Ebix, Inc.
Q3 2014 Earnings Call Transcript

Published: 7 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Ebix third quarter 2014 investor call. (Operator Instructions) I would now like to turn the call over to Darren Joseph, Corporate Vice President. Sir, the floor is yours.

[Darren Joseph:]

Thank you. Welcome everyone to Ebix, Inc.'s third quarter earnings conference call. Joining me to discuss the quarter is Ebix's Chairman, President and CEO, Robin Raina; and Ebix's EVP and CFO, Robert Kerris. Following our remarks, we will open up the call for your questions. Now, let me first 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 statement. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the 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. Our press release announcing the third quarter results was issued earlier this morning. The audio of this investor call is also being webcast live on www.ebix.com/webcast. You can look at Ebix's financials beyond what has been provided in the release on our website, www.ebix.com. The audio and a text transcript of this call will be available also on our investor homepage of the Ebix website after 4

[Robert Kerris:]

Thank you, Darren, and thanks to all on the call for your continued interest in Ebix. Q3 2014 diluted earning per share of $0.47 were up $0.13 or 34% in the third quarter 2013. For the purposes of the Q3 EPS calculation, there were an average of 38.6 million diluted shares outstanding during the quarter as compared to 38.5 million diluted shares outstanding in Q3 of last year. Assuming, we look at the impact of all purchases of stock made in Q3 of this year, as if they had been in place at July 1, the diluted share count would have been 37 million, implying that the diluted EPS figure would have been $0.49 or $0.02 increase over our reported numbers for the third quarter. As of today, the company expects the diluted share count for Q4 2014 to be approximately 37 million. Operating income for this past third quarter was $21.7 million as compared to $18.6 million of operating income in the same quarter of last year. Operating margins for Q3 were 43% as compared to 37% in Q3 of 2013. Normal lines operating margins in the third quarter, excluding the benefit of comparative increases of $1.7 million in year-over-year reductions to earnout contingent liabilities associated with prior business acquisitions, would have been 39%. In Q3 of 2014, our operating cash flow was $9.8 million, a decrease of $3 million or 24% as compared to Q3 of '13. This operating cash flow was affected by $11.1 million of cash outflow associated with the payment of income taxes, minimum alternative taxes, sales taxes and other certain prepaids. Before taking the impact of these unique cash outflow items, our operating cash flow would have been $20.9 million for the quarter. In addition to the above, the company made additional investments, worth $20.7 million in Q,3 towards share repurchases and dividend payments. After paying for all of these initiatives, Ebix still had aggregate cash, cash equivalents and short-term investments in the amount of $48.7 million as of September 30. This cash performance in our view validates the sustainability of Ebix's business model. Furthermore, as to balance sheet metrics as of the end of the third quarter, our net debt stood at $17.7 million. Our working capital position was $58.7 million. Our current ratio stood at 2.65. And our accounts receivable DSO was 68 days, an improvement of 3 days from the previous second quarter. As of September 30, the company has access to $137 million of additional borrowing capacity on our syndicated senior secured credit facility with Regions Bank, which combined with our available cash balances of $47.4 million provides Ebix with ample financial resources to support the continued profitable growth of the company, both organically and through accretive acquisitions and to repurchase shares of our common stock. The company announced today the payment of its next dividend of $0.0750 a share, payable on December 15, to common stockholders of record on December 1. Finally, Ebix's Form 10-Q will be filed this Monday, November 10, 2014. I will now pass the call to Robin.

[Robin Raina:]

Thanks, Bob. Good morning. Darren and Bob have already discussed the quarter in numerical terms. I'll focus my talk on recent acquisitions, the future and what we see ahead of us. Let me first address the topline area. In Q3, the company signed in excess of 230 new contracts and work orders in the United States alone. I'll focus my discussion on topline to certain key deals only. In the third quarter, we received a go ahead on a number of key deals on many fronts. In the area of broker systems, one of the top P&C brokers in the world, Willis, gave us a go ahead to implement our broker system in as many as nine new countries in 2015 and beyond. This project will require professional services and subscription revenues for the company. We have also agreed on a deal with another large super-broker, Aon, to deploy Ebix Evolution in 2015 across a large number of countries. Ebix Evolution is a SaaS-based on-demand broker system that have been in deployment for the last few years, and will replace our existing e.Global system in international markets. In the area of life and annuity exchanges, we agreed on deals with four large life carriers for implementing our TPP underwriting functionality in 2015. These include names like American Family, CUNA, John Hancock and MassMutual. We also agreed on a key deal to implement Annuity Maintenance Platform, AMP, for one of the largest annuity distributor at Jones and all their carriers. We believe that this will help trigger a network effect for the Annuity Maintenance Platform in the United States. We also signed a recurring end-to-end health E-commerce deal with Conifer to implement EbixEnterprise. This will be our third client on EbixEnterprise after IHC and Security Life. We expect them to go live in the first quarter of 2015. We finalized our partnership with Swiss Re to market our TPP underwriting exchange functionality jointly across the world to banks, finance institutions, mortgage and saving institutions, key retail outlets, et cetera. Swiss Re's underwriting guide is used by a vast majority of the life insurers in the world. I am proud to convey that Swiss Re have exclusively teamed up with Ebix to jointly create an underwriting exchange to be provided to the vast life insurance audience. This is a first exchange initiative of this kind in the world with the backing of giant like Swiss Re. Recently, MetLife online division went successfully into production on this joint initiative between Ebix and Swiss Re in a record time of six months. We expect that this initiative will have material meaning for us in the year 2015 and beyond. This joint initiative is being marketed and sold in the markets by both the sales teams from Ebix and Swiss Re. Recently, we had one of our largest exchange conferences in Las Vegas, where both MetLife and Swiss Re presented the successful implementation to a packed audience of carrier representative. Swiss Re Life and Health U.S. President and Managing Director, Neil Sprackling attended the conference on behalf of Swiss Re along with a few other senior executives from Swiss Re. At the request of our existing TPP clients, we also expect to start moving all our large TPP clients to the latest version of the TPP platform in 2015 and beyond. This should generate additional professional services and new recurring revenue streams for us in 2015. We are in the midst of a number of large recurring revenue exchange deals that can have a material impact on Ebix revenues in 2015. We will not talk about those at this time in detail, as we would be giving up on our competitive positioning, if we discuss those in this forum. Looking at the future, we're focused on ensuring that by the end of the year 2015, Ebix has a topline of $250 million to $260 million. It will be aided by all these initiative that I discussed, as also our acquisition strategy. There are three key products and services that will be at the center of our worldwide positioning strategy

[Operator:]

(Operator Instructions) And our first question comes from the line of Jeff Van Rhee with Craig-Hallum.

[Jeff Van Rhee:]

Robin, a couple of things. First, as you look at that forward guide, obviously it's for all of us, you've acquired VERTEX and you commented that it includes some assumptions about acquisitions as well. Can you just break that down as to help us with what of that is organic versus acquisitions versus acquisitions you intend to make?

[Robin Raina:]

Yes, Jeff, at this minute, I think that all I will say is that that's our target. I wouldn't break it up into organic versus inorganic. I think it's a bit early for me to do that. We're internally this is, we're putting a crystal ball in front of us. And I think we're pretty focused on making these numbers happened. I think I'll leave it at that for now. I think at the right time as we -- our intent first of all is to, as we go into 2015, our intent is to start traveling, doing more investor shows, meeting investors and as we organize more of these analyst meetings, investor shows, we'll try to break it up further into separate category. But right now, I'll just leave it at that.

[Jeff Van Rhee:]

Are you at a point where you can share with us, then on the VERTEX acquisition; I don't think there were financials disclosed? At least how much of that, obviously, is incorporated into '15?

[Robin Raina:]

Yes. I think I can't give you exact number of VERTEX purely. I think simply, because we have some kind of a confidentiality agreement wit them right now. So I'm sensitive to that. But having said that, I think you will see that as we go further, we will obviously have to break it up into pro forma numbers and so on, as we go into Q4 and we will obviously disclose that at that time.

[Jeff Van Rhee:]

I guess, then just shifting gears more to the operations, you mentioned 230 contracts in the U.S., alone. You rattled off a lot of big names and seemingly big wins. Can you help us better quantify and compare that to what you might have done in prior quarters? Namely, what was Q2? What was Q1 in terms of the number of contracts signed?

[Robin Raina:]

Jeff, the number contracts is not that we -- the number of contracts is a bit not relevant here in the sense that the number of contracts probably is at sync. I don't have a comparison right now to tell you what it was in Q2 or Q3. It's pretty consistent. The number of contract is not the issue, what I think the key, there have been some important deals that have been signed and I tried to focus only on those deals in this talk. And these deals, the reason I chose to talk about specific deals, which are relatively larger in size, which relatively have a lot of cutting revenue stream, have bigger revenue stream, as also these are projects that go on for a very long time. Our experience says, when we go into underwriting exchanges, especially with TPP, when we walk-in into a carrier, we're there for a very long time. With respect to one is to keep getting revenue, but the other that we also got a lot of professional services simply because carriers keep making changes on underwriting and we just stay there for a very long time. So my focus was to try and talk through the materiality of some of those deals, because those are going to be important for us. A lot of that will start though in 2015, because that's how the deals are. As also, I think the most material deal from my perspective that I wanted to talk through was Swiss Re, because that's a partnership, that's a selling partnership, that's a partnership to jointly work together purely where their underwriting guide, their ability to do what they do and they're the leaders in their field and then have our technology at the back and we team that up. And we've proven; both of us have proven together, that for example, the success of the recent MetLife initiative, by itself proved it that how we were able to do it in the record time. And so I think those are kind of things that I was trying to focus on right now in my discussion.

[Jeff Van Rhee:]

At this point, is there any update you can provide as it relates to the IRS, SEC, DOJ? You referenced it in your monologue that you'd like to enter next year much more focused without the overhang. Has there been any interaction, any more feedback? Any color you can provide us there?

[Robin Raina:]

I think on the regulatory front, I made a statement in the last quarter and I'll stick to that and that's about all I could say, we're not aware of anything more than that. So nothing has change. As far as IRS audit is concerned, I think this is an audit that obviously covered the period from, if I'm correct, it started from 2008 all the way till 2011. At some point this audit is going to finish. And as soon as it is finished, we are going to report it back to the market. And as of now, the company has nothing to report on that front.

[Jeff Van Rhee:]

And then I guess, Bob, as I look at the balance sheet and the income statement, some unusuals. You had the reversal, the earn-out, which also had $11.1 million in taxes. Just help me with the balance sheet. The other assets line was up notably; the AP and accrued expenses down, can you color in a little more what's going on there.

[Robert Kerris:]

So some of the key balancing fluctuations, when you look at where we were at the end of the year, it's where we are now.

[Jeff Van Rhee:]

I was talking more sequentially. Sorry. The sequential shifts in those two lines.

[Robert Kerris:]

Which lines again?

[Jeff Van Rhee:]

The other assets and the accrued, the AP and accrued expenses?

[Robert Kerris:]

Yes. Other assets went up because of some significant prepayments and some long-term software licenses. And AP and accrued liabilities came down significantly due to the payment of some significant sales taxes and income taxes.

[Operator:]

And it looks like we don't have any questions in the queue. I'd like to turn the call back over to Ebix for any closing remarks.

[Robert Kerris:]

Thank you for coming.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Have a good day, everyone.