Ebix Inc (EBIX) 2008 Q1 法說會逐字稿

Good morning and welcome to the first quarter investor call 2008 Ebix.com conference call.

At this time, I am turn the call over to Mr. Robin Raina. Sir, you may begin.

Hi, good morning, Gentlemen. Thank you for attending Ebix 2008 Q1 investor conference call.

I have also here with me, Ebix, CFO, Robert Kerris. Our results were announced a few days back. Our Q1 2008 results were announced some months back. Let me summarize those results for you.

Q1 2008 results were yet again record results. The best ever in Ebix history.

To compare these results to our results, you will see that the company has continued to show consistent growth. Each of the last many quarters has been a record result. With each quarter beating all the proceeding quarters in the 22 year history of the company.

Let me first spell out the results for those of you who may have missed the release or are going to have this call later. Ebix reported a total revenue of 16.64 million for the quarter compared to 9.02 million for the first quarter of 2007 marking an 85% increase in revenue. The company's operating income for the quarter rose 174% to 6.14 million as compared to 2.24 million in the first quarter of 2007.

Net income after taxes for the quarter rose 189% to 5.67 million or $1.40 per diluted share up from $1.96 million or $0.61, per diluted share in the first quarter of '07. Resulting in earnings per share growth of 130%. Results for the first quarter of '08 were based on 4.15 million weighted average diluted shares outstanding, as compared to 3.21 million in the first quarter of '07. Basic earnings per share in the first quarter of '08 rose 141% to 1.66, as compared to $0.69 in the first quarter of '07. The company's operating expenses for the quarter grew by 55% to 10.5 million as compared to 6.78 million for the first quarter of '07.

The company attributed the increase primarily to the acquisition of IDF (Inaudible) in November '07 and generally '08 respectively. So how do we at Ebix or I, personally, receive the results? From my perspective, these results are just another step forward. As the CEO of this company, I see my role as creating sustained, long-term shareholder value. Toward that extent this quarter is another small step forward.

My belief is that long term shareholder value can only be sustained if our business has a few key business elements.

One, we need to fulfill a business need in a manner that makes us almost the engine that follows fulfillment of that need. This engine -- this engine need not be in the forefront but it needs to be like a router or a network card in a network. Without which it is difficult to deploy a network. While building a network the focus is on deployment of network. The router and internet card are never discussed. As they are necessities that do not warrant a discussion.

We feel Ebix needs to follow actions in a similar manner with the need for Ebix services, ideally consider a (Inaudible) essentiality. That is where we would like to take Ebix. We have a long way to go before we get anywhere close to that objective.

Two, our revenue streams need to be recurring as much as possible. Ideally upwards of 90%. This goal is router linked to the first goal. If we are a powerhouse of transactions, then recurring revenues will be flow by themselves.

Again, we have work to do before we can get to that Mark. Currently our margins need to be consistently higher than 35%. On this criteria, we're doing okay at present. But we do not have enough of a history to say with confidence that we have achieved this goal or could say with absolute certainty that we could produce margins each quarter at more than 35%. We need to watch our costs rather carefully and balance that cost pressure with the right amount of investment in the future, so that we are investing in the future without taking huge risks.

We need to keep investing in innovation. We need to take our competition seriously and need to keep making consistent efforts to be a few years ahead of our competition in terms of technology debt to functionality and also, in terms of how we provide these services. This goal is more of a journey, rather than a destination.

Fifthly, the insurance markets world wide are fragmented, disjointed and need increased standardization in terms of service offerings. That is a rather difficult goal, but in my view, a huge opportunity. The fact remains there is no one dominant player in the insurance services market world wide, or for that matter, in the United States.

That's an opportunity that Ebix needs to go after by positioning itself as a player that can offer a wide range of services to the insurance markets under one roof, while converting services, regions and channels in insurance.

When I look at these five goals and evaluate Ebix today, it's a rather humbling feeling. As I realize, that we have a long way to go. And that we're just getting started. The good news from my perspective is that we realize how far we need to go. And that we made a lot of good starts.

Q1 2008 were challenging, since it was the first quarter of acquisition of our business. We are pleased with the fact that we know own an exchange in Australia that conducts approximately 80% of PNC E-commerce transactions in Australia. We see this as an opportunity to expand this exchange to smaller underwriters, insurance carriers and brokers in Australia, besides expanding the service offering to life, rating, reinsurance, etc. We are pleased with our integration success until now. Also, to the enthusiastic response by the customer base in Australia.

Q1 '08 was also the first complete quarter for our other acquisition ideas that we acquired in November '08. We have successfully moved a majority of idea development to India and are pleased on all fronts related to this business right now.

Sufficient to the quarter end, we acquired one of its competitors, Portland Michigan based (Inaudible). Our intentions are clearly to consolidate the insurance that it gave the insurance industry, and create economy for scale, that are good for us, and also for our customers. Our business is cutting into walls and strengthen with each quarter. We expect 51% of our revenues in '08 to come from exchanges, 27% from brokered systems, 11% from carrier systems, and 11% from BPS. Our exchange business continues to evolve.

We conduct almost $36 billion in annuity premiums annually now on annuity exchange. We conduct an excess of 12 million transactions annually on our life exchange now. And, of course, as I said earlier, we conduct 80% of property and casualty e-commerce transactions in Australia now. We are currently deploying exchange for property and casualty in New Zealand and so on.

We need to evolve the EbixExchange name world wide and deploy such exchanges in Europe, Asia, Africa and increase our range of services in the United States.

So what is next? We are looking to expand our exchange offerings, billing inquiry, consolidation of the tracking market. Make an entry into the employee benefits arena. All of these individually allowed opportunities, and we intend to pursue each of them.

I'm increasingly being asked nowadays how we see our recent stock price increase, and the possibility of a stock split. The answer to that question is rather simple.

We need to keep everything in perspective. In 1999 this company had a history of not having a single profitable year, in its 23-year history of existence at that time. In spite of that history, and a $19 million loss that year, the stock price in January 1999 was $16.41. That generally 1999 price translates to a stock price of approximately $131 post split, since we had a 1-to-8 reverse split in August 2002. As I see it, our results today have dramatically improved. But our stock price presently is still a lot lower than that price of $131 which we had in 1999 with Ebix having a loss of $19 million that year.

So if you were in my place, I'm guessing, you could not be enthused by the present stock price and you would be quite careful and you would be thinking of the investors who made that investment in the pre-1999 period, since those investors still haven't had the return that they deserve.

As regards to the often-asked question about a stock split. It has to be valued by any board, especially the Ebix board, since Ebix has had two reverse splits in the past.. 1 to 5 in May 1998 and 1 to 8 in October 2002. And the board could consider the possibility of gradually reversing what was done in that era. Let me ask, at this point, a split is just a possibility. Like not doing a split is a possibility. We will address this issue as a board, one way or the other soon.

We're focused today on many opportunities. 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 new products and services to that market. While doing all this, we have centered our resource base around the world. In addition, to designing newer 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 home page on the Ebix site, www.ebix.com after 2:00 p.m., Atlanta time, today.

Also, I would encourage you to visit the comprehensive investor home page on the Ebix site with a view to providing unstopped plays 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) Your first question comes from the line of Richard Lenhardt of Opus Capital.

Thank you. Hi, Robin. Congratulations on another great quarter.

Thanks, Richard.

Looks like with the recent stock repurchases and issuances, that you may be getting close to bumping up the limit on the revolver facility, I'm wondering if you can tell us anything about future financing plans going-forward given the fact that you've been an inquisitive company and opportunistic in that regard, and probably have not gone deep for capital.

Thanks, Richard for your question. I think at this point all I could tell you is that, you know, all our options are out there and on the table.

Meaning we can always increase our credit line .We have a number of banks who would be keen to help us do that. Rates are good at this time so that's always an option which we are looking at.

And, of course, decent amount of cash every month, so that's also helping us. So in terms of funding our future growth, there's all kinds of possibilities, and one of them is clearly to increase our credit line.

Okay. Thanks, Robin.

Thank you.

Your next question comes from the line of [Vincent Caposi] of [First Montauk Security].

Hi, Robin. Thank you for a beautiful quarter that you just had.

My question is basically similar to the first question. I see that you have a negative working capital situation. And I would imagine that you -- I mean, I don't know, but over the last -- I mean, over the next quarter or two, do you plan to pay down some of this debt, or do you still think you can acquire companies in the next quarter or two.

Well, I could not for specifics give you an answer and say, yes, we're going to acquire a company in a quarter or two.

But I will tell you this, that we are actively looking at some acquisitions and we think we have -- we do have -- we think we have the means to be able to fund these acquisitions, between the cash generation abilities that we have, and also between an increased credit line we are able to -- we would be able to fund it.

Okay. Now, also I see that you have 20 million dollars worth of debt on your balance sheet. I'm assuming that's convertible bonds?

That's going to convertible debt, as you said.

Can you tell us what the interest rate is and what the strike price is.

Interest rate is 2 1/2%, and basically the way it is, it was taken at a price of $63.40, I believe. And pretty much once the stock trades above -- I believe it was 80 something is the price. If it trades for more than an X amount of time, I can't recall the amount of time. Once it trades beyond that price for X amount of time, it is exercisable. But beyond that it does -- it's got a two-year coupon on, and they have a choice to excite or not.

As you can imagine, it is a decision they will have to make with price presently being a lot higher than what they took the price at.

All right, so you feel that you're -- your cash this quarter was less than your net income, you feel that your cash flow is so good that the debt on your balance sheet isn't a problem?

Cash volume is a timing issue. We just made a large-size acquisition. Meaning, we made one of our largest acquisitions ever.

When you make an acquisition of this size, you immediately put your cash cycle immediatly in place until the collection of money takes a little bit of time. That is what you see, it's timing. So otherwise, this has been a pretty good quarter from our perspective.

Okay. Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Dave [Copis] of [Operwide].

How are you doing, very strong quarter.

Thank you, Dave.

I just had a couple questions for you.

Can you talk a little bit about the integration process is going, relative to what you expected going into it, or relative to some of your previous acquisitions? And then, I don't know if you can give contribution from them in the quarter or just trailing numbers, like revenues and margins?

I could talk in general terms, but to the effect of Telstra eBusiness -- we walked in to the Telstra business as basically to make sure it was accretive on day one.

We wanted to -- we saw a -- we've already announced the previous numbers, you know, what they used to do in the past. Some of it was a bit -- I would like to say misleading in the sense that business numbers, in the sense that some of the funding for the transactions are not really -- there was no cost associated with those. So really their income - from what was presented in the previous years, was a bit lower. However, we remain quite bullish about Telstra eBusiness, now called Sunshine Exchange. Actually called EbixExchange Australia now.

We remain quite bullish about it. We see it as an opportunity in terms of launching some of our newest services like the life - in the life area and the rating area. Expanding the -- where they were failing in the past is they have concurred the market. But they were defining the market. They were setting the market. So the market size has to be expanded. So why was the market size not expanded?

The market size was not expanded because they made it into the Rolls-Royce in the market. Smaller insurers. Smaller underwriters could not afford it. And the technology was built in that manner. And what we had done, we had built our own technology which could basically, was a lot more cost effective - is a lot more cost effective, can be deployed with some of the lower tier of the market. So if you combine that product with what we have built with what they have built, and now combine it together, you suddenly have a much more expanded market offering. Also, it helps us broker more systems. It potentially should help us sell carrier systems, launch newer services, because we will have a decent size of the market.

So Telstra from perspective of Q1 '08 was definitely strongly accretive. We have not declared any specific numbers on Telstra eBusiness persae, because the way we integrate some of these businesses, we immediately integrate them pretty tightly into our existing operations in Australia, and basically have put them together.

There's a bit of cross kind of pollination in terms of revenue, with those types of -- present Ebix Australia and EbixExchange. Because you give up on something, and take something and so on, and however, I would suffice to say that Telstra eBusiness has been strongly accretive for our shareholders in this quarter.

Okay, great. Great. Thank you for the detail there.

And one other question on the -- you had a really strong operating margin in the quarter and I'm just curious what the integration of Telstra - with the goal you gave with breakdown of revenues for the year, combining that with investments you're going to make for the business, how sustainable is that?

Well, operating margins is -- our goal has always been to be at a 35% or more higher number. Now, how sustainable is that, I think only time will tell. I could not. We have a history of not giving guidance or guaranteeing anything. I will not hesitate to give guidance right now or say with absolute certainty. I will however say that our goal remains at 35% or higher. We do expect - you see in coming days, it's a balance you draw in. One one side, you want to expand the business, on the other, we will keep reducing costs, meaning as we -- as India gets more in the mix of this. The costs are bound to go down a little bit. They're bound to go down as some of the development starts moving out there.

So -- but at the same time, we intend to make sufficient investments in Australia to make sure that we can expand the market size sizably. So we'll have to walk that line in a very balanced manner. Our goal, as always, remains to produce margins of 35% or more -- I will - what our future will tell, whether we actually achieve it or whether we beat that.

Okay, well, great job on the quarter, thanks.

Thank you.

Your next question comes from the line of Dave Hagar of Kennedy Capital.

Thanks, the E-business, did that have -- the revenue cover the entire quarter or it was a partial quarter?

No, it was a complete quarter.

And then as far as other markets, sounds like you have a pretty strong platform now established in Australia.

Is your goal to do something similar like in the European market and potentially in the Asian market? And are you seeing potential acquisitions that could help you establish a foothold in some of these other markets?

Dave, thank you for a great question, actually. You see, first of all in the Australian markets, meaning we own, 80% of the broker desktop. There is -- we see huge opportunities in Australia.

Let me tell you one of the opportunity that is we see. In terms of a new look at these insurance companies for whom we are a strategic partner now, because we provide the markets to reach out to the brokers to sell their services. And clearly, it's a very strategical relationship on both sides. We feel we can expand this relationship in sizable numbers, in terms of revenue for us, and by launching consulting services in Australia. So one of the key initiatives that we have taken up in the last three months in Australia, is to launch a consulting focus group - a very strong effort of trying to go after the consulting business with some of these insurers in Australia.

We feel a big opportunity in the consulting and BP Arena, and Australia. Besides, clearly expanding the exchange and so on. To answer your second part of the question. To give you an example, we have presently deploying an exchange in New Zealand in our plant.

We are working with a few insurance companies. It's not a large market in New Zealand but there are mainly 4 large insurers. We have basically teamed up with all of them to build an exchange. That's one of the things that we're presently at this minute building. And we expect to deploy that at some time this year.

In terms of Asia and Europe, there are huge opportunities, especially in Europe to start with. We feel that lots of opportunities in the PNC Arena, the life arena in Europe. However, that opportunity, as you lightly said, has to be through an acquisition. You can't suddenly walk into a market and start building exchanges from scratch.

We'll have to find a back door entry. So clearly, that's what I meant when I spoke about in -- as I was speaking I was talking about EbixExchange name being evolved all across Europe, Asia, Africa. That's our -- it's going to be an extremely strong effort from our side. In terms of evolving the similar look -- we replicated Australian market basically, given a choice all across the world. It's going to take a lot of effort and that's what we intend to take up.

Are you seeing any potential targets that might allow you to get that type of foot hold in the European market?

Yes, we do.

We obviously can't talk about names there But yes we do see -- we do see opportunities in European markets that do arrive. European markets is a gain or -- in the sense that there is no one solution that would give us dominance in Europe.

It would have to be a country specific approach. Have you to look at what other countries are there. Insurance is a major part of the economy. Their transactions would be large, and those are the countries you want to target. And in those markets, in each of these markets, there are are exchanges that will be very interesting to us.

Okay, thanks.

Thank you, Dave.

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

Okay. At this point since there are no questions, we'll finish the call for today. Thank you, everybody. For being on the call, as always, we'll look forward to speaking to you next as we announce our second quarter results. Thank you, everybody.

Thank you for participating in today's conference. You may now disconnect.