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Copperfield Research is the pseudonym of a research team focusing on publicly traded equities. As of the publication date of our articles, we may have long or short equity positions in the companies covered. We do not discuss unpublished reports, or provide any advanced warning of future reports... More
  • EBIX: Not a Chinese Fraud, But a House of Cards Nonetheless 30 comments
    Mar 22, 2011 10:43 AM | about stocks: EBIX, TLEO, CRM, SFSF, N

    We have written a report on EBIX Inc. (EBIX) that may be of interest to shareholders, auditors, and most importantly - the IRS and SEC.

    The full report can be downloaded here:

    Winston Churchill's famous quote, "a riddle wrapped in a mystery inside an enigma," might as well have been targeting Ebix Inc. (ticker EBIX). EBIX has been an aggressive acquirer of a variety of companies over the years, many of which focus on the insurance industry. The company's offering mix is a confusing amalgamation of niche products that all have a "roll-up" stench. Robin Raina, EBIX's CEO, has liberally described his business with the buzz words du jour, such as "exchanges," "CRM," "The Cloud," and "SaaS." The stock has performed well, fueled by retail investor interest, momentum publications like Investors' Business Daily and minimal scrutiny from analysts. We believe that EBIX is nothing more than a roll-up that has materially misrepresented its business (relative to the CEO's buzz words) as well as its organic growth. Its business model is predicated on two principals: tax arbitrage and dramatic cost cuts (headcount reductions and offshoring), neither of which is sustainable. Further, the company's tax arbitrage may be more than "just" unsustainable, it may actually be illegal.

    EBIX's problems run deeper than unusual accounting. The EBIX story also comes with multiple auditor resignations, governance abuses, misrepresented organic growth, questionable cash flow and a contentious CEO. Below we address these concerns in great detail. Given the gravity of these issues, we have notified the IRS and the SEC of the material abuses at EBIX. We hope the warranted scrutiny saves investors from significant losses as the true EBIX story gets told. 

    EBIX shares are worth no more than $9.00, a level that would represent a 65% decline from current prices. We arrive at our target by adjusting current consensus estimates for a 35% tax rate (where it will likely go), and applying a generous market multiple of 12x normalized earnings (consensus estimates include assumptions that are unattainable and adjust for oddities such as amortization, while failing to contemplate massive underinvestment in sales and R&D). We estimate that the company has less than $0.75 of de novo earnings power.


    This report will detail:

    1) The History of a Roll-up & Its "Slash & Burn" Strategy. The $970 million of "value creation" imbedded in EBIX's valuation is likely to collapse given the myriad of issues the company currently faces.

    2) EBIX's Atrocious Organic Growth and Manipulative Metrics. Investors have a distorted view of the company's growth profile. We estimate organic growth was negative in 2009 and was less than 4% in 2010. Management's definition of organic growth is highly manipulative and demonstrates the deceptive nature of the CEO.

    3) Growth Crippled by Suspiciously Low Sales and R&D Expense. EBIX's extremely low sales and marketing and product development expenses are not consistent with a technology company. EBIX's company-wide sales and marketing expense was $2 million less than the stand alone run-rate of a recent acquisition. This acquired company that outspent EBIX was 1/20th of EBIX's size. EBIX's margins are overstated and will be crippled by massive reinvestment to avoid larger declines in organic growth. The only segment of EBIX's business that has not benefited from a recent acquisition declined 27% in the fourth quarter.

    4) ADAM Assumptions are Incomprehensible and Will Drive Disappointment in 2011. EBIX recently closed its largest acquisition to date. EBIX must improve ADAM's margins by 2,500 basis points on day one, grow faster than ADAM did in the previous 3 years, recognize no D&A expenses and recognize a zero percent tax rate to generate the $0.15 of accretion that the company has guided to. This overly aggressive guidance will result in negative earnings revisions relative to analyst's elevated expectations.

    5) Potentially Illegal Tax Strategy and Impact on Earnings and Valuation. EBIX utilizes two strategies to reduce taxes to nearly zero. The first strategy suggests a lack of oversight from auditors and earnings manipulation. The second is more sinister and potentially illegal. Through a series of superficial transactions that pose no business purpose other than to avoid U.S. taxes; EBIX was able to turn each dollar of foreign revenue into $1.40 of profits in 2010. This tax strategy is not sustainable in the near, or intermediate, term. A higher tax rate in the future will dramatically change the economics of EBIX's business, significantly impair its earnings expectations, and could subject the company to significant fines, penalties and back taxes.

    6) Free Cash Flow Myth. Many investors use free cash flow to justify EBIX's valuation. We believe EBIX's free cash flow is a highly distorted metric given limited cash R&D expense and its questionable tax strategy. In fact, if investors simply adjust for a normalized tax rate, then EBIX trades at 37x free cash flow.  Taken a step further and adjusting for R&D expense for acquired technology costs (acquisitions in the cash flow from investing segment), then EBIX trades at nearly 50x free cash. 

    7) Significant Quality of Earnings Issues. EBIX appears to manage earnings through accounting shenanigans, including accounts receivable and its allowance for doubtful accounts. The very low level of acquisition price allocated to non-indefinite intangibles is highly suspicious for a technology company and points to a lack of auditor oversight and a desire to overstate earnings through lower amortization. In 2010, EBIX generated almost $0.20 of earnings that are unlikely to repeat in 2011, which could drive incremental earnings disappointment.

    8) History of Auditor Turnover, Shockingly Low Audit Fees and Accounting Red Flags. Investors should view EBIX's stated financials with extreme skepticism given the myriad of accounting and oversight issues. EBIX has had four different auditors over the past seven years. Management's explanation for the high auditor turnover does not reconcile with the company's filings. EBIX pays its tiny regional auditing firm less than $350,000 a year in audit fees, a tiny fraction of the audit fees that are paid by companies EBIX's size.

    9) Controversial CEO Appears to Demonstrate a History of Misrepresentation. EBIX's CEO does not allow analysts or investors access to other members of his management team. This alone is cause for concern about what Robin is hiding. The CEO makes 1,250% more than any other employee. The company's lack of bench strength will again be on full display at their second ever analyst day on April 1st. The CEO's charity appears to make outlandish claims relative to its size and scope.

    10) SaaS Provider? We Think Not. EBIX's management and analysts claim EBIX is the next great SaaS provider. This is a gross misrepresentation. SaaS companies measure their deferred revenue in quarters and years due to the subscription nature of the business. EBIX's deferred revenue can barely be measured in days and weeks.  As a result, EBIX has minimal visibility relative to real SaaS providers. Also, management misrepresents its products by classifying the majority of its business as "exchanges." These misrepresentations are consistent with management's historical actions.


    (Due to the danger of retaliation from the company, this report was written under a pseudonym, Copperfield Research. People like Robin Raina are willing to do anything to keep the house of cards in tact. The author of this report can be contacted at

    Stocks: EBIX, TLEO, CRM, SFSF, N
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Comments (30)
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  • Ok I personally want to know where your facts come from? Illegal Tax Practices? They have tax loss carryovers the tax rate will go up but I seriously doubt it will make it to 35%.
    22 Mar 2011, 05:56 PM Reply Like
  • new material info on ebix:
    25 Mar 2011, 08:29 AM Reply Like
  • Author’s reply » ozzfan1317, thanks for the question. We meticulously documented our sources if you read the document. EBIX shifted 77% of their income to their foreign operations (mostly India and Singapore). EBIX generated 75% of their revenue in the US. The carryovers play a smaller part in EBIX's tax situation today (although this has been a source of earnings manipulation as documented in our research).
    23 Mar 2011, 12:50 PM Reply Like
  • How is EBIX's shifting of 77% of their income different than any other company's doing it? Don't other companies do it too? While I personally don't like it (and probably most people don't) is it illegal? IE, why is this an issue?


    R. Mann
    25 Mar 2011, 09:27 AM Reply Like
  • ebix and new info: check my instablog. you will find the truth.
    25 Mar 2011, 09:29 AM Reply Like
  • Let me see now. I have a hand dipped chocolates business established in the USA. I buy a candy operation in Canada and Canada decides to have a tax holiday on companies that produce hand dipped chocolates. Other expenses are cheaper in Canada anyway so I move all production to Canada although most of the sales are still in the USA. So now my sales staff is mostly located in the USA selling chocolates from my Canadian subsidiary. Where do you think most of the revenue is generated vs most of the income recognition.
    10 Dec 2012, 06:59 PM Reply Like
  • Thank you I will definately take a look at your sources and do some deeper research I appreciate your response.
    23 Mar 2011, 02:43 PM Reply Like
  • check my instablog. you will find the truth on this one there. dont forget I called it first, always fighting against fraud!
    25 Mar 2011, 09:30 AM Reply Like
  • a pseudonym?? a pseudonym?? You've got to be kidding...!!! I have never seen this before. This is the most irresponsible action I have seen in years!!


    And...the implied "...people like Robin Raina...." etc, etc...has to be laughable!! Whatya do for a living? work for the CIA???


    BS - BS - BS -BS.


    I am posting under my real name...cuz people like Nicole Kidman, Cate Blanchett and others are out there...and out to GET me!!!!


    I have a suggestion for Seeking Alpha: Put this language (next para) in BOLD, RED type at the beginning of each of this type article!!! Warn the casual reader!!!!


    this from the the web site: "not selected, edited or screened by Seeking Alpha"


    Gee...then why print it ? ? ?


    Makes you wonder who among all the EBIX shorts...wrote this??? hmmmm????


    Pat Lueck
    23 Mar 2011, 06:16 PM Reply Like
  • check my instablog entry on ebix. forget these morons. you will find the exposed truth there! I promise!
    25 Mar 2011, 09:32 AM Reply Like
  • Yes, I agree with Pat, it is really reprehensible to not have the, well, for lack of a better word, maturity, to post your real name. I may have missed this in the article, but I assume you are shorting the stock? (If you are short the stock but didn't mention it, that's also reprehensible). I find it comical when short-sellers post anonymous rants on sites like Seeking Alpha and think they are so influential that their pronouncements actually move markets! Really, that just makes me laugh.


    In any event, I am not saying that some of your concerns aren't valid, it's just that you don't provide much evidence to back them up, and to make claims that this is a house of cards, that the company is engaging in accounting shenanigans, etc. etc., well, those are serious claims that deserve a serious analysis, not the anonymous rant you post here.


    Really, this is reprehensible. Have some guts, post your name, tell us if you're shorting this stock, and give us your analysis here, instead of saying we should go to a report you wrote posted elsewhere.


    A really abominable article.


    Neil Andrews (long EBIX)
    24 Mar 2011, 09:28 AM Reply Like
  • Aha, here it is, a disclaimer, in tiny hard-to-read text from the article you suggest we read:


    "Disclaimer – As of publication date, the author of this report has short positions of the company coveredherein and stands to realize gains in the event that the price of the stock declines. Following publication, the author may transact in the securities of the company, and may be long, short, or neutral at any timehereafter regardless of our initial opinion."


    Neil Andrews (long EBIX)
    24 Mar 2011, 09:40 AM Reply Like
  • Another question: who is Copperfield Research?


    All I can find on Seeking Alpha is that "Copperfield Research is the pseudonym of a research organization focusing on publicly traded equities."


    Why does Copperfield Research use a pseudonym? Who are you? Do you have a website?


    You posted your article on I have never heard of that website. Can you tell us about it? Why did you post it there?


    Neil (long EBIX)
    24 Mar 2011, 09:47 AM Reply Like
  • New 52 week high today.
    Hows that short position working out for ya?


    Don't know where you hang out but on my side of the tracks $350,000 is real money (auditor cost).


    <<<CEO does not allow analysts or investors access to other members of his management team>>>
    Then in the same paragraph you mention the analyst meeting in which the management will be participating. Duh.


    That's enough for now.
    How much have you lost here in the last year and a half???


    Try shorting CRM or BIDU or PCLN CMG..........


    Jimmy T
    24 Mar 2011, 09:49 AM Reply Like
  • I can't believe seeking alpha can allow something like this to be published on their site. Am contacting my attorney at this moment!!!!!!!
    24 Mar 2011, 02:30 PM Reply Like
  • The author posted this under a ficticious name and won't disclose his real name, yet complaining about Ebix's transparency? How is this in any way legal? It's a Short Attack where the writer is hiding from the SEC.
    24 Mar 2011, 03:30 PM Reply Like
  • $EBIX
    I have known Robin Raina for at least seven years and served as EBIX’s IR counsel for two (2004 – 2006). From that association, as well as from ongoing anecdotal evidence and third party corroboration (some really smart people have been kicking the EBIX tires for years – resulting in some impressive holders who have met the team), I continue to have nothing but confidence in his abilities to execute the EBIX business. Whereas many small-cap CEOs are fixated on their share price and focus their efforts to curry favor with analysts & funds and the media, Robin’s focus has been on execution and letting the “numbers speak for themselves.” He has built his company through acquisitions that have delivered new technology, customers, markets, capabilities and business models – almost all of which he structured and funded without the assistance of bankers.


    What he has achieved at EBIX has been nothing short of amazing and visionary – he has transformed a company that was mired in a money-loosing shrink-wrapped software model into a new markets and businesses including some that have since been deemed SasS, the Cloud, etc. He has always had great vision and large goals which have enabled him to achieve great things for EBIX – he’s done what he said he would do – and has shown his confidence by holding on to the bulk of his stock.


    I am still reading Copperfield’s “Research” but as a career IR professional I can’t help but be wowed by their skillful (and unbridled) use of innuendo, slanted opinion, hyperbole, misinformation, and “glass half empty-ism” to create a tempest where there really is none. They review clearly disclosed metrics, facts and developments as revelations – and layer them to form a mirage of conspiracy like a great summer novel.


    The velocity of their spin is truly impressive – and the masterful manipulation starts with a powerful nod to “Chinese Fraud” and leverages that inappropriate but colorful slur by making it a “Three Part” saga. A normal one-part blog post would likely get little attention but a 3-parter carries much more gravitas – it even suggests substance or true research and camouflages what is no more than good old fashion stock manipulation propaganda. The language is colorful and leads the reader into a reverie of terror: ‘“roll-up” stench,’ “auditor resignations,” “deceptive nature of the CEO,” “Growth Crippled by,” “ADAM Assumptions are Incomprehensible,” etc. – just on page 1!


    I’ve skimmed the report and see nothing new – just a very clear attempt to twist well-known facts into a persuasively argued but intellectually dishonest treatise. And to top it off – Copperfield has NO prior activity on SeekingAlpha and refuses to identify themselves for fear of the “danger of retaliation from company management” – an ironic coup de grâce of their spin campaign.


    Given the barrage of personal and professional affronts –and today’s share price impact – it would be hard for EBIX to not react to this assault – and perhaps EBIX my rebut this report in some way – other than holding their already scheduled analyst day in NYC on April 1st. Fortunately, running a business well is the best revenge, and I can count on Robin to do that for many years to come. He’s had similar people say similar things – but in less colorful ways - over the past few years – but has stuck to his business and the Company performance speaks for itself. This may even give the company an opportunity to repurchase some stock on the cheap!


    Fortunately the stock market is a voting machine in the short term and a weighing machine over the long term. Copperfield gets their day in the sun while us EBIX investors can count on Robin and his team to move the scales for us in a meaningful way. If you know what you own – you can be confident in riding out the storm – but if you don’t – you will likely be swayed by the newest prophet to hit the blogosphere. For me – EBIX’s track record is long and openly disclosed – while Copperfield is new and unknown – I’m going with what I know.
    24 Mar 2011, 07:17 PM Reply Like
  • Well said its sad how quickly we panic on mere speculation great company tempted to buy more on the dip.
    24 Mar 2011, 08:39 PM Reply Like
  • I have literally spent 3 hours looking at all the information at my disposal and I feel I am in a better place, feeling even more confident that this was simply an attack, or smear campaign.


    I am long Ebix, I am going to take advantage of this attack to strengthen my position.
    24 Mar 2011, 11:09 PM Reply Like
  • hi there, new material info on ebix proving it is without a doubt a house of cards:


    25 Mar 2011, 08:35 AM Reply Like
  • you will find the truth about ebix on my instablog entry.
    25 Mar 2011, 09:35 AM Reply Like
  • Hi David,


    Thank you so much for your most thoughtful comment. Would you be interested or willing in turning your comment into an article on Seeking Alpha? Otherwise it may get lost a bit in the shuffle underneath all the other comments.


    I ask because it's really the most well-written, most intelligent thing written on yesterday's fiasco, and it'd be nice if it got more attention.


    Neil (long EBIX)
    25 Mar 2011, 10:23 AM Reply Like
  • Guys, give some respect to the author for such a detail-oriented work. He has done his job and rest is up to the share holders to carry out their analysis.... Before commenting or making your own analysis, read the complete report data which speaks in itself...
    25 Mar 2011, 12:45 AM Reply Like
  • @David Collins- thank you for your excellent analysis. This person is a talented and ruthless propagandist. The bit about fear of retaliation really seals the deal by making Ebix seem like some kind of violent street gang ready to burn down anyone's house that talks to the cops. Please repost your analysis on the yahoo board; it will be much appreciated.
    25 Mar 2011, 01:30 AM Reply Like
  • While I do find the analysis very detailed and may in fact have tremendous merit, it is still very distasteful to see a "Research Firm" hiding behind a pseudonym in order to 'protect itself from hostile management" (their words, not mine.....)




    And in agreeing that SA should not be lambasted for allowing the free flow of opinions from all sources, I do seriously need to question how Copperfield Research can be a #1 Opinion Leader on Software with only 3 articles written, all three parts of the same article, and with only 3 'comments' made.....and all made within the last two days!


    This does nothing to refute the allegations made against EBIX, detailed as they are, but by hiding behind the curtains and playing with smoke and mirrors, one must seriously question the motives of these individuals who will not stand behind their work.
    25 Mar 2011, 09:29 AM Reply Like
  • It is quite simple to put this dispute in rest. All Ebix or Robin needs to do is coming out with strong language and challenge the Copperfield Research Psy. (aka Claudia Schiffer Research) to make this Short seller getting shorter.
    25 Mar 2011, 12:36 PM Reply Like
  • @The Machine- The motives of this person are clear as day. The thing that requires scrutiny is whether or not this rises to the level of manipulation.
    26 Mar 2011, 04:03 PM Reply Like
  • The days of the SEC or the NASD investigating 'stock manipulation', with the heavy push for 'deregulation' in Washington, is long gone. This is clear manipulation but the people in Congress are on a boat that basically says individual American investors are on their own.......and GOOD LUCK! When I hear a buffoon in Congress screaming about how we need 'LESS REGULATION' in Gov't., I want to scream at the top of my lungs "That's how we got INTO this mess! 1) Banking Crisis - No regulation of derivatives, 2) Horizon disaster - SELF- Regulation or closely tied regulation in the Oil/Gas industry, 3) Bernie Madoff - NO Scrutiny or follow up by the SEC at all after repeated warnings


    I am FOR strong, smart regulation with teeth because without it the wolves will continue to fleece the American public as they continue to do today.
    17 Aug 2011, 09:57 AM Reply Like
  • To sum up your arguments.


    EBIX is tax sheltering -- Them and everybody else. More and more global companies are headquartered in tax-friendly domiciles. That's life. It's not illegal, just annoying and they aren't going to 35%. That number is completely out of left field and I suspect that you know that.


    EBIX growth isn't organic -- Yep. Duh. They grow by acquisition using their cash flow. I don't care what numbers they use for their organic growth as long as the bottom line earnings numbers continue to hold their growth, which they have done quarter after quarter. Anyone who understands the company and has watched them knows that they grow by acquisition.


    They don't have enough R&D -- That's because they grow by acquisition. See above. If you're comparing them to other technicals that have to continue to develop new technical break-throughs, you're missing the point.


    EBIX doesn't have good cash flow -- That's a bunch of hooey based on your bogus 35% tax rate idea and that you don't understand why their business model doesn't require high R&D costs.


    You don't like their CEO -- I could care less. I do like their CEO. I think he's an innovative leader.


    They aren't cloud -- I generally agree, but I'm not sure that's a bad thing. Cloud is sexy, but it isn't particularly profitable for most yet.
    22 Jul 2011, 02:39 PM Reply Like
  • What do you think of yesterday's earnings report Copperfield?
    6 Oct 2011, 01:14 PM Reply Like
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