Transcript of the Ebix Q3 Investor Call on 15th Nov. 2006 @10 am
Talk by the Ebix CEO & President Robin Raina:
Good morning Gentleman. At the outset let me thank you for attending Ebix’s Q3’06 Conference call. I also have on the call Mr. Richard Baum, CFO Ebix.
You must have all seen the Q3 Financial numbers by now. In summary, it is a historic quarter for us with the company posting 53 cents in diluted EPS. Net income after taxes for the quarter rose thirty five (35 %) percent to $1.66 million, or $0.53 per diluted share, up from $1.23 million, or $0.40 per diluted share, in the third quarter of 2005--an earnings per share growth of thirty three (33%) percent.
The company reported total revenue of $7.30 million for the quarter, compared to $5.90 million for the third quarter of 2005, marking a twenty-four (24%) percent increase in revenues. These results do not include any revenue from Ebix's recent acquisition of Finetre Corporation, since the acquisition was completed in the first week of October.
For the first nine months of 2006, Ebix's total revenue rose 11 percent to $20.0 million, compared to $17.9 million in the first nine months of 2005. The Company's net income rose 27 percent to $4.3 million, or $1.37 per diluted share, in the first nine months of 2006, compared to net income of $3.4 million, or $1.08 per diluted share, in the first nine months of 2005. For the first nine months of 2006, Ebix has already matched its full-year net income of $4.3 million, or $1.37 per share, for the full 2005 year.
I am often asked by investors and press alike about the technology vision of the company. I can sum it up in one word – convergence. Ebix remains committed to converging any islands that exist in insurance today (consumers, brokers, insurance companies), converging B2C and B2B processes in insurance, converging front end and back end processes in insurance. Our goal remains to be the Cisco of the insurance industry – in terms of powering transactions as a back-end player. Today our exchanges power transactions between hundreds of brokers and carriers in P&C insurance, our life exchange powers close to 10.2 million life sales illustrations every year, we power an annuity exchange on which close to $15 billion in premiums are presently conducted yearly. We are working on spreading our exchange in the Australian markets aggressively and towards that have created a new division with an ex- Computer Science insurance professional to head that effort in Melbourne.
I am often also asked to explain our financial vision by investors. Let me say that we believe in letting our numbers speak for themselves and thus have abstained from issuing any guidance on numbers. If I was to simplify our financial vision, I would say - Selling price must be substantially more than the cost price. We believe in growing the company revenues and income proportionately and have abstained from going after opportunities that provide us market share at the cost of profitability. We intend to pursue acquisitions that help us sell or cross-sell our existing products. For an acquisition to interest Ebix the acquisition must deliver convergence with our technology, convergence with our existing platforms, cross-selling opportunities, and clearly be accretive for our share holders either immediately or in the near future.
For a company our size, we have a rather large global reach and domain knowledge. We power businesses in more than 50 countries today across all continents. We have in excess of sixteen offices today world-wide. We provide a multi-national broker or carrier a common code base world wide and frankly we do not know of a vendor who has our geographical reach and can do that in our industry. Our systems are multi-lingual, multi-currency and work in French, Portugese, Spanish, Japanese and of course English. We have the domain knowledge of insurance that spreads all across the world today. With our fully owned offshore facilities in India, we have the ability to make an acquisition, bring India to reduce their cost structure and make them more efficient. Our center in India has Carnegie Mellon’s highest CMMi 5 rating and that establishes the quality of our operations to any of our prospective customers.
As a management team our effort in coming days will be to make understanding of our financial results a bit easier for our customers. For the purposes of this investor call, we decided to analyze the numbers for you both from a third quarter and from a 9 month numbers perspective. I am often asked how our core businesses are doing with respect to our acquisitions. I will try to address that question in a bit of detail for you today.
To start with, let me say that we made our intentions rather known to our customers. We announced publicly that we will let legacy support revenue decline and finally go away, while we focus our efforts on revenue opportunities that allow us to run a high margin and high growth business. While we kept investing in building new products and services, we juggled our expenses to ensure that we could keep our head high and keep the company afloat. Those common sense efforts translated into us taking Ebix through three phases – the pre 2003 survival phase, the pre- 2005 consolidation phase, and the post-2005 growth phase.
When this management team took over in the year 2000, our core business was basically legacy support. We were basing our future on the law of diminishing returns and thus we felt that we needed to come of the crutches of legacy support. Along the way, we redefined the term core business for Ebix. By 2004, our core business had become broker systems while we announced our intention not to enhance any legacy systems as it did not look to be a futuristic strategy for Ebix. We also started building the building blocks of where Ebix is headed today – the carrier systems market, the exchange market and the broker business market.
With our global reach and our efforts to build end to end functionality for our customers, we have built a number of products and services to provide a one window service shop to our insurance customer base. It sometimes ends up confusing our investors in terms of keeping an handle on our products and services. If I was to club all these products and categorize them, you could primarily split our revenue into three main channels – the insurance carrier channel, the broker channel and the exchange channel.
In terms of evaluating growth along these channels in Q3 2006, the largest %age growth came from the insurance company markets, where we grew 64% year over year (2.32 vs. 1.42 million). The broker channel accounted for 12% growth (3.24 vs. 2.90 million) while the exchange channel accounted for 11% growth (1.74 vs. 1.57 million).
Any analysis of Q3 reveals that 65% of our revenues originated from domestic United States operations while 35% of our revenues originated from our international operations. In terms of geographical growth, both our domestic and international business grew by 24% each as compared to Q3 of 2005.
In terms of products driving growth in Q3 period of 2006, our core business outpaces our acquisitions by a big percentage numbering terms of percentage growth. Our core broker systems product grew by 27% in Q3 of 2006 vs. Q3 of 2005. ($1.64 million vs. $1.29 million). Our acquisitions EbixLife grew by 13% as compared to Q3 of 2005 while Ebix Melbourne (formerly Heart) grew by 18%. As predicted, our legacy numbers continue to decline substantially. Legacy support declined 24% in the Q3 period of 2006 vs. the same period in 2005.
The quarterly trends seen in Q3 are quite indicative of the 9 month cumulative trends in 2006. Any analysis of the 9 month results reveals that 61% of our revenues originated from domestic United States operations while 39% of our revenues originated from our international operations. In terms of geographical growth, our domestic business grew by 6% while the international business grew by 22% as compared to the same 9 months in 2005.
In terms of products driving growth in the nine month period of 2006, Again our core business outpaces our acquisitions by a big percentage numbering terms of percentage growth. Our core broker systems product grew by 34% in the nine months of 2006 vs. the same 9 months of 2005. ($5.14 million vs. $3.85 million). Our acquisitions EbixLife grew by 6% as compared to the same period in 2005 while Ebix Melbourne (formerly Heart) grew by 4%. As predicted, our legacy numbers continue to decline substantially. Legacy support declined 23% in the 9 month period of 2006 vs. the same period in 2005.
In terms of the cumulative 9 months channel market growth in 2006, the largest %age growth came from the insurance company markets, where we grew 28% year over year (4.92 vs. 3.84 million). The broker channel accounted for 10% growth (10.02 vs. 9.12 million).
As you can tell from these numbers, our core broker systems business continues to be the highest growth driver of our business. We feel rather good about our core business since we have a committed order base from large brokers with implementations to done across more than 15 countries in a staggered manner over the next few years. This is especially pleasing since the acquisition of heart in Melbourne resulted in our not selling our system to a rather large portion of the market since we decided to get our Melbourne Company to target that market.
We are pleased with our ability to integrate our acquisitions quickly, seamlessly and then grow them.
Ebixlife, formerly Lifelink had repetitive quarterly revenue streams of around $1.30 million when we acquired them (almost a 35% increase since our acquiring them). That had been achieved over its existence of more than 15 years. In 2 plus years of our acquiring that business, we have been able to grow that number to $1.75 million or so a quarter.
Heart’s quarterly revenue at the time we acquired them was around $750,000 a quarter and this had been achieved over its history of 10 plus years. In Q3 that revenue number had grown to approximately $1.07 million in the quarter (almost a 33% increase since our acquiring them).
Our recent acquisition of Ebix Advantage has gone on expected lines and we expect Ebix Advantage to be a significant contributor to the 2007 results.
Our Q3 results do not include any revenue from Ebix's recent acquisition of Finetre Corporation, since the acquisition was completed in the first week of October. We have not issued any guidance on Finetre. We intend to integrate this company with EbixLife and thus intend to make strategic decisions related to that. In the short term, we intend to focus on integrating Finetre properly rather than focus on any short term financial objectives. As conveyed earlier, we expect Finetre to be a significant contributor to our results in 2007 and be accretive to our results in the year 2007
Having said that, without any further adu, I am going to hand it over back to the moderator to open the call for questions.
Thank you.
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