Ebix Earnings – Behind The Headlines
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The best way I can explain Ebix (NASDAQ: EBIX) is, if your insurance company needs to get a transaction done, Ebix helps them do it. The company is a leading supplier of on-demand and e-commerce services for the insurance industry. As thousands of partners grow their business, Ebix grows as well. With the company's recent earnings report we get a look into how the company is doing, and this also gives us a decent proxy for how the insurance industry is doing as well.
On the surface, the company did fairly well. They reported revenue up 9% and EPS was up 8%. While these don't sound like great numbers, EPS exceeded analyst expectations. In fact, the company has beaten analysts expectations in all of the last four quarters. EPS growth doesn't tell the whole story as the company's cash from operations increased 33%. Additionally, in a show of how strong the company's results were, operating margin rose to 42% from 39% last year.
There were several things that caught my eye in reading through the earnings report. First, was CEO Robin Raina specifically said, “...our acquisition pipeline is strong today and you can expect Ebix to make a few accretive acquisitions soon.” This is good news for shareholders as the company has been a consistent acquirer, and this has paid off for the company in both scale and cash flow generation. The company said it expects to complete these acquisitions using cash and debt facilities.
This leads me to the second item I noticed, Ebix balance sheet is getting stronger. Since at last count the CEO owns nearly 4 million shares, he makes sure that the balance sheet stays clean. Net cash last year was $16.733 million, this year that figure stands at $28.503 million. The amazing part is net cash increased while the company retired about 4.8% of the outstanding shares and instituted its dividend.
Speaking of the dividend, Ebix shareholders should stand to benefit from increased dividends for a long time. One reason is the company's free cash flow payout ratio is just 10.64%. Second, the company is expected to grow EPS by 20% over the next few years. With big growth and a very low payout ratio, Ebix should be able to reward shareholders with increased dividends like the recent increase of 25% shows.
When it comes to the company's outstanding shares, I believe Ebix shareholders should expect buybacks to start back up again. In the last three months, the company did not report retiring any shares. However, there is still $23.7 million left of the company's existing share repurchase plan. When this was instituted in June 2011, the board suggested that the plan be completed in the next 12 months. That would give the company just this next quarter to complete the plan. While this might not happen, the aforementioned 4 million shares that the CEO owns are a good reason for him to push for share repurchases. He has also stated that once this $100 million repurchase plan is completed, he is looking for a $160 million plan to replace it.
There is one thing that came up as a long-term concern for Ebix that I had not noticed before. The company has moved a lot of its long-lived assets to India and Singapore. Currently the company pays almost no taxes in India and only about 10% in Singapore. These low tax rates are due to concessions that company is benefiting from. However, these concessions are due to expire in 2015. If this occurs, the company's marginal tax rate would jump to at least 34% in India and 17% in Singapore. While this is still a few years away, it is something for shareholders to be aware of.
What about competition? I've noticed that generally speaking, financial sites have a problem coming up with valid competitors to what Ebix does. One company I've seen mentioned is Sapient (NASDAQ: SAPE). While Sapient does provide marketing and technology to multiple types of businesses, the company just doesn't have the same level of relationships to insurance companies that Ebix does. In fact, Ebix relationships with companies like Unisys, Microsoft, CGI, and Accenture are just a few examples of the level of sales partners that Ebix works with.
Ebix offers products and services to thousands of insurance companies, handling billions of dollars in transactions. With 70% of the company's revenues from the U.S., the stock is a good play on the recovery in the domestic economy. With good EPS growth expected, huge cash flow growth, and a small but promising dividend, there is a lot to like about this stock. I would suggest adding EBIX to your Watchlist to keep up with developments.
MHenage owns shares of Ebix. The Motley Fool owns shares of Ebix. Motley Fool newsletter services recommend Ebix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.