Ebix, Inc. :EBIX-US: Earnings Analysis: Q2, 2016 By the Numbers : August 9, 2016

Ebix, Inc. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Ebix, Inc. – Ultimate Software Group, Inc., Benefitfocus, Inc., Thomson Reuters Corporation and Majesco (ULTI-US, BNFT-US, TRI-US and MJCO-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 72.57 million, Net Earnings of USD 22.99 million.
  • Gross margins widened from 67.13% to 68.02% compared to the same period last year, operating (EBITDA) margins now 36.09% from 35.53%.
  • Year-on-year change in operating cash flow of 16.84% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 64.71 66.81 70.2 71.07 72.57
Revenue Growth (%YOY) 25.71 31.5 15.79 11.47 12.15
Earnings (mil) 19.04 20.23 21.93 22.16 22.99
Earnings Growth (%YOY) 40.19 12.31 32.53 20.85 20.78
Net Margin (%) 29.42 30.28 31.24 31.18 31.68
EPS 0.54 0.59 0.65 0.67 0.7
Return on Equity (%) 18.02 19.58 21.68 21.46 22.18
Return on Assets (%) 12.11 12.52 12.98 12.66 13.09

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Market Share Versus Profits

Revenues History
Earnings History

EBIX-US‘s change in revenue this period compared to the same period last year of 12.15% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EBIX-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.12% and earnings by 3.76% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 67.13% to 68.02% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 35.53% to 36.09% compared to the same period last year. For comparison, gross margins were 68.59% and EBITDA margins were 37.95% in the last reporting period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

EBIX-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 113.97, compared to last year’s level of 49.24 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

EBIX-US‘s change in operating cash flow of 16.84% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The expansion in operating (EBIT) margins from 31.56% to 32.47% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 31.17% to 29.80%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Ebix, Inc. is a supplier of software and e-commerce solutions to the insurance industry. It provides a series of application software products for the insurance industry ranging from carrier systems, agency systems and exchanges to custom software development for all entities involved in the insurance and financial industries. Ebix was founded in 1976 and is headquartered in Atlanta, GA.

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