Tuesday, May 10, 2011

Ebix ( Nasdaq - EBIX ) -- Q1 Results on Target

Ebix (EBIX $20.00) reported excellent on target Q1 results.  Excluding non-recurring acquisition costs, fully taxed earnings rose 43% to $.40 a share.  Revenues climbed 27% to $40.0 million.  The ADAM health insurance benefits acquisition contributed $4.2 million to revenue.  That deal was completed in mid February.  Backing that out, revenues improved at a 13% clip.  Ebix is the leading provider of computer based insurance exchanges that match customers with carriers through a network of brokers.  The system allows buyers to compare offers from multiple insurance companies in a convenient format.  While pricing is more competitive the carriers also benefit, from reduced marketing costs.  The direct computer hook-ups also facilitate compliance, since incorrect information can't be submitted.  Paper based exchanges often go back and forth several times.  Ebix's business is expanding due to the technology's productivity advantages.  Much of the insurance industry remains set its ways, though, so the company still has penetrated only a sliver of the potential market.  Overall insurance sales are lackluster because of the economy.  That's put a lid on same store growth, as well.

The ADAM acquisition moved Ebix into the employee benefits area.  ADAM's medical database offerings rank at the pinnacle of the industry.  But that operation always had trouble capitalizing on its potential due to below average technology management.  Software offerings usually were a generation behind.  Ebix already is improving those systems.  An initial upgrade is slated for introduction in the fall, when most companies open their benefit enrollment season.  Further enhancements promise to reinforce the trend in subsequent years.  Ebix plans to ultimately extend its reach beyond medical insurance into claims processing, to help carriers and hospitals automate the reimbursement process.  Most hospitals and insurance companies currently bolt on a variety of software packages, which can lead to incompatibility and wrong calculations.

We are raising our earnings estimate a nickel to $1.45 a share.  Our revenue estimate is unchanged at $175 million.  Growth could be sustained at superior levels as the employee benefit line gains momentum, more brokers and insurance companies adopt online exchange systems, and the overall insurance industry recovers.  Internal growth of 10%-20% appears sustainable well into the decade.   (Please see "Accounting Notes" for an explanation of our adjustments to reported earnings.  Addbacks include $556,000 for stock options, $1.2 million for acquired intangible amortization, and $1.79 million in one time deal costs.  Our tax rate is 17.0% compared to 9.4% as reported under GAAP rules.  It excludes tax loss carryforward benefits.)

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