Questions Surround Ebix Inc. (EBIX) On Tax Strategy and Transfer Payments
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Barron's points out that as of March 2011, shares of Ebix (Nasdaq: EBIX) traded at an all-time high of $30 per share but are now trading down below $18 per share as questions from short sellers surface.
The pull back followed an anonymous report at SeekingAlpha claiming that the company has little organic growth and an unsustainable offshore strategy to avoid taxes. On July 13 shares fell 8 percent opening a large buying opportunity as a few brokers told their customers that the CEO of Ebix, Robin Raina said himself that a journalist had questioned him on July 12 about the company's operations. Mr. Raina commented by email July 15 that Ebix, "strictly adheres" to the SEC's "Fair Disclosure" rules.
Accusation that the company has no organic growth coming in the near term are abound, however the CEO confirms that 11 percent of last year's 35 percent revenue growth was organic. It is hard to determine the amount of organic growth for Ebix considering that they made 18 acquisitions.
Barron's said one thing is clear "as Ebix has gotten larger, its audit firms have gotten smaller."
Barron's highlights that tax-savings from intra-company transactions with subsidiaries in Singapore and India have been crucial to the company's cash flow and profits. In 2009 the company's effective tax rate was 2.5%. In 2010 it was 1.1%.
Extensive use of acquired tax-loss carryforwards and "transfer payments" to its foreign subsidiaries drive the company's tax strategy.
Interestingly, Ebix's foreign operations reported income that was 104% of revenue, and 139% in 2010.
Financial data showed swelling receivables for the company's oldest unit in India, where receivables from Ebix U.S. jumped beyond a year's sales. Raina says this is not the case and said, "We were following a policy of clearing all intercompany [accounts receivable] with India within 365 days, which is within the guidelines laid out by Reserve Bank of India."
Another tidbit about Ebix's subsidiaries in India is that there are two. Ebix Software India Private Ltd, which saw rising payments from Ebix thoguh 2008, saw a plunge in payments as its India tax-free holiday was endding. However, the new India unit, which enjoys the tax holiday through 2015, saw it's payments triple.
The company's audit firm in India is small Delhi firm called Baweja & Kaul, which is not one of the firm's U.S. accounting regulator The Public Company Accounting Oversight Board has inspected. The audit of the company's $38 million Indian business last year cost just $9,000 - much less then the two India units spent on holiday gifts for the Diwali "festival of lights," Barron's said.
Looking ahead Mr. Raina confirms that Ebix will have a very attractive balance sheet due to its abundance of cash. However, questions remain and this stock should be watched as the story develops.
The pull back followed an anonymous report at SeekingAlpha claiming that the company has little organic growth and an unsustainable offshore strategy to avoid taxes. On July 13 shares fell 8 percent opening a large buying opportunity as a few brokers told their customers that the CEO of Ebix, Robin Raina said himself that a journalist had questioned him on July 12 about the company's operations. Mr. Raina commented by email July 15 that Ebix, "strictly adheres" to the SEC's "Fair Disclosure" rules.
Accusation that the company has no organic growth coming in the near term are abound, however the CEO confirms that 11 percent of last year's 35 percent revenue growth was organic. It is hard to determine the amount of organic growth for Ebix considering that they made 18 acquisitions.
Barron's said one thing is clear "as Ebix has gotten larger, its audit firms have gotten smaller."
Barron's highlights that tax-savings from intra-company transactions with subsidiaries in Singapore and India have been crucial to the company's cash flow and profits. In 2009 the company's effective tax rate was 2.5%. In 2010 it was 1.1%.
Extensive use of acquired tax-loss carryforwards and "transfer payments" to its foreign subsidiaries drive the company's tax strategy.
Interestingly, Ebix's foreign operations reported income that was 104% of revenue, and 139% in 2010.
Financial data showed swelling receivables for the company's oldest unit in India, where receivables from Ebix U.S. jumped beyond a year's sales. Raina says this is not the case and said, "We were following a policy of clearing all intercompany [accounts receivable] with India within 365 days, which is within the guidelines laid out by Reserve Bank of India."
Another tidbit about Ebix's subsidiaries in India is that there are two. Ebix Software India Private Ltd, which saw rising payments from Ebix thoguh 2008, saw a plunge in payments as its India tax-free holiday was endding. However, the new India unit, which enjoys the tax holiday through 2015, saw it's payments triple.
The company's audit firm in India is small Delhi firm called Baweja & Kaul, which is not one of the firm's U.S. accounting regulator The Public Company Accounting Oversight Board has inspected. The audit of the company's $38 million Indian business last year cost just $9,000 - much less then the two India units spent on holiday gifts for the Diwali "festival of lights," Barron's said.
Looking ahead Mr. Raina confirms that Ebix will have a very attractive balance sheet due to its abundance of cash. However, questions remain and this stock should be watched as the story develops.
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