UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ☑ | | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182020
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o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-15946
Ebix, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 77-0021975 |
| (State or other jurisdiction of incorporation) | | 77-0021975
(I.R.S. Employer Identification Number) |
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| 1 Ebix Way | | |
Johns Creek, Georgia | Georgia | | 30097 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (678) 281-2020
Securities registered pursuant to Section 12(b) of the Act:
None
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| Title of each class | | Trading symbol (s) | | Name of each exchange on which registered |
| Common Stock, par value $0.10 per share | | EBIX | | The Nasdaq Stock Market |
Securities registered pursuant to Section 12(g) of the Act:
Title of each classNone
Common Stock, par value $0.10 per share
Listed on the Nasdaq Global Capital Market
Indicate by check mark whetherif the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | o | Accelerated filer | þ | Non-accelerated filer | o | Smaller reporting company | ☐ |
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Large accelerated filer þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15U.S.C 7262(b0) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
As of February 26, 2019,April 23, 2021, the number of shares of Common Stock outstanding was 30,546,212.30,942,871. As of June 30, 20182020 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of Common Stock held by non-affiliates, based upon the last sale price of the shares as reported on the Nasdaq Global Capital Market on such date, was approximately $1.81 billion$500 million (for this purpose, the Company has assumed that directors, executive officers andare affiliates, as well as holders of more than 10% of the Company’s common stock are affiliates)that have indicated some intent to exercise control).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy for its annual meeting of stockholders are incorporated by reference into Part III Items 10, 11, 12, 13, and 14 of this Form 10-K.
EBIX, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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| Exhibit 101 |
SAFE HARBOR REGARDING FORWARD-LOOKING STATEMENTS
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.
This Form 10-K 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. These forward-looking statements include statements regarding future economic conditions, operational performance and financial condition, liquidity and capital resources, acceptance of the Company's products by the market, potential acquisitions and management's plans and objectives. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “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 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:
•the willingness of independent insurance agencies to outsource their computer and other processing needs to third parties;
•our ability to raise additional financing to support our capital requirements;
•the impact of restrictive covenants in our senior secured syndicated credit facility;
•our ability to make new business acquisitions and integrate such acquired businesses into our operations;
•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;
•our ability to develop new products and respond to rapid technological changes;
•disruptions in internet connections and the protection of information transmitted over the internet;
•changes in estimates in critical accounting judgments;
•the effective protection of our intellectual property;
•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 Singapore, Australia and India wherein we have significant operations);
•volatility in 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.
These and other risks are described in more detail in Part I Item 1A, "Risk Factors", as well as in other reports subsequently filed with the SEC.
Except as expressly required by the federal securities laws, 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 or changed circumstances, or for any other reason.
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 Internetinternet at the SEC's web site, www.sec.gov.
PART I
Item 1. BUSINESS
Company Overview
Ebix, Inc. (“Ebix”, the “Company,” “we” or “our”), a Delaware corporation, was founded in 1976 as Delphi Systems, Inc., a California corporation. In December 2003, the Company changed its name to Ebix, Inc. The Company is listed on the Nasdaq Global Market.Market ("Nasdaq").
The Company has its worldwide headquarters in Johns Creek, Georgia, with its international operations being managed from its Dubai office; and also has domestic and international operations spread across 50+over 50 offices. Amongst other offices,The countries in which the Company also has operating facilities and offices, ininclude, among others, Australia, Brazil, Canada, India, Indonesia, New Zealand, Philippines, Singapore, the United Kingdom Canada("U.K."), United Arab of Emirates and India.the United States of America ("United States" or "U.S."). In these operating offices,locations, Ebix employs skilled technology and business professionals who provide products, services, support and consultancy services to more than 16,000thousands of customers in approximately 70 countries across six continents.
Ebix is a leading international supplier of on-demand infrastructure exchanges to the insurance, financial, and healthcare industries. In the Insurance sector, the
The Company’s main focustechnology vision is to develop and deploy a wide varietyfocus on the convergence of all insurance and reinsurance exchanges on an on-demand basis, while also, providing Software-as-a-Service ("SaaS") enterprise solutions in the area of Customer Relationship management ("CRM"), front-end & back-end systems, outsourced administrativefinancial exchange channels, processes and risk compliance.
entities for seamless data flow. The Company's products feature fully customizable and scalable on-demand software designed to streamline the way insurance professionals manage distribution, marketing, sales, customer service, and accounting activities.
With a "Phygital” strategy that combines 320,000 physical distribution outlets in many Associations of Southeast Asian Nations (“ASEAN”) countries, to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in areas of domestic & international money remittance, foreign exchange (Forex), travel, pre-paid & gift cards, utility payments, software solutions for lending and wealth management etc. in India and other markets. EbixCash’s Forex operations have emerged as a leader in India’s airport Foreign Exchange business with operations in 32 international airports including Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata, conducting over $4.8 billion in gross transaction value per year. EbixCash’s inward remittance business in India conducts approximately $5 billion gross annual remittance business, confirming its undisputed leadership position in India. EbixCash, through its travel portfolio of Via and Mercury, is also one of Southeast Asia’s leading travel exchanges with over 2,200+ employees, 212,450+ agent network, 25 branches and over 9,800 corporate clients; processing an estimated $2.5 billion in gross merchandise value per year.
During the year ended December 31, 2018, approximately 80% of Ebix revenues came from on-demand exchanges.
EbixCash is also a provider of lending software solutions to financial institutions and on-demand software on wealth and asset management to banks, asset managers and wealth management firms.
The Company’s E-learning solutions are provided to schools across the breadth of India with the goal of educating students in a classroom through high quality 2-D and 3-D animation and multimedia learning.
International revenue accounted for 60.4% and 41.8% of the Company’s total revenue for the twelve months ended December 31, 2018 and 2017, respectively.
Ebix's goal is to be thea leading powerhousefacilitator of insurance and financial transactions in the world. The Company’s technology vision is to focus on the convergence of all channels, processes and entities in a manner such that data seamlessly flows once a data entry has initially been made. EbixCompany strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges and requirements. 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 organizations. In the Insurance sector, the Company’s main focus is to develop and deploy a wide variety of insurance and reinsurance exchanges on an on-demand basis, while also providing Software-as-a-Service ("SaaS") enterprise solutions in the area of customer relationship management ("CRM"), front-end & back-end systems, outsourced administrative and risk compliance.
The Company’s EbixCash Exchanges (“EbixCash”) division has developed into an integral and leading source of our revenue and profits. With a "Phygital” strategy that combines over 320,000 physical distribution outlets in India and many Associations of Southeast Asian Nations (“ASEAN”) countries, to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in the areas of domestic & international money remittance, foreign exchange (Forex), travel, pre-paid & gift cards, utility payments, software solutions for lending and wealth management, etc. in India and other markets. EbixCash’s Forex operations have emerged as a leader in India’s airport Forex business with operations in 20 international airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata, combined conducting over $4.8 billion in gross transaction value per year (pre-COVID-19). EbixCash’s inward remittance business in India processes approximately $5 billion in gross annual remittance volume (pre-COVID-19) and is the clear market leader. EbixCash, through its travel portfolio of Via and Mercury, is one of Southeast Asia’s leading travel exchanges, with over 200,000 agents, 25 branches and over 9,800 corporate clients, combined processing an estimated $2.5 billion in gross merchandise value per annum (pre-COVID-19).
The Company’s E-learning solutions are provided to schools across the breadth of India with the goal of educating students in classrooms through high quality 2-D and 3-D animation and multimedia learning.
During the year ended December 31, 2020, approximately 91% of Ebix revenues came from EbixCash and Insurance Exchanges. International revenue accounted for 73.4% and 68.6% of the Company’s total revenue for the twelve months ended December 31, 2020 and 2019, respectively.
Acquisition & Integration Strategy
The While not entirely critical to our future profitability or liquidity, the Company views business acquisitions as an integral part of the Company'sits growth strategy, an efficient way to further expand its reach, and an effective utilization of the operating cash generated from the Company's business. However, management does not believe that this acquisition strategy is entirely critical to the Company's future profitability or liquidity.We are strategic and selective when making acquisitions. We look at making complimentaryto make complementary accretive acquisitions as and when the Company has sufficient liquidity, stable cash flows, and, if necessary, access to financing at attractive interest rates to do so, if necessary.rates.
The Company seeks to acquire businesses that are synergistic tocomplement Ebix's existing products and services. In this regard the Company's goal is to provide comprehensive, on-demand based solutions that simplify transaction processing by carrying data from one end to another seamlessly. Any acquisition made by Ebix typically will fall into one of two different categories: one, wherein(i) the acquired company has products and/or services that are competitive to our existing products and services; and two, whereinor (ii) the acquired company's products and services are either a complement to andor an extension of our existing products and services.services or our core business competencies.
In cases where an acquired company's products and services are competitive to our existing products and services, upon acquisition, the Company immediately strives towards the goal of providing a single product or service in the functional area with a common code base around the world, rather than having multiple products addressing the same need. In each case, the Company immediately works towards assimilating the best of breed functionality on a common architecture approach, to provide a single product or service to our end customers.architecture. The Company's goal remains to provide an easy to use solutioneasy-to-use solutions for our customer base, while ensuring that any product or service integrates seamlessly with other existing or outside functionalities. IrrespectiveRegardless of whether the acquired company's product/service is retired, or the existing Ebix product/service is retired, the Company is focused on maximizing operational efficiency for our business while creating new cutting-edge products and services that can replace either existing or acquired product or service offerings in order to make future product sales more robust and maintenance more efficient.
Once an acquisition is consummated, the infrastructure, personnelhuman resources, sales, product management, development, and other common functions are integrated with our existing operations to ensure that efficiencies are maximized and redundancies eliminated. We generally do not maintain separate sales, development, product management, implementation or quality control functions following the closing of any acquisition, in order to ensure that the integration is efficient across all fronts.acquisition. The Company integrates and, where appropriate, centralizes certain key functions, such as product development, information technology, marketing, sales, finance, administration, and quality assurance, immediately after an acquisition to ensure that the Company can maximize on cost efficiencies. Simultaneously with the integration of any acquired company, the Company's resources and infrastructure are leveraged to work across multiple functions, products and services, making it neither practical nor feasible to precisely separately track and disclose separately the specific earnings impact from the business combinations we have executed after they have been acquired. Consequently, the concept of “acquisitive growth” versus “organic growth” becomes obscured given the dynamics and underlying operating principals of Ebix's acquisition, integration, and growth strategy. This tactic is a key part of our business strategy that facilitates high levels of efficiency, operating income margins and consistent end-to-end vision for our business, and differentiates the Company from our competitors.business. Our plan is to make niche acquisitions in the insurance, international financial exchange, e-learning, healthcare and financehealthcare sectors, integrate them seamlessly into the Company and make them efficient by implementing Ebix's standardized processes, with the goal of increasing operating profits and cash flows for the Company.
In many of the acquisitions made by the Company there are contingent consideration terms associated with the achievement of certain designated revenue targets for the acquired Company. This structure allows us to still carry onfollow through with our integration strategy, while enabling the acquired company to be eligible for a revenue basedrevenue-based contingent purchase consideration. Accordingly, we are able to maximize operational productivity while allowing the principals of the acquired company access to a greater opportunity for a contingent reward.maximize the potential economics from the sale process.
The Company's integration strategies are targeted at improving the efficiency of our business, centralizing key functions, exercising better control over our operations, and providing consistent technology and product vision across all functions, entities and products. This is a key part of our business philosophy designed to enable Ebix to operate at a high level of efficiency and facilitate a consistent end-to-end strategic vision for the industry.industries we serve.
Recent Strategic Business Acquisitions
During the year ended December 31, 20182020 the Company completed thirteentwo business acquisitions, as follows:
Trimax- Effective December 1, 2018May 4, 2020, Ebix entered intoacquired from bankruptcy India-based Trimax, which provides IT and integration services to state-owned transport corporations, operates data centers, and is an agreement to acquire 74.84% controlling stake in India based Weizmann Forex Limited ("Weizmann") for $63.1 million. Ebix also made a 90-day time bound public offer to acquire the remaining 25.16% publicly-held Weizmann Forex sharesIT infrastructure solution provider, for approximately $21.1$9.9 million of upfront consideration. Additionally, Ebix issued preferred shares in Trimax to public shareholders. The valuation and purchase price
allocation remains preliminary and willthe selling shareholders that can be finalized as soon as practicable but in no event longer than one yearsold five years from the effective dateclosing of this transaction.
Effective December 1, 2018 Ebix acquired the assetsacquisition based on an independent valuation performed by a Big 4 valuation firm. The maximum potential value of India based Pearl International Tours and Travels Limited ("Pearl"), a provider of a comprehensive range of B2B and B2C travel services under the brand name ‘Sastiticket’, ranging from domestic and international ticketing, incentives travel, leisure products, luxury holidays, and travel documentation for $3.4 million and has been integrated with Ebix Travels’ operations, which has brought in operational synergies and certain redundancies for the acquired operations .preferred shares is approximately $9.9 million. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
AssureEdge-Effective DecemberOctober 1, 2018 Ebix2020 the Company acquired Indiaa 70% interest in AssureEdge Global Services (“AssureEdge”) for a total purchase price of approximately $5.0 million, including net working capital acquired. AssureEdge is pan-India based Lawson Travelsbusiness process outsourcing ("Lawson"BPO"), company, with a B2B providervariety of travel servicesBPO offerings via six contact centers across India. It serves a number of industries and international ticketing,clients that have cross-selling value for $2.7 million and same has been integrated with Ebix Travels’ operations to bring in operational synergies and wider country wide footprint.EbixCash services. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
During the year ended December 31, 2019 the Company completed three business acquisitions, as follows:
Wallstreet Canada - Effective October 1, 2018August 23, 2019, Ebix acquired a 70% stake in India based AHA TaxisCanada-based Wall Street Finance (Canada) Ltd. ("AHA Taxis"Wallstreet Canada"), a platformforeign exchange and outward remittance service provider, for on-demand inter-city cabs in India for $310 thousand. AHA Taxis focuses its attention on Corporate and Consumer inter-city travel primarily, with a networkapproximately $2.1 million of thousandsupfront consideration inclusive of registered AHA Taxis.net acquired working capital.
Essel Forex - Effective OctoberJanuary 1, 2018 Ebix acquired a 67% stake in India based Routier ("Routier"), a marketplace for trucking logistics for $413 thousand.
Effective October 1, 20182019, Ebix acquired the assets of India based Business Travels Pvt. LtdIndia-based Essel Forex Limited ("Business Travels") to for $1.1 million and same has been integrated with Ebix Travels’ operations to expand the wholesale travel and consolidation business.. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective August 1, 2018 Ebix entered into an agreement to acquire India based Miles Software ("Miles"Essel Forex"), a provider of on-demand software on wealth and asset management to banks, asset managers and wealth management firms, for approximately $18.3$8.7 million, plus possible future contingent earn-out payments of up to $8.3 million$721 thousand based on earned revenues overrevenues. Ebix funded the subsequent twenty-four monthentire transaction in cash using its internal cash reserves. Essel Forex is a large provider of foreign exchange services in India with a wide spectrum of related products, including sales of all major currencies, travelers’ checks, demand drafts, remittances, money transfers and prepaid cards primarily for corporate clients. The earn-out period followingexpired on December 31, 2019 and the effective date ofacquired business did not meet the acquisition.requisite revenue target, so no earn out payment was due or paid.
Zillious - Effective JulyJanuary 1, 20182019, Ebix entered intoacquired an agreement to acquire India based Leisure Corp80% controlling stake in India-based Zillious Solutions Private Limited ("Leisure"Zillious") for approximately $2.1 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Mercury Travels for approximately $13.2 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. Mercury’s Forex business has been integrated into EbixCash’s existing Forex exchange business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Indus Software Technologies Pvt. Ltd. ("Indus"), a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately $22.9$10.1 million plus possible future contingent earn-out payments of up to $5.0$2.2 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition.
Effective April 1, 2018 Ebix entered into an agreementagreed to acquire India based CentrumDirect Limited ("Centrum"), a leader in India’s foreign exchange and outward remittance (“Foreign Exchange Operations”) markets for approximately $179.5 million. This acquisition was completed in June 2018. Subsequently, Centrum has been renamed as Ebixcash World Money Limited (“Ebixcash World Money”) and has been tightly integrated into Ebix’s Financial Exchange ‘EbixCash’ offerings in India and abroad, with key business executives of Foreign Exchange Operations becoming an integral part of the combined EbixCash senior leadership.
Effective April 1, 2018 Ebix entered into an agreement to acquire a 60% stake in India based Smartclass Educational Services Private Limited ("Smartclass"), a leading e-learning Company engagedmilestones in the business of education services, development of education products, and implementation of education solutions for K-12 Schools through its E-Learning Venture. Under the terms of the agreement Ebix paid $8.6 million in cash for its stake in Smartclass.
Effective February 1, 2018 Ebix acquired the Money Transfer Service Scheme ("MTSS") Business of Transcorp International Limited ("Transcorp"), for upfront cash considerationacquisition agreement. Zillious is an on-demand SaaS travel technology solution in the amount of $7.25 million, of which $6.55 million was funded with cash and $700 thousand assumedcorporate travel segment in liabilities. MTSS operations of Transcorp has been consolidated with EbixCash’s MTSS operations resulting in operational synergies and certain redundancies to the combined operation.
During the year ended December 31, 2017 the Company completed six business acquisitions, as follows:
Effective November 1, 2017 Ebix acquired Via.com ("Via"), a recognized leader in the travel space in India and an omni-channel online travel and assisted e-commerce exchange with presence in India, Middle East and South East Asia. Ebix acquired Via for upfront cash consideration in the amount $78.8 million plus possible future contingent payments of up to $2.3 million based on any potential claims made by tax authorities over the subsequent twelve month period following the effective date of the acquisition, of which was not achieved after this period and $2.0 million based on the receipt of refunds pertaining to certain advance tax payments and withholding taxes, both of which are included in Other current liabilities in the Company's Consolidated Balance Sheet.
Effective November 1, 2017 Ebix acquired the Money Transfer Service Scheme ("MTSS") Business of Paul Merchants Limited ("Paul Merchants"), the largest international remittance service provider in India, for upfront cash consideration in the amount $37.4 million.
Effective October 1, 2017 Ebix acquired the MTSS Business of Wall Street Finance Limited ("Wall Street") , an inward international remittance service provider in India, along with the acquisition of its subsidiary company Goldman Securities Limited for upfront cash consideration in the amount $7.4 million.
Effective September 1, 2017 Ebix acquired the MTSS Business of YouFirst Money Express Private Limited ("YouFirst"), an inward international remittance service provider in India, for upfront cash consideration in the amount $10.2 million.
Effective June 1, 2017 Ebix acquired the assets of beBetter Health, Inc., ("beBetter"), a technology enabled corporate wellness provider that provides end-to-end wellness solutions offering a variety of tools and programs, including interactive platforms, health screening, coaching, tobacco cessation, weight and stress management, health information, and numerous other products and services. Ebix acquired the assets and intellectual property of beBetter for $1.0 million plus possible future contingent earn-out payments of up to $2.0 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition.India. The Company has determined that the fair value of the contingent earn-out consideration iswas zero as of September 30, 2020 and at December 31, 2018.
Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an 80% stake in ItzCash Card Limited ("ItzCash"), India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately $150 million. Accordingly, Ebix acquired an 80% stake in ItzCash for $120 million including upfront cash of $76.3 million plus possible future contingent earn-out payments of up to $44.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. $4.0 million of the possible future contingent earn-out payments was previously held in escrow accounts for the twelve month period following the effective date of the acquisition to ensure that the acquired business achieved the minimum specified annual gross revenue threshold, which was achieved and paid during the third quarter of 2018. The Company has determined that the fair value of the contingent earn-out consideration is $15.4 million as of December 31, 2018.
During the year ended December 31, 2016 the Company completed two business acquisitions, as follows:
Effective November 1, 2016 Ebix acquired Wdev Solucoes em Technologia SA ("Wdev"), a Brazilian company that provides IT services and software development for the Latin American insurance industry. Ebix acquired Wdev for upfront cash consideration in the amount of $10.5 million, plus possible future contingent earn out payments of up to $15.7 million based on earned revenues over the subsequent thirty-eight month period following the effective date of the acquisition. $2.9 million of the upfront cash consideration is being held in an escrow account for the thirty-eight month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual net revenue threshold, which if not achieved will result in said funds being returned to Ebix.
Effective November 1, 2016 Ebix acquired the assets of IHAC, Inc., d.b.a Hope Health ("Hope Health"), a Michigan corporation and publisher of health and wellness continuing education products. Ebix acquired the assets and intellectual property of Hope Health for $1.72 million.
Effective July 1, 2016 Ebix and Independence Holdings Corporation ("IHC") jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the Ebix Health Exchange Holdings, LLC ("EbixHealth JV") from IHC constituting eleven percent (11%) of the EbixHealth JV for $2.0 million cash which resulted in Ebix holding an aggregate fifty-one percent (51%) controlling equity interest in the EbixHealth JV. Previously, effective September 1, 2015 Ebix and IHC, formed a joint venture named EbixHealth JV. Ebix paid $6.0 million and contributed a license to use certain CurePet software and systems valued by the EbixHealth JV at $2.0 million, for its initial 40% membership interest in the EbixHealth JV. IHC contributed all of its shares in its existing third party administrator operations (IHC Health Solutions, Inc.), valued by the EbixHealth JV at $12.0 million for its 60% membership interest in the EbixHealth JV.2020.
Industry Overview
The insurance and financial industry markets have initiatives to reduce paper-based processes and facilitate improvements in the efficiencyefficiencies of both at the back-end side and also at the consumer-end side. Such consolidation(front-end) sides of processes. This evolution has involved all industry constituents and is directly impacting the manner in which various products are distributed. Management believes that both the industries will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across the world markets.
Products and Services
The Company reports as a single segment. The Company’s revenues are derived from four product or three product/service groups. Presented in tabular formatthe table below is the breakout of our revenue streams for each of those product or product/service groups for the years ended December 31, 2018, 20172020, 2019, and 2016:2018:
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| (dollar amounts in thousands) | | 2018 | | 2017 | | 2016 |
| Exchanges | | $ | 396,457 |
| | $ | 259,470 |
| | $ | 206,427 |
|
| Broker P&C Systems | | 14,379 |
| | 14,674 |
| | 14,105 |
|
| Risk Compliance Solutions (“RCS”) | | 79,976 |
| | 86,832 |
| | 74,196 |
|
| Carrier P&C Systems | | 7,014 |
| | 2,995 |
| | 3,566 |
|
| Totals | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended |
| December 31, |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| EbixCash Exchanges | | 388,293 | | | 319,953 | | | 217,457 | |
| Insurance Exchanges | | 178,111 | | | 190,067 | | | 192,604 | |
| Risk Compliance Solutions | | 59,205 | | | 70,595 | | | 87,765 | |
| Totals | | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
Information on the geographic dispersion of the Company’s revenues and long-lived assets is furnished in Note 1514 to the consolidated financial statements, included in Part II Item 8 of this Form 10-K. See Item 1A (Risk Factors) for discussion of certain risks related to our foreign operations.
The Company’s product and service strategy focuses on: (a) expansion of connectivity between all entities throughvia its ExchangeEbixCash and EbixExchange family of products in the financial, foreign currency exchange, travel, life, health, workers compensation, risk management, annuity and property and casualty ("P&C") sectors namely the EbixCash and EbixExchange family of products;sectors; (b) worldwide sales and support of P&C back-end insurance and broker management systems; (c) worldwide sale, customization, development, implementation and support of its P&C back-end insurance carrier system platforms; (d) risk compliance solution services, which include insurance certificate origination, certificate tracking, claims adjudication call center, consulting services and back office support; and (e) e-governance/e-learning solutions in emerging world markets.
Ebix also provides software development, customization, and consulting services to a variety of entities in the insurance industry, including carriers, brokers, exchanges and standard makingstandards-making bodies.
Ebix’s revenue streams come from three product/service channels, as discussed in the following paragraphs. The Company derives its revenues primarily from our financial transaction fees, software subscription and transaction fees, software license fees, risk compliance solution services fees, and professional service fees, including associated fees for consulting, implementation, training, and project management provided to customers with installed systems and applications.
EbixCash Exchanges ("EbixCash")
EbixCash revenues are primarily derived from the sales of prepaid gift cards and consideration paid by customers for financial transaction services, including services like transferring or exchanging money. The significant majority of EbixCash revenue is for a single performance obligation and is recognized at present,a point in time. These revenues vary by transaction based upon channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, and speed of service, as applicable.
EbixCash also offers several other services, including payment services and ticketing and travel services for which revenue is generated through fourimpacted by varying factors. EbixCash acts as the principal in most transactions and reports revenue on a gross basis, as EbixCash controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
The main channelsservices from which EbixCash derives revenue are as follow:
Gift Cards
EbixCash sells general purpose prepaid gift cards to corporate customers and consumers that can be later redeemed at various merchants.The gift cards are co-branded between EbixCash and its card-issuing banking partner(s) and are affiliated with major payment associations such as VISA, Mastercard, and Rupay.The gift cards are sold to a diversified set of corporate customers from various industries.The gift cards are used by corporate customers to disburse incentives to the end users, which are primarily their employees, agents and business associates.The gift cards sold by EbixCash are not reloadable, cannot be used at ATMs or for any other cash-out or funds transfer transactions, and are subject to maximum limits per card (currently INR10,000 or approximately $140).Gift cards issued by EbixCash are valid for a period of 15 months from the date of issuance for virtual cards and three years for physical cards.EbixCash has entered into arrangements with banks and financial institutions to settle payments to merchants based on utilization of the gift cards.
The Company has end-to-end responsibilities related to the gift cards sold, from the activation and ongoing utilization of the gift cards to customer service responsibilities to risk of loss due to fraud on the gift cards sold.EbixCash acts a principal in whichthe sale of gift cards and, thus, gift card revenue is recognized on a gross basis (full purchase value at the time of sale) with the corresponding cost of the gift cards recorded as cost of services provided.Unredeemed gift cards at December 31, 2020 are not significant to the financial results of the Company conductsand are recorded as deferred revenues in the financial results.
EbixCash Travel Exchanges
EbixCash Travel revenues are derived from commissions and transaction fees received from various travel providers and international exchanges involved in the sale of travel to the consumer. EbixCash Travel revenue is for a single performance obligation and is recognized at a point in time. Travel revenues include: (i) reservation commissions, segment fees from global travel exchange providers, and transaction net revenues (i.e., the amount charged to travelers less the amount owed to travel service providers) in connection with our reservation services; (ii) ancillary fees, including travel insurance-related revenues and certain reservation booking fees; and (iii) credit card processing rebates and customer processing fees. EbixCash Travel services include the sale of hotel rooms, airline tickets, bus tickets and train tickets. EbixCash’s Travel revenue is also derived from ticket sales, wherein the commissions payable to EbixCash Travel, along with any transaction fees paid by travel providers and travel exchanges, is recognized as revenue after completion of the service. The transaction price on such services is agreed upon at the time of the purchase.
EbixCash Travel revenue for the corporate MICE (Meetings, Incentives, Conferences, and Exhibitions) packages is recognized at full purchase value at the completion of the obligation, with the corresponding costs recorded under direct expenses. For MICE revenues, EbixCash Travel acts as the principal in transactions and, accordingly, reports revenue on a gross basis. EbixCash Travel controls the service at all times prior to transfer to the customer, is responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
EbixCash Money Transfer
For the EbixCash money transfer business, EbixCash has one performance obligation whereupon the customer engages EbixCash to perform one integrated service. This performance obligation typically occurs instantaneously when the beneficiary entitled to receive the money transferred by the sender visits the EbixCash outlet and collects the money. Accordingly, EbixCash recognizes revenue upon completion of the following: (i) the customer’s acknowledgment of EbixCash’s terms and conditions and the receipt of payment information; (ii) the money transfer has been processed; (iii) the customer has received a unique transaction identification number; and (iv) funds are available to be picked up by the beneficiary. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by EbixCash to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated.
Foreign Exchange and Outward Remittance Services
For EbixCash’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with EbixCash to provide payment services on the customer’s behalf. In the majority of EbixCash’s foreign exchange and payment services, EbixCash makes payments to the recipient to satisfy its operations: Exchanges, Carrier Systems, Broker Systems,performance obligation to the customer, and Risk Compliance Solutions.therefore, EbixCash recognizes revenue on foreign exchange and payment when this performance obligation has been fulfilled.
Consumer Payment Services
EbixCash offers several different bill payment services that vary by considerations, including among other factors: (i) who pays the fee to EbixCash (consumer or biller); (ii) whether the service is offered to all potential consumers, or only to those for which EbixCash has a relationship with the biller; and (iii) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors. The determination of which party is EbixCash’s customer for revenue streamsrecognition purposes is based on these considerations for each of these channels are further described below inEbixCash’s bill payment services. For all transactions EbixCash’s customers agree to EbixCash’s terms and conditions, either at the following paragraphs.time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with EbixCash to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers, customers engage EbixCash to perform one integrated service - collecting money from the consumer and processing the bill payment transaction. This service provides the billers real-time or near real-time information regarding their customers’ payments and simplifies the billers’ collection efforts. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which EbixCash records as a reduction to revenue.
Exchanges: This channel forms the primary focus of the Company across the world. Ebix operates data exchanges in the areas of finance, travel, life insurance, annuities, employee health benefits, risk management, workers compensation, insurance underwriting, and P&C insurance. Each of these exchanges connects multiple entities within the financial and insurance markets enabling the participant
EbixCash Technology Services
EbixCash also offers on-demand technology to seamlessly and efficiently carry and process data from one end to another. Ebix’s life, annuity, and employee health benefit exchanges currently operate primarily in the United States. The P&C exchanges operate primarily in Australia, New Zealand, and the United Kingdom. Ebix financial and travel exchanges currently operate primarily in India, the Middle East and certain ASEAN countries. Exchange revenue is derived from two main sources, namely subscription fees
associated with accessing the exchange and transaction fees charged for each transaction processed on an Ebix Exchange. These exchanges have been designed to completely adhere to industry and regulatory data standards.
Broker P&C Systems: The Company's main focus in this channel is on markets outside the United States. The Company does not believe that the United States broker systems market can provide the Company with the operating margin levels that the Company seeks. The number of independent brokers has been steadily decreasing in the United States and the space is fairly crowded in terms of the number of software players addressing the market. Consequently, Ebix’s primary focusvarious providers in the area of broker systems is on designinglending, wealth and deploying back-end systemsasset management, and travel across the world.
Insurance Exchanges
Insurance Exchanges revenues are primarily derived from consideration paid by customers related to our SaaS platforms, related services and the licensing of software. A typical contract for international P&C insurance brokers whoour SaaS platform will also include services for setup, customization, transaction processing, maintenance, and/or hosting. Determining whether products and services are seekingconsidered distinct performance obligations that should be accounted for separately may require significant judgement. Set-up and customization services, related to our SaaS platforms, are not considered to be distinct from the usage fees associated with the SaaS platform and, accordingly, are accounted for as a worldwide system solution. Ebix has three back-end systems in this area: eGlobal,single performance obligation. These services, along with the usage or transaction fees, are recognized over the contract duration, which targets multinational P&C insurance brokers; WinBeat, which targets P&C brokersconsiders the significance of the upfront fees in the Australiancontext of the contract and New Zealand markets;which may, therefore, exceed the initial contracted term.
Contracts generally do not contain a right of return or refund provisions. Our contracts often do contain overage fees, contingent fees, or service level penalties which are accounted for as variable consideration. Revenue accounted for as variable consideration is immaterial and EbixASP,is recognized using the “right to invoice” practical expedient when the invoiced amount equals the value provided to the customer.
Software-as-a-Service
The Company allocates the transaction price to each distinct performance obligation using the relative stand-alone selling price. Determining the stand-alone selling price may require significant judgement. The stand-alone selling price is the price at which an entity has sold or would sell a promised good or service separately to a customer. The Company determines the stand-alone selling price based on observable price of products or services sold separately in comparable circumstances, when such observable prices are available. When standalone selling price is not directly observable, the Company estimates the stand-alone selling price using the market assessment approach by considering historical pricing and other market factors.
Software Licenses
Software license revenues attributable to a software license that is a systemseparate performance obligation are recognized at the point in time that the customer obtains control of the license.
Subscription Services
Subscription services revenues are associated with performance obligations that are satisfied over specific time periods and primarily consist of post-contract support services. Revenue is generally recognized ratably over the contract term. Our subscription contracts are generally for an initial three-year period with subsequent one-year automatic renewals.
Transaction Fees
Transaction revenue is comprised of fees applied to the volume of transactions that are processed through our SaaS platforms. These are typically based on a per-transaction rate and are invoiced for the P&C insurance brokerssame period in which the United States. Revenue from eGlobaltransactions were processed and as the performance obligation is satisfied. The amount invoiced generally equals the value provided to the customer, and revenue is typically recognized when invoiced using the as-invoiced practical expedient.
Professional Services
Professional service revenue primarily consists of fees for setup, customization, training, or consulting. Professional service fees are generally on a time and materials basis or a fixed fee. Revenues for time and materials are recognized as such services are rendered while fixed fee revenues are recognized based on the input method driven by the expected hours to complete the project measured against the actual hours completed to date. Professional services, particularly related to SaaS platforms, may have significant dependencies on the related licensed software and may not be considered a distinct performance obligation.
Risk Compliance Services ("RCS")
RCS revenues consist of two revenue streams - Certificates of Insurance ("COI") and Consulting Services. COI revenues are derived from two main sources, specifically subscription license-based revenues and time and material fees charged to customize the product to a broker’s specific functional requirements. Revenue from WinBeat is derived from monthly subscription fees charged to each P&C broker in Australia and New Zealand that has deployed the service. Revenue from EbixASP comes from monthly subscription fees charged to each P&C broker in the United States using the service. Each of these products is continually being redesigned, recoded and updated to adhere to the most current prevailing technologies.
RCS: Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, time and material based consulting engagements to clients across the world,consideration paid by customers for the creation and tracking of certificates of insurance issued ininsurance. These are transactional-based revenues. Consulting Services revenues are driven by distinct consulting service engagements rendered to customers for which revenues are recognized using the United Statesoutput method on a time and Australian markets,material basis as the provision of claims adjudicationservices are performed.
COI Creation and settlement, call center,Tracking
The Company provides services to issue and back office support. Ebix focuses on helping its clients outsource any specific service or manpower to the Company on an onsite or offshore basis. With respect to our insurance certificate related business outsourcing service, Ebix provides a software-based service for the issuance of certificates of insurance that fully adhere to industry standards such as ACORD. Ebix derives transaction-based revenues for each certificate that is created. Ebix also provides a service to track certificates of insurance for corporate clients in the United StatesU.S. and Australia that generates transactional-based revenueAustralian markets. Revenue is derived from transaction fees for each certificate issued or tracked. The Company recognizes revenue at the issuance of each certificate or over the period the certificate is being tracked.
Carrier P&C Systems: This channel is
Consulting Services
The Company provides consulting services to clients around the smallest part of the Company's business, since the Company has continued to de-emphasize its attention to this sector, while focusing its efforts primarilyworld for project management and development. Consulting services fees are generally earned on Exchanges, Healthcare, e-Governance, and e-Learning. Ebix’s work in the area of carrier systems pertains to the designing and deploying on-demand back-end systems for P&C insurance companies. Revenue from these services is derived from subscription revenues or license revenues from clients andeither a time and material fees chargedmaterials or a fixed fee basis. Revenues for time and materials are recognized using an output method as the services are rendered, while fixed fee revenues are recognized based on the input method driven by the expected hours to customize these productscomplete the project measured against the actual hours completed to an insurance company’s specific functional requirements.date.
Product Development
The Company focuses on maintaining high quality product development standards. Product development activities include research and the development of platform and/or client specific software enhancements, such as adding functionality, improving usefulness, increasing responsiveness, adapting to newer software and hardware technologies, or developing and maintaining the Company’s websites.
The Company has spent $39.1$35.3 million, $33.9$45.3 million, and $33.0$39.1 million during the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively, on product development initiatives. The Company’s product development efforts are focused on the continued enhancement and redesign of the EbixCash, Insurance Exchange, broker systems, carrier systems, and RCS product and service lines to keep our technology at the cutting edge in the markets we compete. Development efforts also provide new technologies for insurance carriers, brokers and agents, and the redesign, coding and development of new services for international and domestic markets.
Competition
We believe Ebix is in a unique position of being the only company worldwide in insurance and financial software markets that provides services in all fourthree of our above listed revenue channels. Conversely, though, this also means that in each of these areas Ebix has different competitors. In fact, in most of these areas Ebix has a different competitor locally in each countryregion in which we operate.it operates. In our Insurance Exchange and EbixCash operations Ebix often has a different competitor on each line of exchange in each country.country, but the scale of these entities is often very limited.
The Company has centralized worldwide product management,development, intellectual property rights development and software and system development operations in Dubai, Singapore, and India, which provides it a competitive edge.India. With its strong focus on quality, our Indian operations deliver cutting edgecutting-edge solutions for our customers across the world. India is rich in technical skills and the cost structure is significantly lower as compared to the United States.U.S. Ebix continues to expand its India operations as a learning center of excellence, with a strong focus on hiring skilled professionals with expertise in insurance systems and software applications. This focus on building this knowledge base, combined with the ability to hire more professional resources atin India's
lower cost structure, has enabled Ebix to consistently protect its knowledge base and to deliver projects in a cost-effective fashion. The following is a closer and more detailed discussion of our competition in each of these fourthree main channels.
EbixCash
With a "Phygital” strategy that combines over 320,000 physical distribution outlets in India and many Associations of Southeast Asian Nations (“ASEAN”) countries, to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in the areas of domestic & international money remittance, Forex, travel, pre-paid & gift cards, utility payments, software solutions for lending and wealth management, etc. in India and other markets. EbixCash’s Forex operations have emerged as a leader in India’s airport foreign exchange business with operations in 20 international airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata, combined conducting over $4.8 billion in gross transaction value per year (pre-COVID-19). EbixCash’s inward remittance business in India processes approximately $5 billion in gross annual remittance volume (pre-COVID-19) and is the clear market leader. EbixCash, through its travel portfolio of Via and Mercury, is one of Southeast Asia’s leading travel exchanges, with over 200,000 agents, 25 branches and over 9,800 corporate clients, combined processing an estimated $2.5 billion in gross merchandise value per annum (pre-COVID-19).
EbixCash Forex (EbixCash World Money): EbixCash’s Forex operations have emerged as a dominant leader in India’s Forex industry, with operations in 20 international Indian airports and 10 ports serving hundreds of corporate customers, hotels, Duty Free Shops, temples, educational institutes etc.
EbixCash World Money is now the largest non-bank foreign exchange operation in India in all business segments, including the retail, corporate and bank notes businesses. The company holds a more than 30% market share in the student segment (part of retail), wherein students' overseas education expenses are processed by EbixCash World Money. EbixCash World Money is the largest non-bank corporate Forex provider in the country with more than 2,200 corporate relationships. Competition is fragmented and is comprised of banks such as ICICI Bank and HDFC Bank, along with money exchange companies such as Thomas Cook.
Currently, EbixCash is the single largest money exchange operator at airports in India. EbixCash World Money is also the largest bank note aggregator amongst non-banks, dealing in over 80 different currencies, the highest by any non-bank entity in the business segment.
The EbixCash inward remittance business continues to hold a dominant position in India and is the principal agent for large Money Transfer Operations ("MTOs") such as Western Union, Moneygram, Ria, and Transfast. EbixCash processed
more than six million transactions in 2020. EbixCash is the largest network partner for Western Union globally and an exclusive partner for Moneygram in India. EbixCash also processes over 65% of all Ria transactions in India through its agent network.
EbixCash Travel & Holidays: EbixCash Travel and Holidays is a 360-degree holiday and travel solutions enterprise with a holistic focus on delivering exceptional travel experience in all genres such as holiday, travel, airline, luxury train travel/holidays, buses, cabs, MICE, sporting events, and others.
Indian travel business enterprises are categorized in the regional and national domain as focused on either a channel, a genre, a product or a demography, and by whether or not allied products, such as Forex & insurance, are offered. MakeMytrip, a relatively new entrant in the pan India holidays space, compared to Thomas Cook & SOTC has consistently focused on online bookings for holiday/vacation travel. Contrarily, Thomas Cook and SOTC have invested to strengthen their offline presence and market penetration. Thomas Cook is a leading holiday/vacation player that offers Forex services. SOTC has also been active in the holiday/vacation travel market. Most other players have limited scale compared to EbixCash Travel, Thomas Cook and SOTC.
Insurance Exchanges:
Ebix operates a number of insurance exchanges and the competition for each of those exchanges varies within each of the regions in which Ebix operates.
Life Insurance Exchange -: Ebix operates a straight throughstraight-through processing end-to-end Life Exchange service that has three life insurance exchanges in the United States - namely Winflex,U.S.: WinFlex, TPP, and LifeSpeed. WinflexWinFlex is an exchange for pre-sale life insurance illustrations between brokers and carriers,carriers. TPP is an underwriting and highly customized electronic application platform for Life insurance, whileand LifeSpeed is an order entry platform for life insurance. Each of these exchanges is presently deployed in the United StatesU.S. and the Company is also continuing to deploy them in other parts of the world. Ebix has onetwo main competitorcompetitors in the life exchange area: iPipeline.iPipeline and Insurance Technologies. Ebix differentiates itself from this competitor by virtue of having an end-to-end solution in the market, as with all of its exchanges being interfaced with other broker systems and customer relationship management ("CRM") services such as EbixCRM.SmartOffice. We believe Ebix’s exchanges also have the largest aggregation of life insurance brokers and carriers transacting business in the United States.
Annuity Exchange -: Ebix operates a straight throughstraight-through processing end-to-end Annuity Exchange service that has three lifeannuity insurance exchanges in the United States - namelyU.S.: AnnuityNet, AMP and AN4. These exchanges are platforms for annuity transactions between brokers, carriers, broker general agents (“BGAs”), and other entities involved in annuity transactions. These exchanges are mainly deployed in the United States, whileU.S.; however, the Company endeavors to deploy it in other parts of the world, such as Latin America and Australia. Ebix has deployed its AN4 service that was fully developed internally by Ebix, and is highly scalable and customizable, and can be delivered over the cloud. Ebix has one main competitor in the annuity exchange area, iPipeline. Again, Ebix differentiates itself from this competitor by virtue of having an end-to-end solution offering in the market with its exchanges being interfaced with broker systems and customer relationship management (CRM) services such as EbixCRM.SmartOffice. Ebix exchanges also benefit from transactingtransact the largest amountsamount of annuity premiums in annuity business onof any single exchange in the United States.U.S.
Ebix CRM -SmartOffice: Ebix’s customer relationship management exchange, SmartOffice, is designed to address the specific needs of insurance companies, general agents, banks, financial advisors and investment dealers. Smart Office is tightly integrated into the EbixExchange Life, Health, P&C and Annuity exchanges as a means to make end-to-end enterprise-wide information exchange seamless for our clients. This insurance industry specific domain expertise gives Ebix a competitive advantage over our competitors in the CRM area over our competitors, such as Salesforce.com, iPipeline, and Redtail.
Employee Benefits -: Ebix currently provides employee benefit and health insurance exchange services using four platforms namelyplatforms: Facts, LuminX, HealthConnect and EbixEnterprise. EbixEnterprise, which we built from the ground up,developed internally, is the most recent Enterprise Health Exchange being deployed by Ebix across all 50 states. Collectively, these platforms service approximately nine million lives and produce hundreds of thousands of health insurance quotes annually. These platforms are sold to health carriers and third party administrators. These platforms provide thea full range of services, such as employee enrollment, claims adjudication, accounting, employee benefits administration accounting and compliance. The HealthConnect insurance quoting portals service the individual and small group marketplace. Ebix has a number of competitors of varying sizes in this area. Trizetto is currently the largest employee benefits software player in the market in the US, while there are other smaller size competitors, such as BenefitFocus and Ultimate Software.
A.D.A.M. Health Solutions -: Ebix provides multimedia health content, training, patient education, and continuing education that targets large diversified websites, doctors, consumer health portals, country governments, hospitals, healthcare, biomedical, medical device, pharmaceutical, and education organizations. A.D.A.M.’s competitors are a variety of health content companies, such as KramesHealthwise, Staywell, Red NucleusElsevier and Anatomy One,Santovia, who are primarily focused on the USU.S. markets. A.D.A.M
A.D.A.M. content is available in English, Spanish, Portuguese, German andas well as other languages in Asia, Europe, the Middle East and South America.
Risk Compliance Services (RCS)
Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, system consulting services and claims adjudication/settlement services to clients across the world. Additionally, Ebix RCS has the market leading business for the creation and tracking of certificates of insurance issued in the U.S. and Australian markets. The RCS Channel also consists of Broker and Carrier P&C Exchanges -systems.
Ebix's RCS channel focuses on helping its clients outsource any specific service or manpower to the Company on an onsite or offshore basis. Ebix's RCS COI business services are enabled by the Company’s SaaS-based proprietary software. Ebix’s RCS COI service offerings currently cater to Fortune 500 companies in the U.S. Ebix’s RCS COI service offering has one main competitor in the U.S., Applied Systems. Due to the highly fragmented market, the Ebix RCS COI service offering also has a number of smaller competitors, such as Datamonitor, CMS, and Exigis.
Ebix operates P&C exchanges in Australia, New Zealand, the United Kingdom,U.K., and the United States.U.S. All of these exchanges are targeted to the areas of personal and commercial lines, and facilitate the exchange of insurance data between brokers and insurance carriers. Ebix continues to deploy these exchanges in the United States, Asia, Europe, Latin America, and Africa. There is presently little competition in the P&C exchange area in Australia and New Zealand. Our PPL insurance underwriting exchange platform is deployed in London. Our competitive differentiation exists by virtue of having an end-to-end solution offering in the market allowing our exchanges to be interfaced with multiple broker systems.
EbixCash Financial Exchanges - Exchanges - With a "Phygital” strategy that combines 320,000 physical distribution outlets in many Associations of Southeast Asian Nations (“ASEAN”) countries, to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in areas of domestic & international money remittance, foreign exchange (Forex), travel, pre-paid & gift cards, utility payments, lending, wealth management etc. in India and other
markets. EbixCash’s Forex operations have emerged as a leader in India’s airport Foreign Exchange business with operations in 32 international airports including Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata, conducting over $4.8 billion in gross transaction value per year. EbixCash’s inward remittance business in India conducts approx. $5 billion gross annual remittance business, confirming its undisputed leadership position in India. EbixCash, through its travel portfolio of Via and Mercury, is also one of Southeast Asia’s leading travel exchanges with over 2,200+ employees, 212,450+ agent network, 25 branches and over 9,800 corporate clients; processing an estimated $2.5 billion in gross merchandise value per year.
Broker P&C Systems:Ebix has threefour P&C broker system offerings for P&C brokers worldwide: Ebix Evolution, eGlobal, WinBeat and EbixASP. The competition for these broker systems varies within each of the regions in which Ebix provides such products and services.
Ebix Evolution and eGlobal isare sold throughout the world. The product isBoth systems are multilingual and multicurrencymulti-currency and issupport country-specific legislative and taxation requirements. These systems are available in a number of languages, such as English, Chinese, Japanese, French, Portuguese, and Spanish. Both Ebix Evolution and eGlobal isare targeted to the medium and large P&C brokers around the world. eGlobal competitionworld, and are available for Cloud or On-Premise deployment. Competition tends to be different in each country, with no single competitor having a global offering. eGlobal competesThe two systems compete with home grown systems and regional players in each country. ItsTheir competitive advantage and uniqueness comesstems from the fact that the product is bothits multilingual and multicurrency yet still hasmulti-currency functionality, as well as end-user customization support. Both systems have a uniform common code base around the world withglobally that allows Ebix to easily tailor features that are easily activated and deactivated.functionality to customer needs (ease of activating/deactivating functionality).
WinBeat is a back-endPolicy Management System (back-end broker system thatsystem) targeted to the general insurance broking sector and is currentlyprimarily sold in Australia and New Zealand. ItAustralia. WinBeat is targeted at smallsmall- to medium-sized P&C brokers in these countries.brokers. The product at present is available only in English and can be deployed in a few hours with minimal training. WinBeat’s competitionWinBeat competes in Australia and New Zealand comes mainly fromwith local vendors, such as LumleyBrokers Advantage and SSP.Steadfast Insight. Ebix intendshas deployed WinBeat to deploy WinBeat in a number of emerging insurance markets, such as IndiaPapua New Guinea and China.some of the Pacific Islands, with possible future deployment to other regional markets in the future.
Between eGlobal and WinBeat, Ebix's broker systems (Ebix Evolution, eGlobal and WinBeat) customer base in Australia spans 632over 600 of the 790approximately 750 P&C brokers in Australia, giving itan 80% market penetration of the P&C broker systems customer base in this country.systems.
EbixASP is Ebix’s P&C broker systems offering for the United StatesU.S. markets. The service is designed around the ACORD insurance standards used in the United States.U.S. EbixASP has two main competitors in the United States,U.S., specifically Vertafore and Applied Systems.
RCS Services: Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, time and material based system consulting services to clients acrossIn the world, and claims adjudication/settlement services, in addition to the creation and tracking of certificates of insurance issued in the United States and Australian markets. Ebix's RCS channel focuses on helping its clients outsource any specific service or manpower to the Company on an onsite or offshore basis. Ebix's RCS certificate outsourcing business services are enabled by the Company’s SaaS-based proprietary software. Ebix’s RCS service offerings currently cater to a large number of Fortune 500 companies in the United States.
Ebix’s RCS service offering in the insurance certificate issuance area has one main competitor in the United States, namely Applied Systems. Due to the highly fragmented market, the Ebix RCS service offering in the insurance certificate tracking area also has a number of smaller competitors such as Datamonitor, CMS, and Exigis.
Carrier P&C Systems:Systems, Ebix has two carrier system offerings for P&C carriers, Ebix-Advantage and Ebix Advantage Web. Ebix-Advantage is targeted at small, medium and large P&C carriers in the United States that operate in the personal, commercial and specialty line areas of insurance. Ebix AdvantageWeb is designed for the international markets and is targeted at the small, medium and large P&C carriers in the international markets that operate in the personal, commercial and specialty line areas of insurance. Ebix-AdvantageWeb is designed to be multicurrencymulti-currency and multilingual and is deployed in Brazil, the United KingdomU.K. and the United States.U.S. Competition to both these products comes from large companies, such as CSC, Guidewire, Xchanging, Accenture and specialty medical malpractice players like Delphi.
Intellectual Property
Ebix seeks protection under federal, state and foreign laws for strategic or financially important intellectual property developed in connection with our business. We regard our software as proprietary, while adheringadhere to open architecture industry
standards and attempt to protect itour software with copyrights, trade secret laws and restrictions on the disclosure and transferring of title. Certain intellectual property, where appropriate, is protected by contracts, licenses, registrations, or other protections. Despite these precautions, it may be possible for third parties to copy aspects of the Company’s products or, without authorization, to obtain and use information which the Company regards as trade secrets.
Employees
As of December 31, 2018,2020, the Company had 9,2639,802 employees distributed as follows: 94 in salesworldwide and marketing, 1,721 in product development, 870 in back-end operations, 284 in administration, general management and finance, and 6,294is presented in the EbixCash operations.table below. None of the Company’s employees are presently covered by a collective bargaining agreement. Management considers the Company's relations with its employees to generally be good.
| | | | | | | | |
| | Number of Employees |
| India | | 8,640 | |
| United States | | 476 | |
| Latin America | | 369 | |
| Australia | | 100 | |
| Indonesia | | 62 | |
| Philippines | | 60 | |
| Europe | | 45 | |
| Singapore | | 16 | |
| United Arab Emirates | | 14 | |
| Canada | | 10 | |
| New Zealand | | 10 | |
| | |
| | 9,802 | |
Executive OfficersHuman Capital
The Company's workforce is global in nature, with the majority of our employees in India. We are subject to various employment laws and regulations based on the country in which our employees are located. The CEO and other global senior leaders of Ebix shared human resource responsibilities include providing effective programs related to staffing, employee recruiting and development, compensation and benefits, and compliance. We compensate employees through a competitive compensation program that includes base salary or hourly wage, health and life insurance, retirement benefits, paid time off and long-term incentives for key management. As each country’s employment environment is different we may use different competitive recruitment and retention tools to meet the rules and regulations and market dynamics to serve the needs of our business.
Our success is dependent upon our ability to attract, develop, and retain qualified employees. We are committed to building a culture of diversity, professional growth, and high performance through offering our employees challenging and engaging growth opportunities that contribute to their overall career development. We also strive for a culture where different viewpoints are valued and individuals are treated fairly so that the Company can attract and retain the best talent.
Diversity and Inclusion: The Company believes that its rich culture of diversity and inclusion enables it to create, develop and fully leverage the strengths of its workforce to exceed customer expectations and meet its growth objectives. The Company places a high value on diversity and inclusion, recruiting and retaining staff with diverse backgrounds, experiences or characteristics who share a common interest in professional development, improving corporate culture and delivering sustained business results.
During 2020 the company implemented procedures to ensure employee safety due to the COVID-19 pandemic. The company made operational changes which allowed for a more flexible and mobile workforce around the globe. In some cases, in locations where it was strategically and operational appropriate we have moved to a full time work from home environment. Some of the Registrantsafety focus responses to the COVID-19 pandemic in 2020 around the world were:
Following
• Adding work from home flexibility in multiple locations around the globe;
• Adjusting attendance policies to encourage those who are sick to stay home;
• Increasing cleaning protocols across all locations;
• Initiating communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures;
• Implementing temperature screening of employees;
• Establishing new physical distancing procedures for employees who need to be on site;
• Providing additional personal protective equipment and cleaning supplies;
• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure;
• Prohibiting all domestic and international non-essential travel for all employees; and
• Requiring masks to be worn in all locations where allowed under local law.
Information About Executive Officers
The following persons servingserve as our executive officers as of February 26, 2019, together with their ages, positions and brief summaries of their business experience:April 23, 2021:
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position | | Officer Since |
| Robin Raina | | 54 | | Chairman, President, and Chief Executive Officer | | 1998 |
| Steven M. Hamil | | 52 | | Corporate Executive Vice President & Chief Financial Officer | | 2020 |
| Graham Prior | | 64 | | Corporate Executive Vice President International Business & Intellectual Property | | 2012 |
| Leon d'Apice | | 64 | | Corporate Executive Vice President & Managing Director - Ebix Australia Group | | 2012 |
| James Senge Sr. | | 60 | | Senior Vice President EbixHealth | | 2012 |
|
| | | | | | | |
| Name | | Age | | Position | | Officer Since |
| Robin Raina | | 52 |
| | Chairman, President, and Chief Executive Officer | | 1998 |
| Sean T. Donaghy | | 53 |
| | Chief Financial Officer | | 2017 |
| Graham Prior | | 62 |
| | Corporate Executive Vice President International Business & Intellectual Property | | 2012 |
| Leon d'Apice | | 62 |
| | Corporate Executive Vice President & Managing Director - Ebix Australia Group | | 2012 |
| James Senge Sr. | | 58 |
| | Senior Vice President EbixHealth | | 2012 |
There are no family relationships among our executive officers, nor are there any arrangements or understandings between any of those officers and any other persons pursuant to which they were selected as officers.
ROBIN RAINA, 5254, has been Ebix’s CEO since September 1999. He has been a Director at Ebix since 2000 and Chairman of the Board at Ebix since May 2002. Mr. Raina joined Ebix, Inc. in October 1997 as our Vice President—Professional Services and was promoted to Senior Vice President—Sales and Marketing in February 1998. Mr. Raina was promoted to Executive Vice President, Chief Operating Officer in December 1998. Mr. Raina was appointed President effective August 2, 1999, Chief Executive Officer effective September 23, 1999, and Chairman in May 2002. Mr. Raina holds an industrial engineering degree from Thapar University in Punjab, India.
SEAN T. DONAGHY
STEVEN M. HAMIL, 53, joined Ebix on September 15, 2006 as a Controller and in April 2014 he was named Chief Accounting Officer. Effective January 3, 2017 Mr. Donaghy was appointed52, serves as the Company’sCompany's Corporate Executive Vice President and the Company's Global Chief Financial Officer. He joined the Company in this position in April 2020. Prior to joining the Company and since 2013, Mr. Donaghy has over 26 yearsHamil served at Regions Financial Corporation as a Senior Vice President and Managing Director in the technology, media and communications and defense and governments services banking group. Prior to this position he served as Senior Vice President and Senior Client Manager at BBVA USA and its predecessor company, Compass Bancshares Inc., from 2010 to 2013. From 2000 to 2009, Mr. Hamil held multiple positions at Wachovia Capital Markets, LLC, the latest being a Director within the Loan Syndications/Leverage Finance group. Earlier in his career, Mr. Hamil was the Senior Vice President of accounting experience, including 21 yearsFinance and Chief Accounting Officer at Movie Gallery, Inc., and held positions at Bank of America Corporation and Ernst & Young Global Limited. Mr. Hamil is a certified public accountant (inactive - State of Alabama) and holds both a B.S. in Business Administration (Accounting) from the University of Alabama (summa cum laude) and a management capacity and 16 yearsMasters of financial reporting for public software companies.Business Administration from Duke University's Fuqua School of Business.
GRAHAM PRIOR, 62, 64, was made an executive officer of the Company in 2012. He serves as Corporate Executive Vice President International Business & Intellectual Property. Mr. Prior has been employed by Ebix since 1996 when the Company acquired Complete Broking Systems Ltd for which Mr. Prior was a part owner. Mr. Prior has been working within the insurance technology industry since 1990 and is currently responsible for the Company’s international operations in Singapore,
New Zealand, Australia, Europe, Africa and Asia. Mr. Prior is also responsible for the Company’s worldwide product development initiatives.
LEON d’APICE, 62, 64, was made an executive officer of the Company in 20122012. He serves as the Company’s Corporate Executive Vice President and Managing Director – Ebix Australia Group. Mr. d’Apice, has been employed with Ebix since 1996 when the Company acquired Complete Broking Systems Ltd for which Mr. d’Apice was also a part owner. Mr. d’Apice has been in the information technology field since 1977 and is currently responsible for all of the operations of Ebix’s Australia business units.unit.
JAMES SENGE, SR., 58, 60, was made an executive officer of the Company in 2012. He serves as the Company’s Senior Vice President EbixHealth. Mr. Senge has been employed with Ebix since 2008 when the Company acquired Acclamation Systems, Inc. ("Acclamation"). Mr. Senge had been employed by Acclamation since 1979. During his over 3230 years with Acclamation/Ebix Mr. Senge has been involved with all facets of the EbixHealth division, including being responsible for the strategic direction and
day to day operations of the divisions. Mr. Senge’s focus is on expanding the Company’s reach into the on-demand, end to end technology solutions for the health insurance and healthcare markets. Mr. Senge works from Ebix’s Pittsburgh, Pennsylvania office.
General
Our principal executive offices are located at 1 Ebix Way Johns Creek, Georgia 30097, and our telephone number is (678) 281-2020.
Our official web site address is http://www.ebix.com. We make available, free of charge, at http://www.ebix.com, the charters for the committees of our board of directors, our code of conduct and ethics, and, as soon as practicable after we file them with the SEC, our annual reports on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K. Any waiver of the terms of our code of conduct and ethics for the chief executive officer, the chief financial officer, any accounting officer, and all other executive officers will be disclosed on our Web site. The reference to our web site does not constitute incorporation by reference of any information contained at that site.
Certain materials we file with the SEC may also be read and copied at or through the Internet website maintained by the SEC at www.sec.gov.
Item 1A. RISK FACTORS
The following risks and uncertainties are not the only ones facing us. Additional risks and uncertainties, including risks and uncertainties of which we are currently unaware or which we believe are not material also could materially adversely affect our business, financial condition, results of operations or cash flows. In any case, the value of our common stock could decline, and you could lose all or a portion of your investment. See also, “Safe Harbor Regarding Forward-Looking Statements.”
Summary
Below is a summary of the risk factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this summary of risk factors, and other risks that we face, can be found below starting with “Risks Related To Our Business and Industry” and should be carefully considered, together with other information in this Form 10-K.
• Our business may be materially adversely impacted by U.S. and global market and economic conditions, particularly adverse conditions in the insurance and financial services industries.
• We may not be able to secure additional financing to support capital requirements when needed.
• Our Credit Facility contains provisions that could materially restrict our business.
• Any future acquisitions that we may undertake could be difficult to integrate, disrupt our business, dilute stockholder value and adversely impact our operating results.
• We may not be able to develop new products or services necessary to effectively respond to rapid technological changes.
• The markets for our products and services are and will likely become even more highly competitive, and our competitors may be able to respond quicker to new or emerging technology and changes in customer requirements.
• Our current customers might not purchase additional software solutions, renew maintenance agreements or purchase additional professional services, or they might switch to other product or service offerings (including competitive products).
• Supporting our existing and growing customer base could strain our personnel resources and infrastructure, and if we are unable to scale our operations and increase productivity, we may be unable to successfully implement our business plan.
• Our product development cycles and sales cycle are variable and often lengthy, depend upon many factors outside our control, and require us to expend significant time and resources prior to generating associated revenues.
• We generally regard our intellectual property and software as critical to our success, and we may not be able to effectively or efficiently protect our intellectual property.
• If we infringe on the proprietary rights of others, our business operations may be disrupted, and any related litigation could be time consuming and costly.
• We depend on the continued services of our senior management and our ability to attract and retain other key personnel.
• If we do not effectively manage our geographically dispersed workforce, we might not be able to run our business efficiently and successfully.
• COVID-19 has disrupted, and may continue to disrupt, our business and financial performance.
• Our revenue from our gift card business grew significantly during the COVID-19 pandemic and may not continue at that level after the lockdowns are lifted as the risks of the pandemic decrease.
• Cybersecurity threats continue to increase in frequency and sophistication and a successful cybersecurity attack could interrupt or disrupt our information technology systems or cause the loss of confidential or protected data, which could disrupt our business, force us to incur excessive costs or cause reputational harm.
• A substantial portion of our assets and operations are located outside of the U.S. and we are subject to regulatory, tax, economic, political and other uncertainties in other foreign countries in which we operate.
• Our international business activities and processes expose us to numerous and often conflicting laws and regulations, policies, standards or other requirements and sometimes even conflicting regulatory requirements, and to risks that could harm our business, financial position, profit, and cash flows.
• We conduct money transfer transactions in some regions that are politically and economically volatile, which could increase our cost of operating in those regions.
• A significant change or disruption in international migration patterns could adversely affect our business, financial condition and results of operations.
• Changes in the method pursuant to which LIBOR rates are determined and potential phasing out of LIBOR after 2021 may affect our financial results.
• New legislation that would change U.S. or foreign taxation of business activities, including the imposition of tax based on gross revenue, could harm our business and financial results
• Our financial position and operating results may be adversely affected by the changing U.S. Dollar rates and fluctuations in other currency exchange rates.
• The rapid spread of contagious illnesses can have an adverse effect on our business and results of operations.
• Principal shareholders may be able to exert control over our future direction and operations.
• Provisions in our articles of incorporation, bylaws, Delaware law as well as the Amended SAR Agreement with Mr. Robin Raina may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders.
• If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud which could cause our stockholders to lose confidence in our financial results, which could harm our business and the market value of our common shares.
• The nature of our business requires the application of complex revenue and expense recognition rules that require management to make estimates and assumptions and the current legislative and regulatory environment affecting GAAP is uncertain which could affect our financial statements going forward.
• We may be exposed to risks relating to the resignation of our prior registered public accounting firm.
• The costs and effects of litigation, investigations or similar matters involving us or our subsidiaries, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.
• Government investigations may require significant management time and attention, result in significant legal expenses or damages and cause the Company's business, financial condition, results of operations and cash flows to suffer.
• Federal Trade Commission laws and regulations that govern the insurance industry could expose us or the agents, brokers and carriers with whom we conduct business in our online marketplace to legal penalties.
• Potential liabilities under the Foreign Corrupt Practices Act could have a material adverse effect on our business.
• We are not in compliance with the requirements of Nasdaq for continued listing, and if Nasdaq does not concur that we have adequately remedied our non-compliance with Nasdaq Listing Rule 5250(c)(1), our common stock may be delisted from trading on Nasdaq, which could have a material adverse effect on us and our shareholders.
• Quarterly and annual operating results may fluctuate, which could cause our stock price to be volatile.
Risks Related To Our Business and Industry
Our business may be materially adversely impacted by U.S. and global market and economic conditions, particularly adverse conditions in the insurance industry.and financial services industries.
For the foreseeable future, we expect to continue to derive most of our revenue from products and services we provide to the insurance and financial services industries. Given the concentration of our business activities in these industries, we may be particularly exposed to certain economic downturns affecting these industry groups.industries. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile.volatile particularly in the face of the ongoing coronavirus disease 2019 (“COVID-19”) pandemic. General business and economic conditions that could affect us and our customers include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which our customers operate. A poor economic environment (including as a result of a prolonged U.S. Government shutdown)continuing negative impacts of COVID-19) could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects, or could present difficulties in collecting accounts receivables from our customers due to their deteriorating financial condition. Our existing customers may be acquired by or merged into other entities that use our competitors' products or they may decide to terminate their relationships with us for other reasons. As a result, our sales could decline if an existing customer is merged with or acquired by another company, thatand either has a poor economic outlook or is closed.discontinues operations.
We may not be able to secure additional financing to support capital requirements when needed.
We may need to raise additional funds in the future in order to fund new product development, further organic growth initiatives, acquire new businesses, or for other purposes. Any required additional financing may not be available on terms favorable to us, or at all. If adequate funds are not availableunavailable on acceptable terms, we may be unable to meet our strategic business objectives or compete effectively, and the future growth of our business could be adversely impacted. IfThe Company maintains a senior secured syndicated credit facility, dated as of August 5, 2014, among Ebix, Inc., as borrower, its subsidiaries party thereto from time to time as guarantors, Regions Bank, as administrative agent and collateral agent, and the lenders party thereto from time to time (as amended from time to time, the "Credit Facility"). Subsequent to the resignation of our prior registered public accounting firm, RSM US LLP ("RSM") and the Company’s inability to file this Form 10-K by its due date, the Company and the requisite lenders under the Credit Facility entered into Amendment No. 11 and Amendment No. 12 to the Credit Facility in March 2021 and April 2021, respectively, to provide, among other things, certain covenant relief and we may need to seek additional relief in the future. Failure to comply with the covenants contained in our Credit Facility or the occurrence of certain other events described in the Credit Facility (if not waived or further amended) could give rise to an event of default and, if not cured, entitle the lenders to accelerate the indebtedness outstanding thereunder and terminate our ability to borrow in the future under the Credit Facility. Any event of default under our Credit Facility could have a material adverse impact on the Company.
In addition, if additional funds are raised by our issuing equity securities, stockholders may experience dilution of their ownership and economic interests, and the newly issued securities may have rights superior to those of our common stock. If additional funds are raised by our issuingissuance of debt, we may be subject to significant market risks related to interest rates, and operating risks regarding limitations on our activities.
Our Credit Facility contains provisions that could materially restrict our business.
Our Credit Facility contains certain covenants, including with respect to (i) certain permitted restricted payments and investments, and (ii) certain reporting requirements. These covenants include, among others, limitations on making acquisitions, loans or other investments, disposition of assets, payment of dividends and other restricted payments. The Credit Facility also requires us to comply with a maximum consolidated net leverage ratio and a minimum fixed charge coverage ratio,
which we may not be able to achieve. In addition, the requisite lenders under the Credit Agreement must make a good faith determination of whether there had been a "Material Circumstance" (as defined and further described in Amendment No. 12), which determination (if any) may only be made within a specified period described by Amendment No. 12 and is subject to certain cure rights of the Company. These covenants may limit our ability to plan for or react to market conditions or meet capital needs or could otherwise restrict our activities or business plans. These restrictions also could adversely affect our ability to make strategic acquisitions, fund investments or engage in other business activities that could be in our interest. The Company’s failure to meet these covenants or comply with these restrictions could have a material adverse effect on our business, financial condition and results of operations. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Credit Facility” and Note 22 to the Notes to Consolidated Financial Statements for additional discussion of our Credit Facility and its covenants.
Further, our ability to comply with these covenants may be affected by events beyond our control that could result in an event of default under our Credit Facility, or documents governing any other existing or future indebtedness. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under the Credit Facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.
Our future growth may depend in part on acquiring other businesses in our industry.
We expect to continue to grow,continued growth, in part, by making business acquisitions. In the past, we have made accretive acquisitions to broaden our product and service offerings, expand our operations, and enter new geographic markets. We may continue to make selective acquisitions, enter into joint ventures, or otherwise engage in other appropriate business investments or arrangements that the Company believeswe believe will strengthen Ebix.the Company. However, the continued success of our acquisition program will depend on our ability to find and buy other attractive businesses at a reasonable price, to obtain any lender consents required under our Credit Facility, to access the requisite financing resources, if needed, and to integrate acquired businesses into our existing operations and there is no assurance that we will be able to continueoperations. Our ability to do so.so is not assured and may be limited by a number of factors, including the covenants in our Amended Credit Facility.
Any future acquisitions that we may undertake could be difficult to integrate, disrupt our business, dilute stockholder value and adversely impact our operating results.
Future business acquisitions subject the Company to a variety of risks, including those risks associated with an inability to efficiently integrate acquired operations, higher incremental cost of operations, outdated or incompatible technologies, labor difficulties, or an inability to realize anticipated synergies, whether within anticipated time frames or at all; oneall. One or more of whichthese risks, if realized, could have an adverse impact on our operations. Among the integration issues related to the integration of such acquisitions are:
•potential incompatibility of business cultures;
•potential delays in integrating diverse technology platforms;
•potential need for additional disclosure controls and internal controls over financial reporting;
•potential difficulties in coordinating geographically separated organizations;
•potential difficulties in re-training sales forces to market all of our products across all of our intended markets;
•potential difficulties implementing common internal business systems and processes;
•potential conflicts in third-party relationships; and
•potential loss of customers and key employees and the diversion of the attention of management from other ongoing business concerns.
We may not be able to develop new products or services necessary to effectively respond to rapid technological changes.
To be successful we must adapt to rapidly changing technological and market needs, by continually enhancing and introducing new products and services to address our customers' changing demands. The marketplace in which we operate is characterized by:
by rapidly changing technology;
technology, evolving industry standards;
standards, frequent new product and service introductions;
introductions, shifting distribution channels;channels, and
changing customer demands.
Our future success will depend on our ability to adapt to this rapidly evolving marketplace. We could incur substantial costs if we need to modify our services or infrastructure in order to adapt to changes affecting our market, and we may be unable to effectively adapt to these changes.
The markets for our products and services are highly competitive and arewill likely to become even more highly competitive, and our competitors may be able to respond more quicklyquicker to new or emerging technology and changes in customer requirements.requirements
We operate in highly competitive markets. In particular, the online insurance distribution market, like the broader electronic commerce market, is rapidly evolving and highly competitive. Our insurance software business also experiences competition from certain large hardware suppliers that sell systems and system components to independent agencies and from small independent
developers and suppliers of software, who sometimes work in concert with hardware vendors to supply systems to independent agencies. Pricing strategies and new product introductions and other pressures from existing or emerging competitors could result in a loss of customers or a price rate of increase or decrease in prices for our services different than past experience. Our Internet facilitatedinternet-facilitated businesses may also face indirect competition from insurance carriers that have subsidiaries which perform in-house agency and brokerage functions.
Some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial and marketing resources than we do. In addition, we believe we will face increasing competition as the online financial services industry develops and evolves. Our current and future competitors may be able to:
•undertake more extensive marketing campaigns for their brands and services;
•devote more resources to website and systems development;
•adopt more aggressive pricing policies; and
•make more attractive offers to potential employees, online companies and third-party service providers.
We operate in a price sensitive market and we are subject to pressures from customers to decrease our fees for the services
and solutions we provide. Any reduction in price would likely reduce our margins and could adversely affect our operating
results.
The competitive market in which we conduct our business could require us to reduce our prices. If our competitors offer discounts on certain products or services in an effort to recapture or gain market share or to sell other products, we may be required to lower our prices or offer other favorable terms to compete successfully. Any of these changes would likely reduce our margins and could adversely affect our operating results. Some of our competitors may bundle products and services that compete with us for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. In addition, many of the services and solutions that we provide and market are not unique or proprietary to us and our customers and target customers may not distinguish our services and solutions from those of our competitors. All of these factors could, over time, limit or reduce the prices that we can charge for our services and solutions. If we cannot offset price reductions with a corresponding increase in the number of sales or with lower spending, then the reduced revenue resulting from lower prices would adversely affect our margins and operating results.
Our current customers might not purchase additional software solutions, renew maintenance agreements or purchase additional professional services, or they might switch to other product or service offerings (including competitive products).
We rely on our existing customer base to generate additional business through purchasingthe purchase of new software solutions as well as maintenance, consulting and training services. Existing customers might cancel or not renew their maintenance contracts, decide not to buy additional products and services, switch to on-premises models or accept alternative offerings from other vendors.
Our future success depends in part on our ability to sell additional features and services, and more subscriptions or enhanced offerings of our services to our current customers. This may also require increasingly sophisticated and costly sales efforts that are targeted at senior management.efforts. Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and our customers’ reaction to any price changes related to these additional features and services. If our efforts to upsellup-sell to our customers are not successful our business may suffer.
If our customers do not renew their subscriptions for our services or reduce the number of paying subscriptions at the time of renewal, our revenue will decline and our business will suffer. If we cannot accurately predict subscription renewals or upgrade rates, we may not meet our revenue targets which may adversely affect the market price of our common stock.
Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, and historically some customers have elected not to do so. In addition, our customers may renew for fewer
subscriptions, renew for shorter contract lengths or switch to lower cost and/or less profitable offerings of our services. We cannot accurately predict attrition rates given our diverse customer base and large number of multi-year subscription contracts. Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our services, decreases in customers’ spending levels, decreases in the number of users at our customers, pricing increases or changes in general economic conditions.
Because we recognize revenue from subscriptions for our services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements, which are typically twelve to thirty-six months. As a result, most of the revenue we report in each quarter isreflects the result of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Anyquarter; however, any such decline however, will negatively impact our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and potential changes in our attrition rate, may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.
Supporting our existing and growing customer base could strain our personnel resources and infrastructure, and if we are
unable to scale our operations and increase productivity, we may not be ableunable to successfully implement our business plan.
We continue to experience significant growth in our customer base and personnel, which has placed a strain on our management, administrative, operational and financial infrastructure. We anticipate that additional investments in our internal infrastructure, data center capacity, research, customer support, and development will be required to scale our operations and increase productivity in order to address the needs of our customers, to further develop and enhance our services, toand expand into new geographic areas, and to scale with our overall growth. Theareas. Any additional investments we are makingrequired to service our customers will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term.
We regularly upgrade or replace our various software systems. If the implementations of these new applications are delayed, or if we encounter unforeseen problems with our new systems or in migrating away from our existing applications and systems, our operations and our ability to manage our business could be negatively impacted.
Our success will dependdepends, in part, upon the ability of our senior management to manage our projected growth effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed. To manage the expected domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls, our reporting systems and procedures, and our utilization of real estate. If we fail to successfully scale our operations and increase productivity, we will be unable to execute our business plan.
Our product development cycles are lengthy, and we may incur significant expenses before we generate revenues, if any, from new products.
Because our products are complex and require rigorous testing, development cycles can be lengthy. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect our business and results of operations. Additionally, anticipated customer demand for a product we are developing could decrease after the development cycle has commenced. Such decreased customer demand may cause us to fall short of our sales targets, and we may nonetheless be unable to avoid substantial costs associated with the product’s development. If we are unable to complete product development cycles successfully and in a timely fashion and generate revenues from such future products, the growth of our business may be harmed.
Our sales cycle is variable and often lengthy, depends upon many factors outside our control, and requires us to expend significant time and resources prior to generating associated revenues.
The typical sales cycle for our solutions and services is lengthy and unpredictable, requires substantial pre-purchase evaluationevaluations by a significant number of persons in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating our customers and industry analysts and consultants about the use and benefits of our solutions, including the technical capabilitiessolutions.
We generally regard our intellectual property in general and our software in particular, as critical to our success, and we may not be able to effectively or efficiently protect our intellectual property.
We rely on copyright laws and licenses and nondisclosure agreements to protect our proprietary rights, as well as the intellectual property rights of third parties whose content we license. However, it is not possible to prevent all unauthorized uses of these rights. We cannot provide assurances that the steps we have taken to protect our intellectual property rights, and the rights of those from whom we license intellectual property, are adequate to deter misappropriation or that we will be able to detect unauthorized uses and take timely and effective steps to remedy this unauthorized conduct. In particular, a significant portion of our revenue is derived internationally, including in jurisdictions where protecting intellectual property rights may prove evento be more challenging.challenging than in the U.S. To prevent or respond to unauthorized uses of our intellectual property, we might be required to engage in costly and time-consuming litigation and we may not ultimately prevail.
If we infringe on the proprietary rights of others, our business operations may be disrupted, and any related litigation could be time consuming and costly.
Third parties may claim that we have violated their intellectual property rights. Any such claim, with or without merit, could subject us to costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to obtain a license, if available, to use the right or to use a non-infringing method, if possible, to accomplish our objectives. The cost of such activity could have a material adverse effect on our business.
We depend on the continued services of our senior management and our ability to attract and retain other key personnel.
Our future success is substantially dependent on the continued services and continuing contributions of our senior management and other key personnel, particularly Robin Raina, our President, and Chief Executive Officer, and Chairman of the Board. Since becoming Chief Executive Officer of the Company in 1999, Mr. Raina's strategic direction and vision for the Company and the implementation of such direction hashave been instrumental in our profitable turnaround and growth. The loss of the services of any of our executive officers or other key employees could harm our business. Our future success also depends on our ability to continue to attract, retain and motivate highly skilled employees. If we are not ableThe inability to attract and retain key skilled personnel could harm our business could be harmed.business.
If we do not effectively manage our geographically dispersed workforce, we might not be able to run our business
efficiently and successfully.
Our success is dependent on the appropriate alignment of our internal and external workforce planning processes, adequate resource allocation and our location strategy with our general strategy. We have employees located in India, the U.S., Brazil, Australia, Indonesia, the Philippines, the U.K., Singapore, the United States, India, Australia,Arab Emirates, Canada and New Zealand, Brazil, Singapore, and United Kingdom.Zealand. Managing such a diverse and widely spread work force can be difficult and demanding for management. It is critical that we manage our internationally dispersed workforce (both internal and external) effectively, taking short- and long-term workforce and skill requirements into consideration. This applies to the management of our internal as well as our external workforce. Changes in headcount and infrastructure needs, as well as local legal or tax regulations, could result in a mismatch between our expenses and revenue. Failure to manage our geographically dispersed workforce effectively could hinder our ability to run our business efficiently and successfully and could have an adverse effect on our business, financial position, profit, and cash flows.
Risks Related to the Ongoing COVID-19 Pandemic
COVID-19 has disrupted, and may continue to disrupt, our business and financial performance.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. Since then, the outbreak of COVID-19 throughout the world, including North America, Europe and Asia, has adversely impacted the U.S. and global economies. We have experienced and expect to continue to experience disruptions to our business due to COVID-19. Governmental authorities and public health officials have recommended and mandated varying countermeasures to slow the outbreak, including shelter-in-place orders, restrictions on travel, and the closure of local government facilities and parks, schools, restaurants, many businesses and other locations of public assembly.
At this time, the full impact of COVID-19 on our business cannot be fully predicted due to numerous uncertainties and future developments, including the duration and severity of the outbreak in individual geographies we operate, travel restrictions and business closures, the effectiveness of vaccines and other actions taken to contain the disease, the timing of economic and operational recovery, and other unpredictable consequences. This impact has included and might continue to
include, but is not limited to: (i) changes in our revenues and customer demand - our revenues and profitability were materially impacted during 2020 compared to the prior year periods, and we expect they will continue to be materially adversely affected, particularly as a large percentage of EbixCash's revenue is derived from travel-related services; and (ii) our workforce - the COVID-19 outbreak has also caused us to reduce and furlough employees in order to right size our EbixCash business. These actions have created risks, including but not limited to, our ability to manage the size of our workforce given uncertain future demand.
Our business, particularly EbixCash, is generally subject to and impacted by, international, national and local economic conditions and travel demands. The COVID-19 pandemic has resulted in and may continue to result in a material adverse effect on the demand for worldwide travel, and therefore, has had and may continue to have a material adverse effect on our business and results of operations. Additionally, continued unemployment has and may continue to negatively influence consumer spending. We do not expect economic and operating conditions for EbixCash to improve until consumers are able and fully willing to travel.
We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above for at least the next six months, each of which would continue to adversely impact our business and results of operations. To the extent that the COVID-19 outbreak continues to adversely affect our business and financial performance, it may also have the effect of heightening many of the other risks identified in this Risk Factors section.
We may not realize any or all of our estimated cost savings, which may have a negative effect on our results of operations.
Throughout the COVID-19 crisis, we have identified and taken advantage of several areas that present opportunities for cost savings and efficiencies to potentially improve our results of operations while our business is being impacted, including improved working capital management, primarily through a reduction in staffing, compensation, and other discretionary expenses. However, there can be no assurance that these cost savings and efficiencies will continue. These and any future spend reductions, if any, may also negatively impact our other initiatives or our efforts to grow our business in a recovery, which may negatively impact our future results of operations and increase the burden on existing management, systems and resources.
Our revenue from our gift card business grew significantly during the COVID-19 pandemic and may not continue at that level after the lockdowns are lifted as the risks of the pandemic decrease.
During 2020, our revenue from the payment solutions offerings in India (primarily prepaid gift cards), increased by more than $200 million year over year to approximately $256 million, a 590% year-over-year growth. The increased demand for prepaid gift cards in India was primarily due to: (i) COVID-19, which has facilitated increased online and electronic commerce due to restrictive lockdowns in 2020; (ii) changes in regulations by the Reserve Bank of India related to debit cards, which has shifted demand in the market towards prepaid gift cards; and (iii) the Company's increased marketing efforts around the prepaid gift card business. There can be no assurance that this level of revenue will continue once the lockdowns are lifted and economies begin to open back up from the effects of COVID-19 or if there are new regulations adopted that impact the use of gift cards or debit cards.
Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets related to COVID-19.
We carry a significant amount of goodwill and identifiable intangible assets on our consolidated balance sheets. Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses. We assess goodwill, indefinite-lived and definite-lived intangible assets for impairment each year, or more frequently if circumstances suggest an impairment may have occurred. We have concluded that there was no impairment of goodwill or definite-lived intangibles in 2020; however, the Company determined in the 4th quarter 2020 as part of its annual goodwill and intangible impairment analysis that the IHC customer indefinite-lived intangible had been impaired. The Company record a $6.2 million impairment expense (see Note 1 to the Notes to Consolidated Financial Statements for detailed disclosure information). If we determine that a significant impairment has occurred in the value of our intangible assets, right of use assets or fixed assets related to the disruption of business caused by COVID-19 in 2021 or beyond, we could be required to write off a portion of our assets, which could adversely affect our consolidated financial condition or our reported results of operations.
Risks Related to Our Conduct of Business on the Internet
Our software solutions are deployed through cloud-based implementations, and if such implementations are compromised by data security breaches or other disruptions, our reputation could be harmed, and we could lose customers or be subject to significant liabilities.
Our software solutions typically are deployed in cloud-based environments, in which our products and associated services are made available using an Internet-basedinternet-based infrastructure. In cloud deployments, the infrastructure of our customers’ third-party service providers used by our customers may be vulnerable to hacking incidents, other security breaches, computer viruses, telecommunications failures, power loss, other system failures and similar disruptions.
Any of these occurrences, whether intentional or accidental, could lead to interruptions, delays or cessation of operation of the servers of our customers’ third-party service providers, used by our customers, and to the unauthorized use or access of our software and proprietary information and sensitive or confidential data stored or transmitted by our products. The inability of our customers’ service providers used by our customers to provide continuous access to their hosted services, and to secure their hosted services and associated customer information from unauthorized use, access or disclosure, could cause us to lose customers and to incur significant liability, and could harm our reputation, business, financial condition and results of operations.
We face risks in the transmittal of individual health-related and other personal information.
We face potential risks and financial liabilities associated with obtaining and transmitting personal account information that includes social security numbers and individual health-related information. Any significant breakdown, invasion, destruction or interruption of our information technology systems and infrastructure by employees, others with authorized access to our systems, or unauthorized persons could negatively affect operations. There can be no assurance that we will not be subject to cyber security incidents that bypass our security measures, result in the loss or theft of personal health information or other data subject to privacy laws or disrupt our information systems or business. While we have invested in the protection of our data and information technology to reduce these risks, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems. TheAdditionally, the controls implemented by our third-party service providers may not prevent or timely detect such system failures. Our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur. Our risksThe consequences of the outlined risk above would include damage to our reputation and additional costs to address and remediate any problems encountered, as well as litigation and potential financial penalties.
Any disruption of our Internetinternet connections could affect the success of our Internet-basedinternet-based products and services.
Any system failure, including network, software or hardware failure, that causes an interruption in our network or a decrease in the responsiveness of our website could result in reduced user traffic and reduced revenue. Continued growth in Internetinternet usage could cause a decrease in the quality of Internetinternet connection service. Websites have experienced service interruptions as a result of outages and other delays occurring throughout the worldwide Internetinternet network infrastructure. In addition, there have been several incidents in which individuals have intentionally caused service disruptions of major e-commerce websites. If these outages, delays or service disruptions frequently occur in the future, usage of our web-based services could grow more slowlyslower than anticipated or decline and we may lose revenues and customers. If the Internetinternet data center operations that host any of our websites or web-based services were to experience a system failure, the performance of our website or web-based services would be harmed. These systems are also vulnerable to damage from fire, floods, and earthquakes, acts of terrorism, power loss, telecommunications failures, break-ins and similar events. The controls implemented by our third-party service providers may not prevent or timely detect such system failures. Our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur. In addition, our users depend on Internetinternet service providers, online service providers and other website operators for access to our website. These providers could experience outages, delays and other difficulties due to system failures unrelated to our systems.
Concerns regarding security of transactionsCybersecurity threats continue to increase in frequency and sophistication. A successful cybersecurity attack could interrupt or disrupt our information technology systems or cause the transmissionloss of confidential information over the Internet or security problems we experience may prevent us from expandingprotected data, which could disrupt our business, or subjectforce us to legal exposure.incur excessive costs or cause reputational harm.
If we do not maintain sufficient security features inThe size and complexity of our online product and service offerings, our products and services may not gain market acceptance, and we could also be exposed to legal liability. Despite the measures that we have or may take, our infrastructure will beinformation systems make such systems potentially vulnerable to physicalservice interruptions or electronic break-ins, computer virusesto security breaches from inadvertent or similar problems. Ifintentional actions by our employees or vendors, or from intentional attacks by malicious third parties. Such attacks are increasingly sophisticated and are made by groups and individuals with a person circumventswide range of motives and expertise. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent or quickly identify service interruptions or security measures, that personbreaches. Any such interruption or breach of our systems could misappropriate proprietaryadversely affect our business operations and result in the loss of critical or sensitive confidential information or disrupt or damage our operations. Security breaches thatintellectual property, and could result in accessfinancial, legal, business and reputational harm to confidential informationus. Our cyber liability insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
Consumer fraud could damageadversely affect our reputationbusiness, financial condition and results of operations.
Malicious third parties are using increasingly sophisticated methods to engage in illegal activities such as identity theft, fraud and paper instrument counterfeiting. As we make more of our services available over the internet and other digital media, we subject usourselves to new types of consumer fraud risk due to more complex requirements relating to consumer authentication with internet services. Additionally, the COVID-19 pandemic has led to increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity. We use a riskvariety of loss or liability. We may be required to make significant expenditurestools to protect against fraud; however, these tools may not always be successful. Allegations of fraud may result in fines, settlements, litigation expenses and reputational damage.
Our industry is under increasing scrutiny from federal, state and local regulators in the U.S. and regulatory agencies in many other countries in connection with the potential for consumer fraud. If consumer fraud levels involving our services were to rise, it could lead to further regulatory intervention and reputational and financial damage. This increased regulatory scrutiny, in turn, could lead to additional government enforcement actions and investigations, reduce the use, renewal and/or remediate security breaches. Additionally, if we are unable to adequately addressacceptance of our customers' concerns about security, we mayservices or increase our compliance costs and, thereby, have difficulty sellinga material adverse impact on our productsbusiness, financial condition and services.results of operations.
Uncertainty in the marketplace regarding the use of Internetinternet users' personal information, or legislation limiting such use, could reduce demand for our services and result in increased expenses.
Concern among consumers and legislators regarding the use of personal information gathered from Internetinternet users could create uncertainty in the marketplace. This concern could reduce demand for our services, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our business. Many state insurance codes limit the collection and use of personal information by insurance agencies, brokers and carriers or insurance service organizations.
Future government regulation of the Internet could place financial burdens on our businesses.
Because of the Internet's popularity and increasing use, new laws and regulations directed specifically at e-commerce may be adopted. These laws and regulations may cover issues such as the collection and use of data from website visitors and related privacy issues; pricing; taxation; telecommunications over the Internet; content; copyrights; distribution; and domain name piracy. The enactment of any additional laws or regulations, including international laws and regulations, could impede the growth of revenue from our Internet operations and place additional financial burdens on our business.
Risks Related To Foreign Operations
Our international operations are subject to a number of risks that could affect our revenues, operating results, and growth.
We market our products and services internationally and plan to continue to expand our Internet-basedinternet-based services to locations outside of the United States.U.S. We currently conduct operations in Australia, Canada, New Zealand, Brazil, Dubai, India, Indonesia, the Philippines, New Zealand, Singapore and United Kingdom, andthe U.K., have product development activities in India, Singapore and Dubai and call center services in India. Our international operations are subject to other inherent risks which could have a material adverse effect on our business, including:
•the impact of recessions in foreign economies on the level of consumers' insurance shopping, financial transactions and purchasing behavior;
•greater difficulty in collecting accounts receivable;
•difficulties and costs of staffing and managing foreign operations;
•reduced protection for intellectual property rights in some countries;
•burdensome regulatory requirements;
•trade and financing barriers, and differing business practices;
•potentially adverse tax consequences; and
•economic instability or political unrest such as crime, strikes, riots, civil disturbances, terrorist attacks and wars.
A substantial portion of our assets and operations are located outside of the United StatesU.S. and we are subject to regulatory, tax, economic, political and other uncertainties in other foreign countries in which we operate.
We have significant offshore operations in foreign countries, including Australia, Brazil, Canada, Dubai, India, Indonesia, New Zealand, Singapore, the Philippines and United Kingdom.the U.K. Wages in these countries have historically increased at a faster rate than in the United States. IfU.S. The continuation of this trend continues in the future it wouldwill result in increased labor costs and therebythat could potentially reduce our operating margins. Also, there is no assurance that in future periods competition for skilled workers will not drive salaries higher in these countries, thereby resulting in increased costs for our technical professionals and potentially reduced operating margins.
Some of these countries have in the past experienced many of the problems that commonly confront the economies of developing countries, including high inflation, erratic gross domestic product growth and shortages of foreign exchange. Government actions concerning the economy in these countriescountries’ economies could have a material adverse effect on private sector entities like us. In the past, certain of these governmentsGovernments have provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in specified sectors of the economy, including the software development services industry. Programs that have benefited us include, among others, tax holidays, liberalized import and export duties and preferential rules on foreign investment and repatriation. Notwithstanding these benefits, as noted above, changes in government leadership or changes in policies in these countries that result in the elimination of any of the benefits realized by us or the imposition of new taxes applicable to such operations could have a material adverse effect on our business, results of operations and financial condition.
Our international business activities and processes expose us to numerous and often conflicting laws and regulations, policies, standards or other requirements and sometimes even conflicting regulatory requirements, and to risks that could
harm our business, financial position, profit, and cash flows.
We are a global company and currently market our products and services in Australia, Brazil, Canada, India, Indonesia, New Zealand, Brazil,
the Philippines, Singapore, IndiaUnited Arab Emirates, the U.K. and United Kingdom.the U.S., amongst other countries. Our business in theseforeign countries is subject to numerous risks inherent in international
business operations. Among others, these risks include:
•Data protection and privacy regulations regarding access by government authorities to customer, partner, or employee datadata;
•Data residency requirements (the requirement to store certain data only in and, in some cases, also to access such data only from within a certain jurisdiction);
•Conflict and overlap among tax regimesregimes;
•Possible tax constraints impeding business operations in certain countriescountries;
•Expenses associated with the localization of our products and compliance with local regulatory requirementsrequirements;
•Discriminatory or conflicting fiscal policiespolicies;
•Operational difficulties in countries with a high corruption perception indexindex;
•Works councils, labor unions, and immigration laws in different countriescountries;
•Difficulties enforcing intellectual property and contractual rights in certain jurisdictionsjurisdictions;
•Country-specific software certification requirementsrequirements;
•Compliance with various industry standardsstandards; and
•Market volatilities or workforce restrictions due to changing laws and regulations resulting from political decisions (e.g. Brexit, government elections)
As we expand into new countries and markets, these risks could intensify. The application of the respective local laws and regulations to our business is sometimes unclear, subject to change over time, and often conflicting among jurisdictions. Additionally, these laws and government approaches to enforcement are continuing to change and evolve, just as our products and services continually evolve. Compliance with these varying laws and regulations could involve significant costs or require changes in products or business practices. Non-compliance could result in the imposition of penalties or cessation of orders due to alleged non-compliant activity. We do not believe we have engaged in any activities sanctionable under these laws and regulations, but governmental authorities could use considerable discretion in applying these statutes and any imposition of sanctions against us could be material. One or more of these factors could have an adverse effect on our operations globally or in one or more countries or regions, which could have an adverse effect on our business, financial position, profit, and cash flows.
The decision by British votersWe conduct money transfer transactions in some regions that are politically and economically volatile, which could increase our cost of operating in those regions.
We conduct money transfer transactions in some regions that are politically volatile and economically unstable, which could increase our cost of operating in those regions. For example, it is possible that our money transfer services or other products could be used in contravention of applicable law or regulations. Such circumstances could result in increased compliance costs, regulatory inquiries, suspension or revocation of required licenses or registrations, seizure or forfeiture of assets and the imposition of civil and/or criminal fees and penalties, inability to exit the European Union may negatively impactsettle due to currency restrictions or volatility, or other restrictions on our business operations. In addition to monetary fines or penalties that we could incur, we could be subject to reputational harm that could have a material adverse effect on our business, financial condition and results of operations.
The U.K. is currently negotiating
A significant change or disruption in international migration patterns could adversely affect our business, financial condition and results of operations.
Our money transfer business relies in part on international migration patterns, as individuals move from their native countries to countries with greater economic opportunities or a more stable political environment and significant changes in international migration patterns could adversely affect our business, financial condition and results of operations. A significant portion of money transfer transactions are initiated by immigrants or refugees sending money back to their native countries. Changes in immigration laws that discourage international migration and political or other events (such as war, trade wars, terrorism or health emergencies) that make migration of work abroad more difficult could adversely affect our money transfer remittance volume or growth rate.
Additionally, sustained weakness in global economic conditions caused by COVID-19 could reduce economic opportunities for migrant workers and result in reduced or disrupted international migration patterns. Reduced or disrupted international migration patterns could reduce money transfer transaction volumes and therefore have an adverse effect on our business, financial condition and results of operations.
Changes in the termsmethod pursuant to which LIBOR rates are determined and potential phasing out of its exit from the European Union (“Brexit”) scheduled for March 29, 2019. In November 2018,LIBOR after 2021 may
affect our financial results.
On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate (“LIBOR”) has announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 (the “FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Following the European Union agreed upon a draft Withdrawal Agreementimplementation of any reforms to LIBOR or the methods pursuant to which LIBOR rates are determined, or other benchmark rates that sets out the terms of the U.K.’s departure, including commitments on citizen rights after Brexit, a financial settlement from the U.K., and a transition period from March 29, 2019 through December 31, 2020 to allow time for a future trade deal tomay be agreed. On January 15, 2019, the draft Withdrawal Agreement was rejected by the U.K. Parliament creating significant uncertainty about the terms (and timing) under which the U.K. will leave the European Union.
The terms of Brexit and the resulting U.K./E.U. relationship are uncertain for companies doing business bothenacted in the U.K. or elsewhere, the manner of administration of such benchmarks may change, with the result that such benchmarks may perform differently than in the past, such benchmarks could be eliminated entirely, or there could be other consequences which cannot be predicted. Under the Company's Credit Facility, loans bear interest at a rate based on either (i) a fluctuating base rate, which, under certain circumstances may be set based on LIBOR and (ii) an Adjusted LIBOR rate (subject to certain interest rate floors). If LIBOR is phased out, we may be required to renegotiate with our lenders to establish a new interest rate (the “LIBOR Successor Rate”). We can give no assurance that we and the overall global economy. The U.K. vote has impacted global markets, including various currencies,requisite lenders under our Credit Facility will be able to agree on a LIBOR Successor Rate. If we and resulted inour lenders cannot agree on a sharp decline inLIBOR Successor Rate, our ability to draw upon the value of the British Pound as compared to the U.S. dollar and other major currencies. The fluctuation of currency exchange ratesCompany's Credit Facility may expose us to gains and losses on non-U.S. currency transactions. Volatility in the securities markets and in currency exchange rates may continue as the U.K. negotiates its exit from the E.U. While we have not experienced any material financial impact from Brexit on our business to date, we cannot predict its future implications. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory, and other negotiations the U.K. conducts.be materially impacted.
Our earnings may be adversely affected if we change our intent not to repatriate foreign earnings or if such earnings become subject to U.S. tax on a current basis.
We have earnings outside of the United States.U.S. Other than amounts for which we have already accrued U.S. taxes, we consider foreign earnings to be indefinitely reinvested outside of the United States.U.S. While we have no plans to do so, events may occur that could effectively force us to change our intent not to repatriate such earnings. If such earnings are repatriated in the future or are no longer deemed to be indefinitely reinvested, we may have to accrue taxes associated with such earnings at a substantially higher rate than our projected effective income tax rate, and we may be subject to additional tax liabilities in certain foreign jurisdictions in which we operate. These increased taxes could have a material adverse effect on our business, results of operations and financial condition.
Changes to theNew legislation that would change U.S. federal income tax laws,or foreign taxation of business activities, including the recent comprehensiveimposition of tax reform legislation,based on gross revenue, could have an adverse impact onharm our business and financial results.results
On December 22, 2017, Reforming the taxation of international businesses has been a priority for some U.S. politicians, and a wide variety of changes have been proposed or enacted. Due to the large and expanding scale of our international business activities, any changes in the taxation of such activities may increase our tax expense, the amount of taxes we pay, or both, and could harm our business and financial results. For example, the Tax Cuts and Jobs Act (“TCJA”(the “Tax Act”), was enacted substantially changingin December 2017, significantly reformed the U.S. tax system and affecting the Company in a numberInternal Revenue Code of ways. Notably, the TCJA: establishes a flat1986, as amended (the “Code”). The Tax Act lowered U.S. federal corporate income tax raterates, changed the utilization of 21.0% onfuture net operating loss carryforwards, allowed for the expensing of certain capital expenditures, and put into effect sweeping changes to U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earningstaxation of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespectiveinternational business activities.
In addition, many jurisdictions and intergovernmental organizations have been discussing proposals that may change various aspects of the territorial systemexisting framework under which our tax obligations are determined in many of taxation,the countries in which we do business. Some jurisdictions have enacted, and generally allowsothers have proposed, taxes based on gross receipts applicable to digital
services regardless of profitability. The Organization for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning toEconomic Co-operation and Development (the “OECD”) has been working on a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentivesproposal that may change how taxable presence for manufacturingdigital services is defined and result in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction inimposition of taxes owed on earnings related to such sales; allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”). ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on net income in countries where we have no physical presence. We continue to examine the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount for the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount.The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment of $24.5 million related to the transition tax after taking into consideration carried forward NOLsimpact these and other tax attributes availablereforms may have on our business. The impact of these and other tax reforms is uncertain and one or more of these or similar measures may adversely affect our business.
Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for set-off.which we are not able to realize related tax benefits, the applicability of special tax regimes, and changes in foreign currency exchange rates. Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary course of our business there are many transactions and calculations for which the ultimate tax determination is uncertain. The U.S. Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on the application and administration of the Tax Act. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.
We may have exposure to greater than anticipated tax liabilities.
Our future income taxes could be adversely affected by earnings being lower than anticipated earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions where we have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or due to changes in tax laws, regulations, and income tax accounting principles concerning the accounting for income taxes in the domestic and foreign jurisdictions in which we conduct operations.operate. We are subject to regular review and audit by both domestic and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our operating results and financial condition. In addition, the determination of our worldwide provision for income taxes requires significant judgment, and there are some transactions for which the ultimate tax treatment is uncertain. Although we believe our estimates are reasonable and appropriate, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. The tax rates in the foreign jurisdictions in which the Company conducts operationsoperates could increase and have a significant impact on the Company's financial results and could increase.results.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially affect our financial position, results of operations, and cash flows. For example, changes to U.S. tax laws enacted in December 2017 had a significant impact on our tax obligations and effective tax rate for the fourth quarter of 2017 and in 2018. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business. The Organization for Economic Cooperation and DevelopmentOECD has been working on a Base Erosion and Profit Shifting Project, and issued in 2015, and is expected to continue to issue guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. The European Commission has conducted investigations in multiple countries, focusing on whether local country tax rulings or tax legislation provides preferential tax treatment that violates European UnionE.U. state aid rules and concluded that certain countries, including Ireland, have provided illegal state aid in certain cases. These investigations may result in changes to the tax treatment of our foreign operations. Due to the large and expanding scale of our international business activities and expiring tax holiday benefits, many of these types of changes to the taxation of our activities could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows.
Our financial position and operating results may be adversely affected by the changing U.S. Dollar rates and fluctuations in other currency exchange rates.
We will be exposed to currency exchange risk with respect to the U.S. dollar in relation to the foreign currencies in the countries where we conduct operations because a significant portion of our operating expenses are incurred in foreign countries. This exposure may increase ifas we expand our operations overseas. We will monitor changes in our exposure to exchange rate risk that result from changes inforeign countries.
The rapid spread of contagious illnesses can have an adverse effect on our business and results of operations.
The rapid spread of a contagious illness such as a novel coronavirus, or fear of such an event, can have a material adverse effect on the demand for worldwide travel and therefore have an adverse effect on our business and results of operations. Similarly, travel restrictions or operational issues resulting from the rapid spread of contagious illnesses in a part of the world in which we have significant operations may have an adverse effect on our business and results of operations.
Risks Related To Corporate Governance
Principal shareholders may be able to exert control over our future direction and operations.
If our principal shareholders and the holdings of entities controlled by them vote in the same manner, this could delay, prevent or facilitate a change in control of Ebix or othersignificant changes to Ebix or its capital structure. Refer to the disclosure regarding “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our annual proxy statement for more information.
Provisions in our articles of incorporation, bylaws, and Delaware law may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders.
Our certificate of incorporation and bylaws, and the provisions of Delaware law may delay, prevent or otherwise make it more difficult to acquire usincrease the difficulty of our acquisition by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids, and to encourage persons seeking to acquire control of us to first negotiate with us. We are subject to the “business combination” provisions of Section 203 of the Delaware General Corporation Law. In general, those provisions prohibit a publicly held Delaware corporation from engaging in various “business combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
•The transaction is approved by the board of directors prior to the date the interested stockholder obtained interested stockholder status;
•Upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
•On or subsequent to the date the business combination is approved by the board of directors, it is authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
These provisions could prohibit or delay mergers or other takeover or change of control attempts with respect to us and, accordingly, may discourage attempts to acquire us.
The Company has an Amended SAR Agreement with Mr. Robin Raina which could have the effect of discouraging or making more difficult an acquisition or change of control of the Company even in situations that may be viewed as desirable by our shareholders.
On April 10, 2018, the Company entered into a Stock Appreciation Right Award Agreement, which was amended on May 7, 2019 (the “SAR“Amended SAR Agreement”) with Robin Raina, the Company’s Chairman, President and Chief Executive Officer. The Amended SAR Agreement replaced the Acquisition Bonus Agreement (the “ABA”) between the Company and Mr. Raina, dated July 15, 2009. At the time that Mr. Raina and the Company entered into the ABA, the Board had concluded that Mr. Raina’s retention was critical to the future success and growth of the Company and, consequently, the Board’s intention in entering into the ABA was to ensure that Mr. Raina would be appropriately rewarded for his contributions to the Company prior to an Acquisition Event (as defined below), as well as to further motivate Mr. Raina to maximize the value received by all stockholders of the Company if the Company were to be acquired. Under the terms of the ABA (with some exceptions), if Mr. Raina was then employed by the Company upon an event by which: (a) more than fifty percent (50%) of the voting stock of the Company is sold, transferred, or exchanged; (b) a merger or consolidation of the Company occurs; (c) the sale, exchange, or transfer of substantially all of the Company’s assets occurs; or (d) the Company is acquired or dissolved (each, an “Acquisition Event”).
In negotiating and entering into the SAR Agreement, the Board wished to resolve any uncertainty or ambiguities that may exist in the ABA, while preserving the original intent of the ABA of ensuring that Mr. Raina would be appropriately rewarded for his contributions prior to an Acquisition Event, as well as to further motivate Mr. Raina to maximize the value received by all stockholders of the Company if the Company were to be acquired. The Amended SAR Agreement also recognizes Mr. Raina’s critical role in the future success and growth of the Company.
Upon the effective date of the original SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event (as defined in the Amended SAR Agreement), each of the SARs entitles Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with an Acquisition Event over the base price of $7.95. Mr. Raina will only be entitled to receive a payment with respect to the SARs if he is employed by the Company at the time of an Acquisition Event or was terminated by the Company without cause within the 180-day period immediately preceding an Acquisition Event. The
Amended SAR agreement further provides that if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement), 1,000,000 SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by 750,000 SARs beginning on the first anniversary of the effective date of the Amended SAR Agreement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until 100% of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forfeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event.
Annually, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the Board shall determine whether a “shortfall” (as defined in the SAR Agreement) existed as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall existed, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). A “shortfall” will exist if the sumnumber of Mr. Raina’s shares is less than 20% of the numbertotal of Company’s common shares deemed to be owned by Mr. Raina as of the date of the SAR Agreement (3,676,540 shares),(a) the number of SARs, granted to Mr. Raina, and the number of shares underlying any previously granted Shortfall Grant is less than twenty percent (20%) of the sum of the number of SARs andplus (b) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year.year, minus (c) the number of shares paid, awarded or otherwise received by Mr. Raina from the Company as compensation after April 10, 2018, including any shares received as a result of Mr. Raina exercising stock options granted after April 10, 2018 or the grant or vesting of restricted stock or settlement of RSUs granted to Mr. Raina after April 10, 2018, but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants.
In the event that an Acquisition Event had occurred on December 31, 2018,2020, and assuming that the stockholders of the Company received Net Proceeds of $42.56$37.97 per share (the closing price of the Company’s common stock on December 31, 2018)2020) in connection with the Acquisition Event, Mr. Raina would have received a $206.1$178.7 million payment with respect to the SARs upon the occurrence of the Acquisition Event, determined by multiplying the number of SARS by the excess of the Net Proceeds per share over the base price of $7.95 per share. In the event of a determination by an accounting firm of national standing that the entire $206.1 million payment would be subject to the excise tax imposed by Section 4999 of the Code, and making conservative estimates regarding applicable state and federal tax rates, then Mr. Raina would have received an additional tax gross-up payment in an amount equal to $75 million.
Risks Related To Accounting and Financial Statements
We could potentially be required to recognize an impairment of goodwill or other indefinite-lived intangible assets.
Goodwill represents the excess of the amounts paid by us to acquire businesses over the fair value of their net assets at the date of acquisition. The Company’s indefinite-lived assets are associated with the contractual customer relationships existing with those property and casualty insurance carriers in Australia using our property and casualty data exchange and with certain large corporate customers using our client relationship management platform in the United States.exchange. At December 31, 2018,2020, we had $946.7$949.0 million of goodwill and $42.1$21.6 million of indefinite-lived intangible assets carried on the Company's consolidated balance sheet. See Note 1 to the Consolidated Financial Statements for a discussion of our goodwill and indefinite-lived intangible assets. We evaluate goodwill and indefinite-lived intangible assets at least annually for any potential impairment. If it is determined that goodwill or indefinite-lived intangible assets have been impaired, we must write down the goodwill and indefinite-lived intangible assets by the amount of the impairment, with a corresponding charge to net income. These write downs could have a material adverse effect on our results of operations and financial condition.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could harm our business and the market value of our common shares.
Effective internal controls over financial reporting are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002 or (“SOX”), requires us to evaluate and report on the effectiveness of our internal controls over financial reporting and have our independent auditors issue their own opinion regarding the effectiveness of our internal control over financial reporting and related disclosures. While we continually undertake efforts to maintain an effective system of internal controls and compliance with SOX, we cannot always be certain that we will be successful in maintaining adequate control over
our financial reporting and related financial processes. Furthermore, as we grow our business, our internal control structure may become more complex, and could possibly require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness or significant deficiency in our controls over financial reporting, the disclosure of that fact, even if immediately remedied, could significantly reduce the
market value of our common stock. In addition, the existence of any material weakness or significant deficiency may require management to devote significant time and incur significant expense to remediate any such weaknesses, and management may not be able to remediate the same in a timely manner.
The nature of our business requires the application of complex revenue and expense recognition rules that require management to make estimates and assumptions. Additionally, the current legislative and regulatory environment affecting U.S. Generally Accepted Accounting Principles (“GAAP”) is uncertain and significant changes in current principles could affect our financial statements going forward.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenues and expenses that are not readily apparent from other sources.
While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States,GAAP, we cannot predict with certainty the impact of future changes to accounting principles or our accounting policies on our financial statements going forward. In addition, were we to change our critical accounting estimates, including the timing of recognition of license revenue and other revenue sources, our reported revenues and results of operations could be significantly impacted.
We prepare our condensed consolidated financial statements in accordance with GAAP. The Additionally, the accounting rules and regulations that we must comply with are complex. The Financial Accounting Standards Board (the “FASB”) and the SEC, or other accounting organizations or governmental entities frequently issue new pronouncements or new interpretations of existing accounting standards. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting. In addition, many companies' accounting policies are being subject to heightened scrutiny by regulators and the public. Changes in accounting standards, how the accounting standards are interpreted, or the adoption of new accounting standards, particularly concerning revenue recognition, can have a significant effect on our reported results, and could even retroactively affect previously reported transactions and financial statements, and may require that we make significant changes to our systems and operational policy, processes and controls.
Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls. Such changes in accounting standards may have an adverse effect on our business, financial position, and income, which may negatively impact our financial results.results.
We may be exposed to risks relating to the resignation of our prior registered public accounting firm.
As previously disclosed by the Company in its Current Report on Form 8-K filed with filed with the SEC on February 19, 2021 (the “February 19 8-K”), on February 15, 2021, the Company received notice from its registered public accounting firm, RSM, that RSM resigned effective immediately. As further described in the February 19, 2021 8-K, RSM informed the Company that it was “resigning as a result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020, including whether such transactions have been properly accounted for and disclosed in the financial statements subject to the Audit.”
As further described in the February 19, 2021 8-K, from the time that RSM was initially engaged through its resignation, other than as provided above and described in the February 19, 2021 8-K, there were no (i) disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company and RSM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of RSM, would have caused RSM to make reference to the subject matter thereof in its reports for such fiscal years and interim period, or (ii), reportable events as that term is described in Item 304(a)(1)(v) of Regulation S-K. Nevertheless, we may discover future accounting pronouncements and otherdeficiencies in our internal controls over financial reporting, standards, especially but not only concerning revenue recognition,including those identified through testing conducted by us or subsequent testing by our independent registered public accounting firm. If we are unable to meet the demands that have been placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may negatively impact thebe unable to accurately report our financial results we present.
We regularly monitor our compliancein future periods, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with the Sarbanes-Oxley Act, when and as applicable, financial reporting standards and review new pronouncements and drafts thereof that are relevantcould also potentially subject us to us. As a result, we might besanctions or investigations by the SEC or other regulatory authorities. Any failure to maintain or implement required to change our accounting policies, particularly concerning revenue recognition, to alter our operational policy so that it reflects new or amendedimproved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or significant deficiencies, cause us to fail to meet our reporting obligations or result in material
misstatements in our financial reporting standards,statements. If we cannot provide reliable financial reports or to retroactively apply such new standards to previously issuedprevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial statements.information.
Risks Related to Litigation and Regulation
The costs and effects of litigation, investigations or similar matters involving us or our subsidiaries, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition. Our insurance may not cover these costs.
We may be involved from time to time in a variety of litigation, investigations, inquiries or similar matters arising out of our business, including those described in “Part“Part I, Item 3 - Legal Proceedings”Proceedings” and “Part“Part II - Item 8. Financial Statements and Supplementary Data - Note 65 - Commitments and Contingencies”Contingencies” of this Report. EbixWe cannot predict the outcome of these or any other legal matters. In the future, we may need to record litigation reserves with respect to these matters. Further, regardless of
how these matters proceed, it could divert our management's attention and other resources away from our business. Our insurance may not cover all claims that may be asserted against us and indemnification rights to which we are entitled may not be honored, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations. In addition, premiums for insurance covering directors' and officers' liability are rising. We may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.
Government investigations may require significant management time and attention, result in significant legal expenses or damages and cause the Company's business, financial condition, results of operations and cash flows to suffer. The Company could face additional governmental investigations, with respect to these matters, could incur substantial costs to defend any such investigations and be required to pay damages, fines and penalties, or incur additional expenses or be subject to injunctions as a result of the outcome of such investigations. The unfavorable resolution of one or more matters could adversely impact the Company.
The Company has been subject to government investigations approximately five years back.in the past and may be subject to new government investigations in the future. The amount of time needed to resolve any such investigations is uncertain, and the Company cannot predict the outcome of any such investigations or whether the Company will face additional government investigations, inquiries or other actions.investigations. Subject to certain limitations, the Company is obligated to indemnify current and former directors, officers and employees in connection with ongoingany such governmental investigations, and any future government inquiries, investigations or actions. Such matters could require the Company to expend significant management time and incur significant legal and other expenses, result in civil and criminal actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company and adversely affect our ability to attract and retain customers and employees, which could have a material effect on the Company's financial condition, business, results of operations and cash flow. Additionally, marketplace rumors regarding any such investigations could affect the trading price of our common stock, regardless of whether these rumors are accurate.
If governmental authorities were to commence legal action related to any such investigations, then the Company could be required to pay significant penalties and could become subject to injunctions, a cease and desist order and other equitable remedies. The Company can provide no assurances as to the outcome of any such governmental investigation.
Federal Trade Commission laws and regulations that govern the insurance industry could expose us or the agents, brokers and carriers with whom we conduct business in our online marketplace to legal penalties.
We perform functions for licensed insurance agents, brokers and carriers and need to comply with complex regulations that vary from state to stateamong states and nation to nation.nations. These regulations can be difficult to comply with, and open to interpretation. If we fail to properly interpret or comply with these regulations, we, the insurance agents, brokers or carriers doing business with us, our officers, or agents with whom we contract could be subject to various sanctions, including censure, fines, cease-and-desist orders, loss of license or other penalties. This risk, as well as other laws and regulations affecting our business and changes in the regulatory climate or the enforcement or interpretation of existing law, could expose us to additional costs, including indemnification of participating insurance agents, brokers or carriers, and could require changes to our business or otherwise harm our business. Furthermore, because the application of online commerce to the consumer insurance market is relatively new, the impact of current or future regulations on our business is difficult to anticipate. To the extent that there are changes in regulations regarding the manner in which insurance is sold, our business could be adversely affected.
Potential liabilities under the Foreign Corrupt Practices Act ("FCPA") could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, which prohibits people or companies subject to United StatesU.S. jurisdiction and their intermediaries from engaging in bribery or other prohibited payments to foreign officials for the purposes of obtaining or retaining business or gaining an unfair business advantage. It also requires proper record keeping and characterization of such payments in reports filed with the SEC. Our international operations subject us to possible FCPA violations, likely more so than most companies. To the extent that any of our employees, supplies, distributors, consultants, subcontractors, or others engage in conduct that subjects us to exposure under the FCPA, or other anti-corruption legislation, we could suffer financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on our business, financial condition or results of operations.
We are not in compliance with the requirements of Nasdaq for continued listing, and if Nasdaq does not concur that we have adequately remedied our non-compliance with Nasdaq Listing Rule 5250(c)(1), our common stock may be delisted from trading on Nasdaq, which could have a material adverse effect on us and our shareholders.
On March 1, 2021, subsequent to the resignation of RSM from its position on February 15, 2021, we filed a Notification of Late Filing with the SEC pursuant to Rule 12b-25 of the Securities Exchange Act of 1934, as amended (“Rule 12b-25”), indicating that we were unable, without unreasonable effort and expense, to finalize our 2020 Financial Statements by March 1, 2021, the filing due date to file the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) . We indicated at the time that we intended to file the 2020 Form 10-K as soon as practicable, and would make every effort to file the 2020 Form 10-K within the fifteen-day extension period afforded by Rule 12b-25.
On March 2, 2021, we received a notification letter from The Nasdaq Stock Market LLC (“Nasdaq”) stating that, because the Company had not yet filed the 2020 Form 10-K, the Company was no longer in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the SEC. Nasdaq’s notification letter states that we have 45 calendar days, or until April 16, 2021, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. If Nasdaq accepts the Company’s plan, then Nasdaq may grant the Company up to 180 days from the prescribed due date for filing the 2020 Form 10-K to regain compliance. If Nasdaq does not accept the Company’s plan, then the Company will have the opportunity to appeal that decision to a Nasdaq hearings panel.
The Company has provided its plan to Nasdaq, and as described in more detail above, the Company has retained KGS as its independent registered public accounting firm to audit the Financial Statements. However, there can be no assurance that Nasdaq will concur that we have remedied our non-compliance with Listing Rule 5250(c)(1), in which case our common stock could remain subject to delisting by Nasdaq. If our common stock is delisted, there can be no assurance whether or when it would again be listed for trading on Nasdaq or any other securities exchange. Further, the market price of our shares could decline and become more volatile, and our shareholders might find that their investment in our shares has limited liquidity. Moreover, institutions whose charters forbid holding securities in unlisted companies might sell our shares, which could have a further adverse effect on the price of our stock.
Risks Related To Our Common Stock
The price of our common stock may be extremely volatile.
In a future period, our results of operations may be below the expectations of public market investors, which could negatively affect the market price of our common stock. Furthermore, the stock market in general has sometimes experienced extremeheightened price and volume fluctuations recently. We believe that, in the future, the market price of our common stock could fluctuate widely due to variations in our performance and operating results or because of any of the following factors:
•announcements of new services, products, or technological innovations, or strategic relationships by us or our competitors;
•announcements of business acquisitions or strategic relationships by us or our competitors;
•trends or conditions in the insurance, financial services, software, business process outsourcing and Internetinternet/e-commerce markets;
•changes in market valuations of our competitors; and
•general political, economic, regulatory and market conditions.
In addition, the market prices of securities of technology companies, including our own, have been volatile and have experienced fluctuations that have often been unrelated or disproportionate to a specific company's operating performance. As a result, investors may not be able to sell shares of our common stock at or above the price at which an investor paid. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been
instituted against that company. Any securities litigation would involve substantial costs and our management's attention could be diverted from our business.
Our ability and intent to pay cash dividends in the future may be limited.
We currently pay a $0.075 quarterly dividend on our common shares, and while the Board of Directors intends to pay quarterly dividends, the Board will make the determination of the amount of future cash dividends, if any, to be declared and paid based on, among other things, our financial condition, funds from operations, the level of our capital expenditures and future business prospects.
Quarterly and annual operating results may fluctuate, which could cause our stock price to be volatile.
Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors related to our revenues or operating expenses in any particular period. Results of operations during any particular period are not necessarily an indication of our results for any other period. Factors that may adversely affect our periodic results may include the loss of a significant insurance agent, carrier or broker relationship or the merger of any of our participating insurance carriers with one another. Our operating expenses are based in part on our expectations of our future revenues and are partially fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.
While the Company amended its certificate of incorporation to increase the number of authorized shares in order to effect a five-for-one stock split, given the recent stock price decline, the Board has delayed and may reduce the stock split.
Ebix held a special meeting of shareholders on November 16, 2018 to approve an amendment to the Company’s certificate of incorporation to increase the number of authorized common shares. The increase was required to affect a five-for-one split of the Company’s common stock which had been approved by Ebix’s Board of Directors, subject to shareholder approval of the amendment. On December 21, 2018, Ebix announced that its shareholders had approved the amendment by a wide margin, and while its intentions were to still implement a split of its common stock, in light of the decline in Ebix’s share price since the end of September, the Company elected to delay such action until its share price has rebounded to a level where a stock split would result in a higher post-split share price. Additionally, the Company may consider implementing an alternative stock split ratio, such as two-, three- or four-for one, depending on the prevailing share price, market conditions and other factors. There can be no assurance when and at what level, if any, the Board will approve a stock split.
1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The Company’s corporate headquarters, including substantially all of our corporate administration and finance functions, is located in Johns Creek, Georgia where we own a commercial office building. In addition the Company and its subsidiaries lease office space, primarily for sales and operations support, in Salt Lake City, Utah, Pittsburgh, Pennsylvania, Pasadena, California, Grove City, Ohio, New Britain, Connecticut, Birmingham, Alabama, Irvine, California and Phoenix, Arizona. Additionally, theThe Company leases office space in New Zealand, Australia, Singapore, Dubai, Brazil, Canada, Indonesia, Philippines, and London for support, operations and sales offices. The Company also leases approximately 140 facilities all over the world,across India, while owning fivesix facilities in India. The Indian facilities provide software development and other technical and business process outsourcing services. Management believes its facilities are adequate for its current needs and that necessary suitable additional or substitute space will be available as needed at reasonable rates.
Information on the geographic dispersion of the Company’s revenues and long-lived assets is furnished in Note 1514 to the consolidated financial statements, included in Part II Item 8 of this Form 10-K.
Item 3. LEGAL PROCEEDINGS
InOn February 22, 2021, Christine Marie Teifke, a purported purchaser of Ebix, Inc. securities, filed a putative class action in the United States District Court for the Southern District of New York on behalf of herself and others who purchased or acquired Ebix securities between November 9, 2020 and February 19, 2021. The complaint asserts claims against Ebix, Inc., Robin Raina, and Steven M. Hamil, for purported violations of Section 10(b) of the Securities Exchange Act of 1934, alleging that Ebix, Inc. made false and misleading statements and failed to disclose material adverse facts about an audit of the company's gift card business in India and its internal controls over the gift and prepaid card revenue transaction cycle. The complaint also asserts a claim against Robin Raina and Steven M. Hamil for purported violations of Section 20(a) of the Exchange Act arising out of the same facts. The complaint seeks, among other relief, damages and attorneys' fees and costs.
On July 16, 2019, Yatra Online, Inc. ("Yatra"), Ebix, Inc. ("Ebix"), and EbixCash Travels, Inc. ("Merger Sub") entered into a Merger Agreement. On May 14, 2020, Yatra entered into an agreement with Ebix and Merger Sub extending the outside date of the Merger Agreement (the "Extension Agreement"). On June 5, 2020, Yatra terminated the Merger Agreement and filed a complaint in the Delaware Court of Chancery against Ebix and Merger Sub (the "Complaint"). On September 25, 2020, Yatra amended the Complaint and added as a defendant each financial institution (each, a “Defendant Lender”) party to the Credit Facility, which, prior to the filing of the original Complaint, had been previously amended on May 7, 2020 (the “Credit Facility”). The Complaint, as amended, alleges that Ebix and Merger Sub breached certain representations, warranties, and covenants contained in the Merger Agreement and the Extension Agreement and that Ebix negotiated in bad faith. The amended Complaint also alleges fraudulent actions by Ebix and the Defendant Lenders arising from certain terms of the Credit Facility and tortious interference with the closing of the Merger Agreement by Ebix and the Defendant Lenders. The Complaint seeks, among other relief, damages, pre-judgment and post-judgment interest, and attorneys' fees and costs. Ebix and Merger Sub deny any liability and intend to defend the action vigorously.
On May 12, 2017, Ebix Software India Pvt. Ltd. (“Ebixcash”) entered into several agreements with the most prominent shareholders of Itz Cash Card Limited (“Itz”), the most relevant among these a stock purchase agreement (the “SPA”), to purchase a majority ownership stake in Itz. Further, as part of the overall purchase of Itz, a share purchase agreement between Ebixcash and individual ESOP holders of Itz was entered into on July 7, 2017 (the “ESOP SPA”) (with the SPA, the ESOP SPA and the other purchase documents, collectively, the “Transaction Documents”). Part of the consideration for Ebixcash’s purchase of Itz consisted of two individual potential earn-out payments, the first for the period for the year ended March 31, 2019 (the “First Earn-Out”) and the second for the following year, ending on March 31, 2020 (the “Second Earn-Out”). Neither the First Earn-Out nor the Second Earn-Out were achieved pursuant to the terms of the SPA. After correspondence between the parties between September 2019 and May 2020, the former shareholders of Itz (“Sellers”) sent Ebixcash notices of arbitration (“NOAs”) under which they were availing themselves of the arbitration dispute provisions set forth in the Transaction Documents. Apart from the amounts claimed owed under the earn-out provisions, the Sellers also alleged in the NOAs other violations of the terms of the Transaction Documents, including, certain non-competition and restricted matter approval violations. The matter is under Arbitration in accordance with the rules of the Singapore International Arbitration Centre. The Company believes that each of the Sellers claims is without merit and continues to defend its position vigorously. The Company believes that Ebixcash has several viable counterclaims related to improper termination of the Transaction Documents and violation of non-compete provisions.
As the Company has previously disclosed, in May 2013, twelve putative class action complaints were filed in the Delaware Court of Chancery against the Company and its board of directors challenging a proposed merger between the Company and an affiliate of Goldman Sachs & Co. On June 10, 2013, the Court entered an Order of Consolidation and Appointment of Lead Plaintiffs and a Leadership Structure consolidating the twelve actions and appointing lead plaintiffs (“Plaintiffs”Plaintiffs”) and lead counsel in the litigation, captioned In re Ebix, Inc. Stockholder Litigation, Consol. C.A. No. 8526-VCS (the “Litigation”“Litigation”). On June 19, 2013, the Company announced that the merger agreement had been terminated. Thereafter, on August 27, 2013, Plaintiffs filed a Verified Amended and Supplemented Class Action and Derivative Complaint (the “First Amended Complaint”), which defendants moved to dismiss on September 26, 2013. On July 24, 2014, the Court issued a Memorandum Opinion granting in part and denying in part the motions to dismiss the First Amended Complaint and subsequently entered an implementing order on September 15, 2014. On January 16, 2015, Plaintiffs filed a Verified Second Amended and Supplemented Class Action and Derivative Complaint (the “Second Amended Complaint”). On February 10, 2015, defendants filed a Motion to Dismiss the Second Amended Complaint, which was granted in part and denied in part in a Memorandum Opinion and Order issued on January 15, 2016. On October 26, 2016, Plaintiffs filed a Verified Third Amended and Supplemented Class Action and Derivative Complaint (the “Third Amended Complaint”), which, among other things, added certain directors of the Company as defendants. On January 5, 2018, Plaintiffs filed a motion for leave to join an additional plaintiff as co-lead plaintiff in this action (collectively, “Plaintiffs,” and together with all defendants, the “Parties”), which was granted on April 2, 2018.
On January 19, 2018, Plaintiffs filed a Fourth Amended and Supplemented Class Action and Derivative Complaint (the “Fourth Amended Complaint”), which asserted claims against the defendants, including: breach of fiduciary duty claims for improperly maintaining an acquisition bonus agreement between the Company and its Chief Executive Officer, dated July 15, 2009 (the “ABA”) (Count I); disclosure claims relating to the 2010 Proxy Statement and the Company’s 2010 Stock Incentive Plan (the “2010 Plan”) (Count II); a derivative claim for breach of fiduciary duty based on awards made pursuant to 2010 Plan (Count III); a breach of fiduciary duty claim for implementing purported additional entrenchment measures (Count IV); a claim seeking to declare the invalidity of certain bylaws adopted by the Company in 2014 (Count V); a claim seeking to declare the invalidity of the ABA (Count VI); a breach of fiduciary duty claim related to public disclosures about the ABA (Count VII); a claim seeking to declare the invalidity of the 2008 stockholder meeting, a 2008 Certificate amendment (the “Certificate Amendment”) and a 2008 stock split (the “Stock Dividend”), among other corporate acts, including the Company’s ratification of these 2008 corporate acts (Count VIII); a claim seeking to declare the invalidity of the CEO Bonus Plan (Count IX); and a claim for breach of fiduciary duty for deliberately inserting additional terms when calculating a potential bonus under the ABA (Count X). The Fourth Amended Complaint sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On March 7, 2018, defendants filed motions for summary judgment on all counts in the Fourth Amended Complaint. In connection with the Litigation, the Company’s Chief Executive Officer asserted a cross-claim for reformation of the ABA.
The terms of the ABA generally provided that if Mr. Raina was employed by the Company upon the occurrence of: (i) an event in which more than 50% of the voting stock of the Company was sold, transferred, or exchanged, (ii) a merger or consolidation of the Company, (iii) the sale, exchange, or transfer of all or substantially all of the Company’s assets, or (iv) the acquisition or dissolution of the Company (each, an “Acquisition Event”), the Company would pay Mr. Raina a cash bonus based on a formula that was disputed by Plaintiffs in the Litigation and a tax gross-up payment for excise taxes that would be imposed on Mr. Raina for the cash bonus payment. Upon the execution of a Stock Appreciation Right Award Agreement between the
Company and its Chief Executive Officer, dated April 10, 2018 (the “April SAR Agreement”), the ABA was terminated and each party relinquished their respective rights and benefits under the ABA.
Upon the effective date of the April SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event, each of the SARs entitle Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with the Acquisition Event over the base price of $7.95 per share. Although the SARs were not granted under the 2010 Plan, the April SAR Agreement incorporates certain provisions of the 2010 Plan, including the provisions requiring equitable adjustment of the number of SARs and the base price in connection with certain corporate events (including stock splits). Under the terms of the April SAR Agreement, Mr. Raina is entitled to receive full payment with respect to the SARs if either (i) he is employed by the Company on the closing date of an Acquisition Event or (ii) has been involuntarily terminated by the Company without cause (as defined in the April SAR Agreement) within the 180-day period immediately preceding an Acquisition Event. All of the SARs are forfeited if Mr. Raina’s employment is terminated for any other reason prior to the closing date of an Acquisition Event.
In addition, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the April SAR Agreement provides that the Company’s Board of Directors (the “Board”) will determine annually whether a “shortfall” (as described below) exists as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall exists, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, additional restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). Under the terms of the April SAR Agreement, a shortfall exists if: (A) the sum of (i) the number of common shares deemed to be owned by Mr. Raina as of the effective date of the April SAR Agreement, plus (ii) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (iii) the number of shares underlying any previously granted Share Grant, was less than 20% of (B) the sum of (i) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (ii) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year. Under the terms of the April SAR Agreement, if the Board elects to make a Shortfall Grant in respect of such shortfall, such SARs will be subject to the same terms and conditions as the SARs initially granted under the April SAR Agreement. If the Board elects to make a Share Grant in respect of such shortfall, such restricted shares or restricted stock units will have such terms and conditions as determined by the Board, but generally will follow the terms of the restricted shares or restricted stock units granted to other executives of the Company at or about the time of such Share Grant, but no Share Grant will vest more rapidly than one-third of such Share Grant prior to the first anniversary of the grant date, with the remainder vesting in eight equal quarterly installments following the first anniversary of the grant date. The April SAR Agreement also provides for the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments (other than any payments with respect to any Share Grants) made in connection with a change in control of the Company under Section 4999 of the Internal Revenue Code.
On May 31, 2018, Plaintiffs filed a Verified Supplement to the Fourth Amended Complaint (the “Supplement”), which asserted three additional counts related to the April SAR Agreement, including: a claim seeking to declare the April SAR Agreement invalid (Count XI); a claim for breach of fiduciary duty for adopting the April SAR Agreement (Count XII); and a claim for breach of fiduciary duty for improperly adopting the SAR Agreement as an “anti-takeover device” (Count XIII). The Supplement sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On June 18, 2018, defendants moved to dismiss the claims asserted in the Supplement. Also on June 18, 2018, the Court entered a joint stipulation and order declaring the 2008 Certificate Amendment and Stock Dividend valid and effective pursuant to 8 Del. C. § 205 and subsequently dismissed Count VIII of the Fourth Amended Complaint on July 5, 2018.
On July 17, 2018, following briefing and argument, the Court issued an Order granting in part and denying in part defendants’ motions for summary judgment on all remaining counts of the Fourth Amended Complaint. The Court granted summary judgment as to all defendants on Counts I, IV, V, VI, VII, and X and denied summary judgment as to Counts II and III. The Court granted summary judgment as to certain defendants on Count IX, and granted in part and denied in part Count IX with respect to the Firm Clients. On July 24, 2018, Plaintiffs filed a motion for leave to file a second supplement to the Fourth Amended Complaint related to certain disclosures issued in connection with the Company’s 2018 annual meeting, which the Court denied at a pretrial conference held on August 15, 2018. On August 9, 2018, following briefing and argument, the Court issued a bench ruling granting in part and denying in part defendants’ motion to dismiss the Supplement. A three-day trial on all remaining claims was held on August 20, 21, and 23, 2018.
Following trial held on August 20, 21 and 23, 2018, and prior to the conclusion of post-trial briefing, on January 23, 2019, the Partiesparties entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”“Settlement Agreement”) pursuant to which the Partiesparties agreed, subject to Final Approval (as defined in the Settlement Agreement)approval by the Delaware Court of Chancery, to settle and resolve the Litigation pursuant to the terms set forth in the Settlement Agreement (the “Settlement”“Litigation Settlement”). The Settlement includes, among other things,On April 5, 2019, the adoption and entry into an Amended Stock Appreciation Right Award Agreement (the “Amended SAR Agreement”) (set forth in Exhibit A to the Settlement Agreement), the implementationDelaware Court of certain governance measures (set forth in Exhibit B to the Settlement
Agreement), and the issuance of a Form 8-K describing the Settlement and terms thereof following the final approval of the Settlement (set forth in Exhibit C to the Settlement Agreement).
The Amended SAR Agreement was negotiated as part ofChancery determined that the Litigation Settlement was fair, reasonable, adequate and will become effective upon Final Approvalin the best interest of the Litigation Settlement,plaintiffs, the class and includes the following changesCompany and modificationsawarded to the April SAR Agreement:
| |
(a) | Mr. Raina will commit to continue to serve and not resign as the Company’s Chief Executive Officer for at least two years following Final Approval of the Litigation Settlement; |
| |
(b) | any shares paid, awarded or otherwise received by Mr. Raina as compensation after the effective date of the April SAR Agreement, including any shares received by Mr. Raina from the exercise of any options granted after the effective date of the April SAR Agreement or from the grant or vesting of any restricted shares or settlement of any restricted stock units granted after the effective date of the April SAR Agreement (but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants), will be excluded from the outstanding shares for purposes of the Board’s annual shortfall determination; |
| |
(c) | if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement), 1,000,000 SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by 750,000 SARs beginning on the first anniversary of Final Approval of the Litigation Settlement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until 100% of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forefeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event; and |
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(d) | The obligation of the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments made in connection with a change in control of the Company will be eliminated. |
The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Amended SAR Agreement.
Pursuant to a scheduling order entered by the Court on January 24, 2019 (the “Scheduling Order”), post-trial briefing is currently stayed, notice of the proposed Settlement was mailed and posted to a dedicated website on February 4, 2019 (the “Notice,” available at http://ebixstockholderlitigation.com), and a settlement approval hearing is scheduled to be held on April 5, 2019 (the “Settlement Hearing”). On February 25, 2019, Plaintiffs filed an opening brief in support of the settlement and their application for a Fee Award (as defined in the Settlement Agreement), in which Plaintiffs and theirplaintiffs’ counsel seek an award of attorneys’ fees of $25 million plus expenses of $952 thousand. Pursuant to the Settlement Agreement, all such attorneys’ fees and expenses that are awardedin the sum of $19.65 million, payable by the Court shall be paid solely by Ebix or its insurance carriers, and from no other source,Company within twenty (20) business days of entry of an order approving such award. Pursuant to the Scheduling Order, any objections to the Settlement and/or Plaintiffs’ counsel’s application for fees and expenses and any responses thereto are scheduled to be filed no later than eighteen (18) calendar20 days, and seven (7) calendar days, respectively, prior toentered an Order and Final Judgment (the “Order”) approving the Settlement Hearing. Defendants believeLitigation Settlement. The Order provides for full settlement, satisfaction, compromise and release of all claims that the claimswere asserted or could have been asserted in the Litigation, are without meritwhether on behalf of the class or the Company. The Order is publicly available for inspection at the Office of the Register in Chancery, and if foron the Court's online electronic filing system, File & ServeXpress. The Settlement contains no admission of wrongdoing or liability, and may not be deemed to be a presumption as to the validity of any reason theclaims, causes of action or other issues. The Settlement is notwas fully and finally approved upon the terms and conditions set forth in the Settlement Agreement, intend to vigorously defend against them.paid on May 2, 2019.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. Inbusiness, which in the opinion of management, the ultimate likely disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
At December 31, 20182020, the principal market for the Company’s common stock was the Nasdaq Global Capital Market. The Company’s common stock trades under the symbol “EBIX.”
As previously disclosed, on March 2, 2021, the Company received a notification letter from Nasdaq stating that, because the Company had not yet filed its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”), the Company was no longer in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the SEC. Nasdaq’s notification letter states that the Company has 45 calendar days, or until April 16, 2021, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules, and the Company has provided such a plan to Nasdaq within this timeline.
If Nasdaq accepts the Company’s plan, then Nasdaq may grant the Company up to 180 days from the prescribed due date for filing the 2020 Form 10-K to regain compliance. If Nasdaq does not accept the Company’s plan, then the Company will have the opportunity to appeal that decision to a Nasdaq hearings panel. At this time, this matter has not affected the listing of the Company’s common stock on the Nasdaq Global Capital Market.
Holders
As of February 26, 2019,April 23, 2021, there were 30,546,21230,942,871 shares of the Company’s common stock outstanding. As of February 26, 2019,April 23, 2021, there were 124136 registered holders of record of the Company’s common stock.
Dividends
While the Board of Directors intends to continue to pay quarterly dividends, the Board will make the determination of the amount of future cash dividends, if any, to be declared and paid based on, among other things, the Company's financial condition, funds from operations, the level of its capital expenditures and its future business prospects.
Sales or Issuances of Unregistered Securities
None
Recent Repurchases of Equity Securities
As provided for under previous Board authorized There were no share repurchase plans, throughout 2018repurchases made by the Company during the fiscal year ended December 31, 2020. During the fiscal year ended December 31, 2019, the Company repurchased 996,77395,000 shares of our common stock for a total aggregate purchase price of $49.6$4.15 million.
The following table contains information with respect to purchasesCompany has approximately $80.1 million remaining under its current Board of our common stock made by or on behalf of Ebix in the fourth quarter of the fiscal period ended December 31, 2018, as part of our publicly announcedDirectors-approved share repurchase plan:program.
|
| | | | | | | | | | | | | |
| | Total Number of Shares (Units) Purchased
| | Total Number of Shares Purchased as Part of Publicly-Announced Plans or Programs
| | Average Price Paid Per Share (1) | | Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased Under the Plans or Programs (2) (3) |
| Period | | | |
| | | | | | | | |
| October 1, 2018 to October 31, 2018 | 229,139 |
| | 229,139 |
| | $ | 57.72 |
| | $ | 118,408,930 |
|
| November 1, 2018 to November 30, 2018 | 94,512 |
| | 94,512 |
| | $ | 53.72 |
| | $ | 113,331,841 |
|
| December 1, 2018 to December 31, 2018 | 643,122 |
| | 643,122 |
| | $ | 45.23 |
| | $ | 84,240,837 |
|
| Total | 966,773 |
| | 966,773 |
| | | | $ | 84,240,837 |
|
| |
(1) | Average price paid per share for shares purchased as part of our publicly-announced plan. |
| |
(2) | Effective February 6, 2017 the Company's Board of Directors unanimously approved an additional authorized share repurchase plan of $150.0 million. The Board directed that the repurchases be funded with available cash balances and cash generated by the Company's operating activities. Under certain circumstances the aggregate amount of repurchases of the Company's equity shares may be limited by the terms and underlying financial covenants regarding the Company's commercial bank financing facility. |
| |
(3) | As of December 31, 2018 there were 200,000 shares totaling $8.8 million of share repurchases that were not settled until January 2019. |
PERFORMANCE GRAPH
The line graph below compares the yearly percentage change in cumulative total stockholder return on our Common Stock for the last five fiscal years with the Nasdaq Stock Market (U.S.) stock index and the Nasdaq Computer Index. The following graph assumes the investment of $100 on December 31, 2013,2015, and the reinvestment of any dividends (rounded to the nearest dollar).
Comparison of Five Year Cumulative Total Return
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| EBIX, INC. | $ | 100 | | | $ | 176 | | | $ | 247 | | | $ | 140 | | | $ | 108 | | | $ | 120 | |
| NASDAQ STOCK MARKET (U.S.) | $ | 100 | | | $ | 108 | | | $ | 138 | | | $ | 133 | | | $ | 179 | | | $ | 257 | |
| NASDAQ COMPUTER | $ | 100 | | | $ | 112 | | | $ | 156 | | | $ | 150 | | | $ | 226 | | | $ | 338 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 |
| EBIX, INC. | $ | 100 |
| | $ | 118 |
| | $ | 230 |
| | $ | 402 |
| | $ | 561 |
| | $ | 303 |
|
| NASDAQ STOCK MARKET (U.S.) | $ | 100 |
| | $ | 113 |
| | $ | 120 |
| | $ | 129 |
| | $ | 165 |
| | $ | 159 |
|
| NASDAQ COMPUTER | $ | 100 |
| | $ | 120 |
| | $ | 127 |
| | $ | 143 |
| | $ | 198 |
| | $ | 191 |
|
Item 6.SELECTED FINANCIAL DATA
The following data for fiscal years 2020, 2019, 2018,, 2017,, 2016, 2015, and 20142016 should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and the related notes and other financial information included herein.
Consolidated Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (In thousands, except per share amounts) |
| Results of Operations: | | | | | | | | | | |
| Revenue | | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | | | $ | 363,971 | | | $ | 298,294 | |
| Operating income | | 125,802 | | | 155,673 | | | 152,979 | | | 113,221 | | | 100,281 | |
| Net income from continuing operations | | $ | 92,377 | | | $ | 96,720 | | | $ | 93,139 | | | $ | 100,618 | | | $ | 93,847 | |
| Net income per share: | | | | | | | | | | |
| Basic | | $ | 3.03 | | | $ | 3.17 | | | $ | 2.97 | | | $ | 3.19 | | | $ | 2.88 | |
| Diluted | | $ | 3.02 | | | $ | 3.16 | | | $ | 2.95 | | | $ | 3.17 | | | $ | 2.86 | |
| Shares used in computing per share data: | | | | | | | | | | |
| Basic | | 30,510 | | | 30,511 | | | 31,393 | | | 31,552 | | | 32,603 | |
| Diluted | | 30,571 | | | 30,594 | | | 31,534 | | | 31,719 | | | 32,863 | |
| Cash dividend per common share | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | |
| Financial Position: | | | | | | | | | | |
| Total assets | | $ | 1,569,853 | | | $ | 1,591,619 | | | $ | 1,610,947 | | | $ | 1,113,013 | | | $ | 803,755 | |
| Short-term debt* | | 25,260 | | | 23,650 | | | 19,053 | | | 14,500 | | | 12,500 | |
| Long-term debt* | | 672,269 | | | 693,498 | | | 700,709 | | | 385,779 | | | 260,279 | |
| Redeemable common stock | | — | | | — | | | — | | | — | | | — | |
| Stockholders’ equity | | $ | 612,979 | | | $ | 599,445 | | | $ | 544,437 | | | $ | 533,759 | | | $ | 438,636 | |
| | | | | | | | | | |
| *Excluding amounts related to deferred financing costs |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 |
| | | (In thousands, except per share amounts) |
| Results of Operations: | | | | | | | | | | |
| Revenue | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
| | $ | 265,482 |
| | $ | 214,321 |
|
| Operating income | | 152,979 |
| | 113,221 |
| | 100,281 |
| | 88,714 |
| | 79,672 |
|
| Net income from continuing operations | | $ | 93,139 |
| | $ | 100,618 |
| | $ | 93,847 |
| | $ | 79,533 |
| | $ | 63,558 |
|
| Net income per share: | | | | | | | | | | |
| Basic | | $ | 2.97 |
| | $ | 3.19 |
| | $ | 2.88 |
| | $ | 2.29 |
| | $ | 1.68 |
|
| Diluted | | $ | 2.95 |
| | $ | 3.17 |
| | $ | 2.86 |
| | $ | 2.28 |
| | $ | 1.67 |
|
| Shares used in computing per share data: | | | | | | | | | | |
| Basic | | 31,393 |
| | 31,552 |
| | 32,603 |
| | 34,668 |
| | 37,809 |
|
| Diluted | | 31,534 |
| | 31,719 |
| | 32,863 |
| | 34,901 |
| | 38,040 |
|
| Cash dividend per common share | | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.30 |
|
| Financial Position: | | | | | | | | | | |
| Total assets | | $ | 1,610,947 |
| | $ | 1,113,013 |
| | $ | 803,755 |
| | $ | 675,989 |
| | $ | 634,311 |
|
| Short-term debt | | 19,053 |
| | 14,500 |
| | 12,500 |
| | 600 |
| | 943 |
|
| Long-term debt | | 700,709 |
| | 385,779 |
| | 260,279 |
| | 206,465 |
| | 121,065 |
|
| Redeemable common stock | | — |
| | — |
| | — |
| | — |
| | — |
|
| Stockholders’ equity | | $ | 544,437 |
| | $ | 533,759 |
| | $ | 438,636 |
| | $ | 408,971 |
| | $ | 432,221 |
|
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS ("MD&A") OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document. The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties including, but not limited to: demand and acceptance of services offered by us, our ability to achieve and maintain acceptable cost levels, pricing levels and actions by competitors, regulatory matters, general economic conditions, and changing business strategies. Forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations, including, but not limited to our performance in future periods, our ability to generate working capital from operations, the adequacy of our insurance coverage, and the results of litigation or investigations. Our forward-looking statements can be identified by the use of terminology such as “anticipates,” “expects,” “intends,” “believes,” “will” or the negative thereof or variations thereon or comparable terminology. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
OVERVIEW
Ebix endeavors to provide on-Demandon-demand software and e-commerce services to the insurance, financial, healthcare and e-learning industries. In the Insurance sector, the Company’s main focus is to develop and deploy globally a wide variety of insurance and reinsurance exchanges on an on-demand basis, while also providing Software-as-a-Service ("SaaS")SaaS enterprise solutions in the area of CRM, front-end & back-end systems, outsourced administrative and risk compliance, across the world.compliance. The P&C exchanges operate primarily in Australia, New Zealand and the United Kingdom.U.K. With a "Phygital” strategy that combines over 320,000 physical distribution outlets in India and many (“ASEAN”) countries, to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in the areas of domestic &and international money remittance, Forex, travel, pre-paid & gift cards, utility payments, software solutions for lending and wealth management etc., in India.India and other markets. The Company’s Forex Exchange has a dominantthe leading market share ofwithin India’s airport Foreign Exchangeforeign exchange business encompassing 32and encompasses 20 international airports, likesuch as Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata International airports, whileall of which combined conducting over $4.8 Billionbillion in gross transaction value per annum.annually (pre-COVID-19). EbixCash’s inward remittance business in India conducts gross annual remittance of approximately $5 billion annually while having an undisputed leadership position in(pre-COVID-19) and is the Indian markets.clear market leader. EbixCash, through its travel portfolio of Via and Mercury, is also one of Southeast Asia’s leading travel exchanges, with over 2,200+ employees, 212,450+ agent network,200,000 agents, 25 branches and 9800+over 9,800 corporate clients;clients, combined processing an estimated $2.5 Billionbillion in GMV annually.gross merchandise value per annum (pre-COVID-19). Through its various SaaS-based software platforms, Ebix employs thousands of domain-specific technology professionals to provide products, support and consultancy to thousands of customers on six continents.
Ebix provides application software products for the insurance industry, including carrier systems, agency systems and exchanges, as well as custom software development. Approximately 83%88% of the Company’s revenues are recurring.either recurring or repeating (transaction-based) in nature. Rather than license our products in perpetuity, we typically either license them for a fewmultiple years with ongoing support revenues or license them on a limited term basis using a subscription hosting or Application Service Provider ("ASP") model. Our goal is to be the leading powerhouse of back-end insurance transactions in the world. During 2018, combinedCombined subscription-based and transaction-based revenues increased by $135of $552 million to $412 million, while as a percentagecomprised 88% of the Company's total revenues increased to 83% in 2018,2020, as compared to 76% 2017.84% of total revenues in 2019. In 2018 subscription based2020, subscription-based revenues decreased $18by approximately $14 million to $184$164 million, and as a percentage of the Company's total revenues decreased to 37%was 26% in 2018, as compared to 55%2020 versus 31% in 2019. The Company has modified the year 2017.classification of certain revenues in 2020, which impacts the presentation of 2019 revenues and percentages above versus the 2019 10-K presentation.
The Company’s technology vision is on the convergence of allto converge processes in a manner such that data can seamlessly flow from entity to entity oncebetween entities after an initial data entry has been made. Our customers include many of the top insurance and financial sector companies in the world.
The insurance and financial markets continue to focus on initiatives to reduce paper-based processes and facilitate improvements in efficiency, both on the back end of transactions as well as at the back-end side and also at the consumer-end side, involvingconsumer-involved front end of transaction processes. This drive for efficiency involves all entities and directly impacts the manner in which insurance and financial products are distributed. Management believes that both the insurance and financial industryservices industries will continue to
experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly athe norm across the world insurance and financial markets.
Trends and Uncertainties Related to the COVID-19 Pandemic
In December 2019, COVID-19 was reported and has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the U.S. government declared a national emergency with respect to COVID-19.
In response to the COVID-19 pandemic, many state, local, and foreign governments implemented travel restrictions, quarantines, shelter-in-place orders, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and the cancellation or postponement of events.
Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We have not experienced a material impact from shifting our employees to a remote work environment, which we primarily attribute to the professionalism of our workforce and our extensive use of technology throughout our business. However, COVID-19 could negatively impact the productivity of our workforce if the pandemic requires prolonged remote working conditions.
During the fiscal year ended December 31, 2020, particularly beginning in March, we experienced a decrease in demand for certain of our solutions and services, particularly those related to the Company's travel, foreign exchange, remittance, e-learning and consulting business areas, after certain government restrictions were implemented. This decreased demand continued throughout 2020 in varying degrees for each business area, and even persists through the date of this filing for all of the above mentioned business areas, but most notably in the travel and foreign exchange businesses. We expect that demand variability for our products and services will continue as a result of the COVID-19 pandemic, and cannot predict with any certainty when demand for these solutions/services will return to pre-COVID-19 levels.
We continue to monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. Along with the measures mentioned above to protect the health and safety of our employees, we have also taken steps to strengthen our financial position to mitigate the adverse impact that COVID-19 has had or may have on our business and operations, including amending our Credit Facility, reducing salaries for certain employees, furloughing employees in the most negatively impacted business areas, eliminating certain employee positions, and eliminating, reducing, or deferring non-essential expenditures. Additionally, we have taken steps to preserve cash balances, including a temporary cessation to our share repurchase program.
Our reported results for the year ended December 31, 2020 may not be reflective of current market conditions, or of our results for any future periods, which may be negatively impacted by the COVID-19 pandemic to a greater extent than the reported period. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Annual Report. Refer to Item 1A. “Risk Factors” in this Annual Report on Form 10-K for a complete description of the material risks that the Company currently faces.
Key Performance Indicators
Management focuses on a variety of key indicators to monitor the Company's operating and financial performance. These performance indicators include measurements of revenue growth, operating income, operating margin, income from continuing operations,
diluted earnings per share, and cash provided by operating activities. We monitor these indicators, in conjunction with our corporate governance practices, to ensure thatefficient management of our business is efficiently managed and thatmaintenance of effective controlscontrols.
The MD&A discusses year-to-year comparisons between 2020 and 2019. Discussions of year-to-year comparisons between 2019 and 2018 are maintained.not included in this Form 10-K, but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020.
The key performance indicators for the twelve months ended December 31, 2018, 20172020, 2019, and 20162018 were as follows:
| | | | | | | | | | Key Performance Indicators
Twelve Months Ended December 31, |
| | | Key Performance Indicators Twelve Months Ended December 31, | |
| (Dollar amounts in thousands except per share data) | | 2018 | | 2017 | | 2016 | |
| (In thousands except per share data) | | (In thousands except per share data) | | 2020 | | 2019 | | 2018 |
| Revenue | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
| Revenue | | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
| Revenue growth | | 37 | % | | 22 | % | | 12 | % | Revenue growth | | 8 | % | | 17 | % | | 37 | % |
| Operating income | | $ | 152,979 |
| | $ | 113,221 |
| | $ | 100,281 |
| Operating income | | $ | 125,802 | | | $ | 155,673 | | | $ | 152,979 | |
| Operating margin | | 31 | % | | 31 | % | | 34 | % | |
| Net income attributable to Ebix, Inc. | | $ | 93,139 |
| | $ | 100,618 |
| | $ | 93,847 |
| Net income attributable to Ebix, Inc. | | $ | 92,377 | | | $ | 96,720 | | | $ | 93,139 | |
| Diluted earnings per share | | $ | 2.95 |
| | $ | 3.17 |
| | $ | 2.86 |
| Diluted earnings per share | | $ | 3.02 | | | $ | 3.16 | | | $ | 2.95 | |
| Cash provided by operating activities | | $ | 89,869 |
| | $ | 76,807 |
| | $ | 86,571 |
| Cash provided by operating activities | | $ | 100,356 | | | $ | 60,793 | | | $ | 83,455 | |
RESULTS OF OPERATIONS
| | | | | | | | | | Year Ended December 31, |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | 2020 | | 2019 | | 2018 |
| | | (In thousands) | | | (In thousands) |
| Operating revenue: | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
| Operating revenue: | | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
| Operating expenses: | | | | | | | Operating expenses: | |
| Costs of services provided | | 168,415 |
| | 129,494 |
| | 85,128 |
| Costs of services provided | | 343,262 | | | 205,165 | | | 168,415 | |
| Product development | | 39,078 |
| | 33,854 |
| | 32,981 |
| Product development | | 35,267 | | | 45,302 | | | 39,078 | |
| Sales and marketing | | 17,587 |
| | 16,303 |
| | 17,469 |
| Sales and marketing | | 13,835 | | | 19,578 | | | 17,587 | |
| General and administrative, net (see Note 1) | | 108,475 |
| | 59,976 |
| | 51,689 |
| |
| General and administrative, net | | General and administrative, net | | 87,537 | | | 140,429 | | | 108,475 | |
| Amortization and depreciation | | 11,292 |
| | 11,123 |
| | 10,746 |
| Amortization and depreciation | | 13,738 | | | 14,468 | | | 11,292 | |
| Impairment of intangible asset | | Impairment of intangible asset | | 6,168 | | | — | | | — | |
| Total operating expenses | | 344,847 |
| | 250,750 |
| | 198,013 |
| Total operating expenses | | 499,807 | | | 424,942 | | | 344,847 | |
| Operating income | | 152,979 |
| | 113,221 |
| | 100,281 |
| Operating income | | 125,802 | | | 155,673 | | | 152,979 | |
| Interest income (expense), net | | (26,665 | ) | | (11,672 | ) | | (5,525 | ) | |
| Interest expense, net | | Interest expense, net | | (31,411) | | | (41,703) | | | (26,665) | |
| | Other non-operating income | | 60 |
| | — |
| | 1,162 |
| Other non-operating income | | 153 | | | 337 | | | 60 | |
| Foreign exchange gain (loss), net | | (792 | ) | | 1,811 |
| | 13 |
| |
| Non-operating expense - securities litigation | | Non-operating expense - securities litigation | | — | | | (21,140) | | | — | |
| Foreign exchange loss, net | | Foreign exchange loss, net | | (387) | | | (2,376) | | | (792) | |
| Income before taxes | | 125,582 |
| | 103,360 |
| | 95,931 |
| Income before taxes | | 94,157 | | | 90,791 | | | 125,582 | |
| Income tax expense | | (32,501 | ) | | (777 | ) | | (1,637 | ) | Income tax expense | | (5,330) | | | (220) | | | (32,501) | |
| Net income including noncontrolling interest | | $ | 93,081 |
| | $ | 102,583 |
| | $ | 94,294 |
| Net income including noncontrolling interest | | $ | 88,827 | | | $ | 90,571 | | | $ | 93,081 | |
| Net income attributable to noncontrolling interest | | (58 | ) | | $ | 1,965 |
| | $ | 447 |
| Net income attributable to noncontrolling interest | | (3,550) | | | $ | (6,149) | | | $ | (58) | |
| Net income attributable to Ebix, Inc. | | $ | 93,139 |
| | $ | 100,618 |
| | $ | 93,847 |
| Net income attributable to Ebix, Inc. | | $ | 92,377 | | | $ | 96,720 | | | $ | 93,139 | |
TWELVE MONTHS ENDED DECEMBER 31, 20182020 AND 20172019
Operating Revenue
The Company derives its revenues primarily from professional and support services, which includes subscription and transaction fees pertaining to products or services delivered over our exchanges or from our ASP, platforms, revenue generated fromfees for business process outsourcing services, and fees for software development projects, and associatedincluding fees for consulting, implementation, training, and project management provided to customers using ourwith installed systems, e-governance solutions to governmental agencies in the health and business process outsourcing revenue. Additionally, through the Company’s EbixCash Financial exchange portfolio we derive revenue from domestic & international money remittance,education sectors, as well as foreign exchange, (Forex),remittance (both inward and outward) and travel pre-paid & giftservices from our financial exchanges.
cards, utility payments, lending, wealth management, etc. in India and other markets. Ebix’s revenue streams come from four productthree product/service channels. Presented in the table below is the breakout of our revenues for each of those productproduct/service channels for the years ended December 31, 20182020 and 2017.2019.
|
| | | | | | | | |
| | | For the Year Ended December 31, |
| (dollar amounts in thousands) | | 2018 | | 2017 |
| Exchanges | | $ | 396,457 |
| | $ | 259,470 |
|
| Broker P&C Systems | | 14,379 |
| | 14,674 |
|
| RCS | | 79,976 |
| | 86,832 |
|
| Carrier P& C Systems | | 7,014 |
| | 2,995 |
|
| Totals | | $ | 497,826 |
| | $ | 363,971 |
|
| | | | | | | | | | | | | | |
| For the Year Ended |
| December 31, |
| (In thousands) | | 2020 | | 2019 |
| EbixCash Exchanges | | 388,293 | | | 319,953 | |
| Insurance Exchanges | | 178,111 | | | 190,067 | |
| Risk Compliance Solutions | | 59,205 | | | 70,595 | |
| Totals | | $ | 625,609 | | | $ | 580,615 | |
In the table above for the year ending December 31, 2020 and 2019 there are $13.1 million and $17.5 million, respectively, of Insurance Exchange revenues derived in India that are being reported within the EbixCash Exchange channel above.
During the twelve months ended December 31, 20182020, our total revenue increased $133.9$45.0 million, or 36.8%8%, to $497.8$625.6 million compared to $364.0$580.6 million in 2017. 2019. On March 11, 2020, COVID-19 was declared a global pandemic by the World Health Organization. Across the U.S. and the world, governments and municipalities instituted measures to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions and the closure of non-essential businesses. Countries across the world are re-opening economies, but are doing so in phases that differ in each country and, in many cases, within individual countries. While our travel, foreign exchange, remittance and e-learning businesses continue to be materially negatively impacted by COVID-19, the increase in 2020 total revenue year-over-year was due primarily to strong demand for the Company's payment solutions offerings in India (primarily prepaid gift cards), which increased by more than $200 million year-over-year to approximately $256 million, or 590% year-over-year growth.The Company leverages product cross-selling opportunities across all channels, as facilitatedincreased demand for prepaid gift cards in India was primarily due to: (i) changes in regulations by our operating philosophy and business acquisition strategy. With respectthe Reserve Bank of India related to business acquisitions completed during the fiscal years 2018 and 2017 on a pro forma basis, as discloseddebit cards, which has shifted demand in the table in Note 4 “Pro Forma Financial Information” to the enclosed Consolidated Financial Statements, combined pro forma revenues decreased $21.5 million or 3.6% to $584.1 million for the year 2018 from the $605.6 million of pro forma revenue for the year 2017, whereas there was a 36.8% increase in reported revenues for the same comparative periods. The cause for the difference between the 36.8% increase in reported 2018 revenue versus 2017 revenue, as compared to the 3.6% decrease in 2018 pro forma versus 2017 pro forma revenue ismarket towards prepaid gift cards; (ii) COVID-19, which has facilitated increased online and electronic commerce due to the effect of combining the additional revenue derived from those businesses acquired during the years 2018restrictive lockdowns in 2020; and 2017, specifically Pearl, Weizmann, Lawson, Business Travels, Routier, AHA Taxis, Miles, Leisure Corp, Mercury, Indus, Smartclass, Centrum, Transcorp, ItzCash, YouFirst, Wall Street, Paul Merchants,Via and beBetter, with(iii) the Company's pre-existing operations.increased marketing efforts around the prepaid gift card business. The 2018Company’s travel, foreign exchange, remittance and 2017 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2017, whereas the Company's reported financial statements for 2018 only includes the operating results from thee-learning businesses since the effective date that they were acquired by Ebix, and thusly includes only eleven months of Transcorp, nine months of Centrum, nine months of Smartclass, six months of Indus, six months of Mercury, six months of Leisure Corp, five months of Miles, three months of Routier, three months of Global Business Travels, three months of AHA Taxis, one month of Pearl, one month of Weizmann and one month of Lawson. Similarly, the 2017 pro forma financial information below includeshad a full year of results for ItzCash, beBetter, YouFirst, Wall Street, Paul Merchants and Via as if they had been acquired on January 1, 2017, whereas the Company's reported financial statements for the 2017 includes only nine months of ItzCash, seven months of beBetter, four months of YouFirst, three months of Wall Street, two months of Paul Merchants, and two months of Via.
The pro forma analysis is based on the following premises:
2018 and 2017 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. Growthyear-over-year decline in revenues in 2020 in excess of $150 million, an approximately 65% decline year-over-year, which offset the acquired entities after acquisition date is only reflected forgrowth in the period after their acquisition.payments solutions business.
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 acquired through the acquisition customer base, has also been assigned to the acquired section of our business.
2017 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.
The impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues. revenue.During each of the years 2018, 20172020 and 20162019 the change in foreign currency exchange rates increased (decreased)decreased reported consolidated operating revenuesrevenue by $(6.9) million, $2.1$(21.9) million and $(3.3)$(9.3) million, respectively.Thus, on a constant currency basis total revenue for the fiscal year 2020 increased approximately 12% year-over-year.
The specific components of our revenue based on our three main business lines and the changes experienced during the past year are discussed immediately below.
Overall Exchange revenues increased $56.4 million, or 11%, as explained below:
•Insurance Exchange division revenues increaseddecreased by $137.0$12.0 million, or 53%6%, principally due to challenges faced in our health content services channel, and the full year impactnegative effect of 2017foreign exchange losses associated with the strengthening U.S. dollar
•EbixCash Exchange division revenues increased $68.3 million, or 21%, due to a mix of organic growth and business acquisitions in addition to acquisitions made in 2018.the travel, foreign exchange, and software solutions sectors, offset by foreign exchange losses associated with the strengthening of the US Dollar.
Broker P&C Systems division revenue decreased by $295 thousand, or 2%.
•Risk Compliance Solutions division revenues decreased by $6.9$11.4 million, or 8%16%, primarily due to a decline in our U.S. professional consulting services.
Carrier P&C Systems division revenues increased by $4.0 million, or 134%. Revenues in this division have increased due primarily to growthservices associated with some major realignments in the Australian markets.sector.
International revenue accounted for 73% and 69% of the Company’s total revenue for the fiscal years ended December 31, 2020 and 2019, respectively.
Costs of Services Provided
Costs of services provided, which includes costs associated with product sales, customer support, consulting, implementation, and training services increased $38.9$138.1 million, or 30%67%, from $129.5$205.2 million in 20172019 to $168.4$343.3 million in 20182020 and the Company's gross margin increaseddecreased to 45.1% in 2020 from 64.4%64.7% in 2017 to 66.2% in 2018.2019. The increase in the Company's costs of services provided and the decrease in gross margin from fiscal year 2019 to 2020 is due primarilydirectly related to additional personnel, consulting, customer support,the increase in over $200 million in revenue within the Company’s payment solutions business (primarily gift card revenue) in fiscal years 2020 versus 2019.Payment solutions gross margins are significantly lower than other solutions and merchant bank service fee costs associatedservices the Company provides its customers.In fiscal years 2020 and 2019, the payment solutions gross margins for the Company were approximately 1% and 9.5%, respectively.Excluding the payment solutions business, gross margins for the Company in fiscal years 2020 and 2019 were approximately 76% and 68%, respectively.The increase in gross margins, excluding the payment solutions business, in fiscal year 2020 versus 2019 was driven by the revenue mix differences for the Company, with the 2018Company’s highest margin solutions/services (e.g. insurance exchange software and 2017 business acquisitions of Via, YouFirst, ItzCash, Smartclass, Mercuryservices) experiencing less relative negative impact from COVID-19 during 2020 versus other solutions/services (e.g. travel, foreign exchange and Leisure partially offset by reductions in our U.S. consulting salary costs, medical education costs, and a reduction of our e-governance service contracts executed within the Ebix Vayam Limited JV.remittance businesses).
Product Development Expenses
The Company’s product development efforts are focused on the development of new technologies for insurance carriers, brokers and agents, and the development of new data exchanges for use in domestic and international insurance markets.markets, as well as the Forex and travel sectors. Product development expenses increased $5.2decreased $10.0 million, or 15%22%, from $33.9$45.3 million in 20172019 to $39.1$35.3 million in 2018. This increase2020. The decrease is primarily due to reduced personnel costs associated with the operations of the recent acquisition of Indus.and is directly related to actions taken by management to reduce overall corporate expenditures in fiscal year 2020 versus 2019 in response to COVID-19.
Sales and Marketing Expenses
Sales and marketing expenses increased $1.3decreased $5.7 million, or 8%29%, from $16.3$19.6 million in 20172019 to $17.6$13.8 million in 2018.2020. This increasedecrease is primarily due to reduced advertising and marketing costs associated with operations of recent acquisitions of SmartClass, Centrum and ItzCash and Indus.in response to COVID-19.
General and Administrative Expenses
General and administrative ("G&A") expenses increased $48.5decreased $52.9 million, or 81%38%, from $60.0$140.4 million in 20172019 to $108.5$87.5 million in 2018 primarily2020. This decrease was driven mostly by management’s strategic response to COVID-19 to reduce overall corporate costs, as well as material rent reductions and abatements as a result of COVID-19.Specifically, personnel-related costs decreased approximately $28 million in fiscal year 2020 as compared to 2019, and rent expense in fiscal year 2020 was approximately $23 million less than in fiscal year 2019.Other items impacting the year-to-year comparison of G&A expenses include a reduction in bad debt expense of approximately $12 million in fiscal year 2020 as compared to 2019 due to costs associated with operationsthe $12.1 million accounts receivable reserve that was recognized in the third quarter of recent acquisitions2019 as a precautionary measure in regards to receivables that are due from a public sector entity in India and that were billed during the 2016 through 2019 operating periods.Additionally, in 2019 the Company reduced the acquisition earn out accrual for the ItzCash acquisition by $15.4 million, which served to decrease overall G&A expenses in 2019.The one-time accounts receivable reserve of Centrum, SmartClass, Via, Indus, YouFirst, Mercury, Miles$12.1 million (increased G&A expense) and Leisure.the $15.4 million earn out accrual reduction (reduced G&A expense) largely offset the impacts to overall G&A expense in fiscal year 2019.
Amortization and Depreciation Expenses
Amortization and depreciation expenses slightly increaseddecreased $730 thousand, or 5%, to $11.3$13.7 million in 20182020 from $11.1$14.5 million in 2017.2019 primarily due to lower amortization in 2020 versus 2019 related to definite lived intangibles resulting from prior acquisition activity, primarily in India.
Interest Income
Interest income decreased $1.3 million,$462 thousand, or 75%73%, from $1.7 million in 2017 to $436$629 thousand in 2018.2019 to $167 thousand in 2020 primarily due to decreases in the comparative balances in interest bearing accounts and overall lower interest rates in 2020 compared to 2019.
Interest Expense
Interest expense increased $13.7decreased $10.8 million, or 103%25% from $13.4$42.3 million in 20172019 to $27.1$31.6 million in 2018. Interest expense increased2020, primarily due to decrease LIBOR interest rates in 2020 versus 2019.Additionally, The Company’s working capital facilities in India had average balances that were approximately $30 million lower in 2020 versus 2019.These working capital facilities generally carry interest rates of between 6.75% and 9.45%.The decrease in working capital facilities was associated with both COVID-19's impact on operations and renegotiated customer agreements that improved the increaseCompany’s payment terms in the average outstanding balance on our commercial banking credit facilities, which increased 69%2020 relative to $554.0 million during twelve months ending December 31, 2018 from $327.0 million during twelve months ending December 31, 2017, as well as an increase in the underlying average interest rate which increased to an average of 4.5% during twelve months ending December 31, 2018 versus 3.7% for the same twelve-month period in 2017.2019.
Foreign Exchange GainLoss
Net foreign exchange loss of $792$387 thousand in 20182020 which consisted of $186 thousand ofnet losses realized and unrealized upon the settlement of certain transactions within our foreign operations that werereceivables or payables and re-measurement of cash balances denominated in a currencycurrencies other than the subsidiary's functional currency and $606 thousand of losses recognized upon the remeasurementrespective operating division recording the instrument.In fiscal year 2019, a net foreign currency exchange loss of other transactions within our foreign operations that were denominated in a currency other than the subsidiary's functional currency.$2.4 million was recorded.
Income Taxes
The Company recognized income tax expense of $32.5$5.3 million in 20182020 compared to $777 thousand$0.2 million of income tax expense in 2017,2019, representing an increase of $31.7$5.1 million. Our effective tax rate increased to 25.9%5.7% in 2018,2020, compared with 0.8%0.2% in 2017, substantially on account of recording of one-time tax liability on account of Transition tax and true up of related tax
attributes resulting from enactment of the TCJA, which has been shown as prior year transaction tax and related true-ups. Excluding this, the remaining2019. The increase in the effective tax rate has been primarily on accountin 2020 is due to a decrease in the availability of Global Intangible Low-taxed Income (“GILTI”) tax becoming applicable on the Companycredits in 2020 as compared to 2019, as well as a lower tax holiday benefit available in 2020 compared to 2019 and a lower benefit from enactment of TCJA. The Company completed itsstate tax accounting for the TCJA during Q4 2018 and recorded a one-time tax adjustment of $24.5 million on account of transition tax and true-up of related tax attributes.deductions.
The pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 20182020 are as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | Pre-tax income | | Statutory tax rate |
| United States | | (27,528) | | | 21.0 | % |
| Canada | | (29) | | | 26.5 | % |
| Brazil | | 3,708 | | | 34.0 | % |
| Australia | | 2,332 | | | 30.0 | % |
| Singapore | | 2,654 | | | 17.0 | % |
| New Zealand | | 899 | | | 28.0 | % |
| India | | 47,925 | | | 34.6 | % |
| Mauritius | | (3,358) | | | 15.0 | % |
| United Kingdom | | 5,056 | | | 19.0 | % |
| Sweden | | 1,977 | | | 22.0 | % |
| Thailand | | (19) | | | 20.0 | % |
| Dubai | | 60,540 | | | ----% |
| Total | | 94,157 | | | |
|
| | | | | | |
| (dollar amounts in thousands) | | Pre-tax income | | Statutory tax rate |
| United States | | (36,202 | ) | | 21.0 | % |
| Canada | | 335 |
| | 26.5 | % |
| Brazil | | 5,403 |
| | 34.0 | % |
| Australia | | 2,852 |
| | 30.0 | % |
| Singapore | | 467 |
| | 17.0 | % |
| New Zealand | | 90 |
| | 28.0 | % |
| India | | 43,705 |
| | 34.6 | % |
| Mauritius | | 14,161 |
| | 3.0 | % |
| United Kingdom | | 1,480 |
| | 19.0 | % |
| Sweden | | 5,398 |
| | 22.0 | % |
| Thailand | | 62 |
| | 20.0 | % |
| Dubai | | 87,830 |
| | — | % |
| Total | | 125,581 |
| | |
TWELVE MONTHS ENDED DECEMBER 31, 2017 AND 2016
Operating Revenue
The Company derives its revenues primarily from professional and support services, which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and business process outsourcing revenue. 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 years ended December 31, 2017 and 2016.
|
| | | | | | | | |
| | | For the Year Ended December 31, |
| (dollar amounts in thousands) | | 2017 | | 2016 |
| Exchanges | | $ | 259,470 |
| | $ | 206,427 |
|
| Broker P&C Systems | | 14,674 |
| | 14,105 |
|
| RCS | | 86,832 |
| | 74,196 |
|
| Carrier P&C Systems | | 2,995 |
| | 3,566 |
|
| Totals | | $ | 363,971 |
| | $ | 298,294 |
|
During the twelve months ended December 31, 2017 our total revenue increased $65.7 million, or 22.0%, to $364.0 million compared to $298.3 million in 2016. The Company leverages product cross-selling opportunities across all channels, as facilitated by our operating philosophy and business acquisition strategy. With respect to business acquisitions completed during the fiscal years 2017 and 2016 on a pro forma basis, as disclosed in the table in Note 4 “Pro Forma Financial Information” to the enclosed Consolidated Financial Statements, combined pro forma revenues increased $6.4 million or 1.5% to $440.5 million for
the year 2017 from the $434.2 million of pro forma revenue for the year 2016, with the change in exchange rates favorably affecting reported revenues by $2.1 million, whereas there was a 22.0% increase in reported revenues for the same comparative periods. The cause for the difference between the 22.0% increase in reported 2017 revenue versus 2016 revenue, as compared to the 1.5% increase in 2017 pro forma versus 2016 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2017 and 2016, specifically ItzCash, YouFirst, Wall Street, Paul Merchants,Via, beBetter, Wdev, Hope Health, and the EbixHealth JV with the Company's pre-existing operations. The 2017 and 2016 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2016, whereas the Company's reported financial statements for 2017 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thusly includes only nine months of ItzCash, seven months of beBetter, four months of YouFirst, three months of Wall Street, two months of Paul Merchants, and two months of Via. Similarly, the 2016 pro forma financial information below includes a full year of results for Wdev, Hope Health, and EbixHealth JV as if they had been acquired on January 1, 2016, whereas the Company's reported financial statements for the 2016 includes only two months of Wdev, two months of Hope Health, and six months of the EbixHealth JV.
The pro forma analysis is based on the following premises:
2017 and 2016 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. Growth in revenues of the acquired entities after acquisition date is 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 acquired through the acquisition customer base, has also been assigned to the acquired section of our business.
2016 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.
The impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues. During each of the years 2017, 2016 and 2015 the change in foreign currency exchange rates increased (decreased) reported consolidated operating revenues by $2.1 million, $(3.3) million, and $(10.7) million, respectively.
The specific components of our revenue and the changes experienced during the past year are discussed immediately below.
Exchange division revenues increased by $53.0 million, or 26%, principally due to the 2017 acquisitions of ItzCash, YouFirst, Wall Street, Paul Merchants, and Via.
Broker P&C Systems division revenue increased by $569 thousand, or 4%. Reported revenues partially increased due to the effects of changing currency exchange rates.
Risk Compliance Solutions division revenues increased by $12.6 million, or 17%, primarily due to new e-governance revenues associated with our Indian operations and consulting service revenues generated by November 2016 acquisition of Wdev.
Carrier P&C Systems division revenues decreased by $571 thousand, or 16%. Revenues in this division have decreased during the last few years due the completion of certain large projects resulting in decreased professional service revenues.
Costs of Services Provided
Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $44.4 million or 52%, from $85.1 million in 2016 to $129.5 million in 2017. Correspondingly, the Company's gross margin decreased from 71.5% in 2016 to 64.4% in 2017. The increase in the Company's costs of services provided is due primarily to additional personnel, consulting, customer support, and merchant bank service fee costs associated with the 2017 and 2016 business acquisitions of Via, Wall Street, YouFirst, ItzCash, beBetter, Hope Health, Wdev, the EbixHealth JV, and increased hardware costs to support the growing revenues generated from our government sector services division in India.
Product Development Expenses
Product development expenses increased $873 thousand, or 3%, from $33.0 million in 2016 to $33.9 million in 2017. The Company’s product development efforts are focused on the development of new technologies for insurance carriers, brokers
and agents, and the development of new data exchanges for use in domestic and international insurance markets. Product development expenses primarily increased due to additional staffing and personnel costs incurred in connection with our continued expanding product development facilities in India.
Sales and Marketing Expenses
Sales and marketing expenses decreased $1.2 million, or 7%, from $17.5 million in 2016 to $16.3 million in 2017. This decrease is primarily due to a reduction in salaries and commissions paid to our sales personnel, and reduced advertising expenditures in our Singapore and Oakstone division.
General and Administrative Expenses
General and administrative expenses increased $8.3 million, or 16%, from $51.7 million in 2016 to $60.0 million in 2017. The primary cause for the increase in general and administrative expenses were $6.7 million of additional personnel and office costs in connection with the 2017 and 2016 business acquisitions of Via, YouFirst, ItzCash. Wdev, the EbixHealth JV and $1.2 million of non-cash 2016 adjustments from our recent acquisitions.
Amortization and Depreciation Expenses
Amortization and depreciation expenses slightly increased to $11.1 million in 2017 from $10.7 million in 2016.
Interest Income
Interest income slightly decreased $140 thousand, or 8%, from $1.9 million in 2016 to $1.7 million in 2017. The decrease in interest income is associated with changes in the Company's average cash balances and short-term investments in interest bearing accounts.
Interest Expense
Interest expense increased $6.0 million, or 81% from $7.4 million in 2016 to $13.4 million in 2017. Interest expense increased primarily because of the combined effect of an increase in the weighted average interest rate on the Company's revolving credit facility from 2.73% in 2016 to 3.69% in 2017, and an increase in the average outstanding balance on the revolving line of credit and term note from $234.8 million in 2016 to $327.0 million in 2017.
Foreign Exchange Gain
Net foreign exchange gain of $1.8 million in 2017 consisted of $3.2 million of gains realized upon the settlement of certain transactions within our foreign operations that were denominated in a currency other than the subsidiary's functional currency which were partially offset by $1.4 million of losses recognized upon the remeasurement of other transactions within our foreign operations that were denominated in a currency other than the subsidiary's functional currency.
Income Taxes
The Company recognized income tax expense of $777 thousand in 2017 compared to the $1.6 million of income tax expense in 2016, representing an $860 thousand, or a 53% decrease. Our effective tax rate decreased to 0.8% in 2017, compared with 1.7% in 2016, largely due to the remeasurement of US deferred taxes under tax reform, release of valuation allowance on foreign loss carryforwards, recording tax credits based on filed tax returns, partially offset by an increase in uncertain tax position accrual.
The pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2017 are as follows:
|
| | | | | | |
| (dollar amounts in thousands) | | Pre-tax income | | Statutory tax rate |
| United States | | (13,355 | ) | | 34.0 | % |
| Canada | | 827 |
| | 26.9 | % |
| Brazil | | 3,548 |
| | 34.0 | % |
| Australia | | 2,695 |
| | 30.0 | % |
| Singapore | | (2,770 | ) | | 17.0 | % |
| New Zealand | | (588 | ) | | 28.0 | % |
| India | | 19,279 |
| | 34.6 | % |
| Mauritius | | (25 | ) | | 3.0 | % |
| United Kingdom | | 2,615 |
| | 19.0 | % |
| Sweden | | 6,485 |
| | 22.0 | % |
| Thailand | | 56 |
| | 20.0 | % |
| Dubai | | 84,593 |
| | 0 | % |
| Total | | 103,360 |
| | |
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are the cash flows provided by our operating activities, our commercial bank credit facility, and cash and cash equivalents on hand.
We intend to continue to utilize cash flows generated by our ongoing operating activities, in combination with possibly expanding our commercial lending facility, and the possible issuance of additional equitydebt or debt securitiesequity, to fund capital expenditures and organic growth initiatives, to make strategic business acquisitions, to retire outstanding indebtedness, and to repurchase shares of our common stock if and as market and operating conditions warrant.
We believe that anticipated cash flowflows provided by our operating activities, together with current cash balances and access to our credit facilities and the capital markets, if required, will be sufficient to meet our projected cash requirements for the next twelve months, although any projections of future cash needs, cash flows, and the general market conditions for credit and equity securities is subject to substantial uncertainty. In the event additional liquidity needs arise, we may raise funds from a combination of sources, including the potential issuance of debt or equity securities. However, there are no assurances that such financing will be available in amounts or on terms acceptable to us, if at all. In addition, the covenants in our Credit Facility could adversely affect our ability to obtain such financing and our ability to make strategic acquisitions, fund investments, repurchase shares of our common stock or engage in other business activities that could be in our interest.
We regularly evaluate our liquidity requirements, including the need for additional debt or equity offerings, when considering potential business acquisitions, or the development of new products or services. During 2019,fiscal year 2021, the Company intends to utilize its cash and other financing resources to fund organic growth initiatives, strategic business acquisitions, and new product development initiatives and service offerings.
Our cash and cash equivalents were $147.8$105.0 million and $63.9$73.2 million at December 31, 20182020 and 2017,2019, respectively. The Company holds material cash and cash equivalent balances overseas in foreign jurisdictions. The free flow of cash from certain countries where we hold such balances may be subject to repatriation tax effects and other restrictions. Furthermore, the repatriation of earnings from some of our foreign subsidiaries would result in the application of withholding taxes at source and taxation at the U.S. parent level upon receipt of the repatriation amounts. The approximate cash, cash equivalents, restricted cash, and short-term investments balances held in our domestic U.S. operations and each of our foreign subsidiaries as of February 25, 2019April 19, 2021 is presented in the table below (figures denominated in thousands):
|
| | | | | | | |
| | Cash,
Restricted
Cash and ST
investments
|
United StatesIndia | | 6,204$ |
66,879 | |
CanadaUnited States | | 89215,164 |
|
Latin AmericaPhilippines | | 3,0827,352 |
|
| Australia | | 4,9427,245 |
|
| Singapore | | 5,5953,980 |
|
New ZealandCanada | | 8502,079 |
|
IndiaUnited Arab Emirates | | 71,1621,373 |
|
MauritiusNew Zealand | | 721,224 |
|
PhilippinesLatin America | | 7,2821,206 |
|
| Indonesia | | 3,3621,077 |
|
| Europe | | 3,704505 |
|
SwedenMauritius | | —10 |
|
DubaiTotal | | 370$ |
|
Total108,094 | | 107,517 |
|
Due to the effect of temporary or timing differences resulting from the differing treatment of items for tax and accounting purposes and minimum alternative tax obligations in the U.S. and India, future cash outlays for income taxes are expected to exceed our current income tax expense, but will not materially impact the Company’s liquidity position. Beginning in 2009, we were granted a 100% tax holiday for certain of our Indian operations, which was in effect until March 31, 2014 and March 31, 2015 for some of our locations and continues until March 31, 2020 for other locations. When these tax holidays expire, these locations become 50% taxable for an additional five years. The impact of this tax holiday decreased our non-US income tax expense by $4.3 million and $2.9 million for 2018 and 2017, respectively.
The Company’s consolidated worldwide effective tax rate is relatively low because of the effect of conducting significant operations in certain foreign jurisdictions, specifically India and Dubai, where we have tax holidays or tax concessions.
Our current ratio decreased to 1.35increased from 1.55 at December 31, 2018 from 1.722019 to 1.89 at December 31, 2017,2020, and our working capital position increased to $110.0$170.5 million at December 31, 20182020 as compared to $106.0$129.0 million at the end of 2017.2019. The increase in our short-term liquidity position is primarily due to the following factors: (a) a $89.5an approximately $91 million increasereduction in cash cash equivalents, and short-term investments balances,used for acquisitions in 2020 as compared to 2019; (b) a $56.5 million increasedecrease in trade accounts receivable associated with the continued growthand accounts receivable from service providers at December 31, 2020 versus December 31, 2019 of our businessapproximately $24 million; and acquisitions, (c) a $80.4partially offset by an approximately $44 million decrease in current liabilities during 2020, an increase in other current liabilities primarily dueshort-term investments of approximately $21 million at December 31, 2020 compared to India Acquisition Consideration Contingencies, (d)December 31, 2019, and a $55.1 million increasedecrease in trade accounts payable associated with the continued growthCompany's working capital facilities at December 31, 2020 as compared to December 31, 2019 of our business and acquisitions, (e) a $13.0 million increase in deferred revenue primarily due to the 2018 adoption of Topic 606 and our recent acquisitions. approximately $12 million.We believe that our ability to generate sustainable robust cash flow from operations will enable the Company to continue to meet its cashdebt obligations and to fund its current liabilities from current assets, including available cash balances.
Business Acquisitions & Related TransactionsCombinations
The Company executes strategicseeks to execute accretive business acquisitions in combination with organic growth initiatives as part of its expansioncomprehensive business growth and growthexpansion strategy. The Company looks to acquire businesses that are complementary to Ebix's existing products and services.
During the year endedtwelve months ending December 31, 20182020, the Company completed thirteentwo business acquisitions,acquisition as follows:
Effective December 1, 2018May 4, 2020, Ebix entered intoacquired from bankruptcy India-based Trimax, which provides IT and integration services to state-owned transport corporations, operates data centers, and is an agreement to acquire 74.84% controlling stake in India based Weizmann for $63.1 million. Ebix also made a 90-day time bound public offer to acquire the remaining 25.16% publicly-held Weizmann Forex sharesIT infrastructure solution provider, for approximately $21.1$9.9 million of upfront consideration. Additionally, Ebix issued preferred shares in Trimax to public shareholders.the selling shareholders that can be sold five years from the closing of the acquisition based on an independent valuation performed by a Big 4 valuation firm. The maximum value of the preferred shares upon sale is approximately $9.9 million. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective DecemberIn October 1, 2018 Ebix2020 the Company acquired a 70% interest in AssureEdge Global Services (“AssureEdge”) for a total purchase price of approximately $5.0 million, including net working capital acquired. AssureEdge is a pan-India based BPO company, with a variety of BPO offerings via six contact centers across the assetscountry. It serves a number of India based Pearl, a provider of a comprehensive range of B2Bindustries and B2C travel services under the brand name ‘Sastiticket’, ranging from domestic and international ticketing, incentives travel,
leisure products, luxury holidays, and travel documentationclients that have cross-selling value for $3.4 million and same has been integrated with Ebix Travels’ operations, which has brought in operational synergies and certain redundancies for the acquired operations .EbixCash services. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable, but in no event longer than one year from the effective date of this transaction.
During the twelve months ended December 31, 2019, the Company completed three business acquisitions, as follows:
Effective December 1, 2018August 23, 2019, Ebix acquired IndiaCanada based Lawson, a B2B providerWallstreet Canada foreign exchange and outward remittance markets for approximately $2.1 million of travel services and international ticketing, for $2.7 million and same has been integrated with Ebix Travels’ operations to bring in operational synergies and wider country wide footprint. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.upfront consideration plus net working capital.
Effective OctoberJanuary 1, 2018 Ebix acquired a 70% stake in India based AHA Taxis, a platform for on-demand inter-city cabs in India for $310 thousand. AHA Taxis focuses its attention on Corporate and Consumer inter-city travel primarily, with a network of thousands of registered AHA Taxis.
Effective October 1, 2018 Ebix acquired a 67% stake in India based Routier, a marketplace for trucking logistics for $413 thousand.
Effective October 1, 20182019, Ebix acquired the assets of India based Business Travels to for $1.1 million and same has been integrated with Ebix Travels’ operations to expand the wholesale travel and consolidation business.. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective August 1, 2018 Ebix entered into an agreement to acquire India based Miles, a provider of on-demand software on wealth and asset management to banks, asset managers and wealth management firms,Essel Forex, for approximately $18.3$8.7 million, plus possible future contingent earn-out payments of up to $8.3 million$721 thousand based on earned revenues overrevenues. Ebix funded the subsequent twenty-four monthentire transaction in cash, using its internal cash reserves. Essel Forex is a large provider of foreign exchange services in India with a wide spectrum of related products including sales of all major currencies, travelers’ checks, demand drafts, remittances, money transfers and prepaid cards primarily for corporate clients. The earn-out period followingexpired on December 31, 2019 and the effective date ofacquired business did not meet the acquisition..requisite revenue target, so no earnout payment was due or paid.
Effective JulyJanuary 1, 20182019, Ebix entered intoacquired an agreement to acquire80% controlling stake in India based LeisureZillious for approximately $2.1 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Mercury Travels for approximately $13.2 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. Mercury’s Forex business has been integrated into EbixCash’s existing Forex exchange business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Indus, a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately $22.9$10.1 million plus possible future contingent earn-out payments of up to $5.0$2.2 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition.
Effective April 1, 2018 Ebix entered into an agreement to acquire India based Centrum, a leader in India’s Foreign Exchange Operations markets for approximately $179.5 million. This acquisition was completed in June 2018. Subsequently, Centrum has been renamed as Ebixcash World Money and has been tightly integrated into Ebix’s Financial Exchange ‘EbixCash’ offerings in India and abroad, with key business executives of Foreign Exchange Operations becoming an integral part of the combined EbixCash senior leadership.
Effective April 1, 2018 Ebix entered into an agreement to acquire a 60% stake in India based Smartclass, a leading e-learning Company engagedagreed milestones in the business of education services, development of education products, and implementation of education solutions for K-12 Schools Schools through its E-Learning Venture. Under the terms of the agreement Ebix paid $8.6 million in cash for its stake in Smartclass.
Effective February 1, 2018 Ebix acquired the MTSS Business of Transcorp, for upfront cash considerationacquisition agreement. Zillious is an on-demand SaaS travel technology solution in the amount of $7.25 million, of which $6.55 million was funded with cash and $700 thousand assumedcorporate travel segment in liabilities. MTSS operations of Transcorp has been consolidated with EbixCash’s MTSS operations resulting in operational synergies and certain redundancies to the combined operation.
During the year ended December 31, 2017 the Company completed six business acquisitions, as follows:
Effective November 1, 2017 Ebix acquired Via, a recognized leaderIndia.Zillious is an on-demand SaaS travel technology solution in the corporate travel spacesegment in India and an omni-channel online travel and assisted e-commerce exchange exchange with presence in India, Middle East and South East Asia. Ebix acquired Via for upfront cash consideration in the amount $78.8 million plus possible future contingent payments of up to $2.3 million based on any potential claims made by tax authorities over the subsequent twelve month period following the effective date of the acquisition, of which was not achieved after this period and $2.0 million based on the receipt of refunds pertaining to certain advance tax payments and withholding taxes, both of which are included in Other current liabilities in the Company's Consolidated Balance Sheet.
Effective November 1, 2017 Ebix acquired the MTSS Business of Paul Merchants, the largest international remittance service provider in India, for upfront cash consideration in the amount $37.4 million.
Effective October 1, 2017 Ebix acquired the MTSS Business of Wall Street, an inward international remittance service provider in India, along with the acquisition of its subsidiary company Goldman Securities Limited for upfront cash consideration in the amount $7.4 million.
Effective September 1, 2017 Ebix acquired the MTSS Business of YouFirst, an inward international remittance service provider in India, for upfront cash consideration in the amount $10.2 million.
Effective June 1, 2017 Ebix acquired the assets of beBetter, a technology enabled corporate wellness provider that provides end-to-end wellness solutions offering a variety of tools and programs, including interactive platforms, health screening, coaching, tobacco cessation, weight and stress management, health information, and numerous other products and services. Ebix acquired the assets and intellectual property of beBetter for $1.0 million plus possible future contingent earn-out payments of up to $2.0 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition.India. The Company has determined that the fair value of the contingent earn-out consideration iswas zero as of September 30, 2020 and at December 31, 2018.2020.
Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an 80% stake in ItzCash, India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately $150 million. Accordingly, Ebix acquired an 80% stake in ItzCash for $120 million including upfront cash of $76.3 million plus possible future contingent earn-out payments of up to $44.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. $4.0 million of the possible future contingent earn-out payments was previously held in escrow accounts for the twelve month period following the effective date of the acquisition to ensure that the acquired business achieved the minimum specified annual gross revenue threshold, which was achieved and paid during the third quarter of 2018. The Company has determined that the fair value of the contingent earn-out consideration is $15.4 million as of December 31, 2018.
During the year ended December 31, 2016 the Company completed two business acquisitions, as follows:
Effective November 1, 2016 Ebix acquired Wdev, a Brazilian company that provides IT services and software development for the Latin American insurance industry. Ebix acquired Wdev for upfront cash consideration in the amount of $10.5 million, plus possible future contingent earn out payments of up to $15.7 million based on earned revenues over the subsequent thirty-eight month period following the effective date of the acquisition. $2.9 million of the upfront cash consideration is being held in an escrow account for the thirty-eight month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual net revenue threshold, which if not achieved will result in said funds being returned to Ebix.
Effective November 1, 2016 Ebix acquired the assets of Hope Health, a Michigan corporation and publisher of health and wellness continuing education products. Ebix acquired the assets and intellectual property of Hope Health for $1.72 million.
Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (11%) of the EbixHealth JV for $2.0 million cash which resulted in Ebix holding an aggregate fifty-one percent (51%) controlling equity interest in the EbixHealth JV. Previously, effective September 1, 2015 Ebix and IHC formed a joint venture named EbixHealth JV. Ebix paid $6.0 million and contributed a license to use certain CurePet software and systems valued by the EbixHealth JV at $2.0 million, for its initial 40% membership interest in the EbixHealth JV.
As cited in the above paragraphs, aA significant component of the purchase price consideration for many of the Company's business acquisitions is a potential futuresubsequent cash earnoutearn-out payment based on reaching certain specified future revenue targets. The terms for the contingent earn-out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one-, two-, and/or three-year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target to achieve over the agreed upon period post acquisition to earn the specified cash earn-out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn-out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. The Company recognizes these potential obligations as contingent liabilities. Theseliabilities and are reported as such on its Condensed Consolidated Balance Sheets. As discussed in more detail in Note 1 of the Notes to the Condensed Consolidated Financial Statements, these contingent consideration liabilities are recorded at fair value on the acquisition date and are re-measured regularlyquarterly based on the then assessed fair value and adjusted if necessary. As of December 31, 2018,2020, the total of these contingent liabilities was $24.98$0.0 million. As of December 31, 2019, the total of these contingent liabilities was $10.1 million, of which $11.21$1.5 million iswas reported in long-term liabilities, and $13.77$8.6 million iswas included in current liabilities in the Company's Condensed Consolidated Balance Sheet. As of December 31, 2017 the total of these contingent liabilities was $37.1 million.
Operating Activities
For the twelve months ended December 31, 20182020, the Company generated $89.9$100.4 million of net cash flow from operating activities compared to $76.8$60.8 million for the year ended December 31, 2017,2019, representing an increase of $13.1$39.6 million, or 17%65%. The major sources of cash provided by our operating activities during 20182020 included net income of $93.1$92.4 million, $(58) thousandadjusted for $3.6 million of net incomeloss attributable to a non-controlling interest, net of $(13.0) million of deferred tax benefits, $11.3$13.7 million of depreciation and amortization, $2.8$6.1 million of amortization of right-of-use assets, $6.2 million related to a non-cash intangible impairment loss, $4.8 million of non-cash share-based compensation, $2.2$3.4 million of amortization expense for capitalized software development costs, and $(5.7)$(19.9) million of working capital requirements, $(6.5) million of cash used to pay the Miles acquisition earn out, and $(3.1) million of non-cash gains recognized when reducing certain earn-out contingent liabilities.The increase in our operating cash flow in
2020 as compared to 2019 is primarily due to increased outstandingcash flow from reductions in accounts receivable from trade and service providers as COVID-19 reduced revenues and resulted in comparatively more accounts receivables, deferred revenuereceivable conversion to cash in 2020 versus 2019.Additionally, in 2019 the acquisition earn-out accrual was reduced by $16.5 million (primarily related to the ItzCash acquisition earn out accrual) as compared to a reduction of the same accrual in 2020 of $3.1 million (primarily related to the Miles and other assets.Zillious acquisitions), both of which served to reduce operating cash flow given the non-cash nature of the gains from earn-out adjustments.
For the twelve months ended December 31, 20172019, the Company generated $76.8$60.8 million of net cash flow from operating activities compared to $86.6$87.3 million for the year ended December 31, 2016,2018, representing a decrease of $9.8$26.5 million, or 11%30%. The major sources of cash provided by our operating activities during 20172019 included net income of $100.6$96.7 million, $2.0less $6.1 million of net income attributable to a non-controlling interest, and net of $(13.7)$(16.5) million of non-cash gains recognized when reducing certain earn-out contingent liabilities, $(15.5) million of deferred tax benefits, $11.1$14.5 million of depreciation and amortization, $2.8$7.1 million of amortization of right-of-use assets, $3.4 million of non-cash share-based compensation, $2.2$2.7 million of amortization expense for capitalized software development costs, and $(28.5)$(26.5) million of working capital requirements primarily duerequirements.The primary cause for the decrease in our operating cash flow was the cash required to fund our substantially increased outstanding trade accounts receivables.
gross merchandise value ("GMV") transactions for our travel and foreign exchange business and the $19.7 million paid to settle the derivative litigation matter discussed in Item 3 "Legal Proceedings".
Investing Activities
Net cash used for investing activities during the twelve months ended December 31, 20182020 totaled $251.6$44.8 million, and consistedprimarily related to a $21.0 million decrease in investment in marketable securities (specifically bank certificates of $232.6deposits), $14.3 million used for the acquisitions during the year (net of cash acquired), $3.8$5.3 million paidof capital expenditures to support ouroperations, and $4.2 million used and capitalized in connection with the fulfillmentdevelopment of earnout payment obligations from a priorsoftware to be sold/marketed or used internally.
Net cash used for investing activities during the twelve months ended December 31, 2019, totaled $96.7 million and consisted of $105.5 million used for acquisitions during the year (net of cash acquired), $5.3 million to reacquire Paul Merchant's 10% equity interest in Ebix’s combined international remittance business acquisition made in 2017, $10.4India, $4.9 million of capital expenditures mainly in India to support our growing operations, $5.7and $8.0 million used and capitalized in connection with the development of software to be sold and marketed, and $4.1 millionor used to purchase marketable securities (specifically bank certificates of deposit).internally. Partially offsetting these outflows was $5.0$27.0 million received from Paul Merchants for a 10% equity interest in Ebix’s combined international remittance business in India.
Net cash used for investing activities during the twelve months ended December 31, 2017 totaled $207.1 million and consisted of $37.4 million used for the acquisition of Paul Merchants, $67.8 million (net of cash acquired) used for the acquisition of Via, $7.0 million used for the acquisition of Wall Street, $9.7 million (net of cash acquired) used for the acquisition of YouFirst, $1.0 million used for the acquisition of beBetter, $69.3 million (net of cash acquired) used for the acquisition of ItzCash, $4.0 million to fund an escrow account for possible future contingent earnout payment, $1.9 million was paid in connection with the fulfillment of earnout payment obligations from a prior business acquisition made in 2013, $7.4 million used for the continued build out of our corporate headquarters office campus in Johns Creek, Georgia and the build out of our buildings in India to support our growing product development facilities, $2.8 million used and capitalized in connection with the development of software to be sold and marketed, partially offset by the $1.2 million provided in the net maturities of marketable securities (specifically bank certificates of deposit).
Financing Activities
Net cash used by financing activities during the twelve months ended December 31, 2020, was $42.0 million, and primarily consisted of a $10.9 million decrease in the year-end balances in our working capital facilities in India, $20.7 million used to make scheduled payments against the Company’s outstanding Credit Facility term loan, and $9.2 million used to pay quarterly dividends to the holders of our common stock.
Net cash provided by financing activities during the twelve months ended December 31, 20182019 was $256.1 million,$905 thousand, andprimarily consisted of $150.0 million provided by the Company's revolving credit facility with Regions (net of payments and including accordion option), $175.5 million provided by the Company's term loan (including accordion option) with Regions. Partially offsetting this cash inflow was $40.8$13.0 million used to reacquire 797295 thousand shares of the Company's common stock, $9.3 million used to pay quarterly dividends to the holders of our common stock, $10.0 million used to make scheduled payments against the Regions term loan, a $8.3 million short term loan to a third party, and $769 thousand used by overdraft facilities for our India operations.
Net cash provided by financing activities during the twelve months ended December 31, 2017 was $78.0 million, and primarily consisted of $120.5 million provided by the Company's revolving credit facility with Regions, $20.0 million provided by the Company's term loan accordion option with Regions, and $6.2 million provided by Via's, our recent India acquisition, overdraft facility with State bank of India. Partially offsetting this cash inflow was $45.7 million used to reacquire 796 thousand shares of the Company's common stock, $9.5$9.2 million used to pay quarterly dividends to the holders of our common stock, and $13.0$15.1 million used to make scheduled payments against the RegionsCredit Facility term loan. Partially offsetting this cash outflow was $13.5 million provided via borrowings under the Company's revolving credit facility, repayment of a $6.5 million short term loan that had been made to a third party, and $19.1 million net funds provided by the EbixCash working capital facilities in India.
Commercial Bank FinancingCredit Facility
On November 27, 2018, Ebix entered into the Eighth Amendment (the “Eighth Amendment”) to the Regions Secured Credit Facility,The Company maintains a senior secured syndicated credit facility, dated August 5, 2014, among the Company,Ebix, Inc., as borrower, its subsidiaries party thereto from time to time as guarantors, Regions Bank (as administrative agent and certain othercollateral agent) and the lenders party thereto from time to time (as amended from time to time, the "Credit Agreement"“Credit Facility”) to exercise $101.3that provides a $450 million revolving line of its aggregate $150 million accordion option, increasing the total Term Loan Commitment to $301.3 million from $250 million, with initial repayments startingcredit as well as a term loan, which at December 31, 2018 due in the amount2020 had a balance of $3.8 million for the first six quarters and increasing thereafter. The revolving credit facility increased from $400 million to $450$255.5 million. The Credit Agreement carries a leverage-based LIBOR related interest rate, which currently stands at approximately 4.875%. The expanded credit facility will continue to be used to fund the Company's future growth and share repurchase initiatives.Facility matures in February 2023.
On April 9, 2018May 7, 2020, Ebix entered into Amendment No. 10 to the Credit Facility. Amendment No. 10 provides for, among other things, increased flexibility under financial maintenance covenants, which the Company sought in part due to the unforeseen negative effects of the COVID-19 pandemic.
On March 30, 2020, the Company and certain of its subsidiaries entered into the Seventh Amendment (the “Seventh Amendment”)a waiver related to the Regions Secured Credit Facility increasing the permitted indebtedness in the form of unsecured convertible notes from $250 million to $300 million.
On February 21, 2018, Ebix, Inc. and certain of its subsidiaries entered into the Sixth Amendment (the “Sixth Amendment”) to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions Bank as Administrative and Collateral Agent ("Regions") and certain other lenders party thereto (as amended, the "Credit Agreement""Waiver"). The Sixth Amendment amendsWaiver provided that so long as the Company’s leverage ratio is below 5.0 to 1.0 for the Company’s fiscal quarter ending March 31, 2020 pursuant to the terms of its compliance certificate required by the Credit Agreement by increasing its existing credit facility from $450 million to $650 million, to assist in funding its growth. The increase in the bank line was the result of many members ofFacility, the existing bank group expanding their shareleverage ratio requirement of the credit facility and the addition of BBVA Compass and Bank of the West3.50 to the Banking Syndicate, which diversifies Ebix’s lending group under the credit facility to ten participants. The syndicated bank group now comprises ten leading financial institutions that include Regions Bank, PNC Bank, BMO Harris Bank, BBVA Compass, Fifth Third Bank, KeyBank, Bank of the West, Silicon Valley Bank, Cadence Bank and Trustmark National Bank. Regions Bank continued to lead the banking group while serving as the administrative and collateral agent. PNC Bank and BMO Harris Bank were added as co-syndication agents, BBVA Compass and Fifth Third Bank as co-documentation agent, while Regions Capital Markets, PNC Capital Markets and BMO Harris Bank acted as joint lead arrangers and joint bookrunners. The new credit facility has the following key components: A five-year term loan for $250 million, with initial repayments starting June 30, 2018 due in the amount $3.13 million for the first eight quarters and increasing thereafter and a five-year revolving credit facility for $400 million. The new credit facility also allows for up to $150 million of incremental facilities.1.0 was waived.
On November 3, 2017September 27, 2019, the Company and certain of its subsidiaries entered into the Fifth Amendment (the “Fifth Amendment”) to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions Bank as Administrative and Collateral Agent ("Regions") and certain other lenders party thereto (as amended, the "Credit Agreement") to exercise $50 million of its aggregate $100 million accordion option, increasing the total Term Loan Commitment to $175 million. $20 million of the increase was funded on November 3, 2017 and the remaining $30 million shall be disbursed upon the satisfaction of certain closing requirements set forth in the Fifth Amendment. Both such disbursements are tied to permitted acquisitions as set forth in the Fifth Amendment.
On November 3, 2017, the Company and certain of its subsidiaries entered into the Fourth Amendment and Waiver (the “Fourth Amendment”)No. 9 to the Credit Agreement. The Fourth Amendment waives certain technical defaults related toFacility, which amended the failure to give required notice with respect to i)definition of “Consolidated EBITDA" and “Indebtedness”, and modified the existence of a subsidiary having intellectual property with an aggregate value above a stipulated amount and ii) the additional investment in a joint venture entity resulting in that entity becoming a subsidiary of the Company for the purpose of the Credit Agreement. In addition to such waiver, the Fourth Amendment also loosened themaximum consolidated debt leverage ratios the Company is required to satisfy in connection with permitted acquisitions and for compliance generally.allowed.
On October 19, 2017, the Company and certain of its subsidiaries entered into the Third Amendment and Waiver (the “Third Amendment”) to the Credit Agreement. The Third Amendment waives certain technical defaults related to the Company’s making certain restricted payments in excess of those permitted under the Credit Agreement. In addition to such waiver, the Third Amendment also loosened the limitations on the restricted payment covenant under the Credit Agreement.
On June 17, 2016, the Company and certain of its subsidiaries entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement. The Second Amendment increased the total credit facility to $400 million from the prior amount of $240 million, and expanded the syndicated bank group to eleven participants by adding seven new participants which included PNC Bank, National Association BMO Harris Bank N.A., Key Bank National Association, HSBC Bank National, Cadence Bank, the Toronto-Dominion Bank (New York Branch), and Trustmark National Bank. The Credit Agreement consisted of a five-year revolving credit component in the amount of $275 million, and a five-year term loan component in the amount of $125 million, with repayments of $3.13 million due each quarter, starting September 30, 2016. The Credit Agreement also contained an accordion feature, which if exercised and approved by all credit parties, would expand the total borrowing capacity under the syndicated credit facility to $500 million.
Effective October 14, 2015 the Company, in coordination with Regions as administrative agent and a joint lender, exercised the $50 million accordion feature in the Credit Agreement thereby expanding the total credit facility to $240 million. As part of this credit facility expansion, TD Bank, NA ("TD") was added to the syndication group expanding the syndicated group to five bank participants, which included Regions, MUFG Union Bank N.A., Fifth Third Bank, and Silicon Valley Bank as joint lenders. TD commitment level is $25 million.
On February 3, 2015, Ebix, Inc. and certain of its subsidiaries entered into the First Amendment (the “First Amendment”) to the Credit Agreement. The First Amendment amended the Regions Credit Facility by increasing the maximum amount by which the Aggregate Revolving Commitments may be increased by $90 million from the pre-existing limit of $50 million, increased the amount of base facility to $190 million from the pre-existing amount of $150 million, which together with the $50 million accordion feature increased the total Credit Agreement capacity amount to $240 million from the prior amount of $200 million, and added Fifth Third Bank to the syndicated group, which included four participants, which included Regions, MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders.
At December 31, 2018,2020, the outstanding balance on the revolving line of credit with Regionsunder the Credit Facility was $424.5$439.4 million and the facility carried an interest rate of 4.875%3.50%. ThisThe outstanding balance is included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. During 2018,2020, The company drew $1.4 million on its revolving line of credit. During 2020, the average and maximum outstanding balances on the revolving line of credit were $318.9$438.9 million and $424.5$439.4 million, respectively, and the weighted average interest rate was 4.51%4.04%.
At December 31, 2018,2020, the outstanding balance on the term loan was $291.2$255.5 million, of which $15.1$22.6 million is due within the next twelve months. $20.7 million of scheduled amortization payments were made on the term loan during 2020. This term loan also carried an interest rate of 4.875%.3.50% at December 31, 2020. The current and long-term portions of the term loan are included in the respective current and long-term liabilities sections of the Condensed Consolidated Balance Sheets, the amounts of which were $15.1$22.6 million and $276.2$232.9 million, respectively, at December 31, 2018.2020. During 2020, the weighted average interest rate on the term loan was 4.04%
Contractual Obligations and Commercial Commitments
The following table summarizes our known contractual debt and lease obligations as of December 31, 2018.2020. The table excludes commitments that are contingent based on events or factors uncertain at this time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period |
| | Total | | Less Than
1 Year | | 1 - 3 Years | | 3 - 5 Years | | More than
5 years |
| | | (In thousands) |
| Revolving line of credit | | $ | 439,402 | | | $ | — | | | $ | 439,402 | | | $ | — | | | $ | — | |
| Short and long-term debt | | 258,127 | | | 25,260 | | | 232,867 | | | — | | | — | |
| Operating leases | | 14,248 | | | 4,669 | | | 6,455 | | | 1,605 | | | 1,519 | |
| Capital leases | | 526 | | | 190 | | | 259 | | | 77 | | | — | |
| Non-Cancellable operating leases | | 56,279 | | | 20,251 | | | 36,028 | | | — | | | — | |
| Total | | $ | 768,582 | | | $ | 50,370 | | | $ | 715,011 | | | $ | 1,682 | | | $ | 1,519 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period |
| | | Total | | Less Than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | More than 5 years |
| | | (in thousands) |
| Revolving line of credit | | $ | 424,537 |
| | $ | — |
| | $ | — |
| | $ | 424,537 |
| | $ | — |
|
| Short and long-term debt | | 295,225 |
| | 19,053 |
| | 43,305 |
| | 232,867 |
| | — |
|
| Operating leases | | 141,501 |
| | 34,189 |
| | 58,768 |
| | 45,245 |
| | 3,299 |
|
| Future Purchase Agreements | | 406 |
| | 406 |
| | — |
| | — |
| | — |
|
| Capital leases | | 533 |
| | 266 |
| | 185 |
| | 82 |
| | — |
|
| Total | | $ | 862,202 |
| | $ | 53,914 |
| | $ | 102,258 |
| | $ | 702,731 |
| | $ | 3,299 |
|
Off Balance Sheet Transactions
We do not engage in off-balance sheet financing activities.
Inflation
We do not believe that the rate of inflation has had a material effect on our operating results. However, inflation could adversely affect our future operating results.
RECENT ACCOUNTING PRONOUNCEMENTS - The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company's business:
In August 2018 the FASB issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820)Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 is intended to improve the effectiveness Accounting Standards Codification (“ASC”) 820’s disclosure requirements. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In June 2018 the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU 2018-07 did not impact our consolidated financial position, results of operations or cash flows.
In February 2018, the FASB issued 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASU 2018-02 did not impact our consolidated financial position, results of operations or cash flows.
In January 2017 the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A public business entity filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In January 2017 the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business which amended the existing FASB ASC. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal 2019 with early adoption permitted. The adoption of ASU 2018-01 did not impact our consolidated financial position, results of operations or cash flows.
In November 2016 the FASB issued ASU 2016-18, Statement of Cash Flow (Topic 230) Restricted Cash (A Consensus of the FASB Emerging Issues Task Force) which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company adopted the new guidance on January 1, 2018 with no material impact to its statement of cash flows. For the twelve months ended December 31, 2018 and 2017, the Company held $8.3 million and $4.0 million, respectively, in "Restricted cash" and $3.5 million and $2.9 million, respectively, in "Other long-term assets" of the Company's Condensed Consolidated Balance Sheet.
In October 2016 the FASB issued ASU 2016-16, Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments specified by ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of the amendments are intellectual property, and property, plant and equipment. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments align the recognition of income tax consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards. IAS 12, Income Taxes,
requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (including inventory) when the transfer occurs. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.
In August 2016 the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the following eight specific cash flow issues: Contingent consideration payments made after a business combination; distributions received from equity method investees; debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies; and beneficial interests in securitization transactions; and also addresses separately identifiable cash flows and application of the predominance principle. The amendments in this ASU apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the ASU for those issuers would be applied prospectively as of the earliest date practicable. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.
In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842). This new accounting guidance is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e., operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. For operating leases there will have to be the recognition of a lease liability and a lease asset for all such leases greater than one year in term. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all companies and organizations. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. See Note 5 for the Company’s current lease commitments. We will adopt Topic 842 effective January 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, we will carry forward the assessment of whether our contracts contain or are leases, classification of our leases and remaining lease terms. Based on our portfolio of leases as of December 31, 2018, approximately between $140 million and $150 million of lease assets and liabilities will be recognized on our balance sheet upon adoption, primarily relating to real estate. We are substantially complete with our implementation efforts.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP, as promulgated in the United States, requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our consolidated financial statements and accompanying notes. We believe the most complex and sensitive judgments, because of their significance to the 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 been used in the current period, or changes in the accounting estimates that we used are reasonably likely to occur
from period to period which may have a material impact on our financial condition and results of operations. For additional information about these policies, see Note 1 "Description of Business and Summary of Significant Accounting Policies" of the notes to the consolidated financial statements in this Form 10-K. 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 professional and support services, which includes revenue generated from subscription and transaction fees pertaining to services delivered over our exchanges or from our application service provider (“ASP”) platforms, software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and risk compliance solutions ("RCS"). Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company follows the relevant technical accounting guidance regarding revenue recognition as issued by the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission ("SEC"). The Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been received or is reasonably assured, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements, purchase orders, or statements of work as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements 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 appropriate authoritative 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 recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable evidence of the fair value for all arrangement deliverables; and c) if the arrangement includes a general right of return relative to the delivered items, the delivery or performance of the undelivered items is probable and substantially controlled by the Company. Under the relevant accounting guidance, when multiple-deliverables included in an arrangement are to be separated into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative fair values. We determine the relative selling price for a deliverable based on vendor-specific objective evidence of selling price (“VSOE”), if available, or third-party evidence ("TPE") in the alternative if available, or finally our best estimate of selling price (“BESP”), if VSOE or TPE is not available.
The Company begins to recognize revenue from license fees for its exchange (SAAS) and ASP products upon granting customer access to the respective processing platform. Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as the transactions occur and is generally billed in arrears. Revenues from RCS arrangements, which include data entry and call center services, and insurance certificate creation and tracking services, are recognized as the services are performed. Revenues from RCS consulting arrangements are recognized as the services are delivered on a time and materials basis. Service fees for hosting arrangements are recognized over the requisite service period. Revenue derived from the licensing of third party software products in connection with sales of the Company’s software licenses is recognized upon delivery together with the Company’s licensed software products. Fees for training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenues for maintenance and support services are recognized ratably over the term of the support agreement.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the 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.
Financial exchange revenue is comprised of primarily transaction based fees, recognized at the completion of the transactions, for facilitating financial, travel, and transport transactions through our EbixCash network. Financial and insurance transaction revenue is based on a percentage of payment value processed for inward and outward remittances, foreign exchange conversions, lending and wealth management, insurance, corporate and retail gift vouchers, and consumer payments. Gift voucher revenue is recognized at full purchase value at time of sale with the corresponding cost of vouchers recorded under direct expenses. Travel revenue is typically either a fixed or percentage fee for facilitating the booking for air, hotels, trains, buses, and cabs for both corporate and private travel along with event planning. Travel revenue for the corporate MICE (Meetings, Incentives, Conferences, and Exhibitions) packages is recognized at full purchase value at the completion of the obligation with the corresponding costs recorded under direct expenses. The transport transactions are focused on logistics for the trucking industry,
bus management for local India governments, and inter-city cab management with revenue recorded at the full trip value and corresponding costs recorded as direct expenses.
Deferred revenue includes payments or billings that have been received or made prior to performance and, in certain cases, cash collections and primarily pertain to maintenance and support fees, initial setup or registration fees under hosting agreements, software license fees received in advance of delivery and acceptance, and software development fees paid in advance of completion and delivery.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which amends the guidance in those areas in the new revenue recognition standard.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.
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 performance obligations for the purpose of revenue recognition. These types of arrangements include obligations pertaining to software licenses, system set-up, and professional services associated with product customization or modification. Delivery of the various contractual obligations typically occurs over periods of less than eighteen months. These arrangements generally do not have refund provisions or have very limited refund terms.
The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective method and applying the new standard to those contracts which were not completed as of January 1, 2018. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption resulted in a decrease to retained earnings, net of tax effect, of $8.8 million for the cumulative effect of applying the Topic 606. This decrease was principally driven by the deferral of certain services revenues associated with programming, setup, and implementation activities related to our SaaS offering and changes related to costs to obtain customers, including the related amortization period.
Allowance for Doubtful Accounts Receivable
Management specifically analyzes the aging of accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends, and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable.
Valuation of Goodwill
Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of a reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, customer retention and the sale or disposition of a significant portion of the business. The Company first assesses 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 more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would 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 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. We perform our annual goodwill impairment evaluation and testing as of September 30 each year. In 2018 the goodwill residing in all four channels, the Broker reporting unit , the Exchange reporting unit, the RCS reporting unit, and the Carrier reporting unit were evaluated for impairment using step-one of the quantitative testing process described above. The fair value of all of these reporting units was found to be greater than their carrying value, thus there was no impairment indicated. Key assumptions used in the fair value determinations for the groups were annual revenue growth rates of 5% to 9% for the RCS, Carrier and Broker units.The Exchange units growth rates used in the calculations varied from 10% to 14%. As of September 30, 2018 there was $80.8 million of goodwill assigned to the RCS reporting unit. A significant reduction in future revenues for the RCS reporting unit would negatively affect the fair value determination for this unit and may result in an impairment to goodwill and a corresponding charge against earnings. During the years ended December 31, 2018, 2017, and 2016, we had no impairment of any our reporting unit goodwill balances.
Projections of cash flows are based on our views of revenue growth rates, operating costs, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values and terminal 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., revenue 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. As a practice, the Company closely monitors any reporting units that do not have a significantly higher fair value in excess of their carrying value.
Income Taxes
We account for income taxes in accordance with FASB accounting guidance on the accounting and disclosure of income taxes, which involves estimating the Company’s current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We then assess the likelihood that our net deferred tax assets will be recovered from future taxable income in the years in which those temporary differences are expected to be recovered or settled, and, to the extent we believe that recovery is not likely, we establish a valuation allowance.
On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA: establishes a flat corporate income tax rate of 21.0% on U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings related to such sales; allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount for the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount.The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment of $24.53 million related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off.
The Company does not recognize a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries, which are considered indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. This guidance clarified 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. The guidance utilizes a two-step approach for evaluating tax positions. Recognition (“Step 1”) occurs when an enterprise concludes that a tax position, based solely on its technical merits is more likely than not to be sustained upon examination. Measurement (“Step 2”) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement. As used in this context, the term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%.
Foreign Currency Translation
The functional currency for the Company's main foreign subsidiaries in India, Dubai and Singapore is the U.S. dollar because the intellectual property research and development activities provided by its Singapore and Dubai subsidiaries, 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 accumulated other comprehensive income in the accompanying 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.
Quarterly Financial Information (unaudited):
The following is the unaudited quarterly financial information for 2018, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | (in thousands, except per share data) |
| Year Ended December 31, 2018 | | | | | | | | |
| Total revenues | | $ | 108,230 |
| | $ | 124,626 |
| | $ | 128,643 |
| | $ | 136,327 |
|
| Gross profit | | 68,639 |
| | 81,067 |
| | 85,680 |
| | 94,025 |
|
| Operating income | | 33,896 |
| | 38,315 |
| | 39,238 |
| | 41,530 |
|
| Net income attributable to Ebix, Inc. | | $ | 26,208 |
|
| $ | 29,180 |
|
| $ | 29,242 |
|
| $ | 8,509 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.83 |
| | $ | 0.93 |
| | $ | 0.93 |
| | $ | 0.27 |
|
| Diluted | | $ | 0.83 |
| | $ | 0.92 |
| | $ | 0.92 |
| | $ | 0.27 |
|
| Year Ended December 31, 2017 | | | | | | | | |
| Total revenues | | $ | 79,103 |
| | $ | 87,387 |
| | $ | 92,800 |
| | $ | 104,681 |
|
| Gross profit | | 53,916 |
| | 56,455 |
| | 57,863 |
| | 66,243 |
|
| Operating income | | 25,690 |
| | 26,539 |
| | 27,911 |
| | 33,081 |
|
| Net income | | 26,427 |
| | 23,434 |
| | 24,184 |
| | 26,573 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.83 |
| | $ | 0.74 |
| | $ | 0.77 |
| | $ | 0.84 |
|
| Diluted | | $ | 0.83 |
| | $ | 0.74 |
| | $ | 0.76 |
| | $ | 0.84 |
|
| Year Ended December 31, 2016 | | | | | | | | |
| Total revenues | | $ | 71,066 |
| | $ | 72,574 |
| | $ | 74,608 |
| | $ | 80,046 |
|
| Gross profit | | 51,464 |
| | 51,995 |
| | 52,183 |
| | 57,524 |
|
| Operating income | | 24,763 |
| | 23,564 |
| | 24,293 |
| | 27,661 |
|
| Net income | | 22,159 |
| | 22,992 |
| | 24,067 |
| | 24,629 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.67 |
| | $ | 0.70 |
| | $ | 0.74 |
| | $ | 0.76 |
|
| Diluted | | $ | 0.67 |
| | $ | 0.70 |
| | $ | 0.74 |
| | $ | 0.76 |
|
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks, including foreign currency exchange rates and interest rates. The Company’s exposure to foreign currency exchange rates risk is related to our foreign-based operations where transactions are denominated in foreign currencies and are subject to market risk with respect to fluctuations in the relative value of those currencies. A majoritysignificant portion of the Company’s operations are based in the U.S., furthermoreand the functional currencies in our main IndiaSingapore and Singapore officesDubai product development centers is the U.S. dollar, and accordingly, a large portion of our business transactions are denominated in U.S. dollars.dollar. However, the Company has operations in Australia, India, New Zealand, Great Britain, Canada, Brazil, Dubai, Singapore, Philippines, Indonesia, and United Arab EmiratesIndonesia where we conduct transactions in the local currencies of each of these locations. There can be no assurance that fluctuations in the value of those foreign currencies will not have a material adverse effect on the Company’s business, operating results, revenues or financial condition. During the years of 20182020 and 20172019 the net change in the cumulative foreign currency translation account, which is a component of stockholders’ equity, was an unrealized gain (loss)losses of $(39.4)$23.1 million and $9.7$15.0 million, respectively. The Company considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in our respective foreign currency exchange rates of 20% could possibly be experienced in the near term future. Such an adverse change in currency exchange rates would have resulted in a reduction to pre-tax income of approximately $15.8$11.7 million and $7.5$14.8 million for the years ended December 31, 20182020 and 2017,2019, respectively.
The Company’s exposure to interest rate risk relates to its interest expense on outstanding debt obligations and to its interest income on existing cash balances. As of December 31, 20182020, the Company had $719.8$697.5 million of outstanding debt obligations, excluding amounts related to deferred financing costs, which consisted of a $291.2$255.5 million term loan, a $424.5$439.4 million balance on our commercial banking revolving line of credit under the Credit Facility, a $1.8 million note due to IHC by the EbixHealth JV, and $2.2 million$894 thousand of previously existingremaining debt pertaining to newly acquired Weizmann. Thethe Weizmann acquisition. As of December 31, 2020, the Company’s term loan and outstanding balance on the revolving line of credit bearsunder the Credit Facility accrued interest at thea rate ofper annum equal to 3.50%, calculated as LIBOR + 2.25%, and stood at 4.875% at December 31, 2018.plus 3.00% with a 0.50% LIBOR floor rate. The Company is exposed to market risk in relation to this secured revolving line of credit and secured term loan in regards to the potential increase to interest expense arising from adverse changes in the LIBOR interest rates. This interest rate risk is estimated as the potential decrease in earnings resulting from a hypothetical 30% increase in the LIBOR rate. Such an adverse change in the LIBOR rate would have resulted in a reduction to pre-tax income of approximately $3.8$1.8 million and $1.4$5.7 million for the years ending December 31, 20182020 and 2017,2019, respectively. The Company’s average cash balances and short term investments during 20182020 were $146.4$119.8 million and its existing cash balances and short term investments as of December 31, 20182020 was $147.8$105.0 million and short term investments was $31.2 million.$25.0 million, respectively. The Company is exposed to market risk in relation to these cash balances in regards to the potential loss of interest income arising from adverse changes in interest rates. This interest rate risk is estimated as the potential decrease in earnings resulting from a hypothetical 20% decrease in interest rates earned on deposited funds. Such an adverse change in these interest rates would have resulted in a reduction to pre-tax income of approximately $365$261 thousand and $478$359 thousand for the years ended December 31, 2020 and 2019, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
See Part II, Item 8, "Note 1 Description of Business and Summary of Significant Accounting Policies" for detailed description of Recent Accounting Pronouncements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP, as promulgated in the U.S., requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our consolidated financial statements and accompanying notes. We believe the most complex and sensitive judgments, because of their significance to the 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 been used in the current period, or changes in the accounting estimates that we used are reasonably likely to occur from period to period, which may have a material impact on our financial condition and results of operations. For additional information about these policies, see Note 1 "Description of Business and Summary of Significant Accounting Policies" of the notes to the consolidated financial statements in this Form 10-K. 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.
COVID-19 has created and may continue to create significant uncertainty in global financial markets, which may reduce demand for our services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments, or to revise the carrying value of our assets or liabilities. However, these estimates may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. While we considered the effects of COVID-19 in our estimates and assumptions, due to the current level of uncertainty over the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that were not currently considered. Such judgments and assumptions could result in a meaningful impact to our financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on our financial statements.
Revenue Recognition and Contract Liabilities—The Company derives its revenues primarily from software subscription and transaction fees, software license fees, financial transaction fees, risk compliance solution services fees, and professional service fees, including associated fees for consulting, implementation, training, and project management provided to customers with installed systems and applications. Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company determines revenue recognition by applying the following steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, we satisfy a performance obligation.
The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below. Additionally, certain services exist in multiple channels. As Ebix derives revenues from three product/service channels—EbixCash Exchanges, Insurance Exchanges, and Risk Compliance Solutions—for policy disclosure purposes, contracts are discussed in conjunction with the channel to which they are most significant.
The Company assesses the terms of customer contracts including termination rights, penalties (implied or explicit), and renewal rights.
EbixCash Exchanges ("EbixCash")
EbixCash revenues are primarily derived from consideration paid by customers for prepaid gift cards, financial transaction (foreign exchange, remittance, other payment solutions) and travel transaction services. The significant majority of EbixCash revenue is for a single performance obligation and is recognized at a point in time. These revenues vary by transaction based upon channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, and speed of service, as applicable.
EbixCash also offers several other services, including payment services and ticketing and travel services, for which revenue is impacted by varying factors. EbixCash acts as the principal in most transactions and reports revenue on a gross basis, as EbixCash controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
The main services from which EbixCash derives revenue are as follow:
Gift Cards
EbixCash issues general purpose gift cards to corporate customers and consumers that can be later redeemed at various merchants.The gift cards are co-branded between EbixCash and its card-issuing banking partner(s) and are affiliated with major payment associations such as VISA, Mastercard, and Rupay. The gift cards are branded EbixCash cards, but are affiliated with major payment associations such as VISA, Mastercard, and Rupay.The gift cards are sold to a diversified set of corporate customers from various industries.The gift cards are used by corporate customers to disburse incentives to the end users, which are primarily their employees, agents and business associates.The gift cards sold by EbixCash are not reloadable, cannot be used at ATMs or for any other cash-out or funds transfer transactions, and are subject to maximum limits per card (currently INR10,000 or approximately $140).Gift cards issued by EbixCash are valid for a period of 15 months from the date of issuance for virtual cards and three years for physical cards.EbixCash has entered into arrangements with banks and financial institutions to settle payments to merchants based on utilization of the gift cards.
The Company has end-to-end responsibilities related to the gift cards sold, from the activation and ongoing utilization of the gift cards to customer service responsibilities to risk of loss due to fraud on the gift cards sold.EbixCash acts a principal in the sale of gift cards and, thus, gift card revenue is recognized on a gross basis (full purchase value at the time of sale) with the corresponding cost of the gift cards recorded as cost of services provided.Unredeemed gift cards at December 31, 2020 are not significant to the financial results of the Company and are recorded as deferred revenues in the financial results.
EbixCash Travel Exchanges
EbixCash Travel revenues are primarily derived from commissions and transaction fees received from various travel providers and international exchanges involved in the sale of travel to the consumer. EbixCash Travel revenue is for a single performance obligation and is recognized at a point in time. Travel revenues include reservation commissions, segment fees from global travel exchange providers, and transaction net revenues (i.e., the amount charged to travelers less the amount owed to travel service providers) in connection with our reservation services; ancillary fees, including travel insurance-related revenues and certain reservation booking fees; and credit card processing rebates and customer processing fees. EbixCash Travel services include the sale of hotel rooms, airline tickets, bus tickets and train tickets. EbixCash’s Travel revenue is also derived from ticket sales, wherein the commissions payable to EbixCash Travel, along with any transaction fees paid by travel providers and travel exchanges, is recognized as revenue after completion of the service. The transaction price on such services is agreed upon at the time of the purchase.
EbixCash Travel revenue for the corporate meetings, incentives, conferences, and exhibitions ("MICE") packages is recognized at full purchase value at the completion of the obligation with the corresponding costs recorded as cost of services provided. For MICE revenues, EbixCash Travel acts as the principal in transactions and, accordingly, reports revenue on a gross basis. EbixCash Travel controls the service at all times prior to transfer to the customer, is responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
EbixCash Money Transfer
For the EbixCash money transfer business, EbixCash has one performance obligation whereupon the customer engages EbixCash to perform one integrated service. This typically occurs instantaneously when the beneficiary entitled to receive the money transferred by the sender visits the EbixCash outlet and collects the money. Accordingly, EbixCash recognizes revenue upon completion of the following: (i) the customer’s acknowledgment of EbixCash’s terms and conditions and the receipt of payment information, (ii) the money transfer has been processed, (iii) the customer has received a unique transaction identification number, and (iv) funds are available to be picked up by the beneficiary. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by EbixCash to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated
Foreign Exchange and Outward Remittance Services
For EbixCash’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with EbixCash to provide payment services on the customer’s behalf. In the majority of EbixCash’s foreign exchange and payment services, EbixCash makes payments to the recipient to satisfy its performance obligation to the customer and, therefore, EbixCash recognizes revenue on foreign exchange and payment when this performance obligation has been fulfilled.
Consumer Payment Services
EbixCash offers several different bill payment services that vary by considerations such as: (i) who pays the fee to EbixCash (consumer or biller); (ii) whether the service is offered to all consumers; (iii) whether the service is restricted to existing biller relationships of EbixCash; and (iv) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors. The determination of which party is EbixCash’s customer for revenue recognition purposes is based on these considerations for each of EbixCash’s bill payment services. For all transactions, EbixCash’s customers agree to EbixCash’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with EbixCash to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers, customers engage EbixCash to perform one integrated service, collect money from the consumer and process the bill payment transaction, thereby providing the billers real-time or near real-time information regarding their customers’ payments and, thus, simplifying the billers’ collection efforts. EbixCash’s revenues from bill payment services are generated from contracts to process transactions at any time during the duration of the contract. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which EbixCash records as a reduction to revenue.
EbixCash Technology Services
EbixCash also offers on-demand technology to various providers in the area of lending, wealth and asset management, and travel across the world.
Insurance Exchanges
Insurance Exchanges revenues are primarily derived from consideration paid by customers related to our SaaS platforms, related services and the licensing of software. A typical contract for our SaaS platform will also include services for setup, customization, transaction processing, maintenance, and/or hosting. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgement. Set-up and customization services, related to our SaaS platforms, are not considered to be distinct from the usage fees associated with the SaaS platform and, accordingly, are accounted for as a single performance obligation. These services along with the usage or transaction fees are recognized over the contract duration which considers the significance of the upfront fees in the context of the contract and which may, therefore, exceed the initial contracted term.
Contracts generally do not contain a right of return or refund provisions. Our contracts often do contain overage fees, contingent fees, or service level penalties which are accounted for as variable consideration. Revenue accounted for as variable
consideration is immaterial and is recognized using the “right to invoice” practical expedient when the invoiced amount equals the value provided to the customer.
Software-as-a-Service
The Company allocates the transaction price to each distinct performance obligation using the relative stand-alone selling price. Determining the stand-alone selling price may require significant judgement. The stand-alone selling price is the price at which the Company has sold or would sell a promised good or service separately to a customer. The Company determines the stand-alone selling price based on observable price of products or services sold separately in comparable circumstances when such observable prices are available. When standalone selling price is not directly observable, the Company estimates the stand-alone selling price using the market assessment approach by considering historical pricing and other market factors.
Software Licenses
Software license revenues attributable to a software license that is a separate performance obligation are recognized at the point in time that the customer obtains control of the license.
Subscription Services
Subscription services revenues are associated with performance obligations that are satisfied over specific time periods and primarily consist of post-contract support services. Revenue is generally recognized ratably over the contract term. Our subscription contracts are generally for an initial three-year period with subsequent one-year automatic renewals.
Transaction Fees
Transaction revenue is comprised of fees applied to the volume of transactions that are processed through our SaaS platforms. These are typically based on a per-transaction rate and are invoiced for the same period in which the transactions were processed and as the performance obligation is satisfied. The amount invoiced generally equals the value provided to the customer, and revenue is typically recognized when invoiced using the as-invoiced practical expedient.
Professional Services
Professional service revenue primarily consists of fees for setup, customization, training, or consulting. Professional service fees are generally on a time and materials basis or a fixed fee. Revenues for time and materials are recognized as such services are rendered while fixed fee revenues are recognized based on the input method driven by the expected hours to complete the project measured against the actual hours completed to date. Professional services, particularly related to SaaS platforms, may have significant dependencies on the related licensed software and may not be considered a distinct performance obligation.
Risk Compliance Services ("RCS")
RCS revenues consist of two revenue streams - Certificates of Insurance ("COI") and consulting services. COI revenues are derived from consideration paid by customers for the creation and tracking of certificates of insurance. These are transactional-based revenues. Consulting services revenues are driven by distinct consulting service engagements rendered to customers for which revenues are recognized using the output method on a time and material basis as the services are performed.
COI Creation and Tracking
The Company provides services to issue and track certificates of insurance in the U.S. and Australian markets. Revenue is derived from transaction fees for each certificate issued or tracked. The Company recognizes revenue at the issuance of each certificate or over the period the certificate is being tracked.
Consulting Services
The Company provides consulting services to clients around the world for project management and development. Consulting services fees are generally on a time and materials basis or a fixed fee. Revenues for time and materials are
recognized using an output method as the services are rendered while fixed fee revenues are recognized based on the input method driven by the expected hours to complete the project measured against the actual hours completed to date.
Allowance for Doubtful Accounts Receivable
Management specifically analyzes the aging of accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends, and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable.
Valuation of Goodwill
Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of a reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, customer retention and the sale or disposition of a significant portion of the business. The Company first assesses 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 our reporting unit was less than its carrying amount.
The aforementioned quantitative testing process involves comparing the reporting unit carrying values to their respective fair values. We determine fair value of our reporting unit by applying the discounted cash flow method using the present value of future estimated net cash flows, as well as applying the market capitalization method. 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. We perform our annual goodwill impairment evaluation and testing as of October 1st of each year or when events or circumstances dictate more frequently.
The Company has considered the guidance within ASC 350 “Goodwill and Other Intangible Assets” and ASC 280 “Segment Reporting” in concluding that Ebix effectively operates as one reporting unit. There have been no goodwill impairments at the reporting unit level during the periods presented herein.
Projections of cash flows are based on our views of revenue growth rates, operating costs, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values and terminal 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., revenue growth rates, future economic conditions, discount rates, and estimates of terminal values) when determining the fair value of our reporting unit could result in different values and may result in a goodwill impairment charge.
Income Taxes
We account for income taxes in accordance with FASB accounting guidance on the accounting and disclosure of income taxes, which involves estimating the Company’s current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We then assess the likelihood that our net deferred tax assets will be recovered from future taxable income in the years in which those temporary differences are expected to be recovered or settled, and, to the extent we believe that recovery is not likely, we establish a valuation allowance.
On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA: establishes a flat corporate income tax rate of 21.0% on U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings related to such sales; allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company completed its tax accounting for the TCJA during Q4 2018 and 2017, respectively.recorded an adjustment of $24.53 million related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off.
The Company does not recognize a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries, which are considered indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. This guidance clarified 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. The guidance utilizes a two-step approach for evaluating tax positions. Recognition (“Step 1”) occurs when an enterprise concludes that a tax position, based solely on its technical merits is more likely than not to be sustained upon examination. Measurement (“Step 2”) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement. As used in this context, the term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%.
Foreign Currency Translation
The functional currency for the Company's main foreign subsidiaries in Dubai and Singapore is the U.S. dollar, because the intellectual property research and development activities provided by its Singapore and Dubai subsidiaries support of Ebix's operating divisions across the world, which are primarily 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 accumulated other comprehensive income in the accompanying 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.
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See also the “Quarterly Financial Information” included under “Item 7: Management’s Discussion and Analysis
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ebix, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ebix, Inc. and its subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements and schedule (collectively, the ‘financial statements’). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 2, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
For KG Somani & Co.
Anuj Somani
Partner
We have served as the Company's auditor since 2021.
New Delhi, India
April 27, 2021
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ebix, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ebix, Inc. and its subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ RSM US LLP
We served as the Company's auditor from 2018 to 2021.
Atlanta, Georgia
March 2, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Ebix, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ebix, Inc. and subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year ended as of December 31, 2018, and related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2019 expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
T R Chadha & Co LLP
We have served as the Company’s auditor since 2018.
New Delhi, India
March 1, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ebix, Inc. and subsidiaries (the Company) as of December 31, 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2017, and related notes and accompanying financial statements listed in the index at item 15 (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2018, expressed an adverse opinion.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Cherry Bekaert LLP
We served as the Company’s auditor since 2008 until 2017.
Atlanta, Georgia
March 1, 2018
Ebix, Inc. and Subsidiaries
Consolidated Statements of Income
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| (In thousands, except per share amounts) |
| Operating revenue: | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
| | | | | |
| Operating expenses: | | | | | |
| Costs of services provided | 343,262 | | | 205,165 | | | 168,415 | |
| Product development | 35,267 | | | 45,302 | | | 39,078 | |
| Sales and marketing | 13,835 | | | 19,578 | | | 17,587 | |
| General and administrative, net | 87,537 | | | 140,429 | | | 108,475 | |
| Amortization and depreciation | 13,738 | | | 14,468 | | | 11,292 | |
| Impairment of intangible asset | 6,168 | | | 0 | | | 0 | |
| Total operating expenses | 499,807 | | | 424,942 | | | 344,847 | |
| | | | | |
| Operating income | 125,802 | | | 155,673 | | | 152,979 | |
| Interest income | 167 | | | 629 | | | 436 | |
| Interest expense | (31,578) | | | (42,332) | | | (27,101) | |
| Non-operating income | 153 | | | 337 | | | 60 | |
| Non-operating expense - litigation settlement (see Note 5) | 0 | | | (21,140) | | | 0 | |
| Foreign currency exchange loss | (387) | | | (2,376) | | | (792) | |
| Income before income taxes | 94,157 | | | 90,791 | | | 125,582 | |
| Income tax provision | (5,330) | | | (220) | | | (32,501) | |
| Net income including noncontrolling interest | $ | 88,827 | | | $ | 90,571 | | | $ | 93,081 | |
| Net loss attributable to noncontrolling interest (see Note 17) | (3,550) | | | (6,149) | | | (58) | |
| Net income attributable to Ebix, Inc. | $ | 92,377 | | | $ | 96,720 | | | $ | 93,139 | |
| Basic earnings per common share | $ | 3.03 | | | $ | 3.17 | | | $ | 2.97 | |
| Diluted earnings per common share | $ | 3.02 | | | $ | 3.16 | | | $ | 2.95 | |
| Basic weighted average shares outstanding | 30,510 | | | 30,511 | | | 31,393 | |
| Diluted weighted average shares outstanding | 30,571 | | | 30,594 | | | 31,534 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | (In thousands, except per share amounts) |
| Operating revenue: | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
|
| | | | | | |
| Operating expenses: | | | | | |
| Costs of services provided | 168,415 |
| | 129,494 |
| | 85,128 |
|
| Product development | 39,078 |
| | 33,854 |
| | 32,981 |
|
| Sales and marketing | 17,587 |
| | 16,303 |
| | 17,469 |
|
| General and administrative, net (see Note 3) | 108,475 |
| | 59,976 |
| | 51,689 |
|
| Amortization and depreciation | 11,292 |
| | 11,123 |
| | 10,746 |
|
| Total operating expenses | 344,847 |
| | 250,750 |
| | 198,013 |
|
| | | | | | |
| Operating income | 152,979 |
| | 113,221 |
| | 100,281 |
|
| Interest income | 436 |
| | 1,711 |
| | 1,851 |
|
| Interest expense | (27,101 | ) | | (13,383 | ) | | (7,376 | ) |
| Non-operating income (see Note 18) | 60 |
| | — |
| | 1,162 |
|
| Foreign currency exchange gain (loss) | (792 | ) | | 1,811 |
| | 13 |
|
| Income before income taxes | 125,582 |
| | 103,360 |
| | 95,931 |
|
| Income tax provision | (32,501 | ) | | (777 | ) | | (1,637 | ) |
| Net income including noncontrolling interest | $ | 93,081 |
| | $ | 102,583 |
| | $ | 94,294 |
|
| Net income (loss) attributable to noncontrolling interest (see Note 18) | (58 | ) | | 1,965 |
| | 447 |
|
| Net income attributable to Ebix, Inc. | $ | 93,139 |
| | $ | 100,618 |
| | $ | 93,847 |
|
| Basic earnings per common share | $ | 2.97 |
| | $ | 3.19 |
| | $ | 2.88 |
|
| Diluted earnings per common share | $ | 2.95 |
| | $ | 3.17 |
| | $ | 2.86 |
|
| Basic weighted average shares outstanding | 31,393 |
| | 31,552 |
| | 32,603 |
|
| Diluted weighted average shares outstanding | 31,534 |
| | 31,719 |
| | 32,863 |
|
See accompanying notes to the consolidated financial statements.
Ebix, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (In thousands) |
| Net income including noncontrolling interest | | $ | 88,827 | | | $ | 90,571 | | | $ | 93,081 | |
| Other comprehensive loss: | | | | | | |
| Foreign currency translation adjustments | | (23,105) | | | (15,021) | | | (39,354) | |
| Total other comprehensive loss | | (23,105) | | | (15,021) | | | (39,354) | |
| Comprehensive income | | $ | 65,722 | | | $ | 75,550 | | | $ | 53,727 | |
| Comprehensive loss attributable to noncontrolling interest (see Note 17) | | (3,550) | | | (6,149) | | | (58) | |
| Comprehensive income attributable to Ebix, Inc. | | $ | 69,272 | | | $ | 81,699 | | | $ | 53,785 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | | (In thousands) |
| Net income including noncontrolling interest | | $ | 93,081 |
| | $ | 102,583 |
| | $ | 94,294 |
|
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustments | | (39,354 | ) | | 9,654 |
| | (3,399 | ) |
| Total other comprehensive income (loss) | | (39,354 | ) | | 9,654 |
| | (3,399 | ) |
| Comprehensive income | | $ | 53,727 |
| | $ | 112,237 |
| | $ | 90,895 |
|
| Comprehensive income attributable to noncontrolling interest (see Note 18) | | (58 | ) |
| 1,965 |
|
| 447 |
|
| Comprehensive income attributable to Ebix, Inc. | | $ | 53,785 |
| | $ | 110,272 |
| | $ | 90,448 |
|
See accompanying notes to the consolidated financial statements.
58
Ebix, Inc. and Subsidiaries
Consolidated Balance Sheets |
| | | | | | | |
| | December 31,
2018 | | December 31,
2017 |
| | (In thousands, except share and per share amounts) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 147,766 |
| | $ | 63,895 |
|
| Short-term investments | 31,192 |
| | 25,592 |
|
| Restricted cash | 8,317 |
| | 4,040 |
|
| Fiduciary funds- restricted | 6,491 |
| | 8,035 |
|
| Trade accounts receivable, less allowances of $6,969 and $4,143, respectively | 174,340 |
| | 117,838 |
|
| Other current assets | 59,274 |
| | 33,532 |
|
| Total current assets | 427,380 |
| | 252,932 |
|
| Property and equipment, net | 50,294 |
| | 41,704 |
|
| Goodwill | 946,685 |
| | 666,863 |
|
| Intangibles, net | 51,448 |
| | 45,711 |
|
| Indefinite-lived intangibles | 42,055 |
| | 42,055 |
|
| Capitalized software development costs, net | 11,742 |
| | 8,499 |
|
| Deferred tax asset, net | 54,629 |
| | 43,529 |
|
| Other assets | 26,714 |
| | 11,720 |
|
| Total assets | $ | 1,610,947 |
| | $ | 1,113,013 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
|
|
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ | 130,221 |
| | $ | 75,073 |
|
| Accrued payroll and related benefits | 9,227 |
| | 8,201 |
|
| Cash overdraft | 17,841 |
| | 9,243 |
|
| Fiduciary funds- restricted | 6,491 |
| | 8,035 |
|
| Short term debt | 3,990 |
| | — |
|
| Contingent liability for accrued earn-out acquisition consideration | 13,767 |
| | 4,000 |
|
| Current portion of long term debt and capital lease obligation, net of deferred financing costs of $575 and $136, respectively | 14,603 |
| | 14,381 |
|
| Deferred revenue | 35,609 |
| | 22,562 |
|
| Current deferred rent | 98 |
| | 278 |
|
| Other current liabilities | 85,581 |
| | 5,159 |
|
| Total current liabilities | 317,428 |
| | 146,932 |
|
| Revolving line of credit | 424,537 |
| | 274,529 |
|
| Long term debt and capital lease obligation, less current portion, net of deferred financing costs of $1,811 and $298, respectively | 274,716 |
| | 110,978 |
|
| Contingent liability for accrued earn-out acquisition consideration | 11,209 |
| | 33,096 |
|
| Deferred revenue | 9,051 |
| | 1,423 |
|
| Long term deferred rent | 438 |
| | 638 |
|
| Deferred tax liability, net | 1,282 |
| | — |
|
| Other liabilities | 27,849 |
| | 11,658 |
|
| Total liabilities | 1,066,510 |
| | 579,254 |
|
| Commitments and Contingencies, Note 6 |
|
| |
|
|
| | | | |
| Stockholders’ equity: | | | |
| Convertible Series D Preferred stock, $.10 par value, 500,000 shares authorized, no shares issued and outstanding at December 31, 2018 and 2017 | — |
| | — |
|
| | | | | | | | | | | |
| Ebix, Inc. and Subsidiaries |
| Consolidated Balance Sheets |
|
| | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands, except share and per share amounts) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 105,035 | | | $ | 73,228 | |
| | | |
| Receivables from service providers | 4,711 | | | 25,607 | |
| Short-term investments | 25,019 | | | 4,443 | |
| Restricted cash | 8,519 | | | 35,051 | |
| Fiduciary funds - restricted | 4,106 | | | 4,966 | |
| Trade accounts receivable, less allowances of $22,691 and $21,696, respectively | 142,847 | | | 153,565 | |
| | | |
| Other current assets | 71,661 | | | 67,074 | |
| Total current assets | 361,898 | | | 363,934 | |
| Property and equipment, net | 52,521 | | | 48,421 | |
| Right-of-use assets | 12,372 | | | 19,544 | |
| Goodwill | 949,037 | | | 952,404 | |
| Intangibles, net | 50,880 | | | 46,955 | |
| Indefinite-lived intangibles | 21,647 | | | 42,055 | |
| Capitalized software development costs, net | 19,389 | | | 19,183 | |
| Deferred tax assets, net | 63,402 | | | 69,227 | |
| Other assets | 38,707 | | | 29,896 | |
| Total assets | $ | 1,569,853 | | | $ | 1,591,619 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ | 64,764 | | | $ | 84,735 | |
| Payables to service agents | 5,281 | | | 12,196 | |
| Accrued payroll and related benefits | 11,792 | | | 8,755 | |
| Working capital facilities | 16,643 | | | 28,352 | |
| Fiduciary funds - restricted | 4,106 | | | 4,966 | |
| Short-term debt | 894 | | | 1,167 | |
| Contingent liability for earn-out acquisition consideration | 0 | | | 8,621 | |
| Current portion of long-term debt, net of deferred financing costs of $920 and $575, respectively | 23,621 | | | 22,091 | |
| Contract liabilities | 32,898 | | | 28,712 | |
| Lease liability | 3,905 | | | 5,955 | |
| Other current liabilities | 27,486 | | | 29,335 | |
| Total current liabilities | 191,390 | | | 234,885 | |
| Revolving line of credit | 439,402 | | | 438,037 | |
| Long-term debt, less current portion, net of deferred financing costs of $1,062 and $1,534, respectively | 232,140 | | | 254,467 | |
| Contingent liability for earn-out acquisition consideration | 0 | | | 1,474 | |
| Contract liabilities | 8,033 | | | 8,541 | |
| Lease liability | 8,540 | | | 13,196 | |
| | Deferred tax liability, net | | Deferred tax liability, net | 1,235 | | | 1,235 | |
| Other liabilities | | Other liabilities | 29,009 | | | 40,339 | |
| Total liabilities | | Total liabilities | 909,749 | | | 992,174 | |
| Commitments and Contingencies, Note 5 | | Commitments and Contingencies, Note 5 | 0 | | 0 |
| | | Common stock, $.10 par value, 120,000,000 shares authorized, 30,567,725 issued and outstanding at December 31, 2018 and 31,476,428 issued and outstanding at December 31, 2017 | 3,057 |
| | 3,148 |
| |
| | Stockholders’ equity: | | Stockholders’ equity: | |
| Preferred stock, $0.10 par value, 500,000 shares authorized, 0 shares issued and outstanding at December 31, 2020 and 2019 | | Preferred stock, $0.10 par value, 500,000 shares authorized, 0 shares issued and outstanding at December 31, 2020 and 2019 | 0 | | | 0 | |
| Series Y Convertible preferred stock, $0.10 par value, 350,000 shares authorized, no shares issued and outstanding at December 31, 2020 and 0 shares authorized, issued and outstanding at December 31, 2019 | | Series Y Convertible preferred stock, $0.10 par value, 350,000 shares authorized, no shares issued and outstanding at December 31, 2020 and 0 shares authorized, issued and outstanding at December 31, 2019 | 0 | | | 0 | |
| Common stock, $0.10 par value, 220,000,000 shares authorized, 30,515,334 issued and outstanding at December 31, 2020 and 30,492,044 issued and outstanding at December 31, 2019 | | Common stock, $0.10 par value, 220,000,000 shares authorized, 30,515,334 issued and outstanding at December 31, 2020 and 30,492,044 issued and outstanding at December 31, 2019 | 3,052 | | | 3,049 | |
| Additional paid-in capital | 3,397 |
| | 1,410 |
| Additional paid-in capital | 11,126 | | | 6,960 | |
| | Retained earnings | 535,118 |
| | 510,975 |
| Retained earnings | 700,304 | | | 618,503 | |
| Accumulated other comprehensive loss | (63,377 | ) | | (24,023 | ) | Accumulated other comprehensive loss | (101,503) | | | (78,398) | |
| Total Ebix, Inc. stockholders’ equity | 478,195 |
| | 491,510 |
| Total Ebix, Inc. stockholders’ equity | 612,979 | | | 550,114 | |
| Noncontrolling interest (see Note 18) | 66,242 |
| | 42,249 |
| |
| Noncontrolling interest (see Note 17) | | Noncontrolling interest (see Note 17) | 47,125 | | | 49,331 | |
| Total stockholders' equity | $ | 544,437 |
| | $ | 533,759 |
| Total stockholders' equity | 660,104 | | | 599,445 | |
| Total liabilities and stockholders’ equity | $ | 1,610,947 |
| | $ | 1,113,013 |
| Total liabilities and stockholders’ equity | $ | 1,569,853 | | | $ | 1,591,619 | |
See accompanying notes to the consolidated financial statements.
Ebix, Inc. and Subsidiaries
Consolidated Statements Stockholders’ Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | | | | | |
| | Issued Shares | | Amount | | Treasury Stock Shares | | Treasury Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrol-ling interest | | Total |
| | (In thousands, except per share amounts) |
| Balance, January 1, 2016 | 33,416,110 |
| | $ | 3,342 |
| | — |
| | $ | — |
| | $ | 57,120 |
| | $ | 378,787 |
| | $ | (30,278 | ) | | $ | — |
| | 408,971 |
|
| Net income attributable to Ebix, Inc. | — |
| | — |
| | — |
| | — |
| | — |
| | 93,847 |
| | — |
| | — |
| | 93,847 |
|
| Net income attributable to noncontrolling | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 447 |
| | 447 |
|
| Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,399 | ) | | — |
| | (3,399 | ) |
| Exercise of stock options | 72,379 |
| | 7 |
| | — |
| | — |
| | 817 |
| | — |
| | — |
| | — |
| | 824 |
|
| Deferred compensation and amortization related to options and restricted stock | — |
| | — |
| | — |
| | — |
| | 2,794 |
| | — |
| | — |
| | — |
| | 2,794 |
|
| Repurchase of common stock | (1,479,454 | ) | | (148 | ) | | — |
| | — |
| | (59,725 | ) | | (5,441 | ) | | — |
| | — |
| | (65,314 | ) |
| Vesting of restricted stock | 101,444 |
| | 11 |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | — |
| | — |
|
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (17,185 | ) | | (3 | ) | | — |
| | — |
| | (995 | ) | | — |
| | — |
| | — |
| | (998 | ) |
| Recognized controlling ownership of joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11,293 |
| | 11,293 |
|
| Cancellation of treasury shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends paid | — |
| | — |
| | — |
| | — |
| | — |
| | (9,829 | ) | | — |
| | — |
| | (9,829 | ) |
| Balance, December 31, 2016 | 32,093,294 |
| | $ | 3,209 |
| | — |
| | $ | — |
| | $ | — |
| | $ | 457,364 |
| | $ | (33,677 | ) | | $ | 11,740 |
| | $ | 438,636 |
|
| Net income attributable to Ebix, Inc. | — |
| | — |
| | — |
| | — |
| | — |
| | 100,618 |
| | — |
| | | | 100,618 |
|
| Net income attributable to noncontrolling | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,965 |
| | 1,965 |
|
| Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,654 |
| | — |
| | 9,654 |
|
| Exercise of stock options | 3,500 |
| | — |
| | | | | | 52 |
| | | | | | — |
| | 52 |
|
| Repurchase of common stock | (687,048 | ) | | (68 | ) | | — |
| | — |
| | (1,852 | ) | | (37,462 | ) | | — |
| | — |
| | (39,382 | ) |
| Deferred compensation and amortization related to options and restricted stock | — |
| | — |
| | — |
| | — |
| | 2,818 |
| | — |
| | — |
| | — |
| | 2,818 |
|
| Vesting of restricted stock | 72,816 |
| | 7 |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
|
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (6,134 | ) | | — |
| | — |
| | — |
| | (398 | ) | | — |
| | — |
| | — |
| | (398 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ebix, Inc. and Subsidiaries |
| Consolidated Statements Stockholders’ Equity |
|
| | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | | | | | |
| Issued
Shares | | Amount | | | | | | Additional Paid-in
Capital | | Retained
Earnings | | Accumulated Other Comprehensive
Loss | | Noncontrol-ling interest | | Total |
| (In thousands, except per share amounts) |
| Balance, January 1, 2018 | 31,476,428 | | | $ | 3,148 | | | | | | | $ | 1,410 | | | $ | 510,975 | | | $ | (24,023) | | | $ | 42,249 | | | 533,759 | |
Cumulative effect of accounting change
(adoption of Topic 606), net of tax effect | — | | | — | | | | | | | — | | | (8,714) | | | — | | | — | | | (8,714) | |
Cumulative effect of accounting change
(adoption of ASC 340-40), net of tax effect | — | | | — | | | | | | | — | | | (1,446) | | | — | | | — | | | (1,446) | |
| Net income attributable to Ebix, Inc. | — | | | — | | | | | | | — | | | 93,139 | | | — | | | — | | | 93,139 | |
| Net loss attributable to noncontrolling interest | — | | | — | | | | | | | — | | | — | | | — | | | (58) | | | (58) | |
| Cumulative translation adjustment | — | | | — | | | | | | | — | | | — | | | (39,354) | | | — | | | (39,354) | |
| Exercise of stock options | 27,999 | | | 3 | | | | | | | 436 | | | — | | | — | | | — | | | 439 | |
| Repurchase and retirement of common stock | (996,773) | | | (100) | | | | | | | — | | | (49,520) | | | — | | | — | | | (49,620) | |
| Deferred compensation and amortization related to options and restricted stock | — | | | — | | | | | | | 2,811 | | | — | | | — | | | — | | | 2,811 | |
| Vesting of restricted stock | 68,946 | | | 6 | | | | | | | (6) | | | — | | | — | | | — | | | 0 | |
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (8,875) | | | — | | | | | | | (467) | | | — | | | — | | | — | | | (467) | |
| Noncontrolling interest | — | | | — | | | | | | | (787) | | | — | | | — | | | 24,051 | | | 23,264 | |
| Common stock dividends paid, $0.30 per share | — | | | — | | | | | | | — | | | (9,316) | | | — | | | — | | | (9,316) | |
| Balance, December 31, 2018 | 30,567,725 | | | $ | 3,057 | | | | | | | $ | 3,397 | | | $ | 535,118 | | | $ | (63,377) | | | $ | 66,242 | | | $ | 544,437 | |
| Net income attributable to Ebix, Inc. | — | | | — | | | | | | | — | | | 96,720 | | | — | | | 0 | | 96,720 | |
| Net loss attributable to noncontrolling interest | — | | | — | | | | | | | — | | | — | | | — | | | (6,149) | | | (6,149) | |
| Cumulative translation adjustment | — | | | — | | | | | | | — | | | — | | | (15,021) | | | — | | | (15,021) | |
| Repurchase and retirement of common stock | (95,000) | | | (10) | | | | | | | — | | | (4,142) | | | — | | | 0 | | (4,152) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital Contribution to joint venture, loans converted to capital contribution
| — |
| | — |
| | — |
| | — |
| | 797 |
| | — |
| | — |
| | 766 |
| | 1,563 |
|
| Recognized controlling ownership of joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,778 |
| | 27,778 |
|
| Dividends paid | — |
| | — |
| | — |
| | — |
| | — |
| | (9,545 | ) | | — |
| | — |
| | (9,545 | ) |
| Balance, December 31, 2017 | 31,476,428 |
| | $ | 3,148 |
| | — |
| | $ | — |
| | $ | 1,410 |
| | $ | 510,975 |
| | $ | (24,023 | ) | | $ | 42,249 |
| | $ | 533,759 |
|
| Cumulative effect of accounting change (adoption of Topic 606), net of tax effect | — |
| | — |
| | — |
| | — |
| | — |
| | (8,714 | ) | | — |
| | — |
| | (8,714 | ) |
| Cumulative effect of accounting change (adoption of ASC 340-40), net of tax effect | — |
| | — |
| | — |
| | — |
| | — |
| | (1,446 | ) | | — |
| | — |
| | (1,446 | ) |
| Net income attributable to Ebix, Inc. | — |
| | — |
| | — |
| | — |
| | — |
| | 93,139 |
| | — |
| | — |
| | 93,139 |
|
| Net loss attributable to noncontrolling | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (58 | ) | | (58 | ) |
| Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (39,354 | ) | | — |
| | (39,354 | ) |
| Exercise of stock options | 27,999 |
| | 3 |
| | — |
| | — |
| | 436 |
| | — |
| | — |
| | — |
| | 439 |
|
| Repurchase of common stock | (996,773 | ) | | (100 | ) | | — |
| | — |
| | — |
| | (49,520 | ) | | — |
| | — |
| | (49,620 | ) |
| Deferred compensation and amortization related to options and restricted stock | — |
| | — |
| | — |
| | — |
| | 2,811 |
| | — |
| | — |
| | — |
| | 2,811 |
|
| Vesting of restricted stock | 68,946 |
| | 6 |
| | — |
| | — |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
|
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (8,875 | ) | | — |
| | — |
| | — |
| | (467 | ) | | — |
| | — |
| | — |
| | (467 | ) |
| Recognized controlling ownership of joint venture | — |
| | — |
| | — |
| | — |
| | (787 | ) | | — |
| | — |
| | 24,051 |
| | 23,264 |
|
| Dividends paid | — |
| | — |
| | — |
| | — |
| | — |
| | (9,316 | ) | | — |
| | | | (9,316 | ) |
| Balance, December 31, 2018 | 30,567,725 |
| | $ | 3,057 |
| | — |
| | $ | — |
| | $ | 3,397 |
| | $ | 535,118 |
| | $ | (63,377 | ) | | $ | 66,242 |
| | $ | 544,437 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred compensation and amortization related to options and restricted stock | — | | | — | | | | | | | 3,397 | | | — | | | — | | | 0 | | 3,397 | |
| Vesting of restricted stock | 24,107 | | | 2 | | | | | | | (2) | | | — | | | — | | | — | | | 0 | |
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (4,788) | | | — | | | | | | | (230) | | | — | | | — | | | — | | | (230) | |
| Noncontrolling interest | — | | | — | | | | | | | 398 | | | — | | | — | | | (10,762) | | | (10,364) | |
| Common stock dividends paid, $0.30 per share | — | | | — | | | | | | | — | | | (9,193) | | | — | | | | | (9,193) | |
| Balance, December 31, 2019 | 30,492,044 | | | $ | 3,049 | | | | | | | $ | 6,960 | | | $ | 618,503 | | | $ | (78,398) | | | $ | 49,331 | | | $ | 599,445 | |
| Net income attributable to Ebix, Inc. | — | | | — | | | | | | | — | | | 92,377 | | | — | | | — | | | 92,377 | |
| Net loss attributable to noncontrolling interest | — | | | — | | | | | | | — | | | — | | | — | | | (3,550) | | | (3,550) | |
| Cumulative translation adjustment | — | | | — | | | | | | | — | | | — | | | (23,105) | | | — | | | (23,105) | |
| Exercise of stock options | 30,000 | | | 3 | | | | | | | 633 | | | — | | | — | | | — | | | 636 | |
| Deferred compensation and amortization related to options and restricted stock | — | | | — | | | | | | | 4,792 | | | — | | | — | | | — | | | 4,792 | |
| Vesting of restricted stock | 68,504 | | | 7 | | | | | | | (7) | | | — | | | — | | | — | | | 0 | |
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (75,214) | | | (7) | | | | | | | (1,253) | | | (1,329) | | | — | | | — | | | (2,589) | |
| Noncontrolling interest | — | | | — | | | | | | | — | | | — | | | — | | | 1,343 | | | 1,343 | |
Common stock dividends paid, $0.30 per share
| — | | | — | | | | | | | — | | | (9,245) | | | — | | | | | (9,245) | |
| Balance, December 31, 2020 | 30,515,334 | | | $ | 3,052 | | | | | | | $ | 11,126 | | | $ | 700,304 | | | $ | (101,503) | | | $ | 47,125 | | | $ | 660,104 | |
See accompanying notes to the consolidated financial statements.
Ebix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | (in thousands) |
| Cash flows from operating activities: | | | | | |
| Net income attributable to Ebix, Inc. | $ | 93,139 |
| | $ | 100,618 |
| | $ | 93,847 |
|
| Net income (loss) attributable to noncontrolling interest | (58 | ) | | 1,965 |
| | 447 |
|
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 11,292 |
| | 11,123 |
| | 10,746 |
|
| Provision for doubtful accounts | 3,571 |
| | 1,713 |
| | 1,515 |
|
| Provision for deferred taxes, net of acquisitions and effects of currency translation | (13,043 | ) | | (13,667 | ) | | (6,410 | ) |
| Unrealized foreign exchange losses | 606 |
| | 1,387 |
| | 32 |
|
| Gain on investment interest in IHC/Ebix joint venture | — |
| | — |
| | (1,162 | ) |
| Amortization of capitalized software development costs | 2,233 |
| | 2,175 |
| | 1,116 |
|
| Share-based compensation | 2,811 |
| | 2,818 |
| | 2,794 |
|
| Reduction of acquisition earn-out contingent liability | (1,391 | ) | | (164 | ) | | (1,344 | ) |
| Reduction of rent expense as a result of purchase accounting adjustment | — |
| | (948 | ) | | — |
|
| Changes in current assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | (10,810 | ) | | (34,245 | ) | | (12,659 | ) |
| Other assets | (8,486 | ) | | (2,133 | ) | | 1,789 |
|
| Accounts payable and accrued expenses | 6,539 |
| | 8,906 |
| | (3,703 | ) |
| Accrued payroll and related benefits | (788 | ) | | (3,979 | ) | | 170 |
|
| Deferred rent | (360 | ) | | (413 | ) | | (234 | ) |
| Reserve for potential uncertain income tax return positions | 149 |
| | 5,879 |
| | 490 |
|
| Other liabilities | 13,205 |
| | 252 |
| | (3,039 | ) |
| Deferred revenue | (8,740 | ) | | (4,480 | ) | | 2,176 |
|
| Net cash provided by operating activities | 89,869 |
| | 76,807 |
| | 86,571 |
|
| Cash flows from investing activities: | | | | | |
| Investment in Transcorp, net of cash acquired | (6,554 | ) | | — |
| | — |
|
| Investment in Centrum, net of cash acquired | (176,137 | ) | | — |
| | — |
|
| Investment in SmartClass, net of cash acquired | (7,593 | ) | | — |
| | — |
|
| Cash received from Paul Merchants for 10% stake in MTSS | 4,996 |
| | — |
| | — |
|
| Investment in Indus, net of cash acquired | (24,261 | ) | | — |
| | — |
|
| Investment in Mercury, net of cash acquired | (11,356 | ) | | — |
| | — |
|
| Investment in Miles, net of cash acquired | (17,721 | ) | | — |
| | — |
|
| Investment in Leisure, net of cash acquired | (1,304 | ) | | — |
| | — |
|
| Investment in AHA Taxis, net of cash acquired | (71 | ) | | — |
| | — |
|
| Investment in Routier, net of cash acquired | (413 | ) | | — |
| | — |
|
| Investment in Weizmann, net of cash acquired | 12,886 |
| | — |
| | — |
|
| Investment in Lawson, net of cash acquired | 381 |
| | — |
| | — |
|
| Investment in Business Travels, net of cash acquired | (414 | ) | | — |
| | — |
|
| Payment of acquisition earn-out contingency, ItzCash | (3,831 | ) | | — |
| | — |
|
| Investment in Paul Merchants | — |
| | (37,398 | ) | | — |
|
| | | | | | | | | | | | | | | | | |
| Ebix, Inc. and Subsidiaries |
| Consolidated Statements of Cash Flows |
|
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net income attributable to Ebix, Inc. | $ | 92,377 | | | $ | 96,720 | | | $ | 93,139 | |
| Net (loss) income attributable to noncontrolling interest | (3,550) | | | (6,149) | | | (58) | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 13,738 | | | 14,468 | | | 11,292 | |
| Provision for doubtful accounts | 1,749 | | | 12,325 | | | 3,571 | |
| Provision for deferred taxes, net of acquisitions and effects of currency translation | 5,114 | | | (15,525) | | | (13,043) | |
| Unrealized foreign exchange losses | 0 | | | 1,104 | | | 606 | |
| | | | | |
| Amortization of right-of-use assets | 6,100 | | | 7,144 | | | 0 | |
| Amortization of capitalized software development costs | 3,367 | | | 2,696 | | | 2,233 | |
| | | | | |
| Share-based compensation | 4,792 | | | 3,397 | | | 2,811 | |
| | | | | |
| Reduction of acquisition earn-out contingent liability | (3,105) | | | (16,543) | | | (1,391) | |
| | | | | |
| Cash paid for acquisition earn-out | (6,453) | | | 0 | | | (3,831) | |
| Intangible asset impairment | 6,168 | | | 0 | | | 0 | |
| Changes in current assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | 3,258 | | | (22,977) | | | 15,839 | |
| Receivables from service providers | 20,896 | | | 10,950 | | | (36,557) | |
| Payables to service agents | (6,915) | | | (13,455) | | | 25,651 | |
| Other assets | (10,487) | | | (8,351) | | | (8,486) | |
| Accounts payable and accrued expenses | (14,569) | | | (19,624) | | | (11,787) | |
| Accrued payroll and related benefits | 2,100 | | | (661) | | | (788) | |
| Lease liabilities | (5,700) | | | (6,878) | | | (360) | |
| Reserve for potential uncertain income tax return positions | 0 | | | (95) | | | 149 | |
| | | | | |
| Other liabilities | (12,204) | | | 30,396 | | | 13,205 | |
| Contract liabilities | 3,680 | | | (8,149) | | | (8,740) | |
| Net cash provided by operating activities | 100,356 | | | 60,793 | | | 83,455 | |
| Cash flows from investing activities: | | | | | |
| Cash paid for acquisitions, net of cash acquired | (14,276) | | | (105,466) | | | (232,557) | |
| Cash (paid to) received from Paul Merchants for 10% stake in MTSS combined business and other investment | 0 | | | (5,348) | | | 4,996 | |
| Maturities (purchases) of marketable securities | (20,964) | | | 27,015 | | | (4,087) | |
| | | | | |
| Capitalized software development costs | (4,229) | | | (7,989) | | | (8,079) | |
| Capital expenditures | (5,337) | | | (4,908) | | | (8,032) | |
| Net cash used in investing activities | (44,806) | | | (96,696) | | | (247,759) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from / (payment) to revolving line of credit, net | 1,364 | | | 13,500 | | | 150,008 | |
| Proceeds from term loan | 0 | | | 0 | | | 175,500 | |
| | | | | |
| Principal payments on term loan obligation | (20,711) | | | (15,063) | | | (10,016) | |
|
| | | | | | | | | | | |
| Investment in Via, net of cash acquired | — |
| | (67,835 | ) | | — |
|
| Investment in Wall Street | — |
| | (6,970 | ) | | — |
|
| Investment in YouFirst, net of cash acquired | — |
| | (9,657 | ) | | — |
|
| Investment in beBetter | — |
| | (1,000 | ) | | — |
|
| Investment in ItzCash, net of cash acquired | — |
| | (69,301 | ) | | — |
|
| Payment of acquisition earn-out contingency, Qatarlyst | — |
| | (1,921 | ) | | — |
|
| Investment in Hope Health | — |
| | — |
| | (1,643 | ) |
| Investment in Wdev, net of cash acquired | — |
| | — |
| | (6,320 | ) |
| Investment in EbixHealth JV, net of cash acquired | — |
| | — |
| | (696 | ) |
| Maturities (purchases) of marketable securities | (4,087 | ) | | 1,201 |
| | (2,115 | ) |
| Capitalized software development costs | (5,745 | ) | | (2,805 | ) | | (3,988 | ) |
| Capital expenditures | (10,366 | ) | | (7,385 | ) | | (5,977 | ) |
| Net cash used in investing activities | (251,590 | ) | | (203,071 | ) | | (20,739 | ) |
| Cash flows from financing activities: | | | | | |
| Proceeds from / (Repayment) to line of credit, net | 150,008 |
| | 120,500 |
| | (52,436 | ) |
| Proceeds from term loan | 175,500 |
| | 20,000 |
| | 125,000 |
|
| Principal payments on term loan obligation | (10,016 | ) | | (13,000 | ) | | (6,250 | ) |
| Short term loan to a third party | (8,341 | ) | | — |
| | — |
|
| Cash overdraft | (769 | ) | | 6,162 |
| | — |
|
| Repurchase of common stock | (40,820 | ) | | (45,732 | ) | | (59,784 | ) |
| Payments of long term debt | (80 | ) | | — |
| | (600 | ) |
| Payments for capital lease obligations | (6 | ) | | (11 | ) | | (5 | ) |
| Proceeds from exercise of common stock options | 439 |
| | 52 |
| | 824 |
|
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (467 | ) | | (398 | ) | | (998 | ) |
| Dividends paid | (9,316 | ) | | (9,545 | ) | | (9,829 | ) |
| Net cash provided (used) by financing activities | 256,132 |
| | 78,028 |
| | (4,078 | ) |
| Effect of foreign exchange rates on cash and cash equivalents | $ | (5,689 | ) | | $ | 2,162 |
| | $ | (1,992 | ) |
| Net change in cash and cash equivalents, and restricted cash | 88,722 |
| | (46,074 | ) | | 59,762 |
|
| Cash and cash equivalents, and restricted cash at the beginning of the year | $ | 70,867 |
| | $ | 116,941 |
| | $ | 57,179 |
|
| Cash and cash equivalents, and restricted cash at the end of the year | $ | 159,589 |
| | $ | 70,867 |
| | $ | 116,941 |
|
| Supplemental disclosures of cash flow information: | | | | | |
| Interest paid | 25,690 |
| | 12,552 |
| | 7,219 |
|
| Income taxes paid | 10,149 |
| | 10,426 |
| | 16,634 |
|
| | | | | | | | | | | | | | | | | |
| Payments on short-term notes, net | 0 | | | 6,450 | | | (8,341) | |
| Working capital facilities | (10,927) | | | 19,079 | | | (8,094) | |
| Repurchase of common stock | 0 | | | (12,952) | | | (40,820) | |
| | | | | |
| Payments of long term debt | (271) | | | (686) | | | (80) | |
| Payments for capital lease obligations | (210) | | | 0 | | | (6) | |
| | | | | |
| Proceeds from exercise of common stock options | 636 | | | 0 | | | 439 | |
| Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (2,589) | | | (230) | | | (467) | |
| | | | | |
| Dividends paid | (9,245) | | | (9,193) | | | (9,316) | |
| Net cash (used) provided by financing activities | (41,953) | | | 905 | | | 248,807 | |
| Effect of foreign exchange rates on cash and cash equivalents | (4,753) | | | (3,314) | | | (5,689) | |
| Net change in cash and cash equivalents, and restricted cash | 8,844 | | | (38,312) | | | 78,814 | |
| Cash and cash equivalents, and restricted cash at the beginning of the year | 111,369 | | | 149,681 | | | 70,867 | |
| Cash and cash equivalents, and restricted cash at the end of the year | $ | 120,213 | | | $ | 111,369 | | | $ | 149,681 | |
| Supplemental disclosures of cash flow information: | | | | | |
| Interest paid | $ | 29,498 | | | $ | 41,143 | | | $ | 25,690 | |
| Income taxes paid | $ | 21,321 | | | $ | 24,041 | | | $ | 10,149 | |
See accompanying notes to the consolidated financial statements.
Ebix, Inc. and Subsidiaries
Supplemental schedule of noncash financing activities:
As of December 31, 2020, there were 75,214 shares, totaling $2.6 million, used to satisfy exercise costs and the recipients' income tax obligations related to stock options exercised and restricted stock vesting.
As of December 31, 2018, $70.5there was $77.6 million of the upfront cash consideration of Weizmann, AHA Taxis, Business Travels, Pearl International Tours & Travels, and Lawson remained unfunded and iscontingent consideration included in Other current liabilities in the Company's Consolidated Balance Sheet, see Note 12.Sheet.
As of December 31, 2018, there were 200,000 shares totaling $8.8 million of share repurchases that were not settled until January 2019.
During 2018, there were 8,875 shares, totaling $467 thousand, used to satisfy exercise costs and the recipients' income tax obligations related to stock options exercised and restricted stock vesting.
During 2017 there were 6,134 shares, totaling $398 thousand, used to satisfy exercise costs and the recipients' income tax obligations related to stock options exercised and restricted stock vesting.
During 2016 there were 17,185 shares, totaling $998 thousand, used to satisfy exercise costs and the recipients' income tax obligations related to stock options exercised and restricted stock vesting.
As of December 31, 2018 there were 200,000 shares totaling $8.8 million of share repurchases that were not settled until January 2019.
As of December 31, 2016 there were 109,475 shares totaling $6.4 million of share repurchases that were not settled until January 2017.
See accompanying notes to consolidated financial statements.
Ebix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business— Ebix, Inc., and its subsidiaries, (“Ebix” or the “Company”, "we", "us", and "our") is a leading international supplier of on-demand infrastructure Exchangesexchanges to the insurance, financial, travel, payment remittances and healthcare industries. In the Insurance sector,insurance industry, the Company’s main focus is to develop and deploy a wide variety of insurance and reinsurance exchanges on an on-demand basis while also providingusing SaaS enterprise solutions in the area of CRM,customer relationship management ("CRM"), front-end &and back-end systems, and outsourced administrative and risk compliance. The Company's products feature fully customizable and scalable on-demand software solutions designed to streamline the way insurance and financial industry professionals manage distribution, marketing, sales, customer service, and accounting activities. With a "Phygital” strategy that combines physical distribution outlets in India and many ASEANAssociation of Southeast Asian Nations (ASEAN) countries to a Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio of software and services encompasses leadership in areas of domestic &and international money remittance, foreign exchange (Forex)("Forex"), travel, pre-paid & gift cards, utility payments, lending, and wealth management in India and other Southeast Asian markets. The Company has its headquarters in Johns Creek, Georgia and also conducts operating activities in Australia, Canada, India, New Zealand, Singapore, United Kingdom,the U.K., Brazil, Philippines, Indonesia, Thailand and United Arab Emirates. International revenue accounted for 60.4%73.4%, 41.8%68.6%, and 28.4%60.4% of the Company’s total revenue in 2020, 2019, and 2018, 2017,respectively.
EbixCash Exchanges ("EbixCash")
EbixCash revenues are primarily derived from consideration paid by customers for financial transaction services, including services like transferring or exchanging money. The significant majority of EbixCash revenue is for a single performance obligation and 2016, respectively.is recognized at a point in time. These revenues vary by transaction based upon channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, and speed of service, as applicable.
EbixCash also offers several other services, including payment services and ticketing and travel services for which revenue is impacted by varying factors. EbixCash acts as the principal in most transactions and reports revenue on a gross basis, as EbixCash controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
The Company’smain services from which EbixCash derives revenue are as follow:
Gift Cards
EbixCash sells general purpose prepaid gift cards to corporate customers and consumers that can be later redeemed at various merchants.The gift cards are co-branded between EbixCash and its card-issuing banking partner(s) and are affiliated with major payment associations such as VISA, Mastercard, and Rupay.The gift cards are sold to a diversified set of corporate customers from various industries.The gift cards are used by corporate customers to disburse incentives to the end users, which are primarily their employees, agents and business associates.The gift cards sold by EbixCash are not reloadable, cannot be used at ATMs or for any other cash-out or funds transfer transactions, and are subject to maximum limits per card (currently INR10,000 or approximately $140).Gift cards issued by EbixCash are valid for a period of 15 months from the date of issuance for virtual cards and three years for physical cards.EbixCash has entered into arrangements with banks and financial institutions to settle payments to merchants based on utilization of the gift cards.
The Company has end-to-end responsibilities related to the gift cards sold, from the activation and ongoing utilization of the gift cards to customer service responsibilities to risk of loss due to fraud on the gift cards sold.EbixCash acts a principal in the sale of gift cards and, thus, gift card revenue is recognized on a gross basis (full purchase value at the time of sale) with the corresponding cost of the gift cards recorded as cost of services provided.Unredeemed gift cards at December 31, 2020 are not significant to the financial results of the Company and are recorded as deferred revenues in the financial results.
EbixCash Travel Exchanges
EbixCash Travel revenues are primarily derived from commissions and transaction fees received from various travel providers and international exchanges involved in the sale of travel to the consumer. EbixCash Travel revenue is for a single performance obligation and is recognized at a point in time. Travel revenues include reservation commissions, segment fees from global travel exchange providers, and transaction net revenues (i.e., the amount charged to travelers less the amount owed to travel service providers) in connection with our reservation services; ancillary fees, including travel insurance-related revenues and certain reservation booking fees; and credit card processing rebates and customer processing fees. EbixCash Travel services include the sale of hotel rooms, airline tickets, bus tickets and train tickets. EbixCash’s Travel revenue is also derived from ticket sales, wherein the commissions payable to EbixCash Travel, along with any transaction fees paid by travel providers and travel exchanges, is recognized as revenue after completion of the service. The transaction price on such services is agreed upon at the time of the purchase.
EbixCash Travel revenue for the corporate MICE (Meetings, Incentives, Conferences, and Exhibitions) packages is recognized at full purchase value at the completion of the obligation with the corresponding costs recorded under cost of services provided. For MICE revenues, EbixCash Travel acts as the principal in transactions and, accordingly, reports revenue on a gross basis. EbixCash Travel controls the service at all times prior to transfer to the customer, is responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
EbixCash Money Transfer
For the EbixCash money transfer business, EbixCash has one performance obligation whereupon the customer engages EbixCash to perform one integrated service. This typically occurs instantaneously when the beneficiary entitled to receive the money transferred by the sender visits the EbixCash outlet and collects the money. Accordingly, EbixCash recognizes revenue upon completion of the following: 1) the customer’s acknowledgment of EbixCash’s terms and conditions and the receipt of payment information, 2) the money transfer has been processed, 3) the customer has received a unique transaction identification number, and 4) funds are available to be picked up by the beneficiary. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by EbixCash to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated
Foreign Exchange and Outward Remittance Services
For EbixCash’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with EbixCash to provide payment services on the customer’s behalf. In the majority of EbixCash’s foreign exchange and payment services, EbixCash makes payments to the recipient to satisfy its performance obligation to the customer and, therefore, EbixCash recognizes revenue on foreign exchange and payment when this performance obligation has been fulfilled.
Consumer Payment Services
EbixCash offers several different bill payment services that vary by considerations such, as: 1) who pays the fee to EbixCash (consumer or biller); 2) whether the service is offered to all potential consumers; 3) whether the service is restricted to existing biller relationships of EbixCash; and 4) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors. The determination of which party is EbixCash’s customer for revenue recognition purposes is based on these considerations for each of EbixCash’s bill payment services. For all transactions, EbixCash’s customers agree to EbixCash’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with EbixCash to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers, customers engage EbixCash to perform one integrated service, collect money from the consumer and process the bill payment transaction, thereby providing the billers real-time or near real-time information regarding their customers’ payments and, thus, simplifying the billers’ collection efforts. EbixCash’s revenues from bill payment services are generated from contracts to process transactions at any time during the duration of the contract. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which EbixCash records as a reduction to revenue.
EbixCash Technology Services
EbixCash also offers on-demand technology to various providers in the area of lending, wealth and asset management, and travel across the world.
Insurance Exchanges
Insurance Exchanges revenues are primarily derived from consideration paid by customers related to our SaaS platforms, related services and the licensing of software. A typical contract for our SaaS platform will also include services for setup, customization, transaction processing, maintenance, and/or hosting. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgement. Set-up and customization services related to our SaaS platforms are not considered to be distinct from the usage fees associated with the SaaS platform and, accordingly, are accounted for as a single performance obligation. These services, along with the usage or transaction fees, are recognized over the contract duration, which considers the significance of the upfront fees in the context of the contract and which may, therefore, exceed the initial contracted term. A customer's transaction volume tends to remain fairly consistent during the contract period without significant fluctuations. The invoiced amount is a reasonable approximation of the revenue that would be allocated to the related period under the variable consideration guidelines in ASC 606-10-32-40. To the extent that a SaaS contract includes subscription services or professional services, apart from the upfront customization, these are considered separate performance obligations. The Company also has separate software licensing (on premise/ perpetual), unrelated to the SaaS platforms, which is recognized at a point in time when the license is transferred to the customer.
Contracts generally do not contain a right of return or refund provisions. Our contracts often do contain overage fees, contingent fees, or service level penalties which are accounted for as variable consideration. Revenue accounted for as variable consideration is immaterial and is recognized using the “right to invoice” practical expedient when the invoiced amount equals the value provided to the customer.
Software-as-a-Service
The Company allocates the transaction price to each distinct performance obligation using the relative stand-alone selling price. Determining the stand-alone selling price may require significant judgement. The stand-alone selling price is the price at which an entity has sold or would sell a promised good or service separately to a customer. The Company determines the stand-alone selling price based on observable price of products or services sold separately in comparable circumstances, when such observable prices are available. When standalone selling price is not directly observable, the Company estimates the stand-alone selling price using the market assessment approach by considering historical pricing and other market factors.
Software Licenses
Software license revenues attributable to a software license that is a separate performance obligation are recognized at the point in time that the customer obtains control of the license.
Subscription Services
Subscription services revenues are associated with performance obligations that are satisfied over specific time periods and primarily consist of post-contract support services. Revenue is generally recognized ratably over the contract term. Our subscription contracts are generally for an initial three-year period with subsequent one-year automatic renewals.
Transaction Fees
Transaction revenue is comprised of fees applied to the volume of transactions that are processed through our SaaS platforms. These are typically based on a per-transaction rate and are invoiced for the same period in which the transactions were processed and as the performance obligation is satisfied. The amount invoiced generally equals the value provided to the customer, and revenue is typically recognized when invoiced using the as-invoiced practical expedient.
Professional Services
Professional service revenue primarily consists of fees for setup, customization, training, or consulting services. Professional service fees are generally on a time and materials basis or a fixed fee basis. Revenues for time and materials are recognized as such services are rendered, while fixed fee revenues are recognized based on the input method that is driven by the expected hours to complete the project measured against the actual hours completed to date. Professional services,
particularly related to SaaS platforms, may have significant dependencies on the related licensed software and may not be considered a distinct performance obligation.
Risk Compliance Services ("RCS")
RCS revenues consist of 2 revenue streams - Certificates of Insurance ("COI") and Consulting Services. COI revenues are derived from four product/consideration paid by customers for the creation and tracking of certificates of insurance. These are transactional-based revenues. Consulting Services revenues are driven by distinct consulting service groups. Presentedengagements rendered to customers for which revenues are recognized using the output method on a time and material basis as the services are performed.
COI Creation and Tracking
The Company provides services to issue and track certificates of insurance in the table belowU.S. and Australian markets. Revenue is the breakout of our revenue streamsderived from transaction fees for each certificate issued or tracked. The Company recognizes revenue at the issuance of those product/service groups foreach certificate or over the years ended December 31, 2018, 2017 and 2016.period the certificate is being tracked.
|
| | | | | | | | | | | | |
| | For the Year Ended |
| | December 31, |
| (dollar amounts in thousands) | | 2018 | | 2017 | | 2016 |
| Exchanges | | $ | 396,457 |
| | $ | 259,470 |
| | $ | 206,427 |
|
| Broker P&C Systems | | 14,379 |
| | 14,674 |
| | 14,105 |
|
| RCS | | 79,976 |
| | 86,832 |
| | 74,196 |
|
| Carrier P&C Systems | | 7,014 |
| | 2,995 |
| | 3,566 |
|
| Totals | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
|
The Company provides consulting services to clients around the world for project management and development. Consulting services fees are generally on a time and materials basis or a fixed fee basis. Revenues for time and materials are recognized using an output method as the services are rendered, while fixed fee revenues are recognized based on the input method driven by the expected hours to complete the project measured against the actual hours completed to date.
Summary of Significant Accounting Policies
Basis of Presentation— The consolidated financial statements include the accounts of Ebix and its wholly ownedand majority-owned subsidiaries. Non-controlling interests in net income or losses, and net equity are reported in amounts that reflect the non-controlling party(s) percentage ownership in the respect subsidiaries. The effect of inter-companyintercompany balances and transactions has been eliminated.
Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during those reporting periods. Management has made material estimates primarily with respect to revenue recognition and deferred revenue,contract liabilities, accounts receivable, acquired intangible assets, annual impairment reviews of goodwill and indefinite-lived intangible assets, investments, contingent earnout liabilities in connection with business acquisitions, and the provision for income taxes. Actual results may be materially different from those estimates.
Reclassification—Certain prior year amounts have been reclassified to be consistent with current year presentation within our financial statement.
Segment Reporting—Since the Company, from the perspective of its chief operating decision maker, allocates resources and evaluates business performance as a single entity that provides software and related services to various industries on a worldwide basis, the Company reports as a single segment. The applicable enterprise-wide disclosures are included in Note 15.14.
Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Such investments are stated at cost, which approximates fair value. The Company does maintain cash balances in banking institutions in excess of federally insured amounts and therefore is exposed to the related potential credit risk associated with such cash deposits.
The Company deposited $30.0 million with a third party bank in a trust account with commingled funds of its outside legal counsel in contemplation of a potential acquisition on December 31, 2020. The funds are included under the heading 'Cash and Cash Equivalent' in the consolidated balance sheet due to the nature of the said account, as the account had neither a restriction on the Company's ability to access the funds at its discretion nor did the account have restrictions associated with the potential acquisition that would limit the Company's control over and access to the cash. The contemplated acquisition did not occur as of December 31, 2020 or through the filing of this Form 10-K, and on February 2, 2021 the Company had the cash returned to its primary U.S. operating bank account.
Short-term Investments—The Company’s primary short-term investments consist of certificates of deposits with established commercial banking institutions in India that have readily determinable fair values. Ebix accounts for such investments
that are reasonably expected to be realized in cash, sold or consumed during the year as short-term investments that are available-for-sale. The carrying amount of investments in marketable securities approximates their fair value. The carrying value of our short-term investments was $31.2$25 million and $25.6$4.4 million at December 31, 20182020 and 2017,2019, respectively.
Restricted Cash— The carrying value of our restricted cash was $8.3$8.5 million and $4.0$35.1 million at December 31, 20182020 and 2017,2019, respectively. The balances consist of upfront cash consideration and possible future contingent earn-out payments held in escrow accounts contingent upon acquired business' achieving the minimum specified annual net revenue thresholds, which if not achieved would result in said funds being returned to Ebix andCompany holds fixed deposits pledged with banks for issuance of bank guarantees and letters of credit inrelated to its India operations for our India operations.working capital facilities.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
| Cash and cash equivalents | $ | 105,035 | | | $ | 73,228 | | | 137,858 | |
| Restricted cash | 8,519 | | | 35,051 | | | 8,317 | |
| Restricted cash included in other long-term assets | 6,659 | | | 3,090 | | | 3,506 | |
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 120,213 | | | $ | 111,369 | | | $ | 149,681 | |
|
| | | | | | | | | | | |
| | For the Year Ended |
| | December 31, |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Cash and cash equivalents | 147,766 |
| | 63,895 |
| | 114,118 |
|
| Restricted cash | 8,317 |
| | 4,040 |
| | — |
|
| Restricted cash included in other long-term assets | 3,506 |
| | 2,932 |
| | 2,823 |
|
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 159,589 |
| | $ | 70,867 |
| | $ | 116,941 |
|
Fiduciary Funds - Restricted—Due to the EbixHealth JV being a third party administrator (“TPA”), the Company collects premiums from insureds and, after deducting its fees, remits these premiums to insurance companies. Unremitted insurance premiums and/or claim funds established for the benefit of various carriers are held in a fiduciary capacity until disbursed by the Company. The use of premiums collected from insureds but not yet remitted to insurance companies is restricted by law in certain states. The total assets held on behalf of others, $6.5$4.1 million, are recorded as an asset and offsetting fiduciary funds - restricted liability.
Fair Value Measurements—The Company follows the relevant GAAP guidance regarding the determination and measurement of the fair value of assets/liabilities in which fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction valuation hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used in the methodology to measure fair value:
•Level 1 — QuotedUnadjusted quoted prices available in active markets for identical investments as ofto the reporting date;
entity at the measurement date.•Level 2 — Inputs otherOther than quoted prices included in active markets,Level 1 inputs, which are observable for the asset or liability, either directly or indirectly, observable asfor substantially the full term of the reporting date; and,
asset or liability.•Level 3 — Unobservable inputs, which are used to bethe extent that observable inputs are not available, and used in situations where there is little or no market activity for the asset or liability and wherein the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
As of December 31, 20182020 and 20172019, the Company has the following financial instruments tofor which it had to consider fair values and had to make fair value assessments:
•Short-term investments (commercial bank certificates of deposits and mutual funds), for which the fair values are measured as a Level 1 instrument.
•Contingent accrued earn-out business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodicallyquarterly based on the then assessed fair value and adjusted if necessary.
The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels orand changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.
Other financial instruments not measured at fair value on the Company's consolidated balance sheets at December 31, 20182020 and 20172019 but which require disclosure of their fair values include: cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related benefits, capitalfinance lease obligations, and the revolving line of credit and term loan debt under. The Company believes that the credit facility with Regions Bank. The estimated fair value of such instruments at December 31, 20182020 and 20172019 reasonably approximates their carrying value as reported on the consolidated balance sheets.
Additional information regarding the Company's assets and liabilities that are measured at fair value on a recurring basis is presented in the following tables:
| | | | | | | | | | | | | | | | | |
| | Fair Values at Reporting Date Using* |
| Descriptions | | Balance at December 31, 2020 | Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1) | Significant Other Observable Inputs
(Level 2) | Significant Unobservable Inputs
(Level 3) |
| | (In thousands) |
| Assets | | | | | |
| Commercial bank certificates of deposits ($7.4 million is recorded in the long term asset section of the consolidated balance sheets in "Other Assets") | | $ | 32,072 | | $ | 0 | | $ | 32,072 | | $ | 0 | |
| Mutual funds | | 381 | | 381 | | 0 | | 0 | |
| Total assets measured at fair value | | $ | 32,453 | | $ | 381 | | $ | 32,072 | | $ | 0 | |
| | | | | |
| Liabilities | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Contingent earn-out acquisition consideration | | 0 | | 0 | | 0 | | 0 | |
| Total liabilities measured at fair value | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| | | | | |
|
| * During the year ended December 31, 2020 there were no transfers between fair value Levels 1, 2 or 3. |
| | | | | Fair Values at Reporting Date Using* | | Fair Values at Reporting Date Using* |
| Descriptions | | Balance at December 31, 2018 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Descriptions | | Balance at December 31, 2019 | Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1) | Significant Other Observable Inputs
(Level 2) | Significant Unobservable Inputs
(Level 3) |
| | | (In thousands) | | (In thousands) |
| Assets | | | Assets | |
| Commercial bank certificates of deposits ($681 thousand is recorded in the long term asset section of the consolidated balance sheets in "Other Assets") | | $ | 26,714 |
| $ | 26,714 |
| $ | — |
| $ | — |
| |
| Commercial bank certificates of deposits ($50 thousand is recorded in the long term asset section of the consolidated balance sheets in "Other Assets") | | Commercial bank certificates of deposits ($50 thousand is recorded in the long term asset section of the consolidated balance sheets in "Other Assets") | | $ | 4,493 | | 0 | | 4,493 | | 0 | |
| Mutual Funds | | 5,159 |
| 5,159 |
| — |
| — |
| Mutual Funds | | 1,058 | | 1,058 | | 0 | | 0 | |
| Total assets measured at fair value | | $ | 31,873 |
| $ | 31,873 |
| $ | — |
| $ | — |
| Total assets measured at fair value | | $ | 5,551 | | $ | 1,058 | | $ | 4,493 | | $ | 0 | |
| | | | | |
| Liabilities | | | Liabilities | |
| Derivatives: | | | |
| Contingent accrued earn-out acquisition consideration (a) | | 24,976 |
| — |
| — |
| 24,976 |
| |
| | Contingent earn-out acquisition consideration (a) | | Contingent earn-out acquisition consideration (a) | | 10,095 | | 0 | | 0 | | 10,095 | |
| Total liabilities measured at fair value | | $ | 24,976 |
| $ | — |
| $ | — |
| $ | 24,976 |
| Total liabilities measured at fair value | | $ | 10,095 | | $ | 0 | | $ | 0 | | $ | 10,095 | |
| | | | | |
| | (a) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. | (a) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. | (a) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. |
| * During the year ended December 31, 2018 there were no transfers between fair value Levels 1, 2 or 3. | |
| * During the year ended December 31, 2019, there were no transfers between fair value Levels 1, 2 or 3. | | * During the year ended December 31, 2019, there were no transfers between fair value Levels 1, 2 or 3. |
|
| | | | | | | | | | | | | |
| | | Fair Values at Reporting Date Using* |
| Descriptions | | Balance at December 31, 2017 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| | | (In thousands) |
| Assets | | | | | |
| Commercial bank certificates of deposits ($2.19 million is recorded in the long term asset section of the consolidated balance sheets in "Other Assets") | | $ | 22,293 |
| 22,293 |
| — |
| — |
|
Mutual Funds ($785 thousand recorded in the long term asset section of the consolidated balance sheets in "Other Assets")
| | $ | 6,278 |
| 6,278 |
| — |
| — |
|
| Total assets measured at fair value | | $ | 28,571 |
| $ | 28,571 |
| $ | — |
| $ | — |
|
| | | | | | |
| Liabilities | | | | | |
| Derivatives: | | | | | |
| Contingent accrued earn-out acquisition consideration (a) | | 37,096 |
| — |
| — |
| 37,096 |
|
| Total liabilities measured at fair value | | $ | 37,096 |
| $ | — |
| $ | — |
| $ | 37,096 |
|
| | | | | | |
| (a) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. |
| * During the year ended December 31, 2017 there were no transfers between fair value Levels 1, 2 or 3. |
For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the year.
year:
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Contingent Liability for Accrued Earn-out Acquisition Consideration | | Balance at December 31, 2018 | | Balance at December 31, 2017 | Contingent Liability for Accrued Earn-out Acquisition Consideration | | Balance at December 31, 2020 | | Balance at December 31, 2019 |
| | | (in thousands) | | | (In thousands) |
| | | | | | |
| Beginning balance | | $ | 37,096 |
| | 8,510 |
| Beginning balance | | $ | 10,095 | | | 24,976 | |
| | | | | | |
| Total remeasurement adjustments: | | | | | Total remeasurement adjustments: | |
| (Gains) or losses included in earnings ** | | (1,391 | ) | | (164 | ) | (Gains) or losses included in earnings ** | | (3,105) | | | (16,543) | |
| Reductions recorded against goodwill | | (13,718 | ) | | (4,007 | ) | Reductions recorded against goodwill | | 0 | | | 0 | |
| Foreign currency translation adjustments *** | | (1,620 | ) | | 522 |
| Foreign currency translation adjustments *** | | (537) | | | (260) | |
| | | | | | |
| Acquisitions and settlements | | | | | Acquisitions and settlements | |
| Business acquisitions | | 8,440 |
| | 34,156 |
| Business acquisitions | | 0 | | | 1,922 | |
| Settlements | | (3,831 | ) | | (1,921 | ) | Settlements | | (6,453) | | | 0 | |
| | | | | | |
| Ending balance | | $ | 24,976 |
| | $ | 37,096 |
| Ending balance | | $ | 0 | | | $ | 10,095 | |
| | | | | | | |
| The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end. | | $ | (1,391 | ) | | $ | — |
| The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end. | | $ | (3,105) | | | $ | (16,543) | |
| | | | | | | |
| ** recorded as a component of reported general and administrative expenses | |
| ** recorded as a component of general and administrative expenses | | ** recorded as a component of general and administrative expenses |
| *** recorded as a component of other comprehensive income within stockholders' equity | *** recorded as a component of other comprehensive income within stockholders' equity | *** recorded as a component of other comprehensive income within stockholders' equity |
Quantitative Information about Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | |
(inIn thousands) | | Fair Value at December 31, 20182020 | | Valuation Technique | | Significant Unobservable
Input
|
Contingent acquisition consideration: (Wdev, ItzCash, Indus and Miles acquisitions)
| | $24,9760 | | Discounted cash flow | | Expected future annual revenue streams and probability of achievement |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | |
(inIn thousands) | | Fair Value at December 31, 20172019 | |
Valuation Technique | | Significant
Unobservable
Input
|
Contingent acquisition consideration:
(Wdev, Miles, Zillious and ItzCashEssel acquisitions)
| | $37,09610,095 | | Discounted cash flow | | Expected future annual revenue streams and probability of achievement |
Sensitivity to Changes in Significant Unobservable Inputs
As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecasts. The discount rate used in these calculations is 13.5%12.6%. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement.
Revenue Recognition and Deferred RevenueContract Liabilities—The Company derives its revenues primarily from professional and support services, which includes revenue generated fromsoftware subscription and transaction fees, pertaining tosoftware license fees, financial transaction fees, risk compliance solution services delivered over our exchanges or from our applicationfees, and professional service provider (“ASP”) platforms, software development projects andfees including associated fees for consulting, implementation, training, and project management provided to customers using ourwith installed systems and risk compliance solutions ("RCS").applications. Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company followsdetermines revenue recognition by applying the relevant technical accounting guidance regardingfollowing steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, we satisfy a performance obligation.
The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as issued byfurther described below. Additionally, certain services exist in multiple channels. As Ebix derives revenues from 3 product/service channels, EbixCash Exchanges, Insurance Exchanges, and Risk Compliance Solutions, for policy disclosure purposes, contracts are discussed in conjunction with the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission ("SEC").channel to which they are most significant.
The Company considers revenue earnedassesses the terms of customer contracts, including termination rights, penalties (implied or explicit), and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been received or is reasonably assured, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements, purchase orders, or statements of work as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements 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 appropriate authoritative 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 recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable evidence of the fair value for all arrangement deliverables; and c) if the arrangement includes a general right of return relative to the delivered items, the delivery or performance of the undelivered items is probable and substantially controlled by the Company. Under the relevant accounting guidance, when multiple-deliverables included in an arrangement are to be separated into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative fair values. We determine the relative selling price for a deliverable based on vendor-specific objective evidence of selling price (“VSOE”), if available, or third-party evidence ("TPE") in the alternative if available, or finally our best estimate of selling price (“BESP”), if VSOE or TPE is not available.renewal rights.
The Company begins to recognize revenue from license fees for its exchange (SAAS) and ASP products upon granting customer access to the respective processing platform. Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as the transactions occur and is generally billed in arrears. Revenues from RCS arrangements, which include data entry and call center services, and insurance certificate creation and tracking services, are recognized as the services are performed. Revenues from RCS consulting arrangements are recognized as the services are delivered on a time and materials basis. Service fees for hosting arrangements are recognized over the requisite service period. Revenue derived from the licensing of third party software products in connection with sales of the Company’s software licenses is recognized upon delivery together with the Company’s licensed software products. Fees for training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenues for maintenance and support services are recognized ratably over the term of the support agreement.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the 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.Contract Liabilities
Financial exchange revenue is comprised of primarily transaction based fees, recognized at the completion of the transactions, for facilitating financial, travel, and transport transactions through our EbixCash network. Financial and insurance transaction revenue is based on a percentage of payment value processed for inward and outward remittances, foreign exchange conversions, lending and wealth management, insurance, corporate and retail gift vouchers, and consumer payments. Gift voucher revenue is recognized at full purchase value at time of sale with the corresponding cost of vouchers recorded under direct expenses. Travel revenue is typically either a fixed or percentage fee for facilitating the booking for air, hotels, trains, buses, and cabs for both corporate and private travel along with event planning. Travel revenue for the corporate MICE (Meetings, Incentives, Conferences, and Exhibitions) packages is recognized at full purchase value at the completion of the obligation with the corresponding costs recorded under direct expenses. The transport transactions are focused on logistics for the trucking industry, bus management for local India governments, and inter-city cab management with revenue recorded at the full trip value and corresponding costs recorded as direct expenses.
Deferred revenue Contract liabilities includes payments or billings that have been received or made prior to performance and, inperformance. In certain cases, cash collections and primarily pertain to maintenance and support fees, initial setup or registration fees under hosting agreements, software license fees received in advance of delivery and acceptance, and software development fees paid in advance of completion and delivery. Approximately $10.2$7.2 million and $5.2$6.4 million of deferred revenuecontract liabilities were included in billed accounts receivable at December 31, 20182020 and 2017,2019, respectively.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which amends the guidance in those areas in the new revenue recognition standard.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.
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 performance obligations for the purpose of revenue recognition. These types of arrangements include obligations pertaining to software licenses, system set-up, and professional services associated with product customization or modification. Delivery of the various contractual obligations typically occurs over periods of less than eighteen months. These arrangements generally do not have refund provisions or have very limited refund terms.
The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective method and applying the new standard to those contracts which were not completed as of January 1, 2018. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption resulted in a decrease to retained earnings, net of tax effect, of $8.8 million for the cumulative effect of applying the Topic 606. This decrease was principally driven by the deferral of certain services revenues associated with programming, setup, and implementation activities related to our SaaS offering and changes related to costs to obtain customers, including the related amortization period.
Impact of New Revenue Recognition Standard on Financial Statement Line Items
The cumulative effect of applying Topic 606 to all contracts was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018:
|
| | | | | | | | | | | |
| | | Impact of Change in Accounting Policy |
| (In thousands) | | As Reported December 31, 2017 | | Adjustments | | Adjusted January 1, 2018 |
| Other Current Assets | | 33,532 |
| | $ | 898 |
| | $ | 34,430 |
|
| Current Assets | | 252,932 |
| | 898 |
| | 253,830 |
|
| Deferred tax asset, net | | 43,529 |
| | 2,843 |
| | 46,372 |
|
| Other Assets | | 11,720 |
| | 1,502 |
| | 13,222 |
|
| Total Assets | | 1,113,013 |
| | 5,243 |
| | 1,118,256 |
|
| Current Deferred Revenue | | 22,562 |
| | 5,124 |
| | 27,686 |
|
| Current Liabilities | | 146,932 |
| | 5,124 |
| | 152,056 |
|
| Long Term Deferred Revenue | | 1,423 |
| | 8,921 |
| | 10,344 |
|
| Total Liabilities | | 579,254 |
| | 14,045 |
| | 593,299 |
|
| Retained Earnings | | 510,975 |
| | (8,802 | ) | | 502,173 |
|
The following tables present the impact of adopting Topic 606 on the Company’s unaudited consolidated financial statements as of and for the year ended December 31, 2018:
|
| | | | | | | | | | | |
| | Impact of Change in Accounting Policy |
| | As Reported For the Year Ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
| Condensed Consolidated Statement of Income | (In thousands) |
| Operating Revenue | $ | 497,826 |
| | $ | (538 | ) | | $ | 497,288 |
|
| Costs of Services Provided | 168,415 |
| | (134 | ) | | 168,281 |
|
| Total Operating Expenses | 344,847 |
| | (134 | ) | | 344,713 |
|
| Operating Income | 152,979 |
| | (404 | ) | | 152,575 |
|
| Income before income taxes | 125,582 |
| | (404 | ) | | 125,178 |
|
| Income tax (expense) benefit | (32,501 | ) | | 99 |
| | (32,402 | ) |
| Net income including non-controlling interest | 93,081 |
| | (305 | ) | | 92,776 |
|
| Net income attributable to Ebix, Inc. | 93,139 |
| | (305 | ) | | 92,834 |
|
| Basic earnings per common share attributable to Ebix, Inc. | 2.97 |
| | (0.01 | ) | | 2.96 |
|
| Diluted Earnings per common share attributable to Ebix, Inc. | 2.95 |
| | (0.01 | ) | | 2.94 |
|
| | | | | | |
| | As Reported December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
| Condensed Consolidated Balance Sheet | (In thousands) |
| Other current assets | $ | 59,274 |
| | $ | (862 | ) | | $ | 58,412 |
|
| Total current assets | 427,380 |
| | (862 | ) | | 426,518 |
|
| Deferred tax asset, net | 54,629 |
| | (1,811 | ) | | 52,818 |
|
| Other assets | 26,714 |
| | (1,376 | ) | | 25,338 |
|
| Total assets | 1,610,947 |
| | (4,049 | ) | | 1,606,898 |
|
| Current Deferred Revenue | 35,609 |
| | (4,792 | ) | | 30,817 |
|
| Total current liabilities | 317,428 |
| | (4,792 | ) | | 312,636 |
|
| Long Term Deferred Revenue | 9,051 |
| | (7,530 | ) | | 1,521 |
|
| Total liabilities | 1,066,510 |
| | (12,322 | ) | | 1,054,188 |
|
| Retained earnings | 535,118 |
| | 8,273 |
| | 543,391 |
|
| | | | | | |
| | As Reported for the Year Ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
| Condensed Consolidated Statement of Cash Flows | (In thousands) |
| Net income attributable to Ebix, Inc. | $ | 93,139 |
| | $ | (305 | ) | | $ | 92,834 |
|
| Other assets | (8,486 | ) | | (134 | ) | | (8,620 | ) |
| Deferred Revenue | (8,740 | ) | | 1,723 |
| | (7,017 | ) |
| Net cash provided by operating activities | 89,869 |
| | 1,284 |
| | 91,153 |
|
Disaggregation of Revenue
The following tables present revenue disaggregated by primary geographical regions and product channels for the years ended December 31, 20182020 , 20172019 and 2016:2018:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (In thousands) |
| India* | | $ | 378,660 | | | $ | 300,678 | | | $ | 196,372 | |
| United States | | $ | 166,320 | | | 182,530 | | | 196,984 | |
| Australia | | $ | 33,846 | | | 33,268 | | | 35,770 | |
| Latin America | | $ | 14,801 | | | 19,755 | | | 19,866 | |
| Europe | | $ | 13,145 | | | 14,695 | | | 15,387 | |
| Canada | | $ | 4,383 | | | 4,805 | | | 5,611 | |
| Singapore* | | $ | 3,969 | | | 6,549 | | | 7,674 | |
| Indonesia* | | $ | 3,206 | | | 9,706 | | | 7,482 | |
| Philippines* | | $ | 2,140 | | | 5,991 | | | 6,483 | |
| United Arab Emirates* | | $ | 3,335 | | | 683 | | | 1,042 | |
| New Zealand | | $ | 1,804 | | | 1,955 | | | 2,015 | |
| Mauritius* | | $ | 0 | | | 0 | | | 3,140 | |
| | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
| | | | | | |
| *Primarily India led businesses for which total revenue was $388.3 million, $320.0 million and $217.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | | in thousands |
| United States | | $ | 196,984 |
| | $ | 211,895 |
| | $ | 213,516 |
|
| Canada | | 5,611 |
| | 7,522 |
| | 6,328 |
|
| Latin America | | 19,866 |
| | 21,128 |
| | 8,179 |
|
| Australia | | 35,770 |
| | 34,366 |
| | 31,156 |
|
| Singapore* | | 7,674 |
| | 6,330 |
| | 5,848 |
|
| New Zealand | | 2,015 |
| | 1,933 |
| | 1,903 |
|
| India* | | 196,372 |
| | 61,857 |
| | 14,153 |
|
| Europe | | 15,387 |
| | 17,062 |
| | 17,211 |
|
| Indonesia* | | 7,482 |
| | 1,055 |
| | — |
|
| Philippines* | | 6,483 |
| | 623 |
| | — |
|
| United Arab Emirates* | | 1,042 |
| | 200 |
| | — |
|
| Mauritius* | | 3,140 |
| | $ | — |
| | $ | — |
|
| | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
|
| | | | | | | |
| *India led businesses, except for portion of Singapore which is not part of EbixCash and United Arab Emirate long-lived assets pertain to intellectual property research and development activities located in Dubai which is not part of EbixCash either. Total revenue in the fourth quarter of 2018 for India led businesses was $65.9 million. |
The Company’s revenues are derived from four3 product/service groups. Presented in the table below is the breakout of our revenue streams for each of those product/service groups for the years ended December 31, 2018 , 20172020, 2019, and 2016.2018.
|
| | | | | | | | | | | | |
| | For the Year Ended |
| | December 31, |
| (dollar amounts in thousands) | | 2018 | | 2017 | | 2016 |
| Exchanges | | 396,457 |
| | 259,470 |
| | 206,427 |
|
| Broker P&C Systems | | 14,379 |
| | 14,674 |
| | 14,105 |
|
| RCS | | 79,976 |
| | 86,832 |
| | 74,196 |
|
| Carrier P&C Systems | | 7,014 |
| | 2,995 |
| | 3,566 |
|
| Totals | | $ | 497,826 |
| | $ | 363,971 |
| | $ | 298,294 |
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended |
| December 31, |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| EbixCash Exchanges | | $ | 388,293 | | | $ | 319,953 | | | $ | 217,457 | |
| Insurance Exchanges | | 178,111 | | | 190,067 | | | 192,604 | |
| Risk Compliance Solutions | | 59,205 | | | 70,595 | | | 87,765 | |
| Totals | | $ | 625,609 | | | $ | 580,615 | | | $ | 497,826 | |
(1) Prior period amounts have not been adjusted under the modified retrospective method.
Costs to Obtain and Fulfill a Contract
The Company capitalizes certain costs in order to maintain the ability to obtain and fulfill new contracts and contract renewals. TheseCompany’s capitalized costs are primarily derived from the fulfillment of SaaS related setup and customizations from which the customer receives benefit through continued access to and use of the SaaS product platforms. In accordance with the guidance in ASC 340-40-25-5, we capitalize the costs directly related to the setup and customizationdevelopment of these customizations, which satisfy the Company’s performance obligation with respect to access to the Company’s underlying product platforms. The capitalized costs primarily consist of the salaries of the developers directly involved in fulfilling the project and are solely based on the time spent on that project. The Company amortizes the capitalized costs ratably over the expected useful life of the related customizations, matching our SaaS based platformstreatment for the related revenue, and suchthe capitalized costs are amortized
overrecoverable from profit margin included in the benefit period. Under our treatment prior to implementing Topic 606, these costs were expensed as incurred.contract. As of December 31, 20182020, the Company had $862$646 thousand of contract costs in “Other current assets” and $1.4 million$985 thousand in “Other Assets”assets” on the Company's Condensed Consolidated Balance Sheets.
| | | (In thousands) | | December 31, 2018 | (In thousands) | | December 31, 2020 | | December 31, 2019 |
| Balance, beginning of period | | $ | — |
| Balance, beginning of period | | $ | 1,897 | | | $ | 2,238 | |
| Topic 606 adjustment | | 2,401 |
| |
| Adjusted beginning balance | | $ | 2,401 |
| |
| Costs recognized from adjusted beginning balance | | (898 | ) | |
| Costs recognized from beginning balance | | Costs recognized from beginning balance | | (743) | | | (708) | |
| Additions, net of costs recognized | | 735 |
| Additions, net of costs recognized | | 476 | | | 367 | |
| Balance, end of period | | $ | 2,238 |
| Balance, end of period | | $ | 1,630 | | | $ | 1,897 | |
Deferred RevenueContract Liabilities
The Company records deferred revenuecontract liabilities when it receives payments or invoices in advance of the performance of services. A significant portion of this balance relates to contracts where the customer has paid in advance for the use of our SaaS platforms over a specified period of time. This portion is recognized as the related performance obligation is fulfilled (generally less than one year). Part of our performance obligation for these contracts consists of the requirement to provide our customers with continued access to, and use of, our SaaS platforms and associated customizations. Without continued access to the SaaS platform, the customizations have no separate benefit to the customer. Our customers simultaneously receive and consume the benefits as we provide access over time. The remaining portion of the deferred revenuecontract liabilities balance consists primarily of customer-specific customizations that are not distinct from related performance obligations that transfer over time. This portion is recognized over the expected useful life of the customizations.
| | | | | | | | | | | | | | |
| (In thousands) | | December 31, 2020 | | December 31, 2019 |
| Balance, beginning of period | | $ | 37,253 | | | $ | 44,660 | |
| Revenue recognized from beginning balance | | (32,783) | | | (31,507) | |
| Additions from business acquisitions | | 0 | | | 769 | |
| Additions, net of revenue recognized and currency translation | | 36,460 | | | 23,331 | |
| Balance, end of period | | $ | 40,930 | | | $ | 37,253 | |
|
| | | | |
| (In thousands) | | December 31, 2018 |
| Balance, beginning of period | | $ | 23,985 |
|
| Topic 606 adjustment | | 14,045 |
|
| Adjusted beginning balance | | $ | 38,030 |
|
| Revenue recognized from adjusted beginning balance | | (21,697 | ) |
| Additions from business acquisitions | | 16,273 |
|
| Additions, net of revenue recognized and currency translation | | 12,054 |
|
| Balance, end of period | | $ | 44,660 |
|
Revenue Allocated to Remaining Performance Obligations
The following table presents our estimated revenue allocated to remaining performance obligations for contracted revenue that has not yet been recognized, representing our “contractually committed” revenue as of December 31, 20182020 that we will transfer from deferred revenuecontract liabilities and recognize in future periods:
| | | | | |
| Estimated Revenue (In thousands): | |
| For the year ending December 31, 2021 | $ | 3,996 | |
| For the year ending December 31, 2022 | 2,791 | |
| For the year ending December 31, 2023 | 2,188 | |
| For the year ending December 31, 2024 | 1,123 | |
| For the year ending December 31, 2025 | 208 | |
| $ | 10,306 | |
|
| | | |
| Estimated Revenue (in thousands): | |
| For the year ending December 31, 2019 | 4,865 |
|
| For the year ending December 31, 2020 | 3,586 |
|
| For the year ending December 31, 2021 | 2,385 |
|
| For the year ending December 31, 2022 | 1,180 |
|
| For the year ending December 31, 2023 | 592 |
|
| | |
|
| | $ | 12,608 |
|
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to service customer contracts with significant programming, setup, and implementation activities related to our SaaS offerings. Our contractually committed revenue amounts generally exclude, based on the following practical expedients that we elected to apply,
remaining performance obligations for: (i) contracts with an original expected duration of one year or less; and (ii) contracts for which we recognize revenue at the amount for which we have the right to invoice for services performed.
Accounts Receivable and the Allowance for Doubtful Accounts Receivable—Reported accounts receivable as of December 31, 20182020 include $139.2$97.6 million of trade receivables stated at invoice billed amounts and $35.1$45.2 million of unbilled receivables (net of a $7.0$22.7 million estimated allowance for doubtful accounts receivable). Reported accounts receivable at December 31, 20172019 include $94.5$118.3 million of trade receivables stated at invoice billed amounts and $23.3$35.3 million of unbilled
receivables (net of a $4.1$21.7 million estimated allowance for doubtful accounts receivable). The unbilledCompany records a contract asset when revenue recognized on a contract exceeds the billings. The contract asset is transferred to receivables pertainwhen the entitlement to certain professional service engagements and system development projects for whichpayment becomes unconditional. These contract assets are primarily related to project-based revenue where we recognize revenue using the timing of billing is tiedinput method calculated using expected hours to contractual milestones. The Company adheres to such contractually stated performance milestones and accordingly issues invoices to customers as per contract billing schedules. Accounts receivable are written offcomplete the project measured against the allowance for doubtful accounts receivable when the Company has exhausted all reasonable collection efforts.actual hours completed to date. Management specifically analyzes the aging of accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patternsterms when evaluating the adequacy of the allowance for doubtful accounts receivable.accounts. Bad debt expense was $3.6 million, $1.7 million, $12.3 million, and $1.5$3.6 million for the yearyears ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectively.
Costs of Services Provided—Costs of services provided consist of data processing costs, customer support costs, including personnel costs to maintain our proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Cost of services provided also include the direct expenses associated with our services businesses, including the cost of prepaid gift cards, the cost of travel services provided and the cost of foreign exchange and remittance transactions. Depreciation expense is not included in costs of services provided.
Capitalized Software Development Costs—In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed,ASC 350-40 “Internal-Use Software” and ASC 350-985 “Software” the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. Costs incurred to enhance our software products, after general market release of the services using the products, is expensed in the period they are incurred. The periodic expense for the amortization of previously capitalized software development costs is included in costs of services provided.
Goodwill and Indefinite-Lived Intangible Assets—Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance,ASC 350, “Goodwill and Other Intangible Assets" and ASU No. 2011-08, “Testing Goodwill for Impairment”, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of aour reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, customer retention and the sale or disposition of a significant portion of the business. The Company applies the technical accounting guidance concerning goodwill impairment evaluation, whereby the Company first assesses 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 oura reporting unitsunit was less than its carrying amount. If after assessing the totality of events and circumstances, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would perform the two-step quantitative impairment testing described further below.testing.
The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values; we determine 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. We perform our annual goodwill impairment evaluation and testing as of September 30October 1st of each year. In 2018year or, when events or circumstances dictate, more frequently. NaN goodwill impairments have occurred nor recognized in 2019 or 2020.
The Company has considered the guidance within ASC 350 “Goodwill and Other Intangible Assets” and ASC 280 “Segment Reporting” in concluding that Ebix effectively operates as 1 operating and reportable segment and 1 reporting unit.
Changes in the carrying amount of goodwill residing in all four channels,for the Broker reporting unit ,years ended December��31, 2020 and 2019 are as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | (In thousands) |
| Beginning Balance | $ | 952,404 | | | $ | 946,685 | |
| Additions for current year acquisitions | 11,241 | | | 17,931 | |
| Adjustments for final purchase accounting | 725 | | | 741 | |
| | | |
| Foreign currency translation adjustments | (15,333) | | | (12,953) | |
| Ending Balance | $ | 949,037 | | | $ | 952,404 | |
The Company’s indefinite-lived assets are primarily associated with the Exchange reporting unit, the RCS reporting unit, and the Carrier reporting unit were evaluated for impairment using step-one of the quantitative testing process described above. Theestimated fair value of allthe contractual customer relationships existing with the property and casualty insurance carriers in Australia using the Company's property and casualty ("P&C") data exchange. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually and tested on an interim basis if a triggering event has occurred.
We perform our annual impairment testing of these reporting units was foundindefinite-lived intangible assets as of October 1st of each year. The annual impairment testing of indefinite-lived intangible assets is perform by comparing the asset's fair value to be greaterits carrying value. An impairment charge is recognized if the asset's estimated fair value is less than theirits carrying value, thus there was no impairment indicated. Key assumptions used invalue.
To estimate the fair value, determinations for the groups were annual revenue growth rates of 5% to 9% for the RCS, Carrier and Broker units. The Exchange units growth rates used in the calculations varied from 10% to 14%. As of September 30, 2018 there was $80.8 million of goodwill assigned to the RCS reporting unit. A significant reduction in future revenues for the RCS reporting unit would negatively affect the fair value determination for this unit and may result in an impairment to goodwill and a corresponding charge against earnings. During the years ended December 31, 2018, 2017, and 2016, we had no impairment of any our reporting unit goodwill balances.
utilize cash flow projections. Projections of cash flows are based on our views of revenue growth rates, operating costs, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values and terminal 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., revenue growth rates, future economic conditions, discount rates, and estimates of terminal values) when determining the fair value of our reporting unitsunit could result in different values and may result in a goodwill impairment charge. As a practice, the Company closely monitors any reporting units that do not have a significantly higher fair value in excess of their carrying value.
The following table summarizes the adjustments to goodwill, recorded in connection with the acquisitions that occurred during 2018 and 2017:
|
| | | | | | |
| Company acquired | | Date acquired | | (in thousands) |
| ItzCash; final purchase allocation adjustments | | April 2017 | | $ | (15,678 | ) |
| EbixMoney (combination of YouFirst, WallStreet, Paul Merchants); final purchase allocation adjustments | | September 2017-November 2017 | | 4,736 |
|
| Via; final purchase allocation adjustments | | November 2017 | | (4,612 | ) |
| Transcorp | | February 2018 | | 7,254 |
|
| Centrum | | April 2018 | | 159,647 |
|
| SmartClass | | April 2018 | | 16,568 |
|
| Indus | | July 2018 | | 21,501 |
|
| Mercury | | July 2018 | | 16,215 |
|
| Leisure | | July 2018 | | 1,707 |
|
| Miles | | August 2018 | | 19,075 |
|
| Business Travels | | October 2018 | | 1,102 |
|
| AHA Taxis | | October 2018 | | 281 |
|
| Routier | | October 2018 | | 455 |
|
| Lawson | | December 2018 | | 2,379 |
|
| Pearl | | December 2018 | | 3,372 |
|
| Weizmann | | December 2018 | | 72,328 |
|
| Total changes to goodwill during 2018 | | | | $ | 306,330 |
|
|
| | | | | | |
| Company acquired | | Date acquired | | (in thousands) |
| Oakstone; final purchase allocation adjustments | | December 2014 | | $ | 948 |
|
| EbixHealth JV; final purchase allocation adjustments | | July 2016 | | (7,500 | ) |
| Hope Health; final purchase allocation adjustments | | November 2016 | | (289 | ) |
| Wdev; final purchase allocation adjustments | | November 2016 | | (5,317 | ) |
| ItzCash | | April 2017 | | 119,766 |
|
| beBetter | | June 2017 | | 447 |
|
| YouFirst | | September 2017 | | 7,395 |
|
| Wall Street | | October 2017 | | 6,113 |
|
| Paul Merchants | | November 2017 | | 38,589 |
|
| Via | | November 2017 | | 60,785 |
|
| Total changes to goodwill during 2017 | | | | $ | 220,937 |
|
Changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows:
|
| | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | (in thousands) |
| Beginning Balance | $ | 666,863 |
| | $ | 441,404 |
|
| Additions for current year acquisitions | 317,410 |
| | 233,095 |
|
| Purchase accounting adjustments for prior year acquisitions | (11,080 | ) | | (12,158 | ) |
| Foreign currency translation adjustments | (26,508 | ) | | 4,522 |
|
| Ending Balance | $ | 946,685 |
| | $ | 666,863 |
|
The Company’s indefinite-lived assets are associated with the estimated fair value of the contractual customer relationships existing with the property and casualty insurance carriers in Australia using our property and casualty ("P&C") data exchange and with certain large corporate customers using our client relationship management (“CRM”) platform in the United States. Prior to these underlying business acquisitions Ebix had pre-existing contractual relationships with these carriers and corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue to renew these contracts indefinitely and has the ability to do so. The proprietary technology supporting the P&C data exchange and CRM platform that is used to deliver services to these carriers and corporate clients, cannot feasibly be effectively replaced in the foreseeable future, and accordingly the cash flows forthcoming from these customers are expected to continue indefinitely. With respect to the determination of the indefinite life, the Company considered the expected use of these intangible assets, historical experience in renewing or extending similar arrangements, and the effects of competition, and concluded that there were no indications from these factors to suggest that the expected useful life of these customer relationships would be finite. The Company concluded that no legal, regulatory, contractual, or competitive factors limited the useful life of these intangible assets and therefore their life was considered to be indefinite, and accordingly the Company expects these customer relationships to remain the same for the foreseeable future.
Additionally based on the final purchase price allocation valuation report of the EbixHealth JV, See Note 3 and 17 for further explanations, it was concluded that the value of the indefinite-lived intangibles identified as indefinite-lived customer relationships to be $11.2 million. The EbixHealth JV is a full-service third-party administrator (“TPA”) that specializes in the management, administration, and distribution of health benefit plans. Services include marketing support, underwriting, billing, claims processing, and cost containment such as utilization review and medical case management for fully-insured, self-funded and partially self-funded benefit plans, as well as international groups and individuals. As a TPA, the Company collects premiums from insureds and, after deducting its fees, remits these premiums to insurance companies. Unremitted insurance premiums and/or claim funds established for the benefit of various carriers are held in a fiduciary capacity until disbursed by the Company. The Company administers and collects the insurance premiums for the products of three affiliated insurance carriers which is part of the consolidated company IHC Health Holdings Corporation ("IHC") a 49% shareholder of the EbixHealth JV. The administrative agreements with the three affiliates accounted for approximately 75% of revenues forFor the year ended December 31, 2018. IHC is therefore considered2020, as a major customerresult of the analysis performed the Company concluded that the IHC customer relationship indefinite-lived intangible asset associated with the Company's EbixHealth JV and thereforehas been impaired, the Company recorded a $6.2 million impairment charge within the asset impairment line on the consolidated statement of operations. In addition, the Company has concluded that they IHC customer relationship intangible is no longer considered indefinite-lived. The churn expected for indefinite-lived customers is assumed at 0%. The fair valuesCompany will amortize this intangible over the remaining estimated life of these indefinite-lived intangible assets were based on the analysis of discounted cash flow (“DCF”) models extended out fifteen years with a terminal value. In that indefinite-lived does not imply an infinite life, but rather means that the subject customer relationships are expected to extend beyond the foreseeable time horizon, we utilized fifteen year DCF projections with a terminal value, as the valuation models that were applied consider this time frame to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually. We perform our annual impairment testing of indefinite-lived intangible assets as of September 30th of each year.ten years. During the years ended December 31,2019, and 2018,, 2017 and 2016, we had no0 impairments to the recorded balances of our indefinite-lived intangible assets. We perform the impairment test for our indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value.
Purchased
Finite-lived Intangible Assets—PurchasedAssets—Finite-lived intangible assets represent the estimated acquisition date fair value of acquired intangible assets from the businesses that we acquire in the U.S. and foreign countries in which we operate. These purchased intangible assets include customer relationships, developed technology, informational databases,trademarks, non-compete agreements and trademarks.other intangibles described below obtained in connection with the businesses we acquire. We amortize these intangible assets on a straight-line basis over their estimated useful lives, as follows:
|
| | | | |
| Life |
| Category | (yrs)(years) |
| Customer relationships | 7-20 |
Developed technology | 3-12 |
Developed technologyAirport contract | 3-12 |
9 |
Airport ContractStore networks | 9 |
5 |
Store NetworksDealer networks | 5 |
15-20 |
Dealer networksBrand | 15-20 |
15 |
BrandTrademarks | 15 |
3-15 |
TrademarksNon-compete agreements | 3-15 |
5 |
Non-compete agreementsDatabase | 5 |
|
Database | 10 |
|
Intangible assets as of December 31, 20182020 and December 31, 2017,2019, are as follows:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| | (In thousands) |
| Finite-lived intangible assets: | | | |
| Customer relationships | $ | 96,616 | | | $ | 83,012 | |
| Developed technology | 19,867 | | | 19,979 | |
| Dealer networks | 6,653 | | | 6,726 | |
| Airport Contract | 4,523 | | | 4,635 | |
| Store Networks | 2,440 | | | 2,500 | |
| Trademarks | 2,700 | | | 2,689 | |
| Brand | 896 | | | 918 | |
| Non-compete agreements | 759 | | | 764 | |
| Backlog | 140 | | | 140 | |
| Database | 212 | | | 212 | |
| Total intangibles | 134,806 | | | 121,575 | |
| Accumulated amortization | (83,926) | | | (74,620) | |
| Finite-lived intangibles, net | $ | 50,880 | | | $ | 46,955 | |
| | | |
| Indefinite-lived intangibles: | | | |
| Customer/territorial relationships | $ | 21,647 | | | $ | 42,055 | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Finite-lived intangible assets: | | | |
| Customer relationships | $ | 80,070 |
| | $ | 73,725 |
|
| Developed technology | 19,176 |
| | 15,076 |
|
| Dealer networks | 6,315 |
| | 10,581 |
|
| Airport Contract | 4,752 |
| | — |
|
| Store Networks | 821 |
| | — |
|
| Trademarks | 2,677 |
| | 2,698 |
|
| Brand | 864 |
| | — |
|
| Non-compete agreements | 764 |
| | 764 |
|
| Backlog | 140 |
| | 140 |
|
| Database | 212 |
| | 212 |
|
| Total intangibles | 115,791 |
| | 103,196 |
|
| Accumulated amortization | (64,343 | ) | | (57,485 | ) |
| Finite-lived intangibles, net | $ | 51,448 |
| | $ | 45,711 |
|
| | | | |
| Indefinite-lived intangibles: | | | |
| Customer/territorial relationships | $ | 42,055 |
| | $ | 42,055 |
|
As a part of the 2009 acquisition of E-Z Data Ebix recognized a $14.2 million indefinite-lived intangible asset associated with acquired corporate customer relationships.During the third quarter 2020, the Company identified a potential indicator of impairment and performed a quantitative analysis to test for impairment. The Company determined the fair value of the intangible assets exceeded its carrying value, however the Company determined that the intangible asset no longer had an indefinite life. The Company has reclassified the $14.2 million to finite-lived and will amortize the value of this intangible over an estimated remaining useful life of 15 years.In the third quarter of 2020 and each quarter subsequent, Ebix will recognize approximately $237 thousand of amortization related to the E-Z Data corporate customer relationships acquired.
Income Taxes— The Company follows the asset and liability method of accounting for income taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to reflect the estimated future tax consequences on future yearseffects of differences between the financial statement and tax basis of assets, and liabilities, and operating losslosses, and tax credit carry forwards and their financial reporting amounts at each period end using enactedthe tax rates expected to apply to taxable incomebe in effect when the years in which those temporary differences reverse. Valuation allowances, if any, are expectedrecorded to be recovered or settled. In assessing the realizability of thereduce deferred tax assets to the amount management considers whether it is more likely than not that some portion or all of the deferred tax assets will notto be realized. ASuch valuation allowance isallowances are recorded if necessary, 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 followsapplies the provisions ofrelevant FASB accounting guidance on accounting for uncertainuncertainty in income taxtaxes positions. TheThis guidance utilizes a two-step approachclarifies the accounting for evaluating tax positions. Recognition (“Step 1”) occurs when an enterprise concludes thatuncertainty in income taxes by prescribing the minimum recognition threshold a tax position based solely on its technical meritsis required to meet before being recognized in the financial statements. In this regard we recognize the tax benefit from uncertain tax positions only if it is more likely than not tothat the tax position will be sustained upon examination. Measurement (“Step 2”) is only addressed if Step 1 has been satisfied. Under Step 2,on examination by the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement. As used in this context, the term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%.
On December 22, 2017, the 2017 TCJA was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued SAB No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company is required to complete its tax accounting for the TCJA within a one-year period when it has obtained, prepared, and analyzed the information to complete the income tax accounting. Due to insufficient guidance, as well as the availability of information to accurately analyze the impact of the TCJA, we have made a reasonable estimate of the effects, as described in Note 8, and in other cases we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under FASB ASC Topic 740, Income Taxes and the provisions of the tax laws that were in effect immediately prior to enactment.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax istaxing authorities, based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount fortechnical merits of the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount.The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off, as described in Note 8.position.
Foreign Currency Translation—The functional currency for the Company's main foreign subsidiaries in India, Singapore and Dubai is the U.S. dollar becausefor the intellectual property researchCompany's foreign subsidiaries in Dubai and development activities provided by its Singapore, and Dubai subsidiaries, and theits product development and information technology enabled services activities for the insurance industry provided by its India subsidiary. For Dubai and Singapore, because both the intellectual property research and development activities provided by its Dubai and Singapore subsidiaries, and the product development and information
technology enabled services activities for the insurance industry provided by its India subsidiary bothare in support of Ebix'sthe Company's operating divisions across the world, which are primarily 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 accumulated other comprehensive lossincome in the accompanying consolidated balance sheets.sheets, and are included in the consolidated statements of comprehensive income. 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.
Advertising—With the exception of certain direct-response costs in connection with our business services of providing medical continuing education to physicians, dentists and healthcare professionals, advertising costs are expensed as incurred. Advertising costs amounted to $7.5$4.8 million, $6.1$9.7 million, and 6.27.5 million in 2018, 20172020, 2019, and 2016,2018, respectively, and are included in sales and marketing expenses in the accompanying Consolidated Statements of Income. In 2017 reported sales and marketing expenses included $3.9 million of amortization of certain direct-response advertising costs associated with our medical education services, which had been capitalized in accordance with Accounting Standards Codification ("ASC") Topic 340. These costs were being amortized to advertising expense over periods ranging from twelve to twenty-four months based on the type of product the customer purchased. Deferred advertising costs amounted to $1.9 million at December 31, 2017.
Effective January 1, 2018 Subtopic 340-40 replaced that guidance to require the costs of direct-response advertising to be expensed as they are incurred or the first time the advertising takes place. The Company was required to recognize a cumulative effective change to opening retained earnings in the year of adoption of the standard. The Company recorded a one-time $1.9 million adjustment to retained earnings on January 1, 2018 and is expensing all future costs from this date forward. Under the new guidance Subtopic 340-40, the Company's expense decreased by $522 thousand during 2018 from what would have been recorded under legacy US GAAP 340-20.
Sales Commissions —Certain sales commission paid with respect to subscription-based revenues are deferred and subsequently amortized into operating expenses ratably over the term of the related customer subscription contracts. As of December 31, 2020, 2019, and 2018 and 2017, $661$650 thousand, $652 thousand, and $574$661 thousand, respectively, of sales commissions were deferred and included in other current assets on the accompanying Consolidated Balance Sheets. During the years ended December 31, 20182020 and 2017
2019, the Company amortized $1.0 million$763 thousand and $1.1$1.0 million, respectively, of previously deferred sales commissions and included this expense in sales and marketing costsoperating expenses on the accompanying Consolidated Statements of Income.
Property and Equipment—Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assetsassets' estimated useful lives. Leasehold improvements are amortized over the shorter of the expected life of the improvements or the remaining lease term. Repairs and maintenance are charged to expense as incurred and major improvements that extend the life of the asset are capitalized and depreciated over the expected remaining life of the related asset. Gains and losses resulting from sales or retirements are recorded as incurred, at which time related costs and accumulated depreciation are removed from the Company’s accounts. Fixed assets acquired in acquisitions are recorded at fair value. The estimated useful lives applied by the Company for property and equipment are as follows:
|
| | | | |
| Life |
| Asset Category | (yrs)(years) |
| Buildings | 39 |
| Building Improvements | 15 |
| Computer equipment | 5 |
| Furniture, fixtures and other | 7 |
| Software | 3 |
| Land Improvements | 20 |
| Land | Unlimited life |
| Leasehold improvements | LifeShorter of asset life or life of the lease |
Recent Relevant Accounting Pronouncements—The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company's business:
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): "Simplifying the Accounting for Income Taxes". ASU 2019-12 is expected to reduce the cost and complexity related to the accounting for income taxes by eliminating the need for an entity to analyze whether the following apply to a given reporting period:
• Exception to the incremental approach for intra period tax allocation;
• Exceptions to accounting for basis differences when there are ownership changes in foreign investments; and
• Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company not yet assessed the impact that the adoption of this guidance will have on its statement of financial position or its statement of income.
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR"). The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of this guidance has had no impact on the consolidated financial statements as the Company has not yet modified any of the existing contracts in response to the reference rate reform. The impact of this ASU will ultimately depend on the terms of any future contract modification related to a change in reference rate, including potential future modifications to the Company's Credit Facility.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. Measurement". ASU 2018-13 is intended to improve the effectiveness of ASC 820’s disclosure requirements. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In June 2018 the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU 2018-07 did not impact our consolidated financial position, results of operations or cash flows.
In February 2018, the FASB issued 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeIncome". The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASU 2018-02 did not impact our consolidated financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying: "Simplifying the Test for Goodwill Impairment. Impairment". To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A public business entity filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying: "Clarifying the Definition of a BusinessBusiness" which amended the existing FASB ASC. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal 2019 with early adoption permitted. The adoption of ASU 2018-01 did not impact our consolidated financial position, results of operations or cash flows.
In November 2016 the FASB issued ASU 2016-18, Statement of Cash Flow (Topic 230) Restricted Cash (A Consensus of the FASB Emerging Issues Task Force) which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company adopted the newthis guidance on January 1, 2018 with no material impact toin 2019 and it had an effect classification certain of its statement of cash flows. For the twelve months ended December 31, 2018 and 2017, the Company held $8.3 million and $4.0 million, respectively, in "Restricted cash" and $3.5 million and $2.9 million, respectively, in "Other long-term assets" of the Company's Condensed Consolidated Balance Sheet.recent acquisitions.
In October 2016, the FASB issued ASU 2016-16, Taxes (Topic 740): Intra-Entity"Intra-Entity Transfers of Assets Other Than InventoryInventory". Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments specified by ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of the amendments are intellectual property, and property, plant and equipment. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments align the recognition of income tax consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards. IAS 12, Income Taxes, requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (including inventory) when the transfer occurs. The amendments are effective for public business
entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted thethis new guidancestandard and it did not have a material effect on January 1, 2018 with no material impact to its consolidated statement of financial statements.position or statement of income.
In AugustJune 2016, the FASB issued ASU No. 2016-15 Statement2016-13. Financial Instruments - Credit Losses (Topic 326). The main objective of Cash Flows (Topic 230): Classificationthis ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The measurement of Certain Cash Receiptsexpected credit losses is based on relevant information about past events, including historical experience, current conditions, and Cash Payments. This ASU addressesreasonable and supportable forecasts that affect the following eight specific cash flow issues: Contingent consideration payments made after a business combination; distributions received from equity method investees; debt prepayment or debt extinguishment costs; settlementcollectability of zero-coupon debt instruments or other debt instruments with coupon interest ratesthe reported amount. An entity must use judgment in determining the relevant information and estimation methods that are insignificantappropriate in relation toits circumstances. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the effective interest rate of the borrowing; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies; and beneficial interests in securitization transactions; and also addresses separately identifiable cash flows and application of the predominance principle. The amendments in this ASU apply to all entities, including both business entities and not-for-profit entities thatUpdate are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the ASU for those issuers would be applied prospectively as of the earliest date practicable. The Company adopted thethis new guidancestandard and it did not have a material effect on January 1, 2018 with no material impact to its consolidated statement of financial statements.position or statement of income.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new accounting guidance is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will beis required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU will requirerequires both types of leases (i.e., operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will beis accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. For operating leases, there will have to benow is the recognition of a lease liability and a lease asset for all such leases greater than one year in term. Public companies will beare required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted for all companies and organizations. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. See Note 5 for the Company’s current lease commitments. We will adoptadopted Topic 842 effective January 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, we will carrycarried forward the assessment of whether our contracts contain or are leases, classification of our leases and remaining lease terms. Based on our portfolio of leases as of December 31, 2018, approximately between $140 million and $150 million of lease assets and liabilities will be recognized on our balance sheet upon adoption, primarily relating to real estate. We are substantially complete with our implementation efforts.See Note 19.
Note 2. Earnings per Share
The basic and diluted earnings per share (“EPS”), and the basic and diluted weighted average shares outstanding for all periods as presented in the accompanying Consolidated Statements of Income are shown below:
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended
December 31, |
| | | (In thousands, except per share amounts) |
| Earnings per share: | | 2020 | | 2019 | | 2018 |
| Basic earnings per common share | | $ | 3.03 | | | $ | 3.17 | | | $ | 2.97 | |
| Diluted earnings per common share | | $ | 3.02 | | | $ | 3.16 | | | $ | 2.95 | |
| Basic weighted average shares outstanding | | 30,510 | | | 30,511 | | | 31,393 | |
| Diluted weighted average shares outstanding | | 30,571 | | | 30,594 | | | 31,534 | |
|
| | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | (In thousands, except per share amounts) |
| Earnings per share: | | 2018 | | 2017 | | 2016 |
| Basic earnings per common share | | $ | 2.97 |
| | $ | 3.19 |
| | $ | 2.88 |
|
| Diluted earnings per common share | | $ | 2.95 |
| | $ | 3.17 |
| | $ | 2.86 |
|
| Basic weighted average shares outstanding | | 31,393 |
| | 31,552 |
| | 32,603 |
|
| Diluted weighted average shares outstanding | | 31,534 |
| | 31,719 |
| | 32,863 |
|
Basic EPS is equal to net income attributable to Ebix, IncInc. divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS takes into consideration common stock equivalents which for the Company consist of stock options and restricted stock. With respect to stock options, diluted EPS is calculated as if the Company had additional common stock outstanding from the beginning of the year or the date of grant or issuance, net of assumed repurchased shares using the treasury stock method. With respect to restricted stock, diluted EPS is calculated as if the Company had additional common stock outstanding from the beginning of the year or the date of grant or issuance. Diluted
EPS is equal to net income attributable to Ebix, Inc divided by the combined sum of the weighted average number of shares outstanding and common stock equivalents. At December 31, 2018, 2017,2020, 2019, and 20162018 there were 181,875, 181,875, and 42,000 zero, and zerorespectively of potentially issuable shares with respect to stock options which could dilute EPS in the future but which were excluded from the diluted EPS calculation because presently their effect is anti-dilutive. Diluted shares outstanding are determined as follows for each year ending ended December 31, 2018, 2017,2020, 2019, and 2016:2018:
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended
December 31, |
| | (In thousands) |
| | | 2020 | | 2019 | | 2018 |
| Basic weighted average shares outstanding | | 30,510 | | | 30,511 | | | 31,393 | |
| Incremental shares for common stock equivalents | | 61 | | | 83 | | | 141 | |
| Diluted shares outstanding | | 30,571 | | | 30,594 | | | 31,534 | |
|
| | | | | | | | | |
| | | For the year ended December 31, |
| | | (in thousands) |
| | | 2018 | | 2017 | | 2016 |
| Basic weighted average shares outstanding | | 31,393 |
| | 31,552 |
| | 32,603 |
|
| Incremental shares for common stock equivalents | | 141 |
| | 167 |
| | 260 |
|
| Diluted shares outstanding | | 31,534 |
| | 31,719 |
| | 32,863 |
|
Note 3. Business Acquisitions
The Company’s business acquisitions are accounted for under the purchase method of accounting in accordance with the FASB’s accounting guidance on the accounting for business combinations.ASC 805 ("Business Combinations"). Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to the tangible and intangible assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains in part to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record significant adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in our consolidated statements of operations.income.
The Company's practice is to immediately tightly integrate all functions including infrastructure, sales and marketing, administration, product development after a business acquisition is consummated, so as to ensure that synergistic efficiencies are maximized, and redundancies eliminated, and to rapidly leverage cross-selling opportunities. Furthermore, the Company centralizes certain key functions such as information technology, marketing, sales, human resources, finance, and other general administrative functions after an acquisition, in order and to quickly realize cost efficiencies. By executing this integration strategy, it becomes
neither practical nor feasible to accurately and separately track and disclose the earnings from the business combinations we have executed after they have been acquired.
A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The terms for the contingent earn-out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one, two, and/or three year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target with achievement of revenues recognized over that target being awarded in the form of a specified cash earn-out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn-out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. The Company recognizes these potential obligations as contingent liabilities as reported on its Consolidated Balance Sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. During each of the years ending December 31, 2018, 20172020, 2019 and 2016,2018, these aggregate contingent accrued earn-out business acquisition consideration liabilities, were reduced by $1.4$3.1 million, $164 thousand$16.5 million, and $1.3$1.4 million, respectively, due to remeasurements as based on the then assessed fair value and changes in the amount and timing of anticipated future revenue levels. These reductions to the contingent accrued earn-out liabilities resulted in corresponding reduction to general and administrative expenses as reported on the Consolidated Statements of Income. As of December 31, 2018, the total of these2020, there were 0 outstanding contingent liabilities was $24.98 million, of which $11.21 million is reported in long-term liabilities, and $13.77 million is included in current liabilitiesearn-out liability in the Company's Consolidated Balance Sheet. As of December 31, 20172019, the total of these contingent liabilities was $37.1$10.1 million, of which $33.1$1.5 million was reported in long-term liabilities and $4.0$8.6 million was included in current liabilities in the Company's Consolidated Balance Sheet.
2020 Acquisitions
Weizmann- Trimax- Effective December 1, 2018May 4, 2020, Ebix entered intoacquired from bankruptcy India-based Trimax, which provides IT and integration services to state-owned transport corporations, operates data centers, and is an agreement to acquire 74.84% controlling stake in India based Weizmann for $63.1 million. Ebix also made a 90-day time bound public offer to acquire the remaining 25.16% publicly-held Weizmann Forex sharesIT infrastructure solution provider, for approximately $21.1$9.9 million of upfront consideration. Additionally, Ebix issued preferred shares in Trimax to public shareholders.the selling shareholders that can be sold five years from the closing of the acquisition based on an independent valuation performed by a Big 4 valuation firm. The maximum potential value of the preferred shares is approximately $9.9 million. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Pearl- AssureEdge-Effective DecemberOctober 1, 2018 Ebix2020 the Company acquired a 70% interest in AssureEdge Global Services (“AssureEdge”) for a total purchase price of approximately $5.0 million, including net working capital acquired. AssureEdge is a pan-India based business process outsourcing ("BPO") company, with a variety of BPO offerings via six contact centers across the assetscountry. It serves a number of India based Pearl, a provider of a comprehensive range of B2Bindustries and B2C travel services, under the brand name ‘Sastiticket’, ranging from domestic and international ticketing, incentives travel, leisure products, luxury holidays, and travel documentationclients that have cross-selling value for $3.4 million and has been integrated with Ebix Travels’ operations, which has brought in operational synergies and certain redundancies for the acquired operations .EbixCash services. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Lawson- 2019 Acquisitions
Wallstreet Canada- Effective December 1, 2018August 23, 2019, Ebix acquired IndiaCanada based Lawson,Wallstreet Canada, a B2Bforeign exchange and outward remittance service provider for approximately $2.1 million inclusive of travel services and international ticketing, for $2.7 million and has been integrated with Ebix Travels’ operations to bring in operational synergies and wider country wide footprint. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.net acquired working capital.
AHA Taxis- Essel Forex- Effective OctoberJanuary 1, 2018 Ebix acquired a 70% stake in India based AHA Taxis, a platform for on-demand inter-city cabs in India for $310 thousand. AHA focuses its attention on Corporate and Consumer inter-city travel primarily with a network of thousands of registered AHA Taxis.
Routier- Effective October 1, 2018 Ebix acquired a 67% stake in India based Routier, a marketplace for trucking logistics for $413 thousand.
Business Travels- Effective October 1, 20182019, Ebix acquired the assets of India based Business TravelsEssel Forex, for $1.1 million and same has been integrated with Ebix Travels’ operations to expand the wholesale travel and consolidation business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Miles - Effective August 1, 2018 Ebix entered into an agreement to acquire India based Miles Software ("Miles"), a provider of on-demand software on wealth and asset management to banks, asset managers and wealth management firms, for
approximately $18.3$8.7 million, plus possible future contingent earn-out payments of up to $8.3 million$721 thousand based on earned revenues overrevenues. Ebix funded the subsequent twenty-four month period following the effective dateentire transaction in cash using its internal cash reserves. Essel Forex is a provider of the acquisition.foreign exchange services in India, with a wide spectrum of related products including sales of all major currencies, travelers’ checks, demand drafts, remittances, money transfers and prepaid cards primarily for corporate clients.
Leisure - Zillious- Effective JulyJanuary 1, 20182019, Ebix entered intoacquired an agreement to acquire80% controlling stake in India based Leisure Corp ("Leisure")Zillious for approximately $2.1 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Mercury - Effective July 1, 2018 Ebix entered into an agreement to acquire India based Mercury Travels for approximately $13.2 million, with the goal of creating a new travel division to focus on a niche segment of the travel market. Mercury’s Forex business will be integrated into EbixCash’s existing Forex exchange business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Indus - Effective July 1, 2018 Ebix entered into an agreement to acquire India based Indus, a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately $22.9$10.1 million plus possible future contingent earn-out payments of up to $5.0$2.2 million based on earned revenues overagreed milestones in the subsequent twenty-four month periodacquisition agreement. Zillious is an on-demand SaaS travel technology solution in the corporate travel segment in India.
The following table summarizes the recognized intangible assets, goodwill and earn-out provisions, as a result of the cumulative valuation and purchase price allocations on effective date of the acquisition.
Centrum - Effective April 1, 2018 Ebix entered into an agreement to acquire India based Centrum, a leader in India’s Foreign Exchange Operation markets for approximately $179.5 million. This acquisition, was completed in June 2018. Subsequently, Centrum has been renamed as Ebixcash World Money and has been tightly integrated into Ebix’s Financial Exchange ‘EbixCash’ offerings in India and abroad, with key business executives of Foreign Exchange Operations becoming an integral part of the combined EbixCash senior leadership.
Smartclass - Effective April 1, 2018 Ebix entered into an agreement to acquire a 60% stake in India based Smartclass, a leading e-learning Company engaged in the business of education services, development of education products, and implementation of education solutions for K-12 Schools through its E-Learning Venture. Under the terms of the agreement Ebix paid $8.6 million in cash for its stake in Smartclass.
Transcorp - Effective February 1, 2018 Ebix acquired the MTSS Business of Transcorp, for upfront cash consideration in the amount of $7.25 million, of which $6.55 million was funded with cash and $700 thousand assumed in liabilities. MTSS operations of Transcorp has been consolidated with EbixCash’s MTSS operations resulting in operational synergies and certain redundancies to the combined operation.
2017 Acquisitions
Via - Effective November 1, 2017 Ebix acquired Via, a recognized leader in the travel space in India and an Omni-channel online travel and assisted e-commerce exchange with presence in India, Middle East and South East Asia. Ebix acquired Via for upfront cash consideration in the amount $78.8 million plus possible future contingent payments of up to $2.3 million based on any potential claims made by tax authorities over the subsequent twelve month period following the effective date of the acquisition, of which was not achieved after this period, and $2.0 million based on the receipt of refunds pertaining to certain advance tax payments and withholding taxes, both of which are included in Other current liabilities in the Company's Consolidated Balance Sheet.
Paul Merchants - Effective November 1, 2017 Ebix acquired the MTSS Business of Paul Merchants, the largest international remittance service provider in India, for upfront cash consideration in the amount $37.4 million.
Wall Street - Effective October 1, 2017 Ebix acquired the MTSS Business of Wall Street, an inward international remittance service provider in India, along with the acquisition of its subsidiary company Goldman Securities Limited for upfront cash consideration in the amount $7.4 million.
YouFirst - Effective September 1, 2017 Ebix acquired the MTSS Business of YouFirst , an inward international remittance service provider in India, for upfront cash consideration in the amount $10.2 million.
beBetter - Effective June 1, 2017 Ebix acquired the assets of beBetter a technology enabled corporate wellness provider that provides end-to-end wellness solutions offering a variety of tools and programs, including interactive platforms, health screening, coaching, tobacco cessation, weight and stress management, health information, and numerous other products and
services. Ebix acquired the assets and intellectual property of beBetter for $1.0 million plus possible future contingent earn-out payments of up to $2.0 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. The Company has determined that the fair value of the contingent earn-out consideration is zero as of December 31, 2018.
ItzCash - Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an 80% stake in ItzCash, India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately $150 million. Accordingly, Ebix acquired an 80% stake in ItzCash for $120 million including upfront cash of $76.3 million plus possible future contingent earn-out payments of up to $44.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. $4.0 million of the possible future contingent earn-out payments was previously held in escrow accounts for the twelve month period following the effective date2020 and 2019 acquisitions:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company acquired | | Date acquired | | Goodwill | | Intangibles Assets | Contingent Earn-Out Provision |
| | | | (In thousands) |
| Essel Forex | | Jan-19 | | 8,372 | | | 1,163 | | | 407 | |
| Zillious | | Jan-19 | | 9,489 | | | 1,875 | | | 1,515 | |
| Wallstreet Canada | | Aug-19 | | 71 | | | 0 | | | 0 | |
| Total for 2019 acquisitions | | | | $ | 17,932 | | | $ | 3,038 | | | $ | 1,922 | |
| | | | | | | | |
| Trimax* | | May-20 | | 8,243 | | | 0 | | | 0 | |
| AssureEdge* | | Oct-20 | | 3,678 | | | 0 | | | 0 | |
| Total for 2020 acquisitions | | | | $ | 11,921 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
*The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
|
2016 Acquisitions
Wdev - Effective November 1, 2016 Ebix acquired Wdev, a Brazilian company that provides IT services and software development for the Latin American insurance industry. Ebix acquired Wdev for upfront cash consideration in the amount of $10.5 million, plus possible future contingent earn-out payments of up to $15.7 million based on earned revenues over the subsequent thirty-eight month period following the effective date of the acquisition. $2.9 million of the upfront cash consideration is being held in an escrow account for the thirty-eight month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual net revenue threshold, which if not achieved will result in said funds being returned to Ebix. The Company has determined that the fair value of the contingent earn-out consideration is $744 thousand as of December 31, 2018.
EbixHealth JV - Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (11%) of the EbixHealth JV for $2.0 million cash which resulted in Ebix holding an aggregate fifty-one percent (51%) controlling equity interest in the EbixHealth JV. Previously, effective September 1, 2015 Ebix and IHC formed a joint venture named EbixHealth JV. Ebix paid $6.0 million and contributed a license to use certain CurePet software and systems valued by the EbixHealth JV at $2.0 million, for its initial 40% membership interest in the EbixHealth JV.
Hope Health - Effective November 1, 2016 Ebix acquired the assets of Hope Health, a Michigan corporation and publisher of health and wellness continuing education products. Ebix acquired the assets and intellectual property of Hope Health for $1.72 million.
The following table summarizes the fair value of the consideration transferred, net assets acquired and liabilities assumed, as a result of the acquisition date, for acquisitions that were recordedclosed during 20182020 and 2017:2019:
| | | | | | | | | | | | | | |
| | | |
| (In thousands) | | 2020 | | 2019 |
| Fair value of total consideration transferred | | | | |
| Cash | | $ | 13,774 | | | $ | 105,391 | |
| Consideration payable | | 1,827 | | | 0 | |
| Contingent earn-out consideration arrangement (net) | | 0 | | | 1,922 | |
| | | | |
| Total consideration transferred | | 15,601 | | | 107,313 | |
| | | | |
| Fair value of equity components recorded (not part of consideration) | | | | |
| | | | |
| Recognition of noncontrolling interest of joint ventures | | 1,350 | | | (10,258) | |
| Total equity components recorded | | 1,350 | | | (10,258) | |
| | | | |
| Total consideration transferred and equity components recorded | | $ | 16,951 | | | $ | 97,055 | |
| | | | |
| Fair value of assets acquired and liabilities assumed | | | | |
| Cash, net of adjustment | | $ | 1,358 | | | $ | (75) | |
| | | | |
| | | | |
| Other current assets | | 2,812 | | | 5,175 | |
| Property, plant, and equipment | | 4,021 | | | 231 | |
| Other long term assets | | 103 | | | 3,023 | |
| Intangible assets, definite lived | | 0 | | | 6,296 | |
| | | | |
| Capitalized software development costs | | 0 | | | 0 | |
| Deferred tax liability | | 0 | | | 12 | |
| Current and other liabilities, net of consideration transferred | | (3,264) | | | 63,721 | |
| Net assets acquired, excludes goodwill | | 5,030 | | | 78,383 | |
| | | | |
| Goodwill | | 11,921 | | | 18,672 | |
| | | | |
| Total net assets acquired | | $ | 16,951 | | | $ | 97,055 | |
|
| | | | | | | | |
| | | December 31, |
| (in thousands) | | 2018 | | 2017 |
| Fair value of total consideration transferred | | | | |
| Cash | | $ | 250,769 |
| | $ | 211,143 |
|
| Upfront cash consideration payable upon certain conditions being met | | 72,933 |
| | — |
|
| Contingent earn-out consideration arrangement (net) | | (5,137 | ) | | 30,149 |
|
| Upfront cash consideration being held in an escrow account | | — |
| | 4,040 |
|
| Total consideration transferred | | 318,565 |
| | 245,332 |
|
| | | | | |
| Fair value of equity components recorded (not part of consideration) | | | | |
| Recognition of noncontrolling interest of joint ventures | | 23,500 |
| | 27,625 |
|
| Total equity components recorded | | 23,500 |
| | 27,625 |
|
| | | | | |
| Total consideration transferred and equity components recorded | | $ | 342,065 |
| | $ | 272,957 |
|
| | | | | |
| Fair value of assets acquired and liabilities assumed | | | | |
| Cash | | $ | 18,212 |
| | $ | 18,982 |
|
| Short term investments | | — |
| | 24,206 |
|
| Restricted cash | | — |
|
| 4,040 |
|
| Other current assets | | 68,317 |
| | 39,680 |
|
| Property, plant, and equipment | | 2,176 |
| | 1,018 |
|
| Other long term assets | | 14,574 |
| | 1,683 |
|
| Intangible assets, definite lived | | 14,577 |
| | 11,267 |
|
| Intangible assets, indefinite lived | | — |
| | 11,168 |
|
| Capitalized software development costs | | 46 |
| | 1,705 |
|
| Deferred tax liability | | 854 |
| | (3,405 | ) |
| Current and other liabilities | | (83,021 | ) | | (58,324 | ) |
| Net assets acquired, excludes goodwill | | 35,735 |
| | 52,020 |
|
| | | | | |
| Goodwill | | 306,330 |
| | 220,937 |
|
| | | | | |
| Total net assets acquired | | $ | 342,065 |
| | $ | 272,957 |
|
The following table summarizes the separately identified intangible assets acquired as a result of the acquisitions that occurred during 20182020 and 2017:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2020 | | 2019 |
| | | | Weighted
Average | | | | Weighted
Average |
| Intangible asset category | | Fair Value | | Useful Life | | Fair Value | | Useful Life |
| | | (In thousands) | | (In years) | | (In thousands) | | (In years) |
| Customer relationships | | $ | 0 | | | 0.0 | | $ | 3,042 | | | 7.5 |
| Developed technology | | 0 | | | 0.0 | | 851 | | | 7.0 |
| Agent network | | 0 | | | 0.0 | | 582 | | | 10.2 |
| Airport contracts | | 0 | | | 0.0 | | 0 | | | 0.0 |
| Store networks | | 0 | | | 0.0 | | 0 | | | 0.0 |
| Brand | | 0 | | | 0.0 | | 78 | | | 5.0 |
| Branch network | | 0 | | | 0.0 | | 1,743 | | | 10.0 |
| Purchase accounting adjustments for prior year acquisitions | | 0 | | | 0.0 | | 0 | | | 0.0 |
| Total acquired intangible assets | | $ | 0 | | | 0.0 | | $ | 6,296 | | | 8.0 |
|
| | | | | | | | | | | | |
| | | December 31, |
| | | 2018 | | 2017 |
| | | | | Weighted Average | | | | Weighted Average |
| Intangible asset category | | Fair Value | | Useful Life | | Fair Value | | Useful Life |
| | | (in thousands) | | (in years) | | (in thousands) | | (in years) |
| Customer relationships | | $ | 7,342 |
| | 11.7 | | $ | 518 |
| | 10.0 |
| Developed technology | | 3,726 |
| | 5.0 | | — |
| | 0.0 |
| Dealer's network | | — |
| | 0.0 | | 10,499 |
| | 17.9 |
| Airport contracts | | 4,896 |
| | 9.0 | | — |
| | 0.0 |
| Store networks | | 846 |
| | 9.0 | | — |
| | 0.0 |
| Brand | | 369 |
| | 4.0 | | — |
| | 0.0 |
| Purchase accounting adjustments for prior year acquisitions | | (2,602 | ) | | 0.0 | | 250 |
| | 0.0 |
| Total acquired intangible assets | | $ | 14,577 |
| | 9.2 | | $ | 11,267 |
| | 17.6 |
Estimated aggregate future amortization expense for the intangible assets recorded as part of the business acquisitions described above and all other prior acquisitions is as follows:
| | | | | |
| Future Amortization Expenses (In thousands): | |
| For the year ended December 31, 2021 | $ | 9,359 | |
| For the year ended December 31, 2022 | 8,967 | |
| For the year ended December 31, 2023 | 6,942 | |
| For the year ended December 31, 2024 | 5,155 | |
| For the year ended December 31, 2025 | 3,835 | |
| Thereafter | 16,622 | |
| |
| $ | 50,880 | |
|
| | | |
| Estimated Amortization Expenses (in thousands): | |
| For the year ending December 31, 2019 | $ | 9,131 |
|
| For the year ending December 31, 2020 | 8,289 |
|
| For the year ending December 31, 2021 | 7,705 |
|
| For the year ending December 31, 2022 | 7,372 |
|
| For the year ending December 31, 2023 | 5,348 |
|
| Thereafter | 13,603 |
|
| | |
|
| | $ | 51,448 |
|
The Company recorded $7.5$9.5 million, $7.3$10.2 million, and $6.8$7.5 million of amortization expense related to acquired intangible assets for the years ended December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively.
Note 4. Pro Forma Financial Information (re: 2018 and 2017 acquisitions)Credit Facility
This unaudited pro forma financial information is provided for informational purposes only and does not project the Company’s results of operations for any future period.
The aggregated unaudited pro forma financial information pertains to all of the Company's acquisitions made during 2018 and 2017, which includes the acquisitions of Pearl, Weizmann, Lawson, Subizz Travel, Global Business Travels Pvt, Business Travels Pvt, Routier, AHA Taxis, Miles, Leisure Corp, Mercury, Indus, Smartclass, Centrum, Transcorp, ItzCash, YouFirst, Wall Street, Paul Merchants,Via and the acquisition of assets of beBetter in 2017 as presented in the table below, and is provided for informational purposes only and does not project the Company's expected results of operations for any future period. No effect has been given in this pro forma information for future synergistic benefits that may still be realized asCompany maintains a result of combining these companies or costs that may yet be incurred in integrating their operations. The 2018 and 2017 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2017, whereas the Company's reported financial statements for 2018 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thusly includes only eleven months of Transcorp, nine months of Centrum, nine months of Smartclass, six months of Indus, six months of Mercury, six months of Leisure, five months of Miles, three months of Routier, three months of Business Travels, three months of AHA Taxis, one month of Pearl, one month of Weizmann and one month of Lawson. Similarly, the 2017 pro forma financial information below includes a full year of results for ItzCash, beBetter, YouFirst, Wall Street, Paul Merchants and Via as if they had been acquired on January 1, 2017, whereas the Company's reported financial statements for the 2017 includes only nine months of ItzCash, seven months of beBetter, four months of YouFirst, three months of Wall Street, two months of Paul Merchants, and two months of Via.
|
| | | | | | | | | | | | | | | | |
| | | As Reported 2018 | | Pro Forma 2018 | | As Reported 2017 | | Pro Forma 2017 |
| | | | | (unaudited) | | | | (unaudited) |
| | | (In thousands, except per share amounts) |
| Revenue | | $ | 497,826 |
| | $ | 584,105 |
| | $ | 363,971 |
| | $ | 605,649 |
|
| Net income attributable to Ebix, Inc. | | $ | 93,139 |
| | $ | 97,935 |
| | $ | 100,618 |
| | $ | 122,269 |
|
| Basic EPS | | $ | 2.97 |
| | $ | 3.12 |
| | $ | 3.19 |
| | $ | 3.88 |
|
| Diluted EPS | | $ | 2.95 |
| | $ | 3.11 |
| | $ | 3.17 |
| | $ | 3.85 |
|
In the above table, the unaudited pro forma revenue for the year ended December 31, 2018 decreased by $21.5 million from the unaudited pro forma revenue for 2017 of $605.6 million to $584.1 million, representing a 3.6% decrease. The reported revenue in the amount of $497.8 million for the year ended December 31, 2018 increased by $133.9 million or 36.8% from the $364.0 millionof reported revenue for the year ended December 31, 2017. The cause for the difference between the 36.8% increase in reported 2018 revenue versus 2017 revenue, as compared to the 3.6% decrease in 2018 pro forma versus 2017 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2018 and 2017, specifically Transcorp, Centrum, Smartclass, Indus, Mercury, Leisure, Miles, Routier, Business Travels, AHA Taxis, Pearl, Weizmann, Lawson, ItzCash, YouFirst, Wall Street, Paul Merchants,Via, and beBetter with the Company's pre-existing operations. The 2018 and 2017 pro forma financial information assumes that all such business acquisitions were made on January 1, 2017, whereas the Company's reported financial statements for 2018 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thus includes only eleven months of Transcorp, nine months of Centrum, nine months of Smartclass, six months of Indus, six months of Mercury, six months of Leisure, five months of Miles, three months of Routier, three months of Business Travels, three months of Wahh Taxis, one month of Pearl, one month of Weizmann and one month of Lawson.
The above pro forma analysis is based on the following premises:
2018 and 2017 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. Growth in revenues of the acquired entities after acquisition date is 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 acquired through the acquisition customer base, has also been assigned to the acquired section of our business.
The impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially affected reported revenues. During each of the years 2018 and 2017 the change in foreign currency exchange rates increased (decreased) reported consolidated operating revenues by $(6.9) million and $2.1 million, respectively.
Note 5. Commercial Bank Financing Facility
On November 27, 2018, Ebix entered into the Eighth Amendment to the Regions Secured Credit Facility,senior secured syndicated credit facility, dated August 5, 2014, among the Company,Ebix, Inc., as borrower, its subsidiaries party thereto from time to time as guarantors, Regions Bank (As administrative agent and certain othercollateral agent) and the lenders party thereto from time to time (as amended from time to time, the "Credit Agreement"Facility") to exercise $101.25that provides a $450 million revolving line of its aggregate $150 million accordion option, increasing the total Term Loan Commitment to $301.25 million from $250 million, with initial repayments startingcredit (the "Revolver") as well as a term loan (the "Term Loan"), which at December 31, 2018 due in the amount2020 had a balance of $3.77 million for the first six quarters and increasing thereafter. The revolving credit facility increased from $400 million to $450$255.5 million. The Credit Agreement carries a leverage-based LIBOR related interest rate, which currently stands at approximately 4.875%. The expanded credit facility will continue to be used to fund the Company's future growth and share repurchase initiatives.Facility matures in February 2023.
On April 9, 2018May 7, 2020, Ebix entered into Amendment No. 10 to the Credit Facility. Amendment No. 10 provides for, among other things, increased flexibility under financial maintenance covenants, which the Company sought in part due to the unforeseen negative effects of the COVID-19 pandemic.
On March 30, 2020, the Company and certain of its subsidiaries entered into the Seventh Amendmenta waiver related to the Regions Secured Credit Facility increasing the permitted indebtedness in the form of unsecured convertible notes from $250 million to $300 million.
On February 21, 2018, Ebix, Inc. and certain of its subsidiaries entered into the Sixth Amendment to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions and certain other lenders party thereto (as amended, the "Credit Agreement"(the "Waiver"). The Sixth Amendment amendsWaiver provided that so long as the Company’s leverage ratio is below 5.0 to 1.0 for the Company’s fiscal quarter ending March 31, 2020 pursuant to the terms of its compliance certificate required by the Credit Agreement by increasing itsFacility, the existing credit facility from $450 millionleverage ratio requirement of 3.50 to $650 million, to assist in funding its growth. The increase in the bank line1.0 was the result of many members of the existingwaived.
bank group expanding their share of the credit facility and the addition of BBVA Compass and Bank of the West to the Banking Syndicate, which diversifies Ebix’s lending group under the credit facility to ten participants. The syndicated bank group now comprises ten leading financial institutions that include Regions Bank, PNC Bank, BMO Harris Bank, BBVA Compass, Fifth Third Bank, KeyBank, Bank of the West, Silicon Valley Bank, Cadence Bank and Trustmark National Bank. Regions Bank continued to lead the banking group while serving as the administrative and collateral agent. PNC Bank and BMO Harris Bank were added as co-syndication agents, BBVA Compass and Fifth Third Bank as co-documentation agent, while Regions Capital Markets, PNC Capital Markets and BMO Harris Bank acted as joint lead arrangers and joint bookrunners. The new credit facility has the following key components: A five-year term loan for $250 million, with initial repayments starting June 30, 2018 due in the amount $3.13 million for the first eight quarters and increasing thereafter and a five-year revolving credit facility for $400 million. The new credit facility also allows for up to $150 million of incremental facilities.
On November 3, 2017September 27, 2019, the Company and certain of its subsidiaries entered into the Fifth Amendment to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions and certain other lenders party thereto (as amended, the "Credit Agreement") to exercise $50 million of its aggregate $100 million accordion option, increasing the total Term Loan Commitment to $175 million. $20 million of the increase was funded on November 3, 2017 and the remaining $30 million shall be disbursed upon the satisfaction of certain closing requirements set forth in the Fifth Amendment. Both such disbursements are tied to permitted acquisitions as set forth in the Fifth Amendment.
On November 3, 2017, the Company and certain of its subsidiaries entered into the Fourth AmendmentNo. 9 to the Credit Agreement. The Fourth Amendment waives certain technical defaults related toFacility, which amended the failure to give required notice with respect to i)definitions of “Consolidated EBITDA" and “Indebtedness” and modified the existence of a subsidiary having intellectual property with an aggregate value above a stipulated amount and ii) the additional investment in a joint venture entity resulting in that entity becoming a subsidiary of the Company for the purpose of the Credit Agreement. In addition to such waiver, the Fourth Amendment also loosened themaximum consolidated debt leverage ratios the Company is required to satisfy in connection with permitted acquisitions and for compliance generally.allowed.
On October 19, 2017, the Company and certain of its subsidiaries entered into the Third Amendment to the Credit Agreement. The Third Amendment waives certain technical defaults related to the Company’s making certain restricted payments in excess of those permitted under the Credit Agreement. In addition to such waiver, the Third Amendment also loosened the limitations on the restricted payment covenant under the Credit Agreement.
On June 17, 2016, the Company and certain of its subsidiaries entered into the Second Amendment Credit Agreement. The Second Amendment increased the total credit facility to $400 million from the prior amount of $240 million, and expands the syndicated bank group to eleven participants by adding seven new participants which include PNC Bank, National Association BMO Harris Bank N.A., Key Bank National Association, HSBC Bank National, Cadence Bank, the Toronto-Dominion Bank (New York Branch), and Trustmark National Bank. The Credit Agreement consisted of a 5-year revolving credit component in the amount of $275 million, and a 5-year term loan component in the amount of $125 million, with repayments of $3.13 million due each quarter, starting September 30, 2016. The Credit Agreement also contained an accordion feature, which if exercised and approved by all credit parties, would expand the total borrowing capacity under the syndicated credit facility to $500 million.
Effective October 14, 2015 the Company, in coordination with Regions as administrative agent and a joint lender, exercised the $50 million accordion feature in the Credit agreement thereby expanding the total credit facility to $240 million. As part of this credit facility expansion, TD Bank, NA ("TD") was added to the syndication group expanding the syndicated group to five bank participants, which include Regions, MUFG Union Bank N.A., Fifth Third Bank, and Silicon Valley Bank as joint lenders. TD commitment level is $25 million.
On February 3, 2015, Ebix, Inc. and certain of its subsidiaries entered into the First Amendment to the Credit Agreement. The First Amendment amended the Regions Credit Facility by increasing the maximum amount by which the Aggregate Revolving Commitments may be increased by $90 million from the pre-existing limit of $50 million, increased the amount of base facility to $190 million from the pre-existing amount of $150 million, which together with the $50 million accordion feature increased the total Credit Agreement capacity amount to $240 million from the prior amount of $200 million, and added Fifth Third Bank to the syndicated group, which now includes four participants, included Regions, MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders.
At December 31, 2018,2020, the outstanding balance on the revolving line of credit with RegionsRevolver was $424.5$439.4 million and the facility carried an interest rate of 4.875%3.5%. During 2020, the Company drew $1.4 million on its Revolver. This balance on the Revolver is included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. During 2018,2020, the average and maximum outstanding balances on the revolving line of creditRevolver were $318.9$438.9 million and
$424.5 $439.4 million, respectively, and the weighted average interest rate on the Revolver was 4.51%4.04%. At December 31, 20172019, the outstanding balance on the revolving line of creditRevolver was $274.5$438.0 million and the facility carried an interest rate of 4.13%4.25%. This balance on the Revolver was included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. During 2019, the average and maximum outstanding balances on the Revolver were $437.2 million and $438.0 million, respectively.
At December 31, 2018,,2020, the outstanding balance on the term loanTerm Loan was $291.2$255.5 million, of which $15.1$22.6 million is due within the next twelve months. This term loan$20.7 million of scheduled amortization payments were made on the Term Loan during 2020. The Term Loan also carried an interest rate of 4.875%3.5% at December 31, 2020, and the weighted average interest rate on the Term Loan during 2020 was 4.04%. The current and long-term portions of the term loanTerm Loan are included in the respective current and long-term debt sections of the Condensed Consolidated Balance Sheets, the amounts of which were $15.1$22.6 million and $232.9 million. At December 31, 2019, the outstanding balance on the Term Loan was $276.2 million, respectively, atof which $20.7 million was due within twelve months. This term loan also carried an interest rate of 4.25%.
At December 31, 2018.2020, the Company's Condensed Consolidated Balance Sheets include $4.9 million of remaining deferred financing costs in connection with the Credit Facility, which are being amortized as a component of interest expense through the maturity of the Credit Facility in February 2023. $2.9 million of such deferred financing costs pertain to the Revolver and $2.0 million pertains to the Term Loan, of which $919 thousand is netted against the current portion of the Term Loan and $1 million is netted against the long-term portion of the Term Loan as reported on the Condensed Consolidated
Balance Sheets. At December 31, 2019, the Company's Condensed Consolidated Balance Sheets included $5.2 million of remaining deferred financing costs in connection with the Credit Facility, with $3.1 million pertaining to the Revolver and $2.1 million pertaining to the Term Loan, of which $575 thousand was netted against the current portion of the Term Loan and $1.5 million was netted against the long-term portions of the Term Loan as reported on the Condensed Consolidated Balance Sheets.
Note 6.5. Commitments and Contingencies
Contingencies- Contingencies— On February 22, 2021, Christine Marie Teifke, a purported purchaser of Ebix, Inc. securities, filed a putative class action in the United States District Court for the Southern District of New York on behalf of herself and others who purchased or acquired Ebix securities between November 9, 2020 and February 19, 2021. The complaint asserts claims against Ebix, Inc., Robin Raina, and Steven M. Hamil, for purported violations of Section 10(b) of the Securities Exchange Act of 1934, alleging that Ebix, Inc. made false and misleading statements and failed to disclose material adverse facts about an audit of the company's gift card business in India and its internal controls over the gift and prepaid card revenue transaction cycle. The complaint alleges that Ebix's stock price fell as a result of the revelation that Ebix's independent auditor, RSM US LLP, had resigned, citing concerns with the company's internal controls and disagreements over other accounting issues. The complaint also asserts a claim against Robin Raina and Steven M. Hamil for purported violations of Section 20(a) of the Exchange Act arising out of the same facts. The complaint seeks, among other relief, damages and attorneys' fees and costs.
In
On July 16, 2019, Yatra Online, Inc. ("Yatra"), Ebix, Inc. ("Ebix"), and EbixCash Travels, Inc. ("Merger Sub") entered into a Merger Agreement.On May 14, 2020, Yatra entered into an agreement with Ebix and Merger Sub extending the outside date of the Merger Agreement (the "Extension Agreement").On June 5, 2020, Yatra terminated the Merger Agreement and filed a complaint in the Delaware Court of Chancery against Ebix and Merger Sub (the "Complaint").On September 25, 2020, Yatra amended the Complaint and added as a defendant each financial institution (each, a “Defendant Lender”) party our Credit Facility, which prior to the filing of the original Complaint, had been previously amended on May 7, 2020.The Complaint, as amended, alleges that Ebix and Merger Sub breached certain representations, warranties, and covenants contained in the Merger Agreement and the Extension Agreement and that Ebix negotiated in bad faith.The amended Complaint also alleges fraudulent actions by Ebix and the Defendant Lenders arising from certain terms of the Credit Facility and tortious interference with the closing of the Merger Agreement by Ebix and the Defendant Lenders. The Complaint seeks, among other relief, damages, pre-judgment and post-judgment interest, and attorneys' fees and costs.Ebix and Merger Sub deny any liability and intend to defend the action vigorously.
On May 12, 2017, Ebix Software India Pvt. Ltd. (“Ebixcash”) entered into several agreements with the most prominent shareholders of Itz Cash Card Limited (“Itz”), the most relevant among these a stock purchase agreement (the “SPA”), to purchase a majority ownership stake in Itz.Further, as part of the overall purchase of Itz, a share purchase agreement between Ebixcash and individual ESOP holders of Itz was entered into on July 7, 2017 (the “ESOP SPA”) (with the SPA, the ESOP SPA and the other purchase documents, collectively, the “Transaction Documents”). Part of the consideration for Ebixcash’s purchase of Itz consisted of two individual potential earn-out payments, the first for the period for the year ended March 31, 2019 (the “First Earn-Out”) and the second for the following year, ending on March 31, 2020 (the “Second Earn-Out”).Neither the First Earn-Out nor the Second Earn-Out were achieved pursuant to the terms of the SPA.After correspondence between the parties between September 2019 and May 2020, the former shareholders of Itz (“Sellers”) sent Ebixcash notices of arbitration (“NOAs”) under which they were availing themselves of the arbitration dispute provisions set forth in the Transaction Documents.Apart from the amounts claimed owed under the earn-out provisions, the Sellers also alleged in the NOAs other violations of the terms of the Transaction Documents, including, certain non-competition and restricted matter approval violations.The matter is under Arbitration in accordance with the rules of the Singapore International Arbitration Centre. The Company believes that each of the Sellers claims is without merit and continues to defend its position vigorously.The Company believes that Ebixcash has several viable counterclaims related to improper termination of the Transaction Documents and violation non-compete provisions.
As the Company previously disclosed, in May 2013, twelve12 putative class action complaints were filed in the Delaware Court of Chancery against the Company and its board of directors challenging a proposed merger between the
Company and an affiliate of Goldman Sachs & Co. On June 10, 2013, the Court entered an Order of Consolidation and Appointment of Lead Plaintiffs and a Leadership Structure consolidating the twelve12 actions and appointing lead plaintiffs (“Plaintiffs”Plaintiffs”) and lead counsel in the litigation, captioned In re Ebix, Inc. Stockholder Litigation, Consol. C.A. No. 8526-VCS (the “Litigation”“Litigation”). On June 19, 2013, the Company announced that the merger agreement had been terminated. Thereafter, on August 27, 2013, Plaintiffs filed a Verified Amended and Supplemented Class Action and Derivative Complaint (the “First Amended Complaint”), which defendants moved to dismiss on September 26, 2013. On July 24, 2014, the Court issued a Memorandum Opinion granting in part and denying in part the motions to dismiss the First Amended Complaint and subsequently entered an implementing order on September 15, 2014. On January 16, 2015, Plaintiffs filed a Verified Second Amended and Supplemented Class Action and Derivative Complaint (the “Second Amended Complaint”). On February 10, 2015, defendants filed a Motion to Dismiss the Second Amended Complaint, which was granted in part and denied in part in a Memorandum Opinion and Order issued on January 15, 2016. On October 26, 2016, Plaintiffs filed a Verified Third Amended and Supplemented Class Action and Derivative Complaint (the “Third Amended Complaint”), which, among other things, added certain directors of the Company as defendants. On January 5, 2018, Plaintiffs filed a motion for leave to join an additional plaintiff as co-lead plaintiff in this action (collectively, “Plaintiffs,” and together with all defendants, the “Parties”), which was granted on April 2, 2018.
On January 19, 2018, Plaintiffs filed a Fourth Amended and Supplemented Class Action and Derivative Complaint (the “Fourth Amended Complaint”), which asserted claims against the defendants, including: breach of fiduciary duty claims for improperly maintaining an acquisition bonus agreement between the Company and its Chief Executive Officer, dated July 15, 2009 (the “ABA”) (Count I); disclosure claims relating to the 2010 Proxy Statement and the Company’s 2010 Stock Incentive Plan (the “2010 Plan”) (Count II); a derivative claim for breach of fiduciary duty based on awards made pursuant to 2010 Plan (Count III); a breach of fiduciary duty claim for implementing purported additional entrenchment measures (Count IV); a claim seeking to declare the invalidity of certain bylaws adopted by the Company in 2014 (Count V); a claim seeking to declare the invalidity of the ABA (Count VI); a breach of fiduciary duty claim related to public disclosures about the ABA (Count VII); a claim seeking to declare the invalidity of the 2008 stockholder meeting, a 2008 Certificate amendment (the “Certificate Amendment”) and a 2008 stock split (the “Stock Dividend”), among other corporate acts, including the Company’s ratification of these 2008 corporate acts (Count VIII); a claim seeking to declare the invalidity of the CEO Bonus Plan (Count IX); and a claim for breach of fiduciary duty for deliberately inserting additional terms when calculating a potential bonus under the ABA (Count X). The Fourth Amended Complaint sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On March 7, 2018, defendants filed motions for summary judgment on all counts in the Fourth Amended Complaint. In connection with the Litigation, the Company’s Chief Executive Officer asserted a cross-claim for reformation of the ABA.
The terms of the ABA generally provided that if Mr. Raina was employed by the Company upon the occurrence of: (i) an event in which more than 50% of the voting stock of the Company was sold, transferred, or exchanged, (ii) a merger or consolidation of the Company, (iii) the sale, exchange, or transfer of all or substantially all of the Company’s assets, or (iv) the acquisition or dissolution of the Company (each, an “Acquisition Event”), the Company would pay Mr. Raina a cash bonus based on a formula that was disputed by Plaintiffs in the Litigation and a tax gross-up payment for excise taxes that would be imposed on Mr. Raina for the cash bonus payment. Upon the execution of a Stock Appreciation Right Award Agreement between the Company and its Chief Executive Officer, dated April 10, 2018 (the “April SAR Agreement”), the ABA was terminated and each party relinquished their respective rights and benefits under the ABA.
Upon the effective date of the April SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event, each of the SARs entitle Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with the Acquisition
Event over the base price of $7.95 per share. Although the SARs were not granted under the 2010 Plan, the April SAR Agreement incorporates certain provisions of the 2010 Plan, including the provisions requiring equitable adjustment of the number of SARs and the base price in connection with certain corporate events (including stock splits). Under the terms of the April SAR Agreement, Mr. Raina is entitled to receive full payment with respect to the SARs if either (i) he is employed by the Company on the closing date of an Acquisition Event or (ii) has been involuntarily terminated by the Company without cause (as defined in the April SAR Agreement) within the 180-day period immediately preceding an Acquisition Event. All of the SARs are forfeited if Mr. Raina’s employment is terminated for any other reason prior to the closing date of an Acquisition Event.
In addition, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the April SAR Agreement provides that the Company’s Board of Directors (the “Board”) will determine annually whether a “shortfall” (as described below) exists as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall exists, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, additional restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). Under the terms of the April SAR Agreement, a shortfall exists if: (A) the sum of (i) the number of common shares deemed to be owned by Mr. Raina as of the effective date of the April SAR Agreement, plus (ii) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (iii) the number of shares underlying any previously granted Share Grant, was less than 20% of (B) the sum of (i) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (ii) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year. Under the terms of the April SAR Agreement, if the Board elects to make a Shortfall Grant in respect of such shortfall, such SARs will be subject to the same terms and conditions as the SARs initially granted under the April SAR Agreement. If the Board elects to make a Share Grant in respect of such shortfall, such restricted shares or restricted stock units will have such terms and conditions as determined by the Board, but generally will follow the terms of the restricted shares or restricted stock units granted to other executives of the Company at or about the time of such Share Grant, but no Share Grant will vest more rapidly than one-third of such Share Grant prior to the first anniversary of the grant date, with the remainder vesting in eight equal quarterly installments following the first anniversary of the grant date. The April SAR Agreement also provides for the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments (other than any payments with respect to any Share Grants) made in connection with a change in control of the Company under Section 4999 of the Internal Revenue Code.
On May 31, 2018, Plaintiffs filed a Verified Supplement to the Fourth Amended Complaint (the “Supplement”), which asserted three additional counts related to the April SAR Agreement, including: a claim seeking to declare the April SAR Agreement invalid (Count XI); a claim for breach of fiduciary duty for adopting the April SAR Agreement (Count XII); and a claim for breach of fiduciary duty for improperly adopting the SAR Agreement as an “anti-takeover device” (Count XIII). The Supplement sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On June 18, 2018, defendants moved to dismiss the claims asserted in the Supplement. Also on June 18, 2018, the Court entered a joint stipulation and order declaring the 2008 Certificate Amendment and Stock Dividend valid and effective pursuant to 8 Del. C. § 205 and subsequently dismissed Count VIII of the Fourth Amended Complaint on July 5, 2018.
On July 17, 2018, following briefing and argument, the Court issued an Order granting in part and denying in part defendants’ motions for summary judgment on all remaining counts of the Fourth Amended Complaint. The Court granted summary judgment as to all defendants on Counts I, IV, V, VI, VII, and X and denied summary judgment as to Counts II and III. The Court granted summary judgment as to certain defendants on Count IX, and granted in part and denied in part Count IX with respect to the Firm Clients. On July 24, 2018, Plaintiffs filed a motion for leave to file a second supplement to the Fourth Amended Complaint related to certain disclosures issued in connection with the Company’s 2018 annual meeting, which the Court denied at a pretrial conference held on August 15, 2018. On August 9, 2018, following briefing and argument, the Court issued a bench ruling granting in part and denying in part defendants’ motion to dismiss the Supplement. A three-day trial on all remaining claims was held on August 20, 21, and 23, 2018.
Following trial held on August 20, 21 and 23, 2018, and prior to the conclusion of post-trial briefing, on January 23, 2019, the Partiesparties entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”“Settlement Agreement”) pursuant to which the Partiesparties agreed, subject to Final Approval (as defined in the Settlement Agreement)approval by the Delaware Court of Chancery, to settle and resolve the Litigation pursuant to the terms set forth in the Settlement Agreement (the “Settlement”“Litigation Settlement”). The Settlement includes, among other things,On April 5, 2019, the adoption and entry into an Amended Stock Appreciation Right Award Agreement (the “Amended SAR Agreement”) (set forth in Exhibit A to the Settlement Agreement), the implementationDelaware Court of certain governance measures (set forth in Exhibit B to the Settlement Agreement), and the issuance of a Form 8-K describing the Settlement and terms thereof following the final approval of the Settlement (set forth in Exhibit C to the Settlement Agreement).
The Amended SAR Agreement was negotiated as part ofChancery determined that the Litigation Settlement was fair, reasonable, adequate and will become effective upon Final Approvalin the best interest of the Litigation Settlement,plaintiffs, the class and includes the following changesCompany and modificationsawarded to the April SAR Agreement:
| |
(a) | Mr. Raina will commit to continue to serve and not resign as the Company’s Chief Executive Officer for at least two years following Final Approval of the Litigation Settlement; |
| |
(b) | any shares paid, awarded or otherwise received by Mr. Raina as compensation after the effective date of the April SAR Agreement, including any shares received by Mr. Raina from the exercise of any options granted after the effective date of the April SAR Agreement or from the grant or vesting of any restricted shares or settlement of any restricted stock units granted after the effective date of the April SAR Agreement (but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants), will be excluded from the outstanding shares for purposes of the Board’s annual shortfall determination; |
| |
(c) | if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement), 1,000,000 SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by 750,000 SARs beginning on the first anniversary of Final Approval of the Litigation Settlement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until 100% of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forefeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event; and |
| |
(d) | The obligation of the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments made in connection with a change in control of the Company will be eliminated. |
The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Amended SAR Agreement.
Pursuant to a scheduling order entered by the Court on January 24, 2019 (the “Scheduling Order”), post-trial briefing is currently stayed, notice of the proposed Settlement was mailed and posted to a dedicated website on February 4, 2019 (the “Notice,” available at http://ebixstockholderlitigation.com), and a settlement approval hearing is scheduled to be held on April 5, 2019 (the “Settlement Hearing”). On February 25, 2019, Plaintiffs filed an opening brief in support of the settlement and their application for a Fee Award (as defined in the Settlement Agreement), in which Plaintiffs and theirplaintiffs’ counsel seek an award of attorneys’ fees of $25 million plus expenses of $952 thousand. Pursuant to the Settlement Agreement, all such attorneys’ fees and expenses in the sum of $19.65 million, which was paid on May 2, 2019,and entered an Order and Final Judgment (the “Order”) approving the Litigation Settlement. The Order provided for full settlement, satisfaction, compromise and release of all claims that are awarded by the Court shall be paid solely by Ebixwere asserted or its insurance carriers, and from no other source, within twenty (20) business days of entry of an order approving such award. Pursuant to the Scheduling Order, any objections to the Settlement and/or Plaintiffs’ counsel’s application for fees and expenses and any responses thereto are scheduled to be filed no later than eighteen (18) calendar days and seven (7) calendar days, respectively, prior to the Settlement Hearing. Defendants believe that the claimscould have been asserted in the Litigation, are without meritwhether on behalf of the class or the Company. The Settlement contains no admission of wrongdoing or liability, and if formay not be deemed to be a presumption as to the validity of any reason the Settlement is not fully and finally approved upon the terms and conditions set forth in the Settlement Agreement, intend to vigorously defend against them.claims, causes of action or other issues.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. Inbusiness, which in the opinion of management, the ultimate likely disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Lease Commitments—The Company leases office space under non-cancelable operating leases with expiration dates ranging through 2029, with various renewal options. Capital leases range from three to five years and are primarily for computer equipment. There were multiple assets under various individual capital leases at December 31, 2018 and 2017.See Note 19.
Commitments for minimum rentals under non-cancellable leases, debt obligations, and future purchase obligations as of December 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | | |
| Year | | Debt | | Capital Leases | | Operating Leases | | Future Purchase Obligations |
| | | (in thousands) | | |
| 2019 | | $ | 19,053 |
| | $ | 266 |
| | $ | 34,189 |
| | $ | 406 |
|
| 2020 | | 20,711 |
| | 96 |
| | 32,093 |
| | — |
|
| 2021 | | 22,594 |
| | 89 |
| | 26,675 |
| | — |
|
| 2022 | | 28,242 |
| | 67 |
| | 23,355 |
| | — |
|
| 2023 | | 629,162 |
| | 15 |
| | 21,890 |
| | — |
|
| Thereafter | | — |
| | — |
| | 3,299 |
| | — |
|
| Total | | $ | 719,762 |
| | $ | 533 |
| | $ | 141,501 |
| | $ | 406 |
|
| Less: sublease income | | | | | | (1,091 | ) | | |
| Net lease payments | | | | | | $ | 140,410 |
| |
|
|
| Less: amount representing interest | | | | (63 | ) | | | | |
| Present value of obligations under capital leases | | | | $ | 470 |
| | | | |
| Less: current portion | | (19,053 | ) | | (239 | ) | | | | |
| Long-term obligations | | $ | 700,709 |
| | $ | 231 |
| | | | |
Rental expense for office facilities and certain equipment subject to operating leases for 2018, 2017, and 2016 was $22.3 million, $6.6 million and $6.4 million, respectively.
Sublease income for 2018, 2017 and 2016 was $1.1 million, $1.1 million, and $1.0 million, respectively.
Business Acquisition Earn-out Contingencies—A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnoutearn out based on reaching certain specified future revenue targets. The terms for the contingent earn-out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one, two, and/or three year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target with achievement of revenues recognized over that target being awarded in the form of a specified cash earn-out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn-out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. As of December 31, 2018, the total of these2020, here were no outstanding contingent liabilities was $25.0 million, of which $11.2 million is reported in long-term liabilities, and $13.8 million is included in current liabilitiesliability in the Company's Consolidated Balance Sheet. As of December 31, 20172019, the total of these contingent liabilities was $37.1$10.1 million of which $33.1$1.5 million was reported in long-term liabilities, and $4.0$8.6 million was included in current liabilities in the Company's Consolidated Balance Sheet.
Self -Insurance— Self-Insurance—For some of the Company’s U.S. employees the Company is currentlyhas a self-insured plan for its health insurance program and has a stop loss policy that limits the individual liability to $120 thousand per person and the aggregate liability to 125% of the expected claims based upon the number of participants and historical claims. As of December 31, 20182020 and 2017,2019, the amount accrued on the Company’s consolidated balance sheet for the self-insured component of the Company’s employee health insurance was $232$345 thousand and $332$362 thousand, respectively. The maximum potential estimated cumulative liability for the annual contract period, which ends in September 2021, is $4.1 million. During the years ended December 31, 2020 and 2019, the Company recognized $1.8 million, and $2.6 million of expense, respectively, associated with claims from its self-insured health insurance program.
Gratuity Leave—In accordance with Indian law, we pay gratuity to our eligible employees in India. Under our gratuity plan, an employee is $3.3 million.entitled to receive a gratuity payment on the termination of his or her employment if the employee has rendered continuous service to our company for not less than five years, or if the termination of employment is due to death or disability. The amount of gratuity payable to an eligible employee is based on number of years of employment and is limited to a maximum of $28 thousand per employee. As of December 31, 2020 and 2019, the amount accrued on the Company’s consolidated balance sheet for gratuity leave was $4.3 million and $3.2 million, respectively.
Note 7.6. Share-Based Compensation
Stock Options—The Company accounts for compensation expense associated with stock options issued to employees, Directors, and non-employees based on their fair value, which is calculated using an option pricing model, and is recognized over the service period, which is usually the vesting period. At December 31, 2018,2020, the Company had two2 equity based compensation plan. Noplans. NaN stock options were granted to employees or non-employees during 2018, 20172020, 2019, and 2016;2018; however, options were granted to Directors in 2018, 20172020, 2019, and 2016.2018. Stock compensation expense of $517 thousand, $537 thousand and
$449 thousand, $433 thousand and $340 thousand was recognized during the years ending December 31, 2018, 20172020, 2019, and 2016,2018, respectively, on outstanding and unvested options.
The fair value of options granted during 20182020 is estimated on the date of grant using thea Black-Scholes option pricing model. The following table includes the weighted- average assumptions used in estimating the fair values and the resulting weighted-average fair value of stock options granted in the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Weighted average fair values of stock options granted | $ | 15.58 | | | $ | 12.68 | | | $ | 11.80 | |
| Expected volatility | 64.7 | % | | 36.0 | % | | 35.7 | % |
| Expected dividends | .84 | % | | .65 | % | | .70 | % |
| Weighted average risk-free interest rate | .24 | % | | 1.72 | % | | 2.47 | % |
| Expected life of stock options (in years) | 3.5 | | 3.5 | | 3.5 |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| Weighted average fair values of stock options granted | $ | 11.80 |
| | $ | 15.38 |
| | $ | 19.50 |
|
| Expected volatility | 35.7 | % | | 37.9 | % | | 55.5 | % |
| Expected dividends | .70 | % | | .56 | % | | .61 | % |
| Weighted average risk-free interest rate | 2.47 | % | | 1.64 | % | | 1.40 | % |
| Expected life of stock options (in years) | 3.5 |
| | 3.5 |
| | 3.5 |
|
A summary of stock option activity for the years ended December 31, 2018, 20172020, 2019, and 20162018 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted
Average
Exercise Price | | Weighted
Average
Remaining
Contractual
Term (Years) | | Aggregate Intrinsic
Value |
| | | | | | | | (In thousands) |
| Outstanding at January 1, 2018 | 147,999 | | | $ | 37.68 | | | 2.94 | | $ | 6,152 | |
| Granted | 42,000 | | | $ | 42.56 | | | | | |
| Exercised | (27,999) | | | $ | 15.65 | | | | | |
| Canceled | 0 | | | $ | 0 | | | | | |
| Outstanding at December 31, 2018 | 162,000 | | | $ | 42.75 | | | 3.05 | | $ | 0 | |
| Granted | 66,000 | | | $ | 46.75 | | | | | |
| Exercised | 0 | | | $ | 0 | | | | | |
| Canceled | (10,125) | | | $ | 46.66 | | | | | |
| Outstanding at December 31, 2019 | 217,875 | | | $ | 43.78 | | | 2.60 | | $ | 0 | |
| Granted | 36,000 | | | $ | 35.70 | | | | | |
| Exercised | (30,000) | | | $ | 21.19 | | | | | |
| Canceled | (6,000) | | | $ | 28.59 | | | | | |
| Outstanding at December 31, 2020 | 217,875 | | | $ | 45.97 | | | 2.57 | | $ | 0 | |
| Exercisable at December 31, 2020 | 115,125 | | | $ | 49.17 | | | 1.63 | | $ | 0 | |
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | | | | | | | (in thousands) |
| Outstanding at January 1, 2016 | 139,878 |
| | $ | 15.17 |
| | 2.32 | | $ | 2,465 |
|
| Granted | 42,000 |
| | $ | 49.22 |
| | | | |
| Exercised | (72,379 | ) | | $ | 11.38 |
| | | | |
| Canceled | — |
| |
|
| | | | |
| Outstanding at December 31, 2016 | 109,499 |
| | $ | 30.73 |
| | 3.28 | | $ | 2,882 |
|
| Granted | 42,000 |
| | $ | 53.90 |
| | | | |
| Exercised | (3,500 | ) | | $ | 14.90 |
| | | | |
| Canceled | — |
| |
|
| | | | |
| Outstanding at December 31, 2017 | 147,999 |
| | $ | 37.68 |
| | 2.94 | | $ | 6,152 |
|
| Granted | 42,000 |
| | $ | 42.56 |
| | | | |
| Exercised | (27,999 | ) | | $ | 15.65 |
| | | | |
| Canceled | — |
| |
|
| | | | |
| Outstanding at December 31, 2018 | 162,000 |
| | $ | 42.75 |
| | 3.05 | | $ | — |
|
| Exercisable at December 31, 2018 | 80,250 |
| | $ | 38.21 |
| | 2.00 | | $ | 49 |
|
The aggregate intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s stock as of the end of the period and the exercise price of the stock options. The total intrinsic value of stock options exercised during 2018, 20172020, 2019, and 20162018 was $900$341 thousand,, $169 0 and $900 thousand,, and $3.2 million, respectively.
Cash received or the value of stocks canceled from option exercises under all share-based payment arrangements for the years ended December 31, 2018, 20172020, 2019, and 2016,2018, was $439$127 thousand,, $52 0 and $439 thousand, and $824 thousand, respectively.
A summary of non-vested options and changes for the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:
| | | | | | | | | Non-Vested Number of Shares | | Weighted
Average
Exercise Price |
| | Non-Vested Number of Shares | | Weighted Average Exercise Price | | | | |
| | | | | |
| Non-vested balance at January 1, 2016 | 75,750 |
| | $ | 19.27 |
| |
| Granted | 42,000 |
| | $ | 49.22 |
| |
| Vested | (43,125 | ) | | $ | 18.89 |
| |
| Canceled | — |
| | $ | — |
| |
| Non-vested balance at December 31, 2016 | 74,625 |
| | $ | 36.35 |
| |
| Granted | 42,000 |
| | $ | 53.90 |
| |
| Vested | (40,125 | ) | | $ | 32.54 |
| |
| Canceled | — |
| | $ | — |
| |
| Non-vested balance at December 31, 2017 | 76,500 |
| | $ | 47.99 |
| |
| Non-vested balance at January 1, 2018 | | Non-vested balance at January 1, 2018 | 76,500 | | | $ | 47.99 | |
| Granted | 42,000 |
| | $ | 42.56 |
| Granted | 42,000 | | | $ | 42.56 | |
| Vested | (36,750 | ) | | $ | 43.52 |
| Vested | (36,750) | | | $ | 43.52 | |
| Canceled | — |
| | $ | — |
| Canceled | 0 | | | $ | 0 | |
| Non-vested balance at December 31, 2018 | 81,750 |
| | $ | 47.21 |
| Non-vested balance at December 31, 2018 | 81,750 | | | $ | 47.21 | |
| Granted | | Granted | 66,000 | | | $ | 46.75 | |
| Vested | | Vested | (28,875) | | | $ | 48.46 | |
| Canceled | | Canceled | (10,125) | | | $ | 46.66 | |
| Non-vested balance at December 31, 2019 | | Non-vested balance at December 31, 2019 | 108,750 | | | $ | 46.65 | |
| Granted | | Granted | 36,000 | | | $ | 35.70 | |
| Vested | | Vested | (42,000) | | | $ | 47.66 | |
| Canceled | | Canceled | 0 | | | $ | 0 | |
| Non-vested balance at December 31, 2020 | | Non-vested balance at December 31, 2020 | 102,750 | | | $ | 42.40 | |
The following table summarizes information about stock options outstanding by price range as of December 31, 2018:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
| Exercise Prices | | Number Outstanding | | Weighted-Average Remaining Contractual Life (Years) | | Weighted-Average Exercise Price | | Number of Shares | | Weighted-Average Exercise Price |
| $35.70 | | 36,000 | | | 0.82 | | $ | 5.90 | | | 0 | | | $ | 0 | |
| $41.60 | | 36,000 | | | 0.45 | | $ | 6.87 | | | 11,250 | | | $ | 4.07 | |
| $42.56 | | 36,000 | | | 0.50 | | $ | 7.03 | | | 18,000 | | | $ | 6.65 | |
| $49.22 | | 40,875 | | | 0.06 | | $ | 9.23 | | | 40,875 | | | $ | 17.48 | |
| $52.92 | | 30,000 | | | 0.47 | | $ | 7.29 | | | 11,250 | | | $ | 5.17 | |
| $53.90 | | 39,000 | | | 0.27 | | $ | 9.65 | | | 33,750 | | | $ | 15.80 | |
| | 217,875 | | | 2.57 | | $ | 45.97 | | | 115,125 | | | $ | 49.17 | |
|
| | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
| Exercise Prices | | Number Outstanding | | Weighted-Average Remaining Contractual Life (Years) | | Weighted-Average Exercise Price | | Number of Shares | | Weighted-Average Exercise Price |
| $21.19 | | 30,000 |
| | 0.19 | | $ | 3.93 |
| | 30,000 |
| | $ | 7.92 |
|
| $28.59 | | 6,000 |
| | 0.05 | | $ | 1.06 |
| | 5,625 |
| | $ | 2.00 |
|
| $42.56 | | 42,000 |
| | 1.30 | | $ | 11.03 |
| | — |
| | $ | — |
|
| $49.22 | | 42,000 |
| | 0.61 | | $ | 12.76 |
| | 28,875 |
| | $ | 17.71 |
|
| $53.90 | | 42,000 |
| | 0.91 | | $ | 13.97 |
| | 15,750 |
| | $ | 10.58 |
|
| | | 162,000 |
| | 3.05 | | $ | 42.75 |
| | 80,250 |
| | $ | 38.21 |
|
Restricted Stock—Pursuant to the Company’s restricted stock agreements, the restricted stock granted generally vests as follows: one third after one year, and the remaining in eight8 equal quarterly installments. The restricted stock also vests with respect to any unvested shares upon the applicable employee’s death, disability or retirement, the Company’s termination of the employee other than for cause, or for a change in control of the Company. A summary of the status of the Company’s non-vested restricted stock grant shares is presented in the following table:
| | | | | | | Shares | | Weighted-Average Grant Date
Fair Value |
| | Shares | | Weighted-Average Grant Date Fair Value | |
| Non vested at January 1, 2016 | 203,314 |
| | $ | 25.56 |
| |
| Non-vested at January 1, 2018 | | Non-vested at January 1, 2018 | 107,095 | | | $ | 45.74 | |
| Granted | 26,119 |
| | $ | 44.79 |
| Granted | 5,623 | | | $ | 76.47 | |
| Vested | (101,441 | ) | | $ | 23.25 |
| Vested | (68,788) | | | $ | 40.67 | |
| Forfeited | (4,338 | ) | | $ | 35.54 |
| Forfeited | (3,514) | | | $ | 46.24 | |
| Non vested at December 31, 2016 | 123,654 |
| | $ | 31.17 |
| |
| Non-vested at December 31, 2018 | | Non-vested at December 31, 2018 | 40,416 | | | $ | 58.60 | |
| Granted | 56,251 |
| | $ | 56.75 |
| Granted | 91,658 | | | $ | 50.54 | |
| Vested | (72,810 | ) | | $ | 29.50 |
| Vested | (24,120) | | | $ | 57.14 | |
| Forfeited | — |
| | $ | — |
| Forfeited | 0 | | | $ | 0 | |
| Non vested at December 31, 2017 | 107,095 |
| | $ | 45.74 |
| |
| Non-vested at December 31, 2019 | | Non-vested at December 31, 2019 | 107,954 | | | $ | 52.08 | |
| Granted | 5,623 |
| | $ | 76.47 |
| Granted | 388,089 | | | $ | 24.37 | |
| Vested | (68,788 | ) | | $ | 40.67 |
| Vested | (68,504) | | | $ | 52.49 | |
| Forfeited | (3,514 | ) | | $ | 46.24 |
| Forfeited | 0 | | | $ | 0 | |
| Non vested at December 31, 2018 | 40,416 |
| | $ | 58.60 |
| |
| Non-vested at December 31, 2020 | | Non-vested at December 31, 2020 | 427,539 | | | $ | 26.86 | |
In the aggregate the total compensation expense recognized in connection with the restricted grants was $4.3 million, $2.9 million, and $2.4 million during each of the years ending December 31, 2020, 2019, and 2018, respectively.
As of December 31, 20182020, there was $2.1$9.1 million of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the 2006 and 2010 Incentive Compensation Program. That cost is expected to be recognized over a weighted-average period of 1.742.75 years. The total fair value of shares vested during the years ended December 31, 2018, 20172020, 2019, and 20162018 was $2.8$3.6 million,, $2.1 $1.4 million,, and $2.4$2.8 million,, respectively.
In the aggregate the total compensation expense recognized in connection with the restricted grants was $2.4 million, $2.4 million and $2.5 million during each As of the years ending December 31, 2018, 2017 and 2016, respectively.
As of December 31, 20182020, the Company has 5.38.6 million shares of common stock reserved for possible future stock option and restricted stock grants.
Note 8.7. Income Taxes
The income tax expense (benefit) consists of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| | (In thousands) |
| Current: | | | | | |
| US federal | $ | (249) | | | $ | 1,378 | | | $ | 22,353 | |
| US state | (406) | | | 909 | | | 847 | |
| Non US | 10,681 | | | 12,861 | | | 15,212 | |
| | 10,026 | | | 15,148 | | | 38,412 | |
| Deferred: | | | | | |
| US federal | (1,220) | | | (3,781) | | | 5,617 | |
| US state | (657) | | | (3,107) | | | (1,031) | |
| Non US | (2,819) | | | (8,040) | | | (10,497) | |
| (4,696) | | | (14,928) | | | (5,911) | |
| | | | | |
| Total | $ | 5,330 | | | $ | 220 | | | $ | 32,501 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | (In thousands) |
| Current: | | | | | |
| US federal | $ | 22,353 |
| | $ | 2,390 |
| | $ | 1,259 |
|
| US state | 847 |
| | 1,153 |
| | 310 |
|
| Non US | 15,212 |
| | 8,266 |
| | 3,266 |
|
| | 38,412 |
| | 11,809 |
| | 4,835 |
|
| Deferred: | | | | | |
| US federal | 5,617 |
| | (5,558 | ) | | 78 |
|
| US state | (1,031 | ) | | (976 | ) | | 295 |
|
| Non US | (10,497 | ) | | (4,498 | ) | | (3,571 | ) |
| | (5,911 | ) | | (11,032 | ) | | (3,198 | ) |
| | | | | | |
| Total | $ | 32,501 |
| | $ | 777 |
| | $ | 1,637 |
|
Income (loss) before income taxes includes the following components:
| | | | | | | | | | Year Ended December 31, |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | 2020 | | 2019 | | 2018 |
| | (In thousands) | | (In thousands) |
| US | $ | (36,202 | ) | | $ | (13,355 | ) | | $ | (80 | ) | US | $ | (27,528) | | | $ | (47,574) | | | $ | (36,202) | |
| Non US | 161,783 |
| | 116,715 |
| | 96,011 |
| Non US | 121,685 | | | 138,365 | | | 161,784 | |
| Total | $ | 125,581 |
| | $ | 103,360 |
| | $ | 95,931 |
| Total | $ | 94,157 | | | $ | 90,791 | | | $ | 125,582 | |
A reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Statutory US federal income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| US state income taxes, net of federal benefit | (0.9) | % | | (2.3) | % | | (0.3) | % |
| Non-US tax rate differential | (12.2) | % | | (13.6) | % | | (15.2) | % |
| GILTI Related | 12.5 | % | | 18.6 | % | | 15.1 | % |
| SubPart F | 0 | % | | 0 | % | | 0.7 | % |
| Tax holidays | (4.0) | % | | (6.0) | % | | (3.4) | % |
| Tax Credits | (10.0) | % | | (15.0) | % | | (10.6) | % |
| Passive income exemption | (0.4) | % | | (1.2) | % | | (0.9) | % |
| Acquisition contingent earnout liability adjustments | (0.7) | % | | (4.0) | % | | (0.2) | % |
| | | | | |
| Nondeductible items | 2.0 | % | | 1.0 | % | | (0.1) | % |
| Effect of valuation allowance | (1.2) | % | | 1.2 | % | | (0.1) | % |
| | | | | |
| Prior year Transition Tax and related true-ups | 0.5 | % | | 0.7 | % | | 19.5 | % |
| Uncertain tax positions | (1.0) | % | | (0.1) | % | | 0.1 | % |
| | | | | |
| Other | 0 | % | | (0.1) | % | | 0.3 | % |
| Effective income tax rate | 5.7 | % | | 0.2 | % | | 25.9 | % |
|
| | | | | | | | |
| | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| Statutory US federal income tax rate | 21.0 | % | | 34.0 | % | | 35.0 | % |
| US state income taxes, net of federal benefit | (0.3 | )% | | (0.8 | )% | | 0.4 | % |
| Non-US tax rate differential | (15.2 | )% | | (28.7 | )% | | (22.8 | )% |
| GILTI Related | 15.1 | % | | — | % | | — | % |
| SubPart F | 0.7 | % | | — | % | | — | % |
| Tax holidays | (3.4 | )% | | (3.5 | )% | | (14.0 | )% |
| Tax Credits | (10.6 | )% | | (1.4 | )% | | — | % |
| Passive income exemption | (0.9 | )% | | (2.1 | )% | | (1.4 | )% |
| Acquisition contingent earnout liability adjustments | (0.2 | )% | | — | % | | (0.9 | )% |
| Foreign enhanced R&D deductions | — | % | | — | % | | (0.9 | )% |
| Nondeductible items | (0.1 | )% | | 2.5 | % | | 9.1 | % |
| Effect of valuation allowance | (0.1 | )% | | (3.6 | )% | | (2.3 | )% |
| Release of deferred tax liability on intangibles transferred | — | % | | — | % | | (3.5 | )% |
| Prior year Transition Tax and related true-ups | 19.5 | % | | 1.1 | % | | 2.8 | % |
| Uncertain tax positions | 0.1 | % | | 5.8 | % | | 0.1 | % |
| Rate change on deferred taxes primarily due to tax reform | — | % | | (2.4 | )% | | — | % |
| Other | 0.1 | % | | (0.1 | )% | | 0.1 | % |
| Effective income tax rate | 25.9 | % | | 0.8 | % | | 1.7 | % |
Our The Company's effective tax rate increased to 25.9%5.7% in 2018,2020, compared with 0.8%0.2% in 2017. This2019. The increase was substantial on account of recording of one time Transition tax liability resulting from enactment of the TCJA, which has been included in Prior year Transaction tax and relataed true-ups. Excluding this, the remaining increase in the effective tax rate was primarily on accountin 2020 is due to a decrease in the availability of Global Intangible Low-taxed Income (“GILTI”) tax becoming applicable on the Company from enactment of TCJA.
Beginning in 2009, we were granted a 100%credits as well as lower tax holiday for certain of our Indian operations, which wasbenefit available in effect until March 31, 20142020 compared to 2019 and March 31, 2015 for some of our locations and continues until March 31, 2020 for other locations. When these tax holidays expire, these locations become 50% taxable for an additional five years. The impact of this tax holiday decreased our non-US income tax expense by $4.3 million and $2.9 million for 2018 and 2017, respectively.
Excluding one-time impact of Transition tax and related true-ups, the Company’s consolidated worldwide effective tax ratelower benefits from the effects of conducting significant operations in certain foreign jurisdictions, specifically India and Dubai, where certain units enjoys tax holidays or tax concessions.state taxes deduction.
Deferred tax assets and liabilities are comprised of the following:
| | | | December 31, 2018 | | December 31, 2017 | | December 31, 2020 | | December 31, 2019 |
| | Deferred | | Deferred | | Deferred | | Deferred |
| | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
| | (In thousands) | | (In thousands) |
| Depreciation and amortization | $ | — |
| | $ | 2,315 |
| | $ | 683 |
| | $ | — |
| Depreciation and amortization | $ | 0 | | | $ | 3,450 | | | $ | 0 | | | $ | 3,562 | |
| Share-based compensation | 521 |
| |
| | 590 |
| |
| Share-based compensation | 451 | | | 0 | | | 959 | | | 0 | |
| Accruals and prepaids | 8,143 |
| |
|
| | 2,700 |
| |
| Accruals and prepaids | 6,586 | | | 0 | | | 6,806 | | | 0 | |
| Bad debts | 3,215 |
| |
| | 1,076 |
| |
| Bad debts | 2,727 | | | 0 | | | 2,594 | | | 0 | |
| Acquired intangible assets | — |
| | 17,800 |
| | — |
| | 19,421 |
| Acquired intangible assets | 0 | | | 13,071 | | | 0 | | | 13,335 | |
| Net operating loss carryforwards | 19,958 |
| |
| | 15,233 |
| |
| Net operating loss carryforwards | 33,247 | | | 0 | | | 27,607 | | | 0 | |
| Tax credit carryforwards (primarily Minimum Alternative Tax ("MAT") in India) | 43,656 |
| |
| | 43,044 |
| |
| Tax credit carryforwards (primarily Minimum Alternative Tax ("MAT") in India) | 48,669 | | | 0 | | | 50,210 | | | 0 | |
| | 75,493 |
| | 20,115 |
| | 63,326 |
| | 19,421 |
| | 91,680 | | | 16,521 | | | 88,176 | | | 16,897 | |
| Valuation allowance | (2,031 | ) | | — |
| | (35 | ) | | — |
| Valuation allowance | (2,160) | | | — | | | (3,288) | | | — | |
| Total deferred taxes | $ | 73,462 |
| | $ | 20,115 |
| | $ | 63,291 |
| | $ | 19,421 |
| Total deferred taxes | $ | 89,520 | | | $ | 16,521 | | | $ | 84,888 | | | $ | 16,897 | |
Amounts recognized in the consolidated balance sheets:
|
| | | | | |
| | 2018 | | 2017 |
| | (In thousands) |
| Non-current deferred tax assets | 54,629 |
| | 43,870 |
|
| ASU 2013-11 reclass, described below | — |
| | (341 | ) |
| Net deferred tax assets | 54,629 |
| | 43,529 |
|
| | | | |
| Non-current deferred tax liabilities | 1,282 |
| | — |
|
The valuation allowance changed by $2.0 million and $(3.7) million during the years ended December 31, 2018 and 2017, respectively. The presentation above has been modified to correctly show the valuation allowances that should have been recorded and to gross up the Company’s deferred tax assets for implied valuation allowances that were inherited through acquisitions.
We have US Federal, state and foreign operating losses and credit carryforwards as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 |
| | | (In thousands) |
| US Federal loss carryforwards | | $ | 55,029 | | | $ | 48,623 | |
| US state loss carryforwards | | 79,907 | | | 65,412 | |
| Foreign loss carryforwards | | 73,922 | | | 58,660 | |
| | | | |
| US Federal credit carryforwards | | 1,818 | | | 3,359 | |
| Foreign credit carryforwards | | 46,851 | | | 46,851 | |
|
| | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| | | (In thousands) |
| US Federal loss carryforwards | | $ | 43,116 |
| | $ | 42,981 |
|
| US state loss carryforwards | | 38,307 |
| | 25,186 |
|
| Foreign loss carryforwards | | 40,349 |
| | 29,852 |
|
| | | | | |
| US Federal credit carryforwards | | 901 |
| | 4,679 |
|
| Foreign credit carryforwards | | 42,755 |
| | 38,364 |
|
The US federal and state operating loss carryforwards expire at varying dates through 2027.2025. The federal credits begin to expire in 2028.2026. We also have non-US USnon-U.S. tax credits (primarily MAT paid in India) carried forward of approximately $42.8
$46.9 million as of December 31, 2018,2020, which is available for set-off against the future tax liability of certain Indian operations on a staggered basis over a period up-to fifteen years.
On December 22, 2017,March 27, 2020, the TCJACoronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA: establishes a flat corporate income tax rate of 21.0% on U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentives for manufacturing in the United StatesStates. The CARES Act provides numerous tax provisions and creates an incentiveother stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for U.S. companies to sell, lease or license goodsthe employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and services abroad by allowing for a reduction in taxes owed on earnings related to such sales; allows the costcreation of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.
In March 2018,refundable employee retention credits. The Company evaluated the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implicationsprovisions of the TCJA. Due toCARES Act and does not anticipate the complexities involved in accountingassociated impacts, if any, will have a material effect on the Company’s provision for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earningsincome taxes for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount for the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount. The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment of $24.5 million related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off.2020.
The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Upon distribution of those earnings in the form of dividends or otherwise, we wouldmay be subject to income taxes and withholding taxes payable in various jurisdictions, which could potentially be partially offset by foreign tax credits. At December 31, 20182020 the cumulative amount of the Company’s undistributed foreign earnings was approximately $644.2$767.4 million, inclusive of income previously taxed in the United States.
The following table summarizes the activity related to our unrecognizedprovision made by the Company in the books for uncertain tax benefits:
positions:
| | | | | | | | | | Year Ended December 31, |
| | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | 2020 | | 2019 | | 2018 |
| | (in thousands) | | (In thousands) |
| Beginning Balance | $ | 9,144 |
| | $ | 3,265 |
| | $ | 3,115 |
| Beginning Balance | $ | 9,199 | | | $ | 9,294 | | | $ | 9,144 | |
| Additions for tax positions related to current year | 150 |
| | — |
| | 43 |
| Additions for tax positions related to current year | 0 | | | 0 | | | 150 | |
| Additions for tax positions of prior years | — |
| | 5,879 |
| | 107 |
| Additions for tax positions of prior years | 966 | | | 195 | | | 0 | |
| Reductions for tax position of prior years | — |
| | — |
| | — |
| Reductions for tax position of prior years | (1,874) | | | (290) | | | 0 | |
| Ending Balance | $ | 9,294 |
| | $ | 9,144 |
| | $ | 3,265 |
| Ending Balance | $ | 8,291 | | | $ | 9,199 | | | $ | 9,294 | |
The Company recognizes estimated interest accrued and penalties related to unrecognizeduncertain tax benefitspositions as part of the income tax expense. Interest assessed upon settlement of a tax return position is classified as interest expense.expense provided for such positions. The Company accrued as of December 31, 20182020 and 20172019 approximately $1.1$3.0 million and $1.0 million, respectively, of estimated interest and penalties. These amounts are included in the December 31, 20182020 and 20172019 balances in the preceding table of $9.3$8.3 million and $9.1$9.2 million, respectively, which is included in other long term liabilities in the accompanying Consolidated Balance Sheet.
We file income tax returns in the US federal, many US state and local jurisdictions, and certain foreign jurisdictions. We have substantially resolved all US federal income tax matters for tax years prior to 2014.2015. Our state and foreign tax matters may remain open from 2008 forward.
The Company has applied the new provisions under Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists, or ASU 2013-11. Under these provisions, an unrecognized tax benefit is to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. The Company has applied this provision and zero and $341 thousand of unrecognized tax benefits have been applied against the deferred tax assets for net operating loss carryforwards, as of December 31, 2018 and 2017, respectively.
Note 9.8. Stock Repurchases
Effective February 6, 2017, the Company's Board of Directors unanimously approved an additionaland authorized a share repurchase plan of $150.0 million. The Board directed that the repurchases be funded with available cash balances and cash generated by the Company's operating activities. Under certain circumstances theThe aggregate amount of repurchases of the Company's equity shares may beis limited by the terms and underlying financialrestrictive covenants regarding the Company's commercial bank financing facility.contained in our Credit Facility.
The Company's share repurchase plan’s terms have been structured to comply with the SEC’s Rule 10b-18, and are subject to market conditions and applicable legal requirements. The program does not obligate the Company to acquire any specific number of shares and may be suspended or terminated at any time. All purchases are made in the open market. Treasury stock is recorded at its acquired cost. During 20182020, there were 0 stock repurchases under the plan. During 2019, the Company repurchased 996,773and retired 95,000 shares of its common stock under these plans for total consideration of $49.6 million. During 2017 the Company repurchased 687,048 shares of its common stock under this plan for total consideration of $39.4 million. During 2016 the Company repurchased 1,479,454 shares of its common stock under this plan for total consideration of $65.3$4.2 million.
As of December 31, 20182020, the Company had $84.2$80.1 million remaining in its current Board of Directors-approved share repurchase authorization.program.
Note 10.9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 20182020, and December 31, 2017,2019, consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| | (In thousands) |
| Trade accounts payable | $ | 56,636 | | | $ | 74,967 | |
| | | |
| Accrued professional fees | 1,268 | | | 2,247 | |
| Income taxes payable* | 3,429 | | | 4,094 | |
| | | |
| | | |
| Sales taxes payable | 3,431 | | | 3,385 | |
| | | |
| Other accrued liabilities | 0 | | | 42 | |
| Total | $ | 64,764 | | | $ | 84,735 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In thousands) |
| Trade accounts payable | $ | 103,250 |
| | $ | 69,101 |
|
| Accrued professional fees | 1,152 |
| | 420 |
|
| Income taxes payable* | 13,901 |
| | 1,598 |
|
| Share repurchases accrued | 8,800 |
| | — |
|
| Sales taxes payable | 2,749 |
| | 3,615 |
|
| Other accrued liabilities | 369 |
| | 339 |
|
| Total | $ | 130,221 |
| | $ | 75,073 |
|
* Long term portion of income taxes payable pertaining to the 2017 Tax Cuts and Jobs ActAct one-time transition tax
totaling $18.6$15.0 million is included in Otherother liabilities in the Company's Consolidated Balance Sheet.Sheets.
Note 11.10. Other Current Assets
Other current assets at December 31, 20182020 and December 31, 20172019 consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| | (In thousands) |
| Prepaid expenses | $ | 57,017 | | | $ | 51,021 | |
| Other third party receivables | 3,530 | | | 4,785 | |
| Sales taxes receivable from customers | 4,588 | | | 6,499 | |
| Credit card merchant account balance receivable | 848 | | | 796 | |
| | | |
| Short term portion of capitalized costs to obtain and fulfill contracts | 646 | | | 734 | |
| Accrued interest receivable | 355 | | | 176 | |
| Other | 4,677 | | | 3,063 | |
| Total | $ | 71,661 | | | $ | 67,074 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In thousands) |
| Prepaid expenses | $ | 41,271 |
| | $ | 29,347 |
|
| Third party loan receivable | 8,341 |
| | — |
|
| Sales taxes receivable from customers | 6,409 |
| | 2,218 |
|
| Credit card merchant account balance receivable | 939 |
| | 1,008 |
|
| Due from prior owners of acquired businesses for working capital settlements | 973 |
| | 284 |
|
| Accrued interest receivable | 233 |
| | 515 |
|
| Other | 1,108 |
| | 160 |
|
| Total | $ | 59,274 |
| | $ | 33,532 |
|
Note 12.11. Other Current Liabilities
Other current liabilities at December 31, 20182020 and December 31, 20172019 consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| | (In thousands) |
| Acquisition obligations (contingent consideration) | $ | 2,443 | | | $ | 6,762 | |
| | | |
| Customer advances (deposits) | 25,043 | | | 22,573 | |
| | | |
| Total | $ | 27,486 | | | $ | 29,335 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In thousands) |
| Weizmann upfront purchase consideration for 74.84% stake | $ | 63,325 |
| | $ | — |
|
| Redemption liability for irrevocable option to reacquire 10% equity stake from PML | 4,925 |
| | — |
|
| Pearl upfront purchase consideration | 3,384 |
| | — |
|
| Lawson upfront purchase consideration | 2,736 |
| | — |
|
| WDEV contingent liability (upfront cash consideration held in escrow account contingent upon acquired business' achieving the minimum specified annual net revenue thresholds) | 2,367 |
| | — |
|
| Miles working capital liability | 2,219 |
| | — |
|
| Via contingent additional consideration (based on any potential claims made by tax authorities and the receipt of refunds pertaining to certain advance tax payments and withholding taxes) | 1,899 |
| | 4,422 |
|
| Mercury contingent consideration (based on customer retention) | 720 |
| | — |
|
| Business Travels upfront purchase consideration | 720 |
| | — |
|
| AHA Taxis upfront purchase consideration | 224 |
| | — |
|
| Client deposits | 2,980 |
| | 71 |
|
| Other | 82 |
| | 666 |
|
| Total | $ | 85,581 |
| | $ | 5,159 |
|
Note 13.12. Property and Equipment
Property and equipment at December 31, 20182020 and 20172019 consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| | (In thousands) |
| Computer equipment | $ | 26,357 | | | $ | 15,899 | |
| Buildings | 26,564 | | | 26,475 | |
| Land | 10,386 | | | 10,479 | |
| Land improvements | 7,195 | | | 7,195 | |
| Leasehold improvements | 763 | | | 910 | |
| Furniture, fixtures and other | 7,271 | | | 7,307 | |
| | | |
| | 78,536 | | | 68,265 | |
| Less accumulated depreciation and amortization | (26,015) | | | (19,844) | |
| | $ | 52,521 | | | $ | 48,421 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| | (In thousands) |
| Computer equipment | $ | 15,734 |
| | $ | 11,051 |
|
| Buildings | 25,283 |
| | 23,749 |
|
| Land | 10,479 |
| | 5,930 |
|
| Land improvements | 7,195 |
| | 6,906 |
|
| Leasehold improvements | 1,341 |
| | 1,435 |
|
| Furniture, fixtures and other | 8,664 |
| | 8,451 |
|
| | 68,696 |
| | 57,522 |
|
| Less accumulated depreciation and amortization | (18,402 | ) | | (15,818 | ) |
| | $ | 50,294 |
| | $ | 41,704 |
|
Depreciation expense was $3.7$4.2 million,, $3.8 $4.3 million and $4.0$3.7 million, for the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively.
Note 14.13. Cash Option Profit Sharing Plan and Trust
The Company maintains a 401(k) Cash Option Profit Sharing Plan, for our U.S. based employees, which allows participants to contribute a percentage of their compensation to the Profit Sharing Plan and Trust up to the Federal maximum. The Company matches 100% of an employee’s 1% contributed and 50% on the 2% contributed by an employee. Accordingly, the Company’s contributions to the Plan were $536$508 thousand, $610$557 thousand and $688$536 thousand for the years ending December 31, 2018, 20172020, 2019, and 2016,2018, respectively.
We maintain employee benefit plans in the form of certain statutory and incentive plans covering substantially all of our India based employees. In accordance with Indian law, all of our employees in India are entitled to receive benefits under the Employees' Provident Fund Scheme, 1952, as amended, a retirement benefit scheme under which an amount equal to 12% of the basic salary of an employee is contributed both by the employer and the employee in a government fund. For the years ending December 31, 2020, 2019, and 2018 the aggregate amount set aside or accrued by us to provide for pension or retirement benefits for all of our employees, which amount consists of the Provident Fund was $2.6 million, $4.2 million, and $4.0 million, respectively.
Note 15.14. Geographic Information
The Company operates with one1 operating and 1 reportable segment whose results are regularly reviewed by the Company's CEO, its chief operating decision maker, as to operating performance and the allocation of resources. External customer revenues in the tables below were attributed to a particular country based on whether the customer had a direct contract with the Company which was executed in that particular country for the sale of the Company's products/services with an Ebix subsidiary located in that country.
During 2018 the United States' revenues decreased $(14.9) million primarily due to a combination of decreased consulting services and a decrease of third party administrator services. Canada's revenues decreased by $(1.9) million primarily due to decreased revenue from professional services. Latin America's revenues decreased by $(1.3) million primarily due to a $(2.7) million decrease due to changes in foreign currency exchange rates, partially offset by increased professional services. Australia's revenues increased by $1.4 million primarily due to a combination of increased professional services and transaction fees, net of a $(922) thousand decrease due to changes in foreign currency exchange rates. India's revenue increased $134.5 million primarily due to the full year impact of 2017 acquisitions in addition to acquisitions made in 2018. Increases in Indonesia, Philippines, Singapore and United Arab Emirates are due to the full year impact of the November 2017 acquisition of Via. Mauritius revenues for 2018 consisted of $3.1 million for branding fees charged at airport kiosks.
During 2017 India's revenue increased $47.7 million of which $5.3 million is due to the various new e-governance contracts with a number of large clients and $42.9 million due to its 2017 acquisitions of ItzCash, YouFirst, Wall Street, Paul Merchants, and Via. Latin America's revenues increased $12.9 million due primarily to the November 2016 acquisition of Wdev and a $1.4 million increase due to changes in foreign currency exchange rates. Australia's revenues increased by $3.2 million due to a combination of increased professional services and transaction fees, and a $1.1 million increase due to changes in foreign currency exchange rates. Canada's revenues increased by $1.2 million due primarily to increased professional services. Increases in Singapore, Indonesia, Philippines and United Arab Emirates are due to the November 2017 acquisition of Via.
The following enterprise wide information relates to the Company's geographic locations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | External Revenues | | Long-lived assets | | External Revenues | | Long-lived assets | | External Revenues | | Long-lived assets |
| | (In thousands) |
| India* | | $ | 378,660 | | | $ | 698,936 | | | $ | 300,678 | | | $ | 700,986 | | | $ | 196,372 | | | $ | 672,699 | |
| United States | | $ | 166,320 | | | $ | 381,782 | | | 182,530 | | | 395,225 | | | 196,984 | | | 390,551 | |
| Australia | | $ | 33,846 | | | $ | 3,581 | | | 33,268 | | | 3,541 | | | 35,770 | | | 1,485 | |
| Latin America | | $ | 14,801 | | | $ | 13,723 | | | 19,755 | | | 17,176 | | | 19,866 | | | 16,348 | |
| Europe | | $ | 13,145 | | | $ | 22,900 | | | 14,695 | | | 24,508 | | | 15,387 | | | 23,880 | |
| Canada | | $ | 4,383 | | | $ | 6,930 | | | 4,805 | | | 7,012 | | | 5,611 | | | 5,846 | |
| Singapore* | | $ | 3,969 | | | $ | 19,336 | | | 6,549 | | | 18,282 | | | 7,674 | | | 17,805 | |
| Indonesia* | | $ | 3,206 | | | $ | 139 | | | 9,706 | | | 117 | | | 7,482 | | | 98 | |
| Philippines* | | $ | 2,140 | | | $ | 661 | | | 5,991 | | | 729 | | | 6,483 | | | 448 | |
| United Arab Emirates* | | $ | 3,335 | | | $ | 54,789 | | | 683 | | | 54,887 | | | 1,042 | | | 54,249 | |
| New Zealand | | $ | 1,804 | | | $ | 513 | | | 1,955 | | | 578 | | | 2,015 | | | 158 | |
| Mauritius* | | $ | 0 | | | $ | 4,665 | | | 0 | | | 4,643 | | | 3,140 | | | 0 | |
| | $ | 625,609 | | | $ | 1,207,955 | | | $ | 580,615 | | | $ | 1,227,684 | | | $ | 497,826 | | | $ | 1,183,567 | |
| | | | | | | | | | | | |
| *Primarily India led businesses for which total revenue was $388.3 million, $320.0 million and $217.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | | External Revenues | | Long-lived assets | | External Revenues | | Long-lived assets | | External Revenues | | Long-lived assets |
| | | in thousands |
| United States | | $ | 196,984 |
| | $ | 390,551 |
| | $ | 211,895 |
| | $ | 394,112 |
| | $ | 213,516 |
| | $ | 385,723 |
|
| Canada | | 5,611 |
| | 5,846 |
| | 7,522 |
| | 6,601 |
| | 6,328 |
| | 6,411 |
|
| Latin America | | 19,866 |
| | 16,348 |
| | 21,128 |
| | 22,300 |
| | 8,179 |
| | 26,648 |
|
| Australia | | 35,770 |
| | 1,485 |
| | 34,366 |
| | 1,174 |
| | 31,156 |
| | 1,245 |
|
| Singapore* | | 7,674 |
| | 17,805 |
| | 6,330 |
| | 17,475 |
| | 5,848 |
| | 17,467 |
|
| New Zealand | | 2,015 |
| | 158 |
| | 1,933 |
| | 247 |
| | 1,903 |
| | 215 |
|
| India* | | 196,372 |
| | 672,699 |
| | 61,857 |
| | 338,130 |
| | 14,153 |
| | 83,082 |
|
| Europe | | 15,387 |
| | 23,880 |
| | 17,062 |
| | 25,687 |
| | 17,211 |
| | 21,766 |
|
| Indonesia* | | 7,482 |
| | 98 |
| | 1,055 |
| | 110 |
| | — |
| | — |
|
| Philippines* | | 6,483 |
| | 448 |
| | 623 |
| | 616 |
| | — |
| | — |
|
| United Arab Emirates* | | 1,042 |
| | 54,249 |
| | 200 |
| | 53,629 |
| | — |
| | 54,152 |
|
| Mauritius* | | 3,140 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | 497,826 |
| | $ | 1,183,567 |
|
| $ | 363,971 |
| | $ | 860,081 |
|
| $ | 298,294 |
| | $ | 596,709 |
|
| | | | | | | | | | | | | |
| *India led businesses, except for portion of Singapore which is not part of EbixCash and United Arab Emirate long-lived assets pertain to intellectual property research and development activities located in Dubai which is not part of EbixCash either. Total revenue in the fourth quarter of 2018 for India led businesses was $65.9 million. |
In the geographical information table above the significant changes to long-lived assets from December 31, 2017 to December 31, 2018 were comprised of a decrease in Latin America of $(6.0) million due to $(2.9) million of upfront cash consideration held in an escrow account reclassified as short term from long term and a (14.6)% weakening of the Brazilian Real versus the U.S. Dollar. An increase in India of $334.6 million primarily due to the impact of 2018 acquisitions, partially offset by a (8.2)% weakening of the India Rupee versus the U.S. Dollar. The Europe decrease of $(1.8) million is primarily due to a (5.6)% weakening of the British Pound versus the U.S. Dollar.
In the geographical information table above the significant changes to long-lived assets from December 31, 2016 to December 31, 2017 were comprised of an increase in India of $255.0 million primarily due to $249.5 million increase associated with the 2017 acquisitions of ItzCash, YouFirst, Wall Street, Paul Merchants, and Via, and an increase in deferred tax assets of $4.1 million associated with the payments and accruals of Minimum Alternative Tax. The Europe increase of $3.9 million is primarily due to a 9.3% strengthening of the British Pound Sterling versus the U.S. Dollar which caused a $2.0 million increase in the translation of long-lived assets, an increase in deferred tax assets of $3.2 million due to the release of valuation allowances of operating loss carryforwards, partially offset by the amortization of intangible assets and capitalized software development costs.
Note 16.15. Related Party Transactions
We consider Regions Bank ("Regions") to be a related party because Regions provides financing to the Company via a syndicated commercial banking facilityour Credit Facility (refer to Note 54 to these Consolidated Financial Statements), for which Regions is the lead bank, and because Regions is also a customer to whom the Company sells products and services. Revenues recognized from Regions were $190 thousand, $193 thousand, and $221 thousand $301 thousand, and $280 thousand for each of the years endingended December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively. Accounts receivable due from Regions were $74$24 thousand and $60$13 thousand at December 31, 20182020 and 2017,2019, respectively.
We also consider BMO Bank ("BMO") to be a related party because BMO is a participating bank in our Credit Facility (refer to Note 4 of these Consolidated Financial Statements), and because BMO is also a customer to whom the Company sells products and services. Revenues recognized from BMO were $361 thousand and $351 thousand for the year ended December
31, 2020 and 2019, respectively, and the accounts receivable due from BMO were $43 thousand and $29 thousand at December 31, 2020 and 2019 respectively.
As discussed in Note 17 "Investment in Joint Ventures", Vayam Technologies Ltd ("Vayam") is also a customer of the Ebix Vayam Limited JV, and during the twelve months ending December 31, 2020 and 2019, the Ebix Vayam Limited JV recognized $667 thousand and $1.4 million of revenue from Vayam, respectively. As of December 31, 2020, Vayam had $13.6 million of accounts receivable with the Ebix Vayam Limited JV.
Also, as discussed in Note 17 "Investment in Joint Ventures", an in regards to the EbixHealth JV it was concluded that the customer relationship with IHC, our joint venture partner, to be by its nature, a related party.
Note 17.16. Quarterly Financial Information (unaudited)
The following is the unaudited quarterly financial information for 2018, 20172020, 2019, and 2016:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| | | (In thousands, except share data) |
| Year ended December 31, 2020 | | | | | | | | |
| Total revenues | | $ | 137,876 | | | $ | 111,312 | | | $ | 154,305 | | | $ | 222,116 | |
| Gross Profit | | 80,419 | | | 62,219 | | | 68,329 | | | 71,380 | |
| Operating income | | 34,313 | | | 31,850 | | | 31,899 | | | 27,740 | |
| Net income from continuing operations | | $ | 24,723 | | | $ | 23,475 | | | $ | 24,682 | | | $ | 19,497 | |
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.81 | | | $ | 0.77 | | | $ | 0.81 | | | $ | 0.64 | |
| Diluted | | $ | 0.81 | | | $ | 0.76 | | | $ | 0.80 | | | $ | 0.64 | |
| Year ended December 31, 2019 | | | | | | | | |
| Total revenues | | $ | 142,924 | | | $ | 144,275 | | | $ | 147,233 | | | $ | 146,183 | |
| Gross Profit | | 96,995 | | | 93,321 | | | 92,062 | | | 93,072 | |
| Operating income | | 54,131 | | | 41,282 | | | 26,007 | | | 34,253 | |
| Net income from continuing operations | | 25,710 | | | 28,851 | | | 20,509 | | | 21,650 | |
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.84 | | | $ | 0.95 | | | $ | 0.67 | | | $ | 0.71 | |
| Diluted | | $ | 0.84 | | | $ | 0.94 | | | $ | 0.67 | | | $ | 0.71 | |
| Year ended December 31, 2018 | | | | | | | | |
| Total revenues | | $ | 108,230 | | | $ | 124,626 | | | $ | 128,643 | | | $ | 136,327 | |
| Gross Profit | | 68,639 | | | 81,067 | | | 85,680 | | | 94,025 | |
| Operating income | | 33,896 | | | 38,315 | | | 39,238 | | | 41,530 | |
| Net income from continuing operations | | 26,208 | | | 29,180 | | | 29,242 | | | 8,509 | |
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.83 | | | $ | 0.93 | | | $ | 0.93 | | | $ | 0.27 | |
| Diluted | | $ | 0.83 | | | $ | 0.92 | | | $ | 0.92 | | | $ | 0.27 | |
|
| | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | (in thousands, except share data) |
| Year Ended December 31, 2018 | | | | | | | | |
| Total revenues | | $ | 108,230 |
| | $ | 124,626 |
| | $ | 128,643 |
| | $ | 136,327 |
|
| Gross Profit | | 68,639 |
| | 81,067 |
| | 85,680 |
| | 94,025 |
|
| Operating income | | 33,896 |
| | 38,315 |
| | 39,238 |
| | 41,530 |
|
| Net income from continuing operations | | $ | 26,208 |
| | $ | 29,180 |
| | $ | 29,242 |
| | $ | 8,509 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.83 |
| | $ | 0.93 |
| | $ | 0.93 |
| | $ | 0.27 |
|
| Diluted | | $ | 0.83 |
| | $ | 0.92 |
| | $ | 0.92 |
| | $ | 0.27 |
|
| Year Ended December 31, 2017 | | | | | | | | |
| Total revenues | | $ | 79,103 |
| | $ | 87,387 |
| | $ | 92,800 |
| | $ | 104,681 |
|
| Gross Profit | | 53,916 |
| | 56,455 |
| | 57,863 |
| | 66,243 |
|
| Operating income | | 25,690 |
| | 26,539 |
| | 27,911 |
| | 33,081 |
|
| Net income from continuing operations | | 26,427 |
| | 23,434 |
| | 24,184 |
| | 26,573 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.83 |
| | $ | 0.74 |
| | $ | 0.77 |
| | $ | 0.84 |
|
| Diluted | | $ | 0.83 |
| | $ | 0.74 |
| | $ | 0.76 |
| | $ | 0.84 |
|
| Year Ended December 31, 2016 | | | | | | | | |
| Total revenues | | $ | 71,066 |
| | $ | 72,574 |
| | $ | 74,608 |
| | $ | 80,046 |
|
| Gross Profit | | 51,464 |
| | 51,995 |
| | 52,183 |
| | 57,524 |
|
| Operating income | | 24,763 |
| | 23,564 |
| | 24,293 |
| | 27,661 |
|
| Net income from continuing operations | | 22,159 |
| | 22,992 |
| | 24,067 |
| | 24,629 |
|
| Net income per common share: | | | | | | | | |
| Basic | | $ | 0.67 |
| | $ | 0.70 |
| | $ | 0.74 |
| | $ | 0.76 |
|
| Diluted | | $ | 0.67 |
| | $ | 0.70 |
| | $ | 0.74 |
| | $ | 0.76 |
|
In some instances the sum of the quarterly basic and diluted net income per share amounts may not agree to the full year basic and diluted net income per share amounts reported on the Consolidated Statements of Income because of rounding.
Note 18.17. Investment in Joint Ventures
Effective December 1, 2018 Ebix entered into an agreement to acquire 74.84% controlling stake in India based Weizmann Forex Limited (BSE: WEIZFOREX) for $63.1 million. Ebix also made a 90-day time bound public offer to acquire the remaining 25.16% publicly-held Weizmann Forex shares for approximately $21.1 million to public shareholders.
Effective October 1, 2018 Ebix acquired a 70% stake in AHA Taxis, a platform for on-demand inter-city cabs in India for $310 thousand. AHA focuses its attention on Corporate and Consumer inter-city travel primarily, with a network of thousands of registered AHA Taxis.
Effective October 1, 2018 Ebix acquired a 67% stake in Routier, a marketplace for trucking logistics for $413 thousand.
Effective April 1, 2018 Ebix entered into an agreement to acquire a 60% stake in India based Smartclass, a leading e-learning Company engaged in the business of education services, development of education products, and implementation of education solutions for K-12 Schools. Under the terms of the agreement, Ebix paid $8.6 million in cash for its stake in Smartclass.
Effective January 2, 2018 Paul Merchants acquired a 10% equity interest in Ebix’s combined international remittance business in India (comprised of YouFirst, Wall Street , Paul Merchants, and Transcorp) for cash consideration of $5.0 million. The consolidation of these acquisitions into Ebix's Financial Exchange operations will bring synergies and reduce certain redundancies to the combined operation. As part of this agreement Ebix retains an irrevocable option to reacquire 10% of the equity interest after one year at a predetermined price which is included in other current liabilities of the Company's Condensed Consolidated Balance Sheet.
Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an 80% equity interest in ItzCash, India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately $150 million. Accordingly, Ebix acquired an 80% equity interest in ItzCash for $120 million including upfront cash of $76.3 million plus possible future contingent earn-out payments of up to $44.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition.
Effective February 7, 2016, Ebix and Vayam Technologies Ltd ("Vayam") formed a joint venture named Ebix Vayam Limited JV. This joint venture was established to carry out IT projects in the government sector of the country of India and particularly in regards to the implementation of e-governance projects in the areas of education and healthcare. Ebix has a 51% equity interest in the joint venture, and Vayam has a 49% equity interest in the joint venture. Ebix is fully consolidating the operations of the Ebix Vayam Limited JV into the Company's financial statements and separately reporting the Vayam minority, non-controlling, interest in the joint venture's net income and equity. Vayam is also a customer of the Ebix Vayam Limited JV, and during the twelve months ending December 31, 20182020 and 20172019, the Ebix Vayam Limited JV recognized $13.6 million$667 thousand and $16.9$1.4 million of revenue from Vayam, respectively, and asrespectively. As of December 31, 20182020, the Ebix Vayam Limited JV had $32.0$13.6 million of accounts receivable with Vayam, net of the estimated allowance for doubtful accounts receivable in the amount of $11.7 million. As of December 31, 2019, the Ebix Vayam Limited JV.JV had $22.8 million of accounts receivable with Vayam, net of the estimated allowance for doubtful accounts receivable in the amount of $12.1 million, this provision for doubtful account against receivables due from a public sector entity, BSNL, in India.
Effective September 1, 2015, Ebix and IHC formed a joint venture named EbixHealth JV. This joint venture was established to promote and market a best practices administration data exchange for health and pet insurance lines of business nationally. Ebix paid $6.0 million and contributed certain portions of its CurePet investment, valued by the EbixHealth JV at $2.0 million, for its 40% membershiphas a 51% equity interest in the EbixHealth JV. IHC contributed all if its shares in its existing third party administrator operations (IHC Health Solutions, Inc.), valued by the EbixHealth JV at $12.0 million for its 60% membership interest in the EbixHealth JV and received a special distribution of $6.0 million. As per the joint venture agreement, any and all losses of the EbixHealth JV, (excluding certain severance payments to former employees of IHC Health Solutions, Inc.) through the period ending December 31, 2016 were allocated to IHC, and IHC was obligated to fund any negative cash flow during this period as a loan to the EbixHealth JV, with any remaining balance of said loan as of December 31, 2016 being then converted to contributed capital. Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (11%) of the EbixHealth JV for $2.0 million cash which resulted in Ebix holding an aggregate fifty-one percent (51%) of the EbixHealth JV. Commensurate with additional equity stake in the joint venture and IHC has a new contemporaneous valuation of the business the Company realized a $1.2 million gain on its previously carried 40%49% equity interest in the EbixHealth JV. This recognized gain is reflected as a component of other non-operating income in the accompanying Consolidated Statement of Income. Beginning July 1, 2016 Ebix is fully consolidating the operations of the EbixHealth JV into the Company's financial statements and separately reporting the IHC minority, non-controlling, 49% interest in the joint venture's net income and equity, and thereby reflecting Ebix's net resulting 51% interest in the EbixHealth JV profits or losses.venture. IHC is also a customer of the EbixHealth JV, and during the twelve months ending December 31, 20182020 and 20172019, the EbixHealth JV recognized
$7.6 $1.9 million and $13.0$2.8 million of revenue from IHC, respectively, and asrespectively. As of December 31, 20182020, IHC had $395$63 thousand of accounts receivable with the EbixHealth JV. Furthermore, as a related party, IHC also has been and continues to be a customer of Ebix, and during the twelve months ending December 31, 20182020 and 20172019, the Company recognized zero$10 thousand and $228$78 thousand, respectively, of revenue from IHC, and asIHC. As of December 31, 2018 IHC2020 Ebix had $23$2 thousand of outstanding accounts receivable from IHC. The EbixHealth JV has a $1.8 million note due to Ebix.IHC. Additionally, based on the final purchase price allocation valuation report for the EbixHealth JV it was concluded that the customer relationship with IHC, our joint venture partner, to be by its nature, an indefinite-lived customer relationship. For the year ended December 31, 2020, as a result of the annual impairment analysis performed, the Company concluded that the IHC customer relationship indefinite-lived intangible asset associated with the Company's EbixHealth JV has been impaired, the Company recorded a $6.2 million impairment charge. In addition, the Company has concluded that they IHC customer relationship intangible is no longer considered indefinite-lived and will be amortized over the estimated remaining life of 10 years.
Note 19.18. Capitalized Software Development Costs
In accordance with the relevant authoritative accounting literatureASC 350-40 “Internal-Use Software” and/or ASC 350-985 “Software” the Company has capitalized certain software and product related development costs associated with both the Company’s continuing medical education service offerings, and the Company’s development of its propertyProperty and casualtyCasualty (P&C) underwriting insurance data exchange platform servicing the London markets.markets; development of EbixCash’s SaaS based Asset Management and Collection platforms having global application; development of EbixCash’s new single-sign on agent and customer portal, including mobile application, and content development work related to E-Learning division of EbixCash. During the year ended December 31, 20182020 and 20172019, the Company capitalized $5.7$4.2 million and $2.8$8.0 million, respectively, of such development costs. As of December 31, 20182020 and 20172019, a total of $11.7$19.4 million and $8.5$19.2 million, respectively, of remaining unamortized development costs are reported on the Company’s consolidated balance sheet. During the year ended December 31, 20182020 and 20172019, the Company recognized $2.2$3.4 million and $2.2$2.7 million, respectively, of amortization expense with regards to these capitalized software development costs, which is included in costs of services provided in the Company’s consolidated income statement. The capitalized continuing medical education product costs are being amortized using a three-year to five-year straight-line methodology and certain continuing medical education products costs are immediately expensed. The capitalized software development costs for the property and casualty underwriting insurance data exchange platform are being amortized over a period of five years. The capitalized software development costs related to EbixCash products mentioned above shall be amortized over a period of five years once the platforms / products are rolled out in the market.
Note 19: Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This accounting guidance is intended to improve financial reporting about leasing transactions. The ASU requires organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization
is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike former GAAP, which requires only financing leases to be recognized on the balance sheet, the new ASU requires both types of leases (i.e., operating and financing) to be recognized on the balance sheet. The financing lease will be accounted for in substantially the same manner as capital leases were accounted for under the previous guidance. For operating leases, there is now the recognition of a lease liability and a lease asset for all such leases greater than one year in term.
The Company adopted Topic 842 effective January 1, 2019, using a modified retrospective method and did not restate comparative periods. The Company elected to adopt the package of practical expedients; accordingly, the Company retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases. The Company has operating and finance leases for office space, retail, data centers and certain office equipment with expiration dates ranging through 2029, with various renewal options. Only renewal options that were reasonably assured to be exercised are included in the lease liability. As of December 31, 2020, the maturity of lease liabilities under Topic 842 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year | | Operating Leases | | Financing Leases | | Total |
| | (In thousands) |
| 2021 | | $ | 4,667 | | | $ | 190 | | | $ | 4,857 | |
| 2022 | | 3,462 | | | 160 | | | 3,622 | |
| 2023 | | 2,993 | | | 99 | | | 3,092 | |
| 2024 | | 1,605 | | | 77 | | | 1,682 | |
| 2025 | | 1,001 | | | 0 | | | 1,001 | |
| Thereafter | | 519 | | | 0 | | | 519 | |
| Total | | 14,247 | | | 526 | | | 14,773 | |
| Less: present value discount* | | (1,802) | | | (49) | | | (1,851) | |
| Present value of lease liabilities | | 12,445 | | | 477 | | | 12,922 | |
| | | | | | |
| Less: current portion of lease liabilities | | (3,905) | | | (164) | | | (4,069) | |
| Total long-term lease liabilities | | $ | 8,540 | | | $ | 313 | | | $ | 8,853 | |
| | | | | | |
* The discount rate used was the relevant incremental borrowing rate in each of the jurisdictions
wherein the leased properties are located |
The company's net assets recorded under operating and finance leases were $12.9 million as of December 31, 2020. The lease cost recognized in our Condensed Consolidated Statement of Income in the category of General and Administrative, is summarized as follows:
| | | | | | | | | | | | | | | |
| | December 31 | |
| (In thousands) | | 2020 | | 2019 | |
| Operating Lease Cost | | $ | 7,051 | | | $ | 8,613 | | |
| Finance Lease Cost: | | | | | |
| Amortization of Lease Assets | | 161 | | 121 | |
| Interest on Lease liabilities | | 39 | | 36 | |
| Finance Lease Cost | | 200 | | 157 | |
| Sublease Income | | (476) | | | (654) | | |
| Total Net Lease Cost | | $ | 6,775 | | | $ | 8,116 | | |
Other information about lease amounts recognized in our Condensed Consolidated Statement of Income is summarized as follows:
| | | | | |
| December 31, 2020 |
| Weighted Average Lease Term - Operating Leases | 3.63 years |
| Weighted Average Lease Term - Finance Leases | 3.18 years |
| Weighted Average Discount Rate - Operating Leases | 8.09 | % |
| Weighted Average Discount Rate - Finance Leases | 7.13 | % |
Commitments for minimum rentals under non-cancellable leases, under the legacy guidance in ASC 840 as of December 31, 2020 were as follows:
| | | | | | | | | | | | | | |
| Year | | Operating Leases | | Financing Leases |
| | (In thousands) |
| 2021 | | $ | 4,667 | | | $ | 190 | |
| 2022 | | 3,462 | | | 160 | |
| 2023 | | 2,993 | | | 99 | |
| 2024 | | 1,605 | | | 77 | |
| 2025 | | 1,001 | | | 0 | |
| Thereafter | | 519 | | | 0 | |
| Total | | $ | 14,247 | | | $ | 526 | |
| Less: sublease income | | (476) | | | |
| Net lease payments | | $ | 13,771 | | | |
| Less: amount representing interest | | | | (39) | |
| Present value of obligations under financing leases | | | | $ | 487 | |
| Less: current portion | | | | (164) | |
| Long-term obligations | | | | $ | 323 | |
As of December 31, 2020, our lease liability of $12.9 million does not include certain arrangements, which are primarily airport leases that do not meet the definition of a lease under Topic 842. Such arrangements represent further commitments of approximately $56.3 million as follows:
| | | | | | | | |
| Year | | Commitments |
| | (In thousands) |
| 2021 | | $ | 20,251 | |
| 2022 | | 18,271 | |
| 2023 | | 17,756 | |
| Thereafter | | 0 | |
| Total | | $ | 56,278 | |
Finance leases range from three to five years and are primarily for office equipment. Rental expense for office and airport facilities and certain equipment subject to operating leases for the period ended December 31, 2020 and 2019 was $4.5 million and $37.8 million, respectively. The year over year decline in this rent expense is a result of COVID-19, in which airport leases were subject to force majeure provisions and the cessation of the Company's airport operations during 2020. Monthly rent payments were temporarily waived until the Company restarted its airport operations.
Note 20: Working Capital Facilities
The Company maintains working capital debt facilities with banks in India for working capital funding requirements to support our foreign exchange, travel and remittance businesses. We are required to extend short term credits to franchisee networks (B2B) and corporate customers. Additionally, we are required to maintain minimum levels of foreign currency inventory across branches and airport operations. Typically, these facilities carry interest rates 6.75% to 9.45% and are rupee denominated working capital lines and are collateralized against the receivables of these businesses and existing foreign currency inventory on hand.
As of December 31, 2020 and 2019, the total of these working capital facilities was $16.6 million and $28.4 million, respectively, and is included in current liabilities in the Company's Condensed Consolidated Balance Sheet.
Note 20.21. Concentrations of Credit Risk
Credit Risk
The Company is potentially subject to concentrations of credit risk in its accounts receivable. Credit risk is the risk of an unexpected loss if a customer fails to meet its contractual obligations. Although the Company is directly affected by the financial condition of its customers and the loss of or a substantial reduction in orders or the ability to pay from the customer could have a material effect on the consolidated financial statements, management does not believe significant credit risks exist at December 31, 2018.2020. The Company had one customer whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable.
Major Customer
As previously disclosed in Note 18, effective February 7, 2016, Ebix and Vayam Technologies Ltd ("Vayam") formed a joint venture named Ebix Vayam Limited JV. This joint venture was established to carry out IT projects in the government sector of the country of India and particularly in regards to the implementation of e-governance projects in the areas of education and healthcare. Ebix has a 51% equity interest in the joint venture, and Vayam has a 49% equity interest in the joint venture. Ebix is fully consolidating the operations of the Ebix Vayam Limited JV into the Company's financial statements and separately reporting the Vayam minority, non-controlling, interest in the joint venture's net income and equity. Vayam is also a customer of the Ebix Vayam Limited JV, and during the twelve months ending December 31, 20182020 and 20172019, the Ebix Vayam Limited JV recognized $13.6 million$667 thousand and $16.9$1.4 million of revenue from Vayam, respectively, and as of December 31, 20182020, Vayam had $32.0$13.6 million of accounts receivable with the Ebix Vayam Limited JV.JV, net of the estimated allowance for doubtful accounts receivable in the amount of $11.7 million. As of December 31, 2019, the Ebix Vayam Limited JV had $22.8 million of accounts receivable with Vayam, net of the estimated allowance for doubtful accounts receivable in the amount of $12.1 million, this provision for doubtful account against receivables due from a public sector entity, BSNL, in India.
Note 21.22. Subsequent Events
RSM Resignation
As previously disclosed, by letter dated February 15, 2021, RSM US LLP (“RSM”) notified the Audit Committee of the Board of Directors of the Company of its resignation as the Company’s independent registered public accounting firm. See Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure for more details on the RSM resignation. Subsequent to the RSM resignation, the following subsequent events also occurred:
• On February 22, 2021, Christine Marie Teifke filed a class action lawsuit against Ebix, Inc., Robin Raina and Steven Hamil claiming violations of the Federal Securities Laws as a result of the announcement that RSM had resigned. See Item 3 Legal Proceedings for more details on the class action lawsuit.
• The Company was unable to file this Form 10-K with the SEC by its March 1, 2021 due date and filed a Form 12b-25 notifying the SEC of its late filing.
• As a result of the filing of the Form 12b-25, Nasdaq notified the Company on March 2, 2021 that it is no longer in compliance with Nasdaq Listing Rule 5250(c)(1). See Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities for a description of the Nasdaq noncompliance. Nasdaq's notification letter provided the Company 45 calendar days, or until April 16, 2021, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. On April 16, 2021,
the Company submitted a plan to Nasdaq to regain compliance with the Nasdaq Listing Rules. The Company believes that the filing of this Annual Report on Form 10-K will substantially bring the Company back into compliance with Nasdaq Listing Rules.
• The Company engaged KGS, effective March 5, 2021, as its new independent accountants for the year ending December 31, 2020 and diligently worked with KGS to complete this Form 10-K filing, 2021. See Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure for more details on the engagement of KGS.
• On March 31, 2021, the Company entered into Amendment No. 11 Credit Agreement and Waiver (“Amendment No. 11”) relating to the Credit Facility, dated as of August 5, 2014, among Ebix, Inc., as borrower, its subsidiaries party thereto from time to time as guarantors, Regions Bank as administrative agent and collateral agent, and the lenders party thereto from time to time (as amended from time to time, the “Credit Agreement”). The Amendment No. 11 is described in more detail below.
• On April 9, 2021, the Company entered into Amendment No. 12 to Credit Agreement and Waiver (“Amendment No. 12”) as described in more detail below.
Amendments and Waivers to the Credit Facility
Amendment No. 11. On March 31, 2021, the Company entered into Amendment No. 11 to its Credit Facility. Amendment No. 11 provided for, among other things, a limited waiver through April 10, 2021, of any potential event of default arising under the Credit Facility from failure to timely deliver the Company's audited consolidated financial statements and related compliance certificate for the year ended December 31, 2020. Amendment No. 11 also modified certain covenants contained in the Credit Facility, including with respect to certain permitted restricted payments and investments. The Company paid customary consent fees in connection with the closing of Amendment No. 11.
Amendment No. 12. On April 9, 2021, the Company entered into Amendment No. 12 to its Credit Facility. Amendment No. 12 provides for, among other things, a waiver of any potential event of default arising under the Credit Facility from the failure to timely deliver the Company's audited consolidated financial statements and related compliance certificate for the year ended December 31, 2020; provided that (i) such financial statements and related compliance certificate are delivered in accordance with the requirements set forth in the Credit Facility by May 15, 2021, and (ii) there is no good faith determination by the requisite lenders under the Credit Facility of a "Material Circumstance" (as defined and further described in Amendment No. 12), which determination (if any) may only be made within a specified period described in Amendment No. 12 and is subject to certain cure rights of the Company.
Amendment No. 12 modifies the applicable margin that applies from and after the date thereof under the Credit Facility. Through and including March 31, 2022, the applicable margin is (i) 5.00% per annum for adjusted LIBOR rate loans and letter of credit fees, (ii) 4.00% per annum for base rate loans, and (iii) 0.50% for unused revolving commitment fees. Commencing April 1, 2022, the applicable margin for outstanding loans and letters of credit under the Credit Facility will increase by a per annum rate of 1.00%. Amendment No. 12 also provides for a fee on each of December 31, 2021, and June 30, 2022, equal to 0.20% of the aggregate principal amount of outstanding term loans and used and unused revolving commitments as of each such date. The Company paid customary consent fees in connection with the closing of Amendment No. 12.
Amendment No. 12 modifies certain mandatory prepayment provisions in the Credit Facility to provide that (i) the annual excess cash flow mandatory prepayment shall commence with the year ending December 31, 2021 (instead of the year ended December 31, 2020), and such prepayment, if any, shall be calculated without a deduction for the $20 million prepayment of term loans made by the Company on April 9, 2021, and (ii) the Company shall be required to apply any available U.S. cash in excess of $25 million as of the end of each quarter (commencing June 30, 2021) to prepay outstanding loans under the revolving line of credit and cash collateralize outstanding letters of credit thereunder (in each case, without any reduction to the revolving commitments under the Credit Facility).
Amendment No. 12 also modifies, among other things, certain covenants contained in the Credit Facility, including with respect to (i) certain permitted restricted payments and investments, and (ii) certain reporting requirements.
Dividends
The Company plans to continue withdeclared its quarterly cash dividend to the holders of its common stock, whereby a dividend in the amount of $0.075 per common share will be paid on March 15, 20192021 to shareholders of record on February 28, 2019.March 2, 2021.
Acquisitions and Joint Ventures
On January 2, 2019 Ebix, exercised an irrevocable option to reacquire the 10% equity interest previously owned by Paul Merchants in the international remittance business in India for cash considerationTable of $5.0 million.Contents
On January 4, 2019 Ebix entered into an agreement to acquire the assets of India based Essel Forex Limited, for approximately $8.0 million plus possible future contingent earn-out payments of up to $720 thousand based on earned revenues. Ebix will be funding the entire transaction in cash, using its internal cash reserves. Essel Forex has been one of the five largest Foreign exchange providers in India with a wide spectrum of related products including sales of all major Currencies, travelers’ checks, demand drafts, remittances, money transfers and prepaid cards primarily for the Corporate clients. Besides being a foreign exchange business partner to leading banks such as ICICI, Axis, Indus Ind, Yes and HDFC Bank, Essel Forex has been associated with Western Union and MoneyGram for inward money transfers.
On February 13, 2019 Ebix announced it had acquired an 80% controlling stake in India based Zillious Solutions Private Limited for $7.0 million plus possible future contingent earn-out payments of up to $2.0 million based on earned revenues. Zillious is an on-demand SaaS travel technology solution, with market leadership in the corporate travel segment in India.
Compensatory Arrangements of Certain Officers
On January 7, 2019, after reviewing the Chief Executive Officer’s performance under his compensation plan, the Compensation Committee and Chairman of the Audit Committee of Ebix, Inc. approved the grant of $600 thousand in shares of restricted common stock to the Chief Executive Officer of Ebix, Inc. based on the closing price of the Company’s common stock on January 7, 2019. As a result, the Chief Executive Officer was granted 13,541 shares of restricted common stock. One third of the shares vest after one year, and the remaining in eight equal quarterly installments.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
As previously disclosed, on October 5, 2018,by letter dated February 15, 2021, RSM notified the Audit Committee of the Company's Board of Directors solicited proposals from four major accounting firms and conducted an extensive evaluation process in connection with( the selection"Board") of the Company'sCompany of its resignation as the Company’s independent auditors. Following this process,registered public accounting firm.
RSM was engaged by the Audit Committee on December 21, 2018 the Audit Committee appointed RSM US LLP ("RSM") to serve as the Company'sCompany’s independent auditor for fiscal year 2019. T R Chadha & Co. LLP (“TRC”) will continue as the Company's auditor for the fiscal year ending December 31, 2018. TRC2019 and was appointedengaged again on June 12, 2020 to serve as the Company’s independent auditor for 2018the fiscal year ending December 31, 2020. RSM’s previously issued reports on October 5, 2018, replacing Cherry Bekaert LLP (“CBH”), as previously announced. CBH served as the Company’s auditor from 2008 through October 5, 2018.
In connection with the audits of the Company's consolidated financial statements and the Company’s internal controls over financial reporting for the fiscal yearsyear ended December 31, 20162019 did not contain an adverse opinion or a disclaimer of opinion; nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. As of February 15, 2021, RSM had not completed its audit procedures or issued any reports on the Company’s consolidated financial statements and 2017, and ininternal controls over financial reporting for the subsequent interim period throughfiscal year ended December 31, 2020.
From December 21, 2018 when RSM was initially engaged, through RSM’s resignation, other than as provided below, there were no disagreements with either TRC or CBH(i) “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company and RSM on any mattersmatter of accounting principles or practices, financial statement disclosure, or auditing scope andor procedures, which disagreements, if not resolved to the satisfaction of TRC or CBH, as applicable,RSM, would have caused such former accounting firmRSM to make reference to the subject matter thereof in their report.
Exceptits reports for such fiscal years and interim period, or (ii), “reportable events” as provided in the succeeding sentence, there were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K.
RSM informed the Company that there was a disagreement under Item 304(a)(1)(iv) of Regulation S-K duringwith respect to the two fiscal years endedclassification of $30 million. In connection with a pending acquisition, in December 31, 20162020 the Company transferred $30 million to a commingled trust account of its outside legal counsel that was not under the direct control of the Company, and 2017classified the funds as a cash or cash equivalent on its balance sheet. RSM discussed with the Company RSM’s view that these funds could not be classified as a cash or cash equivalent but could be classified as other current assets. There was no dispute that the $30 million was owned by the Company and would be classified as part of current assets included in the subsequent period through December 27, 2018. financial statements.
The reportsCompany considered this issue to be an initial difference of CBHopinion based on incomplete facts or preliminary information rather than a “disagreement” pursuant to Item 304(a)(1)(iv).
On February 15, 2021, RSM told the Chairman of the Company’s Audit Committee during a telephone call that RSM was resigning as the Company’s independent registered public accounting firm, effective immediately. RSM then advised the Chairman on the Company’s consolidatedcall that it was resigning as a result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020, including whether such transactions have been properly accounted for and disclosed in the financial statements subject to the Audit. RSM informed the Chairman that the unusual transactions concerned the Company’s gift card business in India. RSM asserts that on that call it further advised the Chairman that if this requested information was further investigated it might materially impact the fairness or reliability of the financial statements subject to the audit or affect RSMs willingness to be associated with the Company’s financial statements, but that since RSM had resigned, no further investigation would occur. The Chairman discussed with RSM the reasons for its resignation.
Promptly following the call between RSM and the Chairman of the Audit Committee, RSM sent the resignation letter dated February 15, 2021. RSM stated in its resignation letter that it was “resigning as a result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020, including whether such transactions have been properly accounted for and fordisclosed in the years ended December 31, 2016 and 2017 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified asfinancial statements subject to uncertainty, audit scope or accounting principles, exceptthe Audit.” RSM informed the Company that CBH’s report on internalthe unusual transactions concerned the Company’s gift card business in India. RSM also stated in its letter that it believed that the Company’s “internal control over financial reporting expressed an opinion that the Company hadwas not maintained effective internal control over financial reporting as of December 31, 2017 because2020 due to the identification of a material weakness. Specifically, management did not design or implement the effect ofnecessary procedures and controls over the gift or prepaid card revenue transaction cycle sufficient to prevent or detect a material weaknesses identified by Company managementmisstatement.” RSM further stated in the designletter that, “because we have not completed the Audit, we cannot conclude on other control deficiencies that may rise to the level of a material weakness.”
Effective March 5, 2021, the Company’s controls over accountingCompany engaged KG Somani & Co. (“KGS”), as our independent accountants for business combinations, the preparation ofyear ending December 31, 2020. The Audit Committee made the income tax provision, and having contemporaneous documentation of significant acquisition related transactions.
decision to engage KGS. The Company has provided TRC with a copynot consulted
with the above statements. A copy of the letter from TRC is attached as Exhibit 16. In October 2018, when the Company replaced CBH, the Company provided CBH with a copy of the foregoing statements and has requested and received from CBH a letter addressed to the Securities and Exchange Commission stating whether or not CBH agrees with the above statements. A copy of the letter from CBH is attached as Exhibit 16.2.
During theKGS during our two most recent fiscal years and theor during any subsequent interim period from January 1prior to December 21, 2018its appointment as our new independent accountants regarding either:
(i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided that KGS concluded was an important factor considered by the Company nor anyone acting on behalfin reaching a decision as to the accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (within the meaning of Item 304(a)(1)(v) of Regulation S-K).As a result of the resignation of RSM on February 15, 2021, the Company consulted RSM regardingwas unable to timely file its Annual Report on Form 10-K. The Company has engaged KGS and is now filing its Form 10-K and expects to file it quarterly report on Form 10-Q for the quarter ended March 31, 2021 on time.
As referenced in the Company's February 20, 2021 press release following RSM's resignation, the Board engaged counsel, Skadden, Arps, Slate, Meagher & Flom LLP to, along with accounting experts from the consulting firm, AlixPartners LLP, assist the Company with respect to matters raised by the former auditor's resignation. Having reviewed the work performed by AlixPartners and considered their observations, the Board is satisfied that no steps are necessary with respect to any ofgift card business issues raised by the matters or events set forthformer auditor in Item 3.04(a)(2) of Regulation S-K.its resignation.
The audit committee of the Company decided to continue withretain KPMG for Valuationvaluation work and Ernst &Young& Young for tax advice, tax provisioning and SOX internal control evaluation work for the year 2018 and 2019.2020.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: We maintain a system of disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that we file and submit under the Exchange Act is recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms. Disclosure controls also are designed to reasonably assure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Disclosure controls include components of internal control over financial reporting, which consists of control processes designated to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with United States generally accepted accounting principles.
We monitor and evaluate on an ongoing basis our disclosure controls and procedures in order to improve their overall effectiveness. In the course of these evaluations, we modify and refine our internal processes and controls as conditions warrant.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of December 31, 2018.2020. Based on that evaluation, management has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accurately recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, audit committee, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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(1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; |
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(2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and, |
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(3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance. It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override of controls. Because of such limitations, there is a risk that material misstatements due to error or fraud may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process and, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's assessment of and conclusion on the effectiveness of internal control over financial reporting is as of December 31, 2018 and did not include an assessment of the internal controls for the following operations: Centrum (acquired April 2018),
Smartclass (acquired April 2018), Indus (acquired July 2018), Mercury (acquired July 2018), Miles (acquired Aug 2018, Aha Taxis (acquired October 2018), Routier (acquired October 2018), Lawson (acquired December 2018) and Weizmann (acquired December 2018), for which the financial information for these business units are included in the accompanying 2018 consolidated financial statements of Ebix. These business units in the aggregate represented 18.0% of the Company's consolidated revenue, and 34.0% of the Company's consolidated assets for 2018 In making its assessment of the effectiveness of the Company controls over financial reporting, management used the criteria set forth by the 2013 Committee of Sponsoring Organizations of the Treadway Commission, or 2013 COSO Internal
Control-Integrated Framework. Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2018.2020.
TR Chadha K G Somani & Co. LLP,Co, the independent registered public accounting firm that audited our Consolidated Financial Statements included in this Annual Report on Form 10-K, audited the effectiveness of our internal control over financial reporting as of December 31, 2018. TR Chadha2020. K G Somani & Co. LLPCo has issued their report which is included in this Annual Report on Form 10-K.
Remediation Plans
As previously disclosed, the Company had concluded that material weaknesses existed as of December 31, 2017. The Company engaged Ernst & Young LLP to assist in the review and analysis of the Company’s interim and annual income tax provision methodology, computations and financial reporting. The Company continued to further strengthen controls for income taxes in 2018 with the use of additional resources and expanded use of the independent third-party firm and outside legal tax counsel.
The Company engaged KPMG LLP to assist in the preparation and analysis of the Company’s Purchase Price Accounting and Goodwill Impairment procedures and calculations. The Company continued to further strengthen controls for Valuation Accounting in 2018 with the use of additional resources and expanded use of the independent third-party firms and outside legal counsel. In addition the Company continued to review its procedures surrounding Valuation Accounting, including enhanced internal review and documentation processes.
Management believes these remediation plans were effective in addressing the material weaknesses that existed as of December 31, 2017 and believes that we maintained effective internal control over financial reporting as of December 31, 2018.
Changes in Internal Control over Financial Reporting
The remediation actions set forth above in “Remediation Plans” are There were no changes in the Company’sour internal control over financial reporting (as definedidentified in Securities Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) in of 2018management's evaluation during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
TheTo the Stockholders and the Board of Directors and Stockholders of Ebix, Inc.
Opinion on the Internal Control overOver Financial Reporting
We have audited Ebix, Inc. and subsidiaries’ (the Company) internal control over financial reporting of Ebix, Inc. and subsidiaries (the “Company”) as of December 31, 2018,2020, based on criteria established in Internal Control-IntegratedControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in the 2013 Internal Control-IntegratedControl - Integrated Framework issued by COSO.the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetssheet of the Company as of December 31, 2018,2020, and the related consolidated statements of income, comprehensive income, stockholdersstockholders’ equity, and cash flows of the Company for the year then ended, as of December 31, 2018, and the related notes to the consolidated financial statements and our report dated March 1, 2019April 24, 2021 expressed an unqualified opinion thereon.opinion.
As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting excluded the internal controls for the operations in Centrum (acquired in April 2018), Smartclass (acquired in April 2018), Mercury Travel (acquired in July 2018), Leisure Corp (acquired in July 2018), Indus (acquired in July 2018), Miles (acquired in August 2018), AHA taxis (acquired in October 2018), Routier (acquired in October 2018) Lawson Travels (acquired in December 2018), and Weizmann Forex (acquired in December 2018) which are included in the 2018 financial statements of Ebix, Inc. and which constituted approximately 18% of the Company's consolidated revenues for the year ended December 31, 2018 and 34% of the Company’s consolidated assets as of December 31, 2018. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting for the operations in Centrum, Smartclass, Mercury Travel, Leisure Corp, Indus, Miles, AHA taxis, Routier, Lawson Travels, and Weizmann Forex.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our auditsaudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control overOver Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
T R Chadha
/s/ K G Somani & Co LLP
New Delhi, India
April 27, 2021
March 1, 2019
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by referenceDirectors
ROBIN RAINA, 54, has been a director at Ebix since 2000 and Chairman of the Board at Ebix since May 2002. Mr. Raina joined Ebix in October 1997 as our Vice President-Professional Services and was promoted to Senior Vice President-Sales and Marketing in February 1998. Mr. Raina was promoted to Executive Vice President, Chief Operating Officer in December 1998. Mr. Raina was appointed President effective August 2, 1999, Chief Executive Officer effective September 23, 1999 and Chairman in May 2002. Mr. Raina holds an industrial engineering degree from Thapar University in Punjab, India
Areas of Relevant Experience. Mr. Raina’s strategic direction for the Company and implementation of such direction has proven instrumental for the Company’s turnaround and growth.
HANS U. BENZ, 75, After receiving a master's degree at the “Swiss Harvard Business School” University of St. Gallen (HSG) in 1970, Hans Benz had a System- and Business-Engineer career for 40 years in many different positions. Mr. Benz joined Ebix as a director in 2005. From 2001 to 2005 Mr. Benz was President of the holding of the BISON GROUP, a Swiss corporation that develops and implements process-oriented business solution software in Europe. Prior to this position and from 1995 to 2001 he was President of a Swiss banking software development company belonging to the UBS Group. Previously Mr. Benz was with the private bank of Coutts & Co., Zürich as Senior Vice President and was also head of their global IT organization as a part of their larger worldwide NatWest IT organization.
Areas of Relevant Experience. Mr. Benz’s former business experience extends from wholesale and retail industry to the Swiss private insurance industry as founding partner in a national data center. He has extensive experience in the software ERP and finance sectors, international marketing, strategic planning, IT planning, executive compensation, and defining strategic vision.
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PAVAN BHALLA, 58, has been a director of Ebix since June 2004. He was a Partner with FCM LLC, a consulting firm that serves the largest private equity firms in the world, from March 2019 to January 2021. Prior to that, from May 2017 to March 2019, he was President of Alight Solutions, a global provider of HR outsourced solutions. From September 2011 to April 2017, he was with Aon Corporation and held a number of positions including the CEO of their HR Outsourcing business. Prior to this role, he was the Executive Vice President, Chief Financial Officer and Treasurer of Harris Interactive Inc., a position he held since October 2010. Prior to that, Mr. Bhalla served as Vice President for Hewitt Associates, and had been in this role since August 2006. Before the roles at Hewitt Associates and Harris Interactive, Mr. Bhalla served as the Senior Vice President-Finance of MCI Inc., a global telecommunications company, and supervised the financial management of MCI’s domestic business units. Prior to joining MCI in August 2003, Mr. Bhalla spent more than seven years with BellSouth Corporation, a telecommunications company, serving in a variety of executive positions, including Chief Financial Officer of BellSouth Long Distance from 1999 to 2002 and Corporate Controller of BellSouth Cellular Corp. from 1997 to 1999. Mr. Bhalla holds a master’s degree in business administration from the University of Chicago’s Booth School of Business. He is also a registered Certified Public Accountant from Illinois.
Areas of Relevant Experience. Mr. Bhalla has extensive hands-on relevant experience in corporate finance and international business transactions. His extensive accounting and financial background qualifies him as an audit committee financial expert under applicable SEC and the Nasdaq Stock Market Marketplace Rules (the “Nasdaq Marketplace Rules”).
NEIL D. ECKERT, 58, has been a director of Ebix since 2005. Neil Eckert serves as the Executive Chairman of IncubEx, a company that specialises in the development of environmental commodity markets. He was also co-founder and Chief Executive Office of Climate Exchange PLC until the sale of the company to Intercontinental Exchange in July 2010 for approximately $600 million. Climate Exchange owned Chicago Climate exchange and European Climate exchange which hosted over 90% of Global Carbon Emissions Trading Scheme volumes. Mr. Eckert was also previously founding Chairman of Trading Emissions PLC, an Aim listed company that invested in Emissions reduction permits. Mr. Eckert founded Brit
Insurance in 1995 and served as CEO until 2005. He was founder and Chairman of Aggregated Micropower PLC, an Aim listed renewable developer until its sale in January 2020.
Areas of Relevant Experience. Mr. Eckert has an extensive background with experience of operating as the CEO of two different public companies and has executive experience in strategic planning, hands-on understanding of insurance industry, sales and marketing, corporate finance, executive compensation and international matters.
GEORGE W. HEBARD III, 48, has been a director of Ebix since March 2015. Mr. Hebard is the Managing Partner of Ziba Capital, a New York investment firm. He previously served as a Managing Director of Barington Capital Group, a New York investment firm, from January 2014 to June 2019. Mr. Hebard was previously Interim Principal Executive Officer and Interim Chief Operating Officer of Enzon Pharmaceuticals, Inc., a position he held as an employee from May 2012 to December 2013 and as a consultant from January 2014 to March 2016. From September 2011 to April 2012, Mr. Hebard was a Managing Director at Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds. From January 2005 to September 2011, Mr. Hebard served as a Managing Director at Blue Harbour Group, an investment firm in Greenwich, Connecticut. Prior to Blue Harbour Group, Mr. Hebard served as a Managing Director at Ranger Partners from April 2002 to December 2003, and prior to Ranger Partners, Mr. Hebard was an Associate at Icahn Associates Corp. from August 1998 to April 2002. Mr. Hebard was also a director of Turning Point Brands, Inc. (NYSE: TPB) from May 2014 to September 2018 and a director of Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) from February 2012 to November 2013. He has an MBA from INSEAD and an A.B. in Economics from Princeton University.
Areas of Relevant Experience. Mr. Hebard brings to the Board over twenty years of experience working in finance and investment management, including a strong record as a financially sophisticated investor with a broad understanding of the operational, financial and strategic issues facing public and private companies.
ROLF HERTER, 57, has been a director of Ebix since 2005. Mr. Herter is the managing partner of Streichenberg, Attorneys at Law in Zurich, Switzerland. Streichenberg is a mid-sized commercial law firm, and Mr. Herter has been managing partner since 2004. Mr. Herter’s practice consists, among others, of representation for information technology companies, both private and publicly held. He has served on the board of directors of several companies and is currently serving as a member of the board of directors of YSMA AG, Immo Swiss Investments AG in our definitive proxy statementliq., Bantex AG in liq., Eurotas Trust AG in liq., Invitech AG in liq., Ostschweizerische Treuhandgesellschaft AG. He also serves as a supervisor of investments for several Swiss and German companies.
Areas of Relevant Experience. Mr. Herter has extensive experience in the legal sector with expertise in managing multiple companies in terms of investments, capital structure, organization restructuring and governance, and with an expertise in European affairs.
HANS UELI KELLER, 68, has been a director of Ebix since 2004. Mr. Keller has spent over 20 years with Zurich-based Credit Suisse, a global financial services company, serving as Executive Board Member from 1997 to 2000, head of retail banking from 1993 to 1995, and head of marketing from 1985 to 1992. He serves as chairman of the board of Helvetica Property Investors AG, Zurich, a real estate fund and asset management company.
Areas of Relevant Experience. Mr. Keller has extensive executive experience in sales and marketing, corporate finance, strategic planning, executive compensation, and international distribution.
Executive Officers
We have five executive officers: Robin Raina, Steven M. Hamil, Graham Prior, Leon d’Apice and James Senge, Sr. Information as to Mr. Raina is provided above.
STEVEN M. HAMIL, 52, joined the Company in April 2020 to serve as the Company's Corporate Executive Vice President and the Company's Global Chief Financial Officer. Prior to joining the Company and since 2013, Mr. Hamil served at Regions Financial Corporation as a Senior Vice President and Managing Director in the technology, media and communications and defense and governments services banking group. Prior to this position he served as Senior Vice President and Senior Client Manager at BBVA USA and its predecessor company, Compass Bancshares Inc., from 2010 to 2013. From 2000 to 2009, Mr. Hamil held multiple positions at Wachovia Capital Markets, LLC, the latest being a Director within the Loan Syndications/Leverage Finance group. Earlier in his career, Mr. Hamil was the Senior Vice President of Finance and Chief Accounting Officer at Movie Gallery, Inc., and held positions at Bank of America Corporation and Ernst & Young Global Limited. Mr. Hamil is a certified public accountant (inactive - State of Alabama) and holds both a B.S. in Business
Administration (Accounting) from the University of Alabama (summa cum laude) and a Masters of Business Administration from Duke University's Fuqua School of Business.
GRAHAM PRIOR, 64, was made an executive officer of the Company in 2012. He serves as Corporate Executive Vice President International Business & Intellectual Property. Mr. Prior has been employed by Ebix since 1996 when the Company acquired Complete Broking Systems Ltd for which Mr. Prior was a part owner. Mr. Prior has been working within the insurance technology industry since 1990 and is currently responsible for the annual meetingCompany’s international operations in Singapore, New Zealand, Australia, Europe, Africa and Asia. Mr. Prior is also responsible for the Company’s worldwide product development initiatives.
LEON d’APICE, 64, was made an executive officer of stockholders,the Company in 2012 He serves as the Company’s Corporate Executive Vice President and Managing Director – Ebix Australia Group. Mr. d’Apice, has been employed with Ebix since 1996 when the Company acquired Complete Broking Systems Ltd for which we will file within 120 daysMr. d’Apice was also a part owner. Mr. d’Apice has been in the information technology field since 1977 and is currently responsible for all of the operations of Ebix’s Australia business units.
JAMES SENGE, SR., 60, was made an executive officer of the Company in 2012. He serves as the Company’s Senior Vice President EbixHealth. Mr. Senge has been employed with Ebix since 2008 when the Company acquired Acclamation Systems, Inc. ("Acclamation"). Mr. Senge had been employed by Acclamation since 1979. During his over 32 years with Acclamation/Ebix Mr. Senge has been involved with all facets of the EbixHealth division, including being responsible for the strategic direction and day to day operations of the divisions. Mr. Senge’s focus is on expanding the Company’s reach into the on-demand, end to end technology solutions for the health insurance and healthcare markets. Mr. Senge works from Ebix’s Pittsburgh, Pennsylvania office.
Corporate Governance
The following table lists our three board committees, the directors who served on them as of the end of 2020 and the fiscalnumber of committee meetings held in 2020.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Audit | | Compensation | | Corporate Governance and Nominating |
| Mr. Bhalla | | C | | | | M |
| Mr. Benz | | M | | M | | |
| Mr. Eckert | | | | M | | C |
| Mr. Herter | | | | | | M |
| Mr. Keller | | M | | C | | |
| Mr. Raina | | | | | | |
| Mr. Hebard | | | | | | |
| 2020 Meetings | | 4 | | 5 | | 2 |
On February 20, 2015, the Board appointed Hans Ueli Keller as Lead Independent Director. As Lead Independent Director, Mr. Keller's responsibilities include, but are not limited to: (i) coordinating the activities of the independent directors; (ii) setting the agenda for board meetings in conjunction with the CEO and corporate secretary; (iii) chairing executive sessions of the independent directors; and (iv) performing such other duties as are assigned from time to time by the board.
On June 11, 2019, Neil Eckert was asked by the Board and accepted a position serving on the Compensation Committee.
It is the Company's policy that directors should attend each meeting of the Board of Directors and each meeting of the committees on which they serve. During 2020, the Company's full Board of Directors met four times, all of the meetings being conducted over telephonic conference calls due to the COVID-19 pandemic. Each member of the Board of Directors attended all of the regular meetings of the Board and the Board committees on which the director served and for which they were eligible to participate. In addition to participation at Board and committee meetings, our directors discharge their responsibilities
throughout the year through personal meetings and other communications, including considerable telephone contact with the Chairman and Chief Executive Officer and sometimes with others pertinent members of management regarding matters of interest and concern to the Company.
Effective January 9, 2015, the Company amended its bylaws in a way that changed the procedures by which security holders may recommend nominees to the Company’s Board of Directors. Section 3.10 of the Amended and Restated Bylaws creates certain advance notice requirements for stockholder nominations of directors at both annual and special meetings. To be timely, a director nomination by a stockholder for an annual meeting must be submitted not less than 90 nor more than 120 days before the anniversary date of the immediately preceding annual meeting. In the case of a nomination at a special meeting, notice of such nomination must be given within 10 days that notice of such meeting was provided or made public.
In addition, Section 3.10 of the Amended and Restated Bylaws requires disclosures relating to the nominees and their relationships with stockholders proposing their nomination. Among other things, Section 3.10 of the Amended and Restated Bylaws requires a proposed nominee to: (1) represent and promise that the nominee is not, nor will become, party to any understanding with another person (a) to vote or act as a Director in a certain manner or (b) concerning compensation, reimbursement or indemnification without disclosure to the Company; and (2) represent that, if elected to the Board, such nominee would comply with Regulation FD and Company governance, trading, ethics, stock ownership and other policies.
Section 3.10 of the Amended and Restated Bylaws also requires disclosures similar to a stockholder proposing business for an annual meeting. In addition, a proposing stockholder, including its affiliates, must disclose all agreements or other understandings with a director nominee it has proposed, as well as any other material interest involved in such nomination.
Code of Conduct and Ethics
The Board has adopted the Code of Conduct and Ethics (the “Code of Ethics”), which applies to the senior financial officers (the “Senior Financial Officers”) of the Company and its subsidiaries, including its principal executive officer, principal financial officer and principal accounting officer. Our Board also has adopted a Code of Conduct, articulating standards of business and professional ethics, which is applicable to all of our directors, officers and employees. The Company is committed to the highest standards of professional and ethical conduct, and the Code of Ethics and Code of Conduct provide guidance as to upholding these standards.
The Code of Ethics consists of basic standards of business practice, as well as professional and personal conduct, including prohibitions against any conduct or transactions that might constitute a conflict of interest between the Senior Financial Officers and the Company. Any action that might constitute a conflict of interest is reviewed by Company management, and potential conflicts of executive officers or members of the Board are reviewed by the Board.
This Code of Ethics is posted on the Company’s website at www.ebix.com, where it may be found by navigating to “Ebix Inc. Code of Ethics” under Corporate Governance within the Investor section of the website. Any amendment to or waiver of the Code of Ethics must be approved by the Audit Committee and will be promptly disclosed by the Company. The Company intends to satisfy the disclosure requirement under Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on the Company’s website, at the address and location specified above. These codes are reviewed annually and amended as necessary or appropriate in response to changing regulatory requirements and evolving best practices.
Audit Committee and Audit Committee Financial Expert
The Company has a standing Audit Committee. The Audit Committee’s principal responsibility is to assist the Board in its general oversight of the Company’s financial reporting, internal controls, ethics compliance and audit functions. This committee is directly responsible for the appointment, compensation and oversight of the work of the Company’s independent public accounting firm, reviews the annual financial results and the annual audit of the Company’s financial statements and approves the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K.
The Audit Committee assists the Board in monitoring: (a) the integrity of our financial statements, (b) the effectiveness of our internal control over financial reporting, (c) the effectiveness of our disclosure controls, (d) the qualifications and independence of our independent registered public accounting firm, (e) the performance of our independent registered public accounting firm, and (f) our compliance with legal and regulatory requirements. The Audit Committee is also responsible for oversight of the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. The Audit Committee’s
charter provides that the Audit Committee review and approve related party transactions and conflicts of interest questions between Board members or senior management, on the one hand, and the Company, on the other hand (as defined and required by applicable securities laws, rules and regulations and the rules of the Nasdaq). The Audit Committee is also responsible for reviewing and monitoring compliance with the Company’s Code of Ethics for Senior Financial Officers. In addition, the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, financial reporting, internal accounting controls or auditing matters and the confidential and anonymous submission by Company employees of concerns regarding accounting and auditing matters.
The Audit Committee exercises oversight responsibility regarding the quality and integrity of our auditing and financial reporting practices. In discharging this report relates.responsibility, the Audit Committee, among other things, holds the authority to approve or remove the independent registered public accounting firm and to pre-approve the audit and any non-audit service to be provided by the auditors and reviews the results and scope of the annual audit performed by the auditors. The Audit Committee has three members, who currently are Messrs. Bhalla (Chairman), Benz and Keller.After reviewing the qualifications of the current members of the Audit Committee, and any relationships they may have with the Company that might affect their independence from the Company, our Board has determined that: (1) all current members of the Audit Committee are “independent” as that concept is defined in Section 10A of the Securities Exchange Act of 1934, (2) all current members of the Audit Committee are “independent” as that concept is defined in the Nasdaq listing standards, (3) all current members of the Audit Committee are financially literate, and (4) Mr. Bhalla qualifies as an “audit committee financial expert” as defined under SEC rules promulgated under the Sarbanes-Oxley Act of 2002. The Audit Committee met five times during 2019. The Audit Committee exercises its authority pursuant to a written charter that was adopted in October 2004.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the Securities and Exchange Commission reports of securities ownership on Form 3 and changes in such ownership on Forms 4 and 5. Officers, directors and more than ten percent beneficial owners also are required by rules promulgated by the Securities and Exchange Commission to furnish the Company with copies of all such Section 16(a) reports that they file. Based solely upon a review of the copies of Forms 3, 4, and 5 furnished to the Company or representations by certain executive officers and directors that no such reports were required for them, the Company believes that during 2020 all of the Company's directors, officers and more than ten-percent beneficial owners filed all such reports on a timely basis except that, while Mr. Hamil believed his Form 3 and Form 4 were filed in April 2020, due to a clerical error such filings were not received by the SEC and when this was discovered in April 2021 the filings were made promptly.
Item 11. EXECUTIVE COMPENSATION
Compensation Disclosure and Analysis
EXECUTIVE COMPENSATIONObjectives and Goals
The objectives of the Compensation Committee have been to adopt a compensation approach that is simple, internally equitable, and externally competitive, and that attracts, motivates, and retains qualified people capable of contributing to the growth, success and profitability of the Company, thereby contributing to long-term stockholder value.
Simplicity. The Compensation Committee believes that a compensation package with three major elements of compensation is the simplest approach, consistent with the Company’s goals. The Company generally does not utilize special personal perquisites such as private jets, payment of country club dues, Company-furnished motor vehicles, permanent lodging, or defrayment of the cost of personal entertainment.
Internal Equity. Internal equity has generally been evaluated based on an assessment of the relative contributions of the members of the management team. In 2020, the Compensation Committee did not undertake any formal audit or similar analysis of compensation equity with respect to either the CEO relative to the other members of the management team or with respect to the management team relative to the Company’s employees generally. However, the Compensation Committee believes that the relative difference between CEO compensation and the compensation of the Company’s other executives is consistent with such differences found in the Company’s insurance services peer group and the market for executive-level personnel for public companies of similar size.
External Competitiveness. The Compensation Committee believes it is important to management retention and morale that compensation be competitive with our competitors. In setting annual compensation, the Compensation Committee
generally reviews market data and compares total annual compensation opportunities for our executive officers with compensation opportunities for similar positions at comparable companies. Based on this review, the Compensation Committee approves compensation levels and opportunities for our CEO and our other executive officers that the Compensation Committee believes are competitive with the marketplace and provide appropriate retention and incentive value.
Major Compensation Components
The principal components of compensation for our executive officers are: (i) base salary, (ii) short-term incentives, generally in the form of cash bonus programs, and (iii) long-term incentives, generally in the form of equity-based awards such as stock awards. We believe the Company’s goals are best met by utilizing an approach to compensation with these three distinct elements.
Base Salary:
Base salaries for our executive officers are established based on the scope of their responsibilities, prior relevant background, professional experience, and technical training. Also in this regard, the Compensation Committee takes into account competitive market compensation paid by the companies represented in the compensation data it reviews for similar positions, and the overall market demand for such executives. Although the Company considered the same factors in establishing the base salaries of each of its executive officers, due to the different levels of roles played by each executive, the base salaries are justifiably substantially different.
Incorporated
On April 10, 2019, the Company’s Board of Directors, upon recommendation from the Compensation Committee, announced that Mr. Raina's salary for 2019 and going forward is to be paid in shares of common stock of the Company. As a result, on January 2, 2020 the Company granted Mr. Raina 107,655 shares of restricted common stock, which represents his annual salary of $3,600,000 divided by $33.44, the closing price of the Company’s common stock on January 2, 2020. One third of these shares will vest on January 1, 2021 with the remaining stock vesting in quarterly installments over the next eight quarters.
Incentive Bonus Plan
The stockholders approved a Bonus Plan for Mr. Raina at the 2016 Annual Meeting. The Bonus Plan provides for the payment of annual cash incentive awards to the Company’s Chief Executive Officer based upon the achievement by the Company of specified performance goals. The Bonus Plan was intended to preserve the Company’s federal income tax deduction for annual incentive payments to the CEO by meeting the requirements for “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986 as amended (the “Code”) (or any successor provision). However, Section 162(m) of the Code was amended in December 2017 as discussed below. Participation in the Bonus Plan is limited to the CEO of the Company. The Company does not anticipate that compensation paid to any of its other executive officers will be subject to the compensation deduction limits of Section 162(m). The Bonus Plan provides that Mr. Raina is eligible to receive cash incentives in connection with a particular fiscal year during the term of the Bonus Plan if the Company meets or exceeds certain performance goals (“Performance Goals”) set each year by the Compensation Committee. Not later than ninety (90) days after the commencement of any fiscal year during the term of the Bonus Plan (or such other date as may be permitted or required by Section 162(m)), and at a time when the outcome is uncertain, the Compensation Committee will set in writing Performance Goals based on one or more of the following business criteria:
•Revenue
•Sales
•Profit (net profit, gross profit, operating profit or other corporate profit measures)
•Earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures)
•Net income (before or after taxes, operating income or other income measures)
•Cash (cash flow, cash generation or other cash measures)
•Stock price or performance
•Total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price)
•Return measures (return on assets, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales)
•Market share
•Improvements in capital structure
•Expenses (expense management, expense ratio, expense efficiency ratios or other expense measures)
•Business expansion or consolidation (acquisitions and divestitures)
•Strategic plan development and implementation
At the time the Compensation Committee sets the Performance Goals for a particular fiscal year, it will also set in writing the CEO’s incentive bonus opportunity, expressed as a dollar amount or a percentage of the CEO’s base salary, which will be earned if the established Performance Goals are achieved.
Performance Goals may be specified in absolute terms, on an adjusted basis, in percentages, or in terms of growth from period to period or growth rates over time, as well as measured relative to the performance of a group of comparator companies, or a published or special index, or a stock market index. Performance Goals need not be based upon an increase or positive result under a business criterion and could include, for example, the maintenance of the status quo or the limitation of economic losses (measured, in each case, by reference to a specific business criterion). Performance measures may but need not be determinable in conformance with generally accepted accounting principles.
Payment of annual incentives under the Bonus Plan will be made promptly following the Compensation Committee’s written certification that the Performance Goals and any other material conditions were satisfied. The Compensation Committee has the right to exercise negative discretion to pay out an annual incentive to the CEO under the Bonus Plan that is less than the amount that would have been payable based solely upon application of the applicable Performance Goals. The Compensation Committee may, in its discretion, pay annual incentives to the other named executive officers.
Long-Term Incentives:
While salary and short-term incentives are primarily designed to compensate current and past performance, the primary goal of the long-term incentives, such as stock options and restricted stock awards, is to link executive officer compensation with the long-term interests of the stockholders.
On July 20, 2020, the Compensation Committee, in consultation with the entire Board, granted 200,000 shares of restricted stock to Mr. Raina under the 2010 Plan as incentive compensation to recognize Mr. Raina's leadership in guiding the Company, especially related to the actions taken in the face of COVID-19. The shares vest over a three-year period. The first one-third of these awards vest on July 20, 2021 and the remaining two-thirds vest in quarterly installments over the next eight quarters.
Use of Compensation Consultants and Benchmarking
In June 2019, after much analysis of potential consulting firms, the Compensation Committee recommended, and the Board of Directors subsequently approved retaining Ernst & Young LLP (EY) as a compensation consultant to assist with executive compensation matters. The EY study, completed in 2020, carried out a benchmarking study and assessed the overall trends in remuneration of positions comparable to that of a CEO and Independent Directors of the Company. The study looked at the key trends in terms of compensation components and structure, while covering organizations comparable in terms of sector, size and global spread of operations. The Compensation Committee accordingly finalized the compensation levels and opportunities that the Compensation Committee believed are competitive with the marketplace and provide appropriate retention and incentive value.
Other Compensation Components
Company executives are eligible to participate in the Company’s health care, insurance and other welfare and employee benefit programs, which are the same for all eligible employees, including Ebix’s executive officers.
Use of Employment and Severance Agreements
In the past, the Compensation Committee has determined that competitive considerations merit the use of employment contracts or severance agreements for certain members of senior management. Presently, however, no member of senior management is employed under an employment contract.
Recapture and Forfeiture Policies
Historically the Company has not had formal policies with respect to the adjustment or recapture of performance based awards where the financial measures on which such awards are based or to be based are adjusted for changes in reported results such as, but not limited to, instances where the Company’s financial statements are restated. The Compensation Committee does not believe that repayment should be required where the Plan participant has acted in good faith and the errors are not attributable to the participant’s gross negligence or willful misconduct. In such later situations, the Compensation Committee believes the Company has or will have available negotiated or legal remedies. However, the Compensation Committee may elect to take into account factors, such as the timing and amount of any financial restatement or adjustment, the amounts of benefits received, and the clarity of accounting requirements leading to any restatement in fixing of future compensation.
Deductibility of Compensation and Related Tax Considerations
As one of the factors in its review of compensation matters, the Compensation Committee considers the anticipated tax treatment to the Company and to the executives of various payments and benefits.
Section 162(m). For 2017 and earlier, Section 162(m) imposed a $1.0 million limit on the amount that a publicly traded company may deduct for compensation paid to its chief executive officer and its next three most highly compensated executives, excluding the chief financial officer. This limitation did not apply to pay that qualifies as “performance-based compensation.” In order to qualify as performance-based, compensation must, among other things, be based solely on the attainment of pre-established, objective goals under a stockholder approved plan with no discretion permitted in determining award payouts. However, the Tax Cuts and Jobs Act adopted in December 2017 made significant changes to Section 162(m) of the Code that impacted public companies, including our company. Starting with the 2018 fiscal year, only performance-based compensation that is paid pursuant to a binding contract in effect on November 2, 2017 is exempt from the information$1,000,000 deduction limit. Accordingly, any compensation that we paid pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1,000,000 deduction limit. In addition, the $1,000,000 deduction limit applies to a broader group of executives, including the chief financial officer and any individual who serves as our chief executive officer or chief financial officer at any time after January 1, 2018, plus any executive who is among our three most highly compensated executive officers for any fiscal year beginning with 2018. While the Bonus Plan described above was intended to preserve the Company’s federal income tax deduction for annual incentive payments to the CEO by meeting the requirements for “qualified performance-based compensation” under Section 162(m), as a result of these changes made to Section 162(m) the Bonus Plan, to the extent changed after November 2, 2017 will no longer be excluded from the $1.0 million limitation. In order to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, some of the compensation that we provide to our definitive proxy statementexecutive officers may not be deductible.
Section 280G. Code Section 280G generally denies a deduction for a significant portion of certain compensatory payments made to corporate officers, certain stockholders and certain highly-compensated employees if the annual meetingpayments are contingent on a change of stockholders,control of the employer and the aggregate amounts of the payments to the relevant individual exceed a specified relationship to that individual’s average compensation from the employer over the preceding five years. In addition, Code Section 4999 imposes on that individual a 20% excise tax on the same portion of the payments received for which wethe employer is denied a deduction under Section 280G. In determining whether to approve an obligation to make payments for which Section 280G would deny the Company a deduction or whether to approve an obligation to indemnify (or “gross-up”) an executive against the effects of the Section 4999 excise tax, the Compensation Committee has adopted an approach similar to that described above with respect to payments which may be subject to the deduction limitations of Section 162(m).
Compensation Committee Conclusion
Attracting and retaining talented and motivated management and employees is essential to create long-term stockholder value. Offering a competitive, performance-based compensation program with a large equity component helps to achieve this objective by aligning the interests of the Company’s CEO and other executive officers with those of stockholders. The Compensation Committee believes that Ebix’s 2020 compensation program met these objectives. Likewise, based on our review, the Compensation Committee finds the total compensation (and, in the case of the severance and change-in-control scenarios, the potential payouts) to the Company’s CEO and other named executive officers in the aggregate to be reasonable and not excessive.
Amended SAR Agreement
On April 10, 2018, the Company entered into a Stock Appreciation Right Award Agreement with Robin Raina, the Company’s Chairman, President and Chief Executive Officer, which was amended effective May 7, 2019.
Upon the effective date of the original SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event, as defined in the Amended SAR Agreements, each of the SARs entitled Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with the Acquisition Event over the base price of $7.95 per share. Although the SARs were not granted under the Company’s 2010 Stock Incentive Plan (the “Plan”), the Amended SAR Agreement incorporated certain provisions of the Plan, including the provisions requiring equitable adjustment of the number of SARs and the base price in connection with certain corporate events (including stock splits). Under the terms of the Amended SAR Agreement, Mr. Raina will filebe entitled to receive full payment with respect to the SARs if either he (i) were employed by the Company on the closing date of an Acquisition Event or (ii) had been involuntarily terminated by the Company without cause (as defined in the Amended SAR Agreement) within 120the 180-day period immediately preceding an Acquisition Event. All of the SARs would have been forfeited if Mr. Raina’s employment had been terminated for any other reason prior to the closing date of an Acquisition Event. The Amended SAR agreement further provides that if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement), 1,000,000 SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by 750,000 SARs beginning on the first anniversary of the effective date of the Amended SAR Agreement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until 100% of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forfeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event
In addition, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the Amended SAR Agreement provides that the Company’s Board would determine annually whether a “shortfall” (as described below) exists as of the end of the immediately preceding fiscal year. In the event the Board determined that a shortfall existed, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, additional restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). Under the terms of the Amended SAR Agreement, a shortfall exists if the number of Mr. Raina’s Shares is less than 20% of the total of (a) the number of SARs, plus (b) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year, minus (c) the number of shares paid, awarded or otherwise received by Mr. Raina from the Company as compensation after April 10, 2018, including any shares received as a result of Mr. Raina exercising stock options granted after April 10, 2018 or the grant or vesting of restricted stock or settlement of RSUs granted to Mr. Raina after April 10, 2018, but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants. Under the terms of the Amended SAR Agreement, if the Board elects to make a Shortfall Grant in respect of such shortfall, such SARs would have been subject to the same terms and conditions as the SARs initially granted under the Amended SAR Agreement. If the Board elects to make a Share Grant in respect of such shortfall, such restricted shares or restricted stock units will have such terms and conditions as determined by the Board, but generally will follow the terms of the restricted shares or restricted stock units granted to other executives of the Company at or about the time of such Share Grant, but no Share Grant would have vested more rapidly than one-third of such Share Grant prior to the first anniversary of the grant date, with the remainder vesting in eight equal quarterly installments following the first anniversary of the grant date.
In connection with the Amended SAR Agreement, Mr. Raina will commit to continue to serve and not resign as the Company’s Chief Executive Officer until at least May 2, 2021.
Stockholder Advisory Vote
At the last Annual Meeting of Stockholders, approximately 54% of the votes cast by the Ebix stockholders present in person or by proxy and entitled to vote at the Annual Meeting and on the proposal were cast in support of the compensation of the Company’s named executive officers, as discussed and disclosed in the proxy statement. The Board and the Compensation Committee appreciate and value the views of our stockholders.
Future advisory votes on executive compensation will continue to serve as an additional tool to guide the Board and the Compensation Committee in evaluating the alignment of the Company’s executive compensation program with the interests of the Company and its stockholders.
Risk Considerations
Our Compensation Committee has reviewed risks arising from our compensation policies and practices for both our executives and non-executive employees and has determined that they are not reasonably likely to have a material adverse effect on the Company.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee currently consists of Mr. Keller, Mr. Benz and Mr. Eckert. None of the members of the Compensation Committee have ever been officers or employees of the Company. No interlocking relationship exists between the members of the Company's Board of Directors or Compensation Committee and the Board of Directors or Compensation Committee of any other company.
.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with the Company’s Chief Executive Officer and Chief Financial Officer the above Compensation Disclosure and Analysis. Based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Form 10-K.
This report has been submitted by the Compensation Committee:
Hans U. Benz, Neil Eckert and Hans Ueli Keller
The foregoing report shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
Executive Compensation and Director Compensation Tables
The following table provides information relating to compensation earned by or paid to our named executive officers in all capacities.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($) (1) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | | Total |
| Robin Raina, President, | | 2020 | | $ | — | | — | | 7,960,000 | | — | | — | | — | | | $ | 7,960,000 | |
| Chief Executive Officer | | 2019 | | $ | — | | 2,000,000 | (2) | | 4,200,000 | | — | | 1,584 | | 6,000 | (3) | | | $ | 6,207,584 | |
| and Chairman of the Board | | 2018 | | $ | 2,400,000 | | 2,000,000 | (2) | | — | | — | | — | | 9,751 | (3) | | | $ | 4,409,751 | |
| Steven M. Hamil, Corporate Executive Vice President and Global Chief Financial Officer | | 2020 | | $ | 231,250 | | — | | 500,000 | | — | | — | | — | (4) | | | $ | 731,250 | |
| Robert F. Kerris, | | 2020 | | $ | 162,519 | | — | | — | | | | — | | — | (5) | | | $ | 162,519 | |
| Chief Financial Officer and Secretary | | 2019 | | $ | 185,000 | | 50,000 | | — | | — | | — | | — | (5) | | | $ | 235,000 | |
| Graham Prior, | | 2020 | | $ | 161,964 | | — | | — | | — | | — | | — | (6) | | | $ | 161,964 | |
| Corporate Senior | | 2019 | | $ | 159,863 | | — | | — | | — | | — | | — | (6) | | | $ | 159,863 | |
| Vice President | | 2018 | | $ | 161,694 | | — | | — | | — | | — | | — | (6) | | | $ | 161,694 | |
| Leon d'Apice, | | 2020 | | $ | 207,197 | | — | | — | | — | | — | | 17,715 | (7) | | | $ | 224,912 | |
| Managing Director- | | 2019 | | $ | 208,706 | | — | | — | | — | | — | | 25,650 | (7) | | | $ | 234,356 | |
| Ebix Australia Group | | 2018 | | $ | 224,400 | | — | | — | | — | | — | | 20,785 | (7) | | | $ | 245,185 | |
| James Senge, Sr., | | 2020 | | $ | 225,000 | | — | | — | | — | | | | 3,375 | (8) | | | $ | 228,375 | |
| Senior Vice President | | 2019 | | $ | 225,000 | | — | | — | | — | | | | 2,337 | (8) | | | $ | 227,337 | |
| EbixHealth | | 2018 | | $ | 225,000 | | — | | — | | — | | — | | 3,075 | (8) | | | $ | 228,075 | |
| | | | | | | | |
| Footnotes |
| (1) | | These amounts reflect the aggregate grant date fair value computed in accordance with accounting guidance related to stock compensation, based on the stock price on the date of grant. |
| (2) | | 2018 bonus of $2,000,000 was earned in 2018 and paid in 2019. |
| (3) | | This amount represent the $6,000 allowance for miscellaneous business and travel expense for 2019. In 2018, the amount includes a Company matching contribution to a 401(k)/Retirement Plan of $3,751 and the annual $6,000 allowance for miscellaneous business and travel expenses. |
| (4) | | Mr. Hamil's base salary is $325,000. Mr. Hamil has started for Ebix April 13, 2020, so his salary shown is partial year. Grant totals is based on new grant value on date of grant. |
| (5) | | Mr. Kerris was named Chief Financial Officer effective September 21, 2019. On April 13, 2020, Mr. Kerris moved to a non officer position. |
| (6) | | Mr. Prior was compensated in Singapore Dollars. For 2020, all sums were derived by using the exchange rate as of December 31, 2020 of 0.742955. For 2019, all sums were derived by using the exchange rate as of December 31, 2019 of 0.7333. For 2018, all sums were derived by using the exchange rate as of December 31, 2018 of 0.7417. His compensation includes a Company matching contribution to a 401(k)/Retirement Plan. |
| (7) | | Mr. d’Apice was compensated in Australian Dollars. For 2020, all sums were derived by using the exchange rate as of December 31, 2020 of 0.690656. For 2019, all sums were derived by using the exchange rate as of December 31, 2019 of 0.6957. For 2018, all sums were derived by using the exchange rate of .7480. His compensation includes a Company matching contribution to a 401(k)/Retirement Plan. |
| (8) | | Mr. Senge's base salary is $225,000, his compensation includes a Company matching contribution to a 401(k)/Retirement Plan. |
Grants of Plan-Based Awards for 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number
of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant
Date Fair Value of Stock and Option Awards ($) |
| Threshold ($) | Target ($) | Maximum ($) |
| Robin Raina | 1/2/20 | — | | | — | | | — | | | 107,655 | | | — | | | — | | | $ | 3,600,000 | | |
| Robin Raina | 7/20/20 | | | | | | | 200,000 | | | | | | | | 4,360,000 | | |
| Steven M. Hamil | | — | | | — | | | — | | | 30,432 | | | — | | | — | | | $ | 500,000 | | |
| Graham Prior | | — | | | — | | | — | | | — | | | — | | | — | | | $ | — | | |
| Leon d' Apice | | — | | | — | | | — | | | — | | | — | | | — | | | $ | — | | |
| James Senge, Sr | | — | | | — | | | — | | | — | | | — | | | — | | | $ | — | | |
Outstanding Equity Awards at 2020 Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of
Securities
Underlying
Unexercised
Options
(#) | | Number of
Securities
Underlying
Unexercised
Options
(#) | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options | | Option
Exercise
Price | | Option
Expiration | | Number of
Shares or
Units of
Stock
That
Have
Not
Vested | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested | | Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested | | Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested |
| Name | | Exercisable | | Un-exercisable | | (#) | | ($) | | Date | | (#) | | ($) | | (#) | | ($) |
| Robin Raina | | — | | | | — | | | | — | | | | | — | | | | — | | | 345,847 | | (1) | | $ | 13,131,811 | | | | — | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | |
| Steven M. Hamil | | — | | | | — | | | | — | | | | | — | | | | — | | | | 30,432 | | | $ | 1,155,503 | | | | — | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Graham Prior | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | $ | — | | | | — | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | |
| Leon d'Apice | | — | | | | — | | | | — | | | | | — | | | | — | | | — | | | $ | — | | | | — | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | |
| James Senge, Sr. | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | $ | — | | | | — | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| (1) | | Robin Raina has been awarded restricted stock grants by the Compensation Committee: (i) a grant of 13,541 shares of Company common stock on January 7, 2019 of which 5,643 shares were unvested as of December 31, 2020; (ii) a grant of 54,870 shares of Company common stock on April 10, 2019 of which 22,863 shares were unvested as of December 31, 2020; (iii) a grant of 23,247 shares of Company common stock on April 10, 2019 of which 9,686 shares were unvested as of December 31, 2020; (iv) a grant of 107,655 shares of Company common stock on January 2, 2020 of which 107,655 shares were unvested as of December 31, 2020; and (v) a grant of 200,000 shares of Company common stock of which 200,000 shares were unvested as of December 31, 2020. |
| (2) | | Steven Hamil has been awarded restricted stock grants by the Compensation Committee, a grant of 30,432 shares of Company common stock on April 13, 2020 of which 30,432 shares were unvested as of December 31, 2020. |
| | |
| | |
Option Exercises and Stock Vested
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of
Shares
Acquired | | Value
Realized
on | | Number of
Shares
Acquired | | Value
Realized
on |
| Name | | on Exercise | | Exercise | | on Vesting | | Vesting |
| (a) | | (#) | | ($) (1) | | (#) | | ($) (2) |
| Robin Raina | | — | | | | $ | — | | | | 13,593 | | | | $ | 639,708 | | |
| Steven M. Hamil | | — | | | | $ | — | | | | — | | | | $ | — | | |
| Graham Prior | | — | | | | $ | — | | | | — | | | | $ | — | | |
| Leon d'Apice | | — | | | | $ | — | | | | — | | | | $ | — | | |
| James Senge | | — | | | | $ | — | | | | — | | | | $ | — | | |
| | | | | |
| (1) | Reflects the excess of the fair market value of the shares at the time of exercise over the exercise price of the options. |
| (2) | Reflects the fair market value of the shares on the vesting date. |
Pension Benefits and Nonqualified Deferred Compensation
The Company does not sponsor or maintain any tax-qualified defined benefit plans, supplemental executive retirement plans or nonqualified deferred compensation plans.
Potential Payments for Mr. Raina Upon a Change of Control
Below is the description of severance payments that Mr. Raina would have received under the Amended SAR Agreement had certain events occurred in 2020. As mentioned previously, no member of senior management other than Mr. Raina has an employment or severance agreement. Except as described below for Mr. Raina, upon a termination or change of control, each of the executive officers will receive only the unpaid portion of their salary and benefits through the date of termination. No severance payments, acceleration of equity vesting, or other special payments will be due to such executive officers, regardless of the circumstances of the termination.
Pursuant to the Amended SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event, each of the SARs entitles Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with an Acquisition Event over the base price of $7.95. Mr. Raina will only be entitled to receive a payment with respect to the SARs if he is employed by the Company at the time of an Acquisition Event or was terminated by the Company without cause within the 180-day period immediately preceding an Acquisition Event.
Annually, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the Board shall determine whether a “shortfall” (as defined in the April SAR Agreement) existed as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall existed, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). A “shortfall” will exist if the number of Mr. Raina’s shares is less than 20% of the total of (a) the number of SARs, plus (b) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year, minus (c) the number of shares paid, awarded or otherwise received by Mr. Raina from the Company as compensation after April 10, 2018, including any shares received as a result of Mr. Raina exercising stock options granted after April 10, 2018 or the grant or vesting of restricted stock or settlement of RSUs granted to Mr. Raina after April 10, 2018, but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants.
No Shortfall Grant was made for 2020. As a result, in the event that an Acquisition Event had occurred on December 31, 2020, and assuming that the Company received Net Proceeds of $37.97 per share (the closing price of the Company’s common stock on December 31, 2020), Mr. Raina would have received a $178.7 million payment upon the Acquisition Event.
Pay Ratio Disclosure
On August 5, 2015, the SEC adopted new rules implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). These rules require reporting companies to disclose the ratio of the annual compensation of the company's median employee to the annual compensation of its principal executive officer.
The 2020 annual total compensation of our CEO Mr. Raina was $7,960,000, which includes the total value of restricted stock grants issued in 2020. The 2020 annual total compensation of our median compensated employee for all global locations was $4,398, and the ratio of those amounts is 1810 to 1. The 2020 annual total compensation of our median compensated U.S. employee was $84,886 and the ratio of those amounts is 94 to 1. For purposes of identifying the median compensated employee, we took into account salary, bonus, and fair market value of the restricted stock grants on the grant date during the year for all our employees as of December 31, 2020. We annualized this report relates.compensation for employees who did not work the entire year, except for employees designated as seasonal or temporary.
There is a lot of flexibility in how the median employees are identified. Companies are using different approaches that are appropriate for their employee population and compensation programs and are using estimates and assumptions. As a result, the ratio that other companies have calculated may not be comparable to the ratio that we have presented not only because of different businesses or different compensation programs, but because of using different methodologies and assumptions.
Director Compensation
On December 17, 2020, the Board granted the six non-employee directors options to purchase 6,000 shares of common stock of which one-fourth will vest on December 17, 2021, and the remaining options will vest ratably each quarter in the years 2022, 2023 and 2024. In addition each non-employee director received an annual cash retainer of $25,000 during 2020. Mr. Keller received an additional cash retainer of $16,000 for serving as the Compensation Committee Chairman and $8,000 for serving on the Audit Committee. Mr. Benz received an additional cash retainer of $8,000 for serving on the Audit Committee and $8,000 for serving on the Compensation Committee. Mr. Bhalla received an additional cash retainer of $24,000 for serving as the Audit Committee Chairman and $8,000 for serving on the Audit Committee.
2020 Director Compensation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash | | Option Awards ($) | | Total ($) |
| Pavan Bhalla | | $ | 57,000 | | | | $ | 93,501 | | | | $ | 150,501 | | |
| Hans Ueli Keller | | $ | 49,000 | | | | $ | 93,501 | | | | $ | 142,501 | | |
| Hans U. Benz | | $ | 41,000 | | | | $ | 93,501 | | | | $ | 134,501 | | |
| Neil D. Eckert | | $ | 25,000 | | | | $ | 93,501 | | | | $ | 118,501 | | |
| Rolf Herter | | $ | 25,000 | | | | $ | 93,501 | | | | $ | 118,501 | | |
| George Hebard, III | | $ | 25,000 | | | | $ | 93,501 | | | | $ | 118,501 | | |
The following table lists below the aggregate number of outstanding options held by each director as of December 31, 2020:
| | | | | | | | |
| Aggregate Stock Option |
| Awards at Year End |
| Pavan Bhalla | 36,000 | | |
| Hans Ueli Keller | 36,000 | | |
| Hans U. Benz | 36,000 | | |
| Neil D. Eckert | 36,000 | | |
| Rolf Herter | 36,000 | | |
| George Hebard, III | 30,000 | | |
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
IncorporatedSecurities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2020, we maintained the 2010 Ebix Equity Incentive Plan and the 2020 Ebix Equity as approved by reference fromour stockholders. The table below provides information as of December 31, 2020 related to these plans.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Securities
to be Issued Upon
Exercise of
Outstanding Options | | Weighted-Average
Exercise Price of
Outstanding Options | | Number
of Securities
Remaining Available
for Future Issuance
Under Equity |
| Plan Category | | Warrants and Rights | | Warrants and Rights | | Compensation Plans |
| Equity Compensation Plans Approved by Security Holders: | | | | | | |
| -2010 Stock Incentive Plan | | 181,875 | | | | $ | 48.01 | | | 3,684,898 | | |
| -2020 Stock Incentive Plan | | 36,000 | | | | 35.70 | | | 4,964,000 | | |
| Equity Compensation Plans Not Approved by Security Holders | | 5,953,975 | | | (1) | | | N/A |
| Total | | 6,171,850 | | | | $ | 45.97 | | | 8,648,898 | | |
(1) These are the information in our definitive proxy statement forSARs granted to Mr. Raina under the annual meetingAmended SAR Agreement
Security Ownership of the endCertain Beneficial Owners and Management and Related Stockholder Matters
| | | | | | | | | | | |
| Current Beneficial Ownership |
| Name of Beneficial Owner | Number of Shares (1) | Percent of
Class (2) |
Robin Raina(3) | 4,149,204 | | | 13.4% |
Neil D. Eckert(4) | 117,862 | | | * |
Rolf Herter(5) | 101,271 | | | * |
Leon d’Apice(6) | 89,978 | | | * |
Hans Ueli Keller(7) | 44,396 | | | * |
Hans U. Benz(8) | 30,877 | | | * |
Pavan Bhalla(9) | 99,341 | | | * |
James S. Senge, Sr.(10) | 12,221 | | | * |
Graham Prior(11) | 16,784 | | | * |
George Hebard(12) | 70,250 | | | * |
Steven M. Hamil(13) | 30,432 | | | * |
Directors and executive officers as a group (11 persons)(14) | 4,762,616 | | | 14.6% |
| | |
| Other Beneficial Holders | | |
Blackrock Inc. (15) | 3,707,413 | | | 12.0% |
The Vanguard Group (16) | 2,692,150 | | | 8.7% |
Steven D. Lebowitz(17) | 1,551,567 | | | 5.0% |
*Less than 1%.
| | |
| (1) For purposes of this table, a person is deemed to be the beneficial owner of a security if he or she: (a) has or shares voting power or dispositive power with respect to such security, or (b) has the right to acquire such ownership within 60 days. “Voting power” is the power to vote or direct the voting of shares, and “dispositive power” is the power to dispose or direct the disposition of shares, irrespective of any economic interest in such shares. |
| (2) In calculating the percentage ownership or percent of equity vote for a given individual or group, the number of common shares outstanding includes unissued shares subject to options, warrants, rights or conversion privileges exercisable within 60 days held by such individual or group, but are not deemed outstanding by any other person or group. Percentage is based on 30,942,871 shares of our common stock outstanding as of March 29, 2021. |
| (3) Mr. Raina’s ownership includes: (a)3,932,140 shares of restricted stock and (b) 217,064 shares held as trustee for the Robin Raina Foundation, a 501(c) charity organization, which were donated by Robin Raina from vested restricted stock grants previously issued to Mr. Raina by the Company and to which Mr. Raina disclaims any beneficial ownership. The Federal Tax ID Number for the foundation is 51-0497387. The address of Mr. Raina is 1 Ebix Way, Johns Creek, Georgia 30097. |
| (4) Mr. Eckert’s ownership includes options to purchase 19,875 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Eckert is 62 Bishopsgate Lime Street, London EC2N 4AW, UK. |
| (5) Mr. Herter’s ownership includes options to purchase 19,875 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Herter is Carl Spitteler Str. 31 8053 Zürich, Switzerland. |
| (6) The address of Mr. d’Apice is 197 Foreshore Dr. Corlette NSW 2315, Australia. |
| (7) Mr. Keller’s ownership includes options to purchase 19,875 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Keller is Oberkreuzbuche 2 6315 Oberägeri, Switzerland. |
(8) Mr. Benz’s ownership includes options to purchase 19,875 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Benz is Seehofstrasse 13 6314 Zug, Switzerland.
|
| | |
(9) Mr. Bhalla’s ownership includes options to purchase 19,875 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Bhalla is 4415 Bancroft Valley, Johns Creek, Georgia 30022. |
| (10) The address of Mr. Senge is 1629 Seegar Road, Pittsburgh, Pennsylvania 15241. |
| (11) The address of Mr. Prior is 7 Purchas Road Takapuna, Auckland 0622, New Zealand. |
| (12) Mr. Hebard’s ownership includes options to purchase 17,250 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. The address of Mr. Hebard is 56 East 87th St, Apt 5DC, New York, New York 10128. |
(13) Includes 30,432 shares of restricted stock. The address of Mr. Hamil is 1 Ebix Way, Johns Creek, Georgia
30097. |
| (14) Includes options to purchase 116,625 shares of our common stock which are exercisable as of March 29, 2021, or that will become exercisable within 60 days after that date. |
| (14) Includes options to purchase shares of our common stock which are exercisable as of March 29, 2020, or that will become exercisable within 60 days after that date. |
(15) Ownership consists of shares of our common stock beneficially owned by Blackrock, Inc. and its wholly-owned subsidiaries (“Blackrock”) as disclosed on its Schedule 13G/A filed with the SEC on January 27, 2021. The address of Blackrock is 55 East 52nd Street, New York, New York 10055. |
| (16) Ownership consists of shares of our common stock beneficially owned by The Vanguard Group, Inc. and its wholly-owned subsidiaries (collectively, “Vanguard”), as disclosed on Vanguard’s joint schedule 13G/A filed with the SEC on February 10, 2021. The address of Vanguard is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. |
| (17) Ownership consists of shares of our common stock beneficially owned by Steven D. Lebowitz, the Lebowitz Family Stock, LLC, Deborah P. Lebowitz, The Steven & Deborah Lebowitz Foundation, the Lebowitz Family Trust – 1986, Lauren Lebowitz Salem, Robert Lebowitz, Kathryn Lebowitz Silverberg, the A&A Lebowitz Trust, Leonard S. Pearlstein, The Leonard and Susan Pearlstein Community Property Trust, dated September 1, 1983, and Debra Paul, as disclosed on a joint Schedule 13G filed with the SEC on March 29, 2021. The address of Steven D. Lebowitz is 1333 Second Street, Suite 650, Santa Monica, CA 90401. |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
IncorporatedRelated Party Transactions
Under the Audit Committee's charter, and consistent with NASDAQ rules, any material potential or actual conflict of interest or transaction between the Company and any "related person" of the Company must be reviewed and approved by reference from the informationAudit Committee. SEC rules define a "related person" of the Company as any director (or nominee), executive officer, 5%-or-greater shareholder or immediate family member of any of these persons.
Rahul Raina is the Company’s Corporate Vice President Sales Ebix RCS & A.D.A.M. International Business Development and the brother of Robin Raina, our Chairman of the Board, President, and Chief Executive Officer. During each of 2020 and 2019 he was paid a salary of $150,000, respectively, and received zero cash bonus. He received no share-based compensation awards in our definitive proxy statementeither 2020 or 2019.
During the year ended December 31, 2020 and 2019, Ebix did not donate to the Robin Raina Foundation, a non-profit 501(c) charity in support of the cause of building and providing homes for the annual meeting of stockholders, which we will file within 120 daysseverely underprivileged in India.
Director Independence
Our business is managed by the Company’s employees under the direction and oversight of the endBoard. Except for Mr. Raina, none of our current directors are an employee of the fiscal yearCompany. We keep directors informed of our business through discussions with management, materials we provide to which this report relates.them, visits to our offices and facilities and their participation in Board and Board committee meetings.
Under our Corporate Governance Guidelines, we require that a majority of the Board consist of independent, non-management directors, who also meet the criteria for independence required by the Nasdaq Marketplace Rules. Under such
rules, a director is independent if he or she does not have a material relationship with the Company. Our Board annually evaluates each member’s independent status.
The Board has determined that, as of January 1 2020, the following seven of the Company’s directors are independent under the Nasdaq Marketplace Rules: Messrs. Benz, Bhalla, Eckert, Hebard, Herter, and Keller. Mr. Raina, as a management director, participates in the Board’s activities and provides valuable insight and advice.
Non-management directors have access to individual members of management or to other employees of the Company on a confidential basis. Directors also have access to Company records and files and directors may contact other directors without informing Company management of the purpose or even the fact of such contact.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference fromIndependent Registered Public Accounting Firm
As previously disclosed, RSM resigned as the information in our definitive proxy statementCompany's independent auditor on February 15, 2021 without completing the 2020 audit. On March 5, 2021 the Audit Committee appointed KGS to audit the Company's financial statements for the annual meeting of stockholders, which we will file within 120 days of the end of the fiscal year 2020. RSM served as the Company's registered public accountants for the year ended December 31, 2019.
The following tables presents fees billed for professional services rendered for the audit of our annual financial statements for 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Services Rendered by KG & Somani Co. | | 2020 | | 2019 |
| Audit Fees (4) | | $ | 430,000 | | | | $ | — | | |
| Audit Related Fees (2) | | $ | — | | | | $ | — | | |
| Tax Compliance Service Fees | | $ | — | | | | $ | — | | |
| All Other Fees (3) | | $ | — | | | | $ | — | | |
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| Services Rendered by RSM US LLP | | 2020 | | 2019 |
| Audit Fees (1) | | $ | 931,655 | | | | $ | 2,170,400 | | |
| Audit Related Fees (2) | | $ | — | | | | $ | — | | |
| Tax Compliance Service Fees | | $ | — | | | | $ | — | | |
| All Other Fees (3) | | $ | — | | | | $ | — | | |
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(1) Integrated audit of the consolidated financial statements including quarterly reviews according to the engagement letter and administrative fees.
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| (2) Includes fees associated with the review of valuation reports associated with business acquisition and audits of the Company's 401(K) plans, and related out of pocket expenses incurred by the auditors. |
| (3) Includes fees related to the audit of the financial statements and the Company's purchase accounting for certain acquired businesses. |
(4) Integrated audit of the consolidated financial statements for the year ended December 31, 2020. Amount represents total fees per the engagement letter. Company also to pay KGS out of pocket expenses (undetermined amount at time of filing).
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The Audit Committee considered and pre-approved all of the above-referenced fees and services. Pursuant to which this report relates.a policy adopted by our Board of Directors, the Audit Committee requires advance approval of all audit services and permitted non-
audit services to be provided by the independent registered public accounting firm as required by the Securities Exchange Act of 1934.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following consolidated financial statements and supplementary data of the Company and its subsidiaries, required by Part II, Item 8 are filed herewith:
•Report of Independent Registered Public Accounting Firm.
•Consolidated Balance Sheets as of December 31, 20182020 and December 31, 20172019 .
•Consolidated Statements of Income for the years ended December 31, 2018, 2020, December 31, 2017,2019, and December 31, 2016.
2018.•Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2020, December 31, 2017,2019, and December 31, 2016.
2018.•Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2020, December 31, 2017,2019, and December 31, 2016.
2018.•Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2020, December 31, 2017,2019, and December 31, 2016.
2018.•Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule is filed herewith:
•Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2018, 2020, December 31, 2017,2019, and December 31, 2016.
2018.•Schedules other than those listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.
3. Exhibits—The exhibits filed herewith or incorporated by reference are listed on the Exhibit Index attached hereto.
EXHIBIT INDEX
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| Credit Agreement, dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 11, 2014). |
| Director Nomination Agreement, dated as of November 26, 2014, by and among Barington Companies Equity Partners, L.P., a Delaware limited partnership, Barington Companies Investors, LLC, as investment advisor to certain investment accounts, Ancora Advisors, LLC, James A. Mitarotonda, Joseph R. Wright, Jr. and Ebix, Inc. (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed December 1, 2014). |
| Amendment dated as of March 23, 2015 to the Director Nomination Agreement, dated as of November 26, 2014, by and among Barington Companies Equity Partners, L.P., a Delaware limited partnership, Barington Companies Investors, LLC, as investment advisor to certain investment accounts, Ancora Advisors, LLC, James A. Mitarotonda, Joseph R. Wright, Jr., George W. Hebard III and Ebix, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 31, 2015). |
| Amendment No.1 and Waiver dated February 3, 2015 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 5, 2015). |
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| Amendment No.2 dated June 17, 2016 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 22, 2016). |
| Amendment No.3 dated October 19, 2017 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.12 to the Company's Current Report on Form 10-K filed March 1, 2018). |
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| Amendment No.4 dated November 3, 2017 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.13 to the Company's Current Report on Form 10-K filed March 1, 2018). |
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| Amendment No.5 dated November 3, 2017 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.14 to the Company's Current Report on Form 10-K filed March 1, 2018). |
| Amendment No.6 dated February 21, 2018 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed March 1, 2018).
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| Amendment No.7 dated April 9, 2018 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 10-Q filed August 9, 2018). |
| Amendment No.8 dated November 27, 2018 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 3.4 to the Company's Current Report on Form 10-K dated March 1, 2019). |
| Amendment No.9 dated September 27, 2019 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 10-Q dated November 12, 2019).
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| | Waiver, dated March 30, 2020, between the Company and Regions, to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed May 11, 2020). |
| | Amendment No.10 dated May 7, 2020 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed August 7, 2020). |
| | Amendment No.11 and Waiver dated March 31, 2021 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto. |
| | Amendment No.12 and Waiver dated April 9, 2021 to the Credit Agreement dated as of August 5, 2014, entered into by and among Ebix, Inc., as Borrower, certain subsidiaries of the Company from time to time party thereto, as Guarantors, Regions Bank, as Administrative Agent and Collateral Agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 15, 2021). |
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| 101* | XBRL (Extensible Business Reporting Language) - The following materials from Ebix, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2018,2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss) (iv) the Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss), (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements which were tagged as blocks of text. |
* Filed herewith
** Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
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| EBIX, INC.
(Registrant)
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| By: | /s/ ROBIN RAINA |
| | Robin Raina |
| | Chairman of the Board, President and Chief Executive Officer |
| | Principal Executive Officer | |
Date: March 1, 2019April 27, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Signature | | Title | | Date |
/s/ ROBIN RAINA | | Chairman of the Board, President, and
Chief Executive Officer
(principal executive officer)
| | March 1, 2019April 27, 2021 |
| (Robin Raina) | | | |
/s/ SEAN T. DONAGHYSTEVEN M. HAMIL | | Chief Financial Officer
(principal financial and accounting officer)
| | March 1, 2019April 27, 2021 |
(Sean T. Donaghy)Steven M. Hamil) | | | |
/s/ HANS U. BENZ | | Director | | March 1, 2019April 27, 2021 |
| (Hans U. Benz) | | | |
/s/ PAVAN BHALLA | | Director | | March 1, 2019April 27, 2021 |
| (Pavan Bhalla) | | | |
/s/ NEIL D. ECKERT | | Director | | March 1, 2019April 27, 2021 |
| (Neil D. Eckert) | | | |
| /s/ ROLF HERTER | | Director | | March 1, 2019April 27, 2021 |
| (Rolf Herter) | | | |
/s/ HANS UELI KELLER | | Director | | March 1, 2019April 27, 2021 |
| (Hans Ueli Keller) | | | |
/s/ GEORGE W. HEBARD III | | Director | | March 1, 2019April 27, 2021 |
| (George W. Hebard III) | | | |
/s/ JOSEPH R. WRIGHT, JR.
| | Director | | March 1, 2019 |
(Joseph R. Wright, Jr.) | | | |
Schedule II
Ebix, Inc.
Schedule II—Valuation and Qualifying Accounts
Years ended December 31, 2020, December 31, 2019 and December 31, 2018, December 31, 2017 and December 31, 2016
Allowance for doubtful accounts receivable (in thousands):
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| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Beginning balance | | $ | 21,696 | | | $ | 6,969 | | | $ | 4,143 | |
| Provision for doubtful accounts | | 1,749 | | | 12,325 | | | 3,571 | |
| Write-off of accounts receivable against allowance | | (754) | | | (2,290) | | | (745) | |
| Other (opening balance adjustments on acquisitions) | | 0 | | | 4,692 | | | 0 | |
| Ending balance | | $ | 22,691 | | | $ | 21,696 | | | $ | 6,969 | |
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| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| Beginning balance | | $ | 4,143 |
| | $ | 2,833 |
| | $ | 3,388 |
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| Provision for doubtful accounts | | 3,571 |
| | 1,713 |
| | 1,515 |
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| Write-off of accounts receivable against allowance/Other | | (745 | ) | | (403 | ) | | (2,070 | ) |
| Ending balance | | $ | 6,969 |
| | $ | 4,143 |
| | $ | 2,833 |
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Valuation allowance for deferred tax assets (in thousands):
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| | Year ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Beginning balance | | $ | (3,288) | | | $ | (2,031) | | | $ | (35) | |
| Decrease (increase) | | 1,128 | | | (1,257) | | | (1,996) | |
| Ending balance | | $ | (2,160) | | | $ | (3,288) | | | $ | (2,031) | |
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| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| Beginning balance | | $ | (35 | ) | | $ | (3,747 | ) | | $ | (5,979 | ) |
| Decrease (increase) | | (1,996 | ) | | 3,712 |
| | 2,232 |
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| Ending balance | | $ | (2,031 | ) | | $ | (35 | ) | | $ | (3,747 | ) |
