The SEC Will Findeth Or So We Suspect<br><br>Today we published a report on Ebix (EBIX). It can be found in its entirety at:Below is a piece of the report. THE REPORT SHOULD BE READ IN ITS ENTIRETY AS THE SEGMENT BELOW ONLY CONTAINS HIGHLIGHTS AND THE APPROPRIATE REFERENCES ARE FOUND IN THE FULL REPORT:<br><br>On March 24th, 2011, we shared our first research report on Ebix in a three part series that was published on the main page of Seeking Alpha.[1] We argued among other things that Ebix had: misrepresented organic growth, been reporting questionable cash flow generated by a potentially illegal tax scheme, multiple auditor resignations, governance abuses, and a highly promotional, contentious CEO. We concluded that Ebix was nothing more than a rollup with a misrepresented business model. Further, our analysis detailed a lack of de novo growth, which was supplemented with two tactics: tax arbitrage and destructive cost cuts (headcount reductions and offshoring). We questioned the sustainability of this strategy and notified the IRS and SEC of the material abuses we believed were so pervasive at Ebix. Since our original report, damaging information has materialized, including accusations from former employees of Peak that Ebix made "Fraudulent Misrepresentations" and "acted with utter disregard and recklessness." It is our opinion that the malfeasance at Ebix is even more egregious than what occurred at OCZ, which we wrote about last year.[2] Since our report on OCZ, the CEO and CFO have resigned, the stock has declined by 85%, and the company disclosed an SEC investigation on November 21, 2012.[3]<br><br>Earlier this month, Bloomberg News reported that the SEC is currently conducting an investigation into Ebix in a story titled "Ebix Accounting Practices Said to Be Probed by SEC."[4] According to Bloomberg, the SEC investigation has been ongoing for the past year and is "focused on revenue recognition, internal controls and the accuracy of the company's public statements to shareholders." The Bloomberg article cited information from four different sources, including three former Ebix employees who had conducted interviews with the SEC, as well as naming the specific SEC attorney leading the investigation. revenues to units based in Singapore and India" which we criticized as the heart of Ebix's potentially illegal tax scheme. Since our initial report, we believe the ingredients for a full blown SEC investigation have only grown. In this brief report, we will discuss: 1) The SEC Correspondence History and a Vociferous Denial. Despite ardently denying any knowledge of an SEC investigation, Ebix has filed 40 comment and response exchanges with the SEC. Mysteriously, the public exchanges with the SEC stopped around the same time Bloomberg reports that an investigation began. 2) The Continued Misrepresentation of Growth and Altered Disclosures. Based on recent public disclosures, we believe Ebix has continued to misrepresent its growth, and in fact organic growth was NEGATIVE in Q3'12. Ebix reported 1H'12 proforma organic growth in the most recent 10Q that does not reconcile with the figures provided in the 10Q's from the first and second quarter. An amended 10Q from the first quarter introduced new disclosures for proforma revenues that were not presented in the original filing. Based on our analysis, Ebix may have misrepresented its proforma revenue growth in the first and second quarter 10Q's by 30x compared to the 0.2% that was implied in the third quarter 10Q. Investors that bought Ebix stock in the first two quarters of 2012 may have done so on the basis of organic growth numbers that were overstated. 3) The Damning Accusations made in the Peak Lawsuit. Another acquired company is suing Ebix for failing to make earnout payments. The plaintiff's testimony describes countless examples of dysfunction, misrepresentation, and insufficient internal accounting controls at Ebix. The lawsuit provides vivid accusations of behavior that ranges from unscrupulous to incompetent, including an example where "Ebix's own CFO and Controller [were] unable to agree on Peak's revenue in fact disagree[d] by more than $800,000 over a one year period." Despite the severity of the jordan 5 for sale accusations, we have been unable to find disclosures of the Peak lawsuit in Ebix's most recent SEC quarterly filings. Should the allegations levied against Ebix be true (failure to manage billing, collection, sales, taxes, regulatory payments, and accounting for Peak), then it would seem probable that those same failures would be found by the SEC at the corporate level. 4) Additional Lawsuits and Contingent Payments. Ebix is facing at least two class action lawsuits that appear headed to trial. One class action complaint includes testimony from a former senior Ebix employee who corroborates the dysfunction and weak internal controls alleged in the Peak lawsuit. This incriminating evidence may be integral to any investigation the SEC has launched. Further, Ebix also faces at least two lawsuits accusing them of failing to pay earnouts. With $30 million of balance sheet earnout liabilities, investors may begin to view this line as a debtequivalent, and question "onetime" P benefits from reversing the earnouts. 5) Our Original $9.00 Target Did Not Consider SEC or IRS Action. For a rollup business with negative organic growth, overstated margins given limited investment in the business, quality of earnings issues, the potential for a massive overhang from regulatory investigations, lawsuits, and the possibility of significant liability or fines relating to the questionable tax strategy, we now believe that a more appropriate multiple should be 4x to 5x LTM EBITDA.<br><br>Additional disclosure: IMPORTANT Disclaimer You should do your own research and due diligence before making any investment decision with respect to securities covered herein. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. However, such information is presented "as is," without warranty of any kind whether express or implied. This is not an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.<br><br>Themes: finance, tech, saas, SEC<br><br>Stocks: EBIX<br><br>What BS. But the SEC will not comment on anything; it's against their written policy. They did not even publicly close the 2000 probe because there was no actions against Ebix. However, Ebix made reference to that probe until at least 2005 in their quarterly reports. As for the deferred tax liability, all international companies do it. Most of international company's cash buy jordans is in foreign countries even if most of their jordan 11 low for sale sales are in the USA. The SEC is looking at this and encouraging companies to report it to shareholders (most have complied) and the SEC is not investigating its legality as far as anyone knows, because it is legal. Ebix reports their cash in each country that they have operations. Ebix reported their deferred tax liability if they repatriated ALL their earnings at $51.4M as of Dec 31, 2011. Ebix has tax loss carryovers to offset IRS taxes. Ebix like all other international companies do not intend to repatriate all their earnings, but they all pay foreign taxes on earnings. Some pay more foreign taxes than others. Until laws change (including tax holidays in the foreign countries like India and Singapore), this is and will continue to be legal.<br><br>Ebix's CEO:" The agreement with Peak shareholders mandates audited GAAP numbers to be used for the earnout calculation. After all this, it could lead to arbitration, failing which, it would go to a court. The funny fact is that they have not done any of that, including giving us a 30day notice or taking it to arbitration. One wonders why they were in a hurry to file a suit and report it to the public, when the contract does not even allow them to do that. So, let us hold our thoughts for now and not pass any judgment on Ebix practices or management, based on this suit that alleges a few hundred thousand in understatement. Subsequent to that, it has been reviewed and enhanced by Ernst with help from other firms like BKD, Frazier Deeter, etc., besides multiple offices of E across the world. Ebix's infrastructure setup of putting development and IP in Singapore India was put in place much before any tax planning was contemplated. Also, Ebix's inheriting of NOLs in the United States was something that was not planned, but happened since Ebix had lots of losses in the pre2000 era. and thus does not expect any issues on that account. That is a continuous exercise and not just a onetime exercise. Every position of the company has a strong documented basis, written by these top quality firms who are rated one of the best in this work worldwide. My guess is that our customers know a lot more about us than any media article can tell them about Ebix.<br><br>From: Ebix Q3 2012 Earnings Call Transcript "[Operator Instructions] Okay, and we'll take our next question from Josh Smith [ph] from Epcot.[ph]"Unknown Analyst"I was wondering, how much of your revenue growth for the last 3 months and 9 months were due to organic growth and how much was due to acquisitions?"Robin Raina Chairman, Chief Executive Officer and President"Well, I think we've answered that in the past that the way we run our business, and it's very different difficult for us to differentiate between what we get out of acquisition and what we get out internally. Part of it, we integrate these products very tightly, there is no Ebix, as I was just talking through the STP region, I actually talked about one product. What is going to happen if Ebix will become one product company. So every day, that's what we are doing. So we don't really everything that's so entangled in each other, that's so difficult for us to read. Our operations are integrated and that's our selling process is integrated, our products are integrated. It's very difficult for us to disintegrate and start breaking up that kind of revenue in that sum. So it's almost impractical for us to do it. And one of the reasons for Ebix's success is precisely this. how much was due to acquisitions is one of the biggest signs of accounting fraud.<br><br>Danaher, another acquisitive company has similar ratio of goodwill/total assets. Is Danaher a fraud too? I know you are attacking the company for not showing the organic/inorganic growth ratio. Is that the only beef that people have with this company? How are they able to purchase all these shares and pay dividends too? Goodwill might be high and there might be an impairment if these units don't perform as expected but that is the risk investors are taking and assigning a low multiple. Calling it a fraud is taking to the extreme and the intention of shorts is very clear.
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