Ebix Inc (EBIX) 2012 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Ebix Incorporated first quarter 2012 investor call.. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Steve Barlow. Sir, you may begin.

Thank you. Welcome everyone to Ebix's first quarter 2012 earnings conference call. Joining me to discuss the quarter is Ebix Chairman, President and CEO, Robin Raina, and Ebix Senior Vice President and CFO, Robert Kerris. Following our remarks we will open up the call for your questions.

Let me remind you that the primary purpose of today's call is to provide you with information regarding our first quarter 2012 performance. However some of our discussion and 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 of these risks, uncertainties, and assumptions as well as other information on potential factors that could affect our financial results, are included on our reports filed with the SEC, including our most recently reported Form 10-K for the year ended December 31st, 2011, particularly under the heading Risk Factors.

During the course of this call we may reference historical nonGAAP financial measure to provide a greater understanding of our business or financial results. Management at times may review certain nonGAAP financial information and metrics in evaluating the Company's historical and projected financial performance, and believe it may assist investors in assessing its ongoing operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Please be advised we may or may not update these metrics in future calls. Our press release announcing Q1 2012 results was issued a few hours ago. The audio of this investor call is being webcast live on the web at www.ebix.com/webcast. You can also look at Ebix' financials beyond what has been provided in our release on our website, www.ebix.com. The audio and text transcript of this call will be available also on the Investor homepage of the Ebix website after 3pm Eastern Daylight Time today.

We reported a strong first quarter, following Ebix' strong performance in 2011. Bob and I will talk about the Company from a financial perspective, and Robin will address the business of the quarter, and our strategy for 2012. Revenue in Q1 increased by 9% from a year ago to $43.8 million, there were several drivers of revenue growth in Q1, most notably on our exchange business in Q1 of 2012 grew 12% over Q1 of 2011 to become 79% of our total revenue this quarter, compared to 78% a year ago. The Broker channel increased revenue by 24% and our BPO channel was down 1%. The carrier channel was down 44% as compared to a year ago. We expect the broker channel to continue growing in the year 2012. Our BPO channel performance is directly linked to the number of insurance certificates generated in the industry. Since we get paid for the generation and tracking of insurance certificates.

The BPO channel performance was relatively flat in the quarter, driven primarily by the downtrend in the construction and housing industry, that accounts for almost 40% of the insurance certificates generated in the industry. Over the last few quarters we have made efforts to open up many other industry verticals, and are now starting to see the results in these efforts. We are in advanced proposal stages for several deals that could contribute strongly to our BPO numbers in future quarters. Robin will talk more about the exchange and carrier channels in his remarks.

Looking at expenses and margins year-over-year, the Company's operating margin for Q1 2012 was 42%, as compared to 39% in Q1 2011. Management's commitment to our operating margin goals was evident in this quarter, as expenses increased only 4%, while revenue increased 9% year-over-year. Q1 2012 GAAP net income was $15.7 million, as compared to Q1 2011 net income of $15.3 million up 3%. This is a record for our first quarters. Q1 2012 GAAP diluted earnings per share rose 8% year-over-year to $0.40, as compared to $0.37 in the first quarter of 2011. For purposes of Q1 2012 EPS calculation, there was an average of 39.5 million diluted shares outstanding during the quarter, as compared to 41.5 million diluted shares outstanding in Q1 2011. I will now turn the call over to Bob.

Thank you Steve. There are a few things that have been consistent hallmarks about business over the last several years, specifically operating margins in the 40% range, significant recurring revenue streams, and the Company's ability to generate robust cash flows from its operating activities. In terms of operating cash flow, the Q1 operating cash flow of $13.8 million represents a 33% annual improvement over Q1 2011. Q1 reported operating cash flow of $13.8 million is net of $1.4 million of payments to settle foreign exchange hedge contracts, and $2.1 million of payments to advance the process towards possible future tax obligations for the year 2015 and beyond in certain foreign jurisdictions.

We ended the first quarter with $37.9 million remaining in aggregate cash, cash equivalents, and short term cash deposit investment balances. These aggregated cash balances combined with the available financing capacities from our recently announced new syndicated credit facility, provides the Company with approximately $84 million of cash resources, that continues to grow our business both organically and through accretive business acquisitions. In that regard, subsequent to the close of the quarter, we announced the acquisition of Taimma, in Montreal Canada. Robin will touch on the strategic fit of this business acquisition in his remarks.

As reported in the press release earlier the Company's balance sheet metrics continue to improve in Q1 of 2012 with working capital increasing to $26.4 million at March 31st from $14 million at December 31 2011. And Accounts Receivable DSO at 60 days as of March 31st this year an improvement of 18 days from a year earlier of March 2011. Our tax rate in Q1 of this year was 12.5% versus 9.4% a year ago. As of March 31st, the Company has approximately $56 million of remaining domestic NOLs available to offset future US taxable income. In the first quarter of 2012, our diluted share count was 39.5 million shares and for Q2 of this year we expect the diluted share count to be approximately the same. Finally, our next dividend payment will be paid on May 31st to shareholders of record on May 15. As we stated in last quarter's call, the quarterly payment was raised to $0.05 from $0.04 per share. Ebix's full report for the three months ended March 31st, 2012 on Form 10-Q will be filed this Thursday May 10th. I will now turn the call over to Robin.

Thank you Bob. Good morning everyone, and thank you for joining us today. Let me start by mentioning something that was recently pointed out to me, namely that this quarterly report marks the 50th quarterly report that the Company has reported since I took over the handing of Ebix in 1999 . I feel blessed and humbled to have been trusted by an investor base across these years to lead the Company through these 50 quarters. Indirectly after my taking over as President of Ebix, the Company reported fourth quarter 1999 numbers.

The revenue in fourth quarter of 1999 was $1.46 million. The net loss that quarter was $8.05 million, and the diluted EPS that quarter was a large negative number. Quite a few pundits were predicting demise of the Company at that time. Obviously in these 50 quarters, The Company has come a long way. Compared these numbers now to the numbers just reported for Q1 of 2012, revenues of $43.8 million, net income of $15.7 million, and diluted EPS of $0.40, and you would understand the journey this Company has been through .

In 1999 after taking over as President, I set out a rather simplistic vision plan in front of our investor base. On the financial front the vision plan was that the selling price needed to be a lot higher than the cost price. And on the technology and business fronts, the vision plan could be summed up in one word, convergence. As I sit here on the 50 quarterly reporting since then , those rather simplistic vision plans have translated into what is called exchanges today, and into Ebix generating operating margins in the 40% range. Having taken you through my journey here, let me first discuss the quarterly numbers, and then take you through a new vision plan that I intend to spell out today for all of you.

Let's first start with the analysis of the first quarter 2012 quarterly numbers. The quarterly numbers announced today are another step forward from my perspective. The first quarter was a good quarter in terms of new bookings, increasing our prospect base, and also evolving into some symbolic partnerships that should help us a lot in the months and years to come. We expect 2012 to be a good year in terms of both revenue growth and operating margins. We believe that the best is ahead of us in terms of top line growth. With a motivated sales team in place, our strong prospect base worldwide, and with Ebix being considered for many large sized deals, we believe that 2012 should be a great year for us.

The Exchange channel comprising 79% of our revenues is naturally our top focus area. In terms of opening up new opportunities the Exchange channel continued to deliver for us. In the first quarter of 2012 we decided to delay the launch of two new exchange products for strategic reasons. That impacted our exchange revenues in the first quarter. That is impact is a timing issue, and those revenues are likely to happen later. As you know, we have hired a lot of new sales people in the Exchange arena in the last few quarters, all of these sales people are new, and are presently being trained on the rather expansive enterprise services that we deliver. We are very glad with the quality of the sales people hired by us, and are looking forward to seeing them deliver on these expectations. We continue to selectively hire great sales talent when we find it, but our first focus at present is to make sure that the resources we brought on board last year execute in 2012.

Many things have changed in Ebix over the last one year. Today we are structurally ready to be a much larger company in terms of driving growth, taking leadership in the insurance software services arena worldwide, and pursuing large deals. The Company's sales efforts today have resulted in the Company having sales partnerships, with named major companies, such as Unisys, Microsoft, Cognizant, CGI, Accenture, et cetera. In addition to creating a strong direct sales growth that is focused on selling enterprise services to the insurance industry. We are today in play to be the enterprise development and IP partner to life and health insurance companies, healthcare providers, large insurance brokers, and other insurance entities, enterprise deals like that allow us to get a recurring assured revenue stream in terms of all of the technology outsourcing and also the recurring revenue associated with our transaction oriented products and services.

Over last few quarters we have already signed a few such deals. We are bidding on many such deals at present, and are a front-runner in many such opportunities at present. Steve has already talked about the broker and BPO channels of our business. I will talk only about exchanges and the B&C Carrier channel. Our Carrier channel which basically represents our Property and Casualty carrier back end systems revenues reported a 44% decline in revenues over the last year. While that has hurt our overall revenue numbers in the quarter, we have reason to believe that we with can get this channel to start delivering better performance to the Company. Our revenue model in this channel has dramatically changed from a perpetual license based model to an annuity recurring revenue model.

The P&C business remains a highly competitive business in the US. This is an industry wherein carriers are used to buying perpetual licenses, and then holding onto that system for decades without paying much, contrary to what you might have heard in recent times, the P&C insurance industry constituents in the US have been suffering from a margin crunch. Commissions are traditionally low in P&C, as compared to say the life insurance industry. Overall the industry has struggled a bit over last few years.

We saw this trend early and thus decided not to focus as much on the P&C industry in the US, we are focused today on selling in P&C industry at our terms, which means that unlike our competitors, we do not sell intellectual property. We provide our customers access to our intellectual property for a recurring fee. This model has worked for us in other lines whereas Property & Casualty business in the US was the only channel where we until recently simply used to sell perpetual rights, and we recently had a change of model. Our sales pipeline is good in this area, and we expect a gradual rather than an overnight increase in our numbers in this area.

I am pleased that while we have kept investing in building our sales force, expanding our development capacities in India sizeably, we are still able to report strong growth and operating margins, with gross margins at 79.4%, and operating margins at 41.8% for the first quarter of 2012. In recent times we have announced a few key events that are likely to have a positive effect in our future, one, the acquisition of Montreal based Taimma was one such event. The combination of add-on content, and M learning expertise in the pharmaceutical and biotechnology industries helps us expand the reach and depth of our health content exchange. The success of the iPad , and similar handheld devices, has opened up tremendous opportunities in the field of medical education and M Learning. The ability to take our large medical content and sell it in the form of mobile apps over worldwide distribution platforms, like the Amazon and Apple iTunes stores. We expect this synergistic acquisition, and the increased possibilities created by the union of A.D.A.M. and Taimma to contribute strongly towards our 2012 revenues.

Two, the recent announcement of the CurePet deal, was an example of an IP and development outsourcing deal that can deliver recurring strong revenues for Ebix in the quarters to come. We have many opportunities in this deal, firstly, to get a shorter avenues from providing IP outsourcing services, transaction revenues from users for claim services, and also revenue share arising out of the usage of the Pet Insurance Exchange, by all of the involved entities. With 20 million owners in the US itself, and no efficient means to transmit insurance data, the Pet Insurance Exchange, with electronic medical records and practiced management has the potential to drive huge efficiencies in this niche market.

Three, Ebix recently entered into a new $100 million secure syndicated credit facility with Citibank, as administrative agent, and Citibank, Wells Fargo, and RBS as joint lenders. We are also very pleased with the faith shown in Ebix and the strong fundamental s of our business by these three leading banks. It should be no secret that the Company intends to use this cash to make a few accretive acquisitions in the near future.

Yesterday we announced the signing of tennis star John Isner as Ebix Ambassador. In addition to partnering with Ebix on customer engagement opportunities both on and off the court, Isner will wear an Ebix branded patch on the right sleeve of his clothing as part of the partnership agreement. Ebix will also act as a title sponsor for Isner's Annual Charity Event, an exhibition tournament played in Isner's home state of North Carolina. John is presently playing at the Madrid Open. We wish him the best of luck. As the US Davis Cup Captain and top seeded player today, he represents the country's best chance to win a Grand Slam Tournament. We chose John to be the Ebix Ambassador since he personifies the same winning attributes, such as persistence, passion, and performance, that in our view defines Ebix today in the insurance software industry.

This two-year global sponsorship deal is an example of the marketing efforts that Ebix is prepared to undertake to create brand recognition for the Company, and its key products like EBIX CRM across the world. At the beginning of this talk I talked about the vision plan I laid out in 1999 to our investors and employees alike. I know quite a few investors who believed in that vision, and have held onto their investments for last decade while adding to their position over the years. Besides many such holders are on this call at present, I being one of them. I myself believed in the vision plan laid out in 1999 by me, and thus continue to hold on to my own positions in Ebix.

Today on my 50th quarterly reporting, I am prepared to layout the second phase of the vision plan for Ebix as I see it, and I will try to summarize it in a few simple sentences. Business vision for Ebix. The business vision for Ebix is to be the largest on demand insurance software services player in the world. Technology vision for Ebix today, I could sum it up in two words , change and convergence. Ebix intends to keep focusing on converging all channels in insurance, converging B and B-to-C processes, and converging front and back end processes. The addition of the word change signifies the times that we live in. The Company needs to keep changing rapidly to adapt to the changing technologies, to the changing business and regulatory challenges being thrown at the insurance industry, while always trying to be a few years ahead of our competition, in terms of how we develop, design, implement, deploy, support, or even sell our products.

Top line goal for Ebix. The Company today wants to set out an ambitious goal to be $0.5 billion revenue company over the next five years. I want to emphasize as I did in 1999, that this is just a goal, and by no means a guidance to the future. There are no guarantees that we will achieve this goal, or come anywhere close to it , but rest assured that we will make every effort to make this wish come true.

Ebix operating margin goal. The Company would like to keep its operating margins in the 40% range as it works toward this $0.5 billion revenue goal. Our focus on high operating margins clearly makes the top line goal a lot more challenging, but that is what we would still like to target. Clearly Ebix has no magic plan to make this vision a reality, but I believe in the inherent strength of the Company's business model,its products and service, and its strong employee force today worldwide. And thus have laid out a rather ambitious goal to take the Company forward. Having said that we are first focused on ensuring that 2012 will be a great year for Ebix, in terms of top line growth and strong operating margins.

With that, I would like to close my talk today, and request the operator to open the call for questions. Thank you.

(Operator Instructions). We ask that you limit yourself to one question and one follow-up question. Our first question Jeff Van Rhee with Craig-Hallum, you may begin.

Great, thank you. A handful of questions. Robin, in terms of being the largest player, wanting to be the largest on demand player in the insurance services market, who do you see as the largest player now?

Well that is a great question. There are not that many left in the market in terms of there are different players going on in different markets. With each and every passing day, Ebix is already becoming the largest on demand services player, but having said that, meaning you could say today that there are other players who are playing in the back end market, moreso players like CSC for example, CSC is a fairly large player, I would say probably they are the largest today in the insurance domain arena. By virtue of what we are trying to say is that we would like to be larger than the CSC in the insurance arena. You can't discount IBM in the insurance space. They are a very strong player. They don't necessarily play in the on demand space, but by virtue of all of their partnerships, they do quite a bit of revenue in the insurance space.

Okay. And then the goal I think we are at about $183 million to $184 million for 2012. You are targeting $500 million in 5 years. As you think about that incremental, $315 or so million,how do you think about that $315 million in terms of acquired versus organic, just roughly speaking?

You named a number $183 million or $184 million, that is not my number for 2012. That is a number that you came up with right now. I think 2012, the jury is still out. Let's finish 2012 and let's see where we end up with 2012. We are looking forward to a great 2012 from here onward.

Having said that between 2012, and as we go forward, it is going to be a healthy mix of organic and inorganic growth. A few years back I used to say if Ebix gets to its first $100 million with 40% in operating margins, the next $100 million will come a lot easier. What I really meant and fortunately that has proven to be correct, more or less. Today when you look at it, it took us probably 30 years to get to the first $100 million, but then the next $100 million is coming in less than three years. I just ran that math, and we are basically, so having said that why did that happen?

It primarily happened because of the high operating margins that this Company has been generating . When you are generating that kind of cash flow you have the ability to, the ammunition to be able to grow this Company, both organically and inorganically. Having said that, we do believe with a high focus on operating margins, it does provide us a lot of opportunity to first of all grow our business organically. You know that we are today making in terms of creating a world-class sales team. You have seen some of the stuff we are doing in the marketing area, trying to take a bigger space in the market. In addition to that, when you have that kind of cash and you keep generating that kind of cash on an ongoing basis, you have a lot of ammunition available to be able to make accretive acquisitions. It is going to be a healthy mix of both.

Two last questions, and I will let someone else jump on . The HealthConnect and Taimma acquisitions where do they fall in terms of the four key business segments you break out?

The HealthConnect is clearly an exchange. You talked about HealthConnect first, and that is clearly an exchange. It plays in the quoting arena, in terms of connecting the brokers, carriers, and thousands of brokers, carriers across I think 48 states, or something like that. And when you look at Taimma, Taimma will actually fall, will be a part of the content exchange, the health content exchange side of business, which is where ADAM fits in. Basically Taimma basically does what ADAM does, except that they do it more in the mobile arena, more in the medical end, in the pharmaceutical and biotechnology arena, but what Taimma does allow us is between the time we bought Taimma and now, we have already discovered efficiencies to make our existing ADAM business a lot more efficient.

The simple reason is they do certain things better than us, we do certain things better than them and we have been able to combine those efficiencies, but having said that, they ultimately feed into the content exchange, all of the content that ADAM has is the content that now will go on all of the mobile equipment. And so we are maximizing the value of the assets we already had built in ADAM, and vice versa. It fits into the health content exchange arena.

Then last question, the large deals you referenced on a number of spots on the script, some very large deals that are working through the pipe, and the fact that you are targeting larger deals. Can you expand and maybe give some color around timing, how long have these cycles have been in play, when you realistically think you should start to see some of those close, that kind of color would be great?

Well, first of all, let's define the word large. Large is a number which can vary anywhere from between $2 million in revenue from $10 million upwards in revenue. Now key for us is, one thing which people at times forget, as we keep talking about revenue growth, one key factor at Ebix business model is, we are trying to discover the cutting revenue streams. We are trying to discover that each time that we sign a deal it shouldn't be just that we get a revenue for the next three years, and after that the revenue could go away. We are trying to create deals wherein Intellectual Property is always owned by us, we are not giving away intellectual property which means we are trying to create a business model wherein revenue streams just keep happening.

So that makes it a little bit more challenging. Having said that , we are in the midst of many deals, they are in the health arena, they are in the life arena, they are in the P&C arena, many of this is in exchanges, it is in back end systems, it is in multiple arenas , and some of these deals have been there since last year, some of these deals are virtually new. So I think it is a cross section of the cycle. I couldn't really tell you which one happens first, and these are all buy binary situations. These are all real won situation situations, but having said that , some of the new , I referenced partnerships for example, when we talk about some of these partnerships , like us teaming up with Microsoft , or us teaming up with Accenture, or us teaming up with Cognizant, or us teaming up with CGS, these are all large players, and we are all teaming up for large deals with them. These are exclusive partnerships for those deals, but these are all large deals. They are binary situations. I couldn't guarantee that these deals will come our way, but the good news is if you have a strong pipeline, something has to happen, and that is what we are focused on.

Our focus today with all the hires has been that we have tried not to go for the jugular, we have tried not to just go for the revenue which is going to be imagier, and will give us a big boost. We are trying to look for revenue which is recurring. That becomes very important . We trying to go after enterprise deals. We are trying to go after revenue. We are trying to convince today an insurance company to say, why don't you just move, rather than just go to an insurance company and say we will sell you a life exchange, or we will see you an annuity exchange, or a P&C exchange. We go to an insurance company today and saying we can pick up your entire IT. You could virtually give us everything. You could let us be the back end provider, we could be the life or exchange provider, we could do your front-end processing, and we could virtually take on everything. I will tell you that we are a front-runner in many such deals today, we are trying to create a market. Hopefully some of those deals will happen. If they happen, clearly our future will look a lot brighter. Having said that, that is the extent that I can say at this point in time.

Why do you think given it so broad life, health, P&C, exchanges back end, it is across the business, and then all of a sudden the big deals are really perking up. It seems like there must be a common driver. Is there a common thread as to what is driving the big deals now across the business?

Absolutely, meaning I think the key thing is first of all, the market over the years, what has happened as the market has gone through the margin pressure, insurance companies are trying to look for efficient solutions. When you look at today when the insurance companies are trying to say, well how do I save money? How do I make my processes more seamless, and my distribution mechanisms a lot more seamless? What is truly happening is that there are not many companies that can step in and say, I can virtually take care of all sides of your business. I can take care of your CRM needs, I can take care of your exchange needs, I can take care of ageneral ledger, I can give you a back end systems, I can create a self-service piece for your consumer or for your brokers, I can download all of the installment data into your systems, I can do the claims adjudication. And incidentally I can do this across health, P&C , life, and annuities.

That becomes a big deal. How many companies can do that? I don't know of a company that can do that outside of Ebix. That puts us in a rather unique position with each and every passing day. As we have been able to build all of these services we have kept interfacing them. We have tried to put all of this on a common, common system in the manner that it makes sense for our customers, make it simplistic for our customers, rather than trying to sell them 20 different products. We are trying to sell them a complete solution now. That puts us in a rather unique position.

Secondly Ebix size has changed. Earlier a larger carrier would think that in spite of knowing Ebix well, part of the rational could have been in a larger deal that, can I really risk a large deal with Ebix, this could be a large percentage of Ebix revenues. And sometimes large carriers do not make those kinds of decisions, and they would rather go with big consulting houses, because that is the way carriers work. Today Ebix is seen as one of the larger players, which means that the fear that they had of dealing with a smaller company has gone away. So there are multiple elements, but most importantly it does the services that we are able to offer under one roof, and the ability to virtually move data seamlessly, that becomes a key thing for insurance companies.

Got it. Great. Thank you.

Thank you.

Thank you. (Operator Instructions). I am showing no further questions at this time. I would now like to turn the conference back over for closing remarks .

Thank you, Shannon. Since there are no more questions today, we will close the call, and our IR department is always here to handle all of your calls, and we look forward to reporting the second quarter soon. Thank you.

Ladies and gentlemen, this concludes today's conference, thank you for your participation, and have a wonderful day.