Transcript of the 2007 Investor Conference Call
Date: 7th March 2008 @ 11am EST
Speaker: Robin Raina, Ebix Chairman of the Board, President & CEO
Good morning Gentleman. Thank you for attending Ebix’s 2007 Annual Investor Conference call. I have also with me today Mr. Robert Kerris, Ebix CFO on this Investor conference call.
We announced our 2007 financial results today morning and all of you must have seen those numbers by now. I will take a few minutes to summarize these results for you.
Each of the last few years has been a record year for Ebix in terms of beating all its results in the last 32 years. This year was no different from the last few to the extent that the financial results for the year 2007 are record results again – the best ever in our 32 year young history.
Ebix's 2007 fourth quarter revenue rose 31% to $12.20 million, compared to $9.28 million during the fourth quarter of 2006. Q4 ‘07 net income rose 169% to $4.50 million, or $1.20 per diluted share, versus Q4 ’06 net income of $1.67 million, or $0.53 per diluted share. The 4th quarter net income of $4.50 million is a 22% improvement over the 3rd quarter and represents the eighth consecutive quarter of significant net income growth. Results for Q4 2007 and Q4 2006 were based on 3.8 and 3.2 million weighted average diluted shares outstanding respectively.
Our net margins grew to 37% in the fourth quarter of 2007 vs. 18% in the fourth quarter of 2007.
Ebix’s total revenue rose 46% to $42.84 million in 2007, compared to $29.25 million in 2006. Ebix's operating income rose 91% to $12.80 million in fiscal 2007, compared to operating income of $6.71 million in 2006. In 2007, the Company's net income rose 112% to $12.67 million, or $3.61 per diluted share, compared to net income of $5.97 million, or $1.90 per diluted share, in 2006.
In 2007, the Company's basic earnings per common share rose to $4.08 as compared to basic earning per common share of $2.15 in 2006. Results for 2007 and 2006 were based on 3.1 million and 2.8 million weighted average basic shares outstanding respectively.
Our operating margins continue to improve, increasing to 30% for 2007 from 23% in 2006. This positive trend in net income and operating margins are good measures of our efforts to keep growing the business profitably. In addition the Company generated $14.4 million in net cash from operating activities representing an increase of $10.2 million or 242% from the $4.2 million of operating cash flows from just a year earlier.
Over the last 6-7 months, I have spoken to broad spectrum of investors across the world. Based on interactions with them and the fact that we have a number of new investors on the call, I felt it important to proactively address some questions that you might have as regards the company.
So, what is Ebix’s vision plan? Ebix is a rather complex company to understand. Can you sum up what Ebix sells in a few sentences? Ebix has shown a good amount of growth consistently over the last few years. Has Ebix reached a plateau now in terms of growth? Ebix margins of 30% plus seem rather high as compared to the industry. Are these margins sustainable? Ebix has made a number of acquisitions over the years. How successful has Ebix been with these acquisitions and their integration with Ebix? Which divisions of Ebix are growing? Does Ebix expect to grow more in domestic markets or internationally? Where is Ebix headed from here? Are these results flash in the pan performances? What is Ebix’s long term vision? These are some of the questions that you might have in your mind. During this call, I will try to answer these questions for you.
Let us start with the first question – what is Ebix’s vision plan?
Ebix goal is to be the leading backend powerhouse of insurance transactions in the world. The company’s technology vision is to focus on convergence of all insurance channels, processes and entities in a manner that data can seamlessly flow once a data entry has been made. We intend to do that by designing products and services that are pioneering and at least a few years ahead of our competition. We believe that profitability and revenue growth must go hand in hand. We intend to do all this in a transparent and sincere manner, while ensuring a high level of satisfaction to all the entities that we deal with - customers, employees, investors, and the society around us on whom we can have a positive influence. In the year 2007, we took some strides towards that vision plan.
Second question – Ebix is a rather complex company to understand. Can you sum up what Ebix sells in a few sentences?
Ebix is a insurance services player that provides 4 different services in the worldwide insurance markets – 1. B2B Exchanges 2. Insurance Company Backend Systems 3. Broker Systems and lastly 4. BPO Insurance Services to insurance companies, brokers, large corporates etc.
Over the years Ebix has completely transformed itself from a broker system player to an end to end services player. Does that not defocus Ebix? Who does Ebix compete with most of the time?
Yes, Ebix today is a complete end to end insurance services player. Our belief is that efficiencies in insurance can truly happen if a transaction can be electronically carried from one end to another with just one data entry. To do that, one has to drive paper out of the process and converge all the systems that power insurance across all entities – be it brokers, carriers, distributors, corporates or consumers. Tat is precisely what Ebix is set out to do. Today the need and complexity for this can be best expressed by the fact that outside Ebix, there is no single one entity that can boast of having tried to do this worldwide. That is a challenge and an opportunity by itself. In international markets, increasingly we compete with local regional players or in-house IT departments of insurance companies. There is no one competitor we face across the world or even across the United States on our different products.
Ebix has shown a good amount of growth consistently over the last few years. Has Ebix reached a plateau now in terms of growth? What are the chances that these results are flash in the pan performance results?
Let me start by saying that the Q4 results include only two months of revenue from our BPO Division IDS and absolutely no revenue from our recent acquisition of Telstra EBusiness in January 2008. Incidentally Telstra EBusiness is the largest acquisition made by Ebix in its history. Those numbers will all be included in our results beginning Q1 of 2008.
We have always believed in letting our past performance and numbers speak for themselves and thus I will abstain from issuing any guidance on numbers. For those of you who have been investors in the Ebix stock for sometime, you have heard me say this many a times earlier. I am not going to depart from that thought process and issue a future guidance. Instead I will lay out a few metrics from the past three years, for you to discover an answer for yourself. Ebix's 2007 fourth quarter revenue rose 31% to $12.2 million, compared to $ 9.28 million in 2006 and $6.16 million during fourth quarter of 2005. Our revenues grew 46% annually in 2007 as compared to 2006, 78% as compared to 2005 and 114% as compared to 2004. Ebix 2007 net income in 2007 grew 112% year over year, 193% as compared to 2005 and 466% as compared to 2004. Ebix diluted EPS for 2007 grew 90% year over year to $3.61, 161 % as compared to 2005 and 401% as compared to 2004 diluted EPS. If you looked at the year 2007 itself, each sequential quarter was an improvement over the previous quarter in the year.
Ebix margins of 30% plus seem rather high as compared to the industry. Are these margins sustainable?
Our belief has always been that a business in which he selling price is a lot higher than the cost price is probably a viable business. A few years back, we publicly announced our goal of getting to a net margin level of 30% plus. Consequently these margins today are a result of meticulous planning, centralized cost control processes, effective utilization of offshore services and a rather simple approach to business that requires income growth to be directly proportional to revenue growth. Our net margins were 11% in 2004, 18% in 2005, 20% in 2006 and 30% in 2007. In the year 2007, our net margins were 22% in Q1, 26% in Q2, 31% in Q3 and 37% in Q4. These numbers speak for themselves While we cannot guarantee that these margins are sustainable, yet our attempt is certainly going to be to live up to the benchmarks defined by us.
Ebix has made a number of acquisitions over the years. How successful has Ebix been with these acquisitions and their integration with Ebix? What divisions of Ebix are growing and are expected to grow in terms of future revenue growth?
A quick measure of Ebix’s success with these acquisitions could be revenue growth in these divisions since acquiring them, considering that in our philosophy income growth will automatically accompany revenue growth.
When we acquired Ebixlife, its quarterly revenue run rate was $1.3 million. This had been achieved over 15 years of its existence. In the next three years under Ebix that run rate as of Q4 of 2007 had increased 62% to approximately $2.1 million per quarter.
When we acquired Heart Consulting, its quarterly revenue run rate was $0.75 million. This had been achieved over 18 years of its existence. In the next three years under Ebix that run rate as of Q4 of 2007 had increased 67% to approximately $1.25 million per quarter.
When we acquired Ebix Advantage Consulting, its quarterly revenue run rate was $1.275 million. This had been achieved over approximately 15 years of its existence. In the next two years under Ebix that run rate as of Q4 of 2007 had increased 50% to approximately $1.9 million per quarter.
The trend has continued with all our acquisitions including Finetre, where the quarterly run rate at the time it was acquired was $1.675 million. As of Q4 of 2007, that revenue had increased approximately 55% to $2.6 million in one quarter.
Today all these acquisitions are fully integrated, ported to cutting edge technology platforms and cross selling to a much wider customer base. The art lies in integrating each of these acquisitions in an expeditious manner that allows Ebix to cross sell products in a vice-versa manner. Those besides our ability to introduce efficiencies, cutting edge technologies, increased marketing efforts and economies of scale into it helps us convert each of these acquisitions into an intrinsic internal service that can continue to grow organically.
As regards our divisions and the associated growth, the fact remains that all Ebix divisions are growing today. Our largest sources of revenue today are the exchanges and the broker systems which account for approximately 40% and 32% in revenues. Carrier Systems come third with approximately 17% in revenues with BPO accounting for the remaining 11% of revenues. We expect this trend to remain in 2008 with Exchanges growing to more than 50% of our 2008 revenues, broker systems growing to around 23% of 2008 revenues, with carrier systems and BPO accounting for almost 13% each. We expect all our divisions to continue growing though the pace of growth in the exchange sector is expected to be a lot more than others.
How key is Ebix to the insurance industry today? Are its solutions replaceable?
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 just acquired an exchange in Australia that powers all electronic property & casualty insurance transactions in that country.
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, Portuguese, 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.
We are one of the few companies in the insurance industry that can provide solutions across the world for a customer while keeping the code base same worldwide. That fact by itself, besides the fact that our retention rate of existing customers is almost perfect over the last five years in the international markets, coupled with the fact that our solutions are designed to be a few years ahead of our competition in terms of technology design and functionality, have led Ebix today to a position where we have a who’s who customer base and a pending order base spanning product implementations across thirty countries or more at this time.
Do we intend to pursue acquisitions in the near and long term future?
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.
Lastly, let me say that we have recently launched a new comprehensive Investor home page on the Ebix site with a view to providing a one stop place to analyze Ebix from an investor perspective. The audio and the text transcript of this call will be available also on the investor home page at the Ebix web site located on www.ebix.com
With that, I am going to hand it over back to the moderator to open the call for questions.
Thank you.
Robin Raina
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