Notes to Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business—
Ebix, Inc. and its subsidiaries (“Ebix” or the “Company”) is an international supplier of on-demand software and e-commerce solutions for the insurance industry. Ebix provides various software solutions and products for the insurance industry ranging from data exchanges, carrier systems, and agency systems, to custom software development for business entities across the insurance industry. The Company's products feature fully customizable and scalable on-demand software designed to streamline the way insurance professionals manage distribution, marketing, sales, customer service, and accounting activities. The Company has its headquarters in Atlanta, Georgia and also conducts operating activities in Australia, Canada, China, India, Japan, New Zealand, Singapore, United Kingdom and Brazil. International revenue accounted for
31.8%
,
29.3%
, and
28.5%
of the Company’s total revenue in
2013
,
2012
, and
2011
, respectively.
The Company’s revenues are derived from
four
product/service groups. Presented in the table below is the breakout of our revenue streams for each of those product/service groups for the years ended
December 31, 2013
,
2012
and
2011
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
|
(dollar amounts in thousands)
|
|
2013
|
|
2012
|
|
2011
|
Exchanges
|
|
$
|
163,925
|
|
|
$
|
159,678
|
|
|
$
|
130,638
|
|
Broker Systems
|
|
18,378
|
|
|
18,612
|
|
|
18,006
|
|
Business Process Outsourcing (“BPO”)
|
|
15,678
|
|
|
16,140
|
|
|
14,944
|
|
Carrier Systems
|
|
6,729
|
|
|
4,940
|
|
|
5,381
|
|
Totals
|
|
$
|
204,710
|
|
|
$
|
199,370
|
|
|
$
|
168,969
|
|
Summary of Significant Accounting Policies
Basis of Presentation
— The consolidated financial statements include the accounts of Ebix and its wholly owned subsidiaries. The effect of inter-company balances and transactions has been eliminated.
Use of Estimates
—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during those reporting periods. Management has made material estimates primarily with respect to revenue recognition and deferred revenue, accounts receivable, acquired intangible assets, contingent earnout liabilities in connection with business acquisitions, business investments, and the provision for income taxes. Actual results may be materially different from those estimates.
Reclassification
—
C
ertain of the reported balances and results for prior year or prior quarters, including the notes thereto, have been reclassified to conform to the current year presentation. In particular the short-term and long-term portions of the contingent liability for accrued earn-out acquisition consideration is now disclosed separately in the respective sections of the consolidated balance sheets rather than in other current liabilities or other liabilities. The change in reserve for potential uncertain income tax return positions had been previously netted against the provision for deferred taxes line in the consolidated statements of cash flows, it is now shown separately. Also the excess tax benefits from share-based compensation is now reported as a component of financing cash flows rather than being netted against the provision for deferred taxes as a component of operating cash flows in the consolidated statements of cash flows.
Segment Reporting
—Since the Company, from the perspective of its chief operating decision maker, allocates resources and evaluates business performance as a single entity that provides software and related services to a single industry on a worldwide basis, the Company reports as a single segment. The applicable enterprise-wide disclosures are included in Note 16.
Cash and Cash Equivalents
—The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Such investments are stated at cost, which approximates fair value. The Company does maintain cash balances in banking institutions in excess of federally insured amounts and therefore is exposed to the related potential credit risk associated with such cash deposits.
Short-term Investments
—The Company’s short-term investments consist of certificates of deposits with established commercial banking institutions with readily determinable fair values. Ebix accounts for investments that are reasonably expected to be realized in cash, sold or consumed during the year as short-term investments that are available-for-sale. The carrying amount of investments in marketable securities approximates their fair value. The carrying value of our short-term investments was
$801 thousand
and
$971 thousand
at
December 31, 2013
and
2012
, respectively.
Fair Value of Financial Instruments
—The Company follows the relevant GAAP guidance regarding the determination and measurement of the fair value of financial instruments in which fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction valuation hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used in the methodology to measure fair value:
|
|
•
|
Level 1
— Quoted prices available in active markets for identical investments as of the reporting date;
|
|
|
•
|
Level 2
— Inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date; and,
|
|
|
•
|
Level 3
— Unobservable inputs, which are to be used in situations where there is little or no market activity for the asset or liability and wherein the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
As of
December 31, 2013
and
2012
the Company has the following financial instruments to which it had to consider fair values and had to make fair assessments:
|
|
•
|
Common share-based put option for which the fair value was measured as Level 2 instrument.
|
|
|
•
|
Short-term investments for which the fair values are measured as a Level 1 instrument.
|
|
|
•
|
Contingent accrued earn-out business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.
|
Other financial instruments not measured at fair value on the Company's consolidated balance sheets at
December 31, 2013
and
2012
but which require disclosure of their fair values include: cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related benefits, capital lease obligations debt under the revolving line of credit and term loans with Citibank, and business investments. The estimated fair value of such instruments at
December 31, 2013
and
2012
reasonably approximates their carrying value as reported on the consolidated balance sheets.
Additional information regarding the Company's assets and liabilities that are measured at fair value on a recurring basis is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values at Reporting Date Using*
|
Descriptions
|
|
Balance at December 31, 2013
|
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
|
|
(In thousands)
|
Assets
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
Commercial bank certificates of deposits
|
|
$
|
801
|
|
$
|
801
|
|
$
|
—
|
|
$
|
—
|
|
Total assets measured at fair value
|
|
$
|
801
|
|
$
|
801
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
Common share-based put option (a)
|
|
$
|
845
|
|
$
|
—
|
|
$
|
845
|
|
$
|
—
|
|
Contingent accrued earn-out acquisition consideration (b)
|
|
14,420
|
|
—
|
|
—
|
|
14,420
|
|
Total liabilities measured at fair value
|
|
$
|
15,265
|
|
$
|
—
|
|
$
|
845
|
|
$
|
14,420
|
|
|
|
|
|
|
|
(a) In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to the PlanetSoft's three shareholders. The put option, which expires in June 2014, is exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying 296,560 shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of $16.86 per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $1.4 million using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return.
|
(b) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments.
|
* During the year ended December 31, 2013 there were no transfers between fair value Levels 1, 2 or 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values at Reporting Date Using*
|
Descriptions
|
|
Balance at December 31, 2012
|
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
|
|
(In thousands)
|
Assets
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
Commercial bank certificates of deposits ($213 thousand is recorded in the long term asset section of the consolidated balance sheets)
|
|
$
|
1,184
|
|
1,184
|
|
—
|
|
—
|
|
Total assets measured at fair value
|
|
$
|
1,184
|
|
$
|
1,184
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
Common share-based put option (a)
|
|
$
|
1,186
|
|
—
|
|
1,186
|
|
—
|
|
Contingent accrued earn-out acquisition consideration (b)
|
|
17,495
|
|
—
|
|
—
|
|
17,495
|
|
Total liabilities measured at fair value
|
|
$
|
18,681
|
|
$
|
—
|
|
$
|
1,186
|
|
$
|
17,495
|
|
|
|
|
|
|
|
(a) In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to the PlanetSoft's three shareholders. The put option, which expires in June 2014, is exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying 296,560 shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of $16.86 per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $1.4 million using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return.
|
(b) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments.
|
* During the year ended December 31, 2012 there were no transfers between fair value Levels 1, 2 or 3.
|
For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the year.
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
Contingent Liability for Accrued Earn-out Acquisition Consideration
|
|
Balance at December 31, 2013
|
|
Balance at December 31, 2012
|
|
|
(in thousands)
|
|
|
|
|
|
Beginning balance
|
|
$
|
17,495
|
|
|
7,590
|
|
|
|
|
|
|
Total remeasurement adjustments:
|
|
|
|
|
(Gains) or losses included in earnings **
|
|
(10,253
|
)
|
|
(699
|
)
|
(Gains) or losses recorded against goodwill
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments ***
|
|
730
|
|
|
(143
|
)
|
|
|
|
|
|
Acquisitions and settlements
|
|
|
|
|
Business acquisitions
|
|
9,425
|
|
|
16,258
|
|
Settlements
|
|
(2,977
|
)
|
|
(5,511
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
14,420
|
|
|
$
|
17,495
|
|
|
|
|
|
|
The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end.
|
|
$
|
(9,954
|
)
|
|
$
|
(802
|
)
|
|
|
|
|
|
** recorded as a component of reported general and administrative expenses
|
|
|
*** recorded as a component of other comprehensive income within stockholders' equity
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value at December 31, 2013
|
|
Valuation Technique
|
|
Significant Unobservable
Input
|
Contingent acquisition consideration:
(Taimma, PlanetSoft, TriSystems, and Qatarlyst acquisitions)
|
|
$14,420
|
|
Discounted cash flow
|
|
Expected future annual revenue streams and probability of achievement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value at December 31, 2012
|
|
Valuation Technique
|
|
Significant Unobservable
Input
|
Contingent acquisition consideration:
(USIX, HealthConnect, Taimma, PlanetSoft, and TriSystems acquisitions)
|
|
$17,495
|
|
Discounted cash flow
|
|
Expected future annual revenue streams and probability of achievement
|
Sensitivity to Changes in Significant Unobservable Inputs
As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecasts. The discount rate used in these calculations is
1.75%
. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement.
Revenue Recognition and Deferred Revenue
—The Company derives its revenues primarily from professional and support services, which includes revenue generated from subscription and transaction fees pertaining to services delivered over our exchanges or from our application service provider (“ASP”) platforms, software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and business process outsourcing revenue ("BPO"). Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company follows the relevant technical accounting guidance regarding revenue recognition as issued by the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission's ("SEC"). The Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been received or is reasonably assured, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements related to all transactions involving the license of software where the software deliverables are considered more than inconsequential to the other elements in the arrangement. For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the appropriate authoritative guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate units of accounting for the purpose of revenue recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable evidence of the fair value for all arrangement deliverables; and c) if the arrangement includes a general right of return relative to the delivered items, the delivery or performance of the undelivered items is probable and substantially controlled by the Company. Under the relevant accounting guidance, when multiple-deliverables included in an arrangement are to be separated into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative fair values. We determine the relative selling price for a deliverable based on vendor-specific objective evidence of selling price (“VSOE”), if available, or third-party evidence ("TPE") in the alternative if available, or finally our best estimate of selling price (“BESP”), if VSOE or TPE is not available.
The Company begins to recognize revenue from license fees for its exchange (SAAS) and ASP products upon granting customer access to the respective processing platform. Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as the transactions occur and are generally billed in arrears. Revenues from BPO arrangements, which include data entry and call center services, and insurance certificate creation and tracking services, are recognized as the services are performed. Service fees for hosting arrangements are recognized over the requisite service period. Revenue derived from the licensing of third party software products in connection with sales of the Company’s software licenses is recognized upon delivery together with the Company’s licensed software products. Fees for training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenue for maintenance and support services are recognized ratably over the term of the support agreement.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of-completion
method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.
Deferred revenue includes payments or billings that have been received or made prior to performance and, in certain cases, cash collections and primarily pertain to maintenance and support fees, initial setup or registration fees under hosting agreements, software license fees received in advance of delivery and acceptance, and software development fees paid in advance of completion and delivery. Approximately
$6.7 million
and
$7.0 million
of deferred revenue were included in billed accounts receivable at
December 31, 2013
and
2012
, respectively.
Accounts Receivable and the Allowance for Doubtful Accounts Receivable
—Rep
orted accounts receivable
as of
December 31, 2013
include
$31.2 million
of trade receivables stated at invoice billed amounts (net of a
$1.05 million
estimated allowance for doubtful accounts receivable), and
$7.9 million
of unbilled receivables. Reported accounts receivable at
December 31, 2012
include
$28.5 million
of trade receivables stated at invoice billed amounts (net of a
$1.16 million
estimated allowance for doubtful accounts receivable), and
$8.8 million
of unbilled receivables. The unbilled receivables pertain to certain professional service engagements and long-term development projects for which the timing of billing is tied to contractual milestones. The Company adheres to such contractually stated performance milestones and accordingly issues invoices to customers as per contract billing schedules. Accounts receivable are written off against the allowance for doubtful accounts receivable when the Company has exhausted all reasonable collection efforts.
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.
Bad debt expense was
$1.1 million
,
$442 thousand
, and
$1.0 million
for the year ended
December 31, 2013
,
2012
, and
2011
respectively.
Costs of Services Provided
—Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain our proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
Goodwill and Indefinite-Lived Intangible Assets
— Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, 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, 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. Projections of cash flows are based on our views of 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., growth rates, future economic conditions, discount rates, and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. We perform our annual goodwill impairment evaluation and testing as of September 30 each year. During the years ended
December 31, 2013
,
2012
, and
2011
, we had no impairment of our reporting unit goodwill balances.
The following table summarizes the goodwill recorded in connection with the acquisitions that occurred during
2013
and
2012
:
|
|
|
|
|
|
|
|
Company acquired
|
|
Date acquired
|
|
(in thousands)
|
Qatarlyst ("Qatarlyst")
|
|
April 2013
|
|
$
|
11,136
|
|
Total during 2013
|
|
|
|
$
|
11,136
|
|
|
|
|
|
|
Benefit Software, Inc. ("BSI")
|
|
March 2012
|
|
$
|
3,243
|
|
Taimma Communications, Inc. ("Taimma")
|
|
April 2012
|
|
7,557
|
|
PlanetSoft Holdings, Inc. ("PlanetSoft")
|
|
June 2012
|
|
44,116
|
|
Fintechnix Pty Limited ("Fintechnix")
|
|
June 2012
|
|
3,706
|
|
TriSystems, Ltd. ("Trisystems")
|
|
August 2012
|
|
8,754
|
|
Total during 2012
|
|
|
|
$
|
67,376
|
|
In addition, during
2012
the Company recorded a
$25 thousand
increase to goodwill, in connection to a 2009 acquisition, for an earn-out payment not previously recognized.
Changes in the carrying amount of goodwill for the years ended
December 31, 2013
and
2012
are as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
(in thousands)
|
Beginning Balance
|
$
|
326,748
|
|
|
$
|
259,218
|
|
Additions, net (see Note 3)
|
11,136
|
|
|
67,401
|
|
Foreign currency translation adjustments
|
(816
|
)
|
|
129
|
|
Ending Balance
|
$
|
337,068
|
|
|
$
|
326,748
|
|
The Company’s indefinite-lived assets are associated with the estimated fair value of the contractual customer relationships existing with the property and casualty insurance carriers in Australia using our property and casualty ("P&C") data exchange and with certain large corporate customers using our client relationship management (“CRM”) platform in the United States. Prior to these underlying business acquisitions Ebix had pre-existing contractual relationships with these carriers and corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue to renew these contracts indefinitely and has the ability to do so. The proprietary technology supporting the P&C data exchange and CRM platform that is used to deliver services to these carriers and corporate clients, cannot feasibly be effectively replaced in the foreseeable future, and accordingly the cash flows forthcoming from these customers are expected to continue indefinitely. With respect to the determination of the indefinite life, the Company considered the expected use of these intangible assets, historical experience in renewing or extending similar arrangements, and the effects of competition, and concluded that there were no indications from these factors to suggest that the expected useful life of these customer relationships would be finite. The Company concluded that no legal, regulatory, contractual, or competitive factors limited the useful life of these intangible assets and therefore their life was considered to be indefinite, and accordingly the Company expects these customer relationships to remain the same for the foreseeable future. The fair values of these indefinite-lived intangible assets were based on the analysis of discounted cash flow (“DCF”) models extended out fifteen to twenty years. In that indefinite-lived does not imply an infinite life, but rather means that the subject customer relationships are expected to extend beyond the foreseeable time horizon, we utilized fifteen to twenty year DCF projections, as the valuation models that were applied consider a fifteen to twenty year time frame to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually. We perform our annual impairment testing of indefinite-lived intangible assets as of September 30th of each year. During the years ended
December 31, 2013
,
2012
, and
2011
, we had no impairments to the recorded balances of our indefinite-lived intangible assets. We perform the impairment test for our indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value.
Purchased Intangible Assets
—Purchased intangible assets represent the estimated fair value of acquired intangible assets from the businesses that we acquire in the U.S. and foreign countries in which we operate. These purchased intangible assets
include customer relationships, developed technology, informational databases, and trademarks. We amortize these intangible assets on a straight-line basis over their estimated useful lives, as follows:
|
|
|
|
|
Life
|
Category
|
(yrs)
|
Customer relationships
|
7-20
|
|
Developed technology
|
3-12
|
|
Trademarks
|
3-15
|
|
Non-compete agreements
|
5
|
|
Database
|
10
|
|
Intangible assets as of
December 31, 2013
and
December 31, 2012
, are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
|
(In thousands)
|
Finite-lived intangible assets:
|
|
|
|
Customer relationships
|
$
|
62,408
|
|
|
$
|
57,638
|
|
Developed technology
|
14,630
|
|
|
14,025
|
|
Trademarks
|
2,646
|
|
|
2,638
|
|
Non-compete agreements
|
538
|
|
|
538
|
|
Backlog
|
140
|
|
|
140
|
|
Database
|
212
|
|
|
212
|
|
Total intangibles
|
80,574
|
|
|
75,191
|
|
Accumulated amortization
|
(29,840
|
)
|
|
(22,600
|
)
|
Finite-lived intangibles, net
|
$
|
50,734
|
|
|
$
|
52,591
|
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
Customer/territorial relationships
|
$
|
30,887
|
|
|
$
|
30,887
|
|
Income Taxes
— The Company follows the asset and liability method of accounting for income taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities, and operating loss and tax credit carry forwards, and their financial reporting amounts at each period end using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is recorded for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. 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
—Historically the functional currency for the Company's foreign subsidiaries in India and Singapore had been the Indian rupee and Singapore dollar, respectively. As a result of the Company's rapid growth, including the acquisition of PlanetSoft in June 2012, the expansion of its intellectual property research and development activities in its Singapore subsidiary, and the expansion of its product development activities and information technology enabled services for the insurance industry provided by its India subsidiary in support of Ebix's operating divisions across the world (both of which are transacted in U.S. dollars), management undertook a reconsideration of functional currency designations for these two foreign subsidiaries in India and Singapore, and concluded that effective July 1, 2012 the functional currency for these entities should be changed to the U.S. dollar. Management believes that the acquisition of PlanetSoft in combination with the other recent business
acquisitions, and the cumulative effect of business acquisitions made over the last few years which necessitated the rapid growth of the Company's operations in India and Singapore, were indicative of a significant change in the economic facts and circumstances that justified the reconsideration and ultimate change in the functional currency. Had the change in the functional currency designation for our India and Singapore subsidiaries not been made, the Company would have incurred and recognized approximately
$49 thousand
of additional foreign currency exchange gains during the year ended
December 31, 2012
. Furthermore, a portion of monetary assets and liabilities for these two foreign subsidiaries that are denominated in foreign currencies are re-measured into U.S. dollars at the exchange rates in effect at each reporting date. These corresponding re-measurement gains and losses are included as a component of foreign currency exchange gains and losses in the accompanying Consolidated Statements of Income and amounted to a
$151 thousand
loss for the year ended
December 31, 2012
.
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.
Advertising
—Advertising costs are expensed as incurred. Advertising costs amounted to
$1.0 million
,
$1.4 million
, and
$1.0 million
in
2013
,
2012
, and
2011
, respectively, and are included in sales and marketing expenses in the accompanying Consolidated Statements of Income.
Sales Commissions
—Certain sales commission paid with respect to subscription-based revenues are deferred and subsequently amortized into operating expenses ratably over the term of the related customer subscription contracts. As of
December 31, 2013
and
2012
,
$434 thousand
and
$442 thousand
, respectfully, of sales commissions were deferred and included in other current assets on the accompanying Consolidated Balance Sheets. During the years ended
December 31, 2013
and
2012
the Company amortized
$915 thousand
and
$1.1 million
, respectively, of previously deferred sales commissions and included this expense in sales and marketing costs on the accompanying Consolidated Statements of Income.
Property and Equipment
—Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of the expected life of the improvements or the remaining lease term. Repairs and maintenance are charged to expense as incurred and major improvements that extend the life of the asset are capitalized and depreciated over the expected remaining life of the related asset. Gains and losses resulting from sales or retirements are recorded as incurred, at which time related costs and accumulated depreciation are removed from the Company’s accounts. Fixed assets acquired in acquisitions are recorded at fair value. The estimated useful lives applied by the Company for property and equipment are as follows:
|
|
|
|
Life
|
Asset Category
|
(yrs)
|
Computer equipment
|
5
|
Furniture, fixtures and other
|
7
|
Buildings
|
30
|
Leasehold improvements
|
Life of the lease
|
Recent Accounting Pronouncements
The following is a summary brief discussion of recently released accounting pronouncements that are pertinent to the Company’s business:
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 will adopt this new standard in 2014, and it may have an effect on how unrecognized tax benefits are 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 has not yet adopted this new guidance, and accordingly applied quantitative methods to evaluate its indefinite-lived intangible assets for impairment during 2013. The Company expects to adopt 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 June 2011, the FASB issued new financial reporting guidance regarding the reporting of "other comprehensive income, or (OCI)". This guidance revises the manner in which entities present comprehensive income in their financial statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income, or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used currently, and the second statement would include components of OCI. Under either method, entities must display adjustments for items that are reclassified from OCI to net income in both net income and OCI. The new reporting guidance does not change the items that must be reported in OCI. This new reporting standard is effective for interim and annual periods beginning after December 15, 2011. After adoption, the guidance must be applied retrospectively for all periods presented in the financial statements. The Company adopted this new guidance during 2012. It did not have a material impact on our financial position or operating results as the only element of comprehensive income relevant to Ebix is in regards to cumulative foreign currency translation adjustments.
In September 2011, the FASB issued new technical guidance regarding an entity's evaluation of goodwill for possible impairment. Under this new guidance an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step quantitative impairment test is unnecessary. This new technical guidance was effective for fiscal years beginning after December 15, 2011. Early adoption was permitted for annual and interim goodwill impairment evaluations performed as of a date before September 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The Company elected to adopt early and accordingly applied this new guidance to its 2011 annual impairment evaluation of goodwill, and its adoption did not have a material impact on the Company's statements of financial position or operations.
Note 2. Earnings per Share
The basic and diluted earnings per share (“EPS”), and the basic and diluted weighted average shares outstanding for all periods as presented in the accompanying Consolidated Statements of Income are shown below :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
(In thousands, except per share amounts)
|
Earnings per share:
|
|
2013
|
|
2012
|
|
2011
|
Basic earnings per common share
|
|
$
|
1.58
|
|
|
$
|
1.91
|
|
|
$
|
1.89
|
|
Diluted earnings per common share
|
|
$
|
1.53
|
|
|
$
|
1.80
|
|
|
$
|
1.75
|
|
Basic weighted average shares outstanding
|
|
37,588
|
|
|
36,948
|
|
|
37,742
|
|
Diluted weighted average shares outstanding
|
|
38,642
|
|
|
39,100
|
|
|
40,889
|
|
Basic EPS is equal to net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS takes into consideration common stock equivalents which for the Company consist of stock options and restricted stock. With respect to stock options, diluted EPS is calculated as if the Company had additional common stock outstanding from the beginning of the year or the date of grant or issuance, net of assumed repurchased shares using the treasury stock method. Diluted EPS is equal to net income divided by the combined sum of the weighted average number of shares outstanding and common stock equivalents. At
December 31, 2013
,
2012
, and
2011
there were
315,000
,
90,000
, and
90,000
potentially issuable shares with respect to stock options which could dilute EPS in the future but which were excluded from the diluted EPS calculation because presently their effect is anti-dilutive. Diluted shares outstanding are determined as follows for each years ending
December 31, 2013
,
2012
, and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
(in thousands)
|
|
|
2013
|
|
2012
|
|
2011
|
Basic weighted average shares outstanding
|
|
37,588
|
|
|
36,948
|
|
|
37,742
|
|
Incremental shares for common stock equivalents
|
|
1,054
|
|
|
2,152
|
|
|
3,147
|
|
Diluted shares outstanding
|
|
38,642
|
|
|
39,100
|
|
|
40,889
|
|
Note 3. Business Acquisitions
The Company’s business acquisitions are accounted for under the purchase method of accounting in accordance with the FASB’s accounting guidance on the accounting for business combinations. Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains in part to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce.
The Company's practice is that, immediately after a business acquisition is consummated, to tightly integrate all functions including infrastructure, sales and marketing, administration, product development, so as to ensure that efficiencies are maximized and redundancies eliminated. Furthermore the Company centralizes certain key functions such as product development, information technology, marketing, sales, human resources, finance, and other general administrative functions after an acquisition, in order to rapidly leverage cross-selling opportunities and to quickly realize cost efficiencies. By executing this integration strategy it becomes neither practical nor feasible to accurately and separately track and disclose the earnings from the business combinations we have executed after they have been acquired.
A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The Company recognizes these potential obligations as contingent liabilities as reported on its Consolidated Balance Sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the
then assessed fair value and adjusted if necessary. As of
December 31, 2013
, the total of these contingent liabilities was
$14.4 million
, of which
$10.3 million
is reported in long-term liabilities, and
$4.1 million
is included in current liabilities in the Company's Consolidated Balance Sheet. As of
December 31, 2012
the total of these contingent liabilities was
$17.5 million
of which
$14.2 million
is reported in long-term liabilities, and
$3.3 million
is included in current liabilities in the Company's Consolidated Balance Sheet.
During
2012
the Company received a termination fee in connection with a failed business acquisition. In this regard the Company recorded a reduction to general and administrative expense in the approximate amount of
$971 thousand
(net of directly related internal operating costs incurred by the Company and a portion of the fee that was paid to our investment banker).
2013 Acquisitions
During
2013
the Company executed and completed
one
business acquisition, Qatarlyst. The Company accounted for this acquisition by recording
$11.1 million
of goodwill,
$4.8 million
of intangible assets pertaining to customer relationships, and
$635 thousand
of intangible assets pertaining to acquired technology.
2012 Acquisitions
During
2012
the Company executed and completed
five
business acquisitions including PlanetSoft, Inc. which is discussed in more detail below; the other acquisitions were not material individually or in the aggregate. The Company accounted for these other four immaterial business acquisitions by recording in the aggregate
$23.3 million
of goodwill,
$7.6 million
of intangible assets pertaining to customer relationships,
$1.8 million
of intangible assets pertaining to acquired technology,
$436 thousand
of intangible assets for acquired trade names, and
$118 thousand
of intangible assets for non-compete agreements.
PlanetSoft
— Effective June 1, 2012, Ebix closed the merger of California based 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. Furthermore, under the terms of the agreement the PlanetSoft shareholders hold a put option exercisable during the
thirty
-day period immediately following the
two
-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying shares of common stock back to the Company at a price of
$16.86
per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft.
The initial fair value of this put option liability was determined to be
$1.4 million
. This put option is described in more detail in Note 10. PlanetSoft is in the business of powering data exchanges that streamline core insurance operations in the areas of client acquisition, underwriting, and distribution management.
$11.4 million
of PlanetSoft's operating revenues recognized since June 2012 were included in the Company's revenues reported in its Consolidated Statement of Income for the year ended
December 31, 2012
. The Company's operating revenues as reported in its Consolidated Statement of Income for the year ended
December 31, 2013
include
$17.2 million
of revenue generated by PlanetSoft operations. The revenue derived from PlanetSoft's operations is included in the Company's Exchange division. The Company accounted for this acquisition by recording
$44.1 million
of goodwill,
$9.8 million
of intangible assets pertaining to customer relationships, and
$540 thousand
of intangible assets pertaining to acquired technology. The former shareholders of PlanetSoft retain the right to earn up to an additional cash consideration if certain incremental revenue targets are achieved over the
two
-year anniversary date subsequent to the effective date of the acquisition. The currently determined approximate fair value of this contingent consideration liability is
$992 thousand
.
The following table summarizes the fair value of the consideration transferred, net assets acquired and liabilities assumed as a result of the acquisitions that occurred during
2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2013
|
|
2012
|
Fair value of total consideration transferred
|
|
|
|
|
Cash
|
|
$
|
5,025
|
|
|
$
|
56,112
|
|
Equity instruments
|
|
—
|
|
|
5,000
|
|
Contingent earn-out consideration arrangement
|
|
9,425
|
|
|
16,450
|
|
Secured promissory note issued
|
|
—
|
|
|
3,000
|
|
Total
|
|
$
|
14,450
|
|
|
$
|
80,562
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
|
|
Cash
|
|
$
|
285
|
|
|
$
|
1,049
|
|
Other current assets
|
|
485
|
|
|
5,213
|
|
Property, plant, and equipment
|
|
144
|
|
|
1,328
|
|
Other long term assets
|
|
507
|
|
|
331
|
|
Intangible assets
|
|
5,396
|
|
|
20,246
|
|
Deferred tax liability
|
|
(947
|
)
|
|
(6,018
|
)
|
Current and other liabilities
|
|
(2,556
|
)
|
|
(7,586
|
)
|
Put option liability
|
|
—
|
|
|
(1,377
|
)
|
Net assets acquired, excludes goodwill
|
|
3,314
|
|
|
13,186
|
|
|
|
|
|
|
Goodwill
|
|
11,136
|
|
|
67,376
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
14,450
|
|
|
$
|
80,562
|
|
In addition, during
2012
the Company recorded a
$25 thousand
increase to goodwill, in connection to a 2009 acquisition, for an earn-out payment not previously recognized.
The following table summarizes the separately identified intangible assets acquired as a result of the acquisitions that occurred during
2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
|
|
Weighted
Average
|
|
|
|
Weighted
Average
|
Intangible asset category
|
|
Fair Value
|
|
Useful Life
|
|
Fair Value
|
|
Useful Life
|
|
|
(in thousands)
|
|
(in years)
|
|
(in thousands)
|
|
(in years)
|
Customer relationships
|
|
$
|
4,761
|
|
|
11.0
|
|
$
|
17,365
|
|
|
10.9
|
Developed technology
|
|
635
|
|
|
5.0
|
|
2,327
|
|
|
4.5
|
Non-compete agreements
|
|
—
|
|
|
0.0
|
|
118
|
|
|
5.0
|
Trademarks
|
|
—
|
|
|
0.0
|
|
436
|
|
|
10.0
|
Total acquired intangible assets
|
|
$
|
5,396
|
|
|
10.3
|
|
$
|
20,246
|
|
|
10.1
|
Estimated aggregate future amortization expense for the intangible assets recorded as part of the business acquisitions described above and other prior acquisitions is as follows:
|
|
|
|
|
Estimated Amortization Expenses (in thousands):
|
|
For the year ending December 31, 2014
|
$
|
7,244
|
|
For the year ending December 31, 2015
|
6,589
|
|
For the year ending December 31, 2016
|
6,202
|
|
For the year ending December 31, 2017
|
5,791
|
|
For the year ending December 31, 2018
|
5,198
|
|
Thereafter
|
19,710
|
|
|
|
|
|
$
|
50,734
|
|
|
|
|
The Company recorded
$7.3 million
,
$6.1 million
, and
$4.8 million
of amortization expense related to acquired intangible assets for the years ended December 31,
2013
,
2012
, and
2011
, respectively.
Note 4. Pro Forma Financial Information (re:
2013
and
2012
acquisitions)
This unaudited pro forma financial information is provided for informational purposes only and does not project the Company’s results of operations for any future period.
The aggregated unaudited pro forma financial information pertaining to all of the Company's acquisitions made during 2013 and 2012, which includes the acquisitions of Qatarlyst, BSI, Taimma, PlanetSoft, Fintechnix, and TriSystems as presented in the table below is provided for informational purposes only and does not project the Company's expected results of operations for any future period. No effect has been given in this pro forma information for future synergistic benefits that may still be realized as a result of combining these companies or costs that may yet be incurred in integrating their operations. The 2013 and 2012 pro forma financial information below 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 thusly includes only nine months of actual financial results of Qatarlyst. Similarly, the 2012 pro forma financial information below 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
2013
|
|
Pro Forma
2013
|
|
As Reported
2012
|
|
Pro Forma
2012
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
|
(In thousands, except per share amounts)
|
Revenue
|
|
$
|
204,710
|
|
|
$
|
205,619
|
|
|
$
|
199,370
|
|
|
$
|
215,004
|
|
Net Income
|
|
$
|
59,274
|
|
|
$
|
57,966
|
|
|
$
|
70,569
|
|
|
$
|
57,008
|
|
Basic EPS*
|
|
$
|
1.58
|
|
|
$
|
1.54
|
|
|
$
|
1.91
|
|
|
$
|
1.54
|
|
Diluted EPS*
|
|
$
|
1.53
|
|
|
$
|
1.50
|
|
|
$
|
1.80
|
|
|
$
|
1.45
|
|
In the above table, the unaudited pro forma revenue for the year ended
December 31, 2013
decreased by
$9.4 million
from the unaudited pro forma revenue for
2012
of
$215.0 million
to
$205.6 million
, representing a
4.4%
decrease. The reported revenue in the amount of
$204.7 million
for the year ended
December 31, 2013
increased by
$5.3 million
or
2.7%
from the
$199.4 million
of reported revenue for the year ended
December 31, 2012
.
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
,
2012
, and
2011
the change in foreign currency exchange rates increased/(decreased) reported consolidated operating revenues by
$(3.8) million
,
$(1.2) million
, and
$4.2 million
, respectfully.
|
Note 5. Commercial Bank Financing Facility
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. ("Citibank") as administrative agent and Citibank, N.A., Wells Fargo Capital Finance, LLC, and RBS Citizens, N.A. as joint lenders. The financing is comprised of a
4
-year,
$45 million
secured revolving credit facility, a
$45 million
secured term loan which amortizes over a
4
year period with quarterly principal and interest payments commencing on June 30, 2012 and a final payment of all remaining outstanding principal and accrued interest due on April 26, 2016, and an accordion feature that provides for the expansion of the credit facility by an additional
$10 million
. This new
$100 million
credit facility with Citibank, N.A., as administrative agent, replaced the former
$55 million
facility that the Company had in place with Bank of America, N.A. The initial interest rate applicable to the Secured Syndicated Credit Facility is LIBOR plus
1.50%
and currently stands at
1.67%
. Under the Secured Syndicated Credit Facility the maximum interest rate that could be charged depending upon the Company's leverage ratio is LIBOR plus
2.00%
. The credit facility is used by the Company to fund working capital requirements primarily in support of current operations, organic growth, and accretive business acquisitions. The Company incurred
$744 thousand
of origination costs in connection with this new credit facility, and is amortizing these costs into interest expense over the
four
-year life of the credit agreement. As of
December 31, 2013
the Company's consolidated balance sheet includes
$434 thousand
of remaining deferred financing costs. The underlying financing agreement contains financial covenants regarding the Company's annualized EBITDA, fixed charge coverage ratio, and leverage ratio, as well as certain restrictive covenants pertaining to such matters as the incurrence of new debt, the aggregate amount of repurchases of the Company's equity shares, and the consummation of new business acquisitions. The Company currently is in compliance with all such financial and restrictive covenants.
On April 26, 2012, Ebix fully paid all of its obligations and related fees then outstanding to BOA and as pertaining to the Credit Agreement dated February 12, 2010 (as amended). The aggregate amount of the payment was
$45.14 million
and was funded from a portion of the proceeds of the Citibank led Secured Syndicated Credit Facility discussed immediately above. Upon the effective date of this payoff, BOA's commitment to extend further credit to the Company terminated.
At
December 31, 2013
, the outstanding balance on the revolving line of credit with Citibank was
$22.8 million
and the facility carried an interest rate of
1.67%
. This balance is included in the long-term liabilities section of the Consolidated Balance Sheets. During
2013
, the average and maximum outstanding balances on the revolving line of credit were
$30.7 million
and
$37.8 million
, respectively, and the weighted average interest rate was
1.69%
. At
December 31, 2012
the outstanding balance on the revolving line of credit was
$37.8 million
and the facility carried an interest rate of
1.71%
.
At
December 31, 2013
, the outstanding balance on the term loan with Citibank was
$31.9 million
of which
$13.1 million
is due within the next
twelve
months. This term loan also carried an interest rate of
1.67%
. During
2013
,
$8.9 million
of scheduled payments were made against the existing term loan with Citibank. The current and long-term portions of the term loan are included in the respective current and long-term sections of the consolidated balance sheets. At
December 31, 2012
, the outstanding balance on the term loan was
$40.9 million
.
Note 6. Commitments and Contingencies
Contingencies
-Between July 14, 2011 and July 21, 2011, securities class action complaints were filed against the Company and certain of its officers in the United States District Court for the Southern District of New York and in the United States District Court for the Northern District of Georgia. The complaints assert claims against (i) the Company and the Company's CEO and CFO for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and (ii) the Company's CEO and CFO as alleged controlling persons. The complaints generally allege false statements in earnings reports, SEC filings, press releases, and other public statements that allegedly caused the Company's stock to trade at artificially inflated prices. Plaintiffs seek an unspecified amount of damages.
The New York action has been transferred to Georgia and has been consolidated with the Georgia action, now styled In re: Ebix, Inc. Securities Litigation, Civil Action No. 1:11-CV-02400-RSW (N.D. Ga.). A Consolidated Amended Complaint (“CAC”) was filed by Plaintiffs on November 28, 2011. On January 12, 2012, the Company filed a Motion to Dismiss the CAC, which raised various defenses that the CAC failed to state a claim. On September 28, 2012, the Court entered an order denying the Company's Motion to Dismiss. On December 7, 2012, Plaintiffs filed their Motion for Class Certification. On June 19, 2013, Defendants filed a Motion for Judgment on the Pleadings. On July 2, 2013, the Court denied Plaintiffs' Motion for Class Certification without prejudice to Plaintiffs' refiling their Motion should the Court deny, in whole or in part, Defendants' Motion for Judgment on the Pleadings. On July 16, 2013, the Court entered a Stipulated Order Staying Discovery Pending Resolution of Defendants' Motion for Judgment on the Pleadings. The parties have reached a mutually acceptable agreement to resolve this action, and on January 27, 2014, Plaintiffs filed their Motion for Preliminary Approval of Settlement. On February 4, 2014, the Court entered an Order Preliminarily Approving Settlement and Providing for Notice. Under the terms of that Order, a hearing has been scheduled for June 5, 2014, to determine whether the proposed settlement should be finally approved by the Court. Management, after consultation with the Company’s outside advisors concluded that it was appropriate to record a contingent liability and recognize a charge against earnings in the amount of
$4.23 million
(
$2.63 million
net of the associated tax benefit), which represents our current estimate of the potential liability in regards to the federal 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 below operating income in the enclosed Consolidated Statement of Income for the year ended
December 31, 2013
.
In connection with this shareholder class action suit, 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 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 February 14, 2014, Plaintiff filed a Notice Regarding the Stay of the Derivative Litigation indicating Plaintiff’s intent to move to lift the stay. On April 12, 2013, the 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 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. The parties in both the derivative actions are conferring regarding future case scheduling. The Company denies any liability and intends to defend the derivative actions vigorously.
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., eleven 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 eleven 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 between the Company and Robin Raina. On September 26, 2013, Defendants moved to dismiss the Amended Consolidated Complaint and briefing on the Motion is complete. The matter was recently reassigned and a hearing on our Motion to Dismiss was held on February 20, 2014. The Company denies any liability and intends to defend the derivative actions 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. Microsoft is seeking damages in excess of
$75,000
, but we have not yet been able to determine exposure as the case concerns alleged underlicensing of Microsoft software and an audit is underway. 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.
In the normal course of business, 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 business, consolidated financial position, results of operations or liquidity.
Lease Commitments—
The Company leases office space under non-cancelable operating leases with expiration dates ranging through 2019, with various renewal options. Capital leases range from
three
to
five
years and are primarily for computer equipment. There were multiple assets under various individual capital leases at
December 31, 2013
and
2012
.
Commitments for minimum rentals under non-cancellable leases and debt obligations as of
December 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Debt
|
|
Capital Leases
|
|
Operating Leases
|
|
|
(in thousands)
|
2014
|
|
$
|
13,711
|
|
|
$
|
195
|
|
|
$
|
5,088
|
|
2015
|
|
11,643
|
|
|
44
|
|
|
3,287
|
|
2016
|
|
31,315
|
|
|
—
|
|
|
2,034
|
|
2017
|
|
—
|
|
|
—
|
|
|
1,965
|
|
2018
|
|
—
|
|
|
—
|
|
|
1,582
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
550
|
|
Total
|
|
$
|
56,669
|
|
|
$
|
239
|
|
|
$
|
14,506
|
|
Less: sublease income
|
|
|
|
|
|
(5
|
)
|
Net lease payments
|
|
|
|
|
|
$
|
14,501
|
|
Less: amount representing interest
|
|
|
|
(7
|
)
|
|
|
Present value of obligations under capital leases
|
|
|
|
$
|
232
|
|
|
|
Less: current portion
|
|
(13,711
|
)
|
|
(188
|
)
|
|
|
Long-term obligations
|
|
$
|
42,958
|
|
|
$
|
44
|
|
|
|
Rental expense for office facilities and certain equipment subject to operating leases for
2013
,
2012
, and
2011
was
$6.5 million
,
$5.9 million
and
$4.6 million
, respectively.
Sublease income for
2013
,
2012
and
2011
was
$55 thousand
,
$5 thousand
, and
$0 thousand
, respectively.
Self Insurance—
For most of the Company’s U.S. employees the Company is currently self-insured for its health insurance program and has a stop loss policy that limits the individual liability to
$120 thousand
per person and the aggregate liability to
125%
of the expected claims based upon the number of participants and historical claims. As of
December 31, 2013
and
2012
, the amount accrued on the Company’s consolidated balance sheet for the self-insured component of the Company’s employee health insurance was
$302 thousand
and
$243 thousand
, respectively. The maximum potential estimated cumulative liability for the annual contract period, which ends in September 2014, is
$2.9 million
.
Note 7. Share-based Compensation
Stock Options
—The Company accounts for compensation expense associated with stock options issued to employees, Directors, and non-employees based on their fair value, which is calculated using an option pricing model, and is recognized over the service period, which is usually the vesting period. At
December 31, 2013
, the Company has one equity based compensation plan. No stock options were granted to employees or non-employees during
2013
,
2012
and
2011
; however, options were granted to Directors in
2013
,
2012
and
2011
. Stock compensation expense of
$474 thousand
,
$539 thousand
and
$537 thousand
was recognized during the years ending December 31,
2013
,
2012
and
2011
, respectively, on outstanding and unvested options.
The fair value of options granted during
2013
is estimated on the date of grant using the Black-Scholes option pricing model. The following table includes the weighted- average assumptions used in estimating the fair values and the resulting weighted-average fair value of stock options granted in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
Year Ended December 31, 2011
|
Weighted average fair values of stock options granted
|
$
|
5.70
|
|
|
$
|
5.47
|
|
|
$
|
8.32
|
|
Expected volatility
|
59.9
|
%
|
|
47.9
|
%
|
|
59.0
|
%
|
Expected dividends
|
2.01
|
%
|
|
1.18
|
%
|
|
.74
|
%
|
Weighted average risk-free interest rate
|
.65
|
%
|
|
.33
|
%
|
|
.33
|
%
|
Expected life of stock options (in years)
|
3.5
|
|
|
3.5
|
|
|
3.5
|
|
A summary of stock option activity for the years ended December 31,
2013
,
2012
and
2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
|
|
(in thousands)
|
Outstanding at January 1, 2011
|
3,340,476
|
|
|
$
|
2.22
|
|
|
2.51
|
|
$
|
71,638
|
|
Granted
|
45,000
|
|
|
$
|
20.58
|
|
|
|
|
|
Exercised
|
(69,509
|
)
|
|
$
|
0.73
|
|
|
|
|
|
Canceled
|
(792
|
)
|
|
$
|
0.72
|
|
|
|
|
|
Outstanding at December 31, 2011
|
3,315,175
|
|
|
$
|
2.51
|
|
|
1.56
|
|
$
|
64,959
|
|
Granted
|
45,000
|
|
|
$
|
16.94
|
|
|
|
|
|
Exercised
|
(1,361,542
|
)
|
|
$
|
0.75
|
|
|
|
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding at December 31, 2012
|
1,998,633
|
|
|
$
|
4.03
|
|
|
1.17
|
|
$
|
24,171
|
|
Granted
|
45,000
|
|
|
$
|
14.89
|
|
|
|
|
|
Exercised
|
(1,251,633
|
)
|
|
$
|
1.73
|
|
|
|
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding at December 31, 2013
|
792,000
|
|
|
$
|
8.28
|
|
|
1.00
|
|
$
|
5,093
|
|
Exercisable at December 31, 2013
|
679,500
|
|
|
$
|
6.78
|
|
|
0.65
|
|
$
|
5,387
|
|
The aggregate intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s stock as of the end of the period and the exercise price of the stock options. The total intrinsic value of stock options exercised during
2013
,
2012
and
2011
was
$11.4 million
,
$24.8 million
,
$941 thousand
, respectively.
Cash received or the value of stocks cancelled from option exercises under all share-based payment arrangements for the years ended December 31,
2013
,
2012
and
2011
, was
$2.2 million
,
$1.0 million
and
$51 thousand
, respectively.
A summary of non-vested options and changes for the years ended December 31,
2013
,
2012
and
2011
is as follows:
|
|
|
|
|
|
|
|
|
Non-Vested Number of Shares
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
Non-vested balance at January 1, 2011
|
247,690
|
|
|
$
|
14.07
|
|
Granted
|
45,000
|
|
|
$
|
20.58
|
|
Vested
|
(112,685
|
)
|
|
$
|
11.71
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2011
|
180,005
|
|
|
$
|
17.17
|
|
Granted
|
45,000
|
|
|
$
|
16.94
|
|
Vested
|
(90,005
|
)
|
|
$
|
14.60
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2012
|
135,000
|
|
|
$
|
18.80
|
|
Granted
|
45,000
|
|
|
$
|
14.89
|
|
Vested
|
(67,500
|
)
|
|
$
|
18.66
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2013
|
112,500
|
|
|
$
|
17.32
|
|
The following table summarizes information about stock options outstanding by price range as of
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
Weighted-Average Exercise Price
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
$1.75-$2.36
|
|
477,000
|
|
|
0.37
|
|
$
|
1.78
|
|
|
477,000
|
|
|
$
|
1.78
|
|
$14.89-$17.58
|
|
225,000
|
|
|
1.95
|
|
$
|
16.91
|
|
|
146,250
|
|
|
$
|
17.53
|
|
$20.58-$21.70
|
|
90,000
|
|
|
1.93
|
|
$
|
21.14
|
|
|
56,250
|
|
|
$
|
21.25
|
|
|
|
792,000
|
|
|
1.00
|
|
$
|
8.28
|
|
|
679,500
|
|
|
$
|
6.78
|
|
Restricted Stock
—Pursuant to the Company’s restricted stock agreements, the restricted stock granted generally vests as follows:
one third
after one year, and the remaining in
eight
equal quarterly installments. The restricted stock also vests with respect to any unvested shares upon the applicable employee’s death, disability or retirement, the Company’s termination of the employee other than for cause, or for a change in control of the Company. A summary of the status of the Company’s non-vested restricted stock grant shares is presented in the following table:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant Date
Fair Value
|
Non vested at January 1, 2011
|
210,285
|
|
|
$
|
9.98
|
|
Granted
|
103,469
|
|
|
$
|
23.33
|
|
Vested
|
(150,267
|
)
|
|
$
|
9.51
|
|
Forfeited
|
(18,406
|
)
|
|
$
|
8.79
|
|
Non vested at December 31, 2011
|
145,081
|
|
|
$
|
20.13
|
|
Granted
|
73,061
|
|
|
$
|
23.26
|
|
Vested
|
(90,379
|
)
|
|
$
|
18.89
|
|
Forfeited
|
(6,607
|
)
|
|
$
|
24.10
|
|
Non vested at December 31, 2012
|
121,156
|
|
|
$
|
22.74
|
|
Granted
|
32,842
|
|
|
$
|
15.91
|
|
Vested
|
(76,576
|
)
|
|
$
|
22.56
|
|
Forfeited
|
(2,157
|
)
|
|
$
|
23.42
|
|
Non vested at December 31, 2013
|
75,265
|
|
|
$
|
12.97
|
|
As of
December 31, 2013
there was
$1.2 million
of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the 2006 and 2010 Incentive Compensation Program. That cost is expected to be recognized over a weighted-average period of
1.49
years. The total fair value of shares vested during the years ended December 31,
2013
,
2012
and
2011
was
$1.7 million
,
$1.7 million
, and
$1.4 million
, respectively.
In the aggregate the total compensation expense recognized in connection with the restricted grants was
$1.5 million
,
$1.5 million
and
$1.7 million
during each of the years ending December 31,
2013
,
2012
and
2011
, respectively.
As of
December 31, 2013
the Company has
5.7 million
shares of common stock reserved for possible future stock option and restricted stock grants.
Note 8. Income Taxes
Income before income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
Year Ended December 31, 2011
|
|
(In thousands)
|
Domestic
|
$
|
5,497
|
|
|
$
|
6,604
|
|
|
$
|
12,043
|
|
Foreign
|
64,655
|
|
|
71,425
|
|
|
61,452
|
|
Total
|
$
|
70,152
|
|
|
$
|
78,029
|
|
|
$
|
73,495
|
|
The income tax provision consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
Year Ended December 31, 2011
|
|
(In thousands)
|
Current:
|
|
|
|
|
|
Federal
|
$
|
266
|
|
|
$
|
342
|
|
|
$
|
1,237
|
|
State
|
167
|
|
|
320
|
|
|
822
|
|
Foreign
|
5,371
|
|
|
4,497
|
|
|
2,990
|
|
|
$
|
5,804
|
|
|
$
|
5,159
|
|
|
$
|
5,049
|
|
Deferred:
|
|
|
|
|
|
Federal
|
6,185
|
|
|
3,827
|
|
|
3,699
|
|
State
|
(351
|
)
|
|
31
|
|
|
44
|
|
Foreign
|
(760
|
)
|
|
(1,557
|
)
|
|
(1,755
|
)
|
|
5,074
|
|
|
2,301
|
|
|
1,988
|
|
|
|
|
|
|
|
Provision for income taxes from ongoing operations at effective tax rate
|
$
|
10,878
|
|
|
$
|
7,460
|
|
|
$
|
7,037
|
|
Discrete Items:
|
|
|
|
|
|
Release of valuation allowance
|
—
|
|
|
—
|
|
|
(6,625
|
)
|
Windfall expense related to stock compensation
|
—
|
|
|
—
|
|
|
1,938
|
|
Enhanced R&D deduction - foreign operations
|
—
|
|
|
—
|
|
|
(233
|
)
|
Provision for income taxes from discrete items
|
—
|
|
|
—
|
|
|
(4,920
|
)
|
|
|
|
|
|
|
Total provision for income taxes
|
$
|
10,878
|
|
|
$
|
7,460
|
|
|
$
|
2,117
|
|
The income tax provision at the Federal statutory rate differs from the effective rate because of the following items:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
Year Ended December 31, 2011
|
Statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Tax impact of foreign subsidiaries (primarily in Singapore)
|
(6.9
|
)%
|
|
(8.1
|
)%
|
|
(5.6
|
)%
|
State income taxes, net of federal benefit
|
(0.3
|
)%
|
|
0.4
|
%
|
|
0.8
|
%
|
Uncertain tax matters
|
9.7
|
%
|
|
3.5
|
%
|
|
0.2
|
%
|
Tax holiday - India (Permanent Difference)
|
(15.2
|
)%
|
|
(15.6
|
)%
|
|
(15.1
|
)%
|
Passive income exemption - Sweden (Permanent Difference)
|
(3.5
|
)%
|
|
(3.1
|
)%
|
|
(3.0
|
)%
|
Acquisition contingent earnout liability adjustments
|
(5.0
|
)%
|
|
(0.4
|
)%
|
|
(1.0
|
)%
|
Other
|
1.7
|
%
|
|
(2.1
|
)%
|
|
(1.8
|
)%
|
Effective tax rate from ongoing operations
|
15.5
|
%
|
|
9.6
|
%
|
|
9.5
|
%
|
Discrete Items:
|
|
|
|
|
|
|
|
|
Release of valuation allowance
|
—
|
%
|
|
—
|
%
|
|
(9.0
|
)%
|
Windfall expense related to stock compensation
|
—
|
%
|
|
—
|
%
|
|
2.6
|
%
|
Enhanced R&D deduction - foreign operations
|
—
|
%
|
|
—
|
%
|
|
(0.2
|
)%
|
Effective tax rate after discrete items
|
15.5
|
%
|
|
9.6
|
%
|
|
2.9
|
%
|
Current deferred income tax assets and liabilities and long-term deferred tax assets and liabilities are presented on a net basis separately in the
December 31, 2013
and
2012
accompanying Consolidated Balance Sheets. The individual balances in current and long-term deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
(In thousands)
|
Current deferred income tax assets
|
$
|
961
|
|
|
$
|
2,074
|
|
Long-term deferred income tax assets
|
44,924
|
|
|
35,140
|
|
Total deferred income tax assets
|
45,885
|
|
|
37,214
|
|
Current deferred income tax liabilities
|
(705
|
)
|
|
(239
|
)
|
Long-term deferred income tax liabilities
|
(24,308
|
)
|
|
(23,895
|
)
|
Net deferred income tax asset
|
$
|
20,872
|
|
|
$
|
13,080
|
|
Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by the applicable local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred tax assets and liabilities as of
December 31, 2013
and
2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
Deferred
|
|
Deferred
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(In thousands)
|
Depreciation and amortization
|
$
|
580
|
|
|
$
|
—
|
|
|
$
|
102
|
|
|
$
|
—
|
|
Share-based compensation
|
781
|
|
|
—
|
|
|
721
|
|
|
—
|
|
Accruals and prepaids
|
3,415
|
|
|
788
|
|
|
1,627
|
|
|
239
|
|
Bad debts
|
394
|
|
|
—
|
|
|
446
|
|
|
—
|
|
Acquired intangible assets
|
—
|
|
|
24,225
|
|
|
—
|
|
|
23,895
|
|
Net operating loss carryforwards
|
19,698
|
|
|
—
|
|
|
20,573
|
|
|
—
|
|
Tax credit carryforwards
|
21,017
|
|
|
—
|
|
|
13,745
|
|
|
—
|
|
|
45,885
|
|
|
25,013
|
|
|
37,214
|
|
|
24,134
|
|
Valuation allowance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total deferred taxes
|
$
|
45,885
|
|
|
$
|
25,013
|
|
|
$
|
37,214
|
|
|
$
|
24,134
|
|
No significant discrete events occurred in 2013.
As of
December 31, 2013
, the Company has remaining available domestic net operating loss (“NOL”) carry-forwards of
$51.0 million
(net of
$5.7 million
utilized to offset domestic taxable income for
2013
), which are available to offset future federal and certain state income taxes. The Company reviews its NOL positions to validate that all NOL carry-forwards will be utilized before they begin to expire. Portions of these remaining NOL's will expire during the years 2020 through 2027.
The Company's consolidated worldwide effective tax rate is relatively low because of the effect of conducting significant operating activities in certain foreign jurisdiction with low tax rates and where a large portion of its taxable income is generated. Furthermore, the Company's worldwide product development operations and intellectual property ownership is centralized in its India and Singapore subsidiaries, respectively. Our operations in India benefit from a tax holiday, which will continue through the year 2015; as such the Company's local India taxable income derived from export activities in support of our operating divisions around the world is not taxed. After the tax holiday expires taxable 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. This tax holiday had the effect of reducing tax expense by
$10.5 million
or approximately
$0.270
per diluted share in
2013
with
$7.16 million
of Minimum Alternative Tax ("MAT") tax prepaid/accrued against
2013
income during the year ended
December 31, 2013
, for future taxes to be paid in India.
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 after 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, which is currently
17%
, unless the Company reaches a subsequent agreement to extend the incentive period and the then applicable concessionary rate. The concessionary tax rate granted by the EDB as compared to the statutory tax in effect in Singapore reduces income tax expense by
$1.3 million
or approximately
$0.033
per diluted share in
2013
.
The pre-tax income from the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending
December 31, 2013
were 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
|
%
|
|
—
|
%
|
|
|
The income from the Company's operations in India is subject to a
19.94%
MAT. The tax paid under the MAT provisions is carried forward for a period of up to
ten
years following the end of the year in which the MAT tax has been paid
as a
set off against future tax liabilities computed under the regular corporate income tax provisions using the statutory
33.99%
corporate income tax rate. During the year ended
December 31, 2013
, the Company paid/accrued
$7.16 million
in MAT tax. The accompanying Consolidated Balance Sheets as of
December 31, 2013
and 2012 includes a long-term deferred tax asset in the amount of
$18.64 million
and
$11.54 million
, respectively, associated with cumulative future MAT tax credit entitlement.
The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Hypothetically if those earnings were to be not considered indefinitely invested, approximately
$91.8 million
of deferred U.S. income taxes would had to have been provided as of
December 31, 2013
.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is no longer subject to U.S. federal or state tax examinations by tax authorities for years before 2007 due to the expiration of the statute of limitations. There is an open federal income tax audit in progress for taxable years 2008 through 2011. In connection with this open audit, the Company has responded to a number of information requests from the IRS, but there has been no formal identification of potential deficiencies or assessments to date. Regarding our foreign operations as of
December 31, 2013
, the tax years that remain open and possibly subject to examination by the tax authorities in those jurisdictions are Australia (2007 to 2013), Singapore and Brazil (2008 to 2013), New Zealand (2009 to 2013), and India (2008 to 2013).
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the accompanying consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
December 31, 2011
|
|
(in thousands)
|
Beginning Balance
|
$
|
5,925
|
|
|
$
|
3,180
|
|
|
$
|
2,980
|
|
Additions for tax positions related to current year
|
6,546
|
|
|
2,482
|
|
|
1,949
|
|
Additions for tax positions of prior years
|
271
|
|
|
263
|
|
|
307
|
|
Reductions for tax position of prior years
|
—
|
|
|
—
|
|
|
(2,056
|
)
|
Ending Balance
|
$
|
12,742
|
|
|
$
|
5,925
|
|
|
$
|
3,180
|
|
The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. As of
December 31, 2013
approximately
$1.05 million
of estimated interest and penalties, which is part of the $12.74 million ending balance in the preceding table, is included in other long-term liabilities in the accompanying Consolidated Balance Sheet.
Note 9. Stock Repurchases
Effective June 21, 2013 the Company's Board of Directors unanimously approved an additional authorized share repurchase plan of
$100 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.
Effective June 30, 2011 the Board of Directors of Ebix, Inc. unanimously approved an increase in the size of the Company's authorized share repurchase plan to acquire up to
$100 million
of the Company’s current outstanding shares of common stock. Under the terms of the Board’s authorization, the Company retains the right to repurchase up to
$100 million
in shares but does not have to repurchase this entire amount. The repurchase plan’s terms have been structured to comply with the SEC’s Rule 10b-18, and are subject to market conditions and applicable legal requirements. The program does not obligate the Company to acquire any specific number of shares and may be suspended or terminated at any time. All purchases are made in the open market and are expected to be funded from existing cash. Treasury stock is recorded at its acquired cost. During
2013
the Company repurchased
250,900
shares of its common stock under this plan for total consideration of
$2.5 million
. During
2012
the Company repurchased
983,818
shares of its common stock under this plan for total consideration of
$18.4 million
. In addition during
2011
the Company repurchased
3,510,973
shares of its common stock under this plan for total consideration of
$63.7 million
. As of
December 31, 2013
the Company had
$102.9 million
remaining in its share repurchase authorization.
Note 10. Derivative Instruments
The Company had recently used derivative instruments that were not designated as hedges under FASB accounting guidance related to the accounting for derivative instruments, to hedge the fluctuations in foreign exchange rates for recognized balance sheet items such as intercompany receivables. As of
December 31, 2013
all of the Company's previous foreign currency hedge contracts matured. The inputs that were used in the valuation of the hedge contracts included the USD/INR foreign currency exchange spot rates in effect at the inception date of the contract, forward premiums, forward foreign currency exchange rates, term, and contract maturity date. The intended purpose of those hedging instruments was to offset the income statement impact of recorded foreign exchange transaction gains and losses resulting from U.S. dollar denominated intercompany invoices issued by our Indian subsidiary whose functional currency had been the Indian rupee until it was changed to the U.S. dollar effective July 1, 2012. The change in the fair value of these derivatives was recorded in foreign currency exchange gains (losses) in the Consolidated Statements of Income and was
$0
,
$1.2 million
, and
$(2.6) million
for the years ended
December 31, 2013
,
2012
, and
2011
, respectively. These gains (losses) are in addition to the consolidated foreign exchange gains (losses) equivalent to
$(262) thousand
,
$776 thousand
, and
$6.9 million
recognized during the years ended
December 31, 2013
,
2012
, and
2011
, respectively, incurred by our subsidiaries for settlement of transactions denominated in other than their functional currency. The Company classifies its foreign currency hedges, for which the fair value is remeasured on a recurring basis at each reporting date, as a Level 2 instrument (i.e. wherein fair value is determined and based on observable inputs other than quoted market prices), which we believe is the most appropriate level within the fair value hierarchy based on the inputs used to determine its the fair value at the measurement date.
In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to PlanetSoft's
three
shareholders. The put option, which expires in June 2014, is exercisable during the
30
-day period immediately following the
two
-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying
296,560
shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of
$16.86
per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be
$1.4 million
using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return. At
December 31, 2013
the fair value of the put option liability was re-measured and was determined to have decreased
$341 thousand
during the year ended
December 31, 2013
with this amount reflected as a gain included in other non-operating income in the accompanying Consolidated Statement of Income. As of
December 31, 2013
, the aggregate fair value of this derivative instrument, which is included in the current liabilities section of the Consolidated Balance Sheet, was
$845 thousand
.
As of December 31, 2012, the aggregate fair value of this derivative instrument, which was included as in the long term liabilities section of that year's Consolidated Balance Sheet, was $1.2 million.
The Company has classified the put option, for which the fair value is re-measured on a recurring basis at each reporting date as a Level 2 instrument (i.e. wherein fair is partially determined and based on observable inputs other than quoted market prices), which we believe is the most appropriate level within the fair value hierarchy based on the inputs used to determine its fair value at the measurement date.
Note 11. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
December 31, 2013
and
December 31, 2012
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
(In thousands)
|
Trade accounts payable
|
$
|
4,515
|
|
|
$
|
5,607
|
|
Accrued professional fees
|
1,046
|
|
|
295
|
|
Income taxes payable
|
8,173
|
|
|
6,913
|
|
Sales taxes payable
|
4,038
|
|
|
2,651
|
|
Other accrued liabilities
|
46
|
|
|
31
|
|
Total
|
$
|
17,818
|
|
|
$
|
15,497
|
|
Note 12. Other Current Assets
Other current assets at
December 31, 2013
and
December 31, 2012
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
(In thousands)
|
Prepaid expenses
|
$
|
3,824
|
|
|
$
|
3,189
|
|
Sales taxes receivable from customers
|
220
|
|
|
598
|
|
Due from prior owners of acquired businesses for working capital settlements
|
720
|
|
|
955
|
|
Research and development tax credits receivable
|
720
|
|
|
266
|
|
Other
|
64
|
|
|
108
|
|
Total
|
$
|
5,548
|
|
|
$
|
5,116
|
|
Note 13. Property and Equipment
Property and equipment at
December 31, 2013
and
2012
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
(In thousands)
|
Computer equipment
|
$
|
12,417
|
|
|
$
|
11,729
|
|
Buildings
|
3,119
|
|
|
3,103
|
|
Land
|
59
|
|
|
66
|
|
Leasehold improvements
|
2,648
|
|
|
2,632
|
|
Furniture, fixtures and other
|
5,035
|
|
|
4,888
|
|
|
23,278
|
|
|
22,418
|
|
Less accumulated depreciation and amortization
|
(14,750
|
)
|
|
(12,336
|
)
|
|
$
|
8,528
|
|
|
$
|
10,082
|
|
Depreciation expense was
$2.8 million
,
$3.1 million
and
$2.7 million
, for the years ended December 31,
2013
,
2012
and
2011
, respectively.
Note 14. Other Liabilities
Other liabilities at
December 31, 2013
and
December 31, 2012
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
(In thousands)
|
Reserve for potential uncertain income tax return positions
|
$
|
12,742
|
|
|
$
|
5,925
|
|
Unfavorable lease liability, long term portion
|
394
|
|
|
499
|
|
Other
|
5
|
|
|
5
|
|
Total
|
$
|
13,141
|
|
|
$
|
6,429
|
|
Note 15. Cash Option Profit Sharing Plan and Trust
The Company maintains a 401(k) Cash Option Profit Sharing Plan, which allows participants to contribute a percentage of their compensation to the Profit Sharing Plan and Trust up to the Federal maximum. The Company’s contributions to the Plan were
$368 thousand
,
$364 thousand
and
$318 thousand
for the years ending December 31,
2013
,
2012
and
2011
, respectively.
Note 16. Geographic Information
The Company operates with
one
reportable segment whose results are regularly reviewed by the Company's chief operating decision maker as to performance and allocation of resources. External customer revenues in the tables below were attributed to a particular country based on whether the customer had a direct contract with the Company which was executed in that particular country for the sale of the Company's products/services with an Ebix subsidiary located in that country.
The following enterprise wide information relates to the Company's geographic locations (all amounts in thousands):
Year Ended
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Latin America
|
|
Australia
|
|
Singapore
|
|
New Zealand
|
|
India
|
|
Europe
|
|
Total
|
External Revenues
|
|
$
|
139,519
|
|
|
$
|
7,431
|
|
|
$
|
5,508
|
|
|
$
|
38,260
|
|
|
$
|
3,114
|
|
|
$
|
2,311
|
|
|
$
|
650
|
|
|
$
|
7,917
|
|
|
$
|
204,710
|
|
Long-lived assets
|
|
$
|
309,732
|
|
|
$
|
8,784
|
|
|
$
|
10,886
|
|
|
$
|
803
|
|
|
$
|
68,987
|
|
|
$
|
97
|
|
|
$
|
23,784
|
|
|
$
|
28,442
|
|
|
$
|
451,515
|
|
Year Ended
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Latin America
|
|
Australia
|
|
Singapore
|
|
New Zealand
|
|
India
|
|
Europe
|
|
Total
|
External Revenues
|
|
$
|
140,933
|
|
|
$
|
6,395
|
|
|
$
|
8,227
|
|
|
$
|
36,330
|
|
|
$
|
2,827
|
|
|
$
|
2,205
|
|
|
$
|
233
|
|
|
$
|
2,220
|
|
|
$
|
199,370
|
|
Long-lived assets
|
|
$
|
317,338
|
|
|
$
|
9,738
|
|
|
$
|
12,726
|
|
|
$
|
1,267
|
|
|
$
|
70,173
|
|
|
$
|
240
|
|
|
$
|
11,784
|
|
|
$
|
12,011
|
|
|
$
|
435,277
|
|
Year Ended
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Canada
|
|
Latin America
|
|
Australia
|
|
Singapore
|
|
New Zealand
|
|
India
|
|
Europe
|
|
Total
|
External Revenues
|
|
$
|
120,780
|
|
|
$
|
836
|
|
|
$
|
10,504
|
|
|
$
|
31,991
|
|
|
$
|
2,943
|
|
|
$
|
1,915
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168,969
|
|
Long-lived assets
|
|
$
|
259,425
|
|
|
$
|
—
|
|
|
$
|
14,179
|
|
|
$
|
1,286
|
|
|
$
|
63,866
|
|
|
$
|
233
|
|
|
$
|
8,376
|
|
|
$
|
—
|
|
|
$
|
347,365
|
|
Note 17. Related Party Transactions
We had considered Bank of America (“BOA") to be a related party because BOA previously provided commercial financing to the Company and its parent until April 2012, and that BOA/Merrill Lynch is also a customer to whom the Company sells products and services. Revenues recognized from BOA/Merrill Lynch were
$1.2 million
and
$860 thousand
for each of the years ending
December 31, 2012
and
2011
, respectively. Accounts receivable due from BOA/Merrill Lynch was
$216 thousand
at December 31, 2012. On April 26, 2012, Ebix fully paid all of its obligations and related fees then outstanding to BOA. The aggregate amount of the payment was
$45.14 million
and was funded from a portion of the proceeds of the Citibank led Secured Syndicated Credit Facility that replaced the former BOA led syndicated credit facility.
Note 18. Quarterly Financial Information (unaudited)
The following is the unaudited quarterly financial information for
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
(in thousands, except share data)
|
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
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
40,050
|
|
|
$
|
42,267
|
|
|
$
|
42,602
|
|
|
$
|
44,050
|
|
Gross Profit
|
|
32,743
|
|
|
33,353
|
|
|
33,895
|
|
|
35,389
|
|
Operating income
|
|
15,634
|
|
|
18,605
|
|
|
17,954
|
|
|
16,556
|
|
Net income
|
|
15,164
|
|
|
22,348
|
|
|
16,536
|
|
|
17,330
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
$
|
0.57
|
|
|
$
|
0.44
|
|
|
$
|
0.48
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.53
|
|
|
$
|
0.41
|
|
|
$
|
0.44
|
|
In some instances the sum of the quarterly basic and diluted net income per share amounts may not agree to the full year basic and diluted net income per share amounts reported on the Consolidated Statements of Income because of rounding.
Note 19. Minority Business Investment
During 2012, Ebix acquired a minority
19.8%
interest in CurePet, Inc. ("CurePet") for cash consideration in the amount of
$2.0 million
. CurePet is a developmental-stage enterprise that has completed 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. CurePet is also a customer of Ebix; during
2013
and
2012
the Company recognized
$1.2 million
and
$1.5 million
, respectfully, of revenue from CurePet, and as of
December 31, 2013
and
2012
there were
$1.4 million
and
$212 thousand
, respectfully, of outstanding balances due from CurePet in the Company's reported trade accounts receivable. Ebix also has a revenue share arrangement with CurePet pertaining to certain customer revenues recognized by CurePet; for
2013
, there have been no revenue sharing earned or accrued. The Company is accounting for its minority investment in CurePet using the cost method. The fair value of this investment as of
December 31, 2013
was determined by an independent valuation expert using a combination of the income approach (discounted cash flow method) and market approach. Based on this independent evaluation it was concluded that the fair value of this minority business investment was greater than the Company's carrying value of the investment, and therefore the investment was not impaired as of
December 31, 2013
. As also disclosed in Note 21 "Subsequent Events," effective January 27, 2014 Ebix acquired the entire business of CurePet in an asset purchase agreement with the total purchase consideration being in the amount of
$6.35 million
of which
$5.0 million
pertains to a contingent earnout liability based on earned revenues over the subsequent thirty-six month period following the date of the acquisition.
Note 20. Temporary Equity
The
$5.0 million
of temporary equity reported on the Company's consolidated balance sheet as of
December 31, 2013
is in connection with the June 1, 2012 acquisition of PlanetSoft. As part of the consideration paid for PlanetSoft in accordance with terms of the merger agreement the former PlanetSoft shareholders received
296,560
shares of Ebix common stock valued at
$16.86
per share or
$5.0 million
in the aggregate. In regards to these shares of Ebix common stock, and as discussed in Note 10 "Derivative Instruments," the Company issued a put option to PlanetSoft's
three
shareholders. The put option, which expires in June 2014, is exercisable during the
thirty
-day period immediately following the
two
-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying
296,560
shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of
$16.86
per share. Accordingly and in compliance with Accounting Standards Codification ("ASC") 480 "Accounting for Redeemable Equity Instruments," in that the common stock is redeemable for cash at the option of the holders, and not within control of the Company, it is presented outside of the stockholders equity section of the consolidated balance sheet, and shown as a separate line referred to as "temporary equity" on the consolidated balance sheet appearing after liabilities, and before the stockholders' equity section, and will remain so until the second quarter of 2014.
Note 21. Subsequent Events
Business Acquisition
Effective January 27, 2014 Ebix acquired the entire business of CurePet in an asset purchase agreement with the total purchase consideration being in the amount of
$6.35 million
which includes a possible contingent earnout payment of up to
$5.0 million
based on earned revenues over the subsequent thirty-six month period following the date of the acquisition. Previously and as discussed in Note 19 "Minority Business Investment" during 2012, Ebix acquired a minority
19.8%
interest in CurePet, Inc. ("CurePet") for cash consideration in the amount of
$2.0 million
. CurePet is a business that has completed 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.
Dividends
As announced on February 5, 2014, the Company resumed its quarterly cash dividend to the holders of its common stock, whereby a dividend in the amount of
$0.075
per common share will be paid March 14, 2014 to shareholders of record on February 20, 2014.
Repurchases of Common Stock
Since
December 31, 2013
and through
March 17, 2014
the Company has purchased an additional
137,071
shares of its outstanding common stock for aggregate consideration in the amount of
$2.23 million
. All share repurchases were done in accordance with Rule 10b-18 of the Securities Act of 1934 as to the timing, pricing, and volume of such transactions, and were completed using available cash resources and cash generated from the Company's operating activities.
Shareholder Securities Class Action Settlement
On March 7, 2014 the Company remitted
$4.2 million
to the requisite escrow agent in compliance with the settlement agreement in the shareholder securities class action styled In re: Ebix, Inc. Securities Litigation, Civil Action No. 1:11-CV-02400-RWS (N.D. Ga.).