Ebix Inc (EBIX) 2009 Q2 法說會逐字稿

Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the 2009 second quarter investor conference call. (Operator instructions) Thank you, Mr. Robin Raina, you may begin your conference.

Good morning, gentlemen. Thank you for attending Ebix's 2009 second quarter investor conference call. I have also here with me Ebix CFO, Robert Kerris.

Our Q2 2009 results were announced a few hours back. Let me summarize those results for you. Second quarter 2009 results were yet again record results, the best ever in Ebix history in terms of diluted EPS, net income and revenues. Each of the last many quarters has been a record result, with each quarter beating all the preceding quarters in our 33-year history as a company.

As a management team, we have believed in being consistent rather than just producing spectacular quarters. You could compare these results to the second quarter of 2008 or the first quarter of 2009, and all comparisons will show that the present quarter scores over all these quarters on all four key criteria; growth in revenues, net income, diluted EPS and net margins.

Let us delve a bit deeper into these numbers. A comparison of the second quarter 2009 numbers to the second quarter 2008 numbers reveals that all four, namely revenue, income, EBITDA and diluted EPS, grew in this quarter as compared to second quarter of 2008.

Revenue grew 26% from $17.8 million to $22.42 million. EBITDA grew 33% from $7.8 million to $10.4 million. Operating income grew 34% from $6.91 million to $9.26 million. Net income grew 41% from $6.34 million to $8.96 million. Our diluted EPS grew 35% from $0.54 to $0.73 and the basic EPS grew 35% from $0.65 to $0.88. The net margin numbers grew from 36% to 40%. The diluted share count grew 4% from 11.98 million shares to 12.49 million shares.

Let's now compare these results to the first quarter 2009 results. A comparison of the Q2 2009 numbers to the Q1 2009 numbers reveals that all four, namely revenue, income, EBITDA and diluted EPS, grew in this quarter as compared to Q1 of 2009. Our revenues grew 8.47% from $20.67 million to $22.42 million. Our EBITDA grew 9.47% from $9.5 million to $10.4 million. Our operating income grew 10.81% from $8.36 million to $9.26 million. Our net income grew 7.5% from $8.34 million to $8.96 million. Our diluted EPS grew 5.85% from $0.69 to $0.73 and the net margin numbers remained consistent at 40%.

The significant strengthening of the US dollar; as much as 15% with respect to the Indian rupee; 20% with respect to the Australian dollar; 22% with respect to the New Zealand dollar; and 7% with respect to Singapore dollar, as compared to the second quarter of 2008 had an adverse effect on our financial results.

For those of you who like to look at currency neutral results, I have some numbers for you. Currency adjusted revenues in the second quarter of 2009 grew to $23.8 million, a 33.8% increase over the second quarter of 2008. Currency adjusted net income after taxes in the second quarter of 2009 grew to $9.9 million, a 55.6% increase over the second quarter of 2008. Basically, what it means is that if you were to keep currency rates constant between Q2 2009 and Q2 2008, Ebix revenues would have been $1.4 million higher and net income would have been $789,000 higher. Currency-adjusted is a non-GAAP financial measure that we use solely for comparing numbers from two different periods without the impact of foreign exchange.

Ebix business is broken into four channels; the carrier channel, exchanges, broker channel and the BPO channel. To look at the performance of these channels, I have a few numbers for you.

Exchanges channel in second quarter of 2009 grew 40.3% from 9.3 million to 13.1 million. The BPO channel grew 104% from 1.8 million to 3.7 million. The broker channel went down 24.4% from 3.7 million to 2.84 million. The carrier systems channel went down by 5% from 2.8 million to 2.7 million. When you compare the performance between Q2 2009 and Q1 of 2009, exchanges grew 9.38%; BPO grew 10.5%; broker systems grew 14.3%; and the carrier systems went down 4%. When you look at these numbers, the broker channel was mostly impacted downwardly by the currency fluctuations and the fact that newer decisions are harder to get by these days.

Our broker business is mainly international and thus currency fluctuations impacted the most. We're not overly concerned with this, as the broker channel is one of our most recurring revenue bases with a strong business pipeline at any time. To add to that, our recent strides, especially in New Zealand, Europe and Asia, have given us reason to believe that this channel will continue to be a strong pillar for Ebix.

The carrier channel was somewhat downwardly impacted and it was mostly impacted primarily because of carriers delaying decisions and delaying budgeting decisions in the present economy. Again, we believe that while we have work to do in the carrier channel, we believe that there's no reason for concern.

Our pipeline continues to be good, with many well-awaited deals having been agreed to in the last 90 days. In the area of exchanges and BPO with the who's who of the market, both in the financial world and Fortune 500 companies. The economic environment continues to create pressure on insurance companies reducing their spending, but Ebix has continued to use its cross selling to open up new opportunities and keep revenues growing.

We continue to work on improving our balance sheet and are committed towards significantly reducing the debt on the balance sheet. At June 30, 2009 the total convertible debt balance stood at $19.81 million with $5.31 million maturing in December 2009, and $14.5 million maturing in July 2010. Both the converts are in the money, and the common stock after conversion is already fully counted in our diluted EPS count for the calculation of quarterly and annual EPS results, as if it has already been converted.

So how do we judge our own performance in the second quarter of 2009? Most companies look at their performance relative to their peers and competitors to gauge the degree of their success. Over the years, like other companies, Ebix had to make a choice between top-line growth and high margins. We decided to take the difficult route of going for both high margins and decent growth. We decided to charter on our own part by setting new benchmarks for any On-Demand software company in the United States in terms of net margins. We have always believed that high margins are not a function of the line of business you are in, but a function of common sense business mathematics, which dictates that selling price must be a lot higher than the cost price.

As you know, there has been a considerable slowdown in the economy across the world. Our goal has been to build a company that does not just build its business around a great economic time, but is also prepared for its occasional unpredictable volatility. Our obligation has been to build a company that can thrive in any environment. We believe that a good company needs to capitalize on its strength to grow aggressively in downtimes when its competition is unable to do so. The mark of an exceptional company is consistently good performance relative to itself, its peers and its competitors, regardless of economic conditions and competitive threats. We want Ebix to be that kind of a company.

I am often asked as to how we are able to keep the company growing in such a difficult environment. I'm going to endeavor an answer to this question during the rest of my talk today. To help us withstand economic downturns and competitive pressures over the years, we took a number of steps over the years which are helping us today.

One, we decided to focus ourselves on infrastructure based software services. Most software companies are either product based or service based companies. We decided to become an On-Demand software company that focuses itself on becoming an infrastructure player. We wanted our business to be like an airport that is acquired by all airlines, whether they have to land a flight or take off the flight. That required Ebix to take a completely different approach from our peers and competitors and we decided to do that with the belief that infrastructure based services are difficult to create but once created, difficult to dislodge. With each passing day, our exchanges are becoming more like airports that are required by all airlines, irrespective of who they are.

Two, we decided to get into areas wherein with the right plan, we could dominate in a relatively shorter period of time. For example, today we are a premier insurance exchange in the life and annuity markets in the United States. We are a premier exchange in the insurance certificate business in the United States. We are a premier exchange in the property and casualty markets in Australia today. We believe that we can replicate this success across other lines that we have entered and across many other countries around the world.

Three, we knew that exchanges are like land grabs, with excessive resistance to entry of late entrants to the marketplace. We decided to move aggressively and quickly into some of these infrastructure based areas where the opportunity was there, but somebody needed to handhold the prospective customer base on the advantages of aggregation based exchanges. Besides great technology and providing a single window to any user to deal with multiple entities, B2B exchanges are based on aggregation. Once the threshold numbers are crossed, it becomes a catch-22 position for a new vendor to enter the market as the users want aggregation on day one, before they commit to using the exchange. We believe that we have crossed these threshold levels of aggregation.

For example, we conducted 16 million transactions in life insurance since 2008. We conducted $36 billion in annuity premiums in 2008. We have 75 of the Fortune 500 companies using our certificate exchange. In summary, we power in excess of $100 billion in premiums on our platforms today.

Four, we saw an opportunity to be the only player in the world who could service life, health, property casualty, annuity and etc., while addressing all four channels; carriers, brokers, exchanges and BPO services. We decided to grab the opportunity to be the only player who could endeavor to do that across the world while converging data across all these channels. The opportunity of letting say a large carrier to deal with one vendor instead of hundreds, is another huge opportunity for Ebix and also another large opportunity for insurance companies to get more effective and more productive.

Five, we decided to follow the Ray Kroc legendary model of delivering same quality across the world. We today deliver standardized systems around the world, with multilingual, multicurrency features, country specific detailed customizations and yet have a common code base with switch-on and switch-off features. That is a dream for a multinational corporation and keeps Ebix apart from any other insurance software services player.

Next, we invested in building solid but optimum infrastructure. Great companies consistently build their infrastructures, they strive for the best systems and back office operations, they're highly efficient, they cut waste constantly and they invest continuously. Ebix is not a big believer in excessive division of labor. Ebix corporate philosophy is to retain above average employees who can multitask and share Ebix faith in inculcating cross knowledge to all employees. This allows us to eliminate unnecessary, redundant and bureaucratic behavior from mushrooming in the company's culture that today breeds on innovation and a can-do attitude.

We are not a believer in headcounts for the sake of it; we believe that an optimum workforce leads to increased productivity and potentially happier and better rewarded employees. This waste cutting has not hurt our company's performance or customer service, in fact, it has improved our operations leading to Ebix not having lost a customer who even accounts for more than 0.3% of our revenue in the last eight years.

Next point, we decided to invest in creating effective systems and effective operations. We decided to aggressively consolidate, streamline, standardize and centralize our back office activities. We believe then efficient business with controls will help us have a better handle on our own destiny, rather than deal with surprises towards the end of each quarter. With 20-plus offices across the globe, it was important for us to establish controls that had a check and balance mechanism built into them, while not compromising on nimbleness.

For example, everything we do internally within Ebix is automated over the internet today. To book a flight, our employees use our internally developed and mandated tool, iTravel, to ensure purchase order, we follow a system called iRequest. To file an expense report we use a system called iExpense. To ask for a leave application, we use a system called iPlan. To request a hire, we use a system called iHire and so on. All this on a common employee dashboard available to all employees at all times. The system thrives on centralized controls, checks, audit trails and nimbleness, with the system tracking timelines or delay points.

Next point, we continue to make substantial technological and other investments in the future. No company has ever had much of a future by cutting costs alone. Success is measured by top and bottom-line growth, so we are investing substantially in our businesses to increase our market share revenue and profits. We invested in CMMi 5 development units in India. We invested in approximately 65,000 square feet of world class space in India in the form of three fully owned buildings. We invested in creating a learning organization wherein at any time 30% of our development staff in India is Masters in Computer application students fresh from college, with the goal of imparting insurance knowledge and technology expertise at an early stage and groom them the way we want to. We continue to invest in cutting edge technologies, with the goal of being a few years ahead of our competition at all times, even if we have market domination in that channel segment already.

Next point, we have always believed that for consistent success it is important to achieve and maintain utmost integrity and great financial discipline. The roll of finance is to exercise optimum corporate governance and ensure that there are checks and balances in the system, while grasping in detail what it takes to run a successful operation. We believe that ethical behavior doesn't just happen; it has to be cultivated and repeatedly affirmed throughout the organization. At Ebix, acting with integrity is a paramount expectation. It applies to every aspect of our company, including finance, employee relations, marketing and sales. Maintaining the highest standards of integrity involves faithfully meeting our commitments to our customers, our fellow employees, to the Board and to all our shareholders.

Next point, we've always believed that the success of any company eventually comes down to the quality of its employees. Building a great team and developing deep bench strength are requisites for any company's long-term performance. One of our biggest priorities has been to assemble an exceptionally capable group of senior managers who can drive our future growth by adding talented executives from outside and by promoting the deserving from within. Ebix today has a strong world class management team, with a top group of at least 16 senior executives who have the ability, knowledge, vision and drive to be able to step up to the highest level in Ebix.

We have been able to align the interest of these senior employees by aligning their interest with the company through performance-based compensation linked to specific goals for each person. Most of our senior staff has shown their faith in the company's future by choosing to have this compensation in the form of restricted stock rather than cash.

The current economic environment has made things harder for any company. The insurance industry worldwide has been hit severely by the present economic crisis and new capital expense decisions that can be delayed are either being delayed or just being put into cold storage. To add to that, the strengthening of the US dollar has had an adverse effect on our revenues and net income numbers.

Our exchanges continued to do well, as they are part and parcel of any insurance company's effort to increase revenues and decrease costs. We believe that steps we took over the years and the basics that we adhere to every day, have helped us insolate us from the economic hardships to some extent. Considering all that, this has been a satisfying quarter to the extent that it helps underline the fundamental strength of the company today.

Our repetitive revenue streams and infrastructure based transaction services helped ensure the Ebix continues to grow its revenues, net income and diluted EPS steadily.

Lastly, 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. Eastern Time today. Also, I would encourage you to visit the 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) Our first question is from Mr. Simon [Baroke].

Do you have a figure for the NOL carry-forward at the end of the quarter?

That figure would be approximately 34 million.

Your next question is from Harry [Long].

Absolutely fantastic numbers. I had a couple of quick questions. Mr. Raina, you touched briefly in your remarks on network effects in the exchange line. Could you discuss that a little bit more and the power of the network effect in the exchange line?

You see, what I basically referred to are the aggregation effects. What truly happens in an exchange environment is that there's a threshold level. What I mean by a threshold level, to give you an example, what does an exchange do? An exchange is cutting paper out of the process and is automating the entire insurance process over the internet. Now when you do that in an exchange environment, you're connecting thousands of entities with each other. Now when you look at that, really if there is one broker who wants to communicate let's say to 20 different insurance companies because this broker is licensed with these 20 different insurance companies, the broker likes to use an exchange so that the broker only has to do one data entry and in real time they're both dealing with each other in a quick fire fashion, rather than making 20 different data entries and 20 different Fed Exes flowing at different stages. Having said that, that's what a broker would like to do.

So now when a new exchange player steps in the market and goes back let's say to this broker or one of these 20 carriers and says you know what, I could offer you the same service that Ebix offers, but I will offer that to you at a 50% pricing discount, there is value and then there is little value, because the issue becomes aggregation. The issue becomes when a new player walks in, they need to walk in on day one with an aggregation, because no broker would use the next exchange with just one carrier. They're not going to do multiple data entries. They want to be able to still do the same data entry and deal with all their 20 carriers, so they're going to tell that new exchange, can you bring me all the 20 carriers that I work with today? And when they go to any of those carriers, that carrier is going to say -- any one carrier is going to ask, can you bring me the remaining 50 carriers who are supposed to be on the exchange? Because carriers today are intelligent enough to know that it is important for them to be part of exchanges because they understand the independent agent concept, they understand that everybody -- any good elite agent would like to have choice, would like to make sure they can provide the right consulting to their customer.

And towards that extent, it becomes very important for that carrier -- for the carrier to be in play, that carrier needs to be part of some kind of an exchange, otherwise they might miss out on that business. So it becomes a catch-22 for a new software exchange who's trying to launch an exchange to come in and convince this insurance company to sign on in spite of having dramatically lower prices possibly, because it's a catch-22. The carrier will ask for the remaining carriers, the broker is going to ask for the remaining carriers and it gets very difficult.

This is a positive and a negative. Negative for us because if we enter some new market where let's say there's an existing exchange who's successful, then we have the same problem that we're dealing with. How do we deploy them? And at times our only choice is to buy them, because it's so difficult to nibble our way through and become the exchange. The good news is that most of the market across the world don't have an exchange. They have a need, but nobody has really taken that effort of building these exchanges, so that's where the opportunity also lies. And clearly there is (inaudible) we have established ourselves, it's going to be difficult for a new player to come in and dislodge us. It's like a land grab, as I said. Did I answer your question?

Yes, sir. If I have anymore later, I'll get back on the line. But just wonderful numbers. You guys should all be very, very proud.

Your next question is from Mr. Vincent [Capozzi].

Very good quarter, as usual, thank you. I want to say, the US dollar last year was stronger than it is this year. Now this year, the Australian dollar, I know for example, is coming up against the US dollar. So is there any way you can tell us how much your earnings would be improved by a given increase in say the Australian dollar? Like for example, if the Australian dollar went up 10%, can you give us an idea how much that would increase your earnings?

That's a bit difficult to answer question and I wouldn't hazard a guess on that one, because it's very earning dependent on so many different factors. But I think I did say somewhere here, I think when you said initially that the dollar was stronger last year, that's not necessarily true. When we are comparing average (inaudible) in second quarter of 2008 to second quarter of 2009. Now there is an improvement in Australian dollar between Q1 of 2009 and Q2 of 2009, slightly. But when you look at Q2 of 2009 and Q2 of 2008, really our numbers, if you were adjusting currency adjusted revenues, our revenues would have been almost -- if I have the right number here, our revenues would have been $1.4 million higher if we were making the same currency rate from the last year and our net income would have been $789,000 higher.

You're right, I actually misspoke. I meant to say that the Australian dollar was higher last year. And then it went down, but now it's on the way up, so I'm just wondering, like I follow the Australian dollar quite a bit, because I know we have a big investment in your company, so I want to see how it's affecting--?

Let me answer that, Vincent. Let me try to answer that truly from my perspective, how I think about it. You see in my position or in our position as officers of this company, one of the key things that we have learned over a period of time is that we don't want to gamble with our business. We want to make sure that we are consistent in what we do. Our effort in coming days will be to try and hedge.

And simply because, you see, while it looks like the US dollar is going down and Australian dollar is going up, as you know, it has been volatile and it can go either way. We feel we would rather be consistent rather than play and make money simply because the dollar went up or went down. So we're going to try and remove this aspect of currency variations and we're looking at options to hedge currencies. So really I wouldn't worry too much about whether it goes up or down, meaning we'll try to at least look at ways to reduce the impact of that.

All right, but as of yet, you haven't started the hedge yet?

We have some amount of hedging we have put in place between Q1 and Q2 we did put some hedging in place against ARs between [south] and we have taken 8 million hedges to give you an example, in India. You'll read about it in the Q. We have taken $8 million hedge that kind of helped us a little bit this quarter in the sense that otherwise the impact would have been even more.

I see. Now changing the subject a little bit; the $24 million debt that you have there, is that due by the end of this year?

Yes, it is $24.95 million. It is due by August of this year. Again, I wouldn't be concerned at all about it. We have various options available right now, meaning I'm not at liberty to right now talk about it. It's something that I couldn't make public at this time. But basically we are in very good shape.

All right. So I guess I can't ask you about issuing shares, right?

No, you could ask me anything. Please go ahead.

I mean, in other words, can you tell me anything about a share offering that may be happening in the future?

We don't have any plans as such right now, but it will depend. You see, if we went in for a share offering, it will be a very good sign to the market that we're ready to make a new acquisition, which means, as you know by our history, the market knows that we only get into an acquisition if it is accretive for our shareholders. So if we're going to raise any money in the public markets by sale of equity, it means that side by side there is another transaction possibly that is going to happen, an acquisition transaction, and if that happens, that's not going to be dilutive, it's going to be an accretive transaction for the shareholders.

I'm not at liberty to talk about what are we doing on an acquisition market right now, but you know that we're always in the market. When we get closer to something that is sizable -- smaller acquisitions we're able to fund from within. We're continuing to generate a decent amount of cash from internally and smaller acquisitions we can make from within. But then when you're going into something larger, there might be a need to go out. But if we do, rest assured that's not going to be a dilutive transaction; that's going to be an accretive transaction for shareholders.

Very good. Could you tell me, do you have any competition that's comparable to your exchange kind of thing?

There is clear competition. I couldn't disrespect my competition. I could tell you that the challenges, Vincent, that we have competition, meaning we could, in every country. You always have to be humble and you always have to -- we do dominate in the area that I talked about. Clearly there will be people who try to make efforts and we always have to be watchful, so that's the answer I would give. But if you ask me in these exchanges is there anybody meaningful that we would talk about, no, I wouldn't. I don't think so. But does it mean that nobody meaningful can come in? I would say, yes. It's a bit difficult but doesn't mean it is impossible, meaning we have to keep watching our back all the time.

All right, last question. With your $34 million of NOLs, do you have any idea when you're going to have to pay more income taxes?

I think first of all, it's an answer that will be looked at on a quarterly basis. Right now we're in the midst of a pretty detailed tax exercise with Earnest & Young and once we have finished with that exercise we'll have a better handle on when this will be finished, because it's a worldwide tax strategy which will change a few things for us. So once that is done, I could give you a much better answer on it. But we think we have still some time to go before we worry about NOLs getting finished.

Okay, thank you very much and again, it was a great quarter.

Your next question is from Marty [Heymann].

Two questions; one, could you give some perspective on how you might expect in terms of an OpEx to scale with revenues, even going so far as kind of a target business model, if you would care to? How you expect growth in operating expenses to move with growth in revenues, at the same rate, lower rate, below the gross margin line in particular? And then second, in terms of the acquisitions you've done or you might contemplate, are there opportunities there to pick up on additional material tax benefits in terms of NOLs? Thank you.

Thank you. First of all for your first question related to operating expenses and how we see them proportionately going up or not with respect to revenues and future growth. It's a bit of a difficult question for me to answer. To the extent that we do not issue any guidance, I could tell you this, this question to me, what it means truly is what do we expect from our margins. I couldn't tell you where our margins would be tomorrow, because we don't issue guidance but I could tell you where we would like them to be.

We've always said we would like our net margins to be 35% or higher. We've been consistent right now at 40% net margins. And when you look at that, that's where we would like to be, meaning we don't want to go down on our net margins. We would like to improve, if given a chance. We also believe that on exchanges, once you grow beyond a particular point, there can be game changing moments which could possibly improve our net margins. Now, is that a guarantee? No, it is not. It is something that we're going to endeavor to work towards and something that we're committed to. But I couldn't issue specific guidance to you with respect to any of it.

On acquisitions in respect to NOLs, meaning acquiring any NOLs, of course we keep our eyes open to it. We don't want to make an acquisition just for the sake of an NOL. If we're able to inherit an NOL which is sizable enough, meaning Section 382 kicks in once you acquire a company which limits their NOL acquisition. However, we're really open to that. We want to make an acquisition for the sake of growth, for the sake of dominating in the market and getting an NOL is a plus and that's the way we're looking at it.

Your next question is from Joseph Garner.

Thank you for the strong performance in the quarter, we appreciate that. You had mentioned the health insurance platform in your opening comments. We're wondering if you could give us an update there on how that particular exchange and business line is coming along for you? Have you been hitting the directional points there and what is your strategy and expectations in that market going forward?

Joe, that's a great question and I should have talked about it. Employee benefits, there is two areas. Let me break my answer down in two parts. First is employee benefits and then I'll talk about health plans, the backend health plans. We entered the employee benefit market as an On-Demand software company offering employee benefit solutions to large PPA, to large insurance companies and so on. Today we have around 9 million insured life on that platform. That's how employee benefits -- you gauge your success based on how many lives you have on your platform, because that's how you get paid, based on each life.

Now having said that, we are not the leader in that market. There are larger players. We are almost -- I would say we're probably in size now getting to be the third ranked player in the market. We believe we can dominate in this market. We believe there is a big opportunity for us to become a larger player. You will see us consolidate the market in employee benefits. We think especially for current time is an opportune time to make a few acquisitions, consolidate some platforms, bring them onto a more cutting edge platform.

We believe in a concept of what we call revolution with evolution. What we like doing when we acquire some of these players' platforms is we try and create this revolution product and however we call it revolution with evolution, because we want it to be a revolution from a technology perspective and functionality perspective, but it has to be an evolution for the customer in terms of moving their own data. What I mean is that we don't want to pass the pain of a revolution to the customer. We want to pass the gains of a revolution to the customer.

So having said that, we try and marry this revolution with evolution and our goal is to consolidate the market and become the largest employee benefit exchange in the US. We also believe there is an opportunity to take this employee benefit play across the world. Now, there are markets like, for example, Asia, where there's clearly a market. There is Europe, for example, it is a market. We are looking at Latin America with a lot of interest; places like Brazil. There's a market for employee benefits and with a little bit of customization, that market considering we already have a reach into these markets, we feel that we can take these platforms into these markets. And so in recent times, for example, we have just started a Latin American division, out of Miami, trying to go out to the Latin American markets and employee benefits.

The second part of the answer would be related to the health plan market. This is a rather exciting time in the health market. As you know, Obama's new plan there is this talk about building B2B exchanges. There's talk about building a national insurance health exchange in the middle to try and drive productivity. Now some people see it as a trap and some see it as an opportunity. We see it as an opportunity. Our belief is that building a B2B exchange is relatively easier. When I say easier, I mean you can have basic concepts, but it depends on what does this B2B exchange really do? Is it really interfaced with the backend system of the large health insurance companies? Clearly that will be the meat, otherwise this insurance exchange wouldn't work.

But to make that happen, there is a need for really a B2B health exchange, because there needs to be interfacing hooks into the backend systems of large health insurance companies or any health insurance company, so that they can deal with this new plan. Now, when you think about that, that means there is a need for a B2B exchange and somebody ought to do it. We feel that we want to enter that market. In coming days you could possibly see us make some strategic acquisitions to get into that space, to be an early entrant in trying to build that B2B exchange at the back. But to be an early entrant, you want to use what is already available. And there are some strategic acquisitions that take us there rather quickly. So we're keeping our eyes open to that.

I'm sorry, Joe, to give you such a long answer, but I thought it was a great question for me to address.

Sure, I appreciate that. I'd be curious as to what you see the market potential in the health market as compared to what you've seen in the life and annuity markets?

In terms of size, in my mind, from a B2B player perspective, it's not necessarily a larger market than the life and annuity markets. We feel that finally life markets will be the largest markets for a software company like us. And life has opportunity all across the world. But that doesn't undermine part about health, but clearly that's the way we see it. We feel that life has a bit more opportunity. There is a bit more appetite for technology also there. Whereas health has operated in the hands of a few players, there are not that many insurance companies, for example, in health as compared to what's there in life. So that by itself puts strength.

At this time there are no further questions in queue. (Operator instructions) Your next question is from Harry Long.

I think basically when I'm running evaluation numbers and this is just my own back of the envelope thing; it looks like if you even take the latest quarter and multiply by 4, you guys are basically at a PEG ratio of like 0.25 and I think just as an investor when one wonders why is the company that cheap. I think the simple answer seems to be -- there are many reasons, right? But the simple answer would seem to be that you guys are innovating a lot of new ways of doing business and a lot of things that investors are totally unfamiliar with in terms of your product lines, in terms of the way you guys execute, in terms of different things they've never seen at any other software company.

And so your website I think is absolutely fantastic with the case studies and describing the different channels. But I was just hoping -- maybe this is just a communication thing, simply because people who aren't in the industry, it's literally like trying to understand a new language. If you guys could kind of do something on your website or somewhere else, maybe in a PDF where you basically take investors through what does a transaction look like on an insurance exchange, what's it like when someone is inputting data into it all the way to a transaction completion. I think people kind of need an intuitive feeling or--.

Thank you, Harry. Have you finished your question? Sorry. Harry, let me answer first evaluation question and try to give you my feel on it. As you know what my thought process is and what the company's thought process is on it, while we believe we are undervalued, we respect whatever the market does. We have never worried too much a about where our stock price is. We like to focus on a number then do our thing in a positive manner and hope that the market starts realizing we're a consistent player and we don't like flash in the pan kind of performances.

Now having said that, my perspective on why we are cheap is clearly we are complicated, like you said. The second problem with it is that most people try to put us in this common box of insurance software play, of insurance play. Most people try to look at us and say well, this is a software company for insurance. If insurance is getting badly impacted with all the trouble around insurance industry, they ought to get impacted and how can they be succeeding out there? I think we do not get marked for being an On-Demand software company.

Look at the fact that you have On-Demand software companies getting PE between 87 and 30 and here is Ebix with a forward PE of less than 15. So I think the differences are mainly because we're being put in a box. I think some of it we take responsibility for some of it. In a recent presentation I was telling some people that I think we might have a problem with we're dealing with is we have a bad CEO in me, who sticks to his guns. Who sticks to his guns about not issuing guidance, who doesn't speak to as many analysts. We are starting to realize that while we don't want to speak to as many analysts and imbalance ourselves and keep just focusing on what an analyst wants, we do feel today -- we have started feeling that maybe it won't hurt us to have some analysts -- some good analysts though, write the report.

There's a lot of analysts interested. A lot of analysts would like to cover the stock. It's just that we feel as long as analysts do a professional job and we are not spending umpteen number of hours with those analysts, it would actually serve the investor community well and Ebix well to have a translator in the middle. What you're basically asking for the (inaudible) the stuff. That's basically what an analyst does in a simple lingo that investors understand.

When we put it on our websites and go into [threadbare] detail we feel a bit uncomfortable because some of it gets competitive data, some of it is data where we don't want to be leading some of our competitors into what has to be done. Some of it can be very highly basic and we could do that and that point is well taken. At a high level we could define it. But I think as we go forward, as we get some good analysts covering the story, they will become better translators than we are. Today, could see how I have operated as a CEO and how our management team has worked under me here, we had almost worked hard to keep analysts away from us. But we're starting to realize that it wouldn't hurt to have some good seasoned analysts cover the story and bring it in simple language to people that investors understand.

Basically, even if it was something just like a one-page PDF where there was little diagrams and pretty pictures and someone could say well, this is what an exchange is and they kind of intuitively feel like they understand it. I just feel like there's kind of like that gap where for most people it's not as tangible, by the nature of the business, as a company that sells soda or razors. If you can make it tangible for them, I think that's really the key, but that's just my own thoughts. You guys have the best numbers in the world.

Thank you. Harry, your point is well taken and we'll work towards that.

Your next question is from Mr. Jeff Smith.

Maybe I misunderstood you immediately after you spoke about guidance you talked about growing within your current markets and there may be a game changing event? I don't know if I heard that correctly.

Yes. What I basically meant was, I didn't guarantee a game changing moment, but I did say that once you get into exchanges and once you start gaining in size and once you start deploying them in different places across the world, you at some point reach a level which can be a game changing moment. A game changing moment to us means that you cross certain levels where you become so critical to the whole process that your revenues keep going up and your expenses are not going up as much. So then your margins tend to become a lot higher than they are today. That's what I was referring to. We're not there today, but that's the game changing moment we would like to work towards.

So how close would you be to that event?

I couldn't answer that. I'm sorry, I couldn't answer that. That would be too loaded a question for me to answer, but thank you for the question.

Your next question is from Mr. Mark Lindy.

Quick question, at the start of the call you referenced exchange growth versus Q2 2008 of 40.3%. Where did that growth come from, from a country standpoint, was a good portion of it Australia or was it fairly consistent--?

Well, it was fairly consistent. The exchange grew virtually in every area. Keep in mind that Australia has been badly impacted by exchange rates. But in local currency terms, it continued to grow. Our life exchanges have grown, our annuity exchanges have consistently grown, our P&C exchanges in Australia have grown, so virtually it has been consistent across the board.

Great. It was a very impressive number.

Your next question is from Mr. Kurt Barton.

I was looking on your Investor Relations presentation you had online. I was wondering if you could break out possibly your organic growth that you've had over prior years? I noticed you put out from 2007 to 2008. Could you maybe guide us towards what was going on in 2006 or 2005 or a little bit earlier than that?

Sure we will. We'll make sure that we change all that. Thank you.

Your next question is from Ms. Eileen [Segall].

Right now your earnings are benefiting from an extremely low tax rate, which seems to be temporary. Once you work through the NOLs and the tax holiday, maybe out in 2011, what should I think of as a tax rate?

Well, first of all, our tax holiday is until 2014. And then after 2014 we have a 50% tax holiday until 2019 and basically referring to India. Now, when you look at our overall tax rate, I could not hazard and give you a number, because it's too early for me to give you a number and tell you this is where we think we are headed. But like I said, we are in the midst of a tax [review]. We do not think that there is going to be dramatic changes on our tax rate. I think you will see a gradual change and that gradual change will happen over a period of time. You're not going to see some dramatic changes there. And part of it is because we are widely spread out and we have tax advantages of being in different places around the world.

What portion of your earnings are subject to the tax holiday?

The tax holiday is only in India. In the US we have NOLs that are only usable in the US. But then as I said, we have a tax structure worldwide that takes advantage of India, where India gets paid on (inaudible) basis based on (inaudible) rules and that allows India to -- since India is tax free, that's quite advantageous to us.

So looking out after you've used all your NOLs, we're not looking at a typical 30 to 40% tax rate kind of long term?

No, you're not looking at that rate and like I said, it's very difficult for me to give you a particular number right now, but purely because in the mix of the strategy but what you're going to see is a gradual upswing. You could possibly see over a period of time these rates going up to possibly 10 then 11 and so on. You're not going to suddenly see the rate jump up to 30 or 29 or 25.

At this time there are no other questions in queue.

Thank you very much. I think this has been a good conference call and we look forward to speaking to all of you once we announce third quarter results. Thanks again. And with that I close the call.

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