What happened
Shares of Ebix (EBIX +0.00%), a software provider serving the insurance, financial, healthcare, and e-learning industries, are getting crushed in Monday trading after the company reported disconcerting news over the weekend.
As the company revealed Friday night, after close of trading for last week, its auditor RSM US LLP has resigned as a "result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions [in Ebix's Indian gift card business] that occurred in the fourth quarter of 2020."
The business in question, part of EbixCash, has been a huge growth driver for Ebix, showing 95% sequential growth in the third quarter of 2020 for example. Now, investors are calling the reality of that growth into question, and Ebix stock is down nearly 50% as of 10 a.m. EST Monday.
Image source: Getty Images.
So what
Ebix attempted to downplay the bad news, noting Friday that its unaudited results show that it collected revenue of $220 million in the fourth quarter of 2020, and generated both operating income and operating cash flow in excess of $32 million in the quarter -- to which the gift card business contributed just $1 million -- the implication being that the "unusual transactions" that so upset RSM were really not that big of a deal.
Responding to investor questions over the weekend, this morning, the company argued further that investors are overreacting, insisting that "the Company's financial health is in better shape than ever," that it has $140 million in the bank, and that its planned IPO of the EbixCash business is still on track to take place late this year.
Now what
Investors aren't buying it, though. From a market capitalization of nearly $1.6 billion Friday, Ebix has collapsed to just $800 million or so in value at last report. Relative to the stock's $94.5 million in trailing earnings, that looks like an incredible bargain -- less than 10 times earnings. Of course, it's only a bargain if you trust that Ebix is earning as much as it says it's earning, and right now, investors don't seem to be in a trusting mood.
