Ebix Inc (EBIX) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ebix third-quarter 2014 investor call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the call over to Darren Joseph, Corporate Vice President. Sir, the floor is yours.

Thank you. Welcome everyone to Ebix Inc's third-quarter earnings conference call.

Joining me to discuss the quarter is Ebix Chairman, President and CEO, Robin Raina and Ebix EVP and CFO, Robert Kerris. Following our remarks we will open up the call for your questions.

Let me first quickly cover the Safe Harbor. Some of the statements that we make today are forward-looking, including among others, statements regarding Ebix's future investments, our long-term growth and innovation, the expected performance of our businesses and our use of cash.

These statements involve a number of risks and uncertainties that might cause actual results to differ materially from those projected in the forward-looking statements. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions of these forward-looking statements in light of new information or future events.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements made today is contained in our SEC filings which list a more detailed description of the risk factors that may affect our results.

Our Press Release announcing the third-quarter results was issued earlier this morning. The audio of this investor call is also being webcast live 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 also on the investor homepage of the Ebix website after 4 PM Eastern Standard Time today.

Let's start by discussing the results announced today. Bob and I will talk about the Company from a financial perspective and Robin will sum up and provide some added color on the quarter and 2014.

Revenue in Q3 increased 1% from a year ago, to $50.8 million. On a constant currency basis, Ebix's Q3 2014 revenue increased year over year to $50.5 million, as compared to $50.3 million in Q3 of 2013. Also on the constant currency basis, year-to-date revenue increased to $155.8 million, as compared to $153.9 million during the same period in 2013.

In Q3 our exchange revenue continued to be the largest channel for Ebix, accounting for 82% of the Company's revenues. The reinsurance life and health e-commerce platforms aided revenue growth on a year-to-date basis. Reinsurance revenue grew 18% year over year in Q3 of 2014, while worldwide life and annuity revenues grew 5%. Health revenues grew 2% in the same period.

The revenues in Q3 of 2014 were primarily impacted negatively by the lower transaction count in the P&C arena and the Asia-Pacific resulting in P&C revenues being 10% lower year over year and $1 million lower sequentially. We expect this drop in Asia-Pacific to be seasonal and thus temporary.

The continued strengthening of the US dollar year over year, as compared to the Australian dollar and the Brazilian real, decreased revenue by $2.1 million during the nine months ended September 30, 2014, across the exchange and broker system channels. Our broker business revenue, which is primarily international-based, increased by approximately $100,000 in Q3 2014, as compared to Q3 of 2013. Strengthening of the US dollar continued to hurt our broker revenue streams, as discussed earlier in my talk.

Our carrier P&C policy administration revenues dropped year over year by approximately $550,000, due to reduced professional services associated with certain PMC carriers going into production, as also lesser emphasis of the Company on non-recurring license and professional services-based product sales.

Our RCS revenues in the quarter dropped year over year by approximately $250,000, primarily due to lower certificates being processed in the quarter. We expect these numbers to improve as some of our key new clients go into production as also the certificate compliance gets a traditional push towards the end of the year.

Also these numbers do not include any contribution from our Pet Exchange that we expect to start generating revenues from two key veterinary schools beginning Q1 2015. Also we are still in the process of a detailed rollout for Walmart of Canada, Big Lots and Canadian Railroad that should all start generating revenue -- increased revenues soon for the RCS division.

I will now turn the call over to Bob.

Thank you, Darren, and thanks to all on the call for your continued interest in Ebix.

Q3 2014 diluted earnings per share of $0.47 were up $0.13, or 34% in the third quarter 2013. For the purposes of the Q3 EPS calculation, there were an average of 38.3 million diluted shares outstanding during the quarter, as compared to 38.5 million diluted shares outstanding in Q3 of last year.

Assuming we look at the impact of all purchases of stock made in Q3 of this year as if they had been in place at July 1, the diluted share count would have been 37 million, implying that the diluted EPS figure would have been $0.49, or a $0.02 increase over our reported numbers for the third quarter. As of today, the Company expects diluted share count for Q4 2014 to be approximately 37 million.

Operating income for this past third quarter was $21.7 million, as compared to $18.6 million of operating income in the same quarter of last year. Operating margins for Q3 were up 43%, as compared to 37% for Q3 of 2013. Normal line operating margin for the third quarter, excluding the benefit of comparative increases of $1.7 million in year-over-year reductions to [Ernak] contingent liabilities associated with prior business acquisitions would have been 39%.

In Q3 of 2014 our operating cash flow was $9.8 million, a decrease of $3 million or 24%, as compared to Q3 of 2013. This operating cash flow was affected by $11.1 million of cash outflow associated with the payment of income taxes, minimum alternative taxes, sales taxes and other certain prepaids. Before taking the impact of these unique cash outflow items, our operating cash flow would've been $20.9 million for the quarter.

In addition to the above, the Company made additional investments worth $20.7 million in Q3 towards share repurchases and dividend payments. After paying for all these initiatives, Ebix still had aggregate cash, cash equivalents and short-term investments in the amount of $48.7 million as of September 30. This cash performance, in our view, validates the sustainability of Ebix's business model.

Furthermore, as to the balance sheet metrics as of the end of the third quarter, our net debt stood at $17.7 million, our working capital position was $58.7 million. Our current ratio stood at 2.65 and our accounts receivable DSO was 68 days, an improvement of [three] days from the previous second quarter.

As of September 30, the Company has access to $137 million of additional borrowing capacity on a syndicated senior secured credit facility from the [Regionist] Bank, which, combined with our available cash balances of $47.4 million, provides Ebix with ample financial resources to support the continued profitable growth of the Company, both organically and through accretive acquisitions and to repurchase shares of our common stock.

The Company announced today the payment of its next dividend of $0.075 a share, payable on December 15 to common stockholders of record on December 1.

Finally, Ebix's Form 10-Q will be filed this Monday, November 10, 2014.

I will now pass the call on to Robin.

Thanks, Bob. Good morning.

Darren and Bob have already discussed the quarter in numerical terms. I'll focus my talk on recent acquisitions, the future and what we see ahead of us.

Let me first address the top line area. In Q3, the Company signed in excess of 230 new contracts and work orders in the United States alone. I'll focus my discussion on top line to certain key deals only.

In the third quarter, we received a go-ahead on a number of key deals on many fronts. In the area of broker systems, one of the top BNC brokers in the world, Willis, gave us the go-ahead to implement our broker system in as many as nine new countries in 2015 and beyond. This project will require professional services and subscription revenues for the Company.

We have also agreed on a deal with another large super-broker, Aon, to deploy Ebix [Evolution] in 2015 across a large number of countries. Ebix Evolution is a fast-paced on-demand broker system that has been in deployment for the last few years and will replace our existing eGLOBAL system in international markets.

In the area of life and annuity exchanges, we agreed on deals with four large life carriers for implementing our TPP underwriting functionality in 2015. These include names like American family, CUNA, John Hancock and MassMutual. We also agreed on a key deal to implement annuity maintenance platform and for one of the largest annuity distributors, Ed Jones and all their carriers. We believe that this will help trigger a network effect for the annuity maintenance platform in the United States.

We also signed a recurring end-to-end health e-commerce deal with Conifer to implement EbixEnterprise. This will be our third client on EbixEnterprise after [IHC] and Security Life. We expect them to go live in the first quarter of 2015.

We formalized our partnership with Swiss Re to market our TPP underwriting exchange functionality jointly across the world to banks, financial institutions, market and savings institutions, key retail outlets, et cetera. Swiss Re's underwriting guide is used by a vast majority of the life insurers in the world. I'm proud to convey that Swiss Re have exclusively teamed up with Ebix to jointly create an underwriting exchange to be provided to the vast life-insurance audience. This is the first exchange initiative of this kind in the world with the backing of a giant like Swiss Re.

Recently, MetLife's online division went successfully into production on this joint initiative between Ebix and Swiss Re in the record time of six months. We expect that this initiative will have material meaning for us in the year 2015 and beyond. This joint initiative is being marketed and sold in the markets by both the sales teams from Ebix and Swiss Re.

Recently, we had one of our largest exchange conferences in Las Vegas where both MetLife and Swiss Re presented the successful implementation to a packed audience of carrier representatives. Swiss Re Life and Health US President and Managing Director Neil Sprackling attended the conference on behalf of Swiss Re, along with a few other senior executives from Swiss Re.

At the request of our existing TPP clients, we also expect to start moving all our large TPP clients to the latest version of the TPP platform in 2015 and beyond. This should generate additional professional services and new recurring revenue streams for us in 2015. We are in the midst of a number of large recurring revenue exchange deals that can have a material impact on Ebix revenues in 2015. We will not talk about those at this time in detail as we will be giving up on our competitive positioning if we discuss those in this forum.

Looking at the future, we're focused on ensuring that, by the end of the year 2015, Ebix has a top line of $250 million to $260 million. It will be aided by all these initiatives that I discussed and also our acquisition strategy.

There are three key products and services that will be at the center of our worldwide positioning strategy. EbixEnterprise as the end-to-end enterprise platform; SmartOffice as a fee [otem] system; and TPP as the underwriting system. All other services will be like the spokes around this hub, driving our exchanges.

Recently, we announced the launch of Ebix Consulting with the acquisition of Connecticut-based VERTEX Incorporated, with the goal of establishing a non-aligned worldwide strategic management consulting practice targeted at the insurance, healthcare and financial industries all across the world. VERTEX is a specialized software and services forum focused primarily on the life and annuity insurance marketplace since 1991.

VERTEX provides technology and operational consulting straight through processing services, and software-as-a-service products through the life and annuity insurers, health insurers, brokers and distributors, insurance technology vendors and service providers. VERTEX generates over 80% of its revenue from the life and annuity insurers, of which 47% come from blue-chip Tier 1 companies.

The versatility of VERTEX can be gauged from the fact that standard bodies, like Accord, [DDCC] and other competing vendors like iPipeline, use its solutions and manpower. Our services and products complement each other, opening up new business opportunities for both our clients and us.

We believe that this acquisition will allow us to pursue new revenue streams that we used to not pursue in the past, as we did not have a consulting practice. We intend to create a non-aligned management consulting practice that will be extremely focused and rich in subject matter expertise, thus allowing us to fill the niche for insurance-specific consulting [clear] with end-to-end knowledge of insurance processes and the working of our insurance clients.

We're excited by the opportunities ahead of us. We recently decided to create an enterprise solutions oriented organization that can be truly solutions oriented in every [phase] of its existence, be it design, resells, sales, implementation, deployment or support.

We felt that we needed to almost erase the line that separates sales folks from highly technical application experts. Towards that extent, we're working on a strategic shift to convert our sales organization into an enterprise straight-through processing solutions-oriented organization.

To lead that effort and take advantage of the opportunities ahead of us, I have decided to step into the worldwide sales leadership role myself with the goal of creating a world-class solutions-oriented organization. My goal is to lead the sales organization for the next few years until we put Ebix firmly on a consistent growth path and an enterprise solutions-oriented organization is created to sell. My goal is to remove the word sales out of the lexicon of Ebix titles and instead have enterprise business analysts making the sales.

Worldwide life and annuity exchange sales have been put under the leadership of Ash Sawhney, who joined us from PlanetSoft and has been the visionary and leader behind putting the partnership with Swiss Re and also securing all the forward TPP underwriting deals in recent times. With TPP at the center of our life and annuity exchange straight- through processing strategy, it was but natural to have someone lead the exchange sales growth who understood all the nuances behind the product design as also had the vision to lead the end-to-end straight-through processing exchange strategy.

While growing the top line, we intend to remain focused on ensuring that we do not give up on the margin focus of Ebix. We are continually implementing new business synergies internally with a view to drive increased cost efficiency. We continue to generate good operating cash flow levels in our business. Between our cash flow existing levels and the bank line, we believe that we are well-positioned for acquisitions and also to continue with a stock repurchase plan underlying the already disclosed in previous Press Releases.

As of today, the Company expects share count for fourth quarter 2014 to be approximately 37 million shares. The hypothetical annualized EPS based on Q3 net income and the reduced share count of 37 million would be $0.08 higher on an annualized basis than Q3's actual annualized EPS.

We would like the investors to evaluate Ebix on the true strength and weaknesses of its operating model rather than on the basis of the fear of the unknown. Accordingly, we're focused on trying to get any unknowns removed from the business expeditiously so that our investors can predict the future analytically and with confidence.

We would like to step into 2015 with a strong growth-oriented organization and a reduced G&A cost structure that is focused on true organizational operating needs.

That brings me to the end of my talk. I'll now hand it over to the operator to open it up for questions. Thank you.

(Operator Instructions)

Jeff Van Rhee with Craig-Hallum.

Robin, a couple of things. First, as you look at that forward guide, obviously, it's well [above] us, you've acquired VERTEX and you commented that it includes some assumptions about acquisitions as well. Can you just break that down as to -- to help us with what of that is organic versus acquisitions versus acquisitions you intend to make?

Yes, Jeff. Just a minute. I think all I will say is that that's our target. I wouldn't break it up into organic versus inorganic. I think it's a bit early for me to do that.

Internally, we are putting a crystal ball in front of us and I think we're pretty focused on making these numbers happen. I think I will leave it at that, for now. I think at the right time, as we -- our intent, first of all, as we go into 2015, our intent is to start traveling, doing more investor shows, meeting investors. As we organize more of these analyst meetings, investor [share holders] will be -- we will try to break it up further into separate categories. Right now, I will just leave it at that.

Are you at a point where you can share with us, then, on the VERTEX acquisition -- I don't think there were financials disclosed. At least how much of that, obviously, is incorporated into 2015?

Yes, I can't give you exact number of VERTEX, purely. Simply because we have some kind of a confidentiality agreement with them right now. I'm sensitive to that. Having said that, I think you will see that as we go further. We will obviously have to break it up into pro forma numbers and so on as we go into Q4. We will obviously disclose that at that time.

Shifting gears more to the operations, you mentioned 230 contracts in the US, alone. You rattled off a lot of big names and seemingly big wins. Can you help us better quantify and compare that to what you might have done in prior quarters? Namely, what was Q2? What was Q1 in terms of the number of contracts signed? (Multiple speakers)

The number of contracts is not that we -- it's not the number of contracts is a bit not relevant here in the sense that the number of contracts probably is at sync. I don't have a [comparative] right now tell you what it was in Q2 versus Q3. It's pretty consistent. The number of contract is not the issue.

I think the key -- there have been some important deals that have been signed and I tried to focus only on those deals in this talk. These deals, the reason I specifically chose to talk about specific deals which are relatively larger in size, which relatively have a lot of recurring revenue streams, have bigger revenue streams and also these are projects that go on for a very long time.

Our experience sales -- when we go into underlying exchanges, especially with TPP, when we walk in to a carrier, we're there for a very long time. With respect to -- one is to keep getting revenue. The other is that we also get a lot of professional services simply because carriers keep making changes on underwriting and we just stay there for a very long time. My focus was to try and talk through the materiality of some of those deals because those are going to be important for us. A lot of that will start, though, in 2015. Because that's how the deals are.

And also, I think the most material deal, from my perspective that I wanted to talk through was Swiss Re, because that's a partnership; that's a selling partnership. That's a partnership that jointly works together. Purely where their underwriting guide, their ability to do what they do -- and they are the leaders in their field -- and then have our technology at the back and we team that up. And we've proven -- both of us have proven together -- for example, the success of the recent MetLife initiative, by itself, proved how we were able to do it in a record time. I think those are kind of things I was trying to focus on right now in my discussion.

Okay. At this point, is there any update you can provide as it relates to the IRS SEC DOJ? It's obviously -- you referenced it in your monologue that you'd like to enter next year much more focused without the overhang. Has there been any interaction, any more feedback, any color you can provide us there?

On the regulatory front, I made a statement in the last quarter and I will stick to that and that's about all I could say. We are not aware of anything more than that. So nothing has changed. As far as the IRS audit is concerned, I think that this is an audit that obviously covered a period from, if I'm correct, it started from 2008 all the way till 2011. At some point, this audit is going to finish. As soon as it is finished, we are going to report it back to the market. As of now, the Company has nothing to report on that front.

Okay. Bob, as I look at the balance sheet and the income statement, some unusuals. You had the reversal, the earnout, which also had [11.1] in taxes. Just help me with the balance sheet. The other assets line was up notably; the AP and accrued expenses down. Can you color in a little more what's going on there?

Some of the key balancing fluctuations, when you look at where we were at the end of the year to where we are now, fixed assets -- excuse me?

I was talking more sequentially. Sorry. The sequential shifts in those two lines.

Okay. Which lines, again?

The other assets and the accrued, the AP and accrued expenses.

Yes. Other assets went up because of some significant prepayments and some long-term software licenses. AP and accrued liabilities came down significantly due to the payment of some significant sales taxes and income taxes.

Okay. All right. I think I'm all set. Thank you.

(Operator Instructions)

It looks like we don't have any questions in the queue. I'd like to turn the call back over to Ebix for any closing remarks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a good day, everyone.