The Q3 2014 earnings report for small cap insurance software stock Ebix Inc (NASDAQ: EBIX), a potential peer of insurance software stocks like small cap Benefitfocus Inc (NASDAQ: BNFT) and mid cap Guidewire Software Inc (NYSE: GWRE), is scheduled for before the market opens on Friday (November 7th). Aside from the Ebix Inc earnings report, it should be said that Benefitfocus Inc will report Q3 2014 earnings when the market closes today while Guidewire Software Inc reported Q4 2014 earnings on September 2nd. However, the Ebix Inc earnings report will be closely watched as it's the fourth most shorted stock on the Nasdaq with short interest of 53.62% according to HighShortInterest.com. These shorts began targeting Ebix Inc in the summer of 2013 when Goldman Sachs Group Inc (NYSE: GS) terminated an agreement to acquire the company after reports of a probe of allegations of intentional misconduct with Bloomberg reporting the company was being investigated specifically for money laundering.
What Should You Watch Out for With the Ebix Inc Earnings Report?First, here is a quick recap of Ebix Inc's recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:
| EPS Est | 0.31 | 0.31 | 0.36 | 0.38 |
| EPS Actual | 0.34 | 0.40 | 0.40 | 0.35 |
| Difference | 0.03 | 0.09 | 0.04 | -0.03 |
| Surprise % | 9.70% | 29.00% | 11.10% | -7.90% |
| Current Estimate | 0.36 | 0.37 | 1.49 | 1.54 |
| 7 Days Ago | 0.36 | 0.37 | 1.49 | 1.54 |
| 30 Days Ago | 0.36 | 0.37 | 1.49 | 1.54 |
| 60 Days Ago | 0.36 | 0.37 | 1.49 | 1.54 |
| 90 Days Ago | 0.39 | 0.40 | 1.58 | 1.68 |
Back in early August, Ebix Inc reported a 1% revenue increase to $51.5 million (a slight sequential increase over Q1 2014 revenue of $51.4 million) while on a constant currency basis, revenue increased year over year to $52.0 million from $51.0 million in Q2 2013. Net income came in at $13.6 million or at roughly the same level as Q2 2013 net income of $13.5 million. The CEO commented:
"Ebix has always been a cash story and towards that extent I am pleased with the operating cash flows of $17.8 million in Q2 of 2014. Ebix has successfully continued to fill in for the large drop in professional services revenues associated with some of our Pharma and PlanetSoft initiatives through increase revenues from other exchange product lines. As we start deploying some of the recently agreed to PlanetSoft projects with three leading carriers in the United States, we would expect our professional services revenues to accordingly start growing again and become a significant contributor to our revenues… We are continuing to pursue a number of deals that can have a meaningful impact on our future revenues. Our sales pipeline is strong and we feel good about the opportunities ahead of us. Our customer retention rates continue to be strong, and we have not lost any exchange clients who even account for more than 0.2 percent of Ebix revenues."
The CFO added:
"During the second quarter Ebix reduced debt on our revolver and other debt by $17.7 million. We paid $13.1 million in Q2 towards the purchase of office buildings in Atlanta and Noida, targeted at reducing our ongoing rental and infrastructure expenses while providing for future growth. During the quarter we continued to invest in the growth of the business with the purchase of Healthcare Magic for $6 million, and the payment of $2.25 million in earn-out obligations from prior business acquisitions. We also paid $2.9 million in cash dividends to our stockholders. After paying approximately $42 million towards the above, Ebix still had aggregate cash, cash equivalents, and short-term cash deposit investments in the amount of $34.3 million as of June 30, 2014. Operating cash flow for the 2nd quarter was $17.8 million, an increase of $7.0 million from Q1 and $7.2 million from the same period in 2013. This cash performance, in our view speaks to the strength of the Ebix business model."
On the news front and late in August, Ebix Inc announced that it intends to repurchase up to $80 million of shares over the next twelve months with the CEO commenting:
"We believe that approximately 23 million shares are held by a few investor groups who are either insiders or long-term holders, leaving approximately 15 million shares available as the float. As we intend to make share repurchases of approximately $80 million over the next twelve months, we want to assure investors that our repurchases will be done intelligently and opportunistically with the goal of creating optimal value for our shareholders."
Last Monday, Ebix Inc announced that it has acquired Connecticut based VERTEX Incorporated, a specialized software and services firm focused primarily on the life and annuity insurance marketplace, with the goal of establishing a non-aligned worldwide strategic management consulting practice targeted at the insurance, healthcare and financial industries all across the world.
What do the Ebix Inc Charts Say?The latest technical chart for small cap Ebix Inc shows the stock along with trend lines that are all over the place:
A long term performance chart shows that small caps Ebix Inc and Benefitfocus Inc have been underperforming lately while mid cap Guidewire Software Inc has been a pretty steady performer up until earlier this year when shares began to dip:
A technical chart for Benefitfocus Inc shows a pretty steady downtrend that may have leveled off while Guidewire Software Inc bottomed out in May and has been on an uptrend since then:
Its hard to get excited about investing in or for that matter, shorting small cap Ebix Inc ahead of earnings. Hence, maybe investors and shorts alike should just stay away from the stock.
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