UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2014
OR
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)
Delaware (State or other jurisdiction of incorporation) | 77-0021975 (I.R.S. Employer Identification Number) | |
5 Concourse Parkway, Suite 3200 | ||
Atlanta, Georgia | 30328 | |
(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
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $0.10 per share
Listed on the NASDAQ Global Capital Market
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) | ||||||
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
As of March 13, 2015, the number of shares of Common Stock outstanding was 35,262,631. As of June 30, 2014 (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 $487,396,783 (for this purpose, the Company has assumed that directors, executive officers and holders of more than 10% of the Company’s common stock are affiliates).
EBIX, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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Reference | |
Exhibit 21.1 | |
Exhibit 23.1 | |
Exhibit 31.1 | |
Exhibit 31.2 | |
Exhibit 32.1 | |
Exhibit 32.2 | |
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,” “seeks,” “plan,” “project,” “continue,” “predict,” “will,” “should,” and other words or expressions of similar meaning are intended by the Company to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on our current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
Our actual results may differ materially from those expressed or implied in these forward-looking statements. Factors that may cause such a difference, include, but are not limited to those discussed in Part I, Item IA, “Risk Factors”, below as well as other reports subsequently filed with the SEC, as well as: the willingness of independent insurance agencies to outsource their computer and other processing needs to third parties; pricing and other competitive pressures and the Company's ability to gain or maintain share of sales as a result of actions by competitors and others; changes in estimates in critical accounting judgments; changes in or failure to comply with laws and regulations, including accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax interpretations) in domestic or foreign jurisdictions; exchange rate fluctuations and other risks associated with investments and operations in foreign countries (particularly in 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.
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, 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 Internet 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.
Ebix is a leading international supplier of software and e-commerce solutions to the insurance industry. Ebix provides application software products for the insurance industry including carrier systems, agency systems and exchanges, as well as custom software development. During the year ended December 31, 2014, approximately 79% of Ebix revenues came from on-demand insurance Exchanges.
Our goal is to be the powerhouse of backend insurance transactions in the world. The Company’s technology vision is to focus on convergence of all insurance channels, processes and entities in a manner such that data can seamlessly flow once a data entry has initially been made. Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges and needs. 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.
Acquisition & Integration Strategy
The Company looks at its acquisition strategy as an efficient way to further expand its reach in the insurance sector and also as an effective utilization of the operating cash generated from its business. However, the Company does not believe that this acquisition strategy is entirely critical to its future profitability or liquidity. Management looks at acquisitions as an integral part of the Company's growth strategy. We look at making complimentary accretive acquisitions as and when the Company has sufficient liquidity, stable cash flows, and access to financing at attractive interest rates to do so.
The Company seeks to acquire businesses that are complementary to Ebix's existing products and services. In this regard the Company's goal is to provide comprehensive, on-demand based solutions that simplify insurance industry 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 the acquired company has products and/or services that are competitive to our existing products and services; and two, wherein the acquired company's products and services are a complement to and an extension of our existing products and services.
In cases where an acquired company's products and services are competitive to our existing products and services, 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 have multiple products addressing the same area. 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. The Company's goal remains to provide a simplistic solution for our customer base, while ensuring that any product or service integrates seamlessly with other existing or outside functionalities. Irrespective of whether the acquired company's product/service is retired or the existing 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 both existing or acquired product or service offerings in order to make future product sales and maintenance more efficient.
Once an acquisition is consummated, the infrastructure, personnel resources, sales, product management, development, and other common functions are integrated with 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 groups post-closing so as to ensure that the integration is efficient across all fronts. 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 rapidly leverage cross-selling opportunities and to realize cost efficiencies. While doing so, 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 the specific earnings impact from the business combinations we have executed after they have been acquired. Consequently the concept of “acquisitive growth” versus “organic revenue growth” becomes rather obscure given the dynamics and underlying operating
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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, consistent end-to-end vision for our business, and differentiates the Company from our competitors. Also our plan is to make niche acquisitions in the insurance and finance sector, integrate them seamlessly into the Company and make them efficient by implementing Ebix's standardized processes, with the goal of increasing operating cash flows for the Company. Ebix’s success with its acquisition strategy in the past has made it a central part of the future growth of 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. In each case where such contingent consideration terms are present, Ebix allows the acquired company to count new sales of our existing products and services towards meeting the revenue target. This structure allows us to still carry on with our integration strategy, while enabling the acquired company to be eligible for a revenue 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.
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 that enables Ebix to operate at a high level of efficiency and facilitate a consistent end-to-end vision for the industry.
Recent Strategic Business Acquisitions
On January 27, 2014 Ebix acquired CurePet, Inc. ("CurePet"). CurePet was a developmental-stage enterprise that developed an insurance exchange that connects pet owners, referring veterinarians, animal hospitals, academic institutes, and suppliers of medical and general pet supplies, while providing a wide variety of services related to pet insurance to each constituent including practice management, electronic medical records, and billing. Previously Ebix had a minority investment in CurePet. Ebix acquired the entire business of CurePet in an asset purchase agreement with total purchase consideration being $6.35 million which includes a possible future one time contingent earnout payment of up to $5.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. Additional required cash consideration of $1.35 million was offset against open accounts receivable balances due to the Company from CurePet, and no actual cash outlay was made by the Company.
On May 21, 2014 Ebix acquired HealthCare Magic Private Limited ("HealthCare Magic"), a medical advisory service with an online network of approximately 15,000 General Physicians and Surgeons spread across 50 specialties including alternative medicine. The Company acquired HealthCare Magic for aggregate cash consideration in the amount of $6.0 million plus a possible future one time contingent earnout payment of up to $12.36 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. The Company funded the HealthCare Magic acquisition from available cash reserves on hand.
Effective November 3, 2014 Ebix acquired Vertex, Incorporated ("Vertex") in a share purchase agreement for total cash purchase consideration in the amount of $27.25 million and a possible contingent earnout of $2 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. Vertex is a specialized software and services firm focused primarily on the life and annuity insurance marketplace since 1991. Ebix's goal with this business acquisition is to establish a non-aligned worldwide strategic management consulting practice targeted at the insurance, healthcare and financial industries all across the world. Ebix acquired all of the outstanding capital stock of Vertex and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix.
Effective December 1, 2014 Ebix acquired Oakstone Publishing, LLC ("Oakstone") in a membership interest purchase agreement for total net cash consideration in the net amount of $23.7 million ($31.37 million less a closing net working capital adjustment of $7.65 million). Oakstone is leading provider of continuing education, certification materials for physicians, dentists and allied healthcare professionals, as well as wellness resources for various organizations. Oakstone was immediately integrated into the Company's A.D.A.M. Health Information Exchange Division. Ebix acquired all of the membership interests of Oakstone and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix.
On December 1, 2014 Ebix acquired the DCM Group Inc. (d.b.a. i3 Software) ("i3") in an asset purchase agreement for total cash consideration in the amount of $2 million and a possible contingent earnout of up to $4 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. i3 is a provider of software services and solutions to the insurance industry. Ebix acquired all of the assets of i3 and funded the purchase using internal cash reserves.
On April 7, 2013 Ebix acquired U.K. based Qatarlyst Limited ("Qatarlyst"), an electronic trading exchange for the global insurance and reinsurance industry. Ebix acquired all of the outstanding stock and the business operations of Qatarlyst for a cash
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purchase price of $5.0 million and funded the transaction using existing available internal cash resources. The former shareholders of Qatarlyst retain the right to an earn-out payment. The earn-out payment will be based on a multiple of Qatarlyst's average annual revenue during the years 2014, 2015 and 2016 that exceed a specific threshold as defined in the underlying business acquisition agreement.
On June 1, 2012 Ebix acquired PlanetSoft Holdings, Inc. ("PlanetSoft"). Under the terms of the merger agreement the former PlanetSoft shareholders received $35.0 million cash and 296,560 shares of Ebix common stock valued at $16.86 per share or $5.0 million in the aggregate. The cash portion of the cash purchase consideration was funded using internal cash reserves and available capacity from the Company's commercial bank revolving line of credit. PlanetSoft is in the business of powering data exchanges that streamline core insurance operations in the areas of client acquisition, underwriting, and distribution management.
The Company has its worldwide headquarters in Atlanta, Georgia with its international operations being managed from its Singapore offices, and it also has domestic operations in Pasadena and Hemet, California; Miami, Florida; Pittsburgh, Pennsylvania; Salt Lake City, Utah; Grove City, Ohio; Bohemia, New York; Norwalk and New Britain, Connecticut, Birmingham, Alabama, and Iselin, New Jersey; as well as an additional operations office in Atlanta, Georgia. The Company also has operating facilities and offices in Australia, Brazil, New Zealand, Singapore, the United Kingdom, Canada and India. In these operating offices, Ebix employs insurance and technology professionals who provide products, services, support and consultancy to thousands of customers across six continents.
The Company’s revenues are derived from four (4) product or service groups. Presented in tabular format below is the breakout of our revenue streams for each of those product or service groups for the years ended December 31, 2014, 2013 and 2012:
For the Year Ended December 31, | ||||||||||||
(dollar amounts in thousands) | 2014 | 2013 | 2012 | |||||||||
Exchanges | $ | 169,437 | $ | 163,925 | $ | 159,678 | ||||||
Broker Systems | 17,948 | 18,378 | 18,612 | |||||||||
Risk Compliance Solutions (“RCS”), fka Business Process Outsourcing (“BPO”) | 21,813 | 15,678 | 16,140 | |||||||||
Carrier Systems | 5,123 | 6,729 | 4,940 | |||||||||
Totals | $ | 214,321 | $ | 204,710 | $ | 199,370 | ||||||
Information on the geographic dispersion of the Company’s revenues and long-lived assets is furnished in Note 16 to the consolidated financial statements, included elsewhere in this Form 10-K.
Industry Overview
The insurance industry is undergoing significant consolidation and therefore benefits from, economies of scale and scope in providing insurance in a competitive environment. The insurance markets have also seen a steady increase in initiatives to reduce paper-based processes and facilitate improvements in efficiency both at the back-end side and also at the consumer-end side. Such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed. Management believes the insurance industry will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across the world insurance markets.
Products and Services
The Company’s product and service strategy focus on: (a) expansion of connectivity between consumers, agents, carriers, and third party providers through its Exchange family of products in the life, health, workers compensation, risk management, annuity and property and casualty ("P&C") sectors worldwide namely the EbixExchange family of products; (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; and (d) risk compliance solution services, which include insurance certificate origination, certificate tracking, claims adjudication call center, and back office support.
Ebix also provides software development, customization, and consulting services to a variety of entities in the insurance industry, including carriers, brokers, exchanges and standard making bodies.
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Ebix’s revenue is generated through four main channels in which the Company conducts its operations: Exchanges, Carrier Systems, Broker Systems, and Business Process Outsourcing. The revenue streams for each of these channels are further described below.
Exchanges: Ebix operates data exchanges in the areas of life insurance, annuities, employee health benefits, risk management, workers compensation and P&C insurance. Each of these exchanges connects multiple entities within the insurance markets enabling the participant 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, while the P&C exchanges operate primarily in Australia, New Zealand, the United Kingdom, and Brazil. Exchange revenue is derived from two main sources, namely subscription fees associated with accessing the exchange and transaction fees charged for each data transaction processed on an Ebix Exchange, with a transaction being defined as the exchange of data between any two entities using an exchange. These exchanges have been designed to completely adhere to industry and regulatory data standards. Accordingly, insurance companies work with Ebix or third party vendors to interface an exchange with their back-end systems. Since each exchange is built based on industry standards, the system/exchange interfaces can be built by Ebix or any other third party vendor, at the client’s option. If Ebix builds the interfaces, then additional revenue is derived in the form of professional services charged on time and materials basis.
Broker Systems: Ebix’s focus in the area of broker systems is on designing and deploying back-end systems for P&C insurance brokers across the world. Ebix has three back-end systems in this area: eGlobal, which targets multinational P&C insurance brokers; WinBeat, which targets P&C brokers in the Australian and New Zealand markets; and, EbixASP, which is a system for the P&C insurance brokers in the United States. Revenue from eGlobal is 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. All these three products are continually being redesigned, coded and rebuilt to adhere to the most current technologies prevalent today.
Risk Compliance Solutions ("RCS"): Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, time and material consulting engagements to clients across the world, in addition to the creation and tracking of certificates of insurance issued in the United States and Australian markets. Ebix focuses on helping its clients outsource any specific service or manpower to the Company on an onsite or offshore basis. With respect to its certificate related Business outsourcing service, Ebix provides a software-based service for 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 for our clients using the Ebix service. Ebix also provides a service to track certificates of insurance for corporate clients in the United States and Australia that generates transactional-based revenue based for each certificate tracked by the Company for its clients.
Carrier Systems: Ebix’s focus in the area of carrier systems is on designing and deploying on-demand and back-end systems for P&C insurance companies. Revenue from these services is derived from two main sources: subscription revenues or license revenues from clients and time and material fees charged to customize these products to an insurance company’s specific functional requirements.
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 $26.9 million, $26.8 million, and $24.8 million during the years ended December 31, 2014, 2013 and 2012, respectively, on product development initiatives. The Company’s product development efforts are focused on the continued enhancement and redesign of the 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 software markets that provides services in all four of our above listed revenue channels. Conversely, though, this also means that in each of these areas
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Ebix has different competitors. In fact, in most of these areas Ebix has a different competitor in each country in which we operate. In our Exchange operations Ebix has a different competitor on each line of exchange in each country.
The Company has centralized worldwide product management, intellectual property rights development and software and system development operations in Singapore and India which provides it a competitive edge. With its strong focus on quality, our Indian operations deliver cutting 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. Ebix has continued to develop our 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 at 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 examination of our competition in each of these four main channels.
Exchanges: Ebix operates a number of 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 through processing end-to-end Life Exchange service that has three life insurance exchanges in the United States — namely Winflex, TPP, and LifeSpeed. Winflex is an exchange for pre-sale life insurance illustrations between brokers and carriers, TPP is a underwriting and highly customized electronic application platform for Life insurance, while LifeSpeed is an order entry platform for life insurance. Both of these exchanges are presently deployed in the United States and the Company is also continuing to deploy them in other parts of the world. Ebix has one main competitor in the life exchange area: iPipeline. Ebix differentiates itself from its competitor by virtue of having an end-to-end solution in the market as also with all of its exchanges being interfaced with other broker systems and customer relationship management ("CRM") services such as EbixCRM. 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 thorough processing end to end Annuity Exchange service that has three life insurance exchanges in the United States - namely Annuitynet, AMP and AN4. These exchanges are platforms for annuity transactions between brokers, carriers, broker general agents (“BGA’s”), and other entities involved in annuity transactions. These exchanges are presently deployed only in the United States with the Company continuing to make efforts to deploy it in other parts of the world, such as Latin America. Ebix recently deployed its most recent Annuity exchange, AN4, that was created from the ground up, to be highly scalable, customizable and 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. We believe Ebix exchanges also benefit from transacting the largest amounts of premiums in annuity business on any single exchange in the United States.
Ebix CRM - 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 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 such as Salesforce.com, iPipeline and Redtail.
Employee Benefits - Ebix currently provides employee benefit and health insurance exchange services using four platforms - namely Facts, LumininX , HealthConnect and EbixEnterprise. EbixEnterprise, built from the ground up, 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 the 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 Krames Staywell, Red Nucleus and Anatomy One, who are primarily focused on the US markets. A.D.A.M content is available in Spanish, Portuguese, German and other languages in Asia, Europe, the Middle East and South America.
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P&C Exchanges — Ebix operates P&C exchanges in Australia, New Zealand, the United Kingdom, and the United States. 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 is working to continue 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, however, competition may eventually evolve in these markets. 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.
Broker Systems: Ebix has a number of broker system offerings for P&C brokers worldwide - eGlobal, WinBeat and EbixASP. The competition for these broker systems varies within each of the regions in which Ebix provides such products and services.
eGlobal is sold throughout the world. The product is multilingual and multicurrency and is available in a number of languages such as English, Chinese, Japanese, French, Portuguese, and Spanish. eGlobal is targeted to the medium and large P&C brokers around the world. eGlobal competition tends to be different in each country with no single competitor having a global offering. eGlobal competes with home grown systems and regional players in each country. Its uniqueness comes from of the fact that the product is both multilingual and multicurrency yet still has a common code base around the world with features that are easily activated and deactivated.
WinBeat is a back-end broker system that is currently sold in Australia and New Zealand. It is targeted at small P&C brokers in these countries. The product at present is available only in English and can be deployed in a few hours with minimal training. WinBeat’s competition in Australia and New Zealand comes from local vendors such as Lumley and SSP, an international vendor. Ebix is also deploying WinBeat in a number of emerging insurance markets such as India and China.
Between eGlobal and WinBeat, Ebix's broker systems customer base in Australia spans 678 of the 859 P&C brokers in Australia giving it in excess of 79% of the broker system’s customer base in this country. Ebix’s broker systems customer base in New Zealand spans 1,500 of the approximate 2,000 P&C brokers in New Zealand giving it 75% of the customer base in this country.
EbixASP is Ebix’s P&C broker systems offering for the US markets. The service is designed around the ACORD insurance standards used in the United States. EbixASP has three main competitors in the US — specifically Vertafore, Applied Systems and XDimensional.
RCS Services: Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, time and material consulting to clients across the world, in addition to the creation and tracking of certificates of insurance issued in the United States and Australian markets. Ebix's insurance certificate outsourcing business services 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 are mainly in the areas of insurance certificate creation and insurance certificate tracking. Ebix’s RCS service offerings currently cater to a large number of Fortune 500 companies in the United States. Further, internationally Ebix offers its RCS services in Canada, Australia and New Zealand, and will be exploring opportunities in other parts of the world.
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 Systems: Ebix has a number of carrier system offerings for P&C carriers - Ebix Advantage and Ebix AdvantageWeb. 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 multicurrency and multilingual and is deployed in Brazil, the United Kingdom and the United States. 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 generally 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 adhering to open architecture industry standards and attempt to protect it 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, confidentiality or other
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agreements or 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, 2014, the Company had 2,343 employees, distributed as follows: 120 in sales and marketing, 1,473 in product development, 608 in back-end operations, and 142 in administration, general management and finance. None of the Company’s employees is presently covered by a collective bargaining agreement. Management considers the Company's relations with its employees to be good.
Executive Officers of the Registrant
Following are the persons serving as our executive officers as of March 13, 2015, together with their ages, positions and brief summaries of their business experience:
Name | Age | Position | Officer Since | ||||
Robin Raina | 48 | Chairman, President, and Chief Executive Officer | 1998 | ||||
Robert F. Kerris | 61 | EVP, Chief Financial Officer & Corporate Secretary | 2007 | ||||
Graham Prior | 58 | Corporate Executive Vice President International Business & Intellectual Property | 2012 | ||||
Leon d'Apice | 58 | Corporate Executive Vice President & Managing Director - Ebix Australia Group | 2012 | ||||
James Senge Sr. | 54 | 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, 48, 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.
ROBERT F. KERRIS, 61, serves as the Company’s Executive Vice President & Chief Financial Officer, and Corporate Secretary. Mr. Kerris joined the Company as Chief Financial Officer on October 22, 2007. Prior to joining the Company, Mr. Kerris was Chief Financial Officer at Aelera Corporation. He held this position from May 2006 to October 2007. Previously he was a Financial Vice President at Equifax, Inc. from November 2003 to April 2006, Corporate Controller at Interland, Inc. from September 2002 to October 2003, and held senior financial management positions at AT&T, BellSouth, and Northern Telecom. Mr. Kerris is a licensed certified public accountant and holds an accounting and economics degree from North Carolina State University.
GRAHAM PRIOR, 58, 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, 58, 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
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which Mr. d’Apice was also a part owner in. 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’s business units.
JAMES SENGE, SR., 54, serves as the Company’s Senior Vice President EbixHealth. Mr. Senge, has been employed with Ebix since 2008. Before the acquisition of Acclamation Systems, Inc. ("Acclamation") by Ebix in 2008 Mr. Senge had been employed by Acclamation since 1979. During his over 32 years with the 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 5 Concourse Parkway, Suite 3200, Atlanta, Georgia 30328, 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, and our quarterly reports on Form 10-Q. 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.
Any materials we file with the Securities and Exchange Commission (“SEC”) may be read at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Certain materials we file with the SEC may also be read and copied at or through our website or at 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.”
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.
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. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile. 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 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 or closed.
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
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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. At December 31, 2014, we had $402.2 million of goodwill and $30.9 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 as well 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 same in a timely manner.
We may have exposure to greater than anticipated tax liabilities
Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory tax rates and higher than anticipated 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 accounting principles concerning the accounting for income taxes in the domestic and foreign jurisdictions in which we conduct operations. 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.
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, 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 available 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. 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 issuing debt, we may be subject to significant market risks related to interest rates, and operating risks regarding limitations on our activities.
Our future growth may depend in part on acquiring other businesses in our industry.
We expect to continue to grow, 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 believes will strengthen Ebix. However, the continued success of our acquisition program will depend on our ability to find and buy other attractive businesses at a reasonable price, access to the requisite financing resources if needed, and to integrate acquired businesses into our existing operations and there is no assurance that we will continue to do so.
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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 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; one or more of which risks, if realized, could have an adverse impact on our operations. Among the 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 internal and disclosure 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:
• | rapidly changing technology; |
• | evolving industry standards; |
• | frequent new product and service introductions; |
• | shifting distribution 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 are likely to become more competitive, and our competitors may be able to respond more quickly to new or emerging technology and changes in customer 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 rate of increase or decrease in prices for our services different than past experience. Our Internet 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. |
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We regard our intellectual property in general and our software in particular, as critical to our success.
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 even more challenging. 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 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. Our risks would include damage of our reputation, additional costs to address and remediate any problems encountered as well as litigation and potential financial penalties.
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 has 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 able to attract and retain key skilled personnel, our business could be harmed.
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-based services to locations outside of the United States. We currently conduct operations in Australia, Canada, New Zealand, Brazil, Singapore, and England, and have product development activities 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 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. |
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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 if we expand our operations overseas. We will monitor changes in our exposure to exchange rate risk that result from changes in our business operations.
Risks Relating 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.
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 I, Item 3 - Legal Proceedings” and “Part II - Item 8. Financial Statements and Supplementary Data - Note 6 - Commitments and Contingencies” of this Report. Ebix 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.
On December 3, 2012 and April 16, 2013, the Company received subpoenas from the Securities and Exchange Commission (the “SEC”) in connection with the conduct by the SEC of a non-public fact-finding inquiry and investigation and seeking documents relating to the issues raised the matter styled In re: Ebix, Inc. Securities Litigation, and in an online news article based on unnamed sources, published on November 3, 2012 speculating about the existence of such an investigation. Additionally, on June 6, 2013, the Company was notified that the U.S. Attorney for the Northern District of Georgia had opened an investigation into allegations of intentional misconduct. The Company has cooperated with the government in connection with these investigations and expects to continue to do so. The amount of time needed to resolve these investigations is uncertain, and the Company cannot predict the outcome of these investigations or whether the Company will face additional government investigations, inquiries or other actions. Subject to certain limitations, the Company is obligated to indemnify current and former directors, officers and employees in connection with ongoing governmental investigations and any future government inquiries, investigations or actions. These 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 these investigations could affect the trading price of our common stock, regardless of whether these rumors are accurate.
If these governmental authorities were to commence legal action, 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 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 state and nation to nation. 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
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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 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 States 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. 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.
Risks Related to Our Conduct of Business on the Internet
Any disruption of our Internet connections could affect the success of our Internet-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 Internet usage could cause a decrease in the quality of Internet connection service. Websites have experienced service interruptions as a result of outages and other delays occurring throughout the worldwide Internet 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 website could grow more slowly than anticipated or decline and we may lose revenues and customers. If the Internet data center operations that host any of our websites were to experience a system failure, the performance of our website 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 Internet 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 transactions or the transmission of confidential information over the Internet or security problems we experience may prevent us from expanding our business or subject us to legal exposure.
If we do not maintain sufficient security features in 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 be potentially vulnerable to physical or electronic break-ins, computer viruses or similar problems. If a person circumvents our security measures, that person could misappropriate proprietary information or disrupt or damage our operations. Security breaches that result in access to confidential information could damage our reputation and subject us to a risk of loss or liability. We may be required to make significant expenditures to protect against or remediate security breaches. Additionally, if we are unable to adequately address our customers' concerns about security, we may have difficulty selling our products and services.
Uncertainty in the marketplace regarding the use of Internet 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 Internet users could create uncertainty in the marketplace. This 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.
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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 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 extreme 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, software, business process outsourcing and Internet 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.
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.
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 us 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. |
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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.
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 Atlanta, Georgia where we lease 39,831 square feet of commercial office space. In addition the Company and its subsidiaries lease office space of 6,500 square feet in Salt Lake City, Utah, 10,765 square feet in Hemet, California, 11,500 square feet in Pittsburgh, Pennsylvania, 5,300 square feet in Portland, Michigan, 2,826 square feet in Miami, Florida, 16,472 square feet in Pasadena, California, 4,319 square feet in Grove City, Ohio, 1,980 square feet in Bohemia, New York, 4,864 square feet in Norwalk, Connecticut, 5,466 square feet in New Britain, Connecticut, and 4,050 square feet in Santa Barbara, California, 23,511 square feet in Birmingham, Alabama, 1,696 square feet in Iselin, New Jersey. Additionally, the Company leases office space in New Zealand, Australia, Singapore, Brazil, Canada, and London for support and sales offices. The Company owns three finished buildings in India with approximately 85,000 square feet and is in the midst of completing two other owned properties which will add another approximately 65,000 square feet. It, also, leases an additional six facilities. 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 favorable rates.
Ebix currently owns a 101,991 sq. ft. office building on 17.6 acres of land located in Johns Creek, Georgia. This facility is currently in the interior build out process and the company expects the construction to be completed and the relocation of its existing Atlanta facilities to take place by mid-2015. This facility will become the new worldwide headquarters for Ebix. The Company hopes to achieve cost and operational efficiencies while moving both of its Atlanta leased offices into this one location, along with integrating other resource needs within this new world-class campus. The Company intends to do so, while creating a world-class work environment and facility that can serve as a showcase for presenting all its products and services under one roof.
Item 3. LEGAL PROCEEDINGS
In connection with the shareholder class action styled In re: Ebix, Inc. Securities Litigation, Civil Action No. 1:11-CV-02400-RWS (N.D. Ga.), which as previously disclosed was settled in 2014 and is now concluded, there have been three derivative complaints brought by certain shareholders on behalf of the Company, which name certain of the Company's officers and its entire board of directors as Defendants. The first such derivative action was brought by an alleged shareholder named Paul Nauman styled Nauman v. Raina, et al., Civil Action File No. 2011-cv-205276 (Superior Court of Fulton County, Georgia), filed September 1, 2011. The second such derivative action was brought by an alleged shareholder named Gilbert Spagnola styled Spagnola v. Bhalla, et al., Civil Action No. 1:13-CV-00062-RWS (N.D. Ga.), filed January 7, 2013. The third such derivative action was brought by an alleged shareholder named Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund styled Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund v. Raina, et al., Civil Action No. 1:13-CV-00246-RWS (N.D. Ga.), filed January 23, 2013. These derivative actions are based on substantially the same factual allegations in the now settled shareholder class action suit, but also variously claim breach of fiduciary duties, abuse of control, gross mismanagement, the wasting of corporate assets, negligence, unjust enrichment by the Company's directors, and violation of Section 14 of the Exchange Act. The Nauman case was stayed pending the completion of expert discovery in the shareholder class action suit. On April 12, 2013, the Federal Court entered an Order consolidating the Spagnola and Hotel derivative cases under the style In re Ebix, Inc. Derivative Litigation, File No. 1:13-CV-00062-RWS (N.D. Ga.), appointing Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund as Lead Derivative Plaintiff, and appointing the law firm Cohen Milstein Sellers & Toll PLLC as Lead Derivative Counsel and The Law Offices of David A. Bain LLC as Liaison Counsel. Lead Derivative Plaintiff filed its Consolidated Shareholder Derivative and Class Action Complaint on May 20, 2013. Thereafter, the Federal Court entered a Consent Order on June 4, 2013, setting a schedule for Lead Derivative Plaintiff to amend its Complaint in light of the anticipated preliminary proxy related to a proposed transaction announced on May 1, 2013 with affiliates of Goldman Sachs & Co. On September 23, 2014, following several months of extensive arms-length negotiations, the parties to both the Federal Court and Fulton Superior Court derivative actions entered into a Stipulation of Settlement, which, together with the exhibits annexed thereto, sets forth the terms and conditions for a proposed settlement of both the derivative actions and for dismissal of both the derivative actions with prejudice upon the terms and conditions set forth therein. On September 30, 2014, the Federal Court entered an Order preliminarily approving the proposed settlement. On December 2, 2014, following a final
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fairness hearing, the Federal Court entered a Final Order and Judgment Approving Settlement and Dismissing Actions with Prejudice. On December 12, 2014, the Fulton Superior Court entered a Stipulation and Order of Dismissal With Prejudice. As part of the settlement, the Company has agreed to adopt, implement, and/or maintain certain corporate governance measures and to pay attorneys’ fees and expenses to Plaintiffs’ Counsel in the amount of $690,000. The appeal period has passed and these matters are now concluded.
On December 3, 2012, the Company received a subpoena and letter from the Securities and Exchange Commission (“SEC”) dated November 30, 2012, stating that the SEC is conducting a formal, non-public investigation styled In the Matter of Ebix, Inc. (A-3318) and seeking documents primarily related to the issues raised in the In re: Ebix, Inc. Securities Litigation. On April 16, 2013, the Company received a second subpoena from the SEC seeking additional documents. The Company has cooperated with the SEC to provide the requested documents.
On June 6, 2013, the Company was notified that the U.S. Attorney for the Northern District of Georgia had opened an investigation into allegations of intentional misconduct that had been brought to its attention from the pending shareholder class action lawsuit against the Company's directors and officers, the media and other sources. The Company is cooperating with the U.S. Attorney's office.
Following our announcement on May 1, 2013 of the Company's execution of a merger agreement with affiliates of Goldman Sachs & Co., twelve putative class action complaints challenging the proposed merger were filed in the Delaware Court of Chancery. These complaints name as Defendants some combination of the Company, its directors, Goldman Sachs & Co. and affiliated entities. On June 10, 2013, the twelve complaints were consolidated by the Delaware Court of Chancery, now captioned In re Ebix, Inc. Stockholder Litigation, CA No. 8526-VCN. On June 19, 2013, the Company announced that the merger agreement had been terminated pursuant to a Termination and Settlement Agreement. After Defendants moved to dismiss the consolidated proceeding, Lead Plaintiffs amended their operative complaint to drop their claims against Goldman Sachs & Co. and focus their allegations on an Acquisition Bonus Agreement (“ABA”) between the Company and Robin Raina. On September 26, 2013, Defendants moved to dismiss the Amended Consolidated Complaint. On July 24, 2014, the Court issued its Memorandum Opinion. The only surviving counts are as follows: (i) Counts II and IV, but only to the extent the Plaintiffs seek non-monetary relief for alleged material misstatements related to the ABA base price in the 2010 Proxy Statement; (ii) Count II, but only to the extent it challenges the continued existence of the ABA as an alleged unreasonable anti-takeover device; and, (iii) Count V, but only to the extent that it relates to the compensation the Board received under the Company’s 2010 Stock Incentive Plan. On September 15, 2014, the Court entered an Order implementing its Memorandum Opinion. On January 16, 2015, the Court entered an Order permitting Plaintiffs to file a Second Amended and Supplemented Complaint. On February 10, 2015, Defendants filed a Motion to Dismiss the Second Amended and Supplemented Complaint, which is pending. The Company denies any liability and intends to defend the action vigorously.
The Company has been sued by Microsoft for alleged copyright infringement, breach of contract, and unjust enrichment. Microsoft Corporation and Microsoft Licensing GP v. Ebix, Inc., Case No. 1:13-CV-01655-CAP (N.D.Ga), filed May 15, 2013. The Company filed a Motion to Dismiss on July 10, 2013. In response, Microsoft filed an Amended Complaint. The Company filed a Motion to Dismiss the Amended Complaint on August 29, 2013. On February 14, 2014, the Court denied the Company’s Motion to Dismiss. The Company cooperated with Microsoft in an audit of all of the Company's Microsoft licenses. The parties reached a confidential settlement and, on September 18, 2014, filed a Notice of Confidential Settlement in Principle and Stipulated Motion for 45-Day Extension of Time to finalize the various provisions of the settlement, which was granted by Order dated September 19, 2014. On October 13, 2014, the parties filed a Joint Stipulation of Dismissal with prejudice.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. 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.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
At December 31, 2014 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.”
The following tables set forth the high and low closing bid prices for the Company’s common stock for each calendar quarter in 2014 and 2013.
Year Ended December 31, 2014 | High | Low | ||||||
First quarter | $ | 17.77 | $ | 13.01 | ||||
Second quarter | 17.61 | 12.73 | ||||||
Third quarter | 15.44 | 12.23 | ||||||
Fourth quarter | 17.22 | 13.01 | ||||||
Year Ended December 31, 2013 | High | Low | ||||||
First quarter | $ | 19.38 | $ | 13.21 | ||||
Second quarter | 20.60 | 9.25 | ||||||
Third quarter | 11.81 | 9.49 | ||||||
Fourth quarter | 14.89 | 10.04 | ||||||
Holders
As of March 13, 2015, there were 35,262,631 shares of the Company’s common stock outstanding. As of March 13, 2015, there were 154 registered holders of record of the Company’s common stock.
Dividends
The Company paid a quarterly dividend of $0.075 cents per common share of the Company's common stock, which was paid in February 2013. No additional dividends were declared or paid in 2013. A dividend in the amount of $0.075 cents per common share was paid on March 14, 2014, June 13, 2014, September 15, 2014, and December 15, 2014 to the appropriate shareholders of record.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company’s equity compensation is currently governed by the 2010 Ebix Equity Incentive Plan as approved by our stockholders. The table below provides information as of December 31, 2014 related to this plan.
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: | ||||||||||
—1996 Stock Incentive Plan, as amended and restated in 2006 | 72,000 | $ | 14.41 | 1,097,563 | ||||||
—2010 Stock Incentive Plan | 135,000 | $ | 17.47 | 4,593,279 | ||||||
Equity Compensation Plans Not Approved by Security Holders | — | N/A | N/A | |||||||
Total | 207,000 | $ | 16.41 | 5,690,842 | ||||||
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Sales or Issuances of Unregistered Securities
On June 1, 2012, to fund part of the consideration paid for the purchase of PlanetSoft Holdings, Inc. ("PlanetSoft"). we issued 296,560 shares of Ebix common stock valued at $16.86 per share or $5.0 million in the aggregate to the former owners of PlanetSoft who were accredited investors within the meaning of Rule 501 of Regulation D. The Company relied upon Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under in making this sale in a private placement to accredited investors who acquired the shares for investment purposes.
Recent Purchases of Equity Securities
As provided for under previous Board authorized share repurchase plans, throughout 2014 the Company repurchased 2,146,488 shares of our common stock for a total aggregate purchase price of $31.9 million.
The following table contains information with respect to purchases of our common stock made by or on behalf of Ebix as of December 31, 2014, as part of our publicly announced share repurchase plan:
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 | |||||||||||||
As of December 31, 2013 | 5,707,026 | 5,707,026 | $ | — | $ | 102,885,000 | |||||||
January 1, 2014 to March 31, 2014 | 137,071 | 137,071 | $ | 16.29 | $ | 100,652,000 | |||||||
April 1, 2014 to June 30, 2014 | — | — | $ | — | $ | 100,652,000 | |||||||
July 1, 2014 to September 30, 2014 | 1,041,591 | 1,041,591 | $ | 14.53 | $ | 85,521,000 | |||||||
October 1, 2014 to October 31, 2014 | 402,410 | 402,410 | $ | 13.45 | $ | 80,110,000 | |||||||
November 1, 2014 to November 30, 2014 | 274,182 | 274,182 | $ | 15.87 | $ | 75,760,000 | |||||||
December 1, 2014 to December 31, 2014 | 291,234 | 291,234 | $ | 16.23 | $ | 71,033,000 | |||||||
Total | 7,853,514 | 7,853,514 | $ | 71,033,000 | |||||||||
(1) | Average price paid per share for shares purchased as part of our publicly-announced plan. |
(2) | Effective June 30, 2011 the Company's Board of Directors unanimously approved an increase in the size of the Company's authorized share repurchase plan from $45.0 million to $100.0 million. The Board directed that the repurchases be funded with available cash balances and cash generated by the Company's operating activities, and be completed in the subsequent twelve months if possible. As of December 31, 2013 the Company has approximately $2.9 million remaining in this share repurchase authorization. |
(3) | Effective June 21, 2013 the Company's Board of Directors unanimously approved an additional authorized share repurchase plan of $100.0 million. The Board directed that the repurchases be funded with available cash balances and cash generated by the Company's operating activities, and be completed in the subsequent twenty four months if possible. |
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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, 2009, and the reinvestment of any dividends (rounded to the nearest dollar).
Comparison of Five Year Cumulative Total Return
12/31/2009 | 12/31/2010 | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | ||||||||||||||||||
EBIX, INC. | $ | 100 | $ | 145 | $ | 136 | $ | 100 | $ | 92 | $ | 109 | |||||||||||
NASDAQ STOCK MARKET (U.S.) | $ | 100 | $ | 117 | $ | 115 | $ | 133 | $ | 184 | $ | 209 | |||||||||||
NASDAQ COMPUTER | $ | 100 | $ | 117 | $ | 118 | $ | 133 | $ | 175 | $ | 210 | |||||||||||
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Item 6. SELECTED FINANCIAL DATA
The following data for fiscal years 2014, 2013, 2012, 2011, and 2010 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, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Results of Operations: | ||||||||||||||||||||
Revenue | $ | 214,321 | $ | 204,710 | $ | 199,370 | $ | 168,969 | $ | 132,188 | ||||||||||
Operating income | 79,672 | 75,006 | 77,008 | 68,748 | 52,507 | |||||||||||||||
Net income | $ | 63,558 | $ | 59,274 | $ | 70,569 | $ | 71,378 | $ | 59,019 | ||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 1.68 | $ | 1.58 | $ | 1.91 | $ | 1.89 | $ | 1.69 | ||||||||||
Diluted | $ | 1.67 | $ | 1.53 | $ | 1.80 | $ | 1.75 | $ | 1.51 | ||||||||||
Shares used in computing per share data: | ||||||||||||||||||||
Basic | 37,809 | 37,588 | 36,948 | 37,742 | 34,845 | |||||||||||||||
Diluted | 38,040 | 38,642 | 39,100 | 40,889 | 39,018 | |||||||||||||||
Cash dividend per common share | $ | 0.30 | $ | 0.075 | $ | 0.19 | $ | 0.04 | $ | — | ||||||||||
Financial Position: | ||||||||||||||||||||
Total assets | $ | 634,311 | $ | 553,864 | $ | 516,946 | $ | 411,182 | $ | 303,300 | ||||||||||
Short-term debt | 943 | 13,711 | 11,995 | 6,667 | 10,157 | |||||||||||||||
Long-term debt | 121,065 | 42,958 | 69,278 | 40,083 | 25,000 | |||||||||||||||
Redeemable common stock | — | — | — | — | — | |||||||||||||||
Stockholders’ equity | $ | 432,221 | $ | 413,225 | $ | 362,155 | $ | 316,115 | $ | 231,268 | ||||||||||
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS 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 is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry. Ebix provides application software products for the insurance industry including carrier systems, agency systems and exchanges, as well as custom software development. Approximately 78% of the Company’s revenues are recurring. Rather than license our products in perpetuity, we typically either license them for a few years with ongoing support revenues, or license them on a limited term basis using a subscription hosting or ASP model. Our goal is to be the leading powerhouse of back-end insurance transactions in the world. During 2014, combined subscription-based and transaction-based revenues increased by $9.6 million to $167.6 million, while as a percentage of the Company's total revenues increased to 78% in 2014, as compared to 77% in the year 2013. Subscription based revenues increased by $8.8 million to $135.2 million, and as a percentage of the Company's total revenues increased to 63% in 2014, as compared to 62% in the year 2013. 6% of subscription revenues are consulting staffing related.
The Company’s technology vision is to focus on the convergence of all insurance processes in a manner such that data can seamlessly flow from entity to entity once an initial data entry has been made. Our customers include many of the top insurance and financial sector companies in the world.
The insurance industry is undergoing significant consolidation and therefore benefits from, economies of scale and scope in providing insurance in a competitive environment. The insurance markets have also seen a steady increase in initiatives to reduce paper-based processes and facilitate improvements in efficiency both at the back-end side and also at the consumer-end side. Such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed. Management believes the insurance industry will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across the world insurance markets.
Management focuses on a variety of key indicators to monitor 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 that our business is efficiently managed and that effective controls are maintained.
The key performance indicators for the twelve months ended December 31, 2014, 2013, and 2012 were as follows:
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Key Performance Indicators Twelve Months Ended December 31, | ||||||||||||
(Dollar amounts in thousands except per share data) | 2014 | 2013 | 2012 | |||||||||
Revenue | $ | 214,321 | $ | 204,710 | $ | 199,370 | ||||||
Revenue growth | 5 | % | 3 | % | 28 | % | ||||||
Operating income | $ | 79,672 | $ | 75,006 | $ | 77,008 | ||||||
Operating margin | 37 | % | 37 | % | 39 | % | ||||||
Net Income | $ | 63,558 | $ | 59,274 | $ | 70,569 | ||||||
Diluted earnings per share | $ | 1.67 | $ | 1.53 | $ | 1.80 | ||||||
Cash provided by operating activities | $ | 58,510 | $ | 57,062 | $ | 72,295 | ||||||
RESULTS OF OPERATIONS
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | ||||||||||
(In thousands) | ||||||||||||
Operating revenue: | $ | 214,321 | $ | 204,710 | $ | 199,370 | ||||||
Operating expenses: | ||||||||||||
Costs of services provided | 47,388 | 40,471 | 38,133 | |||||||||
Product development | 26,860 | 26,798 | 24,825 | |||||||||
Sales and marketing | 13,840 | 15,848 | 16,687 | |||||||||
General and administrative | 36,880 | 36,480 | 33,562 | |||||||||
Amortization and depreciation | 9,681 | 10,107 | 9,155 | |||||||||
Total operating expenses | 134,649 | 129,704 | 122,362 | |||||||||
Operating income | 79,672 | 75,006 | 77,008 | |||||||||
Interest income (expense), net | (2,655 | ) | (708 | ) | (1,100 | ) | ||||||
Other non-operating income - put options | 296 | 342 | 190 | |||||||||
Non-operating expense - securities litigation | (690 | ) | (4,226 | ) | — | |||||||
Foreign exchange gain (loss) | 829 | (262 | ) | 1,931 | ||||||||
Income before taxes | 77,452 | 70,152 | 78,029 | |||||||||
Income tax expense | (13,894 | ) | (10,878 | ) | (7,460 | ) | ||||||
Net income | $ | 63,558 | $ | 59,274 | $ | 70,569 | ||||||
TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013
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, 2014 and 2013.
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For the Year Ended December 31, | ||||||||
(dollar amounts in thousands) | 2014 | 2013 | ||||||
Exchanges | $ | 169,437 | $ | 163,925 | ||||
Broker Systems | 17,948 | 18,378 | ||||||
Risk Compliance Solutions (“RCS”), fka Business Process Outsourcing (“BPO”) | 21,813 | 15,678 | ||||||
Carrier Systems | 5,123 | 6,729 | ||||||
Totals | $ | 214,321 | $ | 204,710 | ||||
During the twelve months ended December 31, 2014 our total revenue increased $9.6 million, or 5%, to $214.3 million compared to $204.7 million in 2013. The Company continues to leverage 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 2014 and 2013 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 2.3% to $262.7 million for the year 2014 from the $260.5 million of pro forma revenue for the year 2013, with the change in exchange rates adversely effecting reported revenues by ($3.2) million, whereas there was a 4.7% increase in reported revenues for the same comparative periods. The cause for the difference between the 4.7% increase in reported 2014 revenue versus 2013 revenue, as compared to the 1.2% increase in 2014 pro forma versus 2013 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2014 and 2013, specifically Curepet, HealthCare Magic, Vertex, Oakstone, i3, and Qatarlyst with the Company's pre-existing operations. The 2014 and 2013 pro forma financial information assumes that all such business acquisitions were made on January 1, 2013, whereas the Company's reported financial statements for 2014 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 CurePet, eight months of HealthCare Magic, three months of Vertex, and one month each for Oakstone and i3. Similarly, the 2013 pro forma financial information below includes a full year of results for HealthCare Magic, Vertex, Oakstone, i3 , and Qatarlyst as if they had been acquired on January 1, 2013, whereas the Company's reported financial statements for the 2013 includes no actual financial results for HealthCare Magic, Vertex, Oakstone, i3, and nine months of financial results for Qatarlyst.
The above pro forma analysis is based on the following premises:
• | 2014 and 2013 pro forma revenue contains actual revenue of the acquired entities before acquisition date, as reported by the sellers, as well as actual revenue of the acquired entities after acquisition. Growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition. |
• | Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business. |
• | Any existing products sold to new customers acquired through the acquisition customer base, has also been assigned to the acquired section of our business. |
• | 2013 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued. This is typically done for efficiency and/or competitive reasons. |
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 2014, 2013, and 2012 the change in foreign currency exchange rates decreased reported consolidated operating revenues by $(3.2) million, $(3.8) million, and $(1.2) million, respectively.
The specific components of our revenue and the changes experienced during the past year are discussed further below.
Exchange division revenues increased by $5.5 million, or 3%, principally due to new exchange clients, and cross selling of products and services to existing clients as facilitated by the 2013 acquisition of Qatarlyst, and the 2014 acquisitions of HealthCare Magic and Oakstone.
Broker Systems division revenue decreased by $430 thousand, or 2%, principally due to the effects of exchange rate fluctuations in our foreign operations.
Risk Compliance Solutions division revenues increased by $6.1 million, or 39%, due primarily to the business acquisitions of Vertex in October 2014, and i3 in December 2014, which are both included in the the Risk Compliance Solutions product channel.
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Carrier Systems division revenue decreased by $1.6 million, or 24%, due the Company's reduced focus on license orientated revenues, and the effect of certain projects nearing completion resulting in decreased professional services.
Costs of Services Provided
Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $6.9 million or 17%, from $40.5 million in 2013 to $47.4 million in 2014. This increase is due to additional personnel, consulting, and customer support costs associated with the 2014 business acquisitions of Vertex, Oakstone, and i3.
Product Development Expenses
Product development expenses increased $0.1 million, or 0%, from $26.8 million in 2013 to $26.9 million in 2014. 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.
Sales and Marketing Expenses
Sales and marketing expenses decreased $2.0 million, or 13%, from $15.8 million in 2013 to $13.8 million in 2014. This decrease is due to the reduced personnel costs associated with the continued deemphasis on certain products generating low operating income margins.
General and Administrative Expenses
General and administrative expenses increased $0.4 million, or 1%, from $36.5 million in 2013 to $36.9 million in 2014. Reducing reported general and administrative expenses were the effects of $10.2 million of net reductions to contingency based earn out accruals pertaining to previous business acquisitions made in 2013 and 2012.
Amortization and Depreciation Expenses
Amortization and depreciation expenses decreased $426 thousand, or 4%, from $10.1 million in 2013 to $9.7 million in 2014 primarily due to the fact that certain operating equipment used for the enhancement of our technology platforms has now been fully depreciated.
Interest Income
Interest income decreased $139 thousand, or 27%, from $518 thousand in 2013 to $379 thousand in 2014. Interest income decreased as a result of a year over year decrease in interest bearing cash balances and short-term investments within our foreign operations.
Interest Expense
Interest expense increased $1.8 million, or 147% from $1.2 million in 2013 to $3.0 million in 2014. A significant cause for the increase in interest expense is the $1.6 million of interest expense accrued at year end in connection to the settlement and resolution of U.S. Internal Revenue Service audit of Ebix’s income tax returns for the taxable years 2008 through 2012 on January 6, 2015. Interest expense, also, increased because of a combined effect of an increase in the weighted average interest rate on the Company's revolving credit facility from 1.69% in 2013 to 1.78% in 2014 and an increase in the average outstanding balance on the Company's revolving line of credit from $30.7 million in 2013 to $40.5 million in 2014.
Other Non-Operating Income - Put Options
Other non-operating income - put options of $296 thousand in 2014 pertains to gains recognized in regards to the net decrease in the fair value of the put option that was issued to the former stockholders of PlanetSoft who received shares of Ebix common stock as part of the acquisition consideration paid by the Company. During the months of July and August 2014 the former shareholders of PlanetSoft elected to exercise their put option rights with respect to the remaining 209,656 shares of Ebix common stock they still held. Accordingly the shareholders put those shares back to the Company at $16.86 per share plus interest at the rate of 20% as per the PlanetSoft acquisition agreement. The total consideration paid by the Company in connection with the exercise of these put options was $3.6 million.
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Non-operating expense - securities litigation
As discussed in Note 6 to the Consolidated Financial Statements three derivative complaints brought by certain shareholders on behalf of the Company as associated with the previously settled shareholder class action styled In re: Ebix, Inc. Securities Litigation, Civil Action No. 1:11-CV-02400-RWS (N.D. Ga.) were settled and dismissed on December 2, 2014. In this regard on January 19, 2015 the Company paid the $690,000 of legal fees.
Foreign Exchange Gain
Net foreign exchange gain of $829 thousand in 2014 consisted mostly of gains recognized upon the remeasurement of certain 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 $13.9 million in 2014 compared the $10.9 million of income tax expense in 2013, representing a $3.0 million, or a 28%, increase. The primary factors causing the increase in recognized income tax expense in 2014 were the inclusion of certain discrete items consisting of the adverse net effects of the settlement of the IRS audit for the years 2008 thru 2012 amounting to $0.5 million, the amendment and refiling of the Company U.S. federal income tax return for the year 2013 which amounted to $1.9 million, and additional ASC 740 (formerly "FIN 48") provisioning for uncertain income tax return positions amounting to $9.8 million, partially offset by a benefit of $3.1 million from reconciling the tax payable liability accounts for our various subsidiaries to the income tax returns filed in those jurisdictions, and additional deductible interest expense in Singapore providing a tax benefit of $1.7 million. Thusly, the tax expense excluding such discrete items was $7.4 million, reflecting an effective tax rate of 9.5% as compared to the 4.6% effective tax rate for the year 2013. The effective rate increased primarily due to the a greater proportion of taxable income being derived from jurisdictions with higher tax rates. Overall the Company enjoys a relatively lower effective tax rate from conducting significant operating activities in certain foreign low tax jurisdictions. 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, 2014 are as follows:
(dollar amounts in thousands) | United States | Canada | Latin America | Australia | Singapore | New Zealand | India | Mauritius | Europe(United Kingdom) | Sweden | Total | ||||||||||||||||||||||||||||||||
Pre-tax income | $ | 8,807 | $ | 115 | $ | 1,590 | $ | 5,091 | $ | 16,015 | $ | 1,000 | $ | 28,194 | $ | (370 | ) | $ | 9,940 | $ | 7,070 | $ | 77,452 | ||||||||||||||||||||
Statutory tax rate | 35.0 | % | 30.5 | % | 34.0 | % | 30.0 | % | 10.0 | % | 28.0 | % | — | % | — | % | 24.0 | % | — | % | |||||||||||||||||||||||
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TWELVE MONTHS ENDED DECEMBER 31, 2013 AND 2012
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, 2013 and 2012.
For the Year Ended December 31, | ||||||||
(dollar amounts in thousands) | 2013 | 2012 | ||||||
Exchanges | $ | 163,925 | $ | 159,678 | ||||
Broker Systems | 18,378 | 18,612 | ||||||
Business Process Outsourcing (“BPO”) | 15,678 | 16,140 | ||||||
Carrier Systems | 6,729 | 4,940 | ||||||
Totals | $ | 204,710 | $ | 199,370 | ||||
During the twelve months ended December 31, 2013 our total revenue increased $5.3 million, or 2.7%, to $204.7 million compared to $199.4 million in 2012. The increase in revenues is a summation of revenue from business acquisitions completed during 2013 and 2012, and the growth achieved in our Carrier and Exchange channels, somewhat partially offset in the aggregate by a reduction in BPO revenues which were affected by the depressed construction industry, and a small reduction in Broker system revenues, mainly due to exchange rate fluctuations impacting international revenues. The Company continues to immediately and efficiently leverage 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 2013 and 2012 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 decreased 4.4% to $205.6 million for the year 2013 from the $215.0 million of pro forma revenue for the year 2012, whereas there was a 2.7% increase in reported revenues for the same comparative periods. The cause for the difference between the 2.7% increase in reported 2013 revenue versus 2012 revenue, as compared to the 4.4% decrease in 2013 pro forma versus 2012 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2013 and 2012, specifically Qatarlyst, BSI, Taimma, PlanetSoft, Fintechnix, and TriSystems, with the Company's pre-existing operations. The 2013 and 2012 pro forma financial information assumes that all such business acquisitions were made on January 1, 2012, whereas the Company's reported financial statements for 2013 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thus includes only nine months of actual financial results of Qatarlyst. Similarly, the 2012 pro forma financial includes a full year of results for Taimma, BSI, PlanetSoft, Fintechnix, TriSystems, and Qatarlyst as if they had been acquired on January 1, 2012, whereas the Company's reported financial statements for the 2012 only includes nine months of actual financial results for BSI and Taimma, seven months for PlanetSoft, seven months for Fintechnix, five months for TriSystems, and no financial results for Qatarlyst.
The above pro forma analysis is based on the following premises:
• | 2013 and 2012 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 are only reflected for the period after their acquisition. |
• | Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business. |
• | Any existing products sold to new customers acquired through the acquisition customer base, has also been assigned to the acquired section of our business. |
• | 2012 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 affected reported revenues. During each of the years 2013 and 2012 the change in foreign currency exchange rates decreased reported consolidated operating revenues by $(3.8) million, and $(1.2) million respectively.
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The specific components of our revenue and the changes experienced during the past year are discussed further below.
Exchange division revenues increased by $4.2 million, or 3%, principally due to increased number of new exchange clients, and cross selling of services to existing clients as facilitated by the recent acquisitions of PlanetSoft, TriSystems, Fintechnix, and Qatarlyst.
Broker Systems division revenue decreased by $234 thousand, or 1% ,due to a drop in consulting services supporting our on-demand back-end systems, being used by insurance brokers.
BPO division revenues decreased by $462 thousand, or 3%,due primarily to the continued residual effect of the depressed construction industry which accounts for almost a third of the insurance certificates created.
Carrier Systems division revenue increased by $1.8 million, or 36%, due to our launch and deployment of new on-demand products and system development services for insurance carrier clients in this market.
Costs of Services Provided
Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $2.3 million or 6%, from $38.1 million in 2012 to $40.5 million in 2013. This increase is due to additional customer support and consulting, personnel, and service fulfillment costs associated with our healthcare exchanges, P&C insurance exchanges, and BPO operations, and the 2012 business acquisitions of Taimma, PlanetSoft, and TriSystems.
Product Development Expenses
Product development expenses increased $2.0 million, or 8%, from $24.8 million in 2012 to $26.8 million in 2013. 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. The cost increase incurred in 2013 was most significantly attributable to additional staff and related increased personnel costs associated with the further expansion of our research and development center in India in connection with the development of new on-demand based products and services in support of our Exchange, Carrier Systems, and BPO product channels.
Sales and Marketing Expenses
Sales and marketing expenses decreased $839 thousand, or 5%, from $16.7 million in 2012 to $15.8 million in 2013. This decrease is due to the reduced emphasis on certain products generating low operating income margins and also due to reduced expenses associated with sponsorships and conferences.
General and Administrative Expenses
General and administrative expenses increased $2.9 million, or 9%, from $33.6 million in 2012 to $36.5 million in 2013. This increase is essentially due to approximately $5.2 million of additional legal and associated audit related costs related to ongoing litigation and regulatory matters and an earlier contemplated merger with a wholly owned affiliate of Goldman Sachs, $2.1 million of additional personnel costs associated with increased staffing necessary to support our expanding operations and $1.6 million of related additional facility and rent expenses, $1.0 million of increased travel costs, $1.0 million of costs associated with the settlement of certain litigation matters, a $0.7 million increase in recognized bad debt expense associated with the increase in our allowance for doubtful accounts receivable, and $0.5 million of increased corporate insurance costs. Partially offsetting these cost increases was a net $9.4 million reduction in general and administrative expenses associated with net reductions to contingency based earn out accruals pertaining to previous business acquisitions made in 2012 and 2011.
Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $952 thousand, or 10%, from $9.2 million in 2012 to $10.1 million in 2013 primarily due to additional amortization costs associated with the customer relationship and developed technology intangible assets that were recorded in connection with the acquisitions of BSI, Taimma, PlanetSoft, TriSystems and Qatarlyst.
Interest Income
Interest income increased $77 thousand, or 17%, from $441 thousand in 2012 to $518 thousand in 2013 due to greater amounts invested.
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Interest Expense
Interest expense decreased $315 thousand, or 20% from $1.5 million in 2012 to $1.2 million in 2013. Interest expense decreased because of the combined effect of a drop in the weighted average interest rate on the Company's revolving credit facility from 1.74% in 2012 to 1.69% in 2013 and a decline in the average outstanding balance on the revolving line of credit declined from $32.4 million in 2012 to $30.7 million in 2013.
Other Non-Operating Income - Put Options
Other non-operating income - put options of $342 thousand in 2013 pertains to gains recognized in regards to the net decrease in the fair value of the put option that was issued to the former stockholders of PlanetSoft who received shares of Ebix common stock as part of the acquisition consideration paid by the Company.
Non-operating expense - securities litigation
As discussed in more detail in Note 6 “Commitments and Contingencies” to the accompanying consolidated financial statements, management after consultation with the Company’s outside advisors concluded that it was appropriate to record a liability and recognize a charge against earnings in the amount of $4.23 million ($2.63 million net of the associated tax benefit), with regard to the liability associated with the expected settlement of the pending federal securities class action matter. This contingent liability is reported in the current section of the enclosed Consolidated Balance Sheet, and the charge against earnings is reported in the accompanying Consolidated Statement of Income as of and for the twelve months ended December 31, 2013.
Foreign Exchange Gain
Net foreign exchange loss of $262 thousand in 2013 consisted mostly of losses recognized upon the settlement of certain 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 $10.9 million in 2013 compared to the $7.5 million of income tax expense in 2012, representing a $3.4 million, or a 46%, increase. The primary factor contributing to the increase in recognized income tax expense in 2013 was $4.1 million of additional provisioning for the Company's reserve for uncertain income tax positions with $6.8 million of such expense recognized in 2013 as compared to $2.7 million of expense recognized in 2012. The Company's tax provision for 2013 reflects an effective tax rate, net of discrete items, of 4.6% compared to the 6.7% effective tax rate for the year 2012, net of discrete items. The Company benefits from a relatively low consolidated world-wide effective tax rate as a result of conducting significant operating activities in certain foreign low tax jurisdictions. 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, 2013 are as follows:
(dollar amounts in thousands) | United States | Canada | Latin America | Australia | Singapore | New Zealand | India | Europe (United Kingdom) | Sweden | Total | ||||||||||||||||||||||||||||||
Pre-tax income | $ | 5,497 | $ | 1,344 | $ | 966 | $ | 4,579 | $ | 17,523 | $ | 485 | $ | 31,387 | $ | 1,360 | $ | 7,011 | $ | 70,152 | ||||||||||||||||||||
Statutory tax rate | 35.0 | % | 30.5 | % | 34.0 | % | 30.0 | % | 10.0 | % | 28.0 | % | — | % | 24.0 | % | — | % | ||||||||||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are the cash flows provided by our operating activities, our revolving 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 equity or debt securities to fund capital
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expenditures and organic growth initiatives, to make strategic business acquisitions, to retire outstanding indebtedness, and to possibly repurchase shares of our common stock as market and operating conditions warrant.
We believe that anticipated cash flow 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.
We regularly evaluate our liquidity requirements, including the need for additional debt or equity offerings, when considering potential business acquisitions, development of new products or services, or the retirement of debt. During 2015, 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 $52.3 million and $56.7 million at December 31, 2014 and 2013, 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, and short-term investments balances held in our domestic U.S. operations and each of our foreign subsidiaries as of March 13, 2015 is presented in the table below (figures denominated in thousands):
United States | Canada | Latin America | Australia | Singapore | New Zealand | India | Europe | Sweden | Total | |||||||||||||||||||||||||||||||
Cash and ST investments | $ | 11,097 | $ | 1,215 | $ | 702 | $ | 5,602 | $ | 2,069 | $ | 1,505 | $ | 1,068 | $ | 2,902 | $ | 12 | $ | 26,172 | ||||||||||||||||||||
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. Specifically our software and product development operations in India benefit from a tax holiday. The tax holiday expired for one of our facilities in April of 2014, and will expire for our other facilities in the years 2015 through 2018. As such a significant component of the income generated by our India operations, other than passive interest income, is not taxed. After the expiration of the full tax holiday all of the income generated by our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five years. During 2013 the tax holiday in India had the effect of reducing income tax expense by approximately $9.9 million or approximately $0.17 per diluted share in 2014 with $3.82 million of Minimum Alternative Tax ("MAT") tax prepaid/accrued against 2014 income during the year ended December 31, 2014, as advance payments made in 2014 for taxes due in 2014 and thereafter in India.
On January 6, 2015, Ebix reached a resolution with the Internal Revenue Service with respect to the previously disclosed audit of Ebix’s income tax returns for the taxable years 2008 through 2012. The assessment resulted in a cash payment of $20.5 million, including interest of $1.6 million. This resolution includes all issues for the taxable years 2008 through 2012.
The Company also has a relatively low income tax rate in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board ("EDB") for the benefit of in-country intellectual property owners. The concessionary 10% income tax rate will expire in 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, currently 17%, unless the Company reaches a subsequent agreement to extend the incentive period at the then applicable concessionary rate. The concessionary tax rate granted by the EDB as compared to the statutory tax in effect in Singapore reduced income tax expense by approximately $2.5 million or approximately $0.07 per diluted share in 2014.
Our current ratio decreased to 1.49 at December 31, 2014 as compared to 1.54 at December 31, 2013, and our working capital position slightly decreased to $34.1 million at December 31, 2014 as compared to $35.7 million at the end of 2013. The decrease in our short-term liquidity position is primarily due to the following factors; (a) the increase in income taxes payable resulting from our resolution with the U.S. Internal Revenue Service with respect to the previously disclosed audit of Ebix’s income tax returns for the taxable years 2008 through 2012; slightly offset by: (b) the elimination of our short-term debt obligations as a result of the refinancing with Region Bank; (c) the payment of liability in connection with settlement of the shareholders class action; (d) the payment of certain outstanding earn-out obligations associated with business acquisitions made in 2012; (e) increased
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trade accounts receivable consistent with the growth of our business; and, (f) increases in other current assets primarily associated with the acquisition of certain software licenses. We believe that our ability to generate sustainable robust cash flow from operations will enable the Company to continue to fund its current liabilities from current assets, including available cash balances.
Business Acquisitions
The Company executes business acquisitions in combination with organic growth initiatives as part of its business growth and expansion strategy. The Company looks to acquire businesses that are complementary to Ebix's existing products and services. During the year ended December 31, 2014 the Company completed five business acquisitions, as follows:
On January 27, 2014, Ebix acquired CurePet. CurePet was a developmental-stage enterprise that developed an insurance exchange that connects pet owners, referring veterinarians, animal hospitals, academic institutes, and suppliers of medical and general pet supplies, while providing a wide variety of services related to pet insurance to each constituent including practice management, electronic medical records, and billing. Previously Ebix had a minority investment in CurePet. Ebix acquired the entire business of CurePet in an asset purchase agreement with total purchase consideration being $6.35 million which includes a possible future one time contingent earnout payment of up to $5.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. Additional required cash consideration of $1.35 million was offset against open accounts receivable balances due to the Company from CurePet, and no actual cash outlay was made by the Company.
On May 21, 2014, Ebix acquired HealthCare Magic Private Limited ("HealthCare Magic"), a medical advisory service with an online network of approximately 15,000 General Physicians and Surgeons spread across 50 specialties including alternative medicine. The Company acquired HealthCare Magic for aggregate cash consideration in the amount of $6.0 million plus a possible future one time contingent earnout payment of up to $12.36 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. The Company funded the HealthCare Magic acquisition from available cash reserves on hand.
On November 3, 2014, Ebix acquired Vertex, Incorporated ("Vertex"), made effective October 1, 2014, in a share purchase agreement for total cash purchase consideration in the amount of $27.25 million and a possible contingent earnout of $2 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. Vertex is a specialized software and services firm focused primarily on the life and annuity insurance marketplace since 1991. Ebix acquired all of the outstanding capital stock of Vertex and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix.
Effective December 1, 2014, Ebix acquired Oakstone Publishing, LLC ("Oakstone") in a membership interest purchase agreement for total cash consideration in the net amount of $23.7 million. Oakstone is leading provider of continuing education, certification materials for physicians, dentists and allied healthcare professionals, as well as wellness resources for various organizations. Ebix acquired all of the membership interests of Oakstone and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix.
On December 1, 2014, Ebix acquired the DCM Group Inc. (d.b.a. i3 Software) ("i3") in an asset purchase agreement for total cash consideration in the amount of $2 million and a possible contingent earnout of up to $4 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. i3 is a provider of software services and solutions to the insurance industry. Ebix acquired all of the assets of i3 and funded the purchase using internal cash reserves.
During the year ended December 31, 2013, the Company completed one business acquisition, Qatarlyst effective April 7, 2013, an electronic trading exchange for the global insurance and reinsurance industry. Ebix acquired all of the outstanding stock and the business operations of Qatarlyst for a cash purchase price of $5.0 million and funded the transaction using existing available internal cash resources. The former shareholders of Qatarlyst retain the right to an earn-out payment. The earn-out payment will be based on a multiple of Qatarlyst's average annual revenue during the years 2014, 2015 and 2016 that exceed a specific threshold as defined in the underlying business acquisition agreement.
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 Company recognizes these potential obligations as contingent liabilities. These contingent consideration liabilities are recorded at fair value on the acquisition date and are re-measured regularly based on the then assessed fair value and adjusted if necessary. As of December 31, 2014, the total of these contingent liabilities was $5.4 million, of which $4.5 million is reported in long-term liabilities, and $887 thousand is included in current liabilities in the Company's Consolidated Balance Sheet. As of December 31, 2013 the total of these contingent liabilities was $14.4 million.
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Operating Activities
For the twelve months ended December 31, 2014, the Company generated $58.5 million of net cash flow from operating activities compared to $57.1 million for the year ended December 31, 2013, representing a 3% increase. The major sources of cash provided by our operating activities for 2014 was net income of $63.6 million, net of $(1.0) million of net non-cash gains recognized on derivative instruments and foreign currency exchange, $(2.0) million of deferred tax benefits, $9.7 million of depreciation and amortization, $1.8 million of non-cash share-based compensation, $(10.2) million of non-cash acquisition earnout contingent liability reductions, and $(3.3) million of net changes in working capital requirements primarily associated with increased liabilities.
For the twelve months ended December 31, 2013, the Company generated $57.1 million of net cash flow from operating activities compared to $72.3 million for the year ended December 31, 2012, representing a 21% decrease. The major sources of cash provided by our operating activities for 2013 was net income of $59.3 million, net of $(578) thousand of net non-cash gains recognized on derivative instruments and foreign currency exchange, $(10.4) million of deferred tax benefits, $10.1 million of depreciation and amortization, $1.9 million of non-cash share-based compensation, $(10.3) million of non-cash acquisition earnout contingent liability reductions, and $6.9 million of net changes in working capital requirements primarily associated with increased liabilities.
Investing Activities
Net cash used for investing activities totaled $77.8 million for the twelve months ended December 31, 2014. During the year the Company used $5.9 million for the acquisition of Healthcare Magic (net of cash acquired), $27.5 million was used for the acquisition of Vertex (net of cash acquired), $23.8 million was used for the acquisition of Oakstone (net of cash acquired), and $2.0 million was used for the acquisition of i3 (net of cash acquired). Also, during this past year in the aggregate $2.8 million was paid in connection with the fulfillment of earnout payment obligations from certain prior business acquisitions made in 2012. In addition, during the year ended December 31, 2014, $495 thousand was provided from maturities of marketable securities (specifically bank certificates of deposit), $12.8 million was used for the acquisition of a building and land for our new global corporate headquarters in the Atlanta metropolitan area, and $3.5 million was used for capital expenditures pertaining to the enhancement of our technology platforms and the purchases of operating equipment to support our expanding operations.
Net cash used for investing activities totaled $8.8 million for the twelve months ended December 31, 2013. During 2013 the Company used $4.7 million to acquire Qatarlyst in April 2013 (net of $285 thousand cash acquired). Also during this past year in the aggregate $3.0 million was paid in connection with the fulfillment of earnout payment obligations from certain prior business acquisitions made in 2012 and 2010. In addition during the year ended December 31, 2013 $107 thousand was provided from maturities of marketable securities (specifically bank certificates of deposit), and $1.2 million was used for capital expenditures in connection with purchases of operating equipment.
Financing Activities
Net cash provided by financing activities during the twelve months ended December 31, 2014 was $15.9 million. Financing cash inflows were primarily comprised of $120.5 million provided by our new revolving credit line in connection with new syndicated loan facility with Regions Financial Corporation ("Regions") and $747 thousand of proceeds from the exercise of common stock options (net of forfeiture of certain shares to satisfy exercise costs and the recipient's income taxes). Partially offsetting these cash inflows were a $15.0 million principal payment against our revolving line of credit, $7.56 million of principal repayments against our former term loan facility and a $32.2 million pay off of the remaining balances on the related syndicated credit facility with Citibank, $11.4 million used to pay common stock cash dividends to our shareholders, $31.9 million used to make open market repurchases of our common stock, $345 thousand used to pay down existing promissory notes, $3.5 million used to re-acquire shares of our common stock previously issued in connection with the put option issued in the 2012 acquisition of PlanetSoft, $231 thousand used to service existing capital lease obligations, and $3.2 million of excess tax benefits associated with share-based compensation.
Net cash used by financing activities during the twelve months ended December 31, 2013 was $26.4 million. Financing cash outflows were primarily comprised of $15.0 million of payments against our revolving credit facility with Citibank, N.A. ("Citibank"), $8.9 million of principal repayments of our term loan facility with Citibank, $2.8 million was used to pay common stock cash dividends, $2.5 million used to make open market repurchases of our common stock, $665 thousand was used to pay down existing promissory notes, and $277 thousand was used to service existing capital lease obligations. Partially offsetting these financing cash outflows were $3.2 million from excess tax benefits associated with share-based compensation and $480 thousand
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proceeds from exercise of common stock options (net of forfeiture of certain shares to satisfy exercise costs and the recipient's income taxes).
Commercial Bank Financing Facility
On February 3, 2015, Ebix, Inc. (the “Company”) and certain of its subsidiaries entered into the First Amendment (the “First Amendment”) to the Regions Secured Credit Facility (the “Credit Agreement”), dated August 5, 2014, among the Company, Regions Financial Corporation as Administrative Agent (“Regions”), with Regions, MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders. The First Amendment amends the Credit Agreement by increasing the maximum amount by which the Aggregate Revolving Commitments may be increased to $90 million from the pre-existing limit of $50 million, increases the amount of base facility to $190 million from the pre-existing amount of $150 million, which together with the $50 million accordion feature increases the total Credit Agreement capacity amount to $240 million from the prior amount of $200 million, and expands the syndicated bank group to four participants by adding Fifth Third Bank.
On August 5, 2014, Ebix entered into a credit agreement providing for a $150 million secured syndicated credit facility (the “Regions Secured Syndicated Credit Facility”) with Regions Financial Corporation ("Regions") as administrative agent and Regions with MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders. The financing is comprised of a five-year, $150 million secured revolving credit facility, with an option to expand to $200 million upon request and with additional lender commitments. This new $150 million credit facility with Regions, as administrative agent, replaces the former syndicated $100 million facility that the Company had in place with Citi Bank, N.A. which was paid in full upon the undertaking of this new loan facility with Regions. The initial interest rate applicable to the Secured Syndicated Credit Facility is LIBOR plus 1.75% or currently 1.94%. Under the Regions Secured Syndicated Credit Facility the maximum interest rate that could be charged depending upon the Company's leverage ratio is LIBOR plus 2.25%. The underlying financing agreement contains financial covenants regarding the Company's fixed charge coverage ratio and leverage ratio, as well as certain restrictive covenants pertaining to such matters as the incurrence of new debt and the consummation of new business acquisitions. The Company currently is in compliance with all such financial and restrictive covenants. As of December 31, 2014 the Company's consolidated balance sheet includes $1.3 million of the remaining deferred financing costs. This debt is collateralized by essentially all assets of the Company
On May 19, 2014, Ebix and certain of its subsidiaries entered into a Third Amendment (the “Third Amendment”) to the Credit Agreement, dated April 26, 2012 (as previously amended), among the Company, Wells Fargo Capital Finance, LLC, as a lender, RBS Citizens, N.A. as a lender, and Citibank, N.A., ("CitiBank") as Administrative Agent and as a lender (the “Credit Agreement”). The Third Amendment amended the Company’s obligations with respect to certain covenants under the Credit Agreement, to provide flexibility to the Company to make certain specified business acquisitions, while allowing the Company to make early payments towards reduction of its bank debt. Furthermore, the Third Amendment amended the Credit Agreement by reducing the revolving commitments of the lenders to $7.84 million as of May 19, 2014, for which the Company made a principal payment in the amount of $15.0 million, and was paid in full on August 5, 2014 upon the undertaking of the aforementioned new loan facility with Regions.
On April 26, 2012 Ebix entered into a credit agreement providing for a $100 million secured syndicated credit facility (the “Secured Syndicated Credit Facility”) with Citibank, N.A. as administrative agent and Citibank, N.A., Wells Fargo Capital Finance, LLC, and RBS Citizens, N.A. as joint lenders. The financing is comprised of a four year, $45 million secured revolving credit facility, a $45 million secured term loan, which amortizes over a four year period with quarterly principal and interest payments that commenced on June 30, 2012 and a final payment of all remaining outstanding principal and accrued interest due on April 26, 2016. This facility replaced the former $55 million facility that the Company had in place with BOA. Borrowings under the Secured Syndicated Credit Facility bear interest, at Ebix’s option at either a base rate or a LIBOR rate plus, in each case, an applicable margin based on Ebix’s adjusted leverage ratio. The margin ranges from 0.50% to 1.00% per annum, in the case of base rate loans, and 1.50% to 2.00% per annum, in the case of LIBOR rate loans. This syndicated credit facility with Citibank was fully repaid and replaced with a new credit syndicated credit facility with Regions Bank, as discussed above.
At December 31, 2014, the outstanding balance on the revolving line of credit with Regions was $120.47 million and the facility carried an interest rate of 1.94%. This balance is included in the long-term liabilities section of the Consolidated Balance Sheets. During 2014, the average and maximum outstanding balances on the revolving line of credit were $40.5 million and $120.47 million, respectively, and the weighted average interest rate was 1.78%
In August 2014 the outstanding balance on the term loan with Citibank was $0 million as it was paid in full upon the undertaking of the aforementioned new loan facility with Regions. During the twelve months ended December 31, 2014, $7.6 million of scheduled payments were made against this pre-existing term loan.
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Contractual Obligations and Commercial Commitments
The following table summarizes our known contractual debt and lease obligations as of December 31, 2014. 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 | $ | 120,465 | $ | — | $ | — | $ | 120,465 | $ | — | ||||||||||
Short and long-term debt | 1,543 | 943 | 600 | — | — | |||||||||||||||
Operating leases | 20,433 | 5,863 | 8,022 | 5,208 | 1,340 | |||||||||||||||
Future Purchase Agreements | 5,744 | 3,715 | 1,082 | 947 | — | |||||||||||||||
Capital leases | — | — | — | — | — | |||||||||||||||
Total | $ | 148,185 | $ | 10,521 | $ | 9,704 | $ | 126,620 | $ | 1,340 | ||||||||||
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.
34
RECENT ACCOUNTING PRONOUNCEMENTS
The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company’s business:
In November 2014, the FASB issued Accounting Standards Update No. 2014-17 "Business Combinations: Pushdown Accounting - a consensus of the Emerging Issues Task Force". This accounting standard applies to the separate financial statements of an acquired entity and its subsidiaries that are a business upon the occurrence of an event in which an acquirer obtains control of the acquired entity. The amendments in this accounting standards update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. An election to apply pushdown accounting in a reporting period after the reporting period in which the change-in-control event occurred should be considered a change in accounting principle. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. If an acquired entity elects the option to apply pushdown accounting in its separate financial statements, it should disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting. The amendments in this accounting standards update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The Company will apply this accounting standards update to any separately issued or filed 2014 financial statement for its acquired subsidiaries and is still evaluating the impact of its adoption.
In May 2014 the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with customers". ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue)in this ASU.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.
An entity should apply the amendments in this ASU using one of the following two methods:
1. Retrospectively to each prior reporting period presented and the entity may elect any of the following
practical expedients:
• For completed contracts, an entity need not restate contracts that begin and end within the
same annual reporting period.
• For completed contracts that have variable consideration, an entity may use the transaction
price at the date the contract was completed rather than estimating variable consideration
amounts in the comparative reporting periods.
• For all reporting periods presented before the date of initial application, an entity need not
disclose the amount of the transaction price allocated to remaining performance obligations
and an explanation of when the entity expects to recognize that amount as revenue.
2. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial
35
application. If an entity elects this transition method it also should provide the additional disclosures in
reporting periods that include the date of initial application of:
• The amount by which each financial statement line item is affected in the current reporting
period by the application of this ASU as compared to the guidance that was in effect before
the change.
• An explanation of the reasons for significant changes.
The Company will adopt this new accounting standard effective January 1, 2017 and is considering but has not presently determined the impact that the adoption of ASU No. 2014-09 will have on its income statement, balance sheet, or statement of cash flows. Furthermore, the Company has not yet determined the method of retrospective adoption it will use as described in paragraphs 1 and 2 immediately above.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". This accounting standard states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This accounting standards update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The accounting standards update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company adopted this new standard in 2014, and it effected how unrecognized tax benefits were accounted for and presented in the Company's balance sheet.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment" (the revised standard). The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance the related technical accounting guidance. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company adopted this new financial accounting standard in 2014 for use in its annual impairment evaluations of indefinite-lived intangible assets, which are performed as of September of each year.
In February 2013 the FASB has issued Accounting Standards Update (ASU) No. 2013-02, "Comprehensive Income Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses may later be reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. The new amendments requires an organization to:
•Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
•Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments were
36
effective for reporting periods beginning after December 15, 2012 for public companies. Early adoption was permitted. The Company adopted this new standard in 2013 and it did not have effect on its financial statements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”), as promulgated in the United States, requires our management to make 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 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 with installed systems, and business process outsourcing revenue. 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.
In accordance with Financial Accounting Standard Board (FASB) and Securities and Exchange Commission Staff Accounting (SEC) accounting guidance on revenue recognition 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, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements when making estimates or assumptions related to 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 when making estimates or assumptions 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 of the undelivered items; 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.
The Company begins to recognize revenue from license fees for its exchange (SAAS) and ASP products upon delivery and the customer’s acceptance of the software implementation and customizations if necessary and applicable. Transaction services fee revenue for the use of our exchanges or ASP platforms is recognized as the transactions occur and are generally billed in arrears. 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. Training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenue for maintenance and support services is recognized ratably over the term of the support agreement. Revenues derived from initial setup or registration fees are recognized ratably over the term of the agreement in accordance with FASB and SEC accounting guidance on revenue recognition.
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.
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
37
agreements, software license fees received in advance of delivery and acceptance, and software development fees paid in advance of completion and delivery.
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. Starting in 2011, the Company applied the then new guidance concerning goodwill impairment evaluation. In accordance with that new technical guidance the Company first assessed certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than its carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not perform the two-step quantitative impairment testing described further below.
The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values; we determine 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 2014 the goodwill residing in the Exchange reporting unit, the Carrier Systems reporting unit, were evaluated for impairment based on an assessment of certain qualitative factors, and were determined not to have been impaired. In 2014 the goodwill residing in the Risk Compliance Solutions reporting unit and Broker Systems reporting unit were evaluated for impairment using step-one of the quantitative testing process described above. The fair value of both of these reporting units were found to be greater than their carrying value, and thusly there was no need to proceed to step-two, as there was no impairment indicated. The Risk Compliance Solutions reporting unit fair value in excess of its carrying value was relatively close (based on revenue growth assumption of 2% to 3% and discount rate of 16%) while the Broker Systems reporting unit had a significantly higher fair value in excess of its carrying value. During the years ended December 31, 2014, 2013, and 2012, 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.
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.
38
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 foreign subsidiaries in India and Singapore is the U.S. dollar because the intellectual property research and development activities provided by its Singapore subsidiary, and the product development and information technology enabled services activities for the insurance industry provided by its India subsidiary, both in support of Ebix's operating divisions across the world, are transacted in U.S. dollars.
The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of 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 2014, 2013 and 2012:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Year Ended December 31, 2014 | ||||||||||||||||
Total revenues | $ | 51,404 | $ | 51,476 | $ | 50,808 | $ | 60,633 | ||||||||
Gross profit | 41,792 | 41,512 | 40,533 | 43,096 | ||||||||||||
Operating income | 19,405 | 17,461 | 21,738 | 21,068 | ||||||||||||
Net income | 15,417 | 13,579 | 18,015 | 16,547 | ||||||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.40 | $ | 0.35 | $ | 0.47 | $ | 0.45 | ||||||||
Diluted | $ | 0.40 | $ | 0.35 | $ | 0.47 | $ | 0.45 | ||||||||
Year Ended December 31, 2013 | ||||||||||||||||
Total revenues | $ | 52,566 | $ | 51,004 | $ | 50,293 | $ | 50,847 | ||||||||
Gross profit | 42,675 | 40,646 | 40,157 | 40,761 | ||||||||||||
Operating income | 19,305 | 19,294 | 18,601 | 17,806 | ||||||||||||
Net income | 17,344 | 13,542 | 13,143 | 15,245 | ||||||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.47 | $ | 0.36 | $ | 0.35 | $ | 0.40 | ||||||||
Diluted | $ | 0.45 | $ | 0.35 | $ | 0.34 | $ | 0.40 | ||||||||
Year Ended December 31, 2012 | ||||||||||||||||
Total revenues | $ | 43,827 | $ | 47,716 | $ | 53,804 | $ | 54,023 | ||||||||
Gross profit | 34,798 | 38,559 | 44,304 | 43,576 | ||||||||||||
Operating income | 18,329 | 17,711 | 20,708 | 20,260 | ||||||||||||
Net income | 15,685 | 18,067 | 18,072 | 18,745 | ||||||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.43 | $ | 0.49 | $ | 0.49 | $ | 0.50 | ||||||||
Diluted | $ | 0.40 | $ | 0.47 | $ | 0.46 | $ | 0.48 | ||||||||
39
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 majority of the Company’s operations are based in the U.S., furthermore the functional currencies in our India and Singapore divisions is the U.S. dollar, and accordingly, a large portion of our business transactions are denominated in U.S. dollars. However, the Company has operations in Australia, New Zealand, Great Britain, and Brazil, 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 2014 and 2013 the net change in the cumulative foreign currency translation account, which is a component of stockholders’ equity, was an unrealized loss of $5.9 million, and $5.4 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 $5.1 million and $3.4 million for the years ended December 31, 2014 and 2013, 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, 2014 the Company had $122.0 million of outstanding debt obligations which consisted of a $120.5 million balance on our commercial banking revolving line of credit and $1.5 million in secured promissory note payables. The Company’s revolving line of credit bears interest at the rate of LIBOR + 1.75%, and stood at 1.94% at December 31, 2014. The Company is exposed to market risk in relation to this 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 $40 thousand and $38 thousand for the years ending December 31, 2014 and 2013, respectively. The Company’s average cash balances during 2014 were $49.4 million and its existing cash balances as of December 31, 2014 was $52.3 million. 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 $114 thousand and $175 thousand for the years ended December 31, 2014 and 2013, respectively.
40
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See also the “Quarterly Financial Information” included under “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Ebix, Inc.:
We have audited the accompanying consolidated balance sheets of Ebix, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. We have also audited the accompanying consolidated financial statement schedule for the years ended December 31, 2014, 2013 and 2012 listed in the index at Item 15. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ebix, Inc. and subsidiaries at December 31, 2014 and 2013 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule for the years ended December 31, 2014, 2013 and 2012 when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, 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 16, 2015 expressed an unqualified opinion thereon.
Cherry Bekaert LLP
Atlanta, Georgia
March 16, 2015
42
Ebix, Inc. and Subsidiaries
Consolidated Statements of Income
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | |||||||||
(In thousands, except per share amounts) | |||||||||||
Operating revenue: | $ | 214,321 | $ | 204,710 | $ | 199,370 | |||||
Operating expenses: | |||||||||||
Costs of services provided | 47,388 | 40,471 | 38,133 | ||||||||
Product development | 26,860 | 26,798 | 24,825 | ||||||||
Sales and marketing | 13,840 | 15,848 | 16,687 | ||||||||
General and administrative (see Note 3) | 36,880 | 36,480 | 33,562 | ||||||||
Amortization and depreciation | 9,681 | 10,107 | 9,155 | ||||||||
Total operating expenses | 134,649 | 129,704 | 122,362 | ||||||||
Operating income | 79,672 | 75,006 | 77,008 | ||||||||
Interest income | 379 | 518 | 441 | ||||||||
Interest expense | (3,034 | ) | (1,226 | ) | (1,541 | ) | |||||
Non-operating income - put options | 296 | 342 | 190 | ||||||||
Non-operating expense - securities litigation | (690 | ) | (4,226 | ) | — | ||||||
Foreign exchange gain (loss) | 829 | (262 | ) | 1,931 | |||||||
Income before income taxes | 77,452 | 70,152 | 78,029 | ||||||||
Income tax provision | (13,894 | ) | (10,878 | ) | (7,460 | ) | |||||
Net income | $ | 63,558 | $ | 59,274 | $ | 70,569 | |||||
Basic earnings per common share | $ | 1.68 | $ | 1.58 | $ | 1.91 | |||||
Diluted earnings per common share | $ | 1.67 | $ | 1.53 | $ | 1.80 | |||||
Basic weighted average shares outstanding | 37,809 | 37,588 | 36,948 | ||||||||
Diluted weighted average shares outstanding | 38,040 | 38,642 | 39,100 | ||||||||
See accompanying notes to the consolidated financial statements.
43
Ebix, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | ||||||||||
(In thousands) | ||||||||||||
Net income | $ | 63,558 | $ | 59,274 | $ | 70,569 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments | (5,855 | ) | (5,376 | ) | (2,394 | ) | ||||||
Total other comprehensive income (loss) | (5,855 | ) | (5,376 | ) | (2,394 | ) | ||||||
Comprehensive income | $ | 57,703 | $ | 53,898 | $ | 68,175 | ||||||
See accompanying notes to the consolidated financial statements.
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Ebix, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2014 | December 31, 2013 | ||||||
(In thousands, except share and per share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 52,300 | $ | 56,674 | |||
Short-term investments | 281 | 801 | |||||
Trade accounts receivable, less allowances of $1,619 and $1,049, respectively | 41,100 | 39,070 | |||||
Deferred tax asset, net | 2,113 | 256 | |||||
Other current assets | 8,067 | 5,548 | |||||
Total current assets | 103,861 | 102,349 | |||||
Property and equipment, net | 24,661 | 8,528 | |||||
Goodwill | 402,220 | 337,068 | |||||
Intangibles, net | 49,371 | 50,734 | |||||
Indefinite-lived intangibles | 30,887 | 30,887 | |||||
Deferred tax asset, net | 18,758 | 12,194 | |||||
Other assets | 4,553 | 3,682 | |||||
Total assets | $ | 634,311 | $ | 545,442 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 40,121 | $ | 17,818 | |||
Accrued payroll and related benefits | 5,280 | 6,482 | |||||
Short term debt | — | 13,062 | |||||
Liability – securities litigation settlement | — | 4,226 | |||||
Contingent liability for accrued earn-out acquisition consideration | 887 | 4,137 | |||||
Current portion of long term debt and capital lease obligation, net of discount of $7 and $10, respectively | 936 | 827 | |||||
Put option liability | — | 845 | |||||
Deferred revenue | 22,192 | 18,918 | |||||
Current deferred rent | 268 | 254 | |||||
Other current liabilities | 102 | 106 | |||||
Total current liabilities | 69,786 | 66,675 | |||||
Revolving line of credit | 120,465 | 22,840 | |||||
Other long term debt and capital lease obligation, less current portion, net of discount of $7 and $38, respectively | 593 | 20,124 | |||||
Contingent liability for accrued earn-out acquisition consideration | 4,480 | 10,283 | |||||
Deferred revenue | 2,496 | 391 | |||||
Long term deferred rent | 2,091 | 2,185 | |||||
Other liabilities | 2,179 | 4,719 | |||||
Total liabilities | 202,090 | 127,217 | |||||
Commitments and Contingencies, Note 6 | |||||||
Temporary equity, Note 20 | — | 5,000 | |||||
Stockholders’ equity: | |||||||
Convertible Series D Preferred stock, $.10 par value, 500,000 shares authorized, no shares issued and outstanding at December 31, 2014 and 2013 | — | — | |||||
Common stock, $.10 par value, 60,000,000 shares authorized, 36,232,074 issued and 36,191,565 outstanding at December 31, 2014 and 38,088,391 issued and 38,047,882 outstanding at December 31, 2013 | 3,619 | 3,805 | |||||
Additional paid-in capital | 137,101 | 164,216 | |||||
45
Treasury stock (40,509 shares as of December 31, 2014 and December 31, 2013) | (76 | ) | (76 | ) | |||
Retained earnings | 309,726 | 257,574 | |||||
Accumulated other comprehensive loss | (18,149 | ) | (12,294 | ) | |||
Total stockholders’ equity | 432,221 | 413,225 | |||||
Total liabilities, temporary equity and stockholders’ equity | $ | 634,311 | $ | 545,442 | |||
See accompanying notes to the consolidated financial statements.
46
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 | Total | ||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||||||||
Balance, January 1, 2012 | 36,418,385 | $ | 3,638 | (40,509 | ) | $ | (76 | ) | $ | 179,518 | $ | 137,559 | $ | (4,524 | ) | $ | 316,115 | ||||||||||||
Net income | — | — | — | — | — | 70,569 | — | 70,569 | |||||||||||||||||||||
Cumulative translation adjustment | (2,394 | ) | (2,394 | ) | |||||||||||||||||||||||||
Exercise of stock options | 1,361,542 | 137 | 883 | 1,020 | |||||||||||||||||||||||||
Deferred compensation and amortization related to options and restricted stock | — | — | — | — | 2,083 | — | — | 2,083 | |||||||||||||||||||||
Shares subscribed for business acquisition | 296,560 | 30 | — | — | (30 | ) | — | — | — | ||||||||||||||||||||
Repurchase of common stock | (983,818 | ) | (99 | ) | — | — | (18,275 | ) | — | — | (18,374 | ) | |||||||||||||||||
APIC adjustment for stock options | — | — | — | 1,162 | — | — | 1,162 | ||||||||||||||||||||||
Vesting of restricted stock | 89,308 | 8 | — | — | (8 | ) | — | — | — | ||||||||||||||||||||
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested | (50,200 | ) | (5 | ) | — | — | (987 | ) | — | — | (992 | ) | |||||||||||||||||
Dividends paid | — | — | — | — | — | (7,034 | ) | — | (7,034 | ) | |||||||||||||||||||
Balance, December 31, 2012 | 37,131,777 | $ | 3,709 | (40,509 | ) | $ | (76 | ) | $ | 164,346 | $ | 201,094 | $ | (6,918 | ) | $ | 362,155 | ||||||||||||
Net income | — | — | — | — | — | 59,274 | — | 59,274 | |||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | — | — | (5,376 | ) | (5,376 | ) | |||||||||||||||||||
Exercise of stock options | 1,251,633 | 125 | 2,036 | 2,161 | |||||||||||||||||||||||||
Repurchase of common stock | (250,900 | ) | (25 | ) | — | — | (2,467 | ) | — | — | (2,492 | ) | |||||||||||||||||
Deferred compensation and amortization related to options and restricted stock | — | — | — | — | 1,941 | — | — | 1,941 | |||||||||||||||||||||
APIC adjustment for stock options | — | ||||||||||||||||||||||||||||