Metro Atlanta-based Ebix Inc. says its broad diversification kept the company profitable in the first quarter, despite an extended lockdown in India and pandemic-related restrictions that pummeled business segments that are highly dependent on travel.
The Johns Creek-based insurance software provider, travel marketplace operator and financial technology firm posted a drop in revenues of about 4 percent to $137.9 million, down from $142.9 million in the same quarter last year.
Operating income dropped 37 percent from $54.1 million to $34.3 million, though its net income was down only slightly to $24.7 million from $25.7 million, given that March 2019 quarter included an approximately $20 million legal payout that hit the bottom line.
Ebix executives pointed to continued profitability as a sign of resilience and decisiveness amid a trying time.
“Our company’s diversity of revenues both by geography and solutions and services, our customer stickiness and the recurring and repeating nature of a large percentage of our revenue base is the foundation that will allow Ebix to operate successfully through this crisis as we see it unfolding today,” said Steve Hamil, who joined the company as chief financial officer in April.
Sales from insurance exchanges and compliance solutions it operates in the U.S. fell by 8 and 7 percent to $44 million and $16 million, respectively, but represent segments that are likely to be resilient. Insurers, sales organizations and providers still need to operate exchanges and certify documents even with fewer participants, executives said.
Executives said if not for severely impacted sectors like remittances, on-site software consulting, travel booking platforms and airport currency exchanges operated by its Indian subsidiary, EbixCash, the company would have posted 15 percent revenue growth. Margins also dropped as EbixCash saw a surge in sales of payment-processing services and equipment in India toward the end of the first quarter as retailers prepared for a mandatory lockdown starting March 24. (EbixCash offers a prepaid debit card, digital wallet and point-of-sale solutions as part of its broader payments ecosystem in India.)
The earnings report also noted that the revenue drop was less pronounced on a constant-currency basis (-1 percent) — Ebix reports financial results in dollars at a time when most currencies are weakening against the dollar, including the Indian rupee.
EbixCash the Indian operation, accounts for more than half of Ebix Inc.’s overall sales and represented its fastest-growing business segments pre-pandemic. Its exchanges brought in $77.8 million in the first quarter of 2020, versus $77. 7 million in 2019, leveling off a previously staggering growth trajectory As an example, revenue from EbixCash exchanges jumped 43 percent in second quarter of last year compared to 2018, propelling the company to 32.3 percent sales growth.
That kind of ascent seems to be stalled for now. Still, CEO and Chairman Robin Raina said on an earnings call he was pleased with the company’s overall results, considering the unprecedented nature of the pandemic and the way it had halted travel both within India and globally. He initially thought Ebix was ready to ride a temporary coronavirus wave.
“But then in another few weeks realized that it was becoming a tsunami, as one country after another decided to shut their entire countries down,” Mr. Rania said on the earnings call.
That hit EbixCash on a variety of fronts, from its foreign-exchange counters at airports to its travel marketplaces like Via.com and Mercury, as well as its massive remittances business, which is dependent on Indian expatriates, students and migrant laborers, particularly in the Middle East, sending money back home.
“Typically in crisis situations we see a surge of money flowing in from expats and migrant laborers to their home country to help their parents and loved ones. However, this time was a little bit different,” Mr. Raina said, as migrants were furloughed from their jobs or facing distancing measures that kept them from Western Union and Moneygram counters where they send cash back home.
How quickly these segments recover largely depends on how much travel bounces back in India and beyond.
India’s national lockdown has been extended again through May 17, but Mr. Raina is optimistic, citing increased remittance flows as the sector was named an essential business in India May 3, the date the lockdown was previously scheduled to end.
May is usually big for remittances and the same could be true this year as Eid-al-Fitr, the Islamic holiday celebrating the breaking of the fasting period for the holy month of Ramadan, falls toward the end of the month, Mr. Raina said.
Asked if April might represent a “floor” for the travel-related businesses, he wouldn’t speculate, though he noted that EbixCash is well positioned for anything short of a full lockdown, given that it pairs digital capabilities with 320,000 franchised physical agents across India.
“We are sitting in the last mile in every corner of the country,” he said. “If the government had even allowed people to go 100 meters away or go half a mile away, that’s how (close) EbixCash outlets are.”
EbixCash processed $18 billion in value on its exchanges last year, from inward and outward remittances to corporate travel spending.
Future Financial Moves in Question?
Still, the deeper effects of India’s lockdown — spanning late March to mid-May — are likely to show up only in second-quarter figures, and the pandemic casts uncertainty on many of Ebix’s larger financial moves on the horizon.
The first is an all-stock deal to acquire travel marketplace Yatra.com from Yatra Inc. for what had been announced as the equivalent of $337 million. After failing to move back a May 4 deadline, either party now has the right to terminate the deal. Mr. Raina said he was legally prevented from saying more.
He did say the company had been approved by the Indian courts to buy bus ticketing and mobility management startup Trimax out of bankruptcy for less than $10 million, a move that provides a template for what Mr. Raina described as a three-pronged acquisition strategy in the short term: Ebix will only buy companies that achieve north of 30 percent earnings before taxes, minimize new “debt overhang” and are accretive to Ebix’s earnings immediately.
All that said, Mr. Raina’s philosophy and Mr. Hamil’s guidance about pursing “inorganic opportunities to build market share or add complementary technology” indicate that more deals could be on the horizon for Ebix, which has grown aggressively through acquisitions.
“The optimistic, or as I prefer to call it opportunistic, possibility is that COVID-19 will sooner or later blow over, and we need to use the time to make our businesses leaner, focus on the fundamentals and pursue certain strategic opportunities that many will shy away from at present and thus can be bought for a steal,” Mr. Raina said.
He added that the pandemic has helped tame a glut of private-equity investment, focusing funds on demanding profitable growth rather than pumping up valuations artificially.
“That’s a great development from our perspective as till now we at times were fighting a lone battle in our industry, competing against players who just grew the wrong way by subsidizing their sales.”
Speaking of valuations, Ebix still plans to move ahead on a planned initial public offering for EbixCash, but Mr. Raina said the company would wait for rattled markets to “normalize” before doing so.