Q3 2020 Ebix Inc Earnings Call
[music].
Them to the Ebix Inc. third quarter 2020 investor call at.
At this time all participant lines are in listen only mode. After the speakers presentation, there will be a question and answer session.
Ask a question during the session you would need to press Star then one on your telephone as a reminder, today's conference maybe recorded I.
I would now trying to accomplish over to your host Darren Joseph.
Ebix corporate Vice President. Please go ahead.
Thank you.
Welcome everyone to Ebix Incorporated's third quarter 2020 earnings conference call joining.
Joining me to discuss the quarter is Ebix, chairman, President and CEO Robin Raina <unk> Global CFO, Steve Hamill, an ebix North American President Ash Sawhney.
Following our remarks, we will open up the call if your question.
Now let me quickly cover the safe Harbor some of the statements that we make today are forward looking including among others statements regarding <unk> future investments.
Our long term growth and innovation the expected performance of our businesses and our use of cash.
These statements involve a number of risks and uncertainties that might cause actual results to differ materially from those projected in the forward looking statement.
Please note that these forward looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly released the results of any revisions to these forward looking statements in light of new information or future events.
Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements made today is contained in our EPS you see your filings, which list a more detailed description of the risk factors that may affect our results.
Our press release announcing that third quarter 2020 results was issued this morning. The audio this investor call is also being webcast live on the web at Www <unk> Ebix Dot Com Board webcast. You can look at Ebix is financials beyond what has been provided they're released on our website www dot Ebix dot com.
Audio and the text transcript of this call will be available on the Investor home page of the Ebix website. After four P.M. eastern time today.
Let me now present, the key metrics is on our Q3 2020 relates.
Q3 diluted EPS GAAP was 80 cents.
Non-GAAP diluted EPS was 93 cents.
Nine month year to date operating cash flow of 71.8 million.
Revenues of 154.3 million and constant currency revenues of 160.2 million GAAP.
GAAP operating income of 31.9 million and non-GAAP operating income of 35.8 million.
For me the highlight of the quarter were mainly three factors.
One is that despite the impact of COVID-19 on our business. So look worldwide and the foreign currency hits on account of the U.S. dollar strengthening we are still reporting Q3, 2020, GAAP EBITDA plus stock based compensation of 36.5 million.
[noise] to our strong year to date operating cash flows of 71.8 million, which is 18% higher than the full year 2019 operating cash flows of 60.8 million.
Three despite COVID-19, our Q3 2020 worldwide revenues grew 39% sequentially over Q2 2020.
Excluding revenues from areas directly impacted by COVID-19, namely the foreign exchange travel E learning and remittance businesses. Our Q3 2020 revenues grew 56% as compared to Q3 2019.
Exchanges, including the index cash and our worldwide insurance exchanges continue to be the largest channel accounted for 90% of our Q3 2020 revenues.
FX also played a substantial role in the quarter, what the U.S. strengthening in light of COVID-19 on a constant currency basis. EBIT was Q3 2020 revenues would have been approximately 5.9 million higher while the nine month year to date revenues would have been approximately 15.9 million higher as compared with the GAAP revenue numbers were.
Pardon.
The ending cash financial exchange revenues increased 18% by 14.7 million from 80.
82.1 million in Q3 2019, the 96.8 million in Q3 2020.
However that increase what's even more impressive when one looks at the temporary impact of COVID-19 on our travel Forex E learning and remittance businesses that were down by 41.5 million in Q3 2020 as compared to Q3 2019.
Excluding travel for extra remittance and E learning businesses, you just cash revenues grew 268% in Q3 2020 versus Q3 2019.
Beginning in March of 2020, our businesses in the area of onsite consulting travel foreign exchange remittance and education were hit severely because of COVID-19, once a pandemic led to a global shutdown and a virtual Cameron cure Perkier was imposed in many countries. The effect of these business lines was natural concern.
The reason that we feel good about the Q3 2020 result, and the resilience shown by our employees across the world to allow us to keep supporting our b to b clients.
Now I will turn the call over to Steve.
Thanks, Dan Good morning.
I'd like to thank everyone for their interest in Ebix as well as our employees for all that they do for the company and every day.
Ebix continues to navigate through rough COVID-19 waters, but also continues to show that its global presence and diverse revenue streams allows the company to continue to generate solid revenues and cash flow.
The company's foreign exchange travel remittance in the learning businesses experienced and approximately 70% decline in year over year revenues during the third quarter of 2020.
But that's an improvement from an approximately 90% declined year over year in the second quarter of 2020.
Spike that negative impact due to COVID-19, the company delivered EBITDA plus non cash stock comp of $36.5 million during the third quarter of 2020.
Yaron already provided an overview overview of the operating results for the quarter solid focus on providing a bit more detail around those results.
Gross margin in the third quarter of 2020 was 44.3% decline from 55.9% in Q2, 20, and 62.5% in Q3 19.
Ebix cash continued to see strong revenue performance within its payment solutions business in India. During Q3 20 as a result of increased demand for electronic payment products. These.
These revenues have lower margins, another ebix solutions, and thus diluted our gross margins versus the prior year.
We expect elevated levels of demand for our payment solutions products in India, while the pandemic persists and possibly longer as consumers and businesses change their payment habits.
[noise] Ebix continues to manage its DNA and other costs as the pandemic lingers on.
Our DNA expense declined 26 million in Q3, 20 versus Q3, 19 that 55% reduction year over year.
The decline was primarily due to three items first a.
$12.1 million bad debt reserve was taken in Q3 19 related to a public sector energy BSNL in India, which impacts the year over year comparison.
Second the company is employee related costs, including travel expenses in Q3 20.
Approximately $10 million less than the third quarter of 19.
Lastly, due to COVID-19 total rent expense for Ebix is over $6 million less in Q3 20 versus Q3 2019.
The rent reduction originates from Rep forgiveness at international airports as a result of Lockdowns and significantly diminished air travel, particularly international travel into and out of India.
The $71.8 million of operating cash flow produced during the first nine months of 2020 compares favourably to $60 million of operating cash flow in the Q3 19 year to date period.
The increase in operating cash flow year over year was most impacted by trends in trade. They are in 2020 versus 2019.
With COVID-19 negatively impacting the world economy since March of 2020.
Our accounts receivable has decreased as a result of decreasing sales in our travel foreign exchange remittance any learnings.
Total cash and short term investments of $127 million at 930, 20 compares to $116 million at December 31, 2019.
Our liquidity remains ample even after the company incurred significant cash usages in the year to date period.
Ended September Thirtyth, two will make 2020, including investments of over $15 million for acquisition activities.
$6 million for capital expenditures and software development and.
And $7 million for stock dividends as well as $35 million used for debt repayment $22 million for debt service and $8 million in cash taxes paid.
Working capital remains robust at $149 million at September Thirtyth 2020.
Versus $129 million at fiscal year end 2019.
Ebix is weighted average diluted shares outstanding was 30.8 million in Q3, 2020 and as of today. The company expects the diluted share count for Q4, 2020 will be approximately $30.9 million.
The Companys consolidated net leverage ratio as defined in our corporate syndicated credit facilities was just under four times at September Thirtyth verse.
Versus our covenant limit of five and a half times.
The company continues to manage its leverage in the face of the global pandemic those cost material negative impact on some of our business lines.
The Ebix cash IPO continues to be a goal, but we will not happen prior to the second half of 2021 based on current market conditions.
Finally, ebixs is form 10-Q will be filed later today.
Ebix has no different than many companies and dealing with the Cove in 19 pandemic, we're working everyday to stay close to our customers and provide world class software and business services solutions globally.
Ebix has a portfolio of solutions and services that is diverse global and critical to our customer base. We will continue to execute on our operating strategy to enhance our position as a global insurance and financial technology leader.
Now I'd like to now turn the call over to the President of our North American insurance businesses Ash Sawhney for his remarks on the quarter Ash.
Thanks, Steve and good.
Good morning, everyone.
In Q3, our core businesses in life and annuities continue posting strong.
Measuring the quarterly run rate for Q3, Twentytwenty compared to Q3 of 2019.
The life and annuity exchange revenue was up 14%.
We also saw a 4% sequential growth in our core insurance consulting business.
These gains were offset by losses in our general insurance consulting business.
Prime I mean, they think of COVID-19 as.
Some of our non core infotainment business clients like Disney and Fox network would affect that.
We also attribute that to the loss of a CRM clients.
Temporary slowdown in our health exchange revenue related to corporate banking.
I will now talk about note will be initiatives in our business units.
I am pleased to report that the JP Morgan a new ERP implementation is on track to go live this month with an initial set of carriers.
Turning to the roadmap, we anticipate most of the other carriers will be onboarded by Q1 of 2020, and we will see a steady uptick in transaction volume.
In Q3, we also initiated a crack to onboard JP Morgan who are licensing.
This will be a problem initiative, but it's all incremental revenue streams starting in 2021.
In Q3, we also added Symetra and bright house to our list of annuity movements signs.
Our core insurance consulting business has started to turn around this.
This was enabled by new initiatives, including offering testing of the service for the JP Morgan platform, adding.
Adding cleaning services grew our portfolio.
Broadening goes capabilities that accounts like Aliano secure Adrienne and USAA.
We have also been working on a significant new outsourcing relationship now services solution provider.
This relationship will give us new outsourcing revenues, starting in Q4 to our existing insurance and banking clients.
Well good neighbor mental core platforms has been a high profit you put our customers.
We believe.
This is well positioned to help our customers, it's probably running.
Migration towards cloud enabled solutions.
More on this in the near future guide to make a formal announcement on this.
Our underwriting exchange an illustration exchange divisions stayed relatively flat in Q3 compared to Q2.
The underwriting unit has been flat, primarily because funds have reprioritized initiatives and port Neal.
New long term strategic initiatives on temporary pause.
While the advisors.
Some business continuity projects in light of the core would impact.
Our existing in flight initiatives stalled unabated and we fully expect the new strategic initiatives will be back at the forefront.
As the industry in general more towards moves towards normalization.
We successfully hosted that are more user group meeting, which was attended by all our major customers.
We unveiled several new capabilities and initiatives, including direct to consumer moderates.
In a moment.
And advanced nuclear does an automated underwriting.
Overall, our employee benefits division was flat compared to Q2 second.
Certain offerings such as on site health screening were significantly impacted in Q3 do you have the impact of cold at night.
These were offset by increased sales of our wellness content solutions.
We are in early stages of establishing with lots of new partners, including soup is that it.
Okay.
We expect new opportunities to these partnerships in coming months.
But also you look to the new our relationships with several large accounts, including some fellas met.
Metlife and BNP.
Your crude we launched a few new product offerings in this business area and we expect this afternoon positive results put us in Q4.
The medical certification business showed a slight gain compared to the last quarter.
This was a neighbor by a timely the direction of this business for both the physical mater, which enabled us to keep this business fairly insulated from the cold weather impact and at the same time, we were able to reduce costs.
Going forward, we are having an exciting new service.
Joel Conference recording and Digitization, what our customers.
We did a pilot.
With Harvard Medical School in Q2, which was a huge success.
We are seeing similar opportunities with other than now medical institutions.
Q4, traditionally is a strong quarter for this business unit.
And we all geared up for the same this year.
I said, if we could talk little business stayed steady during Q clean.
This you're not that's held steady during the pandemic, even though we saw it all sounds good snow dolls several industries.
We ended the quarter of eight new customers last quarter.
Yes.
All the big names include VW ex technologies, a leading supplier of nuclear components and you were to the U.S. government.
Hudson Group, one of the largest cobbling together in North America.
And Mark Sakal limited one of the largest grant authorized retailers.
Our PNC This management division grew 4% sequentially and 10% over the same quarter last year.
Notable achievements for additional nine meal workers' comp customers.
I think you'll see new clients to out of this conventional sales got Paul.
And adding new customers or Medicare compliance.
I Hope, we commerce exchange saw a 6% decline.
Primarily because of COVID-19. This group was temporarily impacted because if the market conditions related to temporary spikes in unemployment and Carlos.
As we get paid.
On a per employee per month moderate.
As employment gets back to pre profit levels, we will see this division will get back to normalcy.
On a positive note Ebix health has been pursuing new partnerships, which will bring new revenue opportunities more partnerships and do you have a world class population health management that will provide both software and services throughout.
Rock hardness or disease management cost management.
And utilization management.
You're currently working on deals with dogs several large customers.
We are also getting ready to roll out a new partnership with true health care providers.
[music] provider, but I think your GRI.
Services building getting house anytime soon.
Hi, Matt.
Pricing work real management.
And fraud and abuse.
We are also working on a partnership for the software that provides holdings.
Controlfour housing starts every now.
Overall.
Secondly, the stay bullish about the longer term outlook of the North American business there.
There are several drivers in initiatives that will propel our growth one school that 91 related impacts are behind us.
Like most of credit to continue from Q2 onwards has been as you know it's operating at a hunker down mode.
We are guiding to step up investments in sales.
But there's nothing in those divisions, where we have a leadership position and where the fundamentals of the businesses are strong.
We would also benefit from the transaction revenue, which will start kicking in in 2021 profit JP Morgan network or anything like that is.
We will see a steady uptick starting on your watch 2021.
We are excited about the earlier mentioned partnership and also something that we hope to announce on this.
This will create an incremental differentiated and scalable opportunity.
I would like to close by thanking our highly dedicated and highly talented employees.
Whoever neighbor does the weather schools very difficult period.
Got on cost to come out a much stronger and has good organization due to the measures taken during this period.
I would now possible robin for his comments.
Thanks, Josh.
Thanks to all of you for joining this call I hope that when a few ended last month are keeping safe.
Let me just summarize a few highlights from the quarter for me.
One day year to date cash flow of 71.8 million is definitely something that I like considering the times, we added net better than.
To EBITDA plus.
Stock based compensation stood at 36.5 million for the quarter, if we exclude Bhavan Soviet sales from this analysis is EBITDA plus stock based compensation outside services was at 40%.
See you on the revenue front or odd all revenues grew 29% sequentially in the quarter four.
Hi margin international revenues in countries, like Australia, Brazil, Singapore, UK, India, what impacted by the strengthening of the U.S. dollar that made the gold 19 pandemic. It taught out revenues by 5.9 million into caught up and 15.9 million in the nine month period that is.
Noteworthy as a high percentage of that number would have so to increase our operating income in the quarter and the nine month period.
As I speak to you today, well wouldn't 19, it's still continuing to have a debt.
Double effect on businesses across the world.
Although businesses and obvious areas like travel foreign exchange E learning consulting and remittance.
And you do get affected by COVID-19.
Don't we saw substantial improvement sequentially over the second quarter of 2020.
Even in technology intensive areas going.
Clients have continued.
Delayed implementations, sometimes on account of internal focus issues and sometimes because of cost pressures.
Most of our employees across the world continue to still function from their home.
Shallow decline site is nonexistent that by then clearly I think got consulting businesses across the world.
Considering all of this our income operating cash and revenue numbers in the quarter, if anything convey the inherent consistent strength of the big story.
Golden 19 has impacted all across the world and it did have a manner I have personally felt the impact of the pandemic and devastating man I'd.
Recently.
My beloved mother to the disease like having to deal with the pay enough seeing my dad and know that fits to fight the disease in a covert hospital I see you.
The last two months had been a humbling experience for me conveying the fidelity of the World We live in.
And the reminder of the value of love and affection or what everything else that could change.
Coming back to business.
Ash data and Steve have talked about the overall business.
And the U.S. and children's business. So let me just.
Talk about the international businesses and the new revenue a EPS for Q4 and beyond.
To counter the impact of over 19 Hot International businesses three adjusted their focus in the quarter.
Sequentially most of our regions internationally grew more in Q3 over Q2 of 2020 Australian revenues grew sequentially by 11%.
News or land by 20%.
Does feel and you get by 2%, each and Singapore by 13%.
Despite over 19 that Ebix gosh financial exchange revenues increased <unk> percent by 14.7 million from 82.1 million entity going from 19 96.8 million in third quarter up 2020, excluding sabal photic remittance and E learning.
Nothing that probably impacted severely by COVID-19.
Oh Gosh revenue grew 268% in third quarter up 2020 lets say the third quarter of 2019.
On a sequential basis.
Oh gosh overall revenue grew 82% in the third quarter up 2020 over the second quarter of 2020.
Is that maintenance revenue grew 46% sequentially, while foreign exchange revenues grew 113% sequentially.
Travel revenues grew 346% sequentially, while our technology base in data revenues grew 8% sequentially in third quarter 2020.
I expect EBIT Scotch revenues to continue to grow in coming quarters with the gradual improvement in the travel foreign exchange at 11, good yes, decipher the organic growth in our other business areas.
We are for example, presently pursuing some larger opportunities in the bus exchange arena that are highly the cutting and income intensive.
We are presently trying to draw a balance between not for us to grow our EBITDA cash margins and attempts to be a leader.
In the financial markets, even cash performance is particularly noteworthy when you compare it to a ski company does meet high valuations, who collectively lost.
A billion dollar last year in the Indian market and deliberate much less topline growth that ebix cash.
Let me now talk about the insurance business itself.
How about a dollar.
In the fourth quarter of 2020, I'd expect it to get boosted by the traditional C. A meat topline growth continuing medical education topline growth in the fourth quarter of the site. We have a number of new wins in daily up insurance exchanges that should contribute to our results.
We have recently agreed on a cloud based venture in the United States that should give revenue upwards of $10 million a year to us more on that later.
Ash talked about the number of new wins in Q2, and a healthy pipeline for they chose businesses in coming quarters.
I expect that it will be accompanied by support from international U.S. business says international business sales in Q4, and the future caught us.
Australia.
Expects I like unfortunately in the fourth quarter about 2020 in local currency terms.
But zeal UK, Singapore et cetera are expected to continue to be consistent in Q4 and beyond.
In 2021, contractually, we are expecting to see a 20% increase in UK revenues.
What's the Golden 19 impact or did you say that 2021.
Wealth management lending and in children's businesses internationally are expected to pick up substantially.
Growth in D., the U.S. can come out of selling a lot of end to end product in the Middle East Africa, Asia, Europe and India.
Incidentally, we consistently not 40%.
Margins in this business area.
To date 70, but fund up our revenues in this business area come from the Middle East Europe Africa and Asia.
Our Bombay stock exchange Ebix joint venture is ready to go into the next getting 2021 violent technology base rent just like the bus exchange initiative I'd expect it to show substantial growth in 2021.
We have used the COVID-19, P.D. it will substantially enhance our product offerings, Besides shoring up our technology.
In terms of scalability and end to end solutions, specifically in the B C. Ebix in children Medina.
We recently agreed to acquire a call center business in India that is expected to provide fulfillment to all lot of ebix cash in low light businesses.
The site opening up new cross selling opportunity for us we expect this business to generate 30% EBITDA margins, besides providing 50% plus organic revenue growth and 2021.
We have a president pipeline to support that go up but the infrastructure to support up to 2000 seats.
From a branding and I feel perspective, it makes cash today is a household brand in India.
How about studio partnership at the public TV.
Got it that's a lot of eyeballs and their public net flow became India's largest TV network in terms of viewership. This year last year, we announced a number of partnerships in the game of cricket targeted at getting in front of.
The 600 million people, who watched crickets largest league yellow on TV.
England's I Couldnt get Crazy and it is estimated that more Indians voice I'd be out.
Look at this year, then the Indians a walk it in the general election, Ebix gosh branding efforts.
Truck build.
The team supported by a deadly capitals God into the final the VIP elite a few days back.
An estimated audience up 300 plus million people are expected to watch deli capitals.
Well the Ebix cash on the back of that D. should play in the finals to be held a few days from now.
They got the ideal keeping.
Dipping their fingers crossed.
As we look at the overall IPO climate improve in India.
We already have feet top investment banks on our site.
For the investment bank to be added to the investment banking team.
We already have the legal firms hired.
Along with the big three from subject matter and Alphas luck that goes into what IPO documents type U.S. like get a very involved process that an sales hiding off can.
Before you go from multiple subject matter analysts farms, a credit rating from S&P out from audit those to approve all numbers being.
Side across the us for all subsidies et cetera, we think that it is prudent to.
Let the Golden 19 crisis blow LER and let the markets normalize before the launch of IPO. Accordingly, we intend to work closely with all our investment Bank goes through this period and keep all sold in a ready mode phones, I feel well why do we wait for the pandemic.
Taposh, but keeping a close watch on the improving financial markets in India.
The recent IPO than India have been heavily oversubscribed.
And there seems to be a pent up demand for solid IPO of data out a number of big IP sales plan next year, and we hope that we would have been up them.
We will keep you informed about that.
We see the IPO as a possible multibillion dollar opportunity for the shareholders of Ebix.
At.
All other financial exchange sector companies in India of billions of dollars in valuation do not have the strong financial metrics that operation in India has if anything.
The core wouldn't 19 P.D. It has felt that is showing the strength of our business model.
That brings me to the end of my talk I.
I will now hand, it over to the operator to open it up for questions. Thank you.
Thank you as a reminder to ask a question really need to press Star then one on your telephone to lift all your question. Please press the pound key please.
Please stand by while we compile the culinary roster.
Our first question comes from the line of Jeff Van Rhee with Craig Hallum Capital. Your line is now open.
Great. Thanks for taking my question and Robin and just one off of my condolences and.
Just couldn't couldn't agree more and your comments about I'm focusing on what matters. So anyway I just stick to just couldn't agree more and my condolences to you in the family.
Thanks, Jeff.
[noise]. So it's a mouthful here you've got a lot going on in <unk>. It seems like a lot, but a lot is churning, we're doing very well I'll try to focus on a few key areas can you talk about the U.S. business set a very high level I mean, clearly we're going to see seasonal strength in Q4, because you see any better.
Yes, but I'm wondering when you think about the business, maybe comparing to sort of what Q2 likely looks like something called it doesn't get better or worse, you sort of stay where we are [laughter] have we put in a bottom for the u. fourth for the U.S. insurance business exclude Q4 and sort of thinking about the trajectory we're on towards towards Q2.
[noise] [noise], Jeff I'll, just add a I'll say something and then I'll I prefer that ash ads stuff outside their question. So from my perspective.
You with insurance businesses have a few had a few negative things going against it. So one of them was has been consulting.
Well then we have obviously suffered over the last two years.
I think Adam we have pretty much bottomed out so that's less set off thought than sun. So for me the biggest can sun in the U.S. businesses lots consulting simply because if I look back at my remaining businesses they've seen.
Finally, consistent fairly solid and we on the das and team and all the new effort. They have put then.
They they have a very healthy pipeline, so when I come back to consolidating in the consulting area first of all we've got already taking hits and then over to happen, which kind of hurt us. So when I talk about consulting I'd break it up into two buckets. One is non product related consent <unk> consulting which is.
And Oh that is our own product consulting.
We also have been impacted because of obviously, that's so when I come back to especially the 80, all non product related consulting that's where we've been getting quite effected.
And the goal that it became but.
In coming days, you're going up we are very recently, we agreed on a deal which we will talk about in a little bit more detail. Once we have the ability to announce it we had and we expect as opposed to a $11 million on new revenue to flow through into consulting diary now.
In it so we so we think that's a positive direction, we are moving in from a consulting perspective.
Oh, that's consulting perspective look when the key thing has to be that we call. It clearly has an impact we obviously trying to go convincing clients to get all that work done in our offshore facilities or they did not offset sales, but some of it will get impacted simply because some of that work always needs to.
Happened at client sites right and it involves active involvement off our client and something that support and that ends up the projects got delayed because of that area. So having said that to me from my perspective, I do believe that the the my biggest Wadi promos.
You EPS perspective would not be in consulting and due to the to what I see I believe we're now in a position to start growing that back up again, but ill ask you want to add to it. Please go ahead.
I think you've covered it red Robin <unk>. There are few things on that you know.
Okay, the consulting business.
I think there's a new paradigm, that's gonna second I think even for school read this.
This work from home founder Dime order more working is going to continue you know at some some Lebanon and its some kid.
And I think that plays well into that Youve extend especially if you're doing the work remotely.
Would be you know working with teams in India.
And I think longer term the fact that we have a very.
Established hybrid mater of U.S. and offshore services I think that plays you know quite well in our favor.
The second thing Jeff I would say is you know some of the slowdown has been.
No just the redirection all the shock focus for these companies that we're on.
I'm going to pick it up some of the basic thing.
Once we see you know the covert impact behind us and it may be a quarter to quarter obviously.
Obviously can't predict accurately.
I think you will see a lot of pent up demand because.
These longer term initiatives are not just a nice to have you.
You know project. These are you know very necessary for these companies to stay competitive. So we remain bullish about the long term prospects and in fact, if you look at someone quite exchanges I'm sure you get near peak sales not has been steadily going you're going into corporate data so with the deal.
The Morgan.
Network effect, we see that contributing positively 2021 and beyond.
Okay. Okay, and then secondly, I guess, Robert as it relates to the to the payments business the payments cards for the digital payment solutions.
Hi, just see very strong demand can you help put some a little more clarity around that what was sitting in Q2, what was it in Q3 kind of whats the trajectory in Q4, it sounds like you've seen strength, there and I think you made a comment in the in the script that you you sense that strength will continue and there will be a bigger part of the business. Obviously it has substantial.
No negative impact on the gross margin side, but I'm sure have some uplift on EBITDA dollar side. So just talk about that business do you can quantify yet and then the thinking around why it surging and whether or not you want to continue to lead into that revenue stream.
Well first of all mean, it look at competition, meaning I have.
I have loved be competitors out there, who only do payments solutions I presently and apparently getting valued in.
You know between 10 and $20 billion with.
Good way less than revenue was 450 million $400 million of revenue and 6000 $700 million. The lost sales. So it so clearly market seems still still like the payments business. So having said that from our perspective being getting payment business is very important because it makes us completely you know it it spreads out of each one.
Really across the country. It says this is amazing marketing for us Besides I take the point of lower gross margin. There's no question about it at the same time. This takes a 70 bed across the won't allow it across the country. It allows us to cross sell so many el Fatah, meaning product. So so when you consider all of that.
And when you put that into the mix, we think that's a that's a good.
Position to be in do continually you know they don't have a lot of didn't 80 of them then they had a lower commodity needed. Yes. So if you got a lot of marketing areas allow you to sell more of your high margin area. Then you should continue with their lower margin area as long as you're.
You're not losing money on any one of those and having said that we expect the payments business is to continue to improve but if it does what they would have done it has created.
A new thinking that then when people now are you know, especially in the payments business people don't want to touch and feel machine now.
People you are going to see more and more of these ATM machines go out of place some people out of them.
One thing to do but lets systems people are going to buy more stuff online right now, but I know, it's not going to change in diet in the old one night simply because India has a pretty good you know lower middle class and a very strong you know.
[noise].
That's very strong middle class, so having said that and a lot of them are in it right. So it's not that easy to make everybody digital overnight at the same time things that continues to move in that direction right now.
I think you'll see some of the larger players that have entered the market. What has happened is if you see the lot right. Now for example, Google pay has become the largest split in the market that more than 50, you know a.
But between four B and and Google play they now have close to 70% of the market.
And then you have played a slight bit the m. come in with a much smaller market just because it's become a very important area of the business. So everybody feels that he doesn't want to play into this business area. Because this makes them anywhere and then even obviously cost fell old at a meeting products. So for obvious reasons when we do.
Lot of payment services as well. So we're also doing a lot of good out of the meaning product because everything is connected right, where we become de bland, who the only player who can not only new payment solutions, but incidentally, we can handle we can conduct their fourx. Their travel you don't you don't you bought a bio bus.
Stick at whatever you want to do we had what truly data with all those different little sad and incidentally for all those they still need to use that or some kind of a card or something out there. So we feel it's a complete it it shouldn't really Val did that all Oh, what else try to you.
HM [laughter] can you are you are you able to put any dollars around in terms of what was Q2 Q3, and then sort of some some sweigert what Q3 or Q4 Sequentials look like just a week from a modeling standpoint to figure out the impact in scope here.
Look I don't want to go into selective discussion here, but at the same time I think I talked through the same page numbers. So the overall growth in terms of how Oh, we did it in these business areas I think a statistic that was their virtually set that we.
Cool.
Payments business.
HM almost if I if I can remember what number it was 85% or 86% sequentially something like that was the number so yes, that's it really.
Done well overall in the business.
Yeah.
Okay, and then <unk> and then maybe to choose last pieces. One does this this cloud venture in the U.S. that you referenced of 10 million plus a year is that that 10 million plus years that contractually committed and if so when does that start to impact.
Well, where we are basically dead on that venture. So we expect that it should have kick start kicking in in Q4.
That's the short answer I'm not at this point at Liberty, because we've all done right and he is in place so until they have the ability to speak about it I wont speak about it but.
But it is expected to start in Q4 itself, it's supposed to start in Q4 itself.
Fair enough and then and then you mentioned an acquisition and the call Center based space can you expand on that what's the what's the revenue contribution what did you pay for it how many hedge does it bring.
Okay. So we will we will share all the details again at the right time pretty soon.
But basically what it will do as it's a it's not a very large business that doesn't we expect this to generate double digit revenue in 2021 mid 30% margins I think at this point, that's all I can talk about that.
Okay is it just to be clear is that it seems that acquisition closed and did that contribute at all to Q3.
Oh, we just signed that acquisition yes.
Sure just signed it so it'll contribute in Q4, but did not contribute to Q3.
No it did not contribute to see at all it has nothing to do with Q3 okay.
Okay. Okay last last piece, then just as it relates to the sales expansion I think you said your message with a little bit emphasis there today around the U.S. business and you're going to push on the sales side you.
You said, you're going to invest in sales. So two questions is can you quantify rep count is now and where you think you'll be in 12 months and then secondly is there any way to quantify if you referenced a very healthy pipeline, but is there any way to quantify the magnitude of the pipeline and the U.S. insurance business [laughter] now versus you know call. It 612 months ago.
Well I I, let Josh talk about the second part of the question in terms of quantification of the pipeline I'll just answer the first one in terms of you know the than the reach of our sales team I.
I don't think I want to give you exact numbers on how many sales people. We presently have an insurance business, but but I will tell you at this point, meaning.
Meaning if I had to give you an answer on the question of expansion.
We're not looking at just a new medical expansion off you know if we had 100 people that hunter people become 200, that's not how we're looking at it we're looking at because of the baby do our business and because our focus is on the networking effect, but Nashville speaking I, especially liked it talks about the networking.
In fact see I wanted to focus in the business today is not just don't pining revenue deals in the U.S. for the sake of 11, new deals we want a signed 11 new deals that can generate a net book impact now at JP Morgan. The Classic example of for the OLED. If you sign a JP Morgan and if you get.
Got it I mean, all the carriers that they have that right. So the stock I think getting action because it'll bring into cardio the god. He hasn't done they've been getting some of the other agents and so on it sets up a but didn't do a deal like that you don't just need another sales guy you need a very high quality enterprise sales.
My son, who can work with four or five different departments.
And can work with all the different product then to walking into a client like JP Morgan and say I can give you. This end to end product fat. So they we had were focused on what we did to grow without follow sales team rather than just the one thing they're different growth off of a sales.
Steam, but having said that I shall I like to talk about the pipeline.
Yeah. Thanks, Robyn so Jeff like I said earlier.
The businesses that we're in.
Pacnet for US most of the services business, we see those you know bottoming out.
And you know, whether it's one quarter two quarters, we can predict.
I was shocked but.
Fundamentals of our business.
One school that is behind us.
Our strong.
We have a recurring revenue stream our pipeline if you look at it more specifically.
I would say, there's a pent up demand you know we had to use that certainly runs on the back burner.
Primarily because companies have to you know.
Realign their reckless.
Chris the very definition of short term and long term really change long term was like six months you know during the Cobra case.
So I expect that you know what that is confidence you know people are back to work.
And business starts to normalize.
The pent up demand is going to be they're in front of five cents EPS cities and we want to get ahead and start investing in sales and stuff from your metrics, it's hard to kind of.
Put absolute numbers, but I would be.
Thank you very much.
You know high single digits.
Once we start coming back to normalcy, and that's going to be a stark.
We expect to be progressively improving profit onwards.
So Jeff I greatly.
Greatly.
I just wanted to say exactly what I said towards the end in the insurance business is if we can get into a high single digit fan and the first goal, especially with the way the times, we live in right now, but covert out there.
You know that would be a good start and then from there we want to take it to the higher digit numbers and we feel we have all the basic flight right now to do that with respect to why didn't show the benefit because our business is a fairly resilient.
No what a weak points out of me being openly discussing bills and we've been trying to you know.
Trying to focus on how to get out or improve lagerfeld and those specific areas and we feel the last 12 to 18 month, we haven't really focused in the U.S. on trying to <unk>.
<unk> drilling to improve businesses, where we felt we were in a weak spot and I feel those old all of that but I'm going to show results now.
Got it great. Thanks for taking my questions guys.
Thank you.
Thank you. Our next question comes on the line of Chris The tide with singular research. Your line is now open.
Hi, everyone I I just had two questions one question on the cash.
Cash business.
I wanted to just see which segment was neither was the worst performing and what are you guys doing to improve on that.
Well [laughter].
The that's a hard question because the worst, but we had a number of.
Segment, EBIT Catched that got badly impacted by by over 19, and the tools specific area that we actually had the biggest hit in the last few quarters has been have been traveling foreign exchange D type businesses.
Foreign exchange, we dominate we do around on a annual basis, we do around $5 billion of transactions on foreign exchange with a dominant stand out in the market and to David Gober happening and people not traveling it's obviously impacted our entire business. We all agree that you walk into any international.
The airport in India, a that apart even international airport and V. out in 29 in 25, yet exclusive in foreign exchange and we have hundreds of clients in the corporate sector. So it's a very solid.
Business that Weve done a cross the country, but the goal would there's very little we can do except you know try and hope that things will improve we are obviously trying to see if there are other countries, where there are opportunities.
If you did it in another country, where in cobalt has had a lesser impact wed like to see if we can open up opportunities there into politics area, but then the politics area things have started changing as people have started traveling but it's not happening.
At least think 10% to 15% of travel business starting to come back it's nowhere near where it should be so when people start traveling for 16 automatically come then we're also seeing Ah Ah.
Education is to start opening up this is like in the U.S. as they should start opening up and allow international students to come back and study you'll see educational remittances start flowing in back again, we're a leader in that politics area and educational Remington says.
Right and so those are the kind of things that data and I talk to my talk that sequentially. We have seen a substantial improvement in foreign exchange from you. In Q3, you know what you would do same in travel we saw substantial improvement in travel at the same time. They look at it you know what do Ya.
There's a dramatic difference in films all the foreign exchange and travel area, where again, we have seen a steep decline because of covance. So those are the two worst performing segments.
Lastly, because of the impact of coal that but in those areas.
All we can do is you mean.
Minimize the Pos.
And he's already since and did you know because this is you have to deal with the pandemic. There's nothing else you could potentially do outside because we already ought to lead the market start coming back up we're going to be there.
Okay, Great and then one last one on your cost I know DNA decreased a fair amount on a year over year this quarter.
When the pandemic subside.
Oh, you know what what is the normalized DNA.
Look like.
[noise] well June across all going to go up meaning once a pandemic subside, but then you on overall margin basis. You will also have increased revenue you'll have a lot more increased revenue remember at this point.
To sum up on any of that I, just talked to whether to fourx, whether it does travel whether it is E learning, meaning whether it does that make sense. These are very large opportunity. These are very large revenue any EPS for us and as we get revenue out of them. The module that will be that Andy as our overall do you get any cost because we are.
We didn't make certain decisions, which basically were targeted at the pandemic could find a deal fuck off in those areas for those months. The business sales you have come back that you get cost will go up but so your revenues go up so accordingly or nothing that your overall margins will also should go.
Up substantially.
Okay, all right great. Thanks.
Thank you.
Thank you we have no further questions actually this time I would now like to turn the call back to Latam ran for closing remarks.
Thank you.
I think that makes up to the end of the call. Since we don't have any other questions I'll I'll close the call and I look forward to speaking to each one of you at the end of the year, we though.
Full year, though thank you thanks, a follow up.
Thanks to everyone for joining it.
Ladies and gentlemen, ladies eliminating conference call. Thank you for participating you may now disconnect.
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