Ebix, Inc. (NASDAQ:EBIX)

CAPS Rating: 4 out of 5

The Company is an international provider of software and Internet-based solutions for the insurance industry.

Recs

15
Player Avatar TMF1000 (99.71) Submitted: 12/17/2012 10:02:23 AM : Outperform Start Price: $15.76 EBIX Score: +18.46

EBIX was placed on my CAPs at $18.83. The PE ratio was 10.64, cash flow yield was 11.43%: Dividend yield of 1.9% based on a $0.30 per year dividend.

3Q:2012 Notes

Revenue for the quarter was $53.804 million up 26.29% from $42.602 million. TTM revenue was $189.12 million or $4.83 per share up from $160.021 million or $3.96 per share. TTM revenue per share was up 21.97%.

Exchange revenue was $43.592 million for the quarter up 32% from $33.021 million. Exchange revenue makes up 81% of total revenue.

Broker Systems revenue was $4.537 million down 4% from $4.731 million in the third quarter last year. BPO sales were $4.252 million up 19% from $3.576 million. Sales from Carrier services were $1.423 million up 12% from $1.274 million.

Net income was $18.072 million up from $16.536 million. Net income per share was $0.46 up from $0.41 per share last year. TTM net income per share was $1.77 up from $1.71 per share.

Operating margins were 38.49% down from 42.14%. In Q3:2011, they recorded a onetime gain of $1.2 million related to the reduction of certain contingent earn-outs accrued liabilities related to acquisitions make in 2010. Excluding that gain, the Operating margins would have been 39.4%, not 42.14%.

Cash flow for the quarter was $16.06 million down from $21.59 million. TTM cash flow was $70.96 million or $1.81 per share up from $68.6 million or $1.70 per share. TTM cash flow per share was up 6.5%.

Balance sheet and shares outstanding:
The Company has 31 million in cash and investments and debt of $45.781 million for net debt of $14.781 million compared to $15.6 million in cash and debt of $16.98 million for net debt of $1.38 million. They were able to reduce the diluted share count to 39.12 million from 40.449 million. The balance sheet has deteriorated due to buying back shares and many acquisitions. EBIX repurchased 280,818 shares for an average price of $20.49 or $5.8 million during the third quarter of 2012.

Event: November 7, 2012
http://www.bloomberg.com/news/2012-11-05/ebix-accounting-pra...

The SEC probe comes as Atlanta-based Ebix is fighting at least four lawsuits accusing it of inflating income levels or mishandling internal accounting issues.

The article also corrected an incorrect statement about Robin Raina’s stock holding. During the conference call he clarified the article was wrong and that he held 3.672 million shares and he had not sold any shares since the proxy was filed on October 10, 2012.

During the same conference call, he also said the Company did not know of any SEC investigation of EBIX. The Company has had no direct or indirect communication with the SEC regarding any investigation.

Event: November 8, 2012: The Company announced they will raise the quarterly dividend to $0.075 up from $0.05. This will give them an annual dividend of $0.30 per share. The increase will begin in February of 2013.

ThompsonFN estimates: December 17, 2012
4Q:2012 $0.44
Fiscal 2012 $1.77
1Q:2013 $0.45
Fiscal 2013 $1.84

Growth Driver:

London is a very large insurance market. The Company believes it is 1 of the top 2 largest insurance markets in the world. With their acquisition of TriSystems, they now have a presence in London. They also have started Ebix Europe and they will begin to invest in Europe in the next few quarters.

Conclusion:

The Company’s stock price has been drifting down since an article came out about an SEC investigation. However, The Company said during the conference call, there was no SEC investigation. The price of the stock is $15.79. This gives them a PE ratio of 8.92 with a new dividend yield of 1.9%. Their cash flow yield is 11.5%. This is a very cheap stock. They have a very high short interest and there have been many negative articles that probably came from those with short positions from blogs and other sources.

Their business isn’t easy to predict or value due to their growth by acquisition business model. However, I believe, barring real accounting problems, they seem to be growing at a nice pace while keeping their balance sheet OK, reducing shares outstanding, keeping operating margins strong and generating ample cash flow. They are funding acquisitions mostly using cash flow.

During the first nine months, they spent $57.6 million for 7 acquisitions. At the same time they produced $54.002 million in operating cash, so $3.6 million had to be funded from other sources. They have a very light business model with only $1.468 million needed to fund capital expenditures for that same 9 months. To place this in perspective – if they chose not to acquire any companies, they would have made $52.5 million in cash flow for the first nine months of the year. That could allow them to pay an outstanding dividend. At the present low price, I feel its worth the risk of not easily being able to follow value creation due to the many acquisitions. By checking cash flow growth, changes in the balance sheet, share reductions, we can get a basic idea that things are running reasonably well.

For the last four quarters, they have repurchased $17.9 million for their common stock. If we remove this, the balance sheet improved over last year. And they are also paying out a dividend. The balance sheet unlike the income statement and even the cash flow statement is the hardest thing to manipulate without outright fraud, a fraud auditors can easily catch, especially in the U.S. This gives me the confidence in the Company and at this price I like them.

About 80% of their revenue is reoccurring. I like that they are buying small players in the industry, increasing their ability to produce more reoccurring revenue and expanding their markets while improving their technology.

Member Avatar craigrow (80.62) Submitted: 12/24/2012 3:49:44 PM
Recs: 1

Excellent analysis. I've owned EBIX since 2008. If it weren't already my largest position I'd be adding more today. Dispute all the attacks its still beating the market by about 40% since I established my position.

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