the $6.2 million impairment charge in the EHAE business, just what drove that?

[Robin Raina:]

Look, it's -- we have a joint venture partner in EHAE, which is IHC. It's a publicly traded company, independent holding corporation. Their business has undergone a lot of changes. They were not only a JV partner, they were also a big client. So when we originally set up the deal, because they were a joint venture partner, the customer relationship for them was set up had an indefinite value. And that was the way it was set up on day 1 many, many years back. And the reason was simply because they were, at that time, 50% plus shareholder, right now 49% shareholder. And so it was -- it didn't seem sensible, not -- for them not to be using the product simply because they were the founders of the -- of EHAE, and we had just bought the business from them. However, a lot changed over the last especially last 1 year. And in fact, the trend started almost 2 years back that their business continue to evolve. And as they evolved, they changed the nature of their business, they started rethinking, they faced some challenges. It's not my place to talk about their challenges, but all I will say is it has all resulted in lower amount of business that they were processing with us. And so we had to make a call and we kept thinking that this is a temporary phase and it will improve. And that was the nature of our ongoing discussions. But we realized at some point as COVID came in that even if this business came back, it might be after a prolonged amount of time. So we felt that this was -- that we should take this impairment charge. And we took that impairment charge primarily because it was set up as an indefinite value. So we accordingly decided to take that hit in the fourth quarter.

[Unidentified Analyst:]

Got it. And then I just want to make sure I heard Steve correct earlier, the 10-K will be filed later today?

[Steven Hamil:]

That's correct.

[Operator:]

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

[Joichi Sakai:]

Just wanted to kind of ask about the, I guess, product mix going into Q1 and the margins. Are they going to be similar to what they were in Q4?

[Robin Raina:]

Look, first of all, we're -- I think it is not for me to right now predict Q1 because Q1 is already over. So it will be a pretty leading statement for me to talk about Q1, considering that, we're supposed to file Q1 soon enough. In fact, what we're planning to do is, presently, we are thinking that since we need to give our auditors, KGS, enough time to do the review, we might have to seek a 10B1 extension for a week or so. So I expect that we'll possibly file Q1, Steve, if I'm thinking correctly, by May 17. And if we had to do that, it is -- I don't think it's my place right now to be talking about a quarter that we've already finished. So I would rather have these results come out for Q1, and then you'll get a better picture of how we performed. Now if you want to talk about the future going forward, I think what is going to happen is that, for some time, we'll have a deal with the COVID impact. It's very hard for us to predict right now what is going to be the COVID impact because every day with COVID is a new day, right? And we feel that we have tried to bulletproof our businesses by -- we've learnt a lot in the last 12 months. We have -- we now know how to work from home. We already -- employees across the world are already successfully doing that. At the same time, we don't know what is next on the COVID front. Is it going to be improved dramatically? Is it going to be a downward spiral for some more time? I don't know. From a product mix perspective, look, our products -- we talked through our products in quite a bit of detail. Our products are what they are. Our margins, we are continually -- Ash talked through some of the newer initiatives that we are launching, some of the newer products that we are launching. I talked through the EbixCash newer initiatives that if COVID effects subside, automatically, your margins will go up simply because we'll have new revenue sources that we -- that have shrunk because of COVID. When you have those new revenue sources from travel, foreign exchange, e-Learning, increased consulting, not just in India, but increased consulting in Australia, Europe, U.S., Brazil, you will have increased margins. Now good news is, as if you look at our present margin structure, if I take that low margin, you talk through the payment solutions business, if you take that payment solutions business out for a minute, our operating EBITDA margins were very fairly high. I think if I'm remembering correctly, the non-GAAP EBITDA margins were around 41% plus, which is fairly good. And so our goal would be to keep it at those levels if we can and grow our revenue streams going forward. I think that's how I see the -- how we -- that's how I see the future happening for us.

[Joichi Sakai:]

Okay. Great. Yes, that's helpful. And then I just have one question on the new auditors. I don't know if you can say anything about this, but did the new auditors have a material effect -- or any changes on the statements?

[Robin Raina:]

Steve, you want to answer of that? A short answer is no, because then you would have seen that. But Steve, go ahead. Please answer this.

[Steven Hamil:]

I'm sorry, can you clarify your question? Do they have a material...

[Joichi Sakai:]

Effect on the financial statements between, say, what they were going to be and what they are now?

[Steven Hamil:]

Well, we only issue one financial statement and that's the audited financial statement. So we will be filing the 10-K this afternoon with an unqualified opinion from KGS, K. G. Somani, and I would certainly welcome you to read that. And -- but we had a very productive, cooperative audit with K. G. Somani. They had an immense amount of resources that were applied to the Ebix account, 3, 4-plus times the number that we would typically have on an audit because they were trying to help us get back into compliance and get our audit done. So if you want to follow up after taking a look at the 10-K when we file it, we're happy to do that, Darren and I are. But we only have one financial statement, and that's the one that's audited and filed with the 10-K.

[Operator:]

And I'm showing no further questions at this time. I would like to turn the conference back to Robin Raina for closing remarks.

[Robin Raina:]

Thanks, Angela. I think that brings us to the end of the call. We look forward to announcing our Q1 results possibly around May 17. And we will -- we look forward to speaking to each one of you during that investor call. Thanks, everyone, and be safe. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day.