Interesting that SA refuses to publish my post when they freely published an anonymous report from a newly created firm… I’m not comfortable with their editorial censorship – particularly given all the things I have read on the site. It does seem they are not being impartial? Let the readers decide.

EBIX - Analyst At $11B Fund Manager Counters Gotham Smear (submitted 2/21/13)

Wanted to pass on the following unsolicited comments from an analyst at a well respected, $11B growth manager regarding EBIX and the Gotham City "Report." He has particular expertise in accounting in Singapore and accounting in general - clearly something the Gotham writers are assuming most people don't have. His fund does not have a position in EBIX at this time.

I called the analyst who sent this to me to thank him and get his permission to redistribute it. Among the things he said was the accounting was perfectly normal in his view and even noted that Google has 8 Singapore registered sub's but mentions none of them in their 10-K (I take him at his word). He said it made sense to him but he could see how they (Gotham) were presenting this as irregular.

Subject: EBIX Date: February 21, 2013 3:03:13 PM EST

I saw the move in EBIX shares today, and read the "research" by Gotham City Research on SeekingAlpha. Neither I nor my firm have a position in EBIX, but I have been following them since meeting with the company last

summer. I saw your comment on the article and thought you may handle IR for the company. If that is the case, I would like to pass along a few observations that may be of use to you. For background, I have an undergraduate degree in accounting and finance, am a CFA charter holder, and at one time negotiated a pioneer tax status extension with the Singapore Economic Development Board (EBD) for a company that had made a number of acquisitions.

1. The credibility questions in regards to the 990 filings do seem spurious, as the author fails to point out that Robin Raina has contributed "about" $2MM a year to his foundation for the past few years, which is perhaps what he was referring to in the interview.

2. The intercompany (aka "related party") loan that seems to be the primary concern of the author would not be disclosed on a consolidated balance sheet, unless the obligation was subject to exchange rate fluctuations, which is almost never the case. If intercompany transactions were reflected on consolidated balance sheets, or in footnotes, companies like Google or GE would require hundreds of pages for footnotes alone in their 10-K.

3. To me, knowing accounting, the transactions seem to be fairly obvious, though confusing to those that have never seen cross border IP transactions at the granular level. It appears that US Parent loaned money to Singapore sub, which purchased the intellectual property in the Australia transaction, with the tangible assets staying with the Australian sub. On a consolidated basis, this all rolls up to one clean balance sheet. Why? The company is taking advantage of Singapore's favorable tax climate by having that subsidiary purchase the intellectual property in the foreign transaction, and then using "transfer pricing" to determine the portion of the revenue for each contract that is "earned" with the IP in Singapore, with the remainder of the revenue "earned" in Australia, thus lowering the effective tax rate. See comment 5 below.

4. The Australia cash flow statement does appear to be somewhat incorrect, in excluding the two offsetting items, but this does not impact the actual cash flow calculation, nor does it impact the consolidated financials since these were all intercompany transactions.

5. The difference in the revenues and income for Australia per SEC and ASIC filings seem to be explained in that on a books basis it reflects the tax treatment where a portion of the revenue from a customer is attributed to the intellectual property held by the Singapore sub, while the revenue is actually generated by customers in Australia. For comparison, look at how Google runs revenue through its low tax subsidiaries (i.e. Ireland) on a tax

basis, while reporting those revenues as being from the United States in its SEC filings.

6. On the unbilled receivables question, it seems that the company is properly accounting for these. As a refresher, Unearned Revenue is a Balance Sheet account, appearing on the liability side. Unearned revenue can be created if a payment is received for work yet to be completed, or for billings on long term contracts. For a nice summary, see: http://ndhcpa.com/wp-content/uploads/2012/12/THE-NDH-GROUP-LTD-TIA-ACCOUNTING-FOR-COMPUTER-SOFTWARE-REVENUES-10-08-04.pdf.

7. Why has the company not responded? I imagine it is because they are in a quiet period pre-earnings release, though I have not confirmed this. Impeccable timing on the part of the author.

8. Final note, take a look at the open interest in the Mar 15, 16 and 17 strike puts last week. Unusual? Looks like someone is having a good day.

As for the open interest in options he mentions, he said that on Bloomberg he could see the open interest in March 2013 Puts was limited but ramped substantially a week ago. He said economic studies confirm over and over that options that are 25% or more out of the money, with one month to expiration, are generally like a lottery ticket - they rarely pay off; and that institutional investors would not purchase them. So the aggressive purchase activity is an aberration. From my notes, this is what he saw on Bloomberg - it may be off slightly but the gist is correct and you can look for yourself.

March 2013 EBIX $17 Puts - the open interest went from 700 to 1,900 contracts from 2/13 to 2/14, all trading at the ask price.

March 2013 EBIX $16 Puts - the open interest went from 1,100 to 1800 contracts from 2/13 to 2/14

March 2013 EBIX $15 Puts - the open interest went from 680 to 1,200 contracts from 2/13 to 2/14 - someone paid $0.40 for what is now priced at $2.50

So with the same authority that Gotham questions EBIX, I can state that Gotham - or someone knowledgeable about their plans clearly placed their bets on these options (and perhaps the stock as well) prior to a premeditated plan to attack the stock. They made that investment even before they bought the Gotham website.

Just trying to provide some balance to the story.

Disclosure: I am long EBIX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Have been a shareholder for nearly 10 years and am disgusted by how the media covers this hatchet job as if it were credible - when the author is anonymous and the website was launched last week.

This article is tagged with: Long Ideas Declined Dear David Collins,

Thank you for the submission, and we do welcome counterpoints, but in order to publish we'd need several revisions. First, we'd ask you to identify the fund the analyst is with, or explain why you can't. Second, the information on the options is interesting, but the allegations of impropriety are not sufficiently supported. Lastly, if the analyst could provide sources supporting their statements, that would add to the credibility.

Sincerely Yours, SA Editors