EBIX - Ebix In Turmoil: Assessing The Rising Tide Of Challenges (Rating Downgrade)

2023-11-10 13:43:06 ET

Summary

• Ebix faces delays in filing its quarterly report due to ongoing negotiations with creditors, raising concerns about its financial stability.
• A showdown between long and short positions intensifies, with short interest nearly doubling since August, indicating a growing bearish sentiment.
• Ebix's uncertain near-term prospects, volatile revenue growth rates, and the significant debt burden require resolution.

Investment Thesis

Ebix, Inc. ( EBIX ) announced yesterday that it could no longer file its quarterly report in a timely fashion due to delays in negotiations with its creditors.

As such, I'll get to my punchline: I now believe there's a meaningful likelihood that Ebix will go bankrupt. The last few months have been moving very quickly in a negative direction for Ebix.

Moreover, this business is now wounded. Consequently, it's not only its creditors but its stakeholders too that will now seek to get out of this business everything they are owed before the business seeks Chapter 11.

Quick Recap

In my previous analysis , I said:

As I often say to my followers, pick out businesses that are not battlegrounds. Investing is challenging enough at the best of times. But we should always seek to deploy capital into businesses where the business in two years' time will be stronger than it is today.

And while Ebix could be better positioned in two years' time, its path to that point is far from certain. And further compounding matters, Ebix really needs its EbixCash IPO to be a success.

No sooner would the ink dry on my page, than the stock started its precipitous decline.

Ebix's Near-Term Prospects

Since I wrote my last article on Ebix, it appears that there's a showdown taking place between longs and shorts. And the shorts are rapidly gaining strength and numbers.

As you can see above, since August the short numbers have nearly doubled. And once these figures are updated for November, I suspect that indeed, this figure will have increased further.

So, what's at play for longs?

Q3 2023 Revenues Will be Lamentable

We always knew that Q3 would see negative y/y revenue growth rates. That was not even part of the discussion. Instead, what Bulls had clamored and craved to hear was a positive update on the likely IPO of EbixCash.

EbixCash was expected to fetch close to $780 million. But I don't believe that IPO will now go ahead. At least not before there's a significant restructuring of Ebix's balance sheet .

But now the problem for Ebix is this. Even if its IPO could have at one time fetched a compelling valuation and delivered fresh capital that would staved off its creditors, the SEC filings in the last several weeks, put to rest such hopes.

Particularly this one :

The Agreement mandates that by October 31, 2023 the Company and the requisite Lenders will agree on the terms of either a further amendment to the Credit Agreement or an alternative transaction for repayment of the obligations , and the Company will deliver a carve-out plan in connection with the sale of certain US assets or a combination of certain US asset sales through an outbound process. (Emphasis added)

Simply put, lenders gave Ebix time to attempt to find some way to get hold of its required capital to improve its balance sheet. But that time has now drawn to a close and all we have to go on is a delayed 10-Q SEC filing saying that the company is negotiating with Lenders.

I concluded my previous analysis by saying:

I approach Ebix with a cautious perspective given its status as a highly shorted stock. While it may be tempting to dismiss short sellers, I prefer to evaluate Ebix's potential without preconceived biases.

The company's near-term prospects appear uncertain, with volatile revenue growth rates and a significant debt burden that requires resolution, potentially through a planned IPO of EbixCash.

I wanted to root for the underdog. In fact, since I wrote about Ebix, certain persons associated with Ebix reached out to me with the assertion that EbixCash's IPO still is likely to go ahead and that the company was working hard to shore up cash.

Yes, Ebix was working hard to resolve its issues with its lenders. Yes, perhaps Ebix was working hard, but ultimately, one way or another, life got in the way, while plans were being made.

The Bottom Line

In light of recent developments, the future for Ebix has become increasingly uncertain. The company's announcement of delays in filing its quarterly report, coupled with ongoing negotiations with creditors, has cast a shadow over its financial stability.

The accelerated growth in short interest since August signals a mounting challenge for long-term investors. The anticipated IPO of EbixCash, once seen as a potential lifeline, now faces significant hurdles, as recent SEC filings suggest complications in meeting financial obligations.

Despite efforts to address issues with lenders, the path forward for Ebix appears fraught with uncertainty.

The intricacies of its balance sheet and the evolving dynamics between creditors and the company leave its near-term prospects in a precarious state, and the once hopeful narrative of a successful turnaround now seems mired in ambiguity.

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