Disaggregation of Revenue
The following tables present revenue disaggregated by primary geographical regions and product channels for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
|
in thousands
|
United States
|
|
$
|
196,984
|
|
|
$
|
211,895
|
|
|
$
|
213,516
|
|
Canada
|
|
5,611
|
|
|
7,522
|
|
|
6,328
|
|
Latin America
|
|
19,866
|
|
|
21,128
|
|
|
8,179
|
|
Australia
|
|
35,770
|
|
|
34,366
|
|
|
31,156
|
|
Singapore*
|
|
7,674
|
|
|
6,330
|
|
|
5,848
|
|
New Zealand
|
|
2,015
|
|
|
1,933
|
|
|
1,903
|
|
India*
|
|
196,372
|
|
|
61,857
|
|
|
14,153
|
|
Europe
|
|
15,387
|
|
|
17,062
|
|
|
17,211
|
|
Indonesia*
|
|
7,482
|
|
|
1,055
|
|
|
—
|
|
Philippines*
|
|
6,483
|
|
|
623
|
|
|
—
|
|
United Arab Emirates*
|
|
1,042
|
|
|
200
|
|
|
—
|
|
Mauritius*
|
|
3,140
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
497,826
|
|
|
$
|
363,971
|
|
|
$
|
298,294
|
|
|
|
|
|
|
|
|
*India led businesses, except for portion of Singapore which is not part of EbixCash and United Arab Emirate long-lived assets pertain to intellectual property research and development activities located in Dubai which is not part of EbixCash either. Total revenue in the fourth quarter of 2018 for India led businesses was $65.9 million.
|
The Company’s revenues are derived from
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, 2018
,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
|
(dollar amounts in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Exchanges
|
|
396,457
|
|
|
259,470
|
|
|
206,427
|
|
Broker P&C Systems
|
|
14,379
|
|
|
14,674
|
|
|
14,105
|
|
RCS
|
|
79,976
|
|
|
86,832
|
|
|
74,196
|
|
Carrier P&C Systems
|
|
7,014
|
|
|
2,995
|
|
|
3,566
|
|
Totals
|
|
$
|
497,826
|
|
|
$
|
363,971
|
|
|
$
|
298,294
|
|
(1) Prior period amounts have not been adjusted under the modified retrospective method.
Costs to Obtain and Fulfill a Contract
The Company capitalizes certain costs in order to maintain the ability to obtain and fulfill new contracts and contract renewals. These costs are primarily related to the setup and customization of our SaaS based platforms and such costs are amortized
over the benefit period. Under our treatment prior to implementing Topic 606, these costs were expensed as incurred. As of
December 31, 2018
the Company had
$862 thousand
of contract costs in “Other current assets” and
$1.4 million
in “Other Assets” on the Company's Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
Balance, beginning of period
|
|
$
|
—
|
|
Topic 606 adjustment
|
|
2,401
|
|
Adjusted beginning balance
|
|
$
|
2,401
|
|
Costs recognized from adjusted beginning balance
|
|
(898
|
)
|
Additions, net of costs recognized
|
|
735
|
|
Balance, end of period
|
|
$
|
2,238
|
|
Deferred Revenue
The Company records deferred revenue when it receives payments or invoices in advance of the performance of services. A significant portion of this balance relates to contracts where the customer has paid in advance for the use of our SaaS platforms over a specified period of time. This portion is recognized as the related performance obligation is fulfilled (generally less than one year). The remaining portion of the deferred revenue balance consists primarily of customer-specific customizations that are not distinct from related performance obligations that transfer over time. This portion is recognized over the expected useful life of the customizations.
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
Balance, beginning of period
|
|
$
|
23,985
|
|
Topic 606 adjustment
|
|
14,045
|
|
Adjusted beginning balance
|
|
$
|
38,030
|
|
Revenue recognized from adjusted beginning balance
|
|
(21,697
|
)
|
Additions from business acquisitions
|
|
16,273
|
|
Additions, net of revenue recognized and currency translation
|
|
12,054
|
|
Balance, end of period
|
|
$
|
44,660
|
|
Revenue Allocated to Remaining Performance Obligations
The following table presents our estimated revenue allocated to remaining performance obligations for contracted revenue that has not yet been recognized, representing our “contractually committed” revenue as of
December 31, 2018
that we will transfer from deferred revenue and recognize in future periods:
|
|
|
|
|
Estimated Revenue (in thousands):
|
|
For the year ending December 31, 2019
|
4,865
|
|
For the year ending December 31, 2020
|
3,586
|
|
For the year ending December 31, 2021
|
2,385
|
|
For the year ending December 31, 2022
|
1,180
|
|
For the year ending December 31, 2023
|
592
|
|
|
|
|
|
$
|
12,608
|
|
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to service customer contracts with significant programming, setup, and implementation activities related to our SaaS offerings. Our contractually committed revenue amounts generally exclude, based on the following practical expedients that we elected to apply,
remaining performance obligations for: (i) contracts with an original expected duration of one year or less; and (ii) contracts for which we recognize revenue at the amount for which we have the right to invoice for services performed.
Accounts Receivable and the Allowance for Doubtful Accounts Receivable
—Reported accounts receivable as of
December 31, 2018
include
$139.2 million
of trade receivables stated at invoice billed amounts and
$35.1 million
of unbilled receivables (net of a
$7.0 million
estimated allowance for doubtful accounts receivable). Reported accounts receivable at
December 31, 2017
include
$94.5 million
of trade receivables stated at invoice billed amounts and
$23.3 million
of unbilled receivables (net of a
$4.1 million
estimated allowance for doubtful accounts receivable). The unbilled receivables pertain to certain professional service engagements and system development projects for which the timing of billing is tied to contractual milestones
.
The Company adheres to suc
h 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 co
llection 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
$3.6 million
,
$1.7 million
, and
$1.5 million
for the year ended
December 31, 2018
,
2017
, and
2016
, respectively.
Costs of Services Provided
—Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain our proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
Capitalized Software Development Costs
—In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. Costs incurred to enhance our software products, after general market release of the services using the products, is expensed in the period they are incurred. The periodic expense for the amortization of previously capitalized software development costs is included in costs of services provided.
Goodwill and Indefinite-Lived Intangible Assets
—Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of a reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, customer retention and the sale or disposition of a significant portion of the business. The Company applies the technical accounting guidance concerning goodwill impairment evaluation whereby the Company first assesses certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than its carrying amount. If after assessing the totality of events and circumstances, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would perform the two-step quantitative impairment testing described further below.
The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values; we determine fair value of our reporting units by applying the discounted cash flow method using the present value of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying value, then no further testing is required. However, if a reporting unit’s fair value were to be less than its carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the reporting unit’s goodwill exceeded its implied value. We perform our annual goodwill impairment evaluation and testing as of September 30 each year. In 2018 the goodwill residing in all four channels, the Broker reporting unit , the Exchange reporting unit, the RCS reporting unit, and the Carrier reporting unit were evaluated for impairment using step-one of the quantitative testing process described above. The fair value of all of these reporting units was found to be greater than their carrying value, thus there was no impairment indicated. Key assumptions used in the fair value determinations for the groups were annual revenue growth rates of
5%
to
9%
for the RCS, Carrier and Broker units. The Exchange units growth rates used in the calculations varied from
10%
to
14%
. As of September 30, 2018 there was
$80.8 million
of goodwill assigned to the RCS reporting unit. A significant reduction in future revenues for the RCS reporting unit would negatively affect the fair value determination for this unit and may result in an impairment to goodwill and a corresponding charge against earnings. During the years ended December 31, 2018, 2017, and 2016, we had
no
impairment of any our reporting unit goodwill balances.
Projections of cash flows are based on our views of revenue growth rates, operating costs, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values and terminal values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., revenue growth rates, future economic conditions, discount rates, and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. As a practice, the Company closely monitors any reporting units that do not have a significantly higher fair value in excess of their carrying value.
The following table summarizes the adjustments to goodwill, recorded in connection with the acquisitions that occurred during
2018
and
2017
:
|
|
|
|
|
|
|
|
Company acquired
|
|
Date acquired
|
|
(in thousands)
|
ItzCash; final purchase allocation adjustments
|
|
April 2017
|
|
$
|
(15,678
|
)
|
EbixMoney (combination of YouFirst, WallStreet, Paul Merchants); final purchase allocation adjustments
|
|
September 2017-November 2017
|
|
4,736
|
|
Via; final purchase allocation adjustments
|
|
November 2017
|
|
(4,612
|
)
|
Transcorp
|
|
February 2018
|
|
7,254
|
|
Centrum
|
|
April 2018
|
|
159,647
|
|
SmartClass
|
|
April 2018
|
|
16,568
|
|
Indus
|
|
July 2018
|
|
21,501
|
|
Mercury
|
|
July 2018
|
|
16,215
|
|
Leisure
|
|
July 2018
|
|
1,707
|
|
Miles
|
|
August 2018
|
|
19,075
|
|
Business Travels
|
|
October 2018
|
|
1,102
|
|
AHA Taxis
|
|
October 2018
|
|
281
|
|
Routier
|
|
October 2018
|
|
455
|
|
Lawson
|
|
December 2018
|
|
2,379
|
|
Pearl
|
|
December 2018
|
|
3,372
|
|
Weizmann
|
|
December 2018
|
|
72,328
|
|
Total changes to goodwill during 2018
|
|
|
|
$
|
306,330
|
|
|
|
|
|
|
|
|
|
Company acquired
|
|
Date acquired
|
|
(in thousands)
|
Oakstone; final purchase allocation adjustments
|
|
December 2014
|
|
$
|
948
|
|
EbixHealth JV; final purchase allocation adjustments
|
|
July 2016
|
|
(7,500
|
)
|
Hope Health; final purchase allocation adjustments
|
|
November 2016
|
|
(289
|
)
|
Wdev; final purchase allocation adjustments
|
|
November 2016
|
|
(5,317
|
)
|
ItzCash
|
|
April 2017
|
|
119,766
|
|
beBetter
|
|
June 2017
|
|
447
|
|
YouFirst
|
|
September 2017
|
|
7,395
|
|
Wall Street
|
|
October 2017
|
|
6,113
|
|
Paul Merchants
|
|
November 2017
|
|
38,589
|
|
Via
|
|
November 2017
|
|
60,785
|
|
Total changes to goodwill during 2017
|
|
|
|
$
|
220,937
|
|
Changes in the carrying amount of goodwill for the years ended
December 31, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Beginning Balance
|
$
|
666,863
|
|
|
$
|
441,404
|
|
Additions for current year acquisitions
|
317,410
|
|
|
233,095
|
|
Purchase accounting adjustments for prior year acquisitions
|
(11,080
|
)
|
|
(12,158
|
)
|
Foreign currency translation adjustments
|
(26,508
|
)
|
|
4,522
|
|
Ending Balance
|
$
|
946,685
|
|
|
$
|
666,863
|
|
The Company’s indefinite-lived assets are associated with the estimated fair value of the contractual customer relationships existing with the property and casualty insurance carriers in Australia using our property and casualty ("P&C") data exchange and with certain large corporate customers using our client relationship management (“CRM”) platform in the United States. Prior to these underlying business acquisitions Ebix had pre-existing contractual relationships with these carriers and corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue to renew these contracts indefinitely and has the ability to do so. The proprietary technology supporting the P&C data exchange and CRM platform that is used to deliver services to these carriers and corporate clients, cannot feasibly be effectively replaced in the foreseeable future, and accordingly the cash flows forthcoming from these customers are expected to continue indefinitely. With respect to the determination of the indefinite life, the Company considered the expected use of these intangible assets, historical experience in renewing or extending similar arrangements, and the effects of competition, and concluded that there were no indications from these factors to suggest that the expected useful life of these customer relationships would be finite. The Company concluded that no legal, regulatory, contractual, or competitive factors limited the useful life of these intangible assets and therefore their life was considered to be indefinite, and accordingly the Company expects these customer relationships to remain the same for the foreseeable future.
Additionally based on the final purchase price allocation valuation report of the EbixHealth JV, See Note 3 and 17 for further explanations, it was concluded that the value of the indefinite-lived intangibles identified as indefinite-lived customer relationships to be
$11.2 million
. The EbixHealth JV is a full-service third-party administrator (“TPA”) that specializes in the management, administration, and distribution of health benefit plans. Services include marketing support, underwriting, billing, claims processing, and cost containment such as utilization review and medical case management for fully-insured, self-funded and partially self-funded benefit plans, as well as international groups and individuals. As a TPA, the Company collects premiums from insureds and, after deducting its fees, remits these premiums to insurance companies. Unremitted insurance premiums and/or claim funds established for the benefit of various carriers are held in a fiduciary capacity until disbursed by the Company. The Company administers and collects the insurance premiums for the products of three affiliated insurance carriers which is part of the consolidated company IHC Health Holdings Corporation ("IHC") a
49%
shareholder of the EbixHealth JV. The administrative agreements with the three affiliates accounted for approximately
75%
of revenues for the year ended December 31, 2018. IHC is therefore considered a major customer of the EbixHealth JV and therefore considered indefinite-lived. The churn expected for indefinite-lived customers is assumed at
0%
. The fair values of these indefinite-lived intangible assets were based on the analysis of discounted cash flow (“DCF”) models extended out fifteen years with a terminal value. In that indefinite-lived does not imply an infinite life, but rather means that the subject customer relationships are expected to extend beyond the foreseeable time horizon, we utilized fifteen year DCF projections with a terminal value, as the valuation models that were applied consider this time frame to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually. We perform our annual impairment testing of indefinite-lived intangible assets as of September 30th of each year. During the years ended
December 31, 2018
,
2017
and
2016
, 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
|
|
Airport Contract
|
9
|
|
Store Networks
|
5
|
|
Dealer networks
|
15-20
|
|
Brand
|
15
|
|
Trademarks
|
3-15
|
|
Non-compete agreements
|
5
|
|
Database
|
10
|
|
Intangible assets as of
December 31, 2018
and
December 31, 2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Finite-lived intangible assets:
|
|
|
|
Customer relationships
|
$
|
80,070
|
|
|
$
|
73,725
|
|
Developed technology
|
19,176
|
|
|
15,076
|
|
Dealer networks
|
6,315
|
|
|
10,581
|
|
Airport Contract
|
4,752
|
|
|
—
|
|
Store Networks
|
821
|
|
|
—
|
|
Trademarks
|
2,677
|
|
|
2,698
|
|
Brand
|
864
|
|
|
—
|
|
Non-compete agreements
|
764
|
|
|
764
|
|
Backlog
|
140
|
|
|
140
|
|
Database
|
212
|
|
|
212
|
|
Total intangibles
|
115,791
|
|
|
103,196
|
|
Accumulated amortization
|
(64,343
|
)
|
|
(57,485
|
)
|
Finite-lived intangibles, net
|
$
|
51,448
|
|
|
$
|
45,711
|
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
Customer/territorial relationships
|
$
|
42,055
|
|
|
$
|
42,055
|
|
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, if necessary, for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible.
The Company 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%
.
On December 22, 2017, the 2017 TCJA was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to
21%
effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued SAB No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company is required to complete its tax accounting for the TCJA within a one-year period when it has obtained, prepared, and analyzed the information to complete the income tax accounting. Due to insufficient guidance, as well as the availability of information to accurately analyze the impact of the TCJA, we have made a reasonable estimate of the effects, as described in Note 8, and in other cases we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under FASB ASC Topic 740, Income Taxes and the provisions of the tax laws that were in effect immediately prior to enactment.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount for the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount.The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off, as described in Note 8.
Foreign Currency Translation
—The functional currency for the Company's main foreign subsidiaries in India, Singapore and Dubai is the U.S. dollar because the intellectual property research and development activities provided by its Singapore and Dubai subsidiaries, and the product development and information technology enabled services activities for the insurance industry provided by its India subsidiary, both in support of Ebix's operating divisions across the world, are transacted in U.S. dollars.
The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of accumulated other comprehensive loss 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
—With the exception of certain direct-response costs in connection with our business services of providing medical continuing education to physicians, dentists and healthcare professionals, advertising costs are expensed as incurred. Advertising costs amounted to
$7.5 million
,
$6.1 million
, and
6.2 million
in
2018
,
2017
and
2016
, respectively, and are included in sales and marketing expenses in the accompanying Consolidated Statements of Income. In 2017 reported sales and marketing expenses included
$3.9 million
of amortization of certain direct-response advertising costs associated with our medical education services, which had been capitalized in accordance with Accounting Standards Codification ("ASC") Topic 340. These costs were being amortized to advertising expense over periods ranging from
twelve
to
twenty-four
months based on the type of product the customer purchased. Deferred advertising costs amounted to
$1.9 million
at December 31, 2017.
Effective January 1, 2018 Subtopic 340-40 replaced that guidance to require the costs of direct-response advertising to be expensed as they are incurred or the first time the advertising takes place. The Company was required to recognize a cumulative effective change to opening retained earnings in the year of adoption of the standard. The Company recorded a one-time
$1.9 million
adjustment to retained earnings on January 1, 2018 and is expensing all future costs from this date forward. Under the new guidance Subtopic 340-40, the Company's expense decreased by
$522 thousand
during 2018 from what would have been recorded under legacy US GAAP 340-20.
Sales Commissions
—Certain sales commission paid with respect to subscription-based revenues are deferred and subsequently amortized into operating expenses ratably over the term of the related customer subscription contracts. As of
December 31, 2018
and
2017
,
$661 thousand
and
$574 thousand
, respectively, of sales commissions were deferred and included in other current assets on the accompanying Consolidated Balance Sheets. During the years ended
December 31, 2018
and
2017
the Company amortized
$1.0 million
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)
|
Buildings
|
39
|
Building Improvements
|
15
|
Computer equipment
|
5
|
Furniture, fixtures and other
|
7
|
Software
|
3
|
Land Improvements
|
20
|
Land
|
Unlimited life
|
Leasehold improvements
|
Life of the lease
|
Recent Relevant Accounting Pronouncements
—The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company's business:
In August 2018 the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820)
Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.
ASU 2018-13 is intended to improve the effectiveness of ASC 820’s disclosure requirements. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In June 2018 the FASB issued ASU 2018-07,
Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting
. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of ASU 2018-07 did not impact our consolidated financial position, results of operations or cash flows.
In February 2018, the FASB issued 2018-02,
Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASU 2018-02 did not impact our consolidated financial position, results of operations or cash flows.
In January 2017 the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.
To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A public business entity filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.
In January 2017 the FASB issued ASU 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
which amended the existing FASB ASC. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal 2019 with early adoption permitted. The adoption of ASU 2018-01 did not impact our consolidated financial position, results of operations or cash flows.
In November 2016 the FASB issued ASU 2016-18, Statement of Cash Flow (Topic 230) Restricted Cash
(A Consensus of the FASB Emerging Issues Task Force)
which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company adopted the new guidance on January 1, 2018 with no material impact to its statement of cash flows. For the twelve months ended December 31, 2018 and 2017, the Company held
$8.3 million
and
$4.0 million
, respectively, in "Restricted cash" and
$3.5 million
and
$2.9 million
, respectively, in "Other long-term assets" of the Company's Condensed Consolidated Balance Sheet.
In October 2016 the FASB issued ASU 2016-16,
Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments specified by ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of the amendments are intellectual property, and property, plant and equipment. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments align the recognition of income tax consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards. IAS 12, Income Taxes, requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (including inventory) when the transfer occurs. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.
In August 2016 the FASB issued ASU No. 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This ASU addresses the following eight specific cash flow issues: Contingent consideration payments made after a business combination; distributions received from equity method investees; debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies; and beneficial interests in securitization transactions; and also addresses separately identifiable cash flows and application of the predominance principle. The amendments in this ASU apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the ASU for those issuers would be applied prospectively as of the earliest date practicable. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.
In February 2016 the FASB issued ASU 2016-02,
Leases (Topic 842
). This new accounting guidance is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e., operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. For operating leases there will have to be the recognition of a lease liability and a lease asset for all such leases greater than one year in term. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted for all companies and organizations. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. See Note 5 for the Company’s current lease commitments. We will adopt Topic 842 effective January 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, we will carry forward the assessment of whether our contracts contain or are leases, classification of our leases and remaining lease terms. Based on our portfolio of leases as of December 31, 2018, approximately between
$140 million
and
$150 million
of lease assets and liabilities will be recognized on our balance sheet upon adoption, primarily relating to real estate. We are substantially complete with our implementation efforts.
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:
|
|
2018
|
|
2017
|
|
2016
|
Basic earnings per common share
|
|
$
|
2.97
|
|
|
$
|
3.19
|
|
|
$
|
2.88
|
|
Diluted earnings per common share
|
|
$
|
2.95
|
|
|
$
|
3.17
|
|
|
$
|
2.86
|
|
Basic weighted average shares outstanding
|
|
31,393
|
|
|
31,552
|
|
|
32,603
|
|
Diluted weighted average shares outstanding
|
|
31,534
|
|
|
31,719
|
|
|
32,863
|
|
Basic EPS is equal to net income attributable to Ebix, Inc 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 attributable to Ebix, Inc divided by the combined sum of the weighted average number of shares outstanding and common stock equivalents. At
December 31, 2018
,
2017
, and
2016
there were
42,000
,
zero
, and
zero
potentially issuable shares with respect to stock options which could dilute EPS in the future but which were excluded from the diluted EPS calculation because presently their effect is anti-dilutive. Diluted shares outstanding are determined as follows for each year ending
December 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
(in thousands)
|
|
|
2018
|
|
2017
|
|
2016
|
Basic weighted average shares outstanding
|
|
31,393
|
|
|
31,552
|
|
|
32,603
|
|
Incremental shares for common stock equivalents
|
|
141
|
|
|
167
|
|
|
260
|
|
Diluted shares outstanding
|
|
31,534
|
|
|
31,719
|
|
|
32,863
|
|
Note 3. Business Acquisitions
The Company’s business acquisitions are accounted for under the purchase method of accounting in accordance with the FASB’s accounting guidance on the accounting for business combinations. Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to the tangible and intangible assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains in part to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record significant adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in our consolidated statements of operations.
The Company's practice is to immediately tightly integrate all functions including infrastructure, sales and marketing, administration, product development after a business acquisition is consummated, so as to ensure that synergistic efficiencies are maximized and redundancies eliminated, and to rapidly leverage cross-selling opportunities. Furthermore the Company centralizes certain key functions such as information technology, marketing, sales, human resources, finance, and other general administrative functions after an acquisition, in order and to quickly realize cost efficiencies. By executing this integration strategy it becomes
neither practical nor feasible to accurately and separately track and disclose the earnings from the business combinations we have executed after they have been acquired.
A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The terms for the contingent earn-out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one, two, and/or three year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target with achievement of revenues recognized over that target being awarded in the form of a specified cash earn-out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn-out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. The Company recognizes these potential obligations as contingent liabilities as reported on its Consolidated Balance Sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. During each of the years ending December 31,
2018
,
2017
and
2016
, these aggregate contingent accrued earn-out business acquisition consideration liabilities, were reduced by
$1.4 million
,
$164 thousand
and
$1.3 million
, respectively, due to remeasurements as based on the then assessed fair value and changes in the amount and timing of anticipated future revenue levels. These reductions to the contingent accrued earn-out liabilities resulted in corresponding reduction to general and administrative expenses as reported on the Consolidated Statements of Income. As of
December 31, 2018
, the total of these contingent liabilities was
$24.98 million
, of which
$11.21 million
is reported in long-term liabilities, and
$13.77 million
is included in current liabilities in the Company's Consolidated Balance Sheet. As of
December 31, 2017
the total of these contingent liabilities was
$37.1 million
of which
$33.1 million
was reported in long-term liabilities, and
$4.0 million
was included in current liabilities in the Company's Consolidated Balance Sheet.
2018 Acquisitions
Weizmann-
Effective December 1, 2018 Ebix entered into an agreement to acquire
74.84%
controlling stake in India based Weizmann for
$63.1 million
. Ebix also made a 90-day time bound public offer to acquire the remaining
25.16%
publicly-held Weizmann Forex shares for approximately
$21.1 million
to public shareholders. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Pearl-
Effective December 1, 2018 Ebix acquired the assets of India based Pearl, a provider of a comprehensive range of B2B and B2C travel services, under the brand name ‘Sastiticket’, ranging from domestic and international ticketing, incentives travel, leisure products, luxury holidays, and travel documentation for
$3.4 million
and has been integrated with Ebix Travels’ operations, which has brought in operational synergies and certain redundancies for the acquired operations . The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Lawson-
Effective December 1, 2018 Ebix acquired India based Lawson, a B2B provider of travel services and international ticketing, for
$2.7 million
and has been integrated with Ebix Travels’ operations to bring in operational synergies and wider country wide footprint. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
AHA Taxis-
Effective October 1, 2018 Ebix acquired a
70%
stake in India based AHA Taxis, a platform for on-demand inter-city cabs in India for
$310 thousand
. AHA focuses its attention on Corporate and Consumer inter-city travel primarily with a network of thousands of registered AHA Taxis.
Routier-
Effective October 1, 2018 Ebix acquired a
67%
stake in India based Routier, a marketplace for trucking logistics for
$413 thousand
.
Business Travels-
Effective October 1, 2018 Ebix acquired the assets of India based Business Travels for
$1.1 million
and same has been integrated with Ebix Travels’ operations to expand the wholesale travel and consolidation business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Miles -
Effective August 1, 2018 Ebix entered into an agreement to acquire India based Miles Software ("Miles"), a provider of on-demand software on wealth and asset management to banks, asset managers and wealth management firms, for
approximately
$18.3 million
, plus possible future contingent earn-out payments of up to
$8.3 million
based on earned revenues over the subsequent
twenty-four
month period following the effective date of the acquisition.
Leisure -
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Leisure Corp ("Leisure") for approximately
$2.1 million
, with the goal of creating a new travel division to focus on a niche segment of the travel market. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Mercury -
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Mercury Travels for approximately
$13.2 million
, with the goal of creating a new travel division to focus on a niche segment of the travel market. Mercury’s Forex business will be integrated into EbixCash’s existing Forex exchange business. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction.
Indus -
Effective July 1, 2018 Ebix entered into an agreement to acquire India based Indus, a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately
$22.9 million
plus possible future contingent earn-out payments of up to
$5.0 million
based on earned revenues over the subsequent
twenty-four
month period following the effective date of the acquisition.
Centrum -
Effective April 1, 2018 Ebix entered into an agreement to acquire India based Centrum, a leader in India’s Foreign Exchange Operation markets for approximately
$179.5 million
. This acquisition was completed in June 2018. Subsequently, Centrum has been renamed as Ebixcash World Money and has been tightly integrated into Ebix’s Financial Exchange ‘EbixCash’ offerings in India and abroad, with key business executives of Foreign Exchange Operations becoming an integral part of the combined EbixCash senior leadership.
Smartclass -
Effective April 1, 2018 Ebix entered into an agreement to acquire a
60%
stake in India based Smartclass, a leading e-learning Company engaged in the business of education services, development of education products, and implementation of education solutions for K-12 Schools through its E-Learning Venture. Under the terms of the agreement Ebix paid
$8.6 million
in cash for its stake in Smartclass.
Transcorp -
Effective February 1, 2018 Ebix acquired the MTSS Business of Transcorp, for upfront cash consideration in the amount of
$7.25 million
, of which
$6.55 million
was funded with cash and
$700 thousand
assumed in liabilities. MTSS operations of Transcorp has been consolidated with EbixCash’s MTSS operations resulting in operational synergies and certain redundancies to the combined operation.
2017 Acquisitions
Via -
Effective November 1, 2017 Ebix acquired Via, a recognized leader in the travel space in India and an Omni-channel online travel and assisted e-commerce exchange with presence in India, Middle East and South East Asia. Ebix acquired Via for upfront cash consideration in the amount
$78.8 million
plus possible future contingent payments of up to
$2.3 million
based on any potential claims made by tax authorities over the subsequent
twelve
month period following the effective date of the acquisition, of which was not achieved after this period, and
$2.0 million
based on the receipt of refunds pertaining to certain advance tax payments and withholding taxes, both of which are included in Other current liabilities in the Company's Consolidated Balance Sheet.
Paul Merchants -
Effective November 1, 2017 Ebix acquired the MTSS Business of Paul Merchants, the largest international remittance service provider in India, for upfront cash consideration in the amount
$37.4 million
.
Wall Street -
Effective October 1, 2017 Ebix acquired the MTSS Business of Wall Street, an inward international remittance service provider in India, along with the acquisition of its subsidiary company Goldman Securities Limited for upfront cash consideration in the amount
$7.4 million
.
YouFirst -
Effective September 1, 2017 Ebix acquired the MTSS Business of YouFirst , an inward international remittance service provider in India, for upfront cash consideration in the amount
$10.2 million
.
beBetter -
Effective June 1, 2017 Ebix acquired the assets of beBetter a technology enabled corporate wellness provider that provides end-to-end wellness solutions offering a variety of tools and programs, including interactive platforms, health screening, coaching, tobacco cessation, weight and stress management, health information, and numerous other products and
services. Ebix acquired the assets and intellectual property of beBetter for
$1.0 million
plus possible future contingent earn-out payments of up to
$2.0 million
based on earned revenues over the subsequent
twenty-four
month period following the effective date of the acquisition. The Company has determined that the fair value of the contingent earn-out consideration is
zero
as of December 31, 2018.
ItzCash -
Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an
80%
stake in ItzCash, India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately
$150 million
. Accordingly, Ebix acquired an
80%
stake in ItzCash for
$120 million
including upfront cash of
$76.3 million
plus possible future contingent earn-out payments of up to
$44.0 million
based on earned revenues over the subsequent
thirty-six
month period following the effective date of the acquisition.
$4.0 million
of the possible future contingent earn-out payments was previously held in escrow accounts for the
twelve
month period following the effective date of the acquisition to ensure that the acquired business achieved the minimum specified annual gross revenue threshold, which was achieved and paid during the third quarter of 2018. The Company has determined that the fair value of the contingent earn-out consideration is
$15.4 million
as of December 31, 2018.
2016 Acquisitions
Wdev
- Effective November 1, 2016 Ebix acquired Wdev, a Brazilian company that provides IT services and software development for the Latin American insurance industry. Ebix acquired Wdev for upfront cash consideration in the amount of
$10.5 million
, plus possible future contingent earn-out payments of up to
$15.7 million
based on earned revenues over the subsequent
thirty-eight
month period following the effective date of the acquisition.
$2.9 million
of the upfront cash consideration is being held in an escrow account for the
thirty-eight
month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual net revenue threshold, which if not achieved will result in said funds being returned to Ebix. The Company has determined that the fair value of the contingent earn-out consideration is
$744 thousand
as of December 31, 2018.
EbixHealth JV -
Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (
11%
) of the EbixHealth JV for
$2.0 million
cash which resulted in Ebix holding an aggregate fifty-one percent (
51%
) controlling equity interest in the EbixHealth JV. Previously, effective September 1, 2015 Ebix and IHC formed a joint venture named EbixHealth JV. Ebix paid
$6.0 million
and contributed a license to use certain CurePet software and systems valued by the EbixHealth JV at
$2.0 million
, for its initial
40%
membership interest in the EbixHealth JV.
Hope Health -
Effective November 1, 2016 Ebix acquired the assets of Hope Health, a Michigan corporation and publisher of health and wellness continuing education products. Ebix acquired the assets and intellectual property of Hope Health for
$1.72 million
.
The following table summarizes the fair value of the consideration transferred, net assets acquired and liabilities assumed, as a result of the acquisitions, that were recorded during
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2018
|
|
2017
|
Fair value of total consideration transferred
|
|
|
|
|
Cash
|
|
$
|
250,769
|
|
|
$
|
211,143
|
|
Upfront cash consideration payable upon certain conditions being met
|
|
72,933
|
|
|
—
|
|
Contingent earn-out consideration arrangement (net)
|
|
(5,137
|
)
|
|
30,149
|
|
Upfront cash consideration being held in an escrow account
|
|
—
|
|
|
4,040
|
|
Total consideration transferred
|
|
318,565
|
|
|
245,332
|
|
|
|
|
|
|
Fair value of equity components recorded (not part of consideration)
|
|
|
|
|
Recognition of noncontrolling interest of joint ventures
|
|
23,500
|
|
|
27,625
|
|
Total equity components recorded
|
|
23,500
|
|
|
27,625
|
|
|
|
|
|
|
Total consideration transferred and equity components recorded
|
|
$
|
342,065
|
|
|
$
|
272,957
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
|
|
Cash
|
|
$
|
18,212
|
|
|
$
|
18,982
|
|
Short term investments
|
|
—
|
|
|
24,206
|
|
Restricted cash
|
|
—
|
|
|
4,040
|
|
Other current assets
|
|
68,317
|
|
|
39,680
|
|
Property, plant, and equipment
|
|
2,176
|
|
|
1,018
|
|
Other long term assets
|
|
14,574
|
|
|
1,683
|
|
Intangible assets, definite lived
|
|
14,577
|
|
|
11,267
|
|
Intangible assets, indefinite lived
|
|
—
|
|
|
11,168
|
|
Capitalized software development costs
|
|
46
|
|
|
1,705
|
|
Deferred tax liability
|
|
854
|
|
|
(3,405
|
)
|
Current and other liabilities
|
|
(83,021
|
)
|
|
(58,324
|
)
|
Net assets acquired, excludes goodwill
|
|
35,735
|
|
|
52,020
|
|
|
|
|
|
|
Goodwill
|
|
306,330
|
|
|
220,937
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
342,065
|
|
|
$
|
272,957
|
|
The following table summarizes the separately identified intangible assets acquired as a result of the acquisitions that occurred during
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
Weighted
Average
|
|
|
|
Weighted
Average
|
Intangible asset category
|
|
Fair Value
|
|
Useful Life
|
|
Fair Value
|
|
Useful Life
|
|
|
(in thousands)
|
|
(in years)
|
|
(in thousands)
|
|
(in years)
|
Customer relationships
|
|
$
|
7,342
|
|
|
11.7
|
|
$
|
518
|
|
|
10.0
|
Developed technology
|
|
3,726
|
|
|
5.0
|
|
—
|
|
|
0.0
|
Dealer's network
|
|
—
|
|
|
0.0
|
|
10,499
|
|
|
17.9
|
Airport contracts
|
|
4,896
|
|
|
9.0
|
|
—
|
|
|
0.0
|
Store networks
|
|
846
|
|
|
9.0
|
|
—
|
|
|
0.0
|
Brand
|
|
369
|
|
|
4.0
|
|
—
|
|
|
0.0
|
Purchase accounting adjustments for prior year acquisitions
|
|
(2,602
|
)
|
|
0.0
|
|
250
|
|
|
0.0
|
Total acquired intangible assets
|
|
$
|
14,577
|
|
|
9.2
|
|
$
|
11,267
|
|
|
17.6
|
Estimated aggregate future amortization expense for the intangible assets recorded as part of the business acquisitions described above and all other prior acquisitions is as follows:
|
|
|
|
|
Estimated Amortization Expenses (in thousands):
|
|
For the year ending December 31, 2019
|
$
|
9,131
|
|
For the year ending December 31, 2020
|
8,289
|
|
For the year ending December 31, 2021
|
7,705
|
|
For the year ending December 31, 2022
|
7,372
|
|
For the year ending December 31, 2023
|
5,348
|
|
Thereafter
|
13,603
|
|
|
|
|
|
$
|
51,448
|
|
The Company recorded
$7.5 million
,
$7.3 million
, and
$6.8 million
of amortization expense related to acquired intangible assets for the years ended December 31,
2018
,
2017
, and
2016
, respectively.
Note 4. Pro Forma Financial Information (re:
2018
and
2017
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 pertains to all of the Company's acquisitions made during 2018 and 2017, which includes the acquisitions of Pearl, Weizmann, Lawson, Subizz Travel, Global Business Travels Pvt, Business Travels Pvt, Routier, AHA Taxis, Miles, Leisure Corp, Mercury, Indus, Smartclass, Centrum, Transcorp, ItzCash, YouFirst, Wall Street, Paul Merchants,Via and the acquisition of assets of beBetter in 2017 as presented in the table below, and is provided for informational purposes only and does not project the Company's expected results of operations for any future period. No effect has been given in this pro forma information for future synergistic benefits that may still be realized as a result of combining these companies or costs that may yet be incurred in integrating their operations. The 2018 and 2017 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2017, whereas the Company's reported financial statements for 2018 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thusly includes only eleven months of Transcorp, nine months of Centrum, nine months of Smartclass, six months of Indus, six months of Mercury, six months of Leisure, five months of Miles, three months of Routier, three months of Business Travels, three months of AHA Taxis, one month of Pearl, one month of Weizmann and one month of Lawson. Similarly, the 2017 pro forma financial information below includes a full year of results for ItzCash, beBetter, YouFirst, Wall Street, Paul Merchants and Via as if they had been acquired on January 1, 2017, whereas the Company's reported financial statements for the 2017 includes only nine months of ItzCash, seven months of beBetter, four months of YouFirst, three months of Wall Street, two months of Paul Merchants, and two months of Via.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
2018
|
|
Pro Forma
2018
|
|
As Reported
2017
|
|
Pro Forma
2017
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
|
(In thousands, except per share amounts)
|
Revenue
|
|
$
|
497,826
|
|
|
$
|
584,105
|
|
|
$
|
363,971
|
|
|
$
|
605,649
|
|
Net income attributable to Ebix, Inc.
|
|
$
|
93,139
|
|
|
$
|
97,935
|
|
|
$
|
100,618
|
|
|
$
|
122,269
|
|
Basic EPS
|
|
$
|
2.97
|
|
|
$
|
3.12
|
|
|
$
|
3.19
|
|
|
$
|
3.88
|
|
Diluted EPS
|
|
$
|
2.95
|
|
|
$
|
3.11
|
|
|
$
|
3.17
|
|
|
$
|
3.85
|
|
In the above table, the unaudited pro forma revenue for the year ended
December 31, 2018
decreased by
$21.5 million
from the unaudited pro forma revenue for
2017
of
$605.6 million
to
$584.1 million
, representing a
3.6%
decrease. The reported revenue in the amount of
$497.8 million
for the year ended
December 31, 2018
increased by
$133.9 million
or
36.8%
from the
$364.0 million
of reported revenue for the year ended
December 31, 2017
. The cause for the difference between the
36.8%
increase in reported 2018 revenue versus 2017 revenue, as compared to the
3.6%
decrease in 2018 pro forma versus 2017 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2018 and 2017, specifically Transcorp, Centrum, Smartclass, Indus, Mercury, Leisure, Miles, Routier, Business Travels, AHA Taxis, Pearl, Weizmann, Lawson, ItzCash, YouFirst, Wall Street, Paul Merchants,Via, and beBetter with the Company's pre-existing operations. The 2018 and 2017 pro forma financial information assumes that all such business acquisitions were made on January 1, 2017, whereas the Company's reported financial statements for 2018 only includes the operating results from the businesses since the effective date that they were acquired by Ebix, and thus includes only eleven months of Transcorp, nine months of Centrum, nine months of Smartclass, six months of Indus, six months of Mercury, six months of Leisure, five months of Miles, three months of Routier, three months of Business Travels, three months of Wahh Taxis, one month of Pearl, one month of Weizmann and one month of Lawson.
The above pro forma analysis is based on the following premises:
|
|
•
|
2018 and 2017 pro forma revenue contains actual revenue of the acquired entities before acquisition date, as reported by the sellers, as well as actual revenue of the acquired entities after acquisition. Growth in revenues of the acquired entities after acquisition date is only reflected for the period after their acquisition.
|
|
|
•
|
Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business.
|
|
|
•
|
Any existing products sold to new customers acquired through the acquisition customer base, has also been assigned to the acquired section of our business.
|
|
|
•
|
The impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially affected reported revenues. During each of the years
2018
and
2017
the change in foreign currency exchange rates increased (decreased) reported consolidated operating revenues by
$(6.9) million
and
$2.1 million
, respectively.
|
Note 5. Commercial Bank Financing Facility
On November 27, 2018, Ebix entered into the Eighth Amendment to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions and certain other lenders party thereto (as amended, the "Credit Agreement") to exercise
$101.25 million
of its aggregate
$150 million
accordion option, increasing the total Term Loan Commitment to
$301.25 million
from
$250 million
, with initial repayments starting December 31, 2018 due in the amount of
$3.77 million
for the first six quarters and increasing thereafter. The revolving credit facility increased from
$400 million
to
$450 million
. The Credit Agreement carries a leverage-based LIBOR related interest rate, which currently stands at approximately
4.875%
. The expanded credit facility will continue to be used to fund the Company's future growth and share repurchase initiatives.
On April 9, 2018 the Company and certain of its subsidiaries entered into the Seventh Amendment to the Regions Secured Credit Facility increasing the permitted indebtedness in the form of unsecured convertible notes from
$250 million
to
$300 million
.
On February 21, 2018, Ebix, Inc. and certain of its subsidiaries entered into the Sixth Amendment to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions and certain other lenders party thereto (as amended, the "Credit Agreement"). The Sixth Amendment amends the Credit Agreement by increasing its existing credit facility from
$450 million
to
$650 million
, to assist in funding its growth. The increase in the bank line was the result of many members of the existing
bank group expanding their share of the credit facility and the addition of BBVA Compass and Bank of the West to the Banking Syndicate, which diversifies Ebix’s lending group under the credit facility to
ten
participants. The syndicated bank group now comprises
ten
leading financial institutions that include Regions Bank, PNC Bank, BMO Harris Bank, BBVA Compass, Fifth Third Bank, KeyBank, Bank of the West, Silicon Valley Bank, Cadence Bank and Trustmark National Bank. Regions Bank continued to lead the banking group while serving as the administrative and collateral agent. PNC Bank and BMO Harris Bank were added as co-syndication agents, BBVA Compass and Fifth Third Bank as co-documentation agent, while Regions Capital Markets, PNC Capital Markets and BMO Harris Bank acted as joint lead arrangers and joint bookrunners. The new credit facility has the following key components: A
five
-year term loan for
$250 million
, with initial repayments starting June 30, 2018 due in the amount
$3.13 million
for the first eight quarters and increasing thereafter and a
five
-year revolving credit facility for
$400 million
. The new credit facility also allows for up to
$150 million
of incremental facilities.
On November 3, 2017 the Company and certain of its subsidiaries entered into the Fifth Amendment to the Regions Secured Credit Facility, dated August 5, 2014, among the Company, Regions and certain other lenders party thereto (as amended, the "Credit Agreement") to exercise
$50 million
of its aggregate
$100 million
accordion option, increasing the total Term Loan Commitment to
$175 million
.
$20 million
of the increase was funded on November 3, 2017 and the remaining
$30 million
shall be disbursed upon the satisfaction of certain closing requirements set forth in the Fifth Amendment. Both such disbursements are tied to permitted acquisitions as set forth in the Fifth Amendment.
On November 3, 2017, the Company and certain of its subsidiaries entered into the Fourth Amendment to the Credit Agreement. The Fourth Amendment waives certain technical defaults related to the failure to give required notice with respect to i) the existence of a subsidiary having intellectual property with an aggregate value above a stipulated amount and ii) the additional investment in a joint venture entity resulting in that entity becoming a subsidiary of the Company for the purpose of the Credit Agreement. In addition to such waiver, the Fourth Amendment also loosened the leverage ratios the Company is required to satisfy in connection with permitted acquisitions and for compliance generally.
On October 19, 2017, the Company and certain of its subsidiaries entered into the Third Amendment to the Credit Agreement. The Third Amendment waives certain technical defaults related to the Company’s making certain restricted payments in excess of those permitted under the Credit Agreement. In addition to such waiver, the Third Amendment also loosened the limitations on the restricted payment covenant under the Credit Agreement.
On June 17, 2016, the Company and certain of its subsidiaries entered into the Second Amendment Credit Agreement. The Second Amendment increased the total credit facility to
$400 million
from the prior amount of
$240 million
, and expands the syndicated bank group to
eleven
participants by adding
seven
new participants which include PNC Bank, National Association BMO Harris Bank N.A., Key Bank National Association, HSBC Bank National, Cadence Bank, the Toronto-Dominion Bank (New York Branch), and Trustmark National Bank. The Credit Agreement consisted of a
5
-year revolving credit component in the amount of
$275 million
, and a
5
-year term loan component in the amount of
$125 million
, with repayments of
$3.13 million
due each quarter, starting September 30, 2016. The Credit Agreement also contained an accordion feature, which if exercised and approved by all credit parties, would expand the total borrowing capacity under the syndicated credit facility to
$500 million
.
Effective October 14, 2015 the Company, in coordination with Regions as administrative agent and a joint lender, exercised the
$50 million
accordion feature in the Credit agreement thereby expanding the total credit facility to
$240 million
. As part of this credit facility expansion, TD Bank, NA ("TD") was added to the syndication group expanding the syndicated group to five bank participants, which include Regions, MUFG Union Bank N.A., Fifth Third Bank, and Silicon Valley Bank as joint lenders. TD commitment level is
$25 million
.
On February 3, 2015, Ebix, Inc. and certain of its subsidiaries entered into the First Amendment to the Credit Agreement. The First Amendment amended the Regions Credit Facility by increasing the maximum amount by which the Aggregate Revolving Commitments may be increased by
$90 million
from the pre-existing limit of
$50 million
, increased the amount of base facility to
$190 million
from the pre-existing amount of
$150 million
, which together with the
$50 million
accordion feature increased the total Credit Agreement capacity amount to
$240 million
from the prior amount of
$200 million
, and added Fifth Third Bank to the syndicated group, which now includes four participants, included Regions, MUFG Union Bank N.A., and Silicon Valley Bank as joint lenders.
At
December 31, 2018
, the outstanding balance on the revolving line of credit with Regions was
$424.5 million
and the facility carried an interest rate of
4.875%
. This balance is included in the long-term liabilities section of the Consolidated Balance Sheets. During
2018
, the average and maximum outstanding balances on the revolving line of credit were
$318.9 million
and
$424.5 million
, respectively, and the weighted average interest rate was
4.51%
. At
December 31, 2017
the outstanding balance on the revolving line of credit was
$274.5 million
and the facility carried an interest rate of
4.13%
.
At
December 31, 2018
,, the outstanding balance on the term loan was
$291.2 million
of which
$15.1 million
is due within the next twelve months. This term loan also carried an interest rate of
4.875%
. The current and long-term portions of the term loan are included in the respective current and long-term sections of the Condensed Consolidated Balance Sheets, the amounts of which were
$15.1 million
and
$276.2 million
, respectively, at December 31, 2018.
Note 6. Commitments and Contingencies
Contingencies
-
In May 2013, twelve putative class action complaints were filed in the Delaware Court of Chancery against the Company and its board of directors challenging a proposed merger between the Company and an affiliate of Goldman Sachs & Co. On June 10, 2013, the Court entered an Order of Consolidation and Appointment of Lead Plaintiffs and a Leadership Structure consolidating the twelve actions and appointing lead plaintiffs (“
Plaintiffs
”) and lead counsel in the litigation, captioned
In re Ebix, Inc. Stockholder Litigation
, Consol. C.A. No. 8526-VCS (the “
Litigation
”). On June 19, 2013, the Company announced that the merger agreement had been terminated. Thereafter, on August 27, 2013, Plaintiffs filed a Verified Amended and Supplemented Class Action and Derivative Complaint (the “
First Amended Complaint
”), which defendants moved to dismiss on September 26, 2013. On July 24, 2014, the Court issued a Memorandum Opinion granting in part and denying in part the motions to dismiss the First Amended Complaint and subsequently entered an implementing order on September 15, 2014. On January 16, 2015, Plaintiffs filed a Verified Second Amended and Supplemented Class Action and Derivative Complaint (the “
Second Amended Complaint
”). On February 10, 2015, defendants filed a Motion to Dismiss the Second Amended Complaint, which was granted in part and denied in part in a Memorandum Opinion and Order issued on January 15, 2016. On October 26, 2016, Plaintiffs filed a Verified Third Amended and Supplemented Class Action and Derivative Complaint (the “
Third Amended Complaint
”), which, among other things, added certain directors of the Company as defendants. On January 5, 2018, Plaintiffs filed a motion for leave to join an additional plaintiff as co-lead plaintiff in this action (collectively, “
Plaintiffs
,” and together with all defendants, the “
Parties
”), which was granted on April 2, 2018.
On January 19, 2018, Plaintiffs filed a Fourth Amended and Supplemented Class Action and Derivative Complaint (the “
Fourth Amended Complaint
”), which asserted claims against the defendants, including: breach of fiduciary duty claims for improperly maintaining an acquisition bonus agreement between the Company and its Chief Executive Officer, dated July 15, 2009 (the “
ABA
”) (Count I); disclosure claims relating to the 2010 Proxy Statement and the Company’s 2010 Stock Incentive Plan (the “
2010 Plan
”) (Count II); a derivative claim for breach of fiduciary duty based on awards made pursuant to 2010 Plan (Count III); a breach of fiduciary duty claim for implementing purported additional entrenchment measures (Count IV); a claim seeking to declare the invalidity of certain bylaws adopted by the Company in 2014 (Count V); a claim seeking to declare the invalidity of the ABA (Count VI); a breach of fiduciary duty claim related to public disclosures about the ABA (Count VII); a claim seeking to declare the invalidity of the 2008 stockholder meeting, a 2008 Certificate amendment (the “
Certificate Amendment
”) and a 2008 stock split (the “
Stock Dividend
”), among other corporate acts, including the Company’s ratification of these 2008 corporate acts (Count VIII); a claim seeking to declare the invalidity of the CEO Bonus Plan (Count IX); and a claim for breach of fiduciary duty for deliberately inserting additional terms when calculating a potential bonus under the ABA (Count X). The Fourth Amended Complaint sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On March 7, 2018, defendants filed motions for summary judgment on all counts in the Fourth Amended Complaint. In connection with the Litigation, the Company’s Chief Executive Officer asserted a cross-claim for reformation of the ABA.
The terms of the ABA generally provided that if Mr. Raina was employed by the Company upon the occurrence of: (i) an event in which more than 50% of the voting stock of the Company was sold, transferred, or exchanged, (ii) a merger or consolidation of the Company, (iii) the sale, exchange, or transfer of all or substantially all of the Company’s assets, or (iv) the acquisition or dissolution of the Company (each, an “
Acquisition Event
”), the Company would pay Mr. Raina a cash bonus based on a formula that was disputed by Plaintiffs in the Litigation and a tax gross-up payment for excise taxes that would be imposed on Mr. Raina for the cash bonus payment. Upon the execution of a Stock Appreciation Right Award Agreement between the Company and its Chief Executive Officer, dated April 10, 2018 (the “
April SAR Agreement
”), the ABA was terminated and each party relinquished their respective rights and benefits under the ABA.
Upon the effective date of the April SAR Agreement, Mr. Raina received
5,953,975
stock appreciation rights with respect to the Company’s common shares (the “
SARs
”). Upon an Acquisition Event, each of the SARs entitle Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with the Acquisition
Event over the base price of
$7.95
per share. Although the SARs were not granted under the 2010 Plan, the April SAR Agreement incorporates certain provisions of the 2010 Plan, including the provisions requiring equitable adjustment of the number of SARs and the base price in connection with certain corporate events (including stock splits). Under the terms of the April SAR Agreement, Mr. Raina is entitled to receive full payment with respect to the SARs if either (i) he is employed by the Company on the closing date of an Acquisition Event or (ii) has been involuntarily terminated by the Company without cause (as defined in the April SAR Agreement) within the 180-day period immediately preceding an Acquisition Event. All of the SARs are forfeited if Mr. Raina’s employment is terminated for any other reason prior to the closing date of an Acquisition Event.
In addition, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the April SAR Agreement provides that the Company’s Board of Directors (the “
Board
”) will determine annually whether a “shortfall” (as described below) exists as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall exists, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, additional restricted shares or restricted stock units (each a “
Share Grant
”)) in an amount sufficient to eliminate such shortfall (each a “
Shortfall Grant
”). Under the terms of the April SAR Agreement, a shortfall exists if: (A) the sum of (i) the number of common shares deemed to be owned by Mr. Raina as of the effective date of the April SAR Agreement, plus (ii) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (iii) the number of shares underlying any previously granted Share Grant, was less than 20% of (B) the sum of (i) the number of SARs granted to Mr. Raina (including any Shortfall Grants), plus (ii) the number of outstanding shares reported by the Company in its audited financial statements as of the end of the immediately preceding fiscal year. Under the terms of the April SAR Agreement, if the Board elects to make a Shortfall Grant in respect of such shortfall, such SARs will be subject to the same terms and conditions as the SARs initially granted under the April SAR Agreement. If the Board elects to make a Share Grant in respect of such shortfall, such restricted shares or restricted stock units will have such terms and conditions as determined by the Board, but generally will follow the terms of the restricted shares or restricted stock units granted to other executives of the Company at or about the time of such Share Grant, but no Share Grant will vest more rapidly than one-third of such Share Grant prior to the first anniversary of the grant date, with the remainder vesting in eight equal quarterly installments following the first anniversary of the grant date. The April SAR Agreement also provides for the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments (other than any payments with respect to any Share Grants) made in connection with a change in control of the Company under Section 4999 of the Internal Revenue Code.
On May 31, 2018, Plaintiffs filed a Verified Supplement to the Fourth Amended Complaint (the “
Supplement
”), which asserted three additional counts related to the April SAR Agreement, including: a claim seeking to declare the April SAR Agreement invalid (Count XI); a claim for breach of fiduciary duty for adopting the April SAR Agreement (Count XII); and a claim for breach of fiduciary duty for improperly adopting the SAR Agreement as an “anti-takeover device” (Count XIII). The Supplement sought declaratory relief, compensatory damages, interest, and attorneys’ fees and costs, among other things. On June 18, 2018, defendants moved to dismiss the claims asserted in the Supplement. Also on June 18, 2018, the Court entered a joint stipulation and order declaring the 2008 Certificate Amendment and Stock Dividend valid and effective pursuant to 8
Del. C.
§ 205 and subsequently dismissed Count VIII of the Fourth Amended Complaint on July 5, 2018.
On July 17, 2018, following briefing and argument, the Court issued an Order granting in part and denying in part defendants’ motions for summary judgment on all remaining counts of the Fourth Amended Complaint. The Court granted summary judgment as to all defendants on Counts I, IV, V, VI, VII, and X and denied summary judgment as to Counts II and III. The Court granted summary judgment as to certain defendants on Count IX, and granted in part and denied in part Count IX with respect to the Firm Clients. On July 24, 2018, Plaintiffs filed a motion for leave to file a second supplement to the Fourth Amended Complaint related to certain disclosures issued in connection with the Company’s 2018 annual meeting, which the Court denied at a pretrial conference held on August 15, 2018. On August 9, 2018, following briefing and argument, the Court issued a bench ruling granting in part and denying in part defendants’ motion to dismiss the Supplement. A three-day trial on all remaining claims was held on August 20, 21, and 23, 2018.
Following trial held on August 20, 21 and 23, 2018, and prior to the conclusion of post-trial briefing, on January 23, 2019, the Parties entered into a Stipulation and Agreement of Settlement (the “
Settlement Agreement
”) pursuant to which the Parties agreed, subject to Final Approval (as defined in the Settlement Agreement) by the Court, to settle and resolve the Litigation pursuant to the terms set forth in the Settlement Agreement (the “
Settlement
”). The Settlement includes, among other things, the adoption and entry into an Amended Stock Appreciation Right Award Agreement (the “
Amended SAR Agreement
”) (set forth in Exhibit A to the Settlement Agreement), the implementation of certain governance measures (set forth in Exhibit B to the Settlement Agreement), and the issuance of a Form 8-K describing the Settlement and terms thereof following the final approval of the Settlement (set forth in Exhibit C to the Settlement Agreement).
The Amended SAR Agreement was negotiated as part of the Litigation Settlement and will become effective upon Final Approval of the Litigation Settlement, and includes the following changes and modifications to the April SAR Agreement:
|
|
(a)
|
Mr. Raina will commit to continue to serve and not resign as the Company’s Chief Executive Officer for at least two years following Final Approval of the Litigation Settlement;
|
|
|
(b)
|
any shares paid, awarded or otherwise received by Mr. Raina as compensation after the effective date of the April SAR Agreement, including any shares received by Mr. Raina from the exercise of any options granted after the effective date of the April SAR Agreement or from the grant or vesting of any restricted shares or settlement of any restricted stock units granted after the effective date of the April SAR Agreement (but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants), will be excluded from the outstanding shares for purposes of the Board’s annual shortfall determination;
|
|
|
(c)
|
if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement),
1,000,000
SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by
750,000
SARs beginning on the first anniversary of Final Approval of the Litigation Settlement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until
100%
of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forefeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event; and
|
|
|
(d)
|
The obligation of the Company to make tax gross-up payments for excise taxes that would be imposed on Mr. Raina in respect of any payments made in connection with a change in control of the Company will be eliminated.
|
The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Amended SAR Agreement.
Pursuant to a scheduling order entered by the Court on January 24, 2019 (the “
Scheduling Order
”), post-trial briefing is currently stayed, notice of the proposed Settlement was mailed and posted to a dedicated website on February 4, 2019 (the “Notice,”
available at
http://ebixstockholderlitigation.com), and a settlement approval hearing is scheduled to be held on April 5, 2019 (the “
Settlement Hearing
”). On February 25, 2019, Plaintiffs filed an opening brief in support of the settlement and their application for a Fee Award (as defined in the Settlement Agreement), in which Plaintiffs and their counsel seek an award of attorneys’ fees of
$25 million
plus expenses of
$952 thousand
. Pursuant to the Settlement Agreement, all such attorneys’ fees and expenses that are awarded by the Court shall be paid solely by Ebix or its insurance carriers, and from no other source, within twenty (20) business days of entry of an order approving such award. Pursuant to the Scheduling Order, any objections to the Settlement and/or Plaintiffs’ counsel’s application for fees and expenses and any responses thereto are scheduled to be filed no later than eighteen (18) calendar days and seven (7) calendar days, respectively, prior to the Settlement Hearing. Defendants believe that the claims asserted in the Litigation are without merit and, if for any reason the Settlement is not fully and finally approved upon the terms and conditions set forth in the Settlement Agreement, intend to vigorously defend against them.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate likely disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Lease Commitments—
The Company leases office space under non-cancelable operating leases with expiration dates ranging through 2029, with various renewal options. Capital leases range from
three
to
five
years and are primarily for computer equipment. There were multiple assets under various individual capital leases at
December 31, 2018
and
2017
.
Commitments for minimum rentals under non-cancellable leases, debt obligations, and future purchase obligations as of
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Debt
|
|
Capital Leases
|
|
Operating Leases
|
|
Future Purchase Obligations
|
|
|
(in thousands)
|
|
|
2019
|
|
$
|
19,053
|
|
|
$
|
266
|
|
|
$
|
34,189
|
|
|
$
|
406
|
|
2020
|
|
20,711
|
|
|
96
|
|
|
32,093
|
|
|
—
|
|
2021
|
|
22,594
|
|
|
89
|
|
|
26,675
|
|
|
—
|
|
2022
|
|
28,242
|
|
|
67
|
|
|
23,355
|
|
|
—
|
|
2023
|
|
629,162
|
|
|
15
|
|
|
21,890
|
|
|
—
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
3,299
|
|
|
—
|
|
Total
|
|
$
|
719,762
|
|
|
$
|
533
|
|
|
$
|
141,501
|
|
|
$
|
406
|
|
Less: sublease income
|
|
|
|
|
|
(1,091
|
)
|
|
|
Net lease payments
|
|
|
|
|
|
$
|
140,410
|
|
|
|
|
Less: amount representing interest
|
|
|
|
(63
|
)
|
|
|
|
|
Present value of obligations under capital leases
|
|
|
|
$
|
470
|
|
|
|
|
|
Less: current portion
|
|
(19,053
|
)
|
|
(239
|
)
|
|
|
|
|
Long-term obligations
|
|
$
|
700,709
|
|
|
$
|
231
|
|
|
|
|
|
Rental expense for office facilities and certain equipment subject to operating leases for
2018
,
2017
, and
2016
was
$22.3 million
,
$6.6 million
and
$6.4 million
, respectively.
Sublease income for
2018
,
2017
and
2016
was
$1.1 million
,
$1.1 million
, and
$1.0 million
, respectively.
Business Acquisition Earn-out Contingencies—
A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The terms for the contingent earn-out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one, two, and/or three year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target with achievement of revenues recognized over that target being awarded in the form of a specified cash earn-out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn-out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. As of
December 31, 2018
, the total of these contingent liabilities was
$25.0 million
, of which
$11.2 million
is reported in long-term liabilities, and
$13.8 million
is included in current liabilities in the Company's Consolidated Balance Sheet. As of
December 31, 2017
the total of these contingent liabilities was
$37.1 million
of which
$33.1 million
was reported in long-term liabilities, and
$4.0 million
was included in current liabilities in the Company's Consolidated Balance Sheet.
Self -Insurance—
For some 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, 2018
and
2017
, the amount accrued on the Company’s consolidated balance sheet for the self-insured component of the Company’s employee health insurance was
$232 thousand
and
$332 thousand
, respectively. The maximum potential estimated cumulative liability for the annual contract period, which ends in September 2019, is
$3.3 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, 2018
, the Company had
two
equity based compensation plan.
No
stock options were granted to employees or non-employees during
2018
,
2017
and
2016
; however, options were granted to Directors in
2018
, 2017 and 2016. Stock compensation expense of
$449 thousand
,
$433 thousand
and
$340 thousand
was recognized during the years ending December 31,
2018
,
2017
and
2016
, respectively, on outstanding and unvested options.
The fair value of options granted during
2018
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, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
Weighted average fair values of stock options granted
|
$
|
11.80
|
|
|
$
|
15.38
|
|
|
$
|
19.50
|
|
Expected volatility
|
35.7
|
%
|
|
37.9
|
%
|
|
55.5
|
%
|
Expected dividends
|
.70
|
%
|
|
.56
|
%
|
|
.61
|
%
|
Weighted average risk-free interest rate
|
2.47
|
%
|
|
1.64
|
%
|
|
1.40
|
%
|
Expected life of stock options (in years)
|
3.5
|
|
|
3.5
|
|
|
3.5
|
|
A summary of stock option activity for the years ended December 31,
2018
,
2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
|
|
(in thousands)
|
Outstanding at January 1, 2016
|
139,878
|
|
|
$
|
15.17
|
|
|
2.32
|
|
$
|
2,465
|
|
Granted
|
42,000
|
|
|
$
|
49.22
|
|
|
|
|
|
Exercised
|
(72,379
|
)
|
|
$
|
11.38
|
|
|
|
|
|
Canceled
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
109,499
|
|
|
$
|
30.73
|
|
|
3.28
|
|
$
|
2,882
|
|
Granted
|
42,000
|
|
|
$
|
53.90
|
|
|
|
|
|
Exercised
|
(3,500
|
)
|
|
$
|
14.90
|
|
|
|
|
|
Canceled
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
147,999
|
|
|
$
|
37.68
|
|
|
2.94
|
|
$
|
6,152
|
|
Granted
|
42,000
|
|
|
$
|
42.56
|
|
|
|
|
|
Exercised
|
(27,999
|
)
|
|
$
|
15.65
|
|
|
|
|
|
Canceled
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
162,000
|
|
|
$
|
42.75
|
|
|
3.05
|
|
$
|
—
|
|
Exercisable at December 31, 2018
|
80,250
|
|
|
$
|
38.21
|
|
|
2.00
|
|
$
|
49
|
|
The aggregate intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s stock as of the end of the period and the exercise price of the stock options. The total intrinsic value of stock options exercised during
2018
,
2017
and
2016
was
$900 thousand
,
$169 thousand
, and
$3.2 million
, respectively.
Cash received or the value of stocks canceled from option exercises under all share-based payment arrangements for the years ended December 31,
2018
,
2017
and
2016
, was
$439 thousand
,
$52 thousand
and
$824 thousand
, respectively.
A summary of non-vested options and changes for the years ended December 31,
2018
,
2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
|
Non-Vested Number of Shares
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
Non-vested balance at January 1, 2016
|
75,750
|
|
|
$
|
19.27
|
|
Granted
|
42,000
|
|
|
$
|
49.22
|
|
Vested
|
(43,125
|
)
|
|
$
|
18.89
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2016
|
74,625
|
|
|
$
|
36.35
|
|
Granted
|
42,000
|
|
|
$
|
53.90
|
|
Vested
|
(40,125
|
)
|
|
$
|
32.54
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2017
|
76,500
|
|
|
$
|
47.99
|
|
Granted
|
42,000
|
|
|
$
|
42.56
|
|
Vested
|
(36,750
|
)
|
|
$
|
43.52
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
Non-vested balance at December 31, 2018
|
81,750
|
|
|
$
|
47.21
|
|
The following table summarizes information about stock options outstanding by price range as of
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Prices
|
|
Number Outstanding
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
Weighted-Average Exercise Price
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
$21.19
|
|
30,000
|
|
|
0.19
|
|
$
|
3.93
|
|
|
30,000
|
|
|
$
|
7.92
|
|
$28.59
|
|
6,000
|
|
|
0.05
|
|
$
|
1.06
|
|
|
5,625
|
|
|
$
|
2.00
|
|
$42.56
|
|
42,000
|
|
|
1.30
|
|
$
|
11.03
|
|
|
—
|
|
|
$
|
—
|
|
$49.22
|
|
42,000
|
|
|
0.61
|
|
$
|
12.76
|
|
|
28,875
|
|
|
$
|
17.71
|
|
$53.90
|
|
42,000
|
|
|
0.91
|
|
$
|
13.97
|
|
|
15,750
|
|
|
$
|
10.58
|
|
|
|
162,000
|
|
|
3.05
|
|
$
|
42.75
|
|
|
80,250
|
|
|
$
|
38.21
|
|
Restricted Stock
—Pursuant to the Company’s restricted stock agreements, the restricted stock granted generally vests as follows:
one third
after one year, and the remaining in
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, 2016
|
203,314
|
|
|
$
|
25.56
|
|
Granted
|
26,119
|
|
|
$
|
44.79
|
|
Vested
|
(101,441
|
)
|
|
$
|
23.25
|
|
Forfeited
|
(4,338
|
)
|
|
$
|
35.54
|
|
Non vested at December 31, 2016
|
123,654
|
|
|
$
|
31.17
|
|
Granted
|
56,251
|
|
|
$
|
56.75
|
|
Vested
|
(72,810
|
)
|
|
$
|
29.50
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Non vested at December 31, 2017
|
107,095
|
|
|
$
|
45.74
|
|
Granted
|
5,623
|
|
|
$
|
76.47
|
|
Vested
|
(68,788
|
)
|
|
$
|
40.67
|
|
Forfeited
|
(3,514
|
)
|
|
$
|
46.24
|
|
Non vested at December 31, 2018
|
40,416
|
|
|
$
|
58.60
|
|
As of
December 31, 2018
there was
$2.1 million
of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the 2006 and 2010 Incentive Compensation Program. That cost is expected to be recognized over a weighted-average period of
1.74
years. The total fair value of shares vested during the years ended December 31,
2018
,
2017
and
2016
was
$2.8 million
,
$2.1 million
, and
$2.4 million
, respectively.
In the aggregate the total compensation expense recognized in connection with the restricted grants was
$2.4 million
,
$2.4 million
and
$2.5 million
during each of the years ending December 31,
2018
,
2017
and
2016
, respectively.
As of
December 31, 2018
the Company has
5.3 million
shares of common stock reserved for possible future stock option and restricted stock grants.
Note 8. Income Taxes
The income tax expense (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
(In thousands)
|
Current:
|
|
|
|
|
|
US federal
|
$
|
22,353
|
|
|
$
|
2,390
|
|
|
$
|
1,259
|
|
US state
|
847
|
|
|
1,153
|
|
|
310
|
|
Non US
|
15,212
|
|
|
8,266
|
|
|
3,266
|
|
|
38,412
|
|
|
11,809
|
|
|
4,835
|
|
Deferred:
|
|
|
|
|
|
US federal
|
5,617
|
|
|
(5,558
|
)
|
|
78
|
|
US state
|
(1,031
|
)
|
|
(976
|
)
|
|
295
|
|
Non US
|
(10,497
|
)
|
|
(4,498
|
)
|
|
(3,571
|
)
|
|
(5,911
|
)
|
|
(11,032
|
)
|
|
(3,198
|
)
|
|
|
|
|
|
|
Total
|
$
|
32,501
|
|
|
$
|
777
|
|
|
$
|
1,637
|
|
Income (loss) before income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
(In thousands)
|
US
|
$
|
(36,202
|
)
|
|
$
|
(13,355
|
)
|
|
$
|
(80
|
)
|
Non US
|
161,783
|
|
|
116,715
|
|
|
96,011
|
|
Total
|
$
|
125,581
|
|
|
$
|
103,360
|
|
|
$
|
95,931
|
|
A reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
Statutory US federal income tax rate
|
21.0
|
%
|
|
34.0
|
%
|
|
35.0
|
%
|
US state income taxes, net of federal benefit
|
(0.3
|
)%
|
|
(0.8
|
)%
|
|
0.4
|
%
|
Non-US tax rate differential
|
(15.2
|
)%
|
|
(28.7
|
)%
|
|
(22.8
|
)%
|
GILTI Related
|
15.1
|
%
|
|
—
|
%
|
|
—
|
%
|
SubPart F
|
0.7
|
%
|
|
—
|
%
|
|
—
|
%
|
Tax holidays
|
(3.4
|
)%
|
|
(3.5
|
)%
|
|
(14.0
|
)%
|
Tax Credits
|
(10.6
|
)%
|
|
(1.4
|
)%
|
|
—
|
%
|
Passive income exemption
|
(0.9
|
)%
|
|
(2.1
|
)%
|
|
(1.4
|
)%
|
Acquisition contingent earnout liability adjustments
|
(0.2
|
)%
|
|
—
|
%
|
|
(0.9
|
)%
|
Foreign enhanced R&D deductions
|
—
|
%
|
|
—
|
%
|
|
(0.9
|
)%
|
Nondeductible items
|
(0.1
|
)%
|
|
2.5
|
%
|
|
9.1
|
%
|
Effect of valuation allowance
|
(0.1
|
)%
|
|
(3.6
|
)%
|
|
(2.3
|
)%
|
Release of deferred tax liability on intangibles transferred
|
—
|
%
|
|
—
|
%
|
|
(3.5
|
)%
|
Prior year Transition Tax and related true-ups
|
19.5
|
%
|
|
1.1
|
%
|
|
2.8
|
%
|
Uncertain tax positions
|
0.1
|
%
|
|
5.8
|
%
|
|
0.1
|
%
|
Rate change on deferred taxes primarily due to tax reform
|
—
|
%
|
|
(2.4
|
)%
|
|
—
|
%
|
Other
|
0.1
|
%
|
|
(0.1
|
)%
|
|
0.1
|
%
|
Effective income tax rate
|
25.9
|
%
|
|
0.8
|
%
|
|
1.7
|
%
|
Our effective tax rate increased to
25.9%
in 2018, compared with
0.8%
in 2017. This increase was substantial on account of recording of one time Transition tax liability resulting from enactment of the TCJA, which has been included in Prior year Transaction tax and relataed true-ups. Excluding this, the remaining increase in the effective tax rate was primarily on account of Global Intangible Low-taxed Income (“GILTI”) tax, becoming applicable on the Company from enactment of TCJA.
Beginning in 2009, we were granted a
100%
tax holiday for certain of our Indian operations, which was in effect until March 31, 2014 and March 31, 2015 for some of our locations and continues until March 31, 2020 for other locations. When these tax holidays expire, these locations become
50%
taxable for an additional
five
years. The impact of this tax holiday decreased our non-US income tax expense by
$4.3 million
and
$2.9 million
for 2018 and 2017, respectively.
Excluding one-time impact of Transition tax and related true-ups, the Company’s consolidated worldwide effective tax rate benefits from the effects of conducting significant operations in certain foreign jurisdictions, specifically India and Dubai, where certain units enjoys tax holidays or tax concessions.
Deferred tax assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Deferred
|
|
Deferred
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(In thousands)
|
Depreciation and amortization
|
$
|
—
|
|
|
$
|
2,315
|
|
|
$
|
683
|
|
|
$
|
—
|
|
Share-based compensation
|
521
|
|
|
|
|
590
|
|
|
|
Accruals and prepaids
|
8,143
|
|
|
|
|
|
2,700
|
|
|
|
Bad debts
|
3,215
|
|
|
|
|
1,076
|
|
|
|
Acquired intangible assets
|
—
|
|
|
17,800
|
|
|
—
|
|
|
19,421
|
|
Net operating loss carryforwards
|
19,958
|
|
|
|
|
15,233
|
|
|
|
Tax credit carryforwards (primarily Minimum Alternative Tax ("MAT") in India)
|
43,656
|
|
|
|
|
43,044
|
|
|
|
|
75,493
|
|
|
20,115
|
|
|
63,326
|
|
|
19,421
|
|
Valuation allowance
|
(2,031
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
Total deferred taxes
|
$
|
73,462
|
|
|
$
|
20,115
|
|
|
$
|
63,291
|
|
|
$
|
19,421
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Non-current deferred tax assets
|
54,629
|
|
|
43,870
|
|
ASU 2013-11 reclass, described below
|
—
|
|
|
(341
|
)
|
Net deferred tax assets
|
54,629
|
|
|
43,529
|
|
|
|
|
|
Non-current deferred tax liabilities
|
1,282
|
|
|
—
|
|
The valuation allowance changed by
$2.0 million
and
$(3.7) million
during the years ended December 31, 2018 and 2017, respectively. The presentation above has been modified to correctly show the valuation allowances that should have been recorded and to gross up the Company’s deferred tax assets for implied valuation allowances that were inherited through acquisitions.
We have US Federal, state and foreign operating losses and credit carryforwards as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
|
(In thousands)
|
US Federal loss carryforwards
|
|
$
|
43,116
|
|
|
$
|
42,981
|
|
US state loss carryforwards
|
|
38,307
|
|
|
25,186
|
|
Foreign loss carryforwards
|
|
40,349
|
|
|
29,852
|
|
|
|
|
|
|
US Federal credit carryforwards
|
|
901
|
|
|
4,679
|
|
Foreign credit carryforwards
|
|
42,755
|
|
|
38,364
|
|
The US federal and state operating loss carryforwards expire at varying dates through 2027. The federal credits begin to expire in 2028. We also have non-US US tax credits (primarily MAT paid in India) carried forward of approximately
$42.8
million
as of
December 31, 2018
, which is available for set-off against the future tax liability of certain Indian operations on a staggered basis over a period up-to
fifteen
years.
On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA: establishes a flat corporate income tax rate of
21.0%
on U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings related to such sales; allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.
In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company did not recorded an amount for the Transition Tax expense in 2017, as they did not have the necessary information to determine a reasonable estimate to include as a provisional amount. The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment of
$24.5 million
related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off.
The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to income taxes and withholding taxes payable in various jurisdictions, which could potentially be partially offset by foreign tax credits. At December 31, 2018 the cumulative amount of the Company’s undistributed foreign earnings was approximately
$644.2 million
, inclusive of income previously taxed in the United States.
The following table summarizes the activity related to our unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2016
|
|
(in thousands)
|
Beginning Balance
|
$
|
9,144
|
|
|
$
|
3,265
|
|
|
$
|
3,115
|
|
Additions for tax positions related to current year
|
150
|
|
|
—
|
|
|
43
|
|
Additions for tax positions of prior years
|
—
|
|
|
5,879
|
|
|
107
|
|
Reductions for tax position of prior years
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
$
|
9,294
|
|
|
$
|
9,144
|
|
|
$
|
3,265
|
|
The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. Interest assessed upon settlement of a tax return position is classified as interest expense. The Company accrued as of
December 31, 2018
and 2017 approximately
$1.1 million
and
$1.0 million
, respectively, of estimated interest and penalties. These amounts are included in the December 31, 2018 and 2017 balances in the preceding table of
$9.3 million
and
$9.1 million
, respectively, which is included in other long term liabilities in the accompanying Consolidated Balance Sheet.
We file income tax returns in the US federal, many US state and local jurisdictions, and certain foreign jurisdictions. We have substantially resolved all US federal income tax matters for tax years prior to 2014. Our state and foreign tax matters may remain open from 2008 forward.
The Company has applied the new provisions under Accounting Standards Update 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists
, or ASU 2013-11. Under these provisions, an unrecognized tax benefit is to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. The Company has applied this provision and
zero
and
$341 thousand
of unrecognized tax benefits have been applied against the deferred tax assets for net operating loss carryforwards, as of December 31, 2018 and 2017, respectively.
Note 9. Stock Repurchases
Effective February 6, 2017 the Company's Board of Directors unanimously approved an additional authorized share repurchase plan of
$150.0 million
. The Board directed that the repurchases be funded with available cash balances and cash generated by the Company's operating activities. Under certain circumstances the aggregate amount of repurchases of the Company's equity shares may be limited by the terms and underlying financial covenants regarding the Company's commercial bank financing facility.
The Company's share repurchase plan’s terms have been structured to comply with the SEC’s Rule 10b-18, and are subject to market conditions and applicable legal requirements. The program does not obligate the Company to acquire any specific number of shares and may be suspended or terminated at any time. All purchases are made in the open market. Treasury stock is recorded at its acquired cost. During
2018
the Company repurchased
996,773
shares of its common stock under these plans for total consideration of
$49.6 million
. During
2017
the Company repurchased
687,048
shares of its common stock under this plan for total consideration of
$39.4 million
. During
2016
the Company repurchased
1,479,454
shares of its common stock under this plan for total consideration of
$65.3 million
.
As of
December 31, 2018
the Company had
$84.2 million
remaining in its share repurchase authorization.
Note 10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
December 31, 2018
and
December 31, 2017
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Trade accounts payable
|
$
|
103,250
|
|
|
$
|
69,101
|
|
Accrued professional fees
|
1,152
|
|
|
420
|
|
Income taxes payable*
|
13,901
|
|
|
1,598
|
|
Share repurchases accrued
|
8,800
|
|
|
—
|
|
Sales taxes payable
|
2,749
|
|
|
3,615
|
|
Other accrued liabilities
|
369
|
|
|
339
|
|
Total
|
$
|
130,221
|
|
|
$
|
75,073
|
|
* Long term portion of income taxes payable pertaining to the
2017 Tax Cuts and Jobs Act one-time transition tax
totaling
$18.6 million
is included in Other liabilities in the Company's Consolidated Balance Sheet.
Note 11. Other Current Assets
Other current assets at
December 31, 2018
and
December 31, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Prepaid expenses
|
$
|
41,271
|
|
|
$
|
29,347
|
|
Third party loan receivable
|
8,341
|
|
|
—
|
|
Sales taxes receivable from customers
|
6,409
|
|
|
2,218
|
|
Credit card merchant account balance receivable
|
939
|
|
|
1,008
|
|
Due from prior owners of acquired businesses for working capital settlements
|
973
|
|
|
284
|
|
Accrued interest receivable
|
233
|
|
|
515
|
|
Other
|
1,108
|
|
|
160
|
|
Total
|
$
|
59,274
|
|
|
$
|
33,532
|
|
Note 12. Other Current Liabilities
Other current liabilities at
December 31, 2018
and
December 31, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Weizmann upfront purchase consideration for 74.84% stake
|
$
|
63,325
|
|
|
$
|
—
|
|
Redemption liability for irrevocable option to reacquire 10% equity stake from PML
|
4,925
|
|
|
—
|
|
Pearl upfront purchase consideration
|
3,384
|
|
|
—
|
|
Lawson upfront purchase consideration
|
2,736
|
|
|
—
|
|
WDEV contingent liability (upfront cash consideration held in escrow account contingent upon acquired business' achieving the minimum specified annual net revenue thresholds)
|
2,367
|
|
|
—
|
|
Miles working capital liability
|
2,219
|
|
|
—
|
|
Via contingent additional consideration (based on any potential claims made by tax authorities and the receipt of refunds pertaining to certain advance tax payments and withholding taxes)
|
1,899
|
|
|
4,422
|
|
Mercury contingent consideration (based on customer retention)
|
720
|
|
|
—
|
|
Business Travels upfront purchase consideration
|
720
|
|
|
—
|
|
AHA Taxis upfront purchase consideration
|
224
|
|
|
—
|
|
Client deposits
|
2,980
|
|
|
71
|
|
Other
|
82
|
|
|
666
|
|
Total
|
$
|
85,581
|
|
|
$
|
5,159
|
|
Note 13. Property and Equipment
Property and equipment at
December 31, 2018
and
2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Computer equipment
|
$
|
15,734
|
|
|
$
|
11,051
|
|
Buildings
|
25,283
|
|
|
23,749
|
|
Land
|
10,479
|
|
|
5,930
|
|
Land improvements
|
7,195
|
|
|
6,906
|
|
Leasehold improvements
|
1,341
|
|
|
1,435
|
|
Furniture, fixtures and other
|
8,664
|
|
|
8,451
|
|
|
68,696
|
|
|
57,522
|
|
Less accumulated depreciation and amortization
|
(18,402
|
)
|
|
(15,818
|
)
|
|
$
|
50,294
|
|
|
$
|
41,704
|
|
Depreciation expense was
$3.7 million
,
$3.8 million
and
$4.0 million
, for the years ended December 31,
2018
,
2017
and
2016
, respectively.
Note 14. 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 matches
100%
of an employee’s
1%
contributed and
50%
on the
2%
contributed by an employee. Accordingly, the Company’s contributions to the Plan were
$536 thousand
,
$610 thousand
and
$688 thousand
for the years ending December 31,
2018
,
2017
and
2016
, respectively.
Note 15. Geographic Information
The Company operates with
one
reportable segment whose results are regularly reviewed by the Company's CEO, its chief operating decision maker as to operating performance and the allocation of resources. External customer revenues in the tables below were attributed to a particular country based on whether the customer had a direct contract with the Company which was executed in that particular country for the sale of the Company's products/services with an Ebix subsidiary located in that country.
During 2018 the United States' revenues decreased
$(14.9) million
primarily due to a combination of decreased consulting services and a decrease of third party administrator services. Canada's revenues decreased by
$(1.9) million
primarily due to decreased revenue from professional services. Latin America's revenues decreased by
$(1.3) million
primarily due to a
$(2.7) million
decrease due to changes in foreign currency exchange rates, partially offset by increased professional services. Australia's revenues increased by
$1.4 million
primarily due to a combination of increased professional services and transaction fees, net of a
$(922) thousand
decrease due to changes in foreign currency exchange rates. India's revenue increased
$134.5 million
primarily due to the full year impact of 2017 acquisitions in addition to acquisitions made in 2018. Increases in Indonesia, Philippines, Singapore and United Arab Emirates are due to the full year impact of the November 2017 acquisition of Via. Mauritius revenues for 2018 consisted of
$3.1 million
for branding fees charged at airport kiosks.
During 2017 India's revenue increased
$47.7 million
of which
$5.3 million
is due to the various new e-governance contracts with a number of large clients and
$42.9 million
due to its 2017 acquisitions of ItzCash, YouFirst, Wall Street, Paul Merchants, and Via. Latin America's revenues increased
$12.9 million
due primarily to the November 2016 acquisition of Wdev and a
$1.4 million
increase due to changes in foreign currency exchange rates. Australia's revenues increased by
$3.2 million
due to a combination of increased professional services and transaction fees, and a
$1.1 million
increase due to changes in foreign currency exchange rates. Canada's revenues increased by
$1.2 million
due primarily to increased professional services. Increases in Singapore, Indonesia, Philippines and United Arab Emirates are due to the November 2017 acquisition of Via.
The following enterprise wide information relates to the Company's geographic locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
|
External Revenues
|
|
Long-lived assets
|
|
External Revenues
|
|
Long-lived assets
|
|
External Revenues
|
|
Long-lived assets
|
|
|
in thousands
|
United States
|
|
$
|
196,984
|
|
|
$
|
390,551
|
|
|
$
|
211,895
|
|
|
$
|
394,112
|
|
|
$
|
213,516
|
|
|
$
|
385,723
|
|
Canada
|
|
5,611
|
|
|
5,846
|
|
|
7,522
|
|
|
6,601
|
|
|
6,328
|
|
|
6,411
|
|
Latin America
|
|
19,866
|
|
|
16,348
|
|
|
21,128
|
|
|
22,300
|
|
|
8,179
|
|
|
26,648
|
|
Australia
|
|
35,770
|
|
|
1,485
|
|
|
34,366
|
|
|
1,174
|
|
|
31,156
|
|
|
1,245
|
|
Singapore*
|
|
7,674
|
|
|
17,805
|
|
|
6,330
|
|
|
17,475
|
|
|
5,848
|
|
|
17,467
|
|
New Zealand
|
|
2,015
|
|
|
158
|
|
|
1,933
|
|
|
247
|
|
|
1,903
|
|
|
215
|
|
India*
|
|
196,372
|
|
|
672,699
|
|
|
61,857
|
|
|
338,130
|
|
|
14,153
|
|
|
83,082
|
|
Europe
|
|
15,387
|
|
|
23,880
|
|
|
17,062
|
|
|
25,687
|
|
|
17,211
|
|
|
21,766
|
|
Indonesia*
|
|
7,482
|
|
|
98
|
|
|
1,055
|
|
|
110
|
|
|
—
|
|
|
—
|
|
Philippines*
|
|
6,483
|
|
|
448
|
|
|
623
|
|
|
616
|
|
|
—
|
|
|
—
|
|
United Arab Emirates*
|
|
1,042
|
|
|
54,249
|
|
|
200
|
|
|
53,629
|
|
|
—
|
|
|
54,152
|
|
Mauritius*
|
|
3,140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
497,826
|
|
|
$
|
1,183,567
|
|
|
$
|
363,971
|
|
|
$
|
860,081
|
|
|
$
|
298,294
|
|
|
$
|
596,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*India led businesses, except for portion of Singapore which is not part of EbixCash and United Arab Emirate long-lived assets pertain to intellectual property research and development activities located in Dubai which is not part of EbixCash either. Total revenue in the fourth quarter of 2018 for India led businesses was $65.9 million.
|
In the geographical information table above the significant changes to long-lived assets from December 31, 2017 to December 31, 2018 were comprised of a decrease in Latin America of
$(6.0) million
due to
$(2.9) million
of upfront cash consideration held in an escrow account reclassified as short term from long term and a
(14.6)%
weakening of the Brazilian Real versus the U.S. Dollar. An increase in India of
$334.6 million
primarily due to the impact of 2018 acquisitions, partially offset by a
(8.2)%
weakening of the India Rupee versus the U.S. Dollar. The Europe decrease of
$(1.8) million
is primarily due to a
(5.6)%
weakening of the British Pound versus the U.S. Dollar.
In the geographical information table above the significant changes to long-lived assets from December 31, 2016 to December 31, 2017 were comprised of an increase in India of
$255.0 million
primarily due to
$249.5 million
increase associated with the 2017 acquisitions of ItzCash, YouFirst, Wall Street, Paul Merchants, and Via, and an increase in deferred tax assets of
$4.1 million
associated with the payments and accruals of Minimum Alternative Tax. The Europe increase of
$3.9 million
is primarily due to a
9.3%
strengthening of the British Pound Sterling versus the U.S. Dollar which caused a
$2.0 million
increase in the translation of long-lived assets, an increase in deferred tax assets of
$3.2 million
due to the release of valuation allowances of operating loss carryforwards, partially offset by the amortization of intangible assets and capitalized software development costs.
Note 16. Related Party Transactions
We consider Regions Bank ("Regions") to be a related party because Regions provides financing to the Company via a syndicated commercial banking facility (refer to Note 5 to these Consolidated Financial Statements), and because Regions is also a customer to whom the Company sells products and services. Revenues recognized from Regions were
$221 thousand
,
$301 thousand
, and
$280 thousand
for each of the years ending December 31, 2018, 2017, and 2016, respectively. Accounts receivable due from Regions were
$74 thousand
and
$60 thousand
at December 31, 2018 and 2017, respectively.
Note 17. Quarterly Financial Information (unaudited)
The following is the unaudited quarterly financial information for
2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
(in thousands, except share data)
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
108,230
|
|
|
$
|
124,626
|
|
|
$
|
128,643
|
|
|
$
|
136,327
|
|
Gross Profit
|
|
68,639
|
|
|
81,067
|
|
|
85,680
|
|
|
94,025
|
|
Operating income
|
|
33,896
|
|
|
38,315
|
|
|
39,238
|
|
|
41,530
|
|
Net income from continuing operations
|
|
$
|
26,208
|
|
|
$
|
29,180
|
|
|
$
|
29,242
|
|
|
$
|
8,509
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
|
$
|
0.93
|
|
|
$
|
0.93
|
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.83
|
|
|
$
|
0.92
|
|
|
$
|
0.92
|
|
|
$
|
0.27
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
79,103
|
|
|
$
|
87,387
|
|
|
$
|
92,800
|
|
|
$
|
104,681
|
|
Gross Profit
|
|
53,916
|
|
|
56,455
|
|
|
57,863
|
|
|
66,243
|
|
Operating income
|
|
25,690
|
|
|
26,539
|
|
|
27,911
|
|
|
33,081
|
|
Net income from continuing operations
|
|
26,427
|
|
|
23,434
|
|
|
24,184
|
|
|
26,573
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
$
|
0.77
|
|
|
$
|
0.84
|
|
Diluted
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
$
|
0.76
|
|
|
$
|
0.84
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
71,066
|
|
|
$
|
72,574
|
|
|
$
|
74,608
|
|
|
$
|
80,046
|
|
Gross Profit
|
|
51,464
|
|
|
51,995
|
|
|
52,183
|
|
|
57,524
|
|
Operating income
|
|
24,763
|
|
|
23,564
|
|
|
24,293
|
|
|
27,661
|
|
Net income from continuing operations
|
|
22,159
|
|
|
22,992
|
|
|
24,067
|
|
|
24,629
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.67
|
|
|
$
|
0.70
|
|
|
$
|
0.74
|
|
|
$
|
0.76
|
|
Diluted
|
|
$
|
0.67
|
|
|
$
|
0.70
|
|
|
$
|
0.74
|
|
|
$
|
0.76
|
|
In some instances the sum of the quarterly basic and diluted net income per share amounts may not agree to the full year basic and diluted net income per share amounts reported on the Consolidated Statements of Income because of rounding.
Note 18. Investment in Joint Ventures
Effective December 1, 2018 Ebix entered into an agreement to acquire
74.84%
controlling stake in India based Weizmann Forex Limited (BSE: WEIZFOREX) for
$63.1 million
. Ebix also made a
90
-day time bound public offer to acquire the remaining
25.16%
publicly-held Weizmann Forex shares for approximately
$21.1 million
to public shareholders.
Effective October 1, 2018 Ebix acquired a
70%
stake in AHA Taxis, a platform for on-demand inter-city cabs in India for
$310 thousand
. AHA focuses its attention on Corporate and Consumer inter-city travel primarily, with a network of thousands of registered AHA Taxis.
Effective October 1, 2018 Ebix acquired a
67%
stake in Routier, a marketplace for trucking logistics for
$413 thousand
.
Effective April 1, 2018 Ebix entered into an agreement to acquire a
60%
stake in India based Smartclass, a leading e-learning Company engaged in the business of education services, development of education products, and implementation of education solutions for K-12 Schools. Under the terms of the agreement, Ebix paid
$8.6 million
in cash for its stake in Smartclass.
Effective January 2, 2018 Paul Merchants acquired a
10%
equity interest in Ebix’s combined international remittance business in India (comprised of YouFirst, Wall Street , Paul Merchants, and Transcorp) for cash consideration of
$5.0 million
. The consolidation of these acquisitions into Ebix's Financial Exchange operations will bring synergies and reduce certain redundancies to the combined operation. As part of this agreement Ebix retains an irrevocable option to reacquire
10%
of the equity interest after one year at a predetermined price which is included in other current liabilities of the Company's Condensed Consolidated Balance Sheet.
Effective April 1, 2017 Ebix entered into a joint venture with India-based Essel Group, while acquiring an
80%
equity interest in ItzCash, India’s leading payment solutions exchange. ItzCash is recognized as a leader in the prepaid cards and bill payments space in India. Under the terms of the agreement, ItzCash was valued at a total enterprise value of approximately
$150 million
. Accordingly, Ebix acquired an
80%
equity interest in ItzCash for
$120 million
including upfront cash of
$76.3 million
plus possible future contingent earn-out payments of up to
$44.0 million
based on earned revenues over the subsequent
thirty-six
month period following the effective date of the acquisition.
Effective February 7, 2016 Ebix and Vayam Technologies Ltd ("Vayam") formed a joint venture named Ebix Vayam Limited JV. This joint venture was established to carry out IT projects in the government sector of the country of India and particularly in regards to the implementation of e-governance projects in the areas of education and healthcare. Ebix has a
51%
equity interest in the joint venture, and Vayam has a
49%
equity interest in the joint venture. Ebix is fully consolidating the operations of the Ebix Vayam Limited JV into the Company's financial statements and separately reporting the Vayam minority, non-controlling, interest in the joint venture's net income and equity. Vayam is, also, a customer of the Ebix Vayam Limited JV, and during the twelve months ending December 31, 2018 and 2017 the Ebix Vayam Limited JV recognized
$13.6 million
and
$16.9 million
of revenue from Vayam, respectively, and as of December 31, 2018 Vayam had
$32.0 million
of accounts receivable with the Ebix Vayam Limited JV.
Effective September 1, 2015 Ebix and IHC formed a joint venture named EbixHealth JV. This joint venture was established to promote and market a best practices administration data exchange for health and pet insurance lines of business nationally. Ebix paid
$6.0 million
and contributed certain portions of its CurePet investment, valued by the EbixHealth JV at
$2.0 million
, for its
40%
membership interest in the EbixHealth JV. IHC contributed all if its shares in its existing third party administrator operations (IHC Health Solutions, Inc.), valued by the EbixHealth JV at
$12.0 million
for its
60%
membership interest in the EbixHealth JV and received a special distribution of
$6.0 million
. As per the joint venture agreement, any and all losses of the EbixHealth JV, (excluding certain severance payments to former employees of IHC Health Solutions, Inc.) through the period ending December 31, 2016 were allocated to IHC, and IHC was obligated to fund any negative cash flow during this period as a loan to the EbixHealth JV, with any remaining balance of said loan as of December 31, 2016 being then converted to contributed capital. Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (
11%
) of the EbixHealth JV for
$2.0 million
cash which resulted in Ebix holding an aggregate fifty-one percent (
51%
) of the EbixHealth JV. Commensurate with additional equity stake in the joint venture and a new contemporaneous valuation of the business the Company realized a
$1.2 million
gain on its previously carried
40%
equity interest in the EbixHealth JV. This recognized gain is reflected as a component of other non-operating income in the accompanying Consolidated Statement of Income. Beginning July 1, 2016 Ebix is fully consolidating the operations of the EbixHealth JV into the Company's financial statements and separately reporting the IHC minority, non-controlling,
49%
interest in the joint venture's net income and equity, and thereby reflecting Ebix's net resulting
51%
interest in the EbixHealth JV profits or losses. IHC is also a customer of the EbixHealth JV, and during the twelve months ending December 31, 2018 and 2017 the EbixHealth JV recognized
$7.6 million
and
$13.0 million
of revenue from IHC, respectively, and as of December 31, 2018 IHC had
$395 thousand
of accounts receivable with the EbixHealth JV. Furthermore, as a related party, IHC also has been and continues to be a customer of Ebix, and during the twelve months ending December 31, 2018 and 2017 the Company recognized
zero
and
$228 thousand
, respectively, of revenue from IHC, and as of December 31, 2018 IHC had
$23 thousand
of accounts receivable due to Ebix.
Note 19. Capitalized Software Development Costs
In accordance with the relevant authoritative accounting literature the Company has capitalized certain software and product related development costs associated with both the Company’s continuing medical education service offerings, and the Company’s development of its property and casualty underwriting insurance data exchange platform servicing the London markets. During the year ended
December 31, 2018
and 2017 the Company capitalized
$5.7 million
and
$2.8 million
, respectively, of such development costs. As of
December 31, 2018
and 2017 a total of
$11.7 million
and
$8.5 million
, respectively, of remaining unamortized development costs are reported on the Company’s consolidated balance sheet. During the year ended December 31, 2018 and 2017 the Company recognized
$2.2 million
and
$2.2 million
, respectively, of amortization expense with regards to these capitalized software development costs, which is included in costs of services provided in the Company’s consolidated income statement. The capitalized continuing medical education product costs are being amortized using a
three
-year to
five
-year straight-line methodology and certain continuing medical education products costs are immediately expensed. The capitalized software development costs for the property and casualty underwriting insurance data exchange platform are being amortized over a period of
five
years.
Note 20. Concentrations of Credit Risk
Credit Risk
The Company is potentially subject to concentrations of credit risk in its accounts receivable. Credit risk is the risk of an unexpected loss if a customer fails to meet its contractual obligations. Although the Company is directly affected by the financial condition of its customers and the loss of or a substantial reduction in orders or the ability to pay from the customer could have a material effect on the consolidated financial statements, management does not believe significant credit risks exist at December 31, 2018. The Company had one customer whose accounts receivable balances individually represented
10%
or more of the Company’s total accounts receivable.
Major Customer
As previously disclosed in Note 18, effective February 7, 2016 Ebix and Vayam Technologies Ltd ("Vayam") formed a joint venture named Ebix Vayam Limited JV. This joint venture was established to carry out IT projects in the government sector of the country of India and particularly in regards to the implementation of e-governance projects in the areas of education and healthcare. Ebix has a
51%
equity interest in the joint venture, and Vayam has a
49%
equity interest in the joint venture. Ebix is fully consolidating the operations of the Ebix Vayam Limited JV into the Company's financial statements and separately reporting the Vayam minority, non-controlling, interest in the joint venture's net income and equity. Vayam is also a customer of the Ebix Vayam Limited JV, and during the twelve months ending December 31, 2018 and 2017 the Ebix Vayam Limited JV recognized
$13.6 million
and
$16.9 million
of revenue from Vayam, respectively, and as of December 31, 2018 Vayam had
$32.0 million
of accounts receivable with the Ebix Vayam Limited JV.
Note 21. Subsequent Events
Dividends
The Company plans to continue with its quarterly cash dividend to the holders of its common stock, whereby a dividend in the amount of
$0.075
per common share will be paid on March 15, 2019 to shareholders of record on February 28, 2019.
Acquisitions and Joint Ventures
On January 2, 2019 Ebix, exercised an irrevocable option to reacquire the
10%
equity interest previously owned by Paul Merchants in the international remittance business in India for cash consideration of
$5.0 million
.
On January 4, 2019 Ebix entered into an agreement to acquire the assets of India based Essel Forex Limited, for approximately
$8.0 million
plus possible future contingent earn-out payments of up to
$720 thousand
based on earned revenues. Ebix will be funding the entire transaction in cash, using its internal cash reserves. Essel Forex has been one of the five largest Foreign exchange providers in India with a wide spectrum of related products including sales of all major Currencies, travelers’ checks, demand drafts, remittances, money transfers and prepaid cards primarily for the Corporate clients. Besides being a foreign exchange business partner to leading banks such as ICICI, Axis, Indus Ind, Yes and HDFC Bank, Essel Forex has been associated with Western Union and MoneyGram for inward money transfers.
On February 13, 2019 Ebix announced it had acquired an
80%
controlling stake in India based Zillious Solutions Private Limited for
$7.0 million
plus possible future contingent earn-out payments of up to
$2.0 million
based on earned revenues. Zillious is an on-demand SaaS travel technology solution, with market leadership in the corporate travel segment in India.
Compensatory Arrangements of Certain Officers
On January 7, 2019, after reviewing the Chief Executive Officer’s performance under his compensation plan, the Compensation Committee and Chairman of the Audit Committee of Ebix, Inc. approved the grant of
$600 thousand
in shares of restricted common stock to the Chief Executive Officer of Ebix, Inc. based on the closing price of the Company’s common stock on January 7, 2019. As a result, the Chief Executive Officer was granted
13,541
shares of restricted common stock.
One third
of the shares vest after
one
year, and the remaining in
eight
equal quarterly installments.