Ebix Inc (EBIX) 2007 Q3 法說會逐字稿

Good morning; my name is Dawn and I will be your conference operator today. At this time I would like to welcome everyone to the 2007 third-quarter investor call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Today's call will be available for replay beginning at 1:45 PM Eastern Standard Time today through 11:59 PM Eastern Standard Time on November 7, 2007. The conference ID number for the replay is 229-75-618. Again the conference ID number is 229-75-618. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you. I will now turn the call over to Mr. Robin Raina, President and CEO of Ebix. Sir, you may begin.

Thank you. Good morning, gentlemen. Thank you for attending Ebix's 2007 Q3 investor conference call. I have also here with the Ebix's CFO, Robert Kerris, who recently joined us.

Our Q3 2007 results were announced a few days back. Let me summarize the results for you from our perspective. Q3 results were yet again record results, the best ever in Ebix's history in terms of diluted EPS. To compare these results to the same quarter last year or to the second quarter in 2007 would reveal to you that the Company has shown consistent growth over the last one year. Each of the three quarters in the year 2007 have been record results with each quarter beating all the preceding quarters in our 31-year history as a company.

On the face of it these results might look great to a new investor, but probably not as much to an Ebix investor who has followed this company for the last eight years or so. In the last eight years Ebix has shown a slow and steady improvement in its results with each quarter being a bit better than the previous one. Our model of management has been to create a fundamentally strong company that has recurring revenues, good margins and good cash flows while avoiding a high risk strategy even if at times in meant settling for lower top-line growth.

From my perspective Q3 of 2007 has been a good quarter since it marks the first time that Ebix has reported more than 30% net margins. In Q3 of 2007 Ebix reported 32% net margins, the highest ever in its history. Again, while Ebix has a history of not issuing guidance, yet we have always publicly stated our desire to grow our net margins to 30% and more. So towards that extent this has been a satisfying quarter.

The Company reported total revenues of $11.81 million for the third quarter of 2007 compared to $7.3 million for the third quarter of 2006, marking a 62% increase in revenues. Net income after taxes for the quarter rose 123% to $3.69 million or $1.00 per diluted share, up from $[1.66] million or $0.53 per diluted share in the third quarter of 2006 and earnings per share growth of 89%. Results for the third quarter of 2007 were based on 3.68 million weighted average diluted shares outstanding as compared to 3.12 million in the third quarter 2006.

The Company also reported basic earnings per share in the third quarter of 2007 of $1.13 as compared to $0.60 in third quarter 2006. The Company's operating expenses for the quarter grew by 48% to $8.09 million as compared to $5.47 million for the third quarter of 2006. The Company attributed the increase primarily due to the acquisition of Finetre in October and one additional reason is primarily the hiring of more resources across the world to support servicing our top-line growth.

Our year-to-date net income through September 2007 grew by 90% to $8.17 million as compared to $4.29 million for the same period in 2006; the nine-month cumulative diluted EPS for 2007 grew by 74% to $2.39 as compared to cumulative diluted EPS of $1.37 for the same period in 2006. So what caused the margin growth in this quarter?

As said earlier in previous investor calls, in the Ebix model of keeping a tight control on costs, increased revenue is likely to result in increased margins as is evident in this quarter. Revenues grew to $11.81 million as compared to $9.82 million in Q2 of 2007, a 20% growth, or $9.02 million in Q1 of 2007, a 31% growth, or 62% growth as compared to Q3 of 2006. As revenues grew net margins in Q3 of 2007 grew to 32% from 26% in Q2 of 2007 and 22% in Q1 of 2007 and 22% in Q3 of 2006.

What resulted in top-line growth in Q3 of 2007? It was simply normal organic growth with each of our divisions contributing to the increased revenue in the quarter. On 2nd of November Ebix announced the acquisition of California-based insurance VPO, Insurance Data Services. IDS is a leader in the certificate of insurance back end space. With a base in Hemet, California and 105 employees IDS complements our back end (inaudible) facilities in India. We expect the acquisition of IDS to be accretive to our results in the near and long-term future.

We funded this acquisition completely with cash generated from internal sources. While we are pleased with the results of this quarter, we see this quarter simply as another step forward rather than our destination. We are focused today on many opportunities -- cross selling our products across different markets; growing our presence in international markets; identifying newer acquisitions in markets where we want back door entries to establish ourselves; increasing our leadership space in certain areas to help launch newer products and services to that market -- while doing all this we are continually straightening our resource base around the world in addition to designing newer cutting-edge products that can keep us a few years ahead of our competition.

As always, the audio transcript of this and any of our previous calls can be heard and downloaded from the investor homepage on the Ebix site, www.Ebix.com. Also, I would encourage you to visit the comprehensive investor homepage on the Ebix site with a view to providing a one-stop place to analyze Ebix from an investor perspective. With that I'm going to hand it over back to the moderator to open the call for questions. Thank you.

(OPERATOR INSTRUCTIONS). [Jonathan Winer], private investor.

Two quick questions. The first is concerning the Finetre acquisition. You've announced a bunch of new productlines and especially with your new life insurance product wanted to know what we can expect as far as a growth rate in '08 versus '07.

Jonathan, that's a great question. Let me address it in two parts. First of all, yes, we did launch the product, LifeSpeed. The product is presently being restarted with one large carrier out of Atlanta who is presently in a -- it's presently being deployed at present. We expect the customer to be live in the month of December.

We do see this as a product that has a lot of promise for Ebix in coming days. And one of the main reasons for this so that you understand is if you look at the division that we call Ebix Life today, in Ebix Life we have a product called WinFlex. WinFlex is primarily a sales illustration software for the life insurance industry. Over a period of time WinFlex has become a kind of a standard in the industry with a few hundred thousand brokers using it, we conduct close to 12 million transactions on that platform every year.

Where WinFlex is primarily a sales engine for brokers to quote on multiple different carriers' business while presenting the carrier's plan in a very detailed manner -- it's like a (inaudible) the industry would say a one and three and then you get all these results -- one day rental and you get all these results. When we looked at Finetre (indiscernible) and the new product LifeSpeed this -- incidentally this product was built in India after we bought Finetre.

As we looked at it one of the attractive features for us, that we could now cross sell this product to our existing customers, existing WinFlex customers. WinFlex -- where WinFlex stops, LifeSpeed starts. So as you take the person through -- WinFlex is a presales kind of a tool whereas LifeSpeed is -- it takes the transaction from there and takes it to the end in terms of post the presale spot. So they perfectly complement each other. And as you converge the two products you get an end-to-end transaction.

So that was the value of it. So I wanted to explain to you that first spot or why LifeSpeed is a big deal for us. However, your second part is a bit more difficult for me to answer. We have traditionally not issued guidance in terms of reflecting what we can expect out of LifeSpeed specifically or in terms of revenue growth and so on. So I would hesitate to give you an answer on that.

However, I will suffice to tell you that if you look at our past we have continued to grow revenue from all of our acquisitions, from all of our divisions. And as we converge these two technologies clearly it makes a lot of sense for our existing insurance companies as well as some insurance companies who do not have this, to have both the products and carrier have an end-to-end transaction. So that's going to be our effort over the next months and years.

Okay, fair enough. I had one other question that was concerning the INFINITY division. You announced three new deals around August 13th; is it possible we could see some large deals like that in the future and is there the capacity to add on in that division?

It's always possible. Why only that division? It can happen in any division of ours. And we're always working on deals that possibly could generate that kind of revenue. Again, I'm not at liberty to say more than that at this time, but at the same time we did not see those deals as something spectacular. We did not see those deals as something that was extraordinary. This was just another deal for us. It is not that a whole organization had to suddenly start planning out how do we service those deals, they were normal deals which we're continuing to service, we've hired a few more people.

So it's really not a capacity issue. We can handle any number of deals today. This organization has a lot of bench strength, first in terms of knowledge, insurance knowledge, worldwide knowledge. Plus we call ourselves a learning organization and the learning organization comes out from the fact that we try and multiply knowledge all the time. We do not like our knowledge to be dependent on the few individuals.

So every time we take up a product or a service or a specific area of focus in insurance we try and multiply that knowledge. We even transfer a lot of that knowledge to a number of our facilities across the world so that we have multiple places to go to and we are not at risk because somebody leaves us and so on. So I think that's the bandwidth is there to handle large deals and hopefully you'll see -- hopefully we're able to bring the few of those deals out there and can report them.

Okay, great. Thanks a lot.

[Tom Teo], Opus Capital.

Congratulations on the excellent quarter. My question -- I have two questions. Number one, regarding your software licensing revenues, can you elaborate on your revenue model here as it compares to your services revenue? Out of the $2.5 million of licensing revenues this quarter is any of that nonrecurring? And also talk about the margins you've achieved in those software licensing revenues.

The second question related to margins?

Actually the second question I have is regarding the acquisitions that you see in the pipeline. Over the past two year it seems like you've achieved some very successful acquisitions with amount of cost of revenue synergies. And as you look into the future can you just talk about how excited you are that you might be able to replicate this?

Let me first address your first question related to the software licensing and whether it is recurring or not. Unfortunately the answer is no, it's nonrecurring what you saw in there. However, to give you an example, what you saw was us picking up a bit of software licensing revenue. Again we're a company with multiple divisions today. We typically like our deals to be more on the services side of our business; we are not big on selling software licenses.

We, in our school of thought, it is not necessary that software licensing always leads to higher margins. We believe once you cross the threshold level on the services side the margins actually are a lot higher. And a very simple example to you is if I have growth in exchange and that exchange is let's say -- let's say borrowing transactions were $10 million today, and now over the next few months we suddenly increase the number of transactions dramatically improves and first of all, the way the exchange model, the service model works it's mostly recurring. And secondly, there are a lot more margins. Because as your transactions go up it is not necessary that your costs have gone up because really the resources for servicing those transactions may not have gone up at all.

So we have discovered that services tends to be a bit more margin intensive in (inaudible). In terms of what you saw this quarter, you saw a few of the INFINITY deals where we sell basically -- it's not actually -- where we sell a part of the source code. The source code is primarily -- it's a limited source code for internal use and that's where we picked up some of the revenue. However, as you -- this came out of some of the deals that you saw in recent times, we reported those three deals.

As you know, even in those deals, since we have publicly announced those deals, we have talked about anywhere of revenue between $12 million to $18 million being picked up -- being hopefully picked up across 30 months. Now clearly you're going to see -- you have only seen the impact of some of the license revenue now; as we go further you're going to see a lot of impact on the professional services businesses side.

So I think you're going to see -- if I had to comment on licensing business, does it mean that there would be no more licensing? No, not at all. You are going to see licensing business but it is not -- in the licensing business you get POPs. So you don't really get -- it's not like recurring business. Your support becomes a bit recurring; with the license revenue there are POPs and even --. However, if I look back at the licensing, even on the deals that I just talked about, our tendency is to pick the license across the period of the contract based on a percentage completion. So really that revenue will be spread out.

What you saw this quarter was some of the (inaudible) POP that you saw. So that part is nonrecurring. However, as I told you, there is quite a bit of professional services associated with these deals which would be recurring every quarter so which was not picked up at all in this quarter. So that is the first answer.

The second in terms of acquisitions and where do we see it -- we have made as of now five acquisitions; we recently the IDS one. Our past history has shown that we have done a reasonable job of handling acquisitions, growing the revenue -- I think in each acquisition we have grown the revenue, in each acquisition we have grown their net margins. And we clearly see that is a tool to grow our business.

We also feel that we are a spread out organization for an organization our size today. We have close to 16 offices; we want to use that base. We already have these bases; we already are in markets in leadership positions. In certain niche areas we feel there is the ability to cross sell. However, we're going into certain markets or certain countries where we need to find back door entries, we need to become a local and at times -- to become a local you need to find an acquisition to first launch to get an entry into the door, but then you use all your existing products to cross sell to that customer base. And that's how you see some of our revenue going up and increase in revenue and so on.

So incoming bid, yes, meaning acquisitions are going to be a critical part of what we do. But you're going to see that we don't just go for an acquisition which doesn't make sense, it has to be extremely complementary to our business. It has to really converge into our technology. We have no desire to create a disjointed company with multiple -- with a disjointed company where there's little integration on technology or where there's no commonality on architecture.

Anything we buy -- if you look back at the first four acquisitions that we made, whether it was in Australia, whether it was in Park City (inaudible), whether it was Finetre or whether it was INFINITY -- everything today, there is commonality of architecture that has been driven and it is continually being driven. There is commonality of documentation being driven; there is commonality of standard being driven; there's commonality of operating systems being driven and there's commonality developers at times.

We have developers who work across four different things and there is commonality of common integrating forces within the Company from a technology perspective, a marketing perspective and so on. So we try and integrate all of these. So anything we do in the future, besides the fact that we want these acquisitions to be accretive, our strategy typically until now has been that we have wanted the acquisitions to be accretive, both in the near-term and the long-term and we like to generate a decent amount of cash on the acquisitions to try and also fund our future acquisitions. Still now it has worked well and we're hoping that it can continue to work well in the future.

Thank you.

[Michael Prouding], [ILK] Capital.

Michael Prouding with TNK Capital. Good morning. Congratulations on a good quarter. All my questions have been addressed. Thanks.

Richard [Lynhart], Opus Capital.

Thank you. Good morning, Robin, and congratulations on another great quarter. In the 10-Q two new big customers who I don't think we've seen in prior disclosures as being major customers were mentioned, HCC and Princeton. Can you give us any flavor for those customers? And in particular, if those are new recurring sources of revenue or if those revenues fall more into the onetime category?

Richard, you obviously missed on this one. We reported an 8-K some time back where we had talked about three deals totaling anywhere between $12 million to $18 million over the next two and a half years. The three deals were HCC, it's a large insurance company, publicly listed on the New York Stock Exchange; the other one is Princeton, again a reasonably large privately held insurance company; and the third one was [Right] Risk America. Between these three deals we had basically talked about a range of revenue between $12 million to $18 million being -- that we expect to happen over the next 12 to 18 -- possibly over the next 30 months. So that's already been reported. All three of these deals are in the area of carrier systems.

I did see the 8-Ki; I didn't recall it was those two that were mentioned.

Yes, they were.

They're part of the software revenue that you reported for the quarter, both -- I guess the major parts of those two are both in the software revenue reported for the quarter?

We just reported -- like I said in an answer to a previous question, we reported some of the fourth-quarter revenue only, we have not picked up anything in terms of licensing revenue and so on. Our intention is that will be picked up as the services -- as on a percentage completion basis, so you're not going to see any big bump, but it will be a continuous -- finally there's a -- as we've already reported in that 8-K, there's a decent amount of revenue to be picked up hopefully over the next 30 months.

Thank you and congratulations again on a great quarter.

(OPERATOR INSTRUCTIONS). Steven [Bier], [Bayer] Capital Management.

Congratulations on a great quarter. Most of my questions have been answered, but I would ask whether you might be considering a stock split given the stock is now $60 a share, triple from where it was a year ago?

Everything is on the table. I wouldn't say that we are not considering it. At the same time we haven't made any determinations. This is obviously a Board issue and we'll address it at the right time. That's all I could say at this time.

Thank you.

Mark [Linde], Wachovia.

Hi, Robin. Most of my questions have been answered with respect to the revenue pick up from the INFINITY deal. Could use discuss the just announced acquisition a bit?

You want me to discuss the IDS acquisition?

Yes.

I must say something first, I'll digress a bit and talk about a question that was asked earlier by Richard regarding two of the deals that we reported and their being substantial customers. One of the thought processes that we have brought within Ebix, and that is one of our processes that we have lived with in Ebix is we are a reasonably conservative management team. We like our results to speak for themselves, so we do not traditionally -- it doesn't mean that if these two deals had been reported, it's not that these are the only two agreements. These two deals were signed at the same time and almost on the same day and they became quite material and the lawyers told us that we must announce it and so we did.

At the end of the day we as a management team do not have a tendency of announcing every deal, large or small, that comes out. So I wanted to make sure that everybody understood that these are -- we do continuously sign deals. As a company today we are very well spread out, so virtually every day there is something happening in a very positive flavor and there's an increase in pipeline.

Coming back to your question regarding IDS, Mark. IDS, what intrigued us with IDS is IDS has a BPO for certificates of insurance. When you look at certificates of insurance, who are our end customers here? Our end customers would be the large entities -- any large corporate -- be it if you look at a client base today of IDS, it's a virtual who's who, whether it's a Home Depot or a Lowe's or a Costco or a Sears or JCPenney or a BJ's and so, you could go on and on. All these are customers today.

What primarily IDS does, once the -- it will handle the certificates of insurance for all these end customers in terms of ensuring first of all they are in compliance, that this is exactly what they intended to buy, at the end of the day they will renew their certificate of insurance and so on. So they've been paying the whole process. This whole thing is handled in Hemet, California where they have a call center, a customer relationship center, data entry center where there's a decent amount of data entry that is done. Besides the fact there's a pretty smart Internet friendly application, a complete Internet -- an application built over the Internet that manages it.

it's a very transaction oriented model. It's almost like a 100% recurring model. Every piece of revenue is recurring, there are no real POPs in this revenue, it's not that we get revenue and then don't get it; it's all 100% recurring. So what attracted us to this company was -- first, the recurring revenue base; two, clearly we see this as being accretive to us, to our shareholders; three, the customer base. At the end of the day if you're trying to address different pieces of insurance and if you're trying to grow your consulting base in insurance you want to deal with the corporates where there are -- with the large corporates who have large departments of insurance.

And in insurance today there are three pieces of insurance. There's the broker side of -- broker channel, there's the insurance company channel and then you have the consumer channel. This falls into the consumer channel. Today in the software industry if you want to address -- if you want to be true player you want to be ideally addressing all three. And then there is a lot of cross selling opportunity there. First of all (inaudible) of insurance, to give you an example, right now this company only sells in the U.S. and is presently only being used in the U.S. and there's primarily a leader in this market space.

However this has absolute relevance in other countries. To give an example, Australia. You could take this technology customize it a little bit and you could deploy it in Australia for example. So on day one (inaudible) there are other opportunities that this acquisition brings to the table. Not to forget the fact that we have India. India can help us bring costs further down from where IDS is today in many areas and so they will also help us grow this business. (inaudible) opportunities (inaudible) because of its size and within there being there we will be able to handle much bigger opportunities.

Also besides the fact, we also saw this as strengthening our BPO division. We want to be targeting we want to be targeting claims [inquiry] want to be targeting billing [inquiry] and so on. And again, this would be a good proof point to start from for our future customer base if you try to convince somebody that we want to be in the week and had do your claims needs we need to show them a pretty solid proof points of something that we do on a pretty large-scale and we thought this would be a good starting point to get in and grow this market segment.

I understand. Thank you.

(OPERATOR INSTRUCTIONS). At this time there are no questions.

Okay, thank you, everybody. I think we're reaching towards the end of the investor call. As I said earlier, the transcript of this call -- the audio transcript of this call will also be available; you can hear it on the number that the moderator just spoke of to you. The audio transcript of the call can also be heard on www.Ebix.com on our investor homepage; it will be a link on the front page another three hours from now. And as usual, I must say thank you very much and we'll speak to you at the end of the year now. Thank you.

Thank you for participating in today's conference call. Again, today's call will be available for replay beginning at 1:45 PM Eastern Standard Time today through 11:59 PM Eastern Standard Time on November 7, 2007. The conference ID number for the replay is 229-75-618. Again, the conference number for the replay is 229-75-618. Thank you. You may now disconnect.