Ebix Inc (EBIX) 2008 Q3 法說會逐字稿

Accented speaker caused some inaudibles in transcript. Transcript is best product.

Good morning. My name is [Patrick], and I will be your conference operator today. At this time, I would like to welcome everyone to the Ebix 2008 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)

Thank you. Mr. Robin Raina, you may begin your conference.

Thank you. Good morning, gentlemen. Thank you for attending Ebix's 2008 Third Quarter Investor Conference Call. I have also here with me Ebix's CFO, Robert Kerris.

Our third quarter 2008 results were announced today morning. Let me summarize those results for you from our perspective.

Q3 results were yet again record results, the best ever in Ebix's history in terms of all three measures -- diluted EPS, net income, and revenues. To compare these results to the same quarter last year or to the second quarter in 2008 would reveal to you that the Company has shown consistent growth over the last one year. Each of the three quarters in the year 2008 have been a record result, with each quarter beating all the preceding quarters in our 32-year history as a company.

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 health] of management has been to create a fundamentally strong company that has recurring revenue streams, good margins, and good cash flows while avoiding a high-risk strategy even if at times it meant settling for lower top-line growth.

From my perspective, third quarter of 2008 has been a good quarter since it reflects the fundamental -- since it reflects the fundamental strength of the Company in terms of its ability to weather storms like the recent -- sorry, from my perspective, Q3 2008 has been a good quarter since it reflects the fundamental strength of the Company in terms of its ability to weather storms like the recent financial crisis.

The fundamentals of our business remain strong, with revenues split across hundreds of customers. In the year 2008, no one customer is expected to account for more than 3.5% of our revenues. That fact, coupled with our position as an infrastructure player, with high recurring revenue streams insulated us to a large extent in the third quarter from the fallout of the financial crisis.

In the third quarter of 2008, Ebix reported 37% net margins, the highest ever in its history. This margin compares well to the 31% net margin in third quarter of 2007, or 36% in second quarter of 2008.

Again, while Ebix has a history of not issuing guidance, yet we have always publicly stated our desire to keep our net margins at level of 30% or more, so towards that extent, this has been a satisfying quarter.

The Company reported total revenue of $20.17 million for the third quarter of 2008, compared to $11.81 million for the third quarter of '07, marking a 71% increase in revenues. The third quarter 2008 revenue of $20.17 million compares well to the $17.8 million revenue for the second quarter of 2008, marking a 13% increase.

Net income after taxes for third quarter of 2008 rose 100% to $7.4 million, up from $3.69 million in the third quarter of 2007. Net income for third quarter of 2008 rose 17% over second quarter of 2008, net income of $6.34 million.

The Company's post-split diluted EPS for third quarter of 2008 rose 88% to $0.62, as compared to $0.33 per diluted share in third quarter of '07, adjusted to account for the split. The Company's post-split diluted EPS for third quarter of 2008 rose 15% to $0.62, as compared to $0.54 per diluted share in the second quarter of 2008, adjusted again to account for the split.

On October 9, 2008, Ebix implemented a 3-for-1 split of the Company's common stock and in the proportion of increase, in the number of Ebix common shares. Accordingly, results for the third quarter of 2008 were based on 12.17 million full split weighted average diluted shares outstanding as compared to 11.04 million weighted average diluted shares in the third quarter of 2007, adjusted for split.

Just for clarity purposes, in case Ebix had not undertaken a stock split, Q3 2008 diluted EPS number would have been presented as $1.86, 1.86, versus 1.62 for the second quarter of '08 or $1 for third quarter '07.

The Company's operating expenses for the quarter grew by 49% to $12.05 million, as compared to $8.09 million for the third quarter of 2007, an 11% increase, as compared to the $10.9 million for the second quarter of '08. The increase in Q3 2008 expenses over Q2 2008 expenses is primarily due to the cost associated with acquisition of Pittsburgh-based employee benefits companies Acclamation, Inc. in August of 2008.

Year-to-date net income through September 2008 grew by 137% to $19.4 million, as compared to $8.17 million for the same period in 2007. The nine-month cumulative diluted EPS for 2008 grew by 106% to $1.65 as compared to cumulative diluted EPS of $0.80 for the same period in 2007.

We are pleased with our ability to continue generating sizable cash in a recurring manner. The net cash provided by operating activities grew by $8.63 million in the third quarter of 2008. The net cash provided by operating activities at the end of nine-month period ending 30 September 2008 was $19.36 million, as compared to the net cash number provided by operating activities of $10.66 million at the end of the six-month period ending 30 June 2008.

We are pleased with these results as our financial results could have even looked even better if the US dollar exchange rates had remained relatively constant as compared to second quarter 2008. The sudden strengthening of the US dollar had a negative impact on our consolidated revenue streams to the tune of around $400,000 in third quarter of 2008, as compared to second quarter of 2008 in Australia alone.

The recent stock split was a sign of our faith in the Company's fundamentals. It was also an attempt to increase liquidity of the stock in the markets. I am often asked lately about the recent price drop in Ebix stock. In spite of the financial turmoil having a negligible impact on the Company, I have always believed in the dynamics of the stock market and carry an inherent belief that over the long term, the market value of the Company finally for what it is truly worth.

Towards that extent, while I care about protecting investor equity, yet as a management theme, we do not obsess about the stock price or make decisions based on where the stock price is. Instead, as always, the Ebix management team remains focused on building a fundamentally strong company with recurring revenue streams, great margins, and an infrastructure business that, hopefully, one day can become the largest insurance software services business in the world.

So what is next? The current turmoil in the economy, and especially the financial markets, is reason to be concerned for some and reason to be cautiously opportunistic for some. Whether the glass looks half full or half empty depends on the eyes of the beholder.

I'm reminded of what Warren Buffett recently said, and I quote, "A simple rule dictates my buying. Be fearful when others are greedy, and be greedy when others are fearful."

I believe that the present time is an opportunity to make good accretive acquisitions at opportunistic costs. With our ability to generate recurring strong cash flows, it would be a good use of our cash to make opportunistic acquisitions in the current fearful climate.

While we are pleased with the results of this quarter, we see this quarter simply another step forward rather than a destination. We remain focused on many opportunities -- cross-selling our products across different markets, growing our presence in international markets, identifying newer acquisition in markets where we want back-door entries to establish ourself, increasing our leadership space in certain areas to help launch newer products and services to that market.

While doing all this, we are continually strengthening 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 home page on the Ebix site, www.ebix.com.

Also, I would encourage you to visit new comprehensive investor home page 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)

[Vincent Caposi].

Congratulations on a great quarter.

Thank you, Vincent.

I wanted to ask, with the credit crunch that's happening worldwide and your company a lot of times have no part of the acquisition costs of your companies that you're acquiring alone, are you going to find it any more difficult now to try and borrow to acquire companies?

Well, I think it's a great question. Let me answer it in two pieces.

First of all, we're generating sizable cash flows. To give you an example, I [talked through] a number of I think $8.63 million in operating cash flow that we generated in the third quarter alone. So as of last -- as of 30 September, I think we had $13.26 million of cash in the bank. And keep in mind, we continue to generate cash virtually every month.

So, first of all, we have good cash flows within the business alone which are there.

To top it all, I must tell you while there is a credit squeeze, we don't honestly see that. After the -- to give you an example, after the financial crisis that happened, we have had bank approach us at pretty similar rates to where we were on -- as you know, we presently have a line at LIBOR plus 130. We have been offered pretty -- a substantial increase in our line at almost the same rates, other times lower, and that's been -- we don't presently have a need to borrow. If we do have a need to borrow, there are resources available to us, so we don't really see it being a crunch situation for us.

Okay. Now, one other question. What's the main reason that makes your income recurring? Is it the long-term contracts?

No, the main reason it makes it occurring is we are in a -- look at it that way, that a very sizable portion of our business, almost, I think, 59% this quarter, was exchanges alone. So if you looked at that, we -- how do we get paid? We get paid based on transactions. We have minimum-volumes commitments that clients give us so we have a showdown that these clients -- you know, we give them [slabs], and they have to pay us based on [slabs]. So it depends on every customer has a different deal on exchange. It can be. But the motto is very transaction-oriented. As long as insurance companies are in business and they have to be clearly, while the financial turmoil can happen, they're not going to stop doing business, and they have every reason to try and grow their business, and at the end of the day, transactional [development is recurring] revenue streams. That's the first thing.

Then in terms of products that we used to license, those products over a period of time have created strong support recurring revenue streams, which are deals where people have -- people commit to us over X period of time. Like you said, the deals could be five years, could be three years, could be anything, where people have -- give us monthly money based on what we do for them.

So it -- there's a number of things that lead up to the recurring revenue streams in our business. We are an infrastructure player, meaning you have to keep that in mind. We -- most of the situations where we provide our services, we become a very critical player to that business in the sense that we -- the fact that we launch exchanges, we do aggregation of carrier. We bring in aggregations of, at times, hundreds of thousands of brokers. So in the process, we become some kind of a Cisco in the middle, which makes a transaction happen, and we pick up a small piece of the transaction out there. And that's how we convert recurring revenue streams.

When you say exchange in transactional, you mean if someone goes on your -- using your software and they, I don't know, get a quote or something, life insurance or maybe property and casual insurance, is that what you're talking about by--?

No, I'm not. Vincent, I will say this. I will try to answer this, but on the other side, with all humility, I would encourage you to speak to me separately because I can take you through the details. I don't want to bore all our investors with a very detailed explanation on how we (inaudible), but I will try to answer it summarily for you, and then you and me can have a separate discussion.

Basically, we are a B2B exchange. We are not a B2C exchange where people -- anybody walks in and just (inaudible). The carriers deploy us. Carriers pay us for the exchange. In turn, they deploy this exchange to thousands of their brokers, their so-called elite brokers. It provides this exchange to them, and these brokers, in turn, would use this exchange to, at times -- you know, it could be -- an example of it could be there was a broker who wants to do a comparative and try and -- on a life insurance or an annuity transaction, but then that's just a small piece of the whole transaction. If we take the -- we take a transaction through the entire lifecycle of a policy, so it gets a lot more complicated than that, meaning in things -- in places like annuities, there's all kinds of regulations in process, and we have to deal with all of that. There's money swaps happening and all of that. All of that, our [software under banks]. So it's a complete lifecycle of a policy as we go through it. But I can take you through a much more detailed discussion later on.

Good. Thank you. I'll call you maybe tomorrow about that. Thank you very much.

Thank you, Vincent.

[Richard Lineart].

Question about the environment. Maybe the bulk of it happened after the end of the quarter, but clearly, there's a lot of turmoil in the life insurance industry. Many of the carriers' balance sheets are under pressure. It looks from some of the brokers that transaction volume is down a lot. How is that impacting you? And if it isn't, why isn't it?

Well, I respectfully first disagree with it that bulk of it happened after the end of the quarter, and not necessarily true. All the third quarter was a pretty rocking quarter in terms of what you saw in the market with all the players. I think the key to (inaudible) you have to realize is that -- let's take a simple example of -- I don't want to give name there, but let's say a large carrier who everybody thought would collapse and a bailout happened. At the end of the day, that carrier isn't gone out of business. They have hundreds of thousands of policies that they are handling, meaning at the end of the day, we -- companies like us are handling their historical data. That carrier, for example, wants to get the best value in coming days out of that, and they are -- what is their biggest strength? Their biggest strength is these policies that they have, and they're not going to give up on those policies. We are a B2B player. We're helping keep those policies in place or making sure that policies stay in place. They're a policyholder. They're communicating with them. Each -- and meaning this is protectional value. As these carriers get under more pressure in coming days, in fact, we offer more value even because -- at that time because what will tend to happen, people tend to carry us, tend to look at insurance companies, tend to look at reducing costs. And when you tend to look at reducing cost, you're not trying to reduce the revenues. We are a provider of revenues to these carriers, so they want to work with us because we are creating markets. We are crating aggregations for them. We are a B2B player at times holding their -- all their kind of indispensable in certain ways for them in the sense that we're holding all that data. We are -- we are there. We have all the historical data and so on, depending on who the customer is. And so at that point, if the customer wants to do a cost cut sometime in terms of manpower and so on, (inaudible) companies like us are (inaudible) revenues. We are for them services like ASP services, exchanges.

What do these exchanges or ASP revenues, ASP services do? We are cutting paper out of the process. We are reducing manpower in the process. In fact, it becomes a more -- in fact, it becomes a good way for insurance company to probably approach us and work more with us because if they start doing that, their cost structure can go down.

So what we have seen, as [on date], is that you will have some impact of some people, but that is where the value of how widespread your customer base is helps, meaning that is -- it goes back to what I said a few minutes back, that today, our largest customer would be less than 3.5% of our revenue because we have hundred of customers, virtually thousands of customers.

So we are very well spread out. You will have some player -- again, I can't give name, but there could be somebody who gets so terribly impacted that they -- that some people don't want to quote for this carrier anymore, worrying about the risk of quoting them, and so you will have some transaction drop there. But you know what? But there are others who are seeing this as an opportunity and are continuing to expand their base, and they want to do more transactions because they think this is a time -- opportune time to get the market.

The good news for us is that we have the who's who of the market working with us on all our exchanges, so we're not -- unless we really see that people are not going to stop buying insurance -- you see, when time gets up, it's not that the people say, "I'm going to stop taking my insurance." The risk is still there, meaning you're not going to stop buying insurance. So you're right that insurance companies tend to put a lot of pressure on costs, but you know what? That's our pitch always, Richard. Our pitch has ways been when you want to talk about cost reductions, please approach us because we will guarantee you cost reductions, meaning I walk in at times into large company situations where I tell them, "Why don't we do a deal where I'll guarantee you a 30% cost reduction of what you're spending, and let's start from there?" and -- because that's our pitch. So the good news is we haven't seen -- we haven't seen any drop that I would want to talk about here.

How does your business break down, let's say, on the life side, between new insurance and between servicing existing insurance in force?

Well, our business is that we are an exchange, so it's a very difficult answer to provide to you, meaning in the life exchange alone, when we have so many multiple products, so I'll have to give you a much more educated answer. I couldn't really answer this so quickly to you.

I didn't -- you had said something in your comments that made me think that you're actually earning -- some of the money you earn on the life insurance side from servicing existing policies in force, which I didn't realize. Is that a meaningful part of your business?

Well, life insurance has -- we have many different products, so there is one product, yes, and then there are -- there's another product where the answer would be no. So, yes, it's a yes and no to it. I mean we do everything, right, basically.

In terms of big picture, the main driver, I thought, was more new sales of insurance policies, as opposed to servicing existing policies.

No, no, not necessarily. I mean our business is not -- we're a B2B player, and so you've got to remember that. As a B2B player, we do all kinds of things for all these players. And, again, our business is so much divided into we have an expanse that, for example, pick an area of meaning even in areas like exchanges, first of all, we do P&C, we do life, we do annuities, meaning we do commercial lines. We do employee benefits, meaning just the area of exchanges alone. We do BPO tracking. And everything is so diverse that -- what we do, so I can't really say that it's a big part of our business. By no means is it a big part of our business. It's a part of our business. But, again, that's part of our business. We are not an agent. We are not an agent who's taking a commission in a deal, and so we -- it's not that we are an exchange. We are a player who's bringing all these brokers together with these agents, with these brokers, with these large distributors' brokers, with carriers. We're bringing multiple parties into it and [fine] banks into it. And all these players are working on -- it could be -- they could be working on servicing. It could be a post-sale situation. It could be a pre-sale situation. So our role is a lot more than just being in one particular area.

Second question, totally unrelated. Since the end of the quarter, the US dollar's had a major move up, and the Australian dollar, relative to it, has had a major move down. If the current rates hold through the end of the year, what kind of impact will that have on your fourth quarter?

Well, let's look at it that way, meaning I think -- yes, you're right. First of all, there's been a major change, but if you look back at the last quarter, some of that change had already started. That is the reason I talked through a $400,000 number. Just on revenue alone in Australia, our revenue could have been $400,000 higher if I had the same exchange rate as second quarter and third quarter. So that's one thing.

Again, this is a moving target. As a company, we have a lot of subsidiaries, lots of intracompany transactions happening between companies. It's a very difficult answer to give you that -- what is an impact, direct impact of that. But, again, this is an area which we are very -- we're keeping a very close watch on, and there are multiple ways to trying to handle it and reduce the impact of it. I'll leave my answer at that.

But I wouldn't say -- if your question is should there be a big concern about that area, I mean I would say right now, I wouldn't be extremely concerned about it unless -- if we continue seeing this huge drop, then sure. But we are hoping -- actually, if you look at the other way around now, Australian dollar has started coming up. First, the US dollar kept strengthening, and seemingly, the Australian dollar bottomed out, I would like to say, because in the last week or 10 days, you have seen that -- you would've seen the Australian dollar starting to climb up.

Right. Yes, bottom's at 60, and now I think it's 67 or--.

Plus, you also have to remember that meaning it's -- ultimately, the impact is on your net income, meaning if your revenue goal's down, so does your expense goes down, and then it's a function of meaning how we deal with each other as a company.

Okay, thank you. Congratulations on another great quarter.

Thank you.

[Mark Rye].

I wanted to first focus on the exchange business a little bit, and if we look at just your transaction volume, can you comment on how that's been trending over the past three to four months?

Well, maybe if you look at our revenues coming out of our exchanges, our exchange -- both our exchanges -- let's look at the US exchange and also the Australian exchange. Our revenues have gone up considerably between the second quarter and the third quarter in all three exchanges -- Australian exchange, B&C life exchange, and our annuity exchange. All three have gone up considerably.

What we are also seeing, you are -- there is going to be some impact because of some of the -- you know, some of the no-names that have -- you know, again, I hate to give names there, but again, some of the -- as you know, there's a lot of talk in the media about some of the names that have -- I wouldn't say that they have been finished, but I would say they've been impacted. So some of them have been impacted to a degree where some brokers, for example, wouldn't want to quote on their business and will shy away until their rating, their A.M. Best rating or their S&P rating improves. So that -- yes, that will have a negative impact. But I'll tell you the other side.

On the other side, we're only conducting -- look at annuity business of ours. As of -- meaning, if I look back at -- a few months back, we -- I know the last number that I saw was 90 days back, where we were conducting almost 36 billion in premiums. Now, I would like to say that number has gone up simply because our revenues have gone up from that annuity exchange.

Now, when I look at the 36 billion number, that compares to 230 billion number that [will] happening in the market, which means we don't have the whole market. A lot of annuity transactions are still happening on paper, which means at any time, we have a few customers who have been signed up and are being brought on to the platform. Those transactions kick in only when they go live, and we don't pick up that revenue until then. Even if they pay us any money, we won't pick up that revenue until the service is actually performed and the transaction is happening.

At any time we have those, as we keep bringing those new distributors live, and they're a large who's who of the market, and as we bring them live, the transaction number will keep going up. And we're seeing -- that helps us offset any of the drops that you would think of.

Since I -- as I said, while we are the largest player, for example, in the annuity exchange market, we don't have the whole market. We only had 36 billion out of the 230 billion market, which means there's a lot more to be acquired and a lot of the larger names who are there, some of them we've signed them. And who as we bring live on our platform, the transaction number, should obviously go up.

Okay, and so the annuity business that you were talking about (inaudible)--

I just gave you an example of that, but that's -- it's pretty constant across all our exchanges, the same (inaudible)--

And with the consolidation that's been occurring in the financial services industry, what impact has that had on your business, such as with Merrill Lynch and Wachovia and the annuity--

Again, I won't specifically talk about Merrill Lynch and Wachovia because they're all our customers. And so is Washington Mutual, so is AIG, and so on. I can -- each one is a different answer, and I hate to go into specifics on the call because this is confidential stuff that we are aware of and we're not allowed to talk about it.

But having said that, the only thing I will tell you is as of now, all these players have continued to move with us and continued to actually sanction newer projects because they -- more than ever, it is quite critical for them to keep their business going. But, finally, it's all about business. They're not going to give up on their business, and these players, some of the players that you named, have very large books of business, and they've done -- for example, you talked to annuities and you named a few players. These are very profitable operations of theirs, so they're not going to give up on their profitable operations, meaning end.

So the answer gets a bit very complicated because every player, there will be a different answer that I could give you, but for confidentiality reasons, I wouldn't. I would say right now that rest -- the answer, I would suffice to say that it has not impacted us negatively.

Okay.

If we are a bit lucky, we might see a few policies out of this.

Okay. And in terms of the way you structure contracts for the exchanges, what -- is it typically like a one-year contract, or is it a multi-year contract that you would have with a carrier?

Typically, these contracts are automatically renewing at the end of the year. It is basically -- we prefer a one-year contract automatically renewing at the end of the year. We prefer that, and there are reasons for it from a revenue-recognition perspective. It gets a bit complicated after that. If you sign too-long contracts, then at times, you have to treat them differently. So it is much better to sign. It also gives you flexibility. Finally, it depends on your confidence in your business, and it depends upon if you sign a five-year contract and you have done a terrible job, your customer is going to find a way to (inaudible) terminate it, some way to terminate it. But if you're doing a good job and you are -- it depends on the level of integration. Our business is so tightly integrated into these players that it is not an overnight decision for somebody to suddenly to get up and say, "You know what? I'm going to dump you." It takes a long -- it takes a lot more than that to do something like that, so--.

I was thinking they may want to negotiate price a little bit as a (inaudible)--

Well, meaning we -- again, I can't go into specifics there, but I would say that we don't necessarily dislike that. Let's put it that way. We like the idea of -- some of these contracts have lock-in (inaudible), so it's not that many. We could have a [fife] log, but it will automatically renew. So there's -- and there could be others where there could be -- there could be CPI indexes. There could be price increases that we could ask for. It could also be termed as [flab]-based. You know, if you haven't crossed X-[flab] of transactions, you would still have to pay X-amount of money and so on. So it gets a bit more complicated than that.

We -- as I said, we prefer automatically renewing annual contract. Let me say this. In my career at Ebix, let -- meaning it's not even a question of last few years -- in my career now at Ebix, or if I had to step back and look at the last eight years, we have not lost a customer who accounted for more than 0.3% of our revenue.

Well, that's a excellent track record. Okay, let me just --

Anywhere in the world so that I can tell you it's not only US, anywhere in the world. We have had a -- again, I quantify it with 0.3% larger than because in the smaller [assigns], we had in agency-broker market, the smaller base, there it could be priced (inaudible) and somebody -- it's not really -- we're not -- meaning we're not -- we're important to their business, but a small broker, well, we're not. Small brokers can think differently and they're not really critical. They get price competitive and so on. So that's why I said more than 0.3%.

Right. Okay. And just to make sure I understand the revenue model, it's the carriers that are the ones that pay the fees associated with the exchange. The brokers or agents do not have to pay--

Correct.

-- any fees to the small, correct, okay.

Correct.

Just switching topics a bit, I'd like to know if you could comment on your entry into the health benefits and claims processing business with the Acclamation Systems acquisition, how that's been going.

It's been a fantastic acquisition, and as you would've evidenced our pursuit of HealthAxis, if we weren't happy with Acclamation, we probably wouldn't have pursued HealthAxis.

In Acclamation, we inherited a very strong management team, we inherited a very good customer base, and we inherited a product that we can be all very proud of, a product called LuminX. They have very sound customers who -- it's a who's who of the market. AIG, for example, is one of our large customers on the employee benefit side, and it's a very solid business for AIG, the employee benefits business. And it's a very -- it's a business which is so tightly integrated into what these -- how the DPAs work, how the carriers work, and how the third party administrators work that for somebody to even move in, it takes time.

For example, we -- in the press, you would've probably read, as we were making a bid on HealthAxis we talked about their third-largest customer moving -- making a move to us. As the third largest customer made the move to us, our platform, our employee benefit platform, it couldn't just move overnight. The data conversion, the whole process, it'll probably go on till May next year for them. They will still remain on two platforms almost for that amount of time. So it gets very -- and this is -- you know, it is -- in the B2B space in the back end, this is an employee benefits system. It's a cutting-edge system. It's an end-to-end system, very high-speed, and I would say it doesn't get -- I mean we were very impressed with what we have seen till now, and the business is doing quite well.

So we intend to continue growing on the strength of what we have today with Acclamation and grow our market size and in the employee benefits space.

Can you comment on some of the synergies you were trying to seek with the HealthAxis bid?

Well, you see, with HealthAxis, the synergy that's finally about accretive value for our shareholders, and clearly, they have some good customers who we value. And we also have a very high success ratio of moving. For example, I just talked to you about their third largest customer. The fact that we were able to bring that customer over to our platform and convert it means that we know how we can handle those customers and how we can address that customer base.

We felt that with HealthAxis customers, we can provide a solution which is -- which can be long-term for those customers. We also felt that the synergies are very solid.

First of all, they're public. The cost of being public is, as you know, quite heavy, and if somebody was to acquire them who's already public, a lot of the costs will go away.

On top of it, there's normal redundancy between organizations. When you bring two organizations together, you're going to see lots of redundancy. As we move forward and finally if we were to acquire them, they're at some point in the future, they would be one product, and as you do that, your cost of product development and so on go dramatically down.

So, obviously, we sell lots of synergies and value. They also have good knowledge on the claims side, the BPO side, and we felt we could -- that could strengthen us further.

So those are things that -- why we were looking at them.

Okay, thank you. And in terms of the revenue model for this particular area, can you give us a little more color on that?

On the employee benefits arena?

Yes.

It's pretty similar to the exchange model, meaning it's very similar to the exchange model in terms of, again, there are -- it is kind of -- the variable at times becomes the number of lives. As you bring more lives on their employee benefit platform, you keep discovering more money. So you're almost getting paid -- as each of the DPAs or each of the carriers keep deploying it and keep bringing in more lives on it, you keep discovering more revenue stream.

It also depends on how you're servicing that customer. Are you servicing the customer in an ASP mode? Are you servicing the customer in a self-hosted mode? Again, the revenue streams tend to vary there in the sense that the ASP mode is a lot more effective for the customer, a lot more effective for us, a lot more easily serviceable for us, a lot more -- better on the margins for us, better on the cost structure for us, better on the -- when I say better on the cost structure, I mean overall it's a very effective solution, cost-effective solution for everybody.

And so it depends on the dynamics there, but it tends to be very recurring, employee benefit business, and simply because you're not going to expect the carrier, ABC, come on the platform and suddenly say, "I'm going to get out." It takes a long time just to get live, and by the -- once you're live, you're going to use the platform for a very long time. Otherwise, you probably -- people take different amount of time to make a decision to move to your platform precisely for that reason.

I see. And just switching topics again, is your recurring revenue still about 70%?

It's actually a bit better than that, but let's suffice to say it's definitely more than 70%.

Okay. And any thoughts on some of your other lines? It looks like your -- you weren't experiencing too much growth in your broker systems or your BPO outsourcing services markets (inaudible)--

No, let me correct you here. Actually, our broker market in the US, you are correct. Well, we -- in the US, the broker's market, we have officially said multiple times in various calls and over the last few years that that's been our -- that was the fundamental base. If you go a few years back, eight years back, that's all Ebix did. We reduced our dependence on it because the margins were lower. The margin on the broker business, on the B&C broker business, broker system business, are very low, so we don't tend to focus heavily on it today. So it's not a big focus area for us to grow that revenue simply because, for known reasons, because the margins are low.

However, if you look at the international markets, the B&C -- the international market, we continue to grow our broker base. We continue to do well in those markets, and we will -- we're clearly -- that is a much more profitable market, and one of the reasons for it being more profitable is our focus is on the larger and the [football] brokers, which means those brokers are at times the size of a carrier, the [Aon], the [Marsh], the [Villas], that just VCs of the world. And these carriers have a lot more ability. Their IT budgets are bigger. They are used to paying a bit more money. They are used to demanding professionalism and a very high quality of services. And that's what we focus on international markets, and that we continue to do extremely well.

On the BPO side of things, our BPO business as the tracking business continues to grow. It's a steady but continuous growth. That business is basically 100% recurring, the BPO tracking business that we do. That business, you will see, we prefer the (inaudible) continuous steady growth, but we will -- in that business, you will see us in coming days make a few announcements on that business. We continue to be extremely bullish on the B2B BPO business, insurance (inaudible) BPO business. I can't say more than this at this minute, but I would suffice to say that we intend to grow that business quite a bit over the next 12 months.

I see. And any comments on the insurance carrier systems business (inaudible)--?

Insurance carrier system business, we are not the largest of players. I have always said that that's a business we need to do. We have done very well as compared to -- when you compare, for example, '07 versus '08 or when you compare '06 versus '07. You will see we have continued to do extremely well. However, that business -- when I say well, that's relative to us, our own performance. I don't rate ourselves amazingly well on that plat -- in that area simply because we're not a leader in that market. The leaders in that market are [fill the CSCs, the levers of the world]. And we need to become a much more better player there, and again, you have to remember that we are a new player to that market. And considering that we have done well -- but that doesn't mean we are a leader in that market -- we will continue to grow.

One of our big focuses right now is to invest in sales activity. We have great products, very well liked by customers, and absolutely, we continue to -- we have generated pretty sizable revenue streams as compared to what we used to do, meaning -- and, again, you have to see that, but three years back, if I stepped three years back, we didn't have a carrier system product. So it had been built in-house, and then we made an acquisition in that area.

Between the two -- even the acquisition that we made, we made an acquisition of a company called Infinity Consulting. Their revenue stream at that time was approximately, in revenue terms, per quarter, they were doing around $1.3 million or so. And when you look at it in more detailed terms, today, we're close to $2.7 million a quarter just out of that acquisition, which means we have doubled our revenue stream since we bought it. So we have done well. However, it's a relative -- relatively good performance.

I could say, well, we did 100% better than, you know -- our gross is 100% as compared to June of '06, for example, if you look at the quarterly performance because that's our run rate right now. But then when I compare it to the CSCs of the world, I would say they are the leaders. We are not. And so that gives us a lot of reason to continue growing our sales force and continue -- keep a -- it's always good to know the area that you're not yet strong in, and this is one area where we are not yet strong in, but we are emerging as a good -- very -- as a stronger player than we were.

Okay, and your strategy there would be to be more of a niche focus from the CSCs or (inaudible)?

No, you will see us do a few things. Yes, of course, we will -- we have area where we will be niche, like medical malpractices and so on, (inaudible), but where we will focus on regional players at times or at times on more focused areas of the business. But then we today have [third] products which can be used by multi-billion-dollar companies, and we already have, for example, one who has deployed our new platform, and it is very happy with that platform.

So having said that, our intention -- these -- that's why we have two so different products in the carriers' business area. One product is targeted at the larger end of the market. More general purpose can handle -- you can put 40 different lines of 50 different product lines on it virtually. Keep in mind, these are B&C carriers. This is not for life insurance carriers. This is only for B&C. So you could put the largest carriers in an ASP mode or in a self-hosted mode, whatever they want on a cutting-edge technology like dot-net and so on. And then you have another product, which is also a dot-net, but it is targeted right now at the more niche carriers. So, hopefully, that answers your question.

Yes, that's great. And just one last question. I'm going to shift to your balance sheet. I noticed a shift in your other comprehensive income. I just wonder if you could comment on that over the previous quarter?

Yes, I'll take that. That is essentially the effect of the foreign currency translation adjustments and what we've talked about previously in terms of the adverse changes in the exchange rates.

Okay. Well, thank you very much, gentlemen, and good luck in the next quarter.

Thank you.

[Mark Lindy].

Congratulations on the quarter. I was going to ask for some additional detail on Acclamation, but for the most part, you gave it. Can you give us some idea, though, what the revenue was at Acclamation, at least their contribution for the quarter, and just some of the financials?

Well, I could give you the revenue right now (inaudible), and I don't have the net income number in front of me, but basically, Acclamation accounted for around $2.05 million for the two-month period in the last quarter. It's a very strongly profitable unit today. I would like to say they're pretty much at par with our other units in terms of net margins. The good news here, from an Ebix perspective, is that when I look at my different divisions, whether it's our employee benefit for the exchange or the BPO or the carrier, I don't have a problem with worrying about that this one particular division makes a lot of margins so I should focus on that.

Fortunately, all our divisions are pretty close in their net margin numbers. So you look at -- this number of 37% that you're seeing is rather constant. So you -- so Acclamation numbers -- and, again, this is a good question. Acclamation is -- in our revenue numbers, you have two months of Acclamation so you have to kind of factor that in versus next quarter we'll have a complete quarter for Acclamation, of three months of Acclamation.

Got it. Thank you. Keep doing what you're doing.

Thank you.

[Joseph Gardner].

You've answered most of my questions, but I just have a few additional ones for you.

Please go ahead.

Okay. First of which, I was wondering if you could break out the revenue growth in terms of how much was organic versus what was contributed by acquisitions over the last 12 months?

Over the last 12 months? I think I'll need to do a much more detailed job to give you more concise answer on that. Unfortunately, I don't have a (inaudible) answer for you. At the same time, I will -- there is a sheet. If you go into -- I think I'll point you to our last quarter, when we filed our Q. There was a specific document there which actually talks through if no acquisition had happened what the revenue would've been, just where it is today, and you will see that our organic growth is pretty sizable.

Right. Yes, I was going to say you have been getting significant internal revenue growth. I guess maybe just to generalize it a little bit more, did you continue to see significant internal revenue growth during the quarter even -- you obviously had contribution from Acclamation, but above and beyond that?

Yes, Joe, let me answer that question. I don't always give issuing guidance on (inaudible) and so on; however, I will say that clearly that's our intent, meaning our intent is to continue growth from within.

Now, it does get a bit -- you know, I've answered this question multiple times earlier that it does get a bit heavy in the sense that when you look at organic growth (inaudible) because our way of handling things is we integrate so tightly at times that in a particular area -- so let's take an example that we would -- in a broker systems area, a past example, we bought a company in Australia, and net result is we gave up on certain things that we were doing already because we like to make sure that it's the type -- the integration is immediate, it is done in a manner which makes the things seamless, it reduces the QA costs, development costs, and in turn, it is the best thing for our customer.

So net result is that we at times decide in this particular area, let us give up and -- to give an example -- for example, we're selling a product called Ebix ASP in a market like [Netherlands], and then we bought [Hard Consulting], and this is from a past, an example. We have decided we're going to stop Ebix ASP there because [Hard Consulting], we felt this product could be easier sale, would be a much faster sale, and so on. So we gave up on the revenue stream, which we knew we would have, and we do all this every other day virtually on acquisition. So it is a very thin line dividing that.

But then the measure should be once we have made that acquisition, how much do we grow it is the question, also, because that becomes organic at some point. So when you look at that, when you consider that question, I will tell you, look at our history of any acquisition, and I'll walk you through each one of them. You can look at any of our acquisitions. So I could get started with any one, and you will see that the minimum growth quarter -- from the time we bought it on a quarterly basis in that particular quarter when we bought it to today, the lowest number that I can see is almost 67%, 67% growth since that quarter that we bought it to where it is now. We have had acquisitions where our growth is 100% or more in their revenue since we bought it. So it depends on how you -- what you do, how you cross-sell, how you integrate. So it gets a bit more complicated than that. We don't really internally stop discussing, "This is organic and this is inorganic," because the moment you start doing that, you're clearly creating a culture of the integration doesn't really stand, and --

Right.

-- we want everybody to breathe the same. This is one company; these are our products. They're -- everybody has to own everything. So we integrate very, very tightly everything.

Okay. You talked earlier about the foreign exchange impact, particularly relative to the Australian dollar. Are a number of your costs also in the local currency in Australia, which might mitigate the bottom-line impact?

Well, let me answer that. Yes, you are absolutely right, meaning the cost is in the local currency of (inaudible) and so is the revenue. So your -- some of your impact is mitigated, as you rightly said.

So now you're left with a net income number, and that's the net income number that could get mitigated, but then there are other -- you see it's very difficult for me to kind of go through a detail of transaction here, but our subsidiary is also -- because we try to keep our costs in check, so different subsidiaries work for each other, and big companies pay each other for the work that they do for each other, and again, that's on a P&L basis. That is all balanced. But at the end of the day, there might be some ways to mitigate that, some of the impact of foreign exchange, because of companies having to pay each other on an arm's length basis for the work they do for each other.

Okay. And final question I have for you is that you once again showed some very significant improvements in your operating profit margin. And I'm just wondering if you could comment on all -- at all in terms of whether or not you see opportunities for additional leverage of the business as you grow it to perhaps drive that margin higher in the future?

You see, I didn't answer that question where our margin used to be, 12%. I never [told] the market that that's what we will get to. I've always said the Company's goal has always been -- and I said this three years back, when our margins used to be much lower, I said, "Our goal is to keep our margins at 30% or higher. That's our intent." Now, where do we go from here? I'll let the numbers speak for themselves in the future. I don't want to issue any guidance or any -- don't want to raise any expectation right now.

Was there anything unusual in the third quarter that would have caused the margin to be higher than normal?

No, the good news is this was a very matter-of-fact quarter. There is nothing -- there is not even -- that if you asked me is there a particular deal that I could point towards to say, "Well, this deal really accounted for this." The good news, like I said, in our business is that our business is very well spread out. So there's no real one thing that I could pinpoint that truly impacted our revenue or our margin numbers. It was a matter-of-fact kind of a quarter.

As I've said, our margin possibly could have been a bit better if you consider the fact of the exchange rates that he just talked about. If exchange rate had even stayed constant, where it was with respect to second quarter.

Okay. Well, thank you very much, and congratulations.

Thank you.

[Bill Wolfenden].

Just a couple quick questions. I wanted to clarify something you said earlier when you were discussing the exchange business, and you -- I think you mentioned that in the sales pitch that you give to these companies, that they can save 30% of costs? Is that the right number?

No, what I -- yes, what I said to you was, and this is not something we always walk in and give a pitch, but what I mean is we come across once in a while a situation where there's a large carrier, and it typically happened on the back-end side, you know, on the carrier business side. And there's a carrier who's using historically legacy systems, and they say, "Well," and we walk in, and we -- one of the pitches we immediately give them is, "Why don't we do a deal? Forget everything else. We'll kind of guarantee your 30% cost reduction if that's what appeals to you," because that's not a difficult number to beat. The legacy systems tend to be so expensive, and again, they tend to require so much of manpower internally that the -- if you go on to newer technologies, costs start falling off very quickly.

Okay. And then just on the HealthAxis, I think you talk about the rationale for the acquisition, but I think the most recent data point is that they rejected the offer. Are you sort of done there? Are you going to consider maybe a proxy battle? Or I'm still a little perplexed why they wouldn't take your offer.

You see, I will say this, that we will answer what they have put out there. They have presented some facts out there which are -- some data out there which is not factual. So I think it's our responsibility to, first of all, answer those.

We have been reasonably disappointed with the way it has been handled, and we are pursuing -- we will pursue different options. We are going to consult our counsel and see what next step we need to take. Again, it is a function of -- if they want us to decline it, we understand getting our offer declined if it was not a high-enough offer or being declined when your investor base doesn't support it. If we're getting hundreds of calls from investors of HealthAxis who would like -- who think themselves that it's a great offer, so we're at a tremendous loss to understand which part of it is not -- isn't really going through.

So we will tend to answer it because there is a lot of -- like I said, they're putting a lot of data out there, and I would like to say that, first of all, we believe we have been misrepresented. We also believe that some of the data that has been presented is not factual, in our viewpoint, and we believe it is our right to correct the record.

And, also, meaning we are not emotional about anything. I am -- as a management team, we are clinical about what we do. We don't get too attached to something that we have to pursue it at all costs; however, as I said in the beginning in my comments, if something makes sense for our shareholders, we're going to pursue it.

Yes.

And until the time it makes sense. At the time we feel that it is not making sense for our shareholders, we're going to leave it. There's no question about it. And if -- and our offers have reflected that. They've been -- they have been constructed keeping our shareholders' interests in mind and keeping the accretive value in mind.

But, again, we understand the part of what has happened. I think what has kept us in play in pursuing them is a simple reason that we see a groundswell of support for our offer on the HealthAxis side, so we're going to -- we are going to look at all our options in the coming days and then decide what exactly we want to do.

Okay, great. Thanks for that.

And, just lastly, is there anything out there like currency or the [lot of] large numbers or the macroeconomic environment that would prevent you guys from your continued string of sequential growth?

That's a difficult question to answer that, meaning there are -- as I always say in all my calls, there is no guarantee to growth anywhere for any company. Again, the intent is to continue to grow. The intent is to do the right thing and make Ebix a fundamentally strong company.

Now, towards that, if -- do I see anything on the horizon that could dramatically impact us badly or anything like that? No, I don't. But, again, we're living in an environment where we will -- every day is a new day.

At the same time, like I said, it -- you're talking to somebody who does not like to exaggerate or does not like to raise expectations. So I kind of hate to give an answer, a bigger answer than that. But I would say that we -- I think the proof lies in the pudding. If you look at our consistency and look at what we've achieved over the last few years, eight years, and again look at the -- what we have always said, we would like to let our numbers speak for ourselves, and in the process, we'll continue working at it.

Fair enough. Thanks, Robin.

Thank you.

Walter Ramsley.

Congratulations. Great quarter. Just got all --

Thank you.

Hey, going back to that organic growth rate, in the second quarter, as I recall -- doing this off the top of my head, the way it was calculated in the 10-Q, it came out to approximately 17%. I mean is that more or less where it stayed?

[Probably]. I mean I, frankly, don't have the numbers in front of me, but like I said, meaning in a few quarters, if you -- become -- first of all, it is a bit difficult to define what is organic and what is not meaning I understand, for example, we just talked of Acclamation, for example, which is presently an acquisition, but the moment you start growing it at some point, you know, you've got to call it organic, meaning in the sense that it's not ready revenue that just falls in. That if you're growing revenue, that means it's new revenue, and I would like to call that organic. So it gets a -- but, yes, meaning you have a correct number for Q2.

Okay, and the operation in India, I mean I know it -- the Australian line hurt you by 400K, but did the currency in India help, and how much was (inaudible)?

Well, I mean India is a cost center. India is primarily a cost center. India is -- so there's not been a -- there's not really been anything meaningful on the currency front that I could talk to you about with respect to the third quarter and with respect to India.

But overall, India continues to do extremely well, if that's your question, and we are continuing --

(Inaudible).

-- to grow our manpower in India, and we are continuing to grow. We've -- we're investing in new infrastructure there all the time.

Okay. And among the insurance carriers that you're currently working with, have any of them indicated, either officially or unofficially, any plans to cancel or curtail any relationships at the end of the year?

We do not know of any carrier who has orally or in writing communicated to us today that they intend to terminate in the next 90 days or in the next 12 months.

Okay.

And, again, I make that statement; orally and in writing, we do not know anything like that as of now.

Good. The short-term debt that the Company has, can you tell me when that comes due?

That's our line of credit, and that has another year on it, but we fully expect to renew that. We have a very good relationship with our commercial bank.

Okay. The convertible bonds, can you review for me again what conversion rate is?

Those are both conversion instruments with a [white box]. The interest rate is 2.5%. They, by the way, on their first note from December of '07 have converted to date approximately 6 million of principal. As far as the conversion, (inaudible) I want a second -- the first note is convertible at the rate of a 21.28 -- $21.28 per share, and the second note, which is executed in July, converts at $28 per share.

Okay, so the first one was for 20 million and the second for 11?

First one was at 20 million; the second one's at 15 million.

Sounds like --

Of the first 20 million, they've converted 6 million of principal so far.

Great. I understand what you're saying. Okay, sorry about that; got a little mixed up. Okay, great. Thanks again. Appreciate it.

Thank you.

And there are no more questions in queue.

Okay, well, thank you, everybody, for attending our investor call. We hope to speak to you soon next as we finish our fourth quarter results and announce our financial year results next year now. Look forward to speaking to you again.

Thank you.

With that, I'll close the call.

This concludes today's conference call. You may now disconnect.