Ebix Inc (EBIX) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Ebix second quarter 2010 investor call.

(Operator Instructions)

As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mr. Neil Van Helden, Corporate Manager, Marketing. Sir, you may begin.

Good morning, everyone. And welcome to Ebix's second quarter 2010 earnings conference call. Joining me to discuss the quarter is Ebix Chairman, President, and CEO, Robin Raina. Robin is participating in this call from one of our offices in Delhi, India. Following Robin's remarks today, we will open up the call for your questions, to be addressed by Robin and the Ebix CFO, Robert Kerris.

I want to take this time to remind you that the primary purpose of today's call is to provide you with information regarding our second quarter fiscal year 2010 performance. However, some of our discussion or responses to your questions may contain forward-looking statements. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove incorrect, actual Company results could differ materially from these forward-looking statements.

All these risks, uncertainties, and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC, including our most recently reported Form 10-K for the year ended 31st of December, 2009, particularly under the heading Risk Factors. At times in our prepared remarks or in response to your questions today, we may offer certain additional metrics to provide a greater understanding of our business or quarterly results. Please be advised that we may or may not update these additional metrics in future calls.

Our press release announcing the record second quarter results was issued a few hours back. The audio of this investor call is also being webcast live on the web on www.ebix.com/webcast. You can look at Ebix's financials beyond what has been provided in the release on our website, www.ebix.com. The audio and the text transcript of this call will be available on the investor home page of the Ebix website after 2 PM, Eastern Standard time.

Robin will open today's call with a few prepared remarks, and then we'll open things up to your questions. Because we want to address as many of you as possible, I do ask that you limit your questions to one single question today.

With that, let me turn the call over to Robin Raina.

Thank you, Neil. Good morning, gentlemen. I'm joining into this call from one of our buildings in Noida. We have five offices spread across three cities in India, and I'm presently dialing in from our new (inaudible) building in Noida.

Our second quarter 2010 results were record results again for Ebix in terms of revenues, net income, earnings, and cash flows. I feel that it is befitting these record results that I'm doing this call from India, which has been at the center of our research and development efforts to get to this point in our journey.

India is a fascinating power today. But in another few years, they will have one of the youngest populations in the world. Imagine a country within a few years from now approximately 840 million people will be below the age of 35 years. Incidentally, that is approximately three times the population of the United States. After this mix India's strong focus on education and technology excellence, the wrestless desire of the youth to succeed and the result is a highly dilligent workforce willing to learn, adapt, and then lead. At Ebix's own facilities here in India, the average age of an employee is 25 years old, and every 3% of our staff has an engineering degree. It is presently 8.40 PM here in India, and the majority of our staff from the day shift is here in the office still working. That exemplifies to me the spirit of the new youthful India in general and our offices here in particular. Before I get into a discussion of our quarterly results, I want to take this opportunity to salute the efforts of the fantastic work force in (inaudible) India that has contributed strongly to Ebix becoming a state-of-the-art, world-class player that calls to (inaudible) customer attrition rate worldwide.

We reported today the strongest quarter in Ebix's history on many fronts. I'm going to take this opportunity to discuss these results on the financial and quarterly fronts, while giving you an insight into where Ebix would like to go from a future vision perspective. On the financial front, we're extremely pleased with these results. (Inaudible) I'm talking about just a few financial metrics. Revenue this quarter increased 44% from a year ago to $32.2 million. Six months' cumulative revenues at the end of June 30, 2010, increased by 48% to $63.8 million, as compared to the same period a year ago. Our exchange business grew 73% year-over-year to become 71% of our total revenue this quarter. Nothing speaks more to the operating strength of a company than its continued strong cash generation abilities. Cash from operations totaled $16 million in the quarter, an increase of more than 107% from a year ago. This translates into more than $0.40 per share of operating cash flow in a single quarter. Reasonably close to our diluted EPS in the entire first half of our last fiscal year. At the end of June, 2010, we had already recovered 90% of our six-month net income in (inaudible) operating cash flows. That to me some of the financial strength of Ebix today. EBITDA grew 55% this quarter to $16.1 million, as compared to a year ago. EBITDA margins grew to become 50% of our quarterly revenues in the second quarter of 2010, as compared to 47% in the second quarter of 2009.

Let's now talk about Ebix at a quarterly level. Ebix has been the worldwide leader at a time when the insurance industry is still reeling from the aftereffects of the economic crisis in the United States and in spite of the headwind on many fronts. A few (inaudible) an example to you. With consumer confidence being rather low, energy production industry wide is down 20% year-over-year. The property and casualty sector have had one of the worst years in a decade. The health insurance industry (inaudible) the uncertainties created by the Health Reform Bill passage. The construction industry that accounts for approximately 40% of insurance (inaudible) in the US continues to struggle.

In addition, we continue to believe that economic recovery is still tenuous. A number of legislative initiatives in the US and worldwide continue to create uncertainty and a mindset of risk aversion in the insurance industry for all our clients. In spite of all of that, Ebix has continued to move forward with record revenues, earnings, cash flows, and net income. We are continuing to substitute production lost in the industy to organic growth means by bringing new clients to our exchanges.

How does a Company handle headwind at any time? In today's world, any Company that wants continued success needs to adapt, change as a mantra. By that, I imply that in the fast changing world today, any Company needs to adapt continuously to the times to finish the headwind and keep discovering ways to still go. We continue to be bullish about our business prospects, both in the short and long term.

How do we manage to be bullish in a time that is considered the worst time in a decade for the US insurance industry? I'll give you a few specific examples of how we counter the headwinds. As energy production drops year-over-year, (inaudible) industry analysts have called it a shock down phenomenon coming out of a lack of consumer confidence.

While we remain confident that energy production will start flowing again we kept bringing new clients to an annuity exchange, compensating for the drop. We are launching new exchanges to service an old annuity policy. All these are new revenue streams for us. Also, as some of the new larger clients keep joining our exchange, our annuity exchange is likely to keep showing good growth. The macroeconomic indicators show that Asian economy is still going fast.

Latin American insurance markets today have been the fastest growing insurance markets in the world. We decided to expand our (inaudible) and push in these regions. That is likely to show growth also. (Inaudible) insurance industry, we are still trying to understand the ramifications of the Health Reform Act. Health insurance markets in the Middle East, Africa, and the Pacific continued to show very good growth. We are today in the midst of a lot of deals in those markets. The recently announced HMO deal came out of those kind of efforts.

As construction in the industry in the US continued to struggle, our (inaudible) tracking volumes could have fallen quite a bit. (Inaudible) construction industry accounts for 40%, accounted for 40% or more of our BPS and (inaudible) tracking volumes. Instead, our BP revenues continued to grow. Since we signed with clients encompassing 34 new industries, ranging from power, risk management, rental cars, manufacturing, food retail, general retail, et cetera. Net result, in spite of the head wind, Ebix has continued to grow revenues. It's because of our ability to organically keep adding new clients continuously and retaining our existing clients.

On the organic growth front in the second quarter of 2010, the Company signed new contracts with named accounts like (inaudible), Guardian Life, Liberty Life, Sun Life Insurance, Pacific Life, (inaudible) Casualty Company, and Mutual Fidelity Investments, National Financial (inaudible), American Life, M&T Bank, American Equities, (inaudible), First Life Brazil,MetLife Brazil, MetLife Mexico, MetLife US, Western General, (inaudible), AM Malaysia, AM Australia, (inaudible), Kaiser Permanente, (inaudible), National Farmers, (inaudible), Kroger, and Target, et cetera. In the first quarter 2010, the Company had announced similar contracts with named accounts like Term Life, Nortel Life, US Bank, Ameriprise, American General Life, National Western Life, (inaudible), MetLife, Bechtel, (inaudible), Port Authority of New York, New Jersey, and areas, amongst others. This list of names is just a sample of (inaudible) of contracts signed by the Company in those peers with large accounts easily recognizable to the investor community and by no means represents a comprehensive list of contracts signed by Ebix in these two periods of 2010.

We have always believed that a Company's true strength is tested when times are bad for the industry. A Company that can produce record results in an economy like this has a much better chance at producing spectacular results as the tail wind gets behind us and times become better for the industry as a whole. On the customer retention front, we continue to have an almost perfect customer retention rate with no customer of any financial consequence to Ebix deciding to move off our platform. Our infrastructure play, leadership to on-demand, software, e-servers, insurance exchanges, focus on customer support and technology leadership have helped us retain clients in all our channels across the world.

One of ourfew strategies is cross-selling different services to our existing clients. We already have relationships with some of the largest brokers, bankers, and insurers in the world. Since we are using one or more of our services at any time. Our goal is to cross-sell them a broad spectrum of services and penetrate deeper into each of these organizations. Over the coming quarters, we intend to focus sharply on ensuring that our attention is unwaveringly focused specifically on these clients that represent solid long-term client opportunity for the Company.

On the technology front, we continue to be focused on the simple philosophy of being a few years ahead of our competition at all times. Today, Ebix does not sell any legacy platform or service in any part of the world. All the products and services sold by the Company are offered on an on-demand (inaudible) server basis. All our services are being delivered (inaudible) platforms and the latest architecture.

So, how do we perceive our future? At a financial level, the answer to this question to some extent resides in the press release we issued today. And my comment on the possible assurance of (inaudible) the Company. Why we did not completely rule out the possibility of issuing dividend in the future we can (inaudible) our inclination, to use our cash to generate growth and further improvement in future earnings. Basically, we see Ebix as a growth stock rather than a value stock. By value stock I mean a low growth Company that might generate good earnings. We see Ebix as a growth story rather than a value story. Diligence makes more sense for a value stock rather than a growth stock like Ebix. We are confident about our ability to keep growing the Company on all fronts. Revenues, net income, and earnings. Consequently we prefer to invest our cash in both new accretive acquisitions and organic growth initiatives. Our operating margins could have been even more if we were not investing as much in future growth on the recent development infrastructure and sales front.

As an example, we are presently in the process of hiring 15 additional new sales people just in the area of US exchanges and CRM. We are investing in building a focused industrial vertical sales growth while expanding our CRM solution from life and annuity to other areas like proprerty, casualty and health insurance. We are also adding additional new salespeople in all other channels of our business worldwide. We are continuing to expand our sales release to drive increased growth. We are presently working on taking all our life and employee benefit services to Asia Pacific, Middle East, Africa, and Latin America. The recent (inaudible) in Nigeria was a great thing for us and will hopefully allow us to spread our (inaudible) solutions in Africa. We are presently (inaudible) a number of deals, the large Latin American life and annuity carriers for our Ebix CRM, and LifeSpeed Exchange services. We are presently pitching our services on the Middle East for some rather large prospective deals to (inaudible). In seven geographies that we have decided not to target ourself like Libya, Sudan, and Kenya, et cetera, we have appointed a number of experienced explosive distributors to market our services. We will continue to invest in infrastructure, (inaudible) buildings, hardware, software, connectivity and a lasting recovery.

An example of that investment is our recent investment in building a world class (inaudible) style facility in our (inaudible) unit in India. Our facilities are being built out with (inaudible) infrastructure, security systems, (inaudible), environment with (inaudible), health club, sports facilities, like billiards, ping-pong and croquette, multiple (inaudible) calls to bring our employees et cetera. Despite hiring experienced professionals, we continue to invest in fresh young talent and by that I mean talent with masters in computer applications and bachelors in engineering to groom them in insurance and technology with a view to multiple knowledge in our offshore facilities and have a workforce ready and we continue to grow. The Company continues to invest strongly in research and development initiatives. We are presently developing the next generation exchange for annuities. The projects name -- the projects code name brave new world, BNW. It's targeting (inaudible) dealer exchange with (inaudible) highly scalable and flexible BNW exchange. We are also building an end to end enterprise platform code named GLA to deploy (inaudible) existing employee benefit services in the first step and then in a (inaudible) manner emerge as a central enterprise platform for the Company across all functional areas. We are developing new (inaudible) broker solutions to replace our existing broker solutions.

As detailed in the first quarter 2010 investor call, some of our other initiatives being pursued at present are servicing of annuity policy, (inaudible) an annuity policy across multiple carriers, life insurance, (inaudible) delivery (inaudible) and on-demand cloud computing infrastructure in markets like Latin America to provide property and casualty insurance company systems on a utility service (inaudible) across multiple insurance companies. Again, this (inaudible) initiative -- research and development initiative is just a partial list of initiatives that the Company is pursuing and by no means represents a comprehensive list of our R&D initiatives. We continue to believe that we have an opportunity to be the largest insurance software solutions player worldwide. Our (inaudible) has been further strengthened by continually being able to add new clients and also take a functionality new geographies. Our ability to deploy bundled end to end solutions (inaudible) in a unique position with respect to our competition.

For example, in the United States life insurance markets we compete against from large companies like Salesforce, Oracle, and Microsoft none of them is able to offer a solution that will allow the end user to (inaudible) use a CRM solution in conjunction with a (inaudible) exchange, (inaudible) the policy for correctness, (inaudible) exchange, buying the policy, get the bottom and exam them, possibly issue a (inaudible) policy, service the policy, (inaudible) the transaction until the money transfer et cetera, all while being logged into the CRM solution. Only Ebix can offer a solution like that and that's why itself opens up a lot of doors for us. To maximize our opportunity and reach, we have decided to hire (inaudible) to build the largest sales organization (inaudible) this very opportunity.

On June 1, 2010, Ebix' Board of Directors unanimously approved an increase in the salary of Company repurchase plan. Under the two regulation the aggregated amount of common stock the Company is authorized to repurchase was increased from 5 million to 15 million. We repurchased $4 million of common stock from the common market -- from the open market in the second quarter of 2010. Having secured all the required approvals from our bankers also we are (inaudible) in a good position to repurchase more common stock with an aggregate limit of 15 million. Which can further be increased by the Board if required.

In summary, we are pleased with the record results announced today. We continue to believe in our ability to grow revenues organically and inorganically. We intend to remain focused on creating new benchmarks in operating margins and insurance technology leadership. We will need to be (inaudible) in the marathon (inaudible) leading insurance software services player in the world. US (inaudible) who recently played a record 11 hour plus tennis match at Wimbledon is likely to be ringing the opening bell at the NASDAQ with me on August 31, 2010 for the (inaudible) foundation. The goal is to bring the world's attention to the cause of underprivileged slum dwellers across the world in general, and the 50,000 slum families dislodged from Delhi. (Inaudible) from a commonwealth (inaudible) in October 2010. I intend to use this NASDAQ ceremony in New York on August 31, to hopefully borrow a bit of (inaudible), focus and grit from the 25-year-old tennis prodigy. We at Ebix know that (inaudible) if we have to realize our dream of being the largest insurance operator of services player worldwide. Finally, I look forward to describing our future progress when we release our third quarter 2010 results in the early part of November. With that, let me turn the call back to the operator, so that we can take your questions. Thank you.

Thank you, sir. (Operator Instructions) We have a question from Mike Latimore from Northland Capital.

Yes, great. Good morning. Great job on the cash flow in the quarter there.

Thank you, Mike.

Robin, you note the number of contract signings in the quarter. Can you help us understand the incremental revenue benefit maybe on a quarterly basis from those? And then also -- looks like you acquired a Company called Trade Monitor. If you can provide a little bit of additional detail on that, that would be great.

Mike, let's start for the first question that you asked regarding how much revenue. I don't have that answer for you to be able to share with you, probably have to take it -- I'm not ready for that answer. Part of it is these are deals that have just come in. In our role of revenue recognition we don't really recognize revenue immediately on deals. So we'll still have to do our math and come up with those answers. I'm not -- hopefully, by the end of third quarter, when we come and discuss our third quarter results, we'll be in a better position to give you some numbers around some of these deals.

On the second part of the question regarding Trade Monitor, Trade Monitor is a relatively very, very small company. And particularly it's a futuristic initiative from us trying to establish a BPO business in Australia.

Great. Thank you.

Thank you.

Our next question comes from Harry Long from Contrarian Industries.

Hi, Robin. How are you doing?

Hi, Harry, how are you?

Great. Absolutely understanding numbers. And I wish you could be a little more ambitious. You want to be the biggest software services provider in the world. So, it's nice to see that you're--. So basically my question is -- in terms of your sales force, could you please give us a little bit more color. Are these people who are veterans in the industry? Are you growing that capability organically? And also, in terms of deals you've already done -- at what point do you need to come in for CEO-to-CEO contact with, say with some of the bigger institutions to close the deal? Or is that done with a sales force? If you could just give some more color on the sales staff.

That's a great question, Harry. Basically, we are selling, when we sell an exchange for example, we're selling it at the highest level. And when you sell at the highest level the salesperson needs to be extremely qualifed and needs to be able to hold his or her own in terms of all the CEO and Executive Vice President or the CIO. I think (inaudible) we hire (inaudible) those people who are -- who understand the industry, who are competing for that -- who understand, for example, what benefit that exchange offer and so on. And so that's our focus. Beyond that, we however at times couple them up with the retail team. We couple them up with people who are more retail oriented. People we divide industry by in vertically. We'll divide industry whether it's by life management, whether it is by any other field, we'll basically, (inaudible) and so on we -- our sales cycle tends to be at extremely senior level. And at that time it can be -- there is a multinational account program at times you need to follow.

I'll give you a simple example. Take a large insurance company, I don't want to give any names there, for us a new large multinational insurance company. When you see us do one deal with them, what we are trying to do, we're trying to deal with a company in the US and in the life industry. What we are going to immediately do -- we're going to approach them in different other countries, in Asia, in Australia, and we'll reach out to Mexico counterparts, the Brazilian counterparts, and so on.

So how do we handle all of this? It gets really political for us to have a multinational account manager approach. What I mean by that is for that multinational carrier insurer, we need to have one account manager. That account manager can then formulate that information across the world and become the lead on that account. And make sure that this customer first of all is handled in the proper manner. If Mexico is trying to do a deal we're trying to approach Mexico. We also create pressure from the US because corporate (inaudible) in the US and so on. So (inaudible) in sales but there would be one lead manager who would lead that account and that person has to be extremely good. Did I answer the question?

Yes, great numbers.

Thank you.

Thank you. (Operator Instructions) Our next question comes from Gregory Wilbur from Bay Area Micro-Cap.

Robin, you briefly mentioned in your comments about your HMO business in Nigeria. Could you give us some perspective on what the -- that's a large country, lot of people, lot of potential. Could you give us a perspective on that, please.

Thank you, Greg. Greg, basically, Nigeria has 60 HMOs that exist. We've done a deal with one of the leading HMOs. So our goal is (inaudible) this is a very important deal and we feel extremely good about it. The deal is pretty simple. Trusting what we have done as we have proven that our solutions, that our health solutions can be used in Africa. That by itself is a big deal. Because for that we have to make sure that we ultimately have a system that every HMO now and we go to the next HMO, that HM would know that hey, there's already a client, a user. And so -- and also what happens is once you have one client, they are interested in making sure that there are other clients, because that where they get better quality of support. Ebix can hopefully, set up local operations in Nigeria and so on. We feel very good about it. And all these African countries build a very strong focus today on improving the health insurance aspects of their economy. To that extent, we feel with our position today to try and target that market and we'll have to do many more things. We actually feel that we need to have a real presence in terms of sales, support, and so on in the African continent. And I think we will pursue that in coming days.

Thank you.

(Operator Instructions)

I'm showing no further questions at this time.

Okay. Thank you. Since there are no further questions, I'll just thank everybody for being on the call. Actually, a question from Harry Long. Harry, you want to ask a question?

(Inaudible).

Thank you. Since there are no further questions, I'm going to close the call today. Thank you for participating in the call. I look forward to speaking to each -- to all of you in November when we announce our third quarter results. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect, and have a wonderful day.