Ebix opened the trading day nearly 15% higher after reporting earnings that beat both top line and bottom line expectations. The company is currently trading at 10 year highs.
The Importance of Top Line Growth
Total Q4 2014 revenue was $60.6 million, a 19% increase YoY. For FY 2014, the company reported revenue of $214.3 million, an increase of 5% YoY. Ebix’s operating margins remain strong, coming in at 35% for Q4 2014 and 37% for FY 2014. With such strong margins, Ebix has to prove to the market that it could revive top line growth.
To answer this question, Ebix CEO mentioned that the company would aspire to have an annualized Q4 2015 rate of $275M. This would result in a 13% increase over Q4 2014 revenue. The company is now mainly focused on this initiative.
During their conference call, the company announced that it did win the rumored London PPL tender. This big win, along with additional deals in the pipeline, should provide Ebix with great revenue generators in 2015.
Putting Legal Issues Behind
The company announced in January that it had reached a resolution with the IRS after being audited for taxable years 2008-2012. In the latest conference call, Ebix CEO mentioned that there were no more penalties with regards to this issue. With this, the resolution of the class action lawsuit earlier in 2014 and derivative suit settled, expect operating margins to rise due to lower legal fees moving forward. Keep in mind, Ebix was reporting operating margins of 41% and 38.6% in 2011 and 2012, respectively. A slight increasing back to these levels is not out of the question.
Share Repurchase Increasing Profits
Ebix expects diluted share count for Q1 2015 and Q2 2015 to be approximately 35.9 and 35.5 million shares, respectively. To compare, diluted shares were 38.6M in Q2 2014. That’s an 8% decrease due to the share repurchase program Ebix implemented back in August 2014. The company planned to purchase $80M of stock by August 2015, of which it has purchased $55.5 million of. Ebix remains committed to continuing share repurchase and dividend program.
Overall, this was a breakthrough quarter for Ebix and I expect 2015 to be the same. The company still trades at a P/E 17.9x, which is below market peers who average around 20x. To boost, Ebix has about 38% of its float sold short. Surges in price will be fueled by this particularly high figure.
Disclosure: One or more of Last Financier’s contributors are LONG EBIX