News Column

EBIX INC - 10-Q - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 11, 2014

As used herein, the terms "Ebix," "the Company," "we," "our" and "us" refer to Ebix, Inc., a Delaware corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Ebix, Inc. Safe Harbor for Forward-Looking Statements-This Form 10-Q and certain information incorporated herein by reference contains forward-looking statements and information within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, acceptance of the Company's products by the market, and management's plans and objectives. In addition, certain statements included in this and our future filings with the Securities and Exchange Commission ("SEC"), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seeks," "plan," "project," "continue," "predict," "will," "should," and other words or expressions of similar meaning are intended by the Company to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are found at various places throughout this report and in the documents incorporated herein by reference. These statements are based on our current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made. Our actual results may differ materially from those expressed or implied in these forward-looking statements. Factors that may cause such a difference, include, but are not limited to those discussed and identified in Part II, Item 1A "Risk Factors" in this quarterly report for the three and six months ended June 30, 2014 on this Form 10-Q, and in Part I, Item 1A, "Risk Factors" in our 2013 Form 10-K which is incorporated by reference herein, as well as: the risk of an unfavorable outcome of the pending governmental investigations and shareholder class action lawsuits, and the reputational harm caused by such investigations and lawsuits; the willingness of independent insurance agencies to outsource their computer and other processing needs to third parties; pricing and other competitive pressures and the Company's ability to gain or maintain share of sales as a result of actions by competitors and others; changes in estimates in critical accounting judgments; changes in or failure to comply with laws and regulations, including accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax interpretations) in domestic or foreign jurisdictions; exchange rate fluctuations and other risks associated with investments and operations in foreign countries (particularly in Australia, Brazil, and Europe wherein we have significant or growing operations); equity markets, including market disruptions and significant interest rate fluctuations, which may impede our access to, or increase the cost of, external financing; and international conflict, including terrorist acts. The Company undertakes no obligation to update any such factors, or to publicly announce the results of, or changes to any of the forward-looking statements contained herein to reflect future events, developments, changed circumstances, or for any other reason. Other important factors that could cause actual results to differ materially from those in our specific forward-looking statements included in this Form 10-Q include, but are not limited to, the following:



Regarding Note 4 of the Notes to the Condensed Consolidated Financial

Statements, and our future liquidity needs discussed under "Liquidity and

Financial Condition" as pertaining to our ability to generate cash from

operating activities and any declines in our credit ratings or financial

condition which could restrict our access to the capital markets or materially increase our financing costs; With respect to Note 5 of the Notes to the Condensed Consolidated



Financial Statements, "Commitments and Contingencies", and "Contractual

Obligations and Commercial Commitments" in MD&A, as regarding to changes

in the market value of our assets or the ultimate actual cost of our contractual commitments and contingencies; With respect to Note 3 of the Condensed Notes to the Condensed Consolidated Financial Statements as pertaining to the business



acquisitions we have made and our ability to efficiently and effectively

integrate acquired business operations;

With respect this Management Discussion & Analysis of Financial Condition

and Results of Operation and the analysis of the three and six month revenue trends including the actual realized level of demand for our products during the immediately foreseeable future. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including future reports on Forms 10-Q and 8-K, and any amendments thereto. You may obtain our SEC filings at our website, www.ebix.com under the "Investor Information" section, or over the Internet at the SEC's website, www.sec.gov. 27



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The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part 1, Item 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Company Overview Ebix, Inc. is a leading international supplier of software and e-commerce solutions to the insurance industry. Ebix provides a variety of application software products for the insurance industry ranging from carrier systems, agency systems and data exchanges to custom software development for all entities involved in insurance and financial services. Our goal is to be the leading provider of back-end insurance transactions in the world. The Company's vision is to focus on the convergence of technology platforms for all insurance channels, processes and entities in a manner such that data seamlessly flows once a data entry has been made. Our customers include many of the top insurance and financial sector companies in the world. The insurance industry continues to undergo significant consolidation driven by the need for, and benefits from, economies of scale and scope in providing insurance services in a competitive environment. Furthermore the insurance industry has particularly experienced a steady increase in the desire to reduce paper-based processes and to improve efficiency both at the back-end and consumer end sides. Such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed. Management believes the insurance industry will continue to experience significant change and increased efficiencies through online exchanges, as the transition from paper-based processes are increasingly becoming the norm across world insurance markets. Changes in the insurance industry are likely to create new opportunities for the Company. Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges. Ebix combines the newest technologies with its capabilities in consulting, systems design and integration, IT and business process outsourcing, applications software, and Web and application hosting to meet the individual needs of insurance providers and related entities. We intend to continue to expand both organically and through strategic business acquisitions. Offices and Geographic Information The Company has its worldwide headquarters in Atlanta, Georgia with its international operations being managed from its Singapore offices, and it also has domestic operations in Walnut Creek, San Diego, Fresno, Pasadena, and Hemet, California; Miami, Florida; Pittsburgh, Pennsylvania; Salt Lake City, Utah; Herndon, Virginia; Grove City, Ohio; Bohemia, New York; Norwalk, Connecticut: Portland, Michigan, as well as an additional operations office in Atlanta, Georgia. The Company also has operating facilities and offices in Australia, Brazil, New Zealand, the United Kingdom, Canada and India. In these operating offices, Ebix employs insurance and technology professionals who provide products, services, support and consultancy to thousands of customers across six continents. Results of Operations - Three Months Ended June 30, 2014 and 2013 Operating Revenue The Company derives its revenues primarily from subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, fees for business process outsourcing services, and fees for software development projects including associated fees for consulting, implementation, training, and project management provided to customers with installed systems. International revenue accounted for 32.7% and 31.5% of the Company's total revenue for the six months ended June 30, 2014 and 2013, respectively. Ebix's revenue streams come from four product channels. Presented in the table below is the breakout of our revenues for each of those product channels for the three and six months ended June 30, 2014 and 2013, respectively. 28



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Table of Contents Three Months Ended Six Months Ended June 30, June 30, (dollar amounts in thousands) 2014 2013 2014 2013 Exchanges $ 41,350$ 40,501$ 83,455$ 82,187 Broker Systems 4,865 4,766 9,351 9,488 Risk Compliance Solutions ("RCS"), f.k.a Business Process Outsourcing ("BPO") 3,652 4,013 7,077 8,177 Carrier Systems 1,609 1,724 2,997 3,718 Totals $ 51,476$ 51,004$ 102,880$ 103,570 During the three months ended June 30, 2014 our total operating revenues increased $0.5 million or 1%, to $51.5 million as compared to $51.0 million during the second quarter of 2013. The primary reason for the increase in revenues is growth in the Exchange channel revenues which grew in spite of exchange rates impacting revenues negatively quarter over quarter by $0.5 million. Revenues from the two acquisitions made after Q2 2013, namely CurePet and Healthcare Magic were lower than the consulting revenues derived from CurePet in Q2 of 2013. Revenues from CurePet in Q2 2013 were $553 thousand while cumulative revenue from the two acquisitions of Healthcare Magic and CurePet in Q2 of 2014 were $494 thousand. With respect to business acquisitions completed during the years 2014 and 2013 on a pro forma basis, as disclosed in the table in Note 3 "Pro Forma Financial Information" to the enclosed Condensed Consolidated Financial Statements, combined revenues increased 1.5% for the second quarter of 2014 versus the second quarter of 2013 whereas there was a 0.9% increase in reported revenues for the same comparative period. The pro forma revenue increase was primarily due to growth of our Exchange channel revenues which grew in spite of exchange rate changes which resulted in a decrease of $0.5 million. Correspondingly, the reported revenue for the three months ended June 30, 2014 increased by $0.5 million or 0.9% from the reported revenue during the same period in 2013. The 2014 and 2013 pro forma financial information assumes that all such business acquisitions were made on January 1, 2013, whereas the Company's reported financial statements for Q2 2013 only includes the revenues from the businesses since the effective date that they were acquired by Ebix, being April 2013 for Qatarlyst, January 2014 for CurePet, and April 2014 for HealthCare Magic. The 2013 pro forma financial information includes a full three months of results for CurePet, Qatarlyst, and HealthCare Magic as if they had been acquired on January 1, 2013.



The above referenced pro forma information and the relative comparative change in pro forma and actual revenues are based on the following premises:

2014 and 2013 pro forma revenue contains actual revenue of the acquired entities before acquisition date, as reported by the sellers, as well as actual revenue of the acquired entities after acquisition. Whereas the reported growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition. Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business. Any existing products sold to new customers obtained through a newly acquired customer base, are assigned to the acquired section of our business. 2013 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued. This is typically done for efficiency and/or competitive reasons. Cost of Services Provided Costs of services provided, which include costs associated with maintenance, support, call center, consulting, implementation and training services, decreased $0.4 million or 4%, to $10.0 million in the second quarter of 2014 as compared to $10.4 million in the second quarter of 2013 . This decrease is due reduced facility costs associated with the closure of certain of certain operating locations in accordance with ongoing centralization and cost reduction initiatives. Product Development Expenses The Company's product development efforts are focused on the development of new operating technologies and services for use by insurance carriers, brokers and agents, and the development of new data exchanges for use in the domestic and international insurance markets. Product development expenses increased $34 thousand or 1%, to $6.8 million during the second 29



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quarter of 2014 as compared to $6.7 million during the second quarter of 2013. This comparative increase is primarily due to additional staffing in our India operating facilities. Sales and Marketing Expenses Sales and marketing expenses decreased $43 thousand or 1%, to $3.78 million in the second quarter of 2014 as compared to $3.83 million in the second quarter of 2013. This decrease is due to lower personnel related to reduced staffing associated with the de-emphasis on certain products generating relatively low operating margins. General and Administrative Expenses General and administrative expenses increased by $2.8 million or 34%, to $11.1 million in the second quarter of 2014 as compared to $8.3 million in the second quarter of 2013. This comparative year over year increase is partially due to the fact that the second quarter of 2013 was favorably impacted by $5.8 million of reduced earnout contingent liabilities with respect to certain prior business acquisitions. Partially offsetting this year over year expense increase are $1.8 million of reduced legal and auditing professional fees, $963 thousand of reduced personnel costs, and $382 thousand of reduced telecommunications and data center costs. Amortization and Depreciation Expenses Amortization and depreciation expenses decreased by $0.1 million to $2.4 million in the second quarter of 2014 as compared to $2.5 million in the second quarter of 2013 . This net decrease is primarily due to reduced depreciation expense associated with equipment disposals and certain fully depreciated assets. Interest Income Interest income increased $39 thousand or 43%, to $130 thousand in the second quarter of 2014 as compared to $91 thousand in the second quarter of 2013. Interest income increased as a result of increased average cash balances, which increased to $49.1 million during the six months ended June 30, 2014 from $39.0 million during the six months ending June 30, 2013. Interest Expense Interest expense decreased $70 thousand or 25%, to $211 thousand in the second quarter of 2014 as compared to $281 thousand in the second quarter of 2013. Interest expense decreased due to the fact that the aggregate average outstanding balance on the Company's revolving credit facility decreased to $19.4 million during the six months ending June 30, 2014 from $36.4 million for the six months ending June 30, 2013. Non-operating income (loss) - put option Non-operating loss for the three months ended June 30, 2014 in the amount of $139 thousand pertains to the loss recognized in regards to the increase in the fair value of the put option that was issued to the former stockholders of PlanetSoft, acquired by Ebix in June 2012, who received shares of Ebix common stock as part of the acquisition consideration paid by the Company. The put option, which expired in June 2014, was exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition. During July and August 2014 the former shareholders of PlanetSoft elected to exercise their put option rights with respect to the remaining 209,656 shares of Ebix common stock they still held as part of the purchase consideration conveyed by Ebix when it acquired PlanetSoft in June 2012. Accordingly the shareholders have put those shares back to the Company at $16.86 per share plus interest at the rate of 20% for the period after the exercise until the cash consideration is paid by the Company, as per the PlanetSoft acquisition agreement. The total consideration to be paid by the Company in connection with the exercise of these put options will be $3.6 million which will be remitted during the months of July and August 2014. Foreign Currency Exchange Loss Net foreign currency exchange losses for the three months ended June 30, 2014 in the amount of $336 thousand primarily pertain to losses recognized upon the remeasurement of certain transactions denominated in currencies other than the functional currency of the respective operating division. 30



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Income Taxes The Company recognized total income tax expense of $3.33 million for the three months ended June 30, 2014, as compared to $4.0 million for the three months ended June 30, 2013. The Company's interim period income tax provisions are based on a calculated estimate of the effective income tax rate expected to be applicable to the corresponding annual period, after eliminating discrete items unique to the respective interim period being reported. The Company's interim period tax provision, exclusive of discrete items, for this three month period during 2014 was an expense of $1.59 million which is reflective of an 10.87% effective tax rate, as compared to the 8.77% for the same period during 2013. The effective rate increased primarily due to increased taxable income from jurisdictions with higher tax rates. The discrete items recognized during the three months ended June 30, 2014 were $1.73 million of tax expense recorded to increase the reserve for potential uncertain tax positions, partially offset by a $0.29 million benefit associated with the utilization of net operating loss carryforwards from our operations in the United Kingdom. Results of Operations - Six Months Ended June 30, 2014 and 2013 Operating Revenue During the six months ended June 30, 2014 our total operating revenues decreased $0.7 million or 1%, to $102.9 million as compared to $103.6 million during the same period in 2013. Although portions of our business have experienced some year over year adverse variances in sales activity, the primary reason for the decrease in reported revenue for six months ending June 30, 2014 as compared to the same six month period from 2013 was due to the effect of exchange rate changes. Specifically during the six months ended June 30, 2014 the change in foreign currency exchange rates decreased reported consolidated operating revenues by approximately $(2.3) million. Accordingly when measured on a constant currency basis the Company's revenue actually increased comparatively by $1.5 million to $105.1 million for the six months ending June 30, 2014 from the reported $103.6 million for six month period ending June 30, 2013. Revenues from the two acquisitions made after June 30, 2013, namely CurePet and Healthcare Magic were lower than the consulting revenues derived from CurePet in the first six months of 2013. Revenues from CurePet in the six months ended June 30, 2013 were $1.2 million thousand while cumulative revenue from the two acquisitions of Healthcare Magic and CurePet in same same period of 2014 were $619 thousand. With respect to business acquisitions completed during the years 2014 and 2013 on a pro forma basis, as disclosed in the table in Note 3 "Pro Forma Financial Information" to the enclosed Condensed Consolidated Financial Statements, combined revenues decreased 0.8% for the six months ended June 30, 2014 versus the same six month period in 2013 whereas there was a 0.7% decrease in reported revenues for the same comparative periods. The cause for the difference between the 0.7% decrease in reported revenue for the six months ended June 30, 2014 versus the same six month period in 2013 revenue, as compared to the 0.8% decrease in pro forma revenue for the same comparative six month periods is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2014 and 2013, specifically CurePet (acquired in January 2014) , Qatarlyst (acquired in April 2013), and HealthCare Magic (acquired in May 2014) with the Company's pre-existing operations. Also the pro forma revenue decrease was due to exchange rate changes which resulted in a decrease of $2.3 million. Furthermore, the 2014 and 2013 pro forma financial information assumes that all such business acquisitions were made on January 1, 2013, whereas the Company's reported financial statements for the six months ended June 30, 2014 only includes the revenues from the businesses since the effective date that they were acquired by Ebix. The 2013 pro forma financial information includes a full three months of results for CurePet, Qatarlyst, and HealthCare Magic as if they had been acquired on January 1, 2013



The above referenced pro forma information and the relative comparative change in pro forma and actual revenues are based on the following premises:

2014 and 2013 pro forma revenue contains actual revenue of the acquired entities before acquisition date, as reported by the sellers, as well as actual revenue of the acquired entities after acquisition. Whereas the reported growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition. Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business. Any existing products sold to new customers obtained through a newly acquired customer base, are assigned to the acquired section of our business. 2013 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued. This is typically done for efficiency and/or competitive reasons. 31



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Cost of Services Provided Costs of services provided decreased $0.7 million or 3%, to $19.6 million during the same period of 2014 as compared to$20.2 million during the the six months ended June 30, 2013. This decrease is primarily attributable to reduced facility costs associated with the closure of certain of certain operating locations in accordance with ongoing centralization and cost reduction initiatives. Product Development Expenses Product development expenses decreased $0.3 million or 2%, to $13.5 million during the same period of 2014 as compared to $13.8 million during the the six months ended June 30, 2013. This comparative decrease is primarily due to reduced employee compensation and facility costs associated with the realignment of and increased cross-utilization of human resources across the Company. Sales and Marketing Expenses Sales and marketing expenses decreased $0.7 million or 8%, to $7.1 million during the six months ended June 30, 2014 as compared to $7.7 million during the same period in 2013. This decrease is due to lower personnel related costs to reduced staffing associated with the de-emphasis on certain products generating relatively low operating margins. General and Administrative Expenses General and administrative expenses increased by $2.7 million or 15%, to $20.9 million during the same period of 2014 as compared to $18.2 million during the the six months ended June 30, 2013. This comparative year over year increase is partially due to the fact that the six month period ending June 30, 2013 was favorably impacted by $5.9 million of reduced earnout contingent liabilities with respect to certain prior business acquisitions, whereas the six month period ending June 30, 2014 contained only $1.8 million of such earnout contingent liability reductions, accounting for a $4.2 million adverse comparative year over year difference. Partially offsetting this year over year expense increase are $1.6 million of reduced legal and auditing professional fees, $525 thousand of reduced personnel costs, and $531 thousand of reduced telecommunications and data center costs. Furthermore, during the six month period ending June 30, 2014 the Company's facilities costs increases $740 thousand and our bad expense for potential doubtful accounts receivable increased by $221 thousand over the same six month period from a year earlier. Amortization and Depreciation Expenses Amortization and depreciation expenses remained flat at $5.0 million during the six months ended June 30, 2014 as compared to the same period in 2013. The expense for the six month period ending June 30, 2014 is comprised of $3.7 million of amortization expense associated with acquired intangible assets, and $1.3 million of depreciation expense associated with the Company's fixed assets primarily related to our technology platforms. Interest Income Interest income increased $81 thousand or 44%, to $265 thousand during the same period of 2014 as compared to $184 thousand during the the six months ended June 30, 2013. Interest income increased as a result of increased average cash balances, which increased to $49.1 million during the six months ended June 30, 2014 from $39.0 million during the same period of 2013. Interest Expense Interest expense decreased $185 thousand or 29%, to $458 thousand during the same period of 2014 as compared to$643 thousand during the the six months ended June 30, 2013. Interest expense decreased due to the fact that the aggregate average outstanding balance on the Company's revolving credit facility decreased to $19.4 million during the six months ending June 30, 2014 from $36.4 million for the six months ending June 30, 2013. Non-operating income (loss) - put option Non-operating income for the six months ended June 30, 2014 in the amount of $315 thousand pertains to the gain recognized in regards to the decrease in the fair value of the put option that was issued to the former stockholders of PlanetSoft, acquired by Ebix in June 2012, who received shares of Ebix common stock as part of the acquisition consideration paid by the Company. The put option, which expired in June 2014, was exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition. During July and August 2014 the former shareholders of PlanetSoft elected to exercise their put option rights with respect to the remaining 209,656 shares of Ebix common stock they still held as part of the 32



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purchase consideration conveyed by Ebix when it acquired PlanetSoft in June 2012. Accordingly the shareholders have put those shares back to the Company at $16.86 per share plus interest at the rate of 20% for the period after the exercise until the cash consideration is paid by the Company, as per the PlanetSoft acquisition agreement. The total consideration to be paid by the Company in connection with the exercise of these put options will be $3.6 million. Foreign Currency Exchange Loss Net foreign currency exchange losses for the six months ended June 30, 2014 in the amount of $455 thousand primarily pertain to losses recognized upon the remeasurement of certain transactions denominated in currencies other than the functional currency of the respective operating division. Income Taxes The Company recognized total income tax expense of $7.5 million for the six months ended June 30, 2014, as compared to $5.6 million for the same period in 2013. The Company's interim period income tax provisions are based on a calculated estimate of the effective income tax rate expected to be applicable to the corresponding annual period, after eliminating discrete items unique to the respective interim period being reported. The Company's interim period tax provision, exclusive of discrete items, for this six month period during 2014 was an expense of $3.96 million which is reflective of an 10.87% effective tax rate, as compared to the 8.77% for the same period during 2013. The effective rate increased primarily due to increased taxable income from jurisdictions with higher tax rates. The discrete items recognized during the six months ended June 30, 2014 were $3.87 million of tax expense recorded to increase the reserve for potential uncertain tax positions, partially offset by a $0.29 million benefit associated with the utilization of net operating loss carryforwards from our operations in the United Kingdom. Liquidity and Capital Resources The Company's ability to generate significant cash flows from its ongoing operating activities is one of our fundamental financial strengths. Our principal sources of liquidity are the cash flows provided by the Company's operating activities, our commercial banking credit facility, and cash and cash equivalents on hand. Due to the effect of temporary or timing differences resulting from the differing treatment of items for tax and accounting purposes (including the treatment of net operating loss carryforwards and minimum alternative tax obligations in the U.S. and India, respectively), future cash outlays for income taxes are expected to exceed income tax expense. We intend to utilize cash flows generated by our operations, in combination with our bank credit facility, and the possible issuance of additional equity or debt securities, to fund capital expenditures and organic growth initiatives, and to make strategic business acquisitions in the insurance services sector. We believe that anticipated cash flows provided by our operating activities, together with current cash and cash equivalent balances, access to our credit facilities, and access to the capital markets, if required and available, will be sufficient to meet our projected cash requirements for the foreseeable future, although any projections of future cash needs, cash flows, and the condition of the capital markets in general, as to the availability of debt and equity financing, are subject to substantial uncertainty. Our cash and cash equivalents were $32.9 million and $56.7 million at June 30, 2014 and December 31, 2013, respectively. Our cash and cash equivalents balance has decreased by $23.8 million since year end 2013, primarily as a result of $15.0 million paid down against our revolving line of credit with syndicated commercial banking facility and $12.5 million used to purchase a new headquarters building facility in the Atlanta metropolitan area. The free flow of cash from certain countries where we hold significant cash balances may be subject to repatriation tax effects and other restrictions. Specifically the repatriation of earnings from some of our foreign subsidiaries could result in the application of withholding taxes at source as well as a tax at the U.S. parent level upon receipt of repatriated amounts. The approximate cash, cash equivalents, and short-term investments balances held in our domestic U.S. operations and each of our foreign subsidiaries as of August 8, 2014 are presented in the table below (figures denominated in thousands): United States Canada Latin America Australia Singapore New Zealand India Europe Sweden Total Cash and ST investments $ 13,307$ 204 $ 1,547 $ 3,879$ 1,536 $ 647 $ 10,261$ 3,151$ 15$ 34,547 Our current ratio decreased to 1.18 at June 30, 2014 from 1.54 at December 31, 2013 and our corresponding working capital position also has decreased to $12.6 million at June 30, 2014 from $35.7 million at the end of the 2013. Our short-term liquidity position has been reduced primarily due to decreased cash balances, and increased current short-term debt and revolving line of credit obligations associated with our amended syndicated commercial banking facility. The Company's accounts receivable Days Sales Outstanding ("DSO") stood at 71 days at June 30, 2014 and reflects a decrease of 3 days from March 31, 2014 but a 3 day 33



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increase from the second quarter of 2013. The DSO has recently improved primarily due the decrease in the aging of customer receivables within our U.S. and Australian operations. We believe that Ebix's ability to generate sustainable and robust cash flows from operations will enable the Company to continue to fund its current liabilities from current assets including available cash balances for the foreseeable future. Business Combinations The Company executes accretive business acquisitions in combination with organic growth initiatives as part of its comprehensive business growth and expansion strategy. The Company looks to acquire businesses that are complementary to Ebix's existing products and services. During the six months ended June 30, 2014 the Company completed two business acquisitions CurePet effective January 27, 2014 and Healthcare Magic effective May 21, 2014. Previously Ebix had a minority investment in CurePet. Ebix acquired the entire business of CurePet in an asset purchase agreement with total purchase consideration being $6.35 million which includes a possible future one time contingent earnout payment of up to $5.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. This contingent earnout liability is currently estimated to have a fair value of $1.6 million. Additional required cash consideration of $1.35 million was offset against open accounts receivable balances due to the Company from CurePet, and as a no actual cash outlay was made by the Company. HealthCare Magic Private Limited ("HealthCare Magic") was acquired on May 21, 2014. HealthCare Magic is a medical advisory service with an online network of approximately 15,000 General Physicians and Surgeons spread across 50 specialties including alternative medicine. The Company acquired HealthCare Magic for aggregate cash consideration in the amount of $6.0 million plus a possible future one time contingent earnout payment of up to $12.36 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. This contingent earnout liability is currently estimated to have a fair value of 4.83 million. The Company funded the HealthCare Magic acquisition from available cash reserves on hand. A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential subsequent cash earnout based on reaching certain specified future revenue targets. The Company recognizes these potential obligations as contingent liabilities. These contingent consideration liabilities are recorded at fair value on the acquisition date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. As of June 30, 2014, the total of these contingent liabilities was $17.21 million, of which $17.07 million is reported in long-term liabilities, and $0.14 million is included in current liabilities in the Company's Condensed Consolidated Balance Sheet. As of December 31, 2013 the total of these contingent liabilities was $14.4 million, of which $10.3 million is reported in long-term liabilities, and $4.1 million is included in current liabilities in the Company's Condensed Consolidated Balance Sheet. Operating Activities Net cash provided by our operating activities was $28.6 million for the six months ended June 30, 2014. The primary components of the cash provided by operations during the six months period consisted of net income of $29.0 million, net of $0.2 million of net non-cash gains recognized on derivative instruments and foreign currency exchange, $5.0 million of depreciation and amortization, $(1.8) million of non-cash gains associated with the reduction to acquisition related earnout contingent liabilities, $(0.5) million of working capital requirements primarily associated with increased outstanding trade accounts receivable, reduced trade payables, and reduced deferred revenues, and a $(4.2) million payment in satisfaction of the securities litigation settlement obligation, and $0.9 million of non-cash share-based compensation. During the six months ended June 30, 2014 the Company made $6.8 million of tax payments including $4.7 million of minimum alternative tax payments in India, which is a component of deferred tax assets on the Company's Condensed Consolidated Balance Sheets. Net cash provided by our operating activities was $24.8 million for the six months ended June 30, 2013. The primary components of the cash provided by operations during that prior year six months period consisted of net income of $30.9 million, net of $1.7 million of net non-cash losses recognized on derivative instruments and foreign currency exchange, $5.0 million of depreciation and amortization, $(13.7) million of working capital requirements primarily associated with increased outstanding trade accounts receivable and deferred tax assets and reduced deferred revenues, and $996 thousand of non-cash share-based compensation. Investing Activities Net cash used for investing activities during the six months ended June 30, 2014 was $22.5 million, of which of $12.5 million was used for the acquisition of a building and land for our new global corporate headquarters in the Atlanta metropolitan area, $5.9 million was used for the acquisition of Healthcare Magic (net of cash acquired), $2.3 million was used for the payment of an earnout obligation in connection with our 2012 acquisition of Taimma, $1.4 million of capital expenditures pertaining to 34



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the enhancement of our technology platforms and the purchases of operating equipment to support our expanding operations, and $0.6 million for the purchase of marketable securities (specifically bank certificates of deposit).

Net cash used for investing activities during the six months ended June 30, 2013 was $8.1 million, of which $4.7 million was used for the acquisition of Qatarlyst (net of cash acquired), $2.3 million was used for the payment of an earnout obligation in connection with our 2012 acquisition of Taimma, $727 thousand was used for the payment of an earnout obligation in connection with our 2010 acquisition of USIX, and $652 thousand was used for capital expenditures. Partially offsetting these investment cash outflows was $225 thousand of net cash in-flow from maturities of marketable securities, net of purchases. Financing Activities During the six months ended June 30, 2014 net cash used by financing activities was $30.7 million which primarily consisted of a $15.0 million principal payment against our revolving line of credit, $4.8 million of principal repayments against our term loan facility with Citibank, $5.8 million used to pay a quarterly dividend to our common stockholders, $2.2 million used to repurchase shares of our common stock, $3.2 million pertained to the excess tax benefits associated with share-based compensation and $424 thousand was used to make principal payments on long-term debt and capital lease obligations. Partially offsetting these financing cash outflows was $788 thousand of proceeds from the exercise of stock options. During the six months ended June 30, 2013 net cash used by financing activities was $15.3 million which primarily consisted of $4.1 million of principal repayments against our term loan facility with Citibank, $5.0 million of principal repayments against our revolving credit facility with Citibank, $2.8 million used to pay a quarterly dividend to our common stockholders, $2.5 million used to repurchase shares of our common stock, and $779 thousand used to make principal payments on long-term debt and capital lease obligations. Commercial Bank Financing Facility On August 5, 2014, Ebix entered into a credit agreement providing for a $150 million secured syndicated credit facility (the "Secured Syndicated Credit Facility") with Regions Financial Corporation ("Regions") as administrative agent and Regions with MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders. The financing is comprised of a five-year, $150 million secured revolving credit facility, with an option to expand to $200 million upon request and with additional lender participation. This new $150 million credit facility with Regions, as administrative agent, replaces the former syndicated $100 million facility that the Company had in place with Citi Bank, N.A. which was paid in full upon the undertaking of this new loan facility with Regions. The initial interest rate applicable to the Secured Syndicated Credit Facility is LIBOR plus 1.75% or currently 1.90%. Under the Secured Syndicated Credit Facility the maximum interest rate that could be charged depending upon the Company's leverage ratio is LIBOR plus 2.25%. On May 19, 2014, Ebix, Inc. (the "Company") and certain of its subsidiaries entered into a Third Amendment (the "Third Amendment") to the Credit Agreement, dated April 26, 2012 (as previously amended), among the Company, Wells Fargo Capital Finance, LLC, as a lender, RBS Citizens, N.A. as a lender, and Citibank, N.A., ("CitiBank") as Administrative Agent and as a lender (the "Credit Agreement"). The Third Amendment amends the Company's obligations with respect to certain covenants under the Credit Agreement, to provide flexibility to the Company to make certain specified business acquisitions, while allowing the Company to make early payments towards reduction of its bank debt. Furthermore, the Third Amendment amends the Credit Agreement by reducing the revolving commitments of the lenders to $7.84 million as of May 19, 2014, for which the Company made a principal payment in the amount of $15.0 million, and to zero as of September 30, 2014. Additionally, the Company will make, in addition to the scheduled principal payments otherwise required, a prepayment of principal on the term loans under the Credit Agreement in the aggregate principal amount of $5.0 million on December 31, 2014. On April 26, 2012Ebix entered into a credit agreement providing for a $100 million secured syndicated credit facility (the "Regions Secured Syndicated Credit Facility") with Citibank as administrative agent and Citibank, N.A., Wells Fargo Capital Finance, LLC, and RBS Citizens, N.A. as joint lenders. The financing is comprised of a four-year, $45 million secured revolving credit facility, a $45 million secured term loan which amortizes over a four year period with quarterly principal and interest payments that commenced on June 30, 2012 and a final payment of all remaining outstanding principal and accrued interest due on April 26, 2016, and an accordion feature that provides for the expansion of the credit facility by an additional $10 million. The interest rate applicable to the Regions Secured Syndicated Credit Facility is LIBOR plus 1.50% or currently 1.65%. Under the Regions Secured Syndicated Credit Facility the maximum interest rate that could be charged depending upon the Company's leverage ratio is LIBOR plus 2.00%. The credit facility is used by the Company to fund working capital requirements primarily in support of current operations, organic growth, and accretive business acquisitions. The underlying financing agreement contains financial covenants regarding the Company's annualized EBITDA, fixed charge coverage ratio, and leverage ratio, as well as certain restrictive covenants pertaining to such matters as the incurrence of new debt, the aggregate amount of repurchases of the 35



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Company's equity shares, the payment of cash dividends, and the consummation of new business acquisitions. The Company currently is in compliance with all such financial and restrictive covenants. At June 30, 2014, the outstanding balance on the Company's revolving line of credit with Citibank was $7.8 million and the facility carried an interest rate of 1.65%. During the six months ended June 30, 2014, $15.0 million payments were made against the revolving line of credit. This balance is included in the current liabilities section of the Condensed Consolidated Balance Sheet. During the six months ended June 30, 2014, the average outstanding balance on the revolving line of credit was $19.4 million and the maximum outstanding balance was $22.8 million. At June 30, 2014, the outstanding balance on the Company's term loan with Citibank was $27.13 million of which $18.75 million is due within the next twelve months. This term loan also carried an interest rate of 1.65%. During the six months ended June 30, 2014, $4.8 million of scheduled payments were against the existing term loan with Citibank. The current and long-term portions of the term loan are included in the respective current and long-term sections of the Condensed Consolidated Balance Sheet, the amounts of which were $18.75 million and $8.38 million, respectively, at June 30, 2014. Off-Balance Sheet Arrangements We do not engage in off -balance sheet financing arrangements. Recent Accounting Pronouncements For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 1 of the condensed notes to the Condensed Consolidated Financial Statements in this Form 10-Q and Note 1 of the notes to consolidated financial statements in our 2013 Form 10-K. Application of Critical Accounting Policies The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP"), as promulgated in the United States, requires our management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures in our Condensed Consolidated Financial Statements and accompanying notes. We believe the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates and assumptions about the effects of matters that are inherently uncertain. The following accounting policies involve the use of "critical accounting estimates" because they are particularly dependent on estimates and assumptions made by management about matters that are uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have possibly been used in the current period, and changes in the accounting estimates that we used are reasonably likely to occur from period to period both of which may have a material impact on our financial condition and results of operations. For additional information about these policies, see Note 1 of the Condensed Notes to the Condensed Consolidated Financial Statements in this Form 10-Q. Although we believe that our estimates, assumptions and judgments are reasonable, they are limited based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. Revenue Recognition The Company derives its revenues primarily from subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, fees for business process outsourcing services, and fees for software development projects including associated fees for consulting, implementation, training, and project management provided to customers with installed systems. In accordance with the Financial Accounting Standards Board ("FASB") and Securities and Exchange Commission Staff Accounting (the "SEC") accounting guidance on revenue recognition the Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, provided that the arrangement fee is fixed or determinable, (b) delivery or performance has occurred, (c) customer acceptance has been received, if contractually required, and (d) collectability of the arrangement fee is probable. The Company uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant generally accepted accounting principles related to all transactions involving the license of software where the software deliverables are considered more than inconsequential to the other elements in the arrangement. For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the relevant technical accounting guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate units of accounting for the purpose of revenue 36



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recognition. Generally these types of arrangements include deliverables pertaining to software licenses, system set-up, and professional services associated with product customization or modification. Delivery of the various contractual elements typically occurs over periods of less than eighteen months. These arrangements generally do not have refund provisions or have very limited refund terms. Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by FASB using the percentage-of-completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee. Allowance for Doubtful Accounts Receivable Management specifically analyzes accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Valuation of Goodwill and Other Indefinite-Lived Intangible Assets Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. Indefinite-lived intangible assets represent the fair value of acquired contractual customer relationships for which future cash flows are expected to continue indefinitely. In accordance with the relevant FASB accounting guidance, goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurs or circumstances change that would likely have reduced the fair value of a reporting unit below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, and the sale or disposition of a significant portion of the business. The impairment evaluation process first involves an assessment of certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than its carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not perform the two-step quantitative impairment testing described further below. The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values. We determine the fair value of our reporting units by applying the discounted cash flow method using the present value of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying value, then no further testing is required. However, if a reporting unit's fair value were to be less than its carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the reporting unit's goodwill exceeded its implied value. Projections of cash flows are based on our views of growth rates, operating costs, anticipated future economic conditions and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. We perform our annual goodwill impairment evaluation and testing as of September 30th of each year. This evaluation is done during the fourth quarter each year. During the year ended December 31, 2013 we had no impairment of our reporting unit goodwill balances. Income Taxes Deferred income taxes are recorded to reflect the estimated future tax effects of differences between financial statement and tax basis of assets, liabilities, operating losses, and tax credit carry forwards using the tax rates expected to be in effect when the temporary differences reverse. Valuation allowances, if any, are recorded to reduce deferred tax assets to the amount management considers more likely than not to be realized. Such valuation allowances are recorded for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible. The Company also applies FASB accounting guidance on accounting for uncertainty in income taxes positions. This guidance clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Foreign Currency Matters 37



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The functional currency for the Company's foreign subsidiaries in India and Singapore is the U.S. dollar because the intellectual property research and development activities provided by its Singapore subsidiary, and the product development and information technology enabled services activities for the insurance industry provided by its India subsidiary. both in support of Ebix's operating divisions across the world, are transacted in U.S. dollars. The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of other comprehensive income in the accompanying Condensed Consolidated Balance Sheets. Foreign exchange transaction gains and losses that are derived from transactions denominated in a currency other than the subsidiary's functional currency are included in the determination of net income. 38



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