--- the subscriber area has no ads and those above are not selected or endorsed by this site ---

Ebix 1Q20 results ?3

13:16 11-May-20

The Ebix conference call has just concluded and the company continues to be a vexing investment prospect.  The CEO acknowledges that the company went into COVID-19 thinking it was well-prepared and was forced to reassess.  However, I'm still not sure it is being completely realistic.  Various managers spoke of being prepared to survive and thrive after a return to normal, and expectations for a pickup in the second half.  To this end, several more $10-40M acquisitions are planned, probably using stock, with unspecified mechanisms for delaying dilution for "many years".

On the other hand the CEO is correct that many other companies subsidized growth at the expense of profits, and that COVID-19 has made that model less attractive, thereby leveling the playing field.  It is also true that the accelerated trend toward digitization and remote work does benefit most of Ebix's businesses.  I am less heartened by India's plan to gradually reopen over the next week.  It will should help the Ebix travel businesses, like the Trimax bus exchange that was just approved by Indian courts, to some extent in the short term, but Ebix's Indian ambitions clearly aren't short term.

Nor are they completely clear.  The Yatra deal expired May 4th, and management was able to make no comment due to legal status.  My hope is that it will allow the deal to fall through completely, but I would not be at all surprised to see renegotiated terms.  Management was also unable to speak in a quantified fashion about a worst case scenario for EbixCash in the second quarter, though it does expect things to improve.  Any IPO plans are on hold until COVID-19 "blows over."  The overall plan seems to be to acquire Indian companies at fire sale prices.  I was on board with that before the pandemic.  Now I've liquidated my Ebix position at a loss and will want to know the terms before re-entering.  The risk of management's "opportunistic" outlook is simply too high for a country like India.

To wit, Ebix is working on plans for 40% of its employees to work from home by end of 2021, and 60% by end of 2022.  That doesn't compare favorably to a company like Virtu, which already has 95%.  Without quantification, a bet on Ebix appears to be a bet on a return to the old normal, and that is not my outlook.  The final question of the call showed that others share my concerns that management would "blow up the balance sheet."  Management's response was that, with amended senior secured credit facilities, and positive operation cash flow, they believe they can remain profitable through next quarter.  It's not the next quarter I'm worried about.  Despite operating cash flow, leverage rose to 4x.  The metrics that I can note are that Net Cash declined $32M YoY mostly to pay down Indian working capital.  Management cites $98.4M of liquidity on the balance sheet at end of quarter, claims almost $115M today, but the Cash & Equivalents number is just under $62M.

That is not meant to imply that Ebix is in near-term danger.  It is not.  An EBIX investment could still show astounding growth from this point.  My qualm is that management's outlook on India and the world seem to be increasingly divergent from my own.  The hybrid GAAP P/E for EBIX is 7 at $21, whereas VIRT's is 6.3 at $24.  If you don't think the world has changed, then the EBIX strategy should still make sense.  I think it has and that other investments reflect that better.

Ebix has reported is first quarter results:

• 96 cents of EPS beats by 9 cents
  
• from $137.9M of revenue, which misses by $16.1M
  

Most of the revenue miss was currency.  Given the relatively late rise of COVID-19 in India, first quarter #s inspire no confidence in me, and management has declined to provide guidance.  Cases in India appear to still be on the rise.

Although its says it has taken steps to enhance the company's liquidity, I remain concerned about the effect of EbixCash IPO delays on the balance sheet for the medium term.  The market seems to share my lack of enthusiasm so ar.  The conference call is at 11am, and I will probably follow up with a little color.

Topics:

• none