Ebix Management Discusses Q2 2013 Results - Earnings Call Transcript

| About: Ebix Inc (EBIX)


Q2 2013 Earnings Call

August 09, 2013 11:00 am ET


Steven N. Barlow - Vice President of Investor Relations

Robert F. Kerris - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Corporate Secretary

Robin Raina - Chairman, Chief Executive Officer and President


Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division


Good day, ladies and gentlemen, and welcome to the Ebix Inc. Second Quarter 2013 Investor Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Steve Barlow. You may begin, sir.

Steven N. Barlow

Thanks very much. Welcome, everyone, to Ebix's Second Quarter 2013 Earnings Conference Call. Joining me to discuss the quarter is Ebix Chairman, President and CEO, Robin Raina; and Ebix Senior Vice President, CFO, Robert Kerris. Following our remarks, we will open up the call for your questions.

Let me remind you that the primary purpose of today’s call is to provide you with information regarding our second quarter of 2013. However, some of our discussion or responses to your questions may contain certain forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove incorrect, actual company results could differ materially from these forward-looking statements. All these risks, uncertainties and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC, including our most recently reported Form 10-K, for the year ended 31st December 2012, under the heading Risk Factors, as well as in reports that we subsequently file with the SEC.

During the course of this call, we may reference certain non-GAAP financial measures to provide a greater understanding of our business or financial results. Management, at times, may review certain non-GAAP financial information and metrics in evaluating the company’s historical and projected financial performance, and believe that it may assist investors in assessing its ongoing operations. The presentation of this additional information is not meant to be considered in isolation, or as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Please be advised we may or may not update these additional metrics in future calls.

Our press release announcing the second quarter of 2013 results was issued earlier this morning. The audio of this investor call is also being webcast live on the web on www.ebix.com/webcast. You can look at Ebix's financials beyond what has been provided in the release on our website, www.ebix.com. The audio and text of this transcript of this call will be available also on Investor homepage after 3:00 today.

So let's start by discussing results of second quarter 2013 announced today. Revenue in 2Q increased by 7% from a year ago to $51.0 million. During the 6 months ended June 30, 2013, revenue increased $12.0 million, or 13%, to $103.6 million compared to $91.5 million during the same period of 2012. The broker PC back end systems channel increased revenue by 8%, owing to increased subscription revenue as our clients expanded to new geographic areas. The BPO Channel was up 3% year-over-year. Carrier systems revenue was up 41% over 2Q 2012, continuing its upward trend since 2Q 2012.

The company's gross margin was 79.7% from second quarter. Our operating margin for Q2 2013 was 37.8% as compared to 37.1% in Q2 2012. The operating margins in Q2 2013 were positively impacted by a $5.8 million gain from the reduction of the earn out accrual from PlanetSoft, while being negatively impacted by certain legal and extraordinary operational costs, adding up to $4.5 million in Q2 of 2013. The company was also negatively impacted by the impact of lower initial operating margins from some of our businesses acquired in 2012 and 2013 as compared to our existing operations. The company expects some of the legal costs in Q2 of 2013 to continue for a few more quarters, impacting our operating margins negatively.

In Q2 2013, our operating expenses grew 5.7% to $31.7 million as compared to the same quarter a year earlier. While the growth in expenses was moderate, there are several factors to review. Our continued focus on new products led to a 15.7% increase in product development costs, and our sales and marketing costs fell 10.9% owing to less trade show expense and slightly lower sales commissions and headcount. G&A expenses decreased 3.8% to $8.3 million owing to the several factors mentioned before. Excluding the $5.8 million onetime gain and the $4.5 million legal and extraordinary operational charges in 2Q, our non-GAAP operating margin was 35.3% for the quarter.

Q2 2013 net income was $13.5 million, a 25% decrease on a year-over-year basis, as compared to Q2 2012 net income of $18.1 million. During the 6 months ended June 30, 2013, net income decreased $22.9 million, or 9%, to $30.9 million compared to $33.8 million during the same period of 2012. The net income in Q2 2013 was impacted negatively by the increase in the variable stock put option liability, a $1.6 million associated with the issuance of stock to PlanetSoft shareholders worth $5 million, and also by the company increasing certain tax reserves by $2.5 million in Q2 2013. Impacted primarily by certain exceptional and onetime events, Q2 2013 diluted earnings per share fell 25% year-over-year to $0.35 as compared to $0.47 in the second quarter of 2012.

With that, I will now pass the call over to Bob.

Robert F. Kerris

Thank you, Steve, and thank you all those that are on the call.

Our net operating cash flow in the second quarter 2013 was $10.6 million, a decline from $14.3 million from Q1 2013 and $21 million for the same quarter in 2012, due primarily to lower operating income net of noncash items. Our cash generation was less in recent quarters owing to several of the items we already talked about. Historically, for the last 2 years, Ebix has generated net operating cash flow nearly equal or sometimes surpassing net operating income. Cash remains one of the most important financial metrics of how Ebix runs its business. And except for added legal expenses, we will strive to return to that ratio in future quarters.

The company's working capital position decreased to $12.4 million at Q2 '13 versus $32.1 million at Q1 '13, but slightly improved from the $11 million from a year earlier in 2012. The decline is due to the reduction in cash owing to the acquisition Qatarlyst, earn out payments with regards to earlier business acquisitions, increases in trade payables and accrued liabilities and the increase in short-term debt. As to significant uses of cash during the recent quarter, $4.7 million was used to acquire Qatarlyst, $2.3 million was used to pay earn out obligations primarily with respect to Taimma, a business we acquired in April of 2012, $5 million was used to pay down bank debt, $600,000 was used to pay down other external debt and $2.5 million was used to repurchase 250,000 shares of our common stock.

Our bank revolving line of credit was $32.8 million as of the end of the quarter with $5 million having been paid back during the quarter. I might also add that subsequent to the quarter, we paid another $5 million down on that revolver. The bank term loan balance was $36.8 million at the end of the quarter. Since quarter end, as I just mentioned, we've also reduced our -- in addition to reducing our revolving line of credit, we also reduced our term loan by $2.5 million. Total bank debt then is $62.2 million as of today. Our net debt as of today stands at $30.8 million.

Ebix presently has an access to approximately $60.4 million of readily available cash resources from our financing facility with Citibank combined with cash on hand to support share repurchases, capital expenditures, internal organic growth, strategic business acquisitions as necessary to expand the existing operations of the company. Our financial position is healthy with $36.1 million in aggregate cash, cash equivalents and short-term investments as of June 30; $12.4 million working capital to fund short-term liquidity requirements; a debt leverage ratio of only 0.82 and accounts receivable DSO of 68 days.

We are focused on growing a physically healthy company based on the principles of integrity, transparency and sound governance. We are happily advised by a wide variety of reputable firms across the world, including BDO Seidman, Grant Thornton, E&Y International, KPMG, Cherry Bekaert, BKD and Frazier & Deeter.

On the tax front, the company paid $11.8 million in cash taxes in the first 6 months of 2012 and $8.2 million of the payments being made in India in a form of advance minimum alternative tax payments that will be used to fund future tax obligations from 2015 onwards. Presently, we have remaining U.S. NOLs of approximately $49 million as of the end of the quarter. Ebix's Form 10-Q will be filed later today.

Thank you for your attention. And I will now pass the call on to Robin.

Robin Raina

Good morning. As shareholders are aware, the second quarter and, so far, the third quarter have been very active.

Let me start by saying how proud I am of the Ebix staff of 2,000-plus employees across the world for what they do on a daily basis for the company. Nothing can take away the successes our employees have achieved since the start of the year. And let me emphasize that we are fully committed to cooperating with regulatory authorities and look forward to a favorable resolution of the various legal matters that will be discussed in our 10-Q that we expect to file later today.

As for me, after 14 plus years of having helped build this company, I am every day humbled by the faith of those who continue to believe in the company and me. I have always believed that no individual is bigger than an institution and Ebix today is an institution that commands worldwide respect in the insurance industry. For those of you who have not talked to me or met me in recent times, let me assure you I remain as passionate as ever about this company. I see Ebix as a company that have the ability to lead the insurance software industry worldwide while creating new benchmarks in profitability and recurring revenue streams.

I believe that the company's strength is the lead that it has taken over its competitors. The company has a utilities-based revenue model that gives us recurring revenue streams along with the variability of enhanced [indiscernible] streams. With intellectual property of most services residing with Ebix, it gives us the ability to have a recurring revenue stream. Our focus on SaaS-based On-Demand services provide us another USP in the insurance software industry. Our focus on straight through processing and convergence makes Ebix the only software player in insurance who can deliver end-to-end processing of insurance transactions across P&C, life, annuities and health insurance sectors while there is arguably not even a single competitor who can provide straight through processing across any one sector.

Our ability to have created aggregation of users leads our services to be marketed through a networking effect by our user base itself, not to forget that majority of our contracts offer us pricing change flexibility. As a player who now deals with tens of thousands of users across the world, we take our role rather responsibly and humbly and our clients reflect this in a very low attrition rate.

Despite a few distractions in the quarter, Ebix grew revenue 7% year-over-year to $51 million, which did not match our goal for the quarter. The entire Ebix team is now focused on building our sales pipeline and implementing signed contracts. We have had good customer wins in the last half of the second quarter and are in the process of negotiating many large customer contracts. We are focused on generating increased subscription and transaction revenues and adding to our net operating cash flow and income over the next few quarters.

We believe that the opportunity is ahead of us with many of our key initiatives like Annuity Maintenance platform, EbixEnterprise and ADAM On-Demand going into active production mode. All these initiatives are targeted at clients that can generate large amounts of recurring revenue streams for us with high operating margins. We are committed to achieving our operating margin target of 40% plus minus a few points as we move away from the exceptional events of the last few months. We believe that many of our utility model services have the ability to lead the industry in different geographies across the world. We are presently in discussions across all of our software products for deals that on an individual basis have the potential to change our recurring revenue streams meaningfully. While there are no guarantees that these deals will close, we will try our best to sign deals that have a positive, meaningful impact on our future.

At present, we have a strong pipeline of deals to be implemented. These include deals on all fronts, namely health content and e-commerce exchanges, life and annuity exchanges, CRM clients, P&C broker and carrier contracts across various geographies, and not to forget, BPO clients.

We recently launched our Annuity Maintenance Exchange, which already has contracts with many leading distributors and carriers. That by itself is a large opportunity in itself, being the only online solution that can service annuities in a seamless manner. We believe that we can create a strong recurring revenue source out of this business as we already potentially process a vast majority of the annuity presales transactions in the U.S., allowing us a ready customer base to sell to.

An example of the various pending implementations would be, for example, we are in the process of implementing 2 large EbixEnterprise implementations for 2 carriers in the health insurance space. Both these implementations are true examples of straight through processing enterprise exchanges encompassing various health insurance functionalities. Both these implementations are expected to go live in Q4 of 2013.

Recently, we launched the new ADAM On-Demand service that is treating the thousands of health content assets as Lego blocks to create a custom solution for the health insurance industry on an On-Demand paid-for basis. This, by itself, opens up many large opportunities for us. Imagine the area of medical education and the ability to team up with schools to offer defined medical education on an ASP basis. Another example of an initiative that we are pursuing is in the area of patient journeys. We're in a patient's journey through sickness to a healthy lifestyle is presented in the form of animated videos coupled with informative research. The area of patient education is a hot-button area for health insurers at present. We're also launching all this through iTunes for consumers to buy directly.

We are pursuing many health initiatives that we believe have the ability to drive large revenue streams for us. We are today in active negotiations for health content portal deals with country governments that can have a meaningful recurring revenue stream attached to them. We are in the process of negotiating a deal to deploy one of our exchanges in a western country wherein all brokers and underwriters across the region could be potentially using our solution, while Ebix could get paid a threshold recurring amount annually. This deal if clinched could have a very meaningful impact on our revenue streams. We believe that the sales opportunity in front of us is huge, and we need to ensure that we have the operational bench strength to embrace these opportunities. The management team is more focused than ever to try and deliver both in terms of increased revenues and profitability goals.

We remain focused on continued cash generation and thus, are always biased towards doing deals that have strong recurring revenue elements in it. The company's sales efforts have started to show results and we are quite pleased with our growing sales pipeline at present. Large enterprise accounts, especially in the CRM area, need a sustained sales and account management efforts. Some of these deals that can have a great impact on our revenue streams require a phased effort wherein we are first given a pilot by the client with a success of the pilot being linked potentially to a large-sized CRM implementation. Recently, a large-named insurer in the U.S. gave us a go-ahead on one such pilot.

We're very excited about the launch of a new vendor pay model in our BPO business. As you know, Ebix tracks close to 7 million out of gates [ph] of insurance through our Ebix BPO offering for clients spread across more than 28 industries in the U.S. Typically, we get paid in this business based on a mix of subscription and transaction basis for certificates tracked by Ebix. More than 70 Fortune 500 companies are our clients using our services. Our customers in this area are names like Home Depot, Lowes, Sears, Burger King, FedEx, Lennar Homes, various county governments, Enterprise car, et cetera.

What does vendor pay model mean and why are we excited about this launch? Let me define it through an example. Let's take the example of a retailer who has 10,000 vendors and the retailer wants to track the insurance certificates of each of these 10,000 vendors on a daily basis. The retailer could have outsourced the tracking of these 10,000 certificate of insurance to Ebix by paying, say, $200,000 per year. This payment of $200,000 to Ebix had to be borne by the retailer.

Ebix recently introduced a vendor pay model, whereby, Ebix in this example now would directly charge each of these 10,000 vendors belonging to a retailer, on an automated credit card basis, this model now allows the retailer to pay Ebix nothing while ensuring that all its vendors are absolutely up to date in terms of carrying insurance. Through the vendor pay model, Ebix can now potentially recover a fee of around $700,000 from these 10,000 vendors, with each vendor paying a $70 fee to Ebix annually for this service. This compares to the $200,000 that we would have recovered if we had directly billed the vendor. This could be a win-win model for both Ebix and our clients. Recently, one of the largest retail chains in the world agreed to move forward with Ebix on this vendor pay model in one of their North American countries. We see this as a big win and a vindication of this business model.

Let me summarize my talk by saying that business is finally about fundamentals and cash. I have always been of the strong belief that good business is driven by common -- simple common sense metrics like ensuring that selling price is a lot more than the cost price. Our business model of exchanges lends itself to aggregation and network effect. With our utilities-based model, increased usage of our exchanges will lead to incremental margins for us. Our goal has to be to ensure that we do not lose sight of this fact, and that we continue to grow our profitability as we strive to grow our business globally.

Thank you. With this, I'm going to hand it over back to the operator to open up -- open this up for Q&A.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Jeff Van Rhee with Craig-Hallum.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

So I guess, first, Robin, just as it relates to the stretch you've been through. Obviously, the Goldman transaction has fallen through. You've had a lot of legal issues. You got a lot of things on your plate, as well as trying to maintain the momentum of the business. Can you just give us a bit of a recap what's happened since the Goldman departure, the steps you've taken to handle issues on all fronts of the core business, the legal issues, regulatory, et cetera?

Robin Raina

Jeff, that's a pretty loaded question, a very detailed question, but let me just summarize by saying that I think we've already disclosed publicly what has happened, meaning, we -- Goldman is a very quality name, who decided to move forward with us through a due diligence process. And after that, you saw the announcement we made regarding the DOJ. And I think I'm not in a position to comment more than what you already know about the deal breaking because of the DOJ letter. Having said that, because that -- some of this question would rather be addressed to Goldman Sachs rather than to me. I think I would summarize it that saying that we went through a very detailed due diligence process and somehow the deal fell through because of what you already know with respect to the DOJ. With respect to Ebix, from our perspective, you see, we believe we're -- Ebix is as strong as it always was. We continue to grow our business. We continue to focus on our business. And I think we are absolutely very focused on dealing with all the legal issues. We are at a point where we absolutely realize that we have to take these issues head on. We think we have the best of attorney working with us on this, and at the same time, I think we believe that we have always run our business with integrity, transparency, and that will take us through all of this and in the meanwhile, as we focus on our business and build our momentum back again. And I think, we feel things will be okay.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Would you expand on the regaining of the momentum, if you will, in the core business in terms of what were the distractions, certainly the headlines and a lot of the noise? Did it effect deal cycles? Did you have to go out and communicate? How did you try to be proactive with customers? Did you see deals see fall through? Did you see unusual churn? Can you just walk us through how you -- the steps you took to stabilize and/or regain momentum?

Robin Raina

Jeff, that's a great question. I think we're all positive people here at Ebix, and so I want to focus on the positives of where we are today. So having said that, these have been challenging times. I think it doesn't help our cause when our customers get to read certain stuff. Yes, there were a few challenges. At the same time, I will tell you this with absolute clarity, we have not lost any client because of any reason like this. Certain large deals got delayed. We had some large deals that we were in the process of negotiating, we were at the last stages and now we had to go in for discussions with compliance, with their legal and so on. And the good news is, we're starting to move those along and the good news is that most of our clients have been dealing with us for such a long time and we were able to reassure them and we have been able to move things back again. But yes, it was -- it has been a bit challenging. At the same time, like I said to you, when times get tough, sometimes you have to become tougher yourself. And I think Ebix employees took it as a challenge on themselves. People are very proud of the company they work for. They thought this is a time to regroup and make sure that we can prove that we are as strong a company as we have always said. And having said that, we -- I think it has kind of helped to regroup our employees, motivate them even more. So we are absolutely motivated today, passionate about our business. We -- from on the sales front, on the implementation front. So we're absolutely focused trying to increase our sales pipeline. And challenges are -- have been there. And at the same time, I think our products are cutting edge. We are in -- we're very entrenched. Our products have a lot of stickiness. We are in areas where we dominate in certain markets and so on. So that all of that put together and people do see us as a very sincere player. And people, customers who deal with us understand how we conduct our business. And so all of that has helped us in these times. So I think we feel that in terms of pipeline, that in terms of effort, we think we feel pretty good about what we see in terms of our pipeline today.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Realizing you don't give forward guidance, at least giving us a sense of where the playing field is here. You feel like -- obviously, you had a sequential decline, which historically is very unusual for your business. It's been pretty ratable and predictable. At this $51 million floor, do you feel like this is the floor and we grow sequentially from here? Or are there other issues or things that we have yet to feel the full impact of?

Robin Raina

Jeff, as you know, that in my years with Ebix -- 14 years at Ebix, I have never defined floor and I've never given future guidance. But I will say this, that this is an unusual quarter. It's an unusual quarter for all the reasons that you already know, meaning, there've been exceptional events. And -- but having said that, if you look at the pipeline that we have, I think what I tried to do in our talk today was to define the kind of deals we have now. What has changed over the last 1 year or so since we started building a really strong sales team, what has changed is that the -- first, the quantum of deals has increased. The pipeline has increased. The overall size of the deal has increased. So now we are in the mix of situations, which are very binary situations and are very meaningfully -- can meaningfully impact our business. So what I mean by that is, if we don't get a deal, then we don't get a deal. But if we get that deal, a large-sized deal, it can change our revenue stream very meaningfully. So however, those are [indiscernible] situations. So there's no guarantee that we're going to get this deal. But good news is, we're in the midst of many such deals which can have a very meaningful impact on our future. Alongside those deals, you always want deals which you can keep signing all the time and you don't want to be only dependent on large-sized deals, so we are continuing to process those too. And we have a large sales team. We have a pretty strong pipeline. Our earlier efforts -- look, if you remember, we had delayed our AMP implementation, and now AMP just went live, Annuity Maintenance Platform. We have spent 2 years building EbixEnterprise. This is -- what is EbixEnterprise? EbixEnterprise is an end-to-end health exchange. And we have spent 2 years building it, and now we are at a point, where we have 2 clients going live. First of all, those 2 clients by itself generate decent amount, will generate decent amount of recurring revenues for us. But more than that this is a proof point of our exchange, an end-to-end health exchange working and working in 50 states. So we feel very good about those kind of things, which will start bringing in revenue streams. So I think I don't want to give any future guidance. All I will tell you at this point is that based on where we are, we think when we look at our pipeline and we look at the size of the deals that we have out there, we would like to see our revenues to increase meaningfully. We're not just looking for revenue increases. We're looking for meaningful revenue increases. Whether we succeed at it or we fail at it, time will tell. I can guarantee that.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then just 2 last ones, then I'll let somebody else jump on. On the balance sheet, and I guess, net income as well. But if you would expand on the taxes, the deferred tax asset continues to bump higher. It has for the last 3, 4 quarters and then you had a considerably higher tax rate this quarter and I think it was noted in the script that you had some prepays on Indian taxes. Can you just expand on all the above? So understanding you don't give forward guidance, but at least understanding what's going on here so we can have a sense of how to play forward taxes.

Robert F. Kerris

Yes, this is Bob Kerris. First of all, on the tax rate, the calculated tax rate that you referred to has the impact of a $2.5 million additional reserve for uncertain tax positions that we booked during the quarter. As to the deferred tax asset, a major component of that rising as the level has risen is regards to minimum alternative tax payments that we've made in our Indian operations over the period.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. I'll try to stick with that because taxes -- so the reserve for the uncertain taxes, what does that mean? What's uncertain? Can you give a little more expansion of what -- obviously, it's a bigger accrual even if it is for uncertainty.

Robert F. Kerris

Yes. Well, this is -- the typical, as any company would do the compliance with what we -- what's called FIN 48, and it's a position that you would take for certain positions that you're taking on tax returns or tax compliance that the company believes there may be some risk to that, and that's as much detail that I'll go into.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And again, this is the sort of the pushback on no guidance is -- this is unusual. Should we expect this to continue? I mean, how do we model go forward? I don't...

Robin Raina

Yes, I think I can talk about it. Obviously, you don't -- the FIN 48 results aren't added up every quarter, meaning, from time to time, you look at your tax positions and you basically take some -- as a conservative company, you keep booking some uncertain -- some result for uncertain tax position. But having said that, that's not something that happens all the time. So that is an exceptional event that can happen. But having said that, I think one of the things that you noted, you talked about our MAT payments in India that I think this is something that sometimes people forget that Ebix pays a lot of cash taxes every year in different tax jurisdictions. Some of these are advanced taxes, which basically allow us -- that will allow us to use those advanced tax payments as -- in those countries as we get -- as our income gets taxable. So for example, I think in India, it starts at 2015. But in the meanwhile, this is how minimum alternate tax in India works. You have to still pay advanced taxes at the present time, and those are the payments that you see out there. So it impacts our cash flow for sure.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Got it. Okay, and the last one for me. You had a bunch of uses of cash, some earn outs, some debt retirement, purchase of stock, et cetera. With respect specifically to the balance of allocation between purchase of stock and repayment of debt, it was fairly aggressive repayment of debt. How do you think about balancing those 2, paying down debt versus buying stock and in general uses of cash?

Robert F. Kerris

Yes, I'll take that. We look at our use of our future operating cash flows really in 3 ways: one, most importantly to continue to grow the business, both organically and through strategic acquisitions; secondly, to pay down debt; thirdly, to repurchase stocks. In terms of the 2 components that you mentioned, our focus first would be on paying down debt, and then secondly, repurchasing stock.


[Operator Instructions] Our next question is a follow-up from Jeff Van Rhee with Craig-Hallum.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Just back to some of the specifics, I understand you're hesitance to talk about the legal situation. I'm sure the lawyers are handcuffing and muzzling and all the things that they like to do, but with respect to -- it seems there were 2 primary issues going back at some length. One was related to an earn out related to Peak, which was an acquired business, and then you have the class action, which is in its early stages. Tell me what you can -- I mean, I realize you're not going to give me forward-looking on what you think is going to happen. But can you at least catch us up there as to what has happened thus far to make sure we're dialed in?

Robin Raina

Yes. I think we just -- Jeff, as you know, we just did a press release, I think, the day before yesterday, which where we talked about the 2 legal suits. I think it clearly -- the press release is clearly expressed that the first 2 that you talked about, from Ohio, the Isaac versus Ebix case. I think the court threw out the fraud proceedings. So it's basically a breach of contract suit at this point. Basically, it's about the $1.5 million earn out payment. That's what the suit is about and it's basically a breach of contract suit. The second one is -- that you were -- the second one is regarding the class action suit. You also follow our press release talking through that. So these have been -- as you saw through the press release, there've been some events, good events for us, but we'll keep our fingers crossed. There's not much I can add to that on top of what the press release already says.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then just back to some of the discussions of these transactions. You emphasized several times you've got some transformational deals working through the pipeline. You talked about -- I'd like to put a little finer point on it if we can. You talked about a couple pending implementations of carriers on the health side for Straight Through Processing. Obviously, your long-term vision has been Straight Through Processing. It's what you've acquired and been building for some time. So these are very interesting transactions. Can you expand on them as to price ranges? If you don't want to get specific, where this kind of deals start, where they can progress to so we have a little sense of how you move the needle? And just along those same lines, you talked about deploying the platform in a western country. You would have a minimum threshold and then some potential to grow beyond there. My notes weren't quite good enough, but I think that might prompt your memory as to which one I'm talking about. Can you just walk through those and try to put a little point on them as how big they could be, what kind of impact they could have?

Robin Raina

Sure, so let's look at it that way. The 2, 3 kind of deals that we call meaningful, meaning, one kind of meaningful deal would be somewhere, where we sign a deal, where we generate revenues and recurring revenues of $1 million or so a year for us. And all these contracts ultimately -- the way these contracts are that basically, they keep flowing through, so you could virtually -- if you want do 5-year planning, you could virtually call it a $5 million deal, but it's a $1 million recurring. That's one kind of a deal. The second kind of a deal which -- this $1 million deal is not transformational deal, clearly, but these are good deals to have because they add to your profitability and margins and so on and you want many of these deals all the time. The second kind of deal are CRM kind of deals, wherein larger insurers are coming with you or larger health insurers are working with you. So those deal sizes could vary between -- anywhere between $3.5 million, $4 million to $6 million a year. So those are the second kind of deals. Those, I definitely consider very meaningful deals for Ebix because they're recurring and that's -- when you get that kind of recurring revenue stream, that's a pretty good revenue stream. Then there's a third kind of deal, which could be in excess of $10 million recurring a year. Clearly, that would be highly transformational, meaning highly positive for us, meaning above $10 million; could be $15 million recurring, could be $10 million recurring, could be anything. But so we are in the midst of all these 3 kinds of deals today. So again, like I said, it is -- these are binary situations, especially the larger ones, the transformational ones. Until you get them, you don't have them. So these are binary situations and hopefully, we can have success with them.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay, that's helpful. And just to follow up on, Bob, on one of your comments regarding the cash flow for the quarter. Obviously, cash flow is front and center. You had legal in there. You called out 2 things, legal, and I think you called out taxes, if I recall. And then your description was going forward, you would not expect the -- you would expect some of the legal to continue, but if I heard it right, you were not looking for that level of tax payment cash basis to continue. Can you just repeat, expand on that comment, either Robin or Bob, on the cash flows because there's 2 aspects in there obviously: taxes, the cash taxes and how you're thinking about that. And then the other part is legal. You paid considerable legal this quarter. You said you'd expect them to continue. Are they going to stay at this? When you say continue, stay at this level or sort of trail off a bit? I mean help -- if you can help on either of those, it'd be great.

Robert F. Kerris

Yes, yes, sure. Let me clarify. I think Steve may have led you to believe that the cash payment of taxes was something unusual. Cash payment of taxes is part of our ongoing business. That would be expected to continue going forward as part of our business operations in compliance with the various jurisdictions that we do business. In terms of legal expenses, we do expect that there will continue to be some significant level of legal expenses for the near term as we work through some of these legal matters. Then on the other hand, we hope that with the improvement in our business, top line and otherwise, that our operating cash flows will increase going forward.

Robin Raina

Jeff, there's basically 2, 3 things at play here. One is clearly Ebix -- from an Ebix perspective, we would like to see our revenues growing. Obviously, that helps increase operating cash flow. Secondly, clearly, the extent of the legal spending, we would like to see it come down, and there will be some portion of it which will stay. It's difficult for us to predict what portion of it will stay, but our expectation is that it will continue to drop off with each passing quarter, meaning at least that's an expectation right now. So that's one thing. Beyond that, meaning, there are overall exceptional items associated with the Goldman Sachs transaction, which obviously will fall off. So and then this particular quarter had many multiple -- many things which were kind of exceptional both on the positive side, both which give us a positive income and items that gave us -- hurt us on the negative side. So when you look at those, meaning, as you saw that, on the positive side, you saw that we had some kind of an artificial gain coming in from the release of an earn out liability. Clearly, these are accounting rules. We have to follow them. But on the other side, there were a lot of items that you saw went the other way, which means, for example, you saw the onetime cost and -- the onetime legal cost, the exceptional items, they added up to around $4.5 million. You also saw there was a stock put of around $1.6 million delta as compared to the last year related to the stock put given to the PlanetSoft shareholders. Now, as you know, that's an exceptional item simply because it's related to the stock price. The stock price fell down, the value at which they've been given stock was $16 something, and so it had -- you have to follow the accounting rules and take it to the P&L. And so it hurt us there. Similarly, there is FIN 48 result and so on, which Bob already talked about. So there's quite a bit of exceptional stuff in this quarter. But having said that, as Bob correctly pointed out, some portion of the legal costs will stay. We don't know what is that quantum, but it will be -- it clearly has to be a lot lower than where it is presently. So we'll keep everybody updated as we go along. I think it's obviously important for the company at this point. We want to make sure that while we improve our business, we are absolutely clear that we want to clear our name once and for all. It's extremely important to the management, to the board, that our integrity is established without any doubt in any -- without any doubt whatsoever. So we, at this point, are not looking to just find shortcuts. We're absolutely eager to ensure that we absolutely go to the root of the problem and absolutely get everything addressed. And so having said that, you'll see some amount of legal expenses going forward, and -- but we do expect it to be a lot lower than what it is at present.


And I'm not showing any further questions.

Robin Raina

Thank you very much. Thanks, everybody, for attending the call. This brings us to the close of the conference call. Look forward to speaking to you the next time. Thanks.


Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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