Ebix: The Waiting Is The Hardest Part

| About: Ebix Inc (EBIX)

Summary

Ebix has already blown its chance to meet the wild expectations that it recently set for its most celebrated business deal.

The company has yet to officially test - let alone launch - a new e-trading platform that was supposed to start generating “substantial revenue” at the beginning of this year.

After winning the bid for that big-ticket deal based upon its “tried and tested” technology, Ebix faced demands for a “complete rebuild” of its outdated platform instead.

Looking somewhat desperate, Ebix recently offered to purchase a well-established rival that has won over a growing crowd of loyal customers since it lost the bid for that overseas contract.

Nine months after reporting that it had reached “very advanced states of contract finalization,” Ebix continues to wait for a formal contract that outlines the financial terms of that deal.

If Ebix (NASDAQ: EBIX) feels tempted to brag about its most celebrated project again, the company might want to bite its tongue. The last few times that Ebix discussed the electronic trading platform that it has agreed to provide for the London insurance market, the company made some wildly optimistic predictions that now look totally divorced from reality.

During its most recent quarterly conference call, Ebix really tested its luck. With less than two months left on the 2015 calendar, Ebix confidently reported that it remained on schedule to launch its revolutionary e-trading platform - and start generating "substantial revenue" from that new service - by the first of this year. Given the current status of that project, however, Ebix must (or at least should) have known that the company stood little, if any, realistic chance of actually meeting that lofty goal.

While Ebix has shared no further updates on that overseas project, despite a request to do so for this article, a London-based trade publication focused on the insurance industry last week revealed the following:

  • Ebix has fallen behind schedule on that elaborate project because (as predicted by this author last spring) the company basically needed to start over and build a new e-trading platform from scratch. Although Ebix reportedly won the bid for that big-ticket project based upon the "tried and tested" nature of its existing technology, the company soon found itself forced to replace its outdated platform with a modern solution instead.
  • As of last week, Ebix had yet to even begin testing its platform in a pilot program that it was originally scheduled to take place during the fourth quarter of last year. Under the revised schedule set forth by Private Placement Limited (PPL), the organization in charge of the project, Ebix will now aim to start that overdue pilot program by the end of the month - although "some in the market remain skeptical about the initiative" - if it possibly can.
  • Ebix remains in limbo, too. A year after landing that big-ticket project, Ebix continues to wait for PPL to nail down all of the agreements that it needs in order to present the company with a formal contract that spells out the financial terms of that high-profile deal.

Ebix sure has sparked a lot of controversy since the company won the PPL deal, though. Just listen to some of the complaints voiced by London market experts who clearly resent Ebix and/or expect its new e-trading platform to fail.

"The (request for proposals) process stated that the PPL board wanted a tried and tested platform and would not accept new technology," one industry expert reminded The Insurance Insider in that same article, a story published last week but widely overlooked outside of the London insurance industry up to now. "But Ebix is now using a brand-new platform and has ended up with a very expensive new piece of kit, which is not ready to use. They have basically broken everything they said they were going to do."

(Author's Note: Since The Insurance Insider requires a subscription to access its articles, I have decided against sharing the full text of this story with the general public due to potential copyright violations.)

Unwilling to wait around for Ebix to roll out its overdue platform, the publication further reported, industry players have flocked to a competing system operated by rival Xchanging - the very company that Ebix beat out to win the PPL deal - or searched for other alternatives instead.

"Every company thinks that it has the best technology and will not want to join a common tech platform," a senior market executive declared in the story. "That would just be a competitive disadvantage."

So "we're seeing people do placing on other platforms," another industry source added. "I know the Xchanging reinsurance platform has now placed many billions of dollars of their reinsurance programs" all by itself.

No wonder Ebix recently decided to launch a bid for Xchanging that, if successful, would have allowed the company to claim all of that business as its own. During a conference call that it hosted 10 days before it entered that bidding war, Ebix had given investors every reason to believe that its widely anticipated e-trading platform would soon hit the London insurance market and provide the company with a powerful new revenue stream.

For a company running so far behind schedule, Ebix sounded awfully confident.

"I am pleased to report that we continue to work aggressively towards the date of 1 of January of 2016 in terms of getting the PPL solution ready for prime time," Ebix CEO Robin Raina declared less than two months ahead of that looming deadline. "Our dedicated team of technology staff, both in London and offshore, have been working closely with the PPL program management group to ensure that we are ready with all their enhancement requests and additional functionality requests by their intended effective date of 1 of January of 2016. We expect the deal to contribute substantial revenue in the beginning of Q1 of 2016 and (provide) a consistent recurring and predictive momentum" from there.

Maybe Ebix should have tried a little harder to gain control of Xchanging by sweetening its offer for the company before it ran out of time. With Ebix stuck on the sidelines for the past year, trying to build an elaborate new e-trading platform that it still needs to test, Xchanging has rushed to take advantage of that generous head-start by recruiting a crowd of customers to its rival platform and hooking them on its own e-placing services instead.

Big surprise. Both Xchanging and its partner, The Insurance Workplace (TIW), remained confident in the prospects for their rival e-trading solution - and determined to aggressively grow their competing business - even after losing out on the PPL deal with a proposal that many actually regarded as superior.

"We have our own placing solution in use by a number of brokers, which we believe is superior in many ways to their offering," TIW Chief Executive Officer David Edward proclaimed a few months after Ebix walked away with the PPL deal. "We are not going anywhere, and will continue to develop our portfolio of electronic trading solutions for our clients in London and around the world."

Not that Ebix seemed the least bit concerned at the time. Offering no sign that it even sensed any danger, Ebix responded with the first in a string of encouraging updates about its elusive PPL contract instead.

"There has been a lot of speculation on the size of the deal, the public announcement, the timeline for the contract and the backing that the aggregation exchange will receive in the London market," Ebix CEO Robin Raina stated in a conference call hosted by the company more than nine months ago. "Let me confirm that we are at very advanced states of contract finalization with PPL, while PPL is working through the cost allocation with its 150-plus key market participants … While we cannot reveal the size of the contract at present, let me just say that the five-year contract is likely to have substantial guaranteed annual revenues associated with it from inception, as the intent is to aggregate the London market on this exchange."

"We expect to make a public announcement on the details of the arrangement jointly with PPL, once that contract is formally signed … The basic delay is not associated with the contract finalization. (Indeed), I wouldn't even call it a delay" at all.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.