EBIX

Ebix, Inc. (EBIX)

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Ebix (EBIX)

Q3 2012 Earnings Call

November 08, 2012 11:00 am ET

Executives

Steven N. Barlow - Vice President of Investor Relations

Robert F. Kerris - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Corporate Secretary

Robin Raina - Chairman, Chief Executive Officer and President

Analysts

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Presentation

Operator

Hello, and welcome to your Ebix, Inc. Third Quarter 2012 Investor Call. [Operator Instructions] And as a reminder, today's conference is being recorded. And now I would like to introduce your host for today, Steve Barlow. Steve, please go ahead.

Steven N. Barlow

Thank you, John. Welcome, everyone, to Ebix’s third quarter 2012 earnings conference call. Joining me to discuss this quarter is Ebix Chairman, President and CEO, Robin Raina; and Ebix Senior Vice President, CFO, Robert Kerris. Following our remarks, we will open up the call for your questions.

Let me remind you that the primary purpose of today’s call is to provide you with information regarding our third quarter 2012 performance. However, some of the discussion or responses to your questions may contain forward-looking statements. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove incorrect, actual company results could differ materially from these forward-looking statements. All of these risks, uncertainties, and assumptions as well as other information on potential factors that could affect our financial results are included on our reports filed with the SEC, including our most recently reported Form 10-K for the year ended 31st December 2011, particularly under the heading Risk Factors.

During the course of this call, we may reference certain non-GAAP financial measures to provide a greater understanding of our business or financial results. Management, at times, may review certain non-GAAP financial information and metrics in evaluating the company’s historical and projected financial performance, and believe that it may assist investors in assessing its ongoing operations. The presentation of this additional information is not meant to be considered in isolation, or as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Please be advised we may or may not update these additional metrics in future calls. Our press release announcing the 3Q 2012 results was issued a few hours ago. The audio of this investor call is also being webcast live on the web at www.ebix.com\webcast. You can look at Ebix’s financials beyond what has been provided in this release on our website, www.ebix.com, and the audio and transcripts of this call will be available on the website after 3 p.m. today.

We reported record quarterly revenue and continued our history of strong cash flow generation for the third quarter. Bob and I will talk about the company from a financial perspective, and Robin will address the business in the quarter and our recent acquisitions and contract pipeline.

Revenue in Q3 increased by 26% from 1 year ago to $53.8 million. There were several factors that contributed to revenue growth in Q3, including the fact that our exchange business in Q3 of 2012 grew 32% over Q3 of 2011 to become 81% of our total revenue this quarter compared to 78% in Q3 2011. The broker P&C back end systems channel revenue decreased by 4% while the BPO channel was up 19% year-over-year. Carrier system revenue was up 12% over 3Q '11.

Looking at expenses and margins year-over-year. The company's operating margin for Q3 2012 was 38.5% as compared to 42.1% in Q3 2011. In 3Q 2011, above the operating margin line, we recorded a onetime gain of $1.2 million related to the reduction of certain contingent earnout accrued liabilities related to acquisitions made in 2010. Excluding the gain, our operating margins in 3Q '11 would have been 39.4% based on the related non-GAAP operating income of $16.8 million.

In Q3 2012, our operating expenses grew to 34% to $33.1 million as compared to the same quarter year early -- earlier, mostly owing to acquisitions. Our cost of services increased by only 9.1% and a record gross margin of 82.3% for the quarter. Our continued focus on new products led to a 43% increase in product development costs and our sales and marketing costs rose 26%. Q3 2012 net income grew 9% to $18.1 million as compared to Q3 2011 net income of $16.5 million. However, excluding the effect of the onetime nonrecurring gain of $1.2 million in Q3 '11 discussed earlier, Q3 2012 GAAP net income of $18.1 million increased by 18% as compared to the Q3 2011 non-GAAP income of $15.3 million. Q3 2012 diluted earnings per share rose 13% year-over-year to 46% as compared to 41% in the third quarter of 2011.

And I will now turn the call over to Bob.

Robert F. Kerris

Again -- thank you, Steve -- and again, welcome everyone to our third quarter investor conference call. The third quarter was focused on the continued integration of our previous business acquisitions completed during the year in order to critically leverage cross-selling opportunities and realize expected operating synergies.

As Steve noted, operating margins improved quarter-over-quarter as we essentialized support functions and integrated product development sales efforts globally. In Q3, operating cash flow was $19.3 million, a 13% decrease from Q3 2011 due primarily to increased levels of trade receivables and accrued liabilities. However, through Q3, Ebix has generated $54 million of operating cash flow in 2012, a 2.1 -- or 4% improvement over the same period in 2011, and which represents full realization of the company's net income of $51.8 million in the form of positive operating cash flows.

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