Item 1. BUSINESS
Company Overview
Ebix, Inc. (“Ebix”, the “Company,” “we” or “our”), a Delaware corporation, was founded in 1976 as Delphi Systems, Inc. In December 2003, the Company changed its name to Ebix, Inc. The Company is listed on the Nasdaq Global Market ("Nasdaq").
Ebix is a leading international supplier of on-demand infrastructure exchanges to the insurance, financial services, travel, and healthcare industries. In the insurance sector, the Company’s main focus is to develop and deploy a wide variety of insurance and reinsurance exchanges on an on-demand basis using software-as-a-service ("SaaS") enterprise solutions in the areas of customer relationship management ("CRM"), front-end and back-end systems, and outsourced administrative and risk compliance. The Company's products feature fully customizable and scalable on-demand software designed to streamline the way insurance and financial industry professionals manage distribution, marketing, sales, customer service, and accounting activities. With a "Phygital" strategy that combines physical distribution outlets in India and many Associations of Southeast Asian Nations ("ASEAN") countries to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio of software and services encompasses domestic and international money remittance, foreign exchange ("Forex"), travel, pre-paid gift cards, utility payments, lending, and wealth management in India and other ASEAN markets.
The Company has its worldwide headquarters in Johns Creek, Georgia, and also has domestic and international operations spread across approximately 200 offices. The countries in which the Company has operating facilities and offices, include, among others, Australia, Brazil, Canada, India, Indonesia, New Zealand, the Philippines, Singapore, the United Kingdom ("U.K."), the United Arab Emirates and the United States of America ("United States" or "U.S."). In these locations Ebix employs skilled technology and business professionals who provide products, services, support and consultancy services to thousands of customers in over 70 countries across six continents.
Ebix's goal is to be a leading facilitator of insurance and financial transactions in the world. The Company’s technology vision is to focus on the convergence of all insurance and financial exchange channels, processes and entities for seamless data flow. Ebix combines the newest technologies with its capabilities in consulting, systems design and integration, information technology ("IT") and business process outsourcing, applications software, and web and application hosting to meet the individual needs of organizations.
The Company’s EbixCash Exchanges (“EbixCash”) division executes a "Phygital” strategy that combines over 650,000 physical distribution outlets in India and many ASEAN countries with an Omni-channel online digital platform. The Company’s EbixCash Financial exchange portfolio of software and services encompasses domestic and international money remittance, foreign exchange ("Forex"), travel, pre-paid gift cards, utility payments, lending and wealth management in India and other Southeast Asian markets. EbixCash’s Forex operations have emerged as a leader in India’s airport Forex business, with operations in 20 international airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata. EbixCash’s inward remittance business in India is the clear market leader due to its geographic depth and its affiliations with international money transmitters, such as Western Union, Moneygram and Ria. EbixCash, through its travel portfolio of Via and Mercury, is one of Southeast Asia’s leading travel exchanges, with over 500,000 agents and approximately 18,000 registered corporate clients. EbixCash's financial technologies business offers software solutions at the enterprise level for banks, asset and wealth management companies and trust companies within India, Southeast Asia, the Middle East and Africa. The EbixCash's e-learning solutions are provided to schools throughout India via high quality 2-D and 3-D animation and multimedia learning. EbixCash's business process outsourcing services provide information technology and call center services to a variety of industries.
During the year ended December 31, 2022, approximately 92.3% of Ebix revenues came from EbixCash and Insurance Exchanges. International revenue accounted for 85.3% and 84.4% of the Company’s total revenue for the twelve months ended December 31, 2022 and 2021, respectively.
Acquisition & Integration Strategy
While not entirely critical to our future profitability or liquidity, the Company views acquisitions as an integral part of its growth strategy, an efficient way to further expand its reach, and an effective utilization of the operating cash generated from the Company's business. We are strategic and selective when making acquisitions. We look to make complementary accretive
acquisitions as and when the Company has sufficient liquidity, stable cash flows, and, if necessary, access to financing at attractive interest rates.
The Company seeks to acquire businesses that complement Ebix's existing products and services. Any acquisition made by Ebix typically will fall into one of two different categories: (i) the acquired company has products and/or services that are competitive to our existing products and services; or (ii) the acquired company's products and services are either a complement to or an extension of our existing products and services or our core business competencies.
In cases where an acquired company's products and services are competitive to our existing products and services, upon acquisition, the Company immediately strives towards the goal of providing a single product or service in the functional area with a common code base around the world, rather than having multiple products addressing the same need. In each case, the Company immediately works towards assimilating the best of breed functionality on a common architecture. The Company's goal remains to provide easy-to-use solutions for our customer base, while ensuring that any product or service integrates seamlessly with other existing or outside functionalities. Regardless of whether the acquired company's product/service is retired, or the existing Ebix product/service is retired, the Company is focused on maximizing operational efficiency for our business while creating cutting-edge products and services that make future product sales more robust and maintenance more efficient.
Once an acquisition is consummated, the infrastructure, human resources, sales, product management, development, and other common functions are integrated with our existing operations to ensure that efficiencies are maximized and redundancies eliminated. We generally do not maintain separate sales, development, product management, implementation or quality control functions following the closing of any acquisition. The Company integrates and, where appropriate, centralizes certain key functions, such as product development, information technology, marketing, sales, finance, administration, and quality assurance, immediately after an acquisition to ensure that the Company can maximize cost efficiencies. Simultaneously with the integration of any acquired company, the Company's resources and infrastructure are leveraged to work across multiple functions, products and services, making it neither practical nor feasible to precisely track and disclose separately the specific earnings impact from the business combinations we have executed after they have been acquired. Consequently, the concept of “acquisitive growth” versus “organic growth” becomes obscured given the dynamics and underlying operating principals of Ebix's acquisition, integration, and growth strategy. This tactic is a key part of our business strategy that facilitates high levels of efficiency, operating income margins and consistent end-to-end vision for our business. Our plan is to make niche acquisitions in the insurance, international financial exchange, e-learning, and healthcare sectors, integrate them seamlessly into the Company and make them efficient by implementing Ebix's standardized processes, with the goal of increasing operating profits and cash flows for the Company.
In many of the acquisitions made by the Company there are contingent consideration terms associated with the achievement of certain designated revenue targets for the acquired Company. This structure allows us to follow through with our integration strategy, while enabling the acquired company to be eligible for revenue-based contingent purchase consideration. Accordingly, we are able to maximize operational productivity while allowing the principals of the acquired company to maximize the potential economics from the sale process.
The Company's integration strategies are targeted at improving the efficiency of our business, centralizing key functions, exercising better control over our operations, and providing consistent technology and product vision across all functions, entities and products. This is a key part of our business philosophy designed to enable Ebix to operate at a high level of efficiency and facilitate a consistent end-to-end strategic vision for the industries we serve.
Recent Strategic Business Acquisitions
During the year ended December 31, 2022 the Company did not complete any business acquisitions.
During the year ended December 31, 2021 the Company did not complete any business acquisitions.
Industry Overview
The insurance and financial services industries have initiatives to reduce paper-based processes and facilitate efficiencies of both the back-end and the consumer-end (front-end) sides of processes. This evolution has involved all industry constituents and is directly impacting the manner in which various products are distributed. Management believes that both industries will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across world markets.
Products and Services
The Company reports as a single operating segment. The Company’s revenues are derived from three 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, 2022, 2021, and 2020:
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended |
| December 31, |
| (In thousands) | | 2022 | | 2021 | | 2020 |
| EbixCash Exchanges | | 797,805 | | | 749,774 | | | 386,564 | |
| Insurance Exchanges | | 171,156 | | | 171,087 | | | 174,424 | |
| Risk Compliance Solutions | | 81,185 | | | 74,077 | | | 64,621 | |
| Totals | | $ | 1,050,146 | | | $ | 994,938 | | | $ | 625,609 | |
Information on the geographic dispersion of the Company’s revenues and long-lived assets is furnished in Note 14 to the consolidated financial statements, included in Part II Item 8 of this Form 10-K. See Item 1A (Risk Factors) for discussion of certain risks related to our foreign operations.
The Company’s product and service strategy focuses on: (a) expansion of connectivity between all entities via its EbixCash and Ebix Exchange family of products in the financial, Forex, travel, life, health, workers compensation, risk management, annuity and property and casualty ("P&C") sectors; (b) worldwide sales and support of P&C back-end insurance and broker management systems; (c) worldwide sale, customization, development, implementation and support of its P&C back-end insurance carrier system platforms; (d) risk compliance solutions services, which include insurance certificate origination, certificate tracking, claims adjudication call center, consulting services and back office support; and (e) e-governance/e-learning solutions in emerging world markets. Ebix also provides software development, customization, and consulting services to a variety of entities in the insurance industry, including carriers, brokers, exchanges and standards-making bodies.
Ebix’s revenue streams come from three product/service channels, as discussed in the following paragraphs. The Company derives its revenues primarily from our financial transaction fees, software subscription and transaction fees, software license fees, risk compliance solutions services fees, and professional service fees, including associated fees for consulting, implementation, training, and project management provided to customers with installed systems and applications.
EbixCash Exchanges
EbixCash revenues are primarily derived from the sales of prepaid gift cards and consideration paid by customers for financial transaction services, including services like transferring or exchanging money. The significant majority of EbixCash revenue is for a single performance obligation and is recognized at a point in time. These revenues vary by transaction based upon channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, and speed of service, as applicable.
EbixCash also offers several other services, including payment services and ticketing and travel services for which revenue is impacted by varying factors. EbixCash acts as the principal in most transactions and reports revenue on a gross basis, as EbixCash controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
The main services from which EbixCash derives revenue are as follows:
Gift Cards
EbixCash sells general purpose prepaid gift cards to corporate customers and consumers that can be later redeemed at various merchants. The gift cards are co-branded between EbixCash and its card-issuing banking partners and are affiliated with major payment associations such as VISA, Mastercard, and Rupay. The gift cards are sold to a diversified set of corporate customers from various industries. The gift cards are used by corporate customers to disburse incentives to the end users, which are primarily their employees, agents and business associates. The gift cards sold by EbixCash are not reloadable, cannot be used at ATMs or for any other cash-out or funds transfer transactions, and are subject to maximum limits per card (currently INR10,000 or approximately $120). Gift cards issued by EbixCash are valid for a period of 15 months from the date of
issuance for virtual cards and three years for physical cards. EbixCash has entered into arrangements with banks and financial institutions to settle payments to merchants based on utilization of the gift cards.
The Company has end-to-end responsibilities related to the gift cards sold, from the activation and ongoing utilization of the gift cards to customer service responsibilities to risk of loss due to fraud on the gift cards sold. EbixCash acts a principal in the sale of gift cards and, thus, gift card revenue is recognized on a gross basis (full purchase value at the time of sale) with the corresponding cost of the gift cards recorded as cost of services provided. Unredeemed gift cards at December 31, 2022 totaled approximately $5.4 million and are recorded as deferred revenues in the financial results.
EbixCash Travel Exchanges
EbixCash Travel revenues are primarily derived from commissions and transaction fees received from various travel providers and international exchanges involved in the sale of travel to the consumer. EbixCash Travel revenue is for a single performance obligation and is recognized at a point in time. Travel revenues include: (i) reservation commissions, segment fees from global travel exchange providers, and transaction net revenues (i.e., the amount charged to travelers less the amount owed to travel service providers) in connection with our reservation services; (ii) ancillary fees, including travel insurance-related revenues and certain reservation booking fees; and (iii) credit card processing rebates and customer processing fees. EbixCash Travel services include the sale of hotel rooms, airline tickets, bus tickets and train tickets. EbixCash’s Travel revenue is also derived from ticket sales, wherein the commissions payable to EbixCash Travel, along with any transaction fees paid by travel providers and travel exchanges, is recognized as revenue after completion of the service. The transaction price on such services is agreed upon at the time of the purchase.
EbixCash Travel revenue for the corporate meetings, incentives, conferences, and exhibitions ("MICE") packages is recognized at full purchase value at the completion of the obligation, with the corresponding costs recorded as cost of services provided. For MICE revenues, EbixCash Travel acts as the principal in transactions and, accordingly, reports revenue on a gross basis. EbixCash Travel controls the service at all times prior to transfer to the customer, is responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.
EbixCash Money Transfer
For the EbixCash money transfer business, EbixCash has one performance obligation whereupon the customer engages EbixCash to perform one integrated service. This performance obligation typically occurs instantaneously when the beneficiary entitled to receive the money transferred by the sender visits the EbixCash outlet and collects the money. Accordingly, EbixCash recognizes revenue upon completion of the following: (i) the customer’s acknowledgment of EbixCash’s terms and conditions and the receipt of payment information; (ii) the money transfer has been processed; (iii) the customer has received a unique transaction identification number; and (iv) funds are available to be picked up by the beneficiary. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by EbixCash to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated.
Foreign Exchange and Outward Remittance Services
For EbixCash’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with EbixCash to provide payment services on the customer’s behalf. In the majority of EbixCash’s foreign exchange and payment services, EbixCash makes payments to the recipient to satisfy its performance obligation to the customer and, therefore, EbixCash recognizes revenue on foreign exchange and payment when this performance obligation has been fulfilled.
Consumer Payment Services
EbixCash offers several different bill payment services that vary by considerations, including among other factors: (i) who pays the fee to EbixCash (consumer or biller); (ii) whether the service is offered to all consumers; (iii) whether the service is restricted to existing biller relationships of EbixCash; and (iv) whether the service utilizes a physical agent network offered for consumers’ convenience. The determination of which party is EbixCash’s customer for revenue recognition purposes is based on these considerations for each of EbixCash’s bill payment services. For all transactions EbixCash’s customers agree to EbixCash’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with EbixCash to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers,
customers engage EbixCash to perform one integrated service - collecting money from the consumer and processing the bill payment transaction. This service provides the billers real-time or near real-time information regarding their customers’ payments and simplifies the billers’ collection efforts. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which EbixCash records as a reduction to revenue.
EbixCash Technology and Business Process Outsourcing Services
EbixCash also offers on-demand technology to various providers in the area of lending, wealth and asset management, and travel across the world. Additionally, EbixCash provides IT and call center outsourcing services to companies in a variety of industries, both in India and globally. The EbixCash technology software solutions are generally delivered on a SaaS subscription and/or transaction based pricing model. Please see below under "Insurance Exchanges" a description of revenue recognition policies for Software as a Service, Subscription and Transaction Fees, which are similar to how EbixCash technology software solutions revenues are recognized. For IT and call center outsourcing services provided by EbixCash businesses, revenues are generally recognized on a time and materials or fixed fee basis. Revenues for time and materials are recognized as such services are rendered while fixed fee revenues are recognized based on the input method driven by the expected hours to complete the project measured against the actual hours completed to date.
Insurance Exchanges
Insurance Exchanges revenues are primarily derived from consideration paid by customers related to our SaaS platforms, related services and the licensing of software. A typical contract for our SaaS platform will also include services for setup, customization, transaction processing, maintenance, and/or hosting. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Set-up and customization services related to our SaaS platforms are not considered to be distinct from the usage fees associated with the SaaS platform and, accordingly, are accounted for as a single performance obligation. These services, along with the usage or transaction fees, are recognized over the contract duration, which considers the significance of the upfront fees in the context of the contract and which may, therefore, exceed the initial contracted term. A customer's transaction volume tends to remain fairly consistent during the contract period without significant fluctuations. The invoiced amount is a reasonable approximation of the revenue that would be allocated to the related period under the variable consideration guidelines in ASC 606-10-32-40. To the extent that a SaaS contract includes subscription services or professional services, apart from the upfront customization, these are considered separate performance obligations. The Company also has separate software licensing (on premise/ perpetual), unrelated to the SaaS platforms, which is recognized at the point in time when the license is transferred to the customer.
Contracts generally do not contain a right of return or refund provisions. Our contracts often do contain overage fees, contingent fees, or service level penalties which are accounted for as variable consideration. Revenue accounted for as variable consideration is immaterial and is recognized using the “right to invoice” practical expedient when the invoiced amount equals the value provided to the customer.
Software-as-a-Service
The Company allocates the transaction price to each distinct performance obligation using the relative stand-alone selling price. Determining the stand-alone selling price may require significant judgment. The stand-alone selling price is the price at which an entity has sold or would sell a promised good or service separately to a customer. The Company determines the stand-alone selling price based on observable price of products or services sold separately in comparable circumstances when such observable prices are available. When standalone selling price is not directly observable, the Company estimates the stand-alone selling price using the market assessment approach by considering historical pricing and other market factors.
Software Licenses
Software license revenues attributable to a software license that is a separate performance obligation are recognized at the point in time that the customer obtains control of the license.
Subscription Services
Subscription services revenues are associated with performance obligations that are satisfied over specific time periods and primarily consist of post-contract support services. Revenue is generally recognized ratably over the contract term. Our subscription contracts are generally for an initial three-year period with subsequent one-year automatic renewals.
Transaction Fees
Transaction revenue is comprised of fees applied to the volume of transactions that are processed through our SaaS platforms. These are typically based on a per-transaction rate and are invoiced for the same period in which the transactions were processed and as the performance obligation is satisfied. The amount invoiced generally equals the value provided to the customer, and revenue is typically recognized when invoiced using the as-invoiced practical expedient.
Professional Services
Professional service revenue primarily consists of fees for setup, customization, training, or consulting services. Professional service fees are generally on a time and materials basis or a fixed fee. Revenues for time and materials are recognized as such services are rendered, while fixed fee revenues are recognized based on the input method that is driven by the expected hours to complete the project measured against the actual hours completed to date. Professional services, particularly related to SaaS platforms, may have significant dependencies on the related licensed software and may not be considered a distinct performance obligation.
Risk Compliance Solutions ("RCS")
RCS revenues consist of two revenue streams - certificates of insurance ("COI") and consulting services. COI revenues are derived from consideration paid by customers for the creation and tracking of certificates of insurance. These revenues are transaction-based. Consulting services revenues are driven by distinct consulting service engagements rendered to customers, for which revenues are recognized using the output method on a time and material basis as the services are performed.
COI Creation and Tracking
The Company provides services to issue and track certificates of insurance in the U.S. and Australian markets. Revenue is derived from transaction fees for each certificate issued or tracked. The Company recognizes revenue at the issuance of each certificate or over the period the certificate is being tracked.
Consulting Services
The Company provides consulting services to clients around the world for project management, integration, development and testing. Consulting services fees are generally earned on either a time and materials or a fixed fee basis. Revenues for time and materials are recognized using an output method as the services are rendered, while fixed fee revenues are recognized based on the input method that is driven by the expected hours to complete the project measured against the actual hours completed to date.
Product Development
The Company focuses on maintaining high quality product development standards. Product development activities include research and the development of platform and/or client specific software enhancements, such as adding functionality, improving usefulness, increasing responsiveness, adapting to newer software and hardware technologies, or developing and maintaining the Company’s websites.
The Company has spent $41.2 million, $40.0 million, and $35.3 million during the years ended December 31, 2022, 2021 and 2020, respectively, on product development initiatives. The Company’s product development efforts are focused on the continued enhancement and redesign of the EbixCash, Insurance Exchange, broker systems, carrier systems, and RCS product and service lines to keep our technology at the cutting edge in the markets we compete. Development efforts also provide new technologies for insurance carriers, brokers and agents, and the redesign, coding and development of new services for international and domestic markets.
The Company has centralized worldwide product development, intellectual property rights development and software and system development operations in Dubai, Singapore, and India. With its strong focus on quality, our Indian operations deliver cutting-edge solutions for our customers across the world. India is rich in technical skills and the cost structure is significantly lower as compared to the U.S. Ebix continues to expand its India operations as a learning center of excellence,
with a strong focus on hiring skilled professionals with expertise in insurance systems and software applications. This focus on building this knowledge base, combined with the ability to hire more professional resources in India's lower cost structure, has enabled Ebix to consistently protect its knowledge base and to deliver projects in a cost-effective fashion.
Competition
We believe Ebix is the only company worldwide in insurance and financial software markets that provides services in all three of our above listed revenue channels. Conversely, though, this also means that in each of these areas Ebix has different competitors. In fact, in most of these areas Ebix has a different competitor locally in each region in which it operates. In our Insurance Exchange and EbixCash operations Ebix often has a different competitor on each line of exchange in each country, but the scale of these entities is often very limited.
The following is a closer and more detailed discussion of our business and the competition in each of these three main channels.
EbixCash
With a "Phygital” strategy that combines over 650,000 physical distribution outlets in India and many ASEAN countries with an Omni-channel online digital platform, the Company’s EbixCash financial exchange portfolio encompasses leadership in the areas of domestic and international money remittance, Forex, travel, pre-paid gift cards, utility payments, software solutions for lending and wealth management in India and other Southeast Asian markets. EbixCash’s Forex operations have emerged as a leader in India’s airport Forex business, with operations in 20 international airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata. EbixCash’s inward remittance business in India is the clear market leader due to its geographic depth and its affiliations with international money transmitters, such as Western Union, Moneygram and Ria. EbixCash, through its travel portfolio of Via and Mercury, is one of Southeast Asia’s leading travel exchanges, with over 500,000 agents and approximately 18,000 registered corporate clients. EbixCash's financial technologies business offers software solutions at the enterprise level for banks, asset and wealth management companies and trust companies within India, Southeast Asia, the Middle East and Africa. EbixCash's e-learning solutions are used by schools throughout India via high quality 2-D and 3-D animation and multimedia learning. EbixCash's business process outsourcing services provide information technology and call center services to a variety of industries.
EbixCash Forex (EbixCash World Money): EbixCash’s Forex operations have emerged as a dominant leader in India’s Forex industry, with operations in approximately 20 international Indian airports and 10 ports serving hundreds of corporate customers, hotels, Duty Free Shops, temples, educational institutes, etc.
EbixCash World Money is the largest non-bank foreign exchange operation in India in all business segments, including the retail, corporate and bank notes businesses. The company holds a more than 30% market share in the student segment (part of retail), wherein students' overseas education expenses are processed by EbixCash World Money. EbixCash World Money is the largest non-bank corporate Forex provider in the country with more than 2,400 corporate relationships. Competition is fragmented and is comprised of banks such as ICICI Bank and HDFC Bank, along with money exchange companies such as Thomas Cook.
Currently, EbixCash World Money is the single largest money exchange operator at airports in India. EbixCash World Money is also the largest bank note aggregator amongst non-banks, dealing in over 80 different currencies, the highest by any non-bank entity in the business segment.
The EbixCash inward remittance business continues to hold a dominant position in India and is the principal agent for large Money Transfer Operators ("MTOs") such as Western Union, MoneyGram, Ria, and Transfast. EbixCash is the largest network partner for Western Union globally and an exclusive partner for MoneyGram in India. EbixCash also processes over 70% of all Ria transactions in India through its agent network.
EbixCash Travel and Holidays: EbixCash Travel and Holidays is a 360-degree holiday and travel solutions enterprise with a holistic focus on delivering exceptional travel experience in all genres, such as holiday, travel, airline, luxury train travel/holidays, buses, cabs, MICE, sporting events, and others.
Indian travel business enterprises are categorized in the regional and national domain as focused on either a channel, a genre, a product or a demography, and by whether or not allied products, such as Forex and insurance, are offered. MakeMytrip, a relatively new entrant in the pan India holidays space, compared to Thomas Cook and SOTC, has consistently focused on online bookings for holiday/vacation travel. Contrarily, Thomas Cook and SOTC have invested to strengthen their offline presence and market penetration. Thomas Cook is a leading holiday/vacation player that offers Forex services. SOTC
has also been active in the holiday/vacation travel market. Most other competitors have limited scale compared to EbixCash Travel, Thomas Cook and SOTC.
Insurance Exchanges
Ebix operates a number of insurance exchanges and the competition for each of those exchanges varies within each of the regions in which Ebix operates.
Life Insurance Exchange: Ebix operates a straight-through processing end-to-end Life Exchange service that has three life insurance exchanges in the U.S.: WinFlex, TPP, and LifeSpeed. WinFlex is an exchange for pre-sale life insurance illustrations between brokers and carriers. TPP is an underwriting and highly customized electronic application platform for life insurance and other ancillary products, including disability and critical illness, and LifeSpeed is an order entry platform for life insurance. Each of these exchanges is presently deployed in the U.S., and the Company is also continuing to deploy them in other parts of the world. Ebix has two main competitors in the life exchange area: iPipeline and Insurance Technologies. Ebix differentiates itself by virtue of having an end-to-end solution in the market, with all exchanges being interfaced with other broker systems and CRM solutions, such as Ebix's SmartOffice. We believe Ebix’s exchanges also have the largest aggregation of life insurance brokers and carriers transacting business in the United States.
Annuity Exchange: Ebix operates a straight-through processing end-to-end Annuity Exchange service that has two annuity insurance exchanges in the U.S.: AMP and AN4. These exchanges are platforms for annuity transactions between brokers, carriers, broker general agents (“BGAs”), and other entities involved in annuity transactions. These exchanges are mainly deployed in the U.S.; however, the Company endeavors to deploy it in other parts of the world, such as Latin America and Australia. Ebix has deployed its AN4 solution, which was fully developed internally by Ebix, is highly scalable and customizable, and can be delivered over the cloud. Ebix has two main competitors in the annuity exchange area, iPipeline and Insurance Technologies. Ebix differentiates itself from these competitors by virtue of having an end-to-end solution offering in the market with its exchanges being interfaced with other broker systems and CRM solutions, such as Ebix's SmartOffice. Ebix exchanges transact the largest amount of annuity premiums of any single exchange in the U.S.
SmartOffice: Ebix’s CRM exchange, SmartOffice, is designed to address the specific needs of insurance companies, general agents, banks, financial advisors and investment dealers. SmartOffice is tightly integrated into the Ebix Life, Health, P&C and Annuity exchanges as a means to make end-to-end enterprise-wide information exchange seamless for our clients. Our competitors in this space include Salesforce.com, iPipeline, Redtail, Microsoft, SAP and Oracle. Ebix's insurance specific domain expertise provides the Company with compelling and competitive selling points despite the competitive nature of the CRM market.
Employee Benefits: Ebix currently provides employee benefit and health insurance exchange services using four platforms: Facts, LuminX, HealthConnect and EbixEnterprise. EbixEnterprise, which we developed internally, is the most recent Enterprise Health Exchange being deployed by Ebix in the U.S. These platforms are sold to health carriers and third party administrators. These platforms provide a full range of services, such as quoting, policy administration, document management, enrollment and eligibility, claims adjudication, benefits administration, accounting, and compliance functionality coupled with web portals and data analytics. The HealthConnect insurance quoting portals service the individual and small group marketplace. Ebix has a number of competitors of varying sizes in this area. Trizetto is currently the largest employee benefits software player in the market in the U.S., while there are other smaller competitors, such as Mphasis, EDS, VBA, Plexus, and HealthEdge.
Risk Compliance Solutions (RCS)
Ebix’s focus in this channel pertains to business process outsourcing services that include providing domain intensive project management, system consulting services and claims adjudication/settlement services to clients across the world. Additionally, Ebix RCS has the market leading business for the creation and tracking of certificates of insurance issued in the U.S. and Australian markets. The RCS Channel also consists of Broker and Carrier P&C systems.
Ebix's RCS channel focuses on helping its clients outsource any specific service or manpower to the Company on an onsite or offshore basis. Ebix's RCS COI business services are enabled by the Company’s SaaS-based proprietary software. Ebix’s RCS COI service offerings currently cater to Fortune 500 companies in the U.S. Ebix’s RCS COI service offering in the U.S. competes with companies such as Applied Systems, MyCOI.com, and Certfocus. Due to the highly fragmented market, the Ebix RCS COI service offering also has a number of smaller competitors, such as Datamonitor, CMS, and Exigis.
Ebix operates P&C exchanges in Australia, New Zealand, the U.K., and the U.S. All of these exchanges are targeted to the areas of personal and commercial lines, and facilitate the exchange of insurance data between brokers and insurance
carriers. There is presently little competition in the P&C exchange area in Australia and New Zealand. Our competitive differentiation exists by virtue of having an end-to-end solution offering in the market allowing our exchanges to be interfaced with multiple broker systems.
Ebix has three primary P&C broker system offerings worldwide: Ebix Evolution, eGlobal, and WinBEAT. The competition for these broker systems varies within each of the regions in which Ebix provides such products and services.
Ebix Evolution and eGlobal are sold throughout the world. Both systems are multilingual and multi-currency and support country-specific legislative and taxation requirements. These systems are available in a number of languages, such as English, Chinese, Japanese, French, Portuguese, and Spanish. Both Ebix Evolution and eGlobal are targeted to the medium and large P&C brokers around the world, and are available for cloud or on-premise deployment. Competition tends to be different in each country, with no single competitor having a global offering. The two systems compete with home grown systems and regional players in each country. Our competitive advantage and uniqueness stems from multilingual and multi-currency functionality, as well as end-user customization support. Both systems have a uniform common code base globally that allows Ebix to easily tailor features and functionality to customer needs (ease of activating/deactivating functionality).
WinBEAT is a Policy Management System (back-end broker system) targeted to the general insurance broking sector and is primarily sold in Australia. WinBEAT is targeted at small- to medium-sized P&C brokers. The product at present is available only in English and can be deployed in a few hours with minimal training. WinBEAT competes in Australia with local vendors, such as Brokers Advantage and Steadfast Insight. Ebix has deployed WinBEAT to emerging insurance markets, such as Papua New Guinea and some of the Pacific Islands, with possible future deployment to other regional markets in the future.
Ebix's broker systems (Ebix Evolution, eGlobal and WinBEAT) customer base spans over 600 of the approximately 750 P&C brokers in Australia, an 80% market penetration of the P&C broker systems.
In the Carrier P&C Systems, Ebix has two system offerings for P&C carriers, Ebix-Advantage and Ebix AdvantageWeb. Ebix-Advantage is targeted at small, medium and large P&C carriers in the United States that operate in the personal, commercial and specialty line areas of insurance. Ebix AdvantageWeb is designed for the international markets and is targeted at the small, medium and large P&C carriers in the international markets that operate in the personal, commercial and specialty line areas of insurance. Ebix-AdvantageWeb is designed to be multi-currency and multilingual and is deployed in Brazil, the U.K. and the U.S. Competition to both these products comes from large companies, such as CSC, Guidewire, Xchanging, Accenture and specialty medical malpractice players like Delphi.
Intellectual Property
Ebix seeks protection under federal, state and foreign laws for strategic or financially important intellectual property developed in connection with our business. We regard our software as proprietary, adhere to open architecture industry standards and attempt to protect our software with copyrights, trade secret laws and restrictions on the disclosure and transferring of title. Certain intellectual property, where appropriate, is protected by contracts, licenses, registrations, or other protections. Despite these precautions, it may be possible for third parties to copy aspects of the Company’s products or, without authorization, to obtain and use information which the Company regards as trade secrets.
Employees
As of December 31, 2022, the Company had 10,521 employees worldwide and is presented in the table below. None of the Company’s employees are presently covered by a collective bargaining agreement. Management considers the Company's relations with its employees to generally be good.
| | | | | | | | |
| | Number of Employees |
| India | | 9,367 | |
| United States | | 428 | |
| Latin America | | 363 | |
| Philippines | | 102 | |
| Australia | | 97 | |
| Indonesia | | 71 | |
| Europe | | 49 | |
| Singapore | | 17 | |
| United Arab Emirates | | 10 | |
| New Zealand | | 9 | |
| Canada | | 8 | |
| | 10,521 | |
Human Capital
The Company's workforce is global in nature, with the majority of our employees in India. We are subject to various employment laws and regulations based on the country in which our employees are located. Our CEO and other global senior leaders of Ebix shared human resource responsibilities include providing effective programs related to staffing, employee recruiting and development, compensation and benefits, and compliance. We compensate employees through a competitive compensation program that includes base salary or hourly wage, health and life insurance, retirement benefits, paid time off and long-term incentives for key management. As each country’s employment environment is different, we may use different competitive recruitment and retention tools to meet the rules and regulations and market dynamics to serve the needs of our business.
Our success is dependent upon our ability to attract, develop, and retain qualified employees. We are committed to building a culture of diversity, professional growth, and high performance through offering our employees challenging and engaging growth opportunities that contribute to their overall career development. We also strive for a culture where different viewpoints are valued and individuals are treated fairly so that the Company can attract and retain the best talent.
Diversity and Inclusion: The Company believes that its rich culture of diversity and inclusion enables it to create, develop and fully leverage the strengths of its workforce to exceed customer expectations and meet its growth objectives. The Company places a high value on diversity and inclusion, recruiting and retaining staff with diverse backgrounds, experiences or characteristics who share a common interest in professional development, improving corporate culture and delivering sustained business results.
During 2020 and continuing into 2021, the Company implemented procedures to ensure employee safety due to the COVID-19 pandemic. The Company made operational changes which allowed for a more flexible and mobile workforce around the globe. In 2022, we maintained these COVID related safety measures and in countries where we continue to have a physical office presence, kept in place a hybrid work schedule as appropriate. We have continually monitored local conditions and government requirements and have refined our safety protocols as warranted.
Information About Executive Officers
The following persons serve as our executive officers as of March 6, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position | | Officer Since |
| Robin Raina | | 56 | | Chairman, President, and Chief Executive Officer | | 1998 |
| Steve Hamil | | 54 | | Corporate Executive Vice President & Chief Financial Officer | | 2020 |
| Graham Prior | | 66 | | Corporate Executive Vice President - International Business & Intellectual Property | | 2012 |
| Leon d'Apice | | 67 | | Corporate Executive Vice President International Business
Managing Director - Ebix Australia Group | | 2012 |
| James Senge Sr. | | 62 | | Senior Vice President EbixHealth | | 2012 |
| | | | | | |
| | | | | | |
There are no family relationships among our executive officers, nor are there any arrangements or understandings between any of those officers and any other persons pursuant to which they were selected as officers. See Part III Item 10 for biographical information on the Company's Executive Officers.
General
Our principal executive offices are located at 1 Ebix Way, Johns Creek, Georgia 30097, and our telephone number is (678) 281-2020.
Our official web site address is http://www.ebix.com. We make available, free of charge, at http://www.ebix.com, the charters for the committees of our board of directors, our code of conduct and ethics, and, as soon as practicable after we file them with the SEC, our annual reports on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K. Any waiver of the terms of our code of conduct and ethics for the chief executive officer, the chief financial officer, any accounting officer, and all other executive officers will be disclosed on our Web site. The reference to our web site does not constitute incorporation by reference of any information contained at that site.
Certain materials we file with the SEC may also be read and copied at or through the Internet website maintained by the SEC at www.sec.gov.
Item 1A. RISK FACTORS
The following risks and uncertainties are not the only ones we face. Additional risks and uncertainties, including risks and uncertainties of which we are currently unaware or which we believe are not material also could materially adversely affect our business, financial condition, results of operations or cash flows. You should consider carefully all of the risks described below, together with the other information contained in this annual report, before making a decision to invest in our securities. In any case, the value of our common stock could decline, and you could lose all or a portion of your investment. See also, “Safe Harbor Regarding Forward-Looking Statements.”
Risks Related To Our Business and Industry
Our Credit Facility matures in May 2023 and we may not be able to secure a replacement or additional financing to support capital requirements when needed.
The Company maintains a senior secured syndicated credit facility, dated as of August 5, 2014, among Ebix, Inc., as borrower, its subsidiaries party thereto from time to time as guarantors, Regions Bank, as administrative agent and collateral agent, and the lenders party thereto from time to time (as amended from time to time, the "Credit Facility"). The Credit Facility provides a $450 million revolving line of credit (the "Revolver") as well as a term loan (the "Term Loan"), which at December 31, 2022 had a balance of $181.9 million. The Credit Facility was to mature in February 2023, but the Company negotiated an
extension of the maturity of the Credit Facility to May 23, 2023. As a result, as of December 31, 2022 the outstanding balance of the Credit Facility, $631.8 million, was classified as a current liability. In addition to the EbixCash IPO described below, the Company is also pursuing multiple other capital raising strategies to address the refinancing requirements of the Credit Facility, including debt, equity, and hybrid debt/equity options at the corporate level and within the EbixCash operations in India. If necessary, the Company will also pursue other strategic options, and the Board of Directors has formed a special committee to assist it in further evaluating all alternatives to address the capital required to refinance the Credit Facility. If we are unable to arrange for a long-term debt facility to replace the Credit Facility on terms that are acceptable to us, raise additional equity proceeds as needed, or secure an extension of the Credit Facility, our liquidity will be materially adversely impacted and we will be unable to repay the principal outstanding under the Credit Facility at maturity in May 2023. Additionally, the Company has been experiencing higher than normal costs associated with its refinancing and strategic alternatives efforts, primarily via expenses paid to attorneys and financial advisors for both Ebix and its existing bank group. This level of expenditures is negatively impacting the Company's overall cash balances and operating results. The Company is unable to determine with certainty as of the date of filing of this Form 10-K the period of time that these elevated expenditures will continue nor the overall amount of the total expenditures that will be required to be made in the fiscal year 2023.
In addition, we may need to raise additional funds in the future to fund new product development, further organic growth initiatives, acquire new businesses, or for other purposes. Any required additional financing may not be available on terms favorable to us, or at all. If adequate funds are unavailable on acceptable terms, we may be unable to meet our strategic business objectives or compete effectively, and the future growth of our business could be adversely impacted.
If additional funds are raised by our issuing equity securities, stockholders may experience dilution of their ownership and economic interests, and the newly issued securities may have rights superior to those of our common stock. If additional funds are raised by our issuance of debt, we may be subject to significant market risks related to interest rates, and operating risks regarding limitations on our activities.
Our Credit Facility contains provisions that could materially restrict our business.
Our Credit Facility contains certain covenants, including with respect to (i) certain permitted restricted payments and investments, and (ii) certain reporting requirements. These covenants include, among others, limitations on making acquisitions, loans or other investments, disposition of assets, dividend payments consistent with historical levels and other restricted payments. The Credit Facility also requires us to comply with a maximum consolidated net leverage ratio and a minimum fixed charge coverage ratio, which we may not be able to achieve. The Company has sought covenant relief in the past and we may need to seek additional relief in the future. These covenants may limit our ability to plan for or react to market conditions or meet capital needs or could otherwise restrict our activities or business plans. These restrictions also could adversely affect our ability to make strategic acquisitions, fund investments or engage in other business activities that could be in our interest. The Company’s failure to meet these covenants or comply with these restrictions could have a material adverse effect on our business, financial condition and results of operations. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Credit Facility” and Note 4 to the Notes to Consolidated Financial Statements for additional discussion of our Credit Facility and its covenants.
Further, our ability to comply with these covenants may be affected by events beyond our control that could result in an event of default under our Credit Facility, or documents governing any other existing or future indebtedness. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under the Credit Facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.
We may not be able to complete the EbixCash IPO on acceptable terms or at all.
The Company’s Indian subsidiary, EbixCash Limited, filed a Draft Red Herring Prospectus ("DRHP") with the Securities and Exchange Board of India on March 9, 2022, for an initial public offering aggregating up to ₹60,000 million or $787 million (the “EbixCash IPO”). Of the EbixCash IPO proceeds, approximately $350 million is proposed to be utilized towards purchase of outstanding compulsorily convertible debentures from Ebix Asia Holdings Inc, Mauritius and in turn payment to Ebix, Inc., which is proposed to be used towards reduction of Ebix Inc.’s outstanding debt. As of the date of this filing, we have not received regulatory approval on the DRHP. This delay in the EbixCash IPO has impacted our ability to refinance our Credit Facility.
We still expect to generate additional funding resources from the EbixCash IPO, although we are not in a position to state with certainty if or when any such EbixCash IPO will be consummated, or the terms upon which it ultimately will be consummated. While we expect the EbixCash IPO to be completed during 2023, there can be no assurance that the EbixCash IPO will be completed as anticipated or at all. Our ability to complete the EbixCash IPO is subject to a number of conditions,
including among other things, the registration of the EbixCash IPO under Indian security laws, reasonable market conditions in the Indian equity capital markets and a successful marketing process for the EbixCash IPO with equity investors that invest in Indian publicly traded companies. There can be no assurance that the EbixCash IPO will be completed, and a failure to complete the EbixCash IPO could negatively affect the price of the shares of our common stock and the Company’s financial condition.
The EbixCash IPO may not have the benefits we anticipate.
The EbixCash IPO may not have the full or any strategic and financial benefits that we expect, or such benefits may be delayed or may not materialize at all. While we believe that the EbixCash IPO will generate a significant capital inflow for the Company, we are unable to rely with certainty on the EbixCash IPO being successfully completed.
In the event that the EbixCash IPO does not have these and other expected benefits, the costs associated with the transaction, including general and administrative expenses, could have a negative effect on our financial condition and our and EbixCash’s ability to make distributions to the stockholders of each company.
We continue to be negatively impacted by the COVID-19 global pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. Since then, the outbreak of COVID-19 throughout the world, including North America, Europe and Asia, has adversely impacted the U.S. and global economies. We have experienced and expect to continue to experience disruptions to our business due to COVID-19. Our business, particularly EbixCash, is generally subject to and impacted by, international, national and local economic conditions and travel demands. The COVID-19 pandemic has resulted in and may continue to result in a material adverse effect on the demand for worldwide travel, and therefore, has had and may continue to have a material adverse effect on our business and results of operations. Although the U.S. government has announced that the declared national public health emergency will be allowed to expire on May 11, 2023, we do not expect economic and operating conditions for EbixCash to improve to pre-COVID-19 levels for at least the next year. To the extent that the residual impact from the COVID-19 outbreak continues to adversely affect our business and financial performance, it may also have the effect of heightening many of the other risks identified in this Risk Factors section.
Our business may be materially adversely impacted by U.S. and global market and economic conditions, particularly adverse conditions in the insurance and financial services industries.
Our business, particularly EbixCash, is generally subject to and impacted by, international, national and local economic conditions and travel demands. For the foreseeable future, we expect to continue to derive most of our revenue from products and services we provide to the insurance and financial services industries. Given the concentration of our business activities in these industries, we may be particularly exposed to certain economic downturns affecting these industries. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile related primarily to inflation, an increasing interest rate environment and the COVID-19 pandemic. The COVID-19 pandemic has resulted in and may continue to result in a material adverse effect on the demand for worldwide travel, and therefore, has had and may continue to have a material adverse effect on our business and results of operations. We do not expect economic and operating conditions for EbixCash to improve to pre-COVID-19 levels for at least the next year.
General business and economic conditions that could affect us and our customers include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which our customers operate. A poor economic environment (including as a result of continuing negative impacts of COVID-19) could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects, or could present difficulties in collecting accounts receivables from our customers due to their deteriorating financial condition. Our existing customers may be acquired by or merged into other entities that use our competitors' products or may decide to terminate their relationships with us for other reasons. As a result, our sales could decline if an existing customer is merged with or acquired by another company, and either has a poor economic outlook or discontinues operations.
We are subject to economic and geopolitical risk that could have an adverse impact on our ongoing business operations.
Our business, growth, financial condition or results of operations could be materially adversely affected by political and economic instability or changes in economic conditions in a country or region(s), changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, increased difficulty of conducting business in a country or region due to actual or potential political or military conflict or action by the United States or foreign governments that may restrict our ability to transact business in a foreign country or with certain foreign individuals or entities. Although the length and impact of the ongoing military conflict between Ukraine and Russia is highly unpredictable, the conflict has created and may continue to create significant uncertainty in global financial markets, which may reduce
demand for our services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. Other risks associated with heightened geopolitical and economic instability include, among others, reduction in consumer, government or corporate spending, international sanctions, embargoes, heightened inflation, volatility in global financial markets, increased cyber disruption or attacks, higher supply chain costs, and increased tensions between the United States and countries in which we operate, all of which could adversely affect our operations and financial condition. To the extent that the ongoing military conflict between Ukraine and Russia adversely affects our business, it may also have the effect of heightening other risks disclosed herein in our Annual Report on Form 10-K for the year ended December 31, 2022, any of which could materially adversely affect our business, financial condition, access to financing, results of operations, and liquidity.
Our revenue from our gift card business grew significantly during the COVID-19 pandemic and may not continue at that level as the risks of the COVID-19 pandemic decrease and global markets return to normalized levels.
During 2020, our revenue from the payment solutions offerings in India (primarily prepaid gift cards), increased dramatically by more than $200 million year over year to approximately $256 million (590% year-over-year growth). During 2021, material growth continued with our payment solutions revenue in India with an increase in revenue to approximately $630 million (146% year-over-year growth). During 2022, payment solutions revenue in India was $607 million. The increased demand for prepaid gift cards in India was primarily due to: (i) COVID-19, which has facilitated increased online and electronic commerce due to restrictive lockdowns in 2020; (ii) changes in regulations by the Reserve Bank of India related to debit cards, which has shifted demand in the market towards prepaid gift cards; and (iii) the Company's increased marketing efforts around the prepaid gift card business. There can be no assurance that this level of revenue will continue, if there are new regulations adopted that impact the use of gift cards or debit cards or if the Company de-emphasizes this revenue source over time given it provides marginal operating income to the Company.
Our future growth may depend in part on acquiring other businesses in our industry.
We expect continued growth, in part, by making business acquisitions. In the past, we have made accretive acquisitions to broaden our product and service offerings, expand our operations, and enter new geographic markets. We may continue to make selective acquisitions, enter into joint ventures, or otherwise engage in other appropriate business investments or arrangements that we believe will strengthen the Company. However, the continued success of our acquisition program will depend on our ability to find and buy attractive businesses at a reasonable price, to access the requisite financing resources, if needed, to obtain any lender consents required under any credit facility in place and to integrate acquired businesses into our existing operations. Our ability to find, execute and integrate acquisitions is not assured and may be limited by a number of factors, including overall market conditions and access to incremental debt or equity capital to effectuate acquisitions.
Any future acquisitions that we may undertake could be difficult to integrate, disrupt our business, dilute stockholder value and adversely impact our operating results.
Future business acquisitions subject the Company to a variety of risks, including those risks associated with an inability to efficiently integrate acquired operations, higher incremental cost of operations, outdated or incompatible technologies, labor difficulties, or an inability to realize anticipated synergies, whether within anticipated time frames or at all. One or more of these risks, if realized, could have an adverse impact on our operations. Among the integration issues related to acquisitions are:
•potential incompatibility of business cultures;
•potential delays in integrating diverse technology platforms;
•potential need for additional disclosure controls and internal controls over financial reporting;
•potential difficulties in coordinating geographically separated organizations;
•potential difficulties in re-training sales forces to market all of our products across all of our intended markets;
•potential difficulties implementing common internal business systems and processes;
•potential conflicts in third-party relationships; and
•potential loss of customers and key employees and the diversion of the attention of management from other ongoing business concerns.
We may not be able to develop new products or services necessary to effectively respond to rapid technological changes.
We must adapt to rapidly changing technological and market needs, by continually enhancing and introducing new products and services to address our customers' changing demands, in order to be successful. The marketplace in which we operate is characterized by rapidly changing technology, evolving industry standards, frequent new product and service introductions, shifting distribution channels, and changing customer demands. We could incur substantial costs if we need to
modify our services or infrastructure in order to adapt to changes affecting our market, and we may be unable to effectively adapt to these changes.
The markets for our products and services are and will likely become even more highly competitive, and our competitors may be able to respond quicker to new or emerging technology and changes in customer requirements
We operate in highly competitive markets. In particular, the online insurance distribution market, like the broader electronic commerce market, is rapidly evolving and highly competitive. Our insurance software business also experiences competition from certain large hardware suppliers that sell systems and system components to independent agencies and from small independent developers and suppliers of software, who sometimes work in concert with hardware vendors to supply systems to independent agencies. Pricing strategies and new product introductions and other pressures from existing or emerging competitors could result in a loss of customers or a price rate increase or decrease for our services different than past experience. Our internet-facilitated businesses may also face indirect competition from insurance carriers that have subsidiaries which perform in-house agency and brokerage functions.
Some of our current competitors have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial and marketing resources than we do. In addition, we believe we will face increasing competition as the online financial services industry develops and evolves. Our current and future competitors may be able to:
•undertake more extensive marketing campaigns for their brands and services;
•devote more resources to website and systems development;
•adopt more aggressive pricing policies; and
•make more attractive offers to potential employees, online companies and third-party service providers.
We operate in a price sensitive market and we are subject to pressures from customers to decrease our fees for the services and solutions we provide. Any reduction in price would likely reduce our margins and could adversely affect our operating results.
The competitive market in which we conduct our business could require us to reduce our prices. If our competitors offer discounts on certain products or services in an effort to recapture or gain market share or to sell other products, we may be required to lower our prices or offer other favorable terms to compete successfully. Any of these changes would likely reduce our margins and could adversely affect our operating results. Some of our competitors may bundle products and services that compete with us for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. In addition, many of the services and solutions that we provide and market are not unique or proprietary to us and our customers and target customers may not distinguish our services and solutions from those of our competitors. All of these factors could, over time, limit or reduce the prices that we can charge for our services and solutions. If we cannot offset price reductions with a corresponding increase in the number of sales or with lower spending, then the reduced revenue resulting from lower prices would adversely affect our margins and operating results.
Our current customers might not purchase additional software solutions, renew maintenance agreements or purchase additional professional services, or they might switch to other product or service offerings (including competitive products).
We rely on our existing customer base to generate additional business through the purchase of new software solutions, as well as maintenance, consulting and training services. Existing customers might cancel or not renew their maintenance contracts, decide not to buy additional products and services, switch to on-premises models or accept alternative offerings from other vendors.
Our future success depends in part on our ability to sell additional features and services, and more subscriptions or enhanced offerings of our services to our current customers. This may also require increasingly sophisticated and costly sales efforts. Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and our customers’ reaction to any price changes related to these additional features and services. If our efforts to up-sell to our customers are not successful our business may suffer.
If our customers do not renew their subscriptions for our services or reduce the number of paying subscriptions at the time of renewal, our revenue will decline and our business will suffer. If we cannot accurately predict subscription renewals or upgrade rates, we may not meet our revenue targets which may adversely affect the market price of our common stock.
Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, and historically some customers have elected not to do so. In addition, our customers may renew for fewer subscriptions, renew for shorter contract lengths or switch to lower cost and/or less profitable offerings of our services. We cannot accurately predict attrition rates given our diverse customer base and large number of multi-year subscription contracts. Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our
services, decreases in customers’ spending levels, decreases in the number of users at our customers, pricing increases or changes in general economic conditions.
Because we recognize revenue from subscriptions for our services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements, which are typically twelve to thirty-six months. As a result, most of the revenue we report in each quarter reflects the subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter; however, any such decline will negatively impact our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and potential changes in our attrition rate, may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.
Supporting our existing and growing customer base could strain our personnel resources and infrastructure, and if we are unable to scale our operations and increase productivity, we may be unable to successfully implement our business plan.
We continue to experience significant growth in our customer base and personnel, which has placed a strain on our management, administrative, operational and financial infrastructure. We anticipate that additional investments in our internal infrastructure, data center capacity, research, customer support, and development will be required to scale our operations and increase productivity in order to address the needs of our customers, further develop and enhance our services, and expand into new geographic areas. Any additional investments required to service our customers will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term.
Our success depends, in part, upon the ability of our senior management to manage our projected growth effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed. To manage the expected domestic and international growth of our operations and personnel, we need to continue to improve our operational, financial and management controls, our reporting systems and procedures, and our utilization of real estate. If we fail to successfully scale our operations and increase productivity, we will be unable to execute our business plan.
Our product development cycles are lengthy, and we may incur significant expenses before we generate revenues, if any, from new products.
Because our products are complex and require rigorous testing, development cycles can be lengthy. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect our business and results of operations. Additionally, anticipated customer demand for a product we are developing could decrease after the development cycle has commenced. Such decreased customer demand may cause us to fall short of our sales targets, and we may nonetheless be unable to avoid substantial costs associated with the product’s development. If we are unable to complete product development cycles successfully and in a timely fashion and generate revenues from such future products, the growth of our business may be harmed.
Our sales cycle is variable and often lengthy, depends upon many factors outside our control, and requires us to expend significant time and resources prior to generating associated revenues.
The typical sales cycle for our solutions and services is lengthy and unpredictable, requires substantial pre-purchase evaluations by a significant number of persons in our customers’ organizations, and often involves a significant operational decision by our customers. Our sales efforts involve educating our customers and industry analysts and consultants about the use and benefits of our solutions.
We generally regard our intellectual property and software as critical to our success, and we may not be able to effectively or efficiently protect our intellectual property.
We rely on copyright laws and licenses and nondisclosure agreements to protect our proprietary rights, as well as the intellectual property rights of third parties whose content we license. However, it is not possible to prevent all unauthorized uses of these rights. We cannot provide assurances that the steps we have taken to protect our intellectual property rights, and the rights of those from whom we license intellectual property, are adequate to deter misappropriation or that we will be able to detect unauthorized uses and take timely and effective steps to remedy unauthorized conduct. In particular, a significant portion of our revenue is derived internationally, including in jurisdictions where protecting intellectual property rights may prove to be
more challenging than in the U.S. To prevent or respond to unauthorized uses of our intellectual property, we might be required to engage in costly and time-consuming litigation and we may not ultimately prevail.
If we infringe on the proprietary rights of others, our business operations may be disrupted, and any related litigation could be time consuming and costly.
Third parties may claim that we have violated their intellectual property rights. Any such claim, with or without merit, could subject us to costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to obtain a license to use the right, if available, or to use a non-infringing method, if possible, to accomplish our objectives. The cost of such activity could have a material adverse effect on our business.
We depend on the continued services of our senior management and our ability to attract and retain other key personnel.
Our future success is substantially dependent on the continued services and contributions of our senior management and other key personnel, particularly Robin Raina, our President, Chief Executive Officer, and Chairman of the Board. Since becoming Chief Executive Officer in 1999, Mr. Raina's strategic direction and vision for the Company and the implementation of such direction have been instrumental in our profitable growth. The loss of the services of any of our executive officers or other key employees could harm our business. Our future success also depends on our ability to continue to attract, retain, and motivate highly skilled employees. The inability to attract and retain key skilled personnel could harm our business.
If we do not effectively manage our geographically dispersed workforce, we might not be able to run our business
efficiently and successfully.
Our success is dependent on the appropriate alignment of our internal and external workforce planning processes, adequate resource allocation and our location strategy with our general strategy. We have employees located in India, the U.S., Brazil, Australia, Indonesia, the Philippines, the U.K., Singapore, the United Arab Emirates, Canada, and New Zealand. Managing such a diverse and widely spread work force can be difficult and demanding for management. It is critical that we manage our internationally dispersed workforce (both internal and external) effectively, taking short- and long-term workforce and skill requirements into consideration. Changes in headcount and infrastructure needs, as well as local legal or tax regulations, could result in a mismatch between our expenses and revenue. Failure to manage our geographically dispersed workforce effectively could hinder our ability to run our business efficiently and successfully and could have an adverse effect on our business, financial position, profit, and cash flows.
Increased inflation can have an adverse effect on our operations.
Inflation increased globally during 2021 and 2022, and it has had a negative impact on our operations and, if inflation continues at above-historical averages, it could have a more negative impact on our operations. The Company has seen the most impact from inflation within its personnel costs, as well as costs incurred to procure goods and services that are used in our global operations. Our suppliers have raised their prices and may continue to raise prices that we may not be able to pass on to our customers. This has adversely affected and may continue to adversely affect our business, including our competitive position, market share, revenues, and profit margins.
Inflation can have an adverse effect on our operations if the rate of price increases for services and solutions does not keep pace with the cost of inflation; adverse economic conditions may discourage business growth which could affect demand for our services; and the devaluation of some foreign currency may exceed the rate of inflation and reported U.S. dollar revenues and profits may decline. Inflation may make it difficult for us to accurately predict revenue and we may not be able to pass on cost increases caused by general inflation, except to the extent reflected in market conditions.
The enactment of a new U.S. Federal excise tax and other proposed or future tax legislation may adversely impact our financial condition and results of operations.
The Inflation Reduction Act of 2022 (the “Inflation Reduction Act” or “IRA”) was signed into law on August 16, 2022. The IRA provides for, among other things, investment in clean energy, reduction in carbon emissions, extension of select Affordable Care Act premium reductions and a new U.S. federal 1% excise tax (the “Excise Tax”) on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The Excise Tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the Excise Tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the Excise Tax. The U.S. Department of the Treasury (“Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the Excise Tax; however, no guidance has been issued to date.
Because we are a Delaware corporation and our securities trade on The Nasdaq Stock Market LLC, we believe we are a “covered corporation” within the meaning of the Inflation Reduction Act, and while not free from doubt, it is possible that the Excise Tax will apply to any redemptions of our stock effectuated after December 31, 2022, including redemptions in connection with an initial business combination and any amendment to our certificate of incorporation to extend the time to consummate an initial business combination, unless an exemption is available or the fair market value of stock repurchased or redeemed is offset by other equity issuances occurring within the same taxable year of such redemptions. Consequently, the value of your investment in our securities may be affected as a result of the Excise Tax. Further, the application of the Excise Tax in the event of a liquidation is uncertain absent further guidance.
Risks Related to Our Conduct of Business on the Internet
Cybersecurity threats and other security incidents continue to increase in frequency and sophistication. Cybersecurity attacks have occurred and future attacks could occur. Such cybersecurity attacks have resulted in, and in the future could result in, the interruption or disruption our information technology systems and the loss of proprietary data, which could disrupt our business, force us to incur excessive costs, interfere with our operations, expose us to legal and other liabilities, negatively impact our sales, cause reputational harm and other serious negative consequences, any or all of which could materially harm our business.
The size and complexity of our information systems make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from intentional attacks by malicious third parties. Such attacks are increasingly sophisticated and are made by groups and individuals with a wide range of motives and expertise. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on our systems, our products, the proprietary data contained therein, our customers and, ultimately, our business. In addition, our ability to defend against and mitigate cyberattacks depends in part on prioritization decisions that we and third parties upon whom we rely make to address vulnerabilities and security defects. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent or quickly identify service interruptions or security breaches. Further, while we endeavor to address all identified vulnerabilities in our information systems, we must make determinations as to how we prioritize developing and deploying the respective fixes, and we may be unable to do so prior to an attack.
Cyberattacks and other security incidents have, and in the future could, (a) adversely affect our business operations, (b) result in the loss of critical or sensitive confidential information or intellectual property, and (c) result in financial, legal, business and reputational harm to us, including loss of business, decreased sales, severe reputational damage adversely affecting current and prospective customer, employee or vendor relations and investor confidence, U.S. or foreign regulatory investigations and enforcement actions, litigation, indemnity obligations, damages for contractual breach, penalties for violation of applicable laws or regulations, including laws and regulations in the United States and other jurisdictions relating to the collection, use and security of user and other personally identifiable information and data, significant costs for remediation, impairment of our ability to protect our intellectual property, stock price volatility and other significant liabilities. Further, our steps taken to secure our informational systems, adapt and enhance our software development and ensure the security and integrity of the informational systems may not be successful or sufficient to protect against cyberattacks and our cyber liability insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
Our software solutions are deployed through cloud-based implementations, and if such implementations are compromised by data security breaches or other disruptions, our reputation could be harmed, and we could lose customers or be subject to significant liabilities.
Our software solutions typically are deployed in cloud-based environments, in which our products and associated services are made available using an internet-based infrastructure. In cloud deployments, the infrastructure of our customers’ third-party service providers may be vulnerable to hacking incidents, other security breaches, computer viruses, telecommunications failures, power loss, other system failures and similar disruptions. Any of these occurrences, whether intentional or accidental, could lead to interruptions, delays or cessation of operation of the servers of our customers’ third-party service providers, and to the unauthorized use or access of our software and proprietary information and sensitive or confidential data stored or transmitted by our products. The inability of our customers’ service providers to provide continuous access to their hosted services, and to secure their hosted services and associated customer information from unauthorized use, access or disclosure, could cause us to lose customers and to incur significant liability, and could harm our reputation, business, financial condition and results of operations.
We face risks in the transmittal of individual health-related and other personal information.
We face potential risks and financial liabilities associated with obtaining and transmitting personal account information that includes social security numbers and individual health-related information. Any significant breakdown,
invasion, destruction, or interruption of our information technology systems and infrastructure by employees, others with authorized access to our systems, or unauthorized persons could negatively affect operations. There can be no assurance that we will not be subject to cyber security incidents that bypass our security measures, result in the loss or theft of personal health information or other data subject to privacy laws, or disrupt our information systems or business.
No personally identifiable information (“PII”) from our U.S. systems is provided to an international entity or a third party. To protect information as well as our technology and intellectual property from compromise or theft, the Company employs internal security controls, is subject to regular third-party security audits, complies with external information control mandates such as General Data Protection Regulations (“GDPR”), New York Department of Financial Services (“NYDFS”), California Consumer Privacy Act (“CCPA”), to name a few, has disaster recovery and backup readiness plans in place, utilizes critical endpoint 24 x 7 third-party monitoring and a 24 x 7 network operations center, and is subject to governance audits such as System and Organization Controls (SOC2) audits and Sarbanes Oxley (SOX) IT audits. Any international Company employees who have access to U.S. data for development/maintenance purposes are governed by stringent data access policies supported by Virtual Private Networks (“VPNs”) and Firewalls, classified employee programs, data transmission monitoring tools (including data encryption), which together encompass critical parts of the Ebix CyberSecurity program that is based on International Organization of Standardization (“ISO”) security standards. Additionally, all employees that are involved with processing transactions involving PII are required annually to complete Health Insurance Portability and Accountability Act (“HIPAA”) and Graham-Leach-Billey Act (“GLBA”) compliance training. While we have invested in the protection of our data and information technology to reduce these risks, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems. Additionally, the controls implemented by third-party service providers may not prevent or timely detect such system failures. Our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur. The consequences of the outlined risk above would include damage to our reputation and additional costs to address and remediate any problems encountered, as well as litigation and potential financial penalties.
Any disruption of our internet connections could affect the success of our internet-based products and services.
Any system failure, including network, software or hardware failure, that causes an interruption in our network or a decrease in the responsiveness of our website could result in reduced user traffic and reduced revenue. Continued growth in internet usage could cause a decrease in the quality of internet connection service. Websites have experienced service interruptions as a result of outages and other delays occurring throughout the worldwide internet network infrastructure. If these outages, delays or service disruptions frequently occur in the future, usage of our web-based services could grow slower than anticipated or decline and we may lose revenues and customers. If the internet data center operations that host any of our websites or web-based services were to experience a system failure, the performance of our website or web-based services would be harmed. These systems are also vulnerable to damage from fire, floods, and earthquakes, acts of terrorism, power loss, telecommunications failures, break-ins and similar events. The controls implemented by our third-party service providers may not prevent or timely detect such system failures. Our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur. In addition, our users depend on internet service providers, online service providers and other website operators for access to our website. These providers could experience outages, delays and other difficulties due to system failures unrelated to our systems.
Consumer fraud could adversely affect our business, financial condition and results of operations.
Malicious third parties are using increasingly sophisticated methods to engage in illegal activities such as identity theft, fraud and paper instrument counterfeiting. As we make more of our services available over the internet and other digital media, we subject ourselves to new types of consumer fraud risk due to more complex requirements relating to consumer authentication with internet services. Additionally, the COVID-19 pandemic has led to increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity. We use a variety of tools to protect against fraud; however, these tools may not always be successful. Allegations of fraud may result in fines, settlements, litigation expenses and reputational damage.
Our industry is under increasing scrutiny from federal, state and local regulators in the U.S. and regulatory agencies in many other countries in connection with the potential for consumer fraud. If consumer fraud levels involving our services were to rise, it could lead to further regulatory intervention and reputational and financial damage. This increased regulatory scrutiny, in turn, could lead to additional government enforcement actions and investigations, reduce the use, renewal and/or acceptance of our services or increase our compliance costs and, thereby, have a material adverse impact on our business, financial condition and results of operations.
Uncertainty in the marketplace regarding the use of internet users' personal information, or legislation limiting such use, could reduce demand for our services and result in increased expenses.
Concern among consumers and legislators regarding the use of personal information gathered from internet users could create uncertainty in the marketplace. This concern could reduce demand for our services, increase the cost of doing business as
a result of litigation costs or increased service delivery costs, or otherwise harm our business. Many state insurance codes limit the collection and use of personal information by insurance agencies, brokers and carriers or insurance service organizations.
Risks Related To Foreign Operations
Our international operations are subject to a number of risks that could affect our revenues, operating results, and growth.
We market our products and services internationally and plan to continue to expand our internet-based services to locations outside of the U.S. We currently conduct operations in Australia, Canada, New Zealand, Brazil, Dubai, India, Indonesia, New Zealand, the Philippines, Singapore, the United Arab Emirates, and the U.K., have product development activities in India, Singapore and Dubai and perform call center services in India. Our international operations are subject to other inherent risks which could have a material adverse effect on our business, including:
•the impact of recessions in foreign economies on the level of consumers' insurance shopping, financial transactions and purchasing behavior;
•greater difficulty in collecting accounts receivable;
•difficulties and costs of staffing and managing foreign operations;
•reduced protection for intellectual property rights in some countries;
•burdensome regulatory requirements;
•trade and financing barriers, and differing business practices;
•potentially adverse tax consequences; and
•economic instability or political unrest such as crime, strikes, riots, civil disturbances, terrorist attacks and wars.
A substantial portion of our assets and operations are located outside of the U.S., and we are subject to regulatory, tax, economic, political and other uncertainties in other foreign countries in which we operate.
We have significant offshore operations in foreign countries, including Australia, Brazil, Canada, Dubai, India, Indonesia, New Zealand, Singapore, the Philippines, the United Arab Emirates and the U.K. Wages in these countries have historically increased at a faster rate than in the U.S. The continuation of this trend in the future will result in increased labor costs that could potentially reduce our operating margins. Also, there is no assurance that in future periods competition for skilled workers will not drive salaries higher in these countries, thereby resulting in increased costs for our technical professionals and potentially reduced operating margins.
In fiscal year 2021 and 2022, we continued to experience negative impacts from the COVID-19 crisis, particularly related to the impact of labor shortages and wage inflation due in part to a certain portion of the workforce not returning to the labor market in many industries, increased demand for technology personnel as COVID-19 impacts on the global economy decreased, as well as market concerns about the COVID-19 variants. Any significant weakening of the economy in foreign countries in which we operate, including the worsening of the ongoing labor shortage, continued wage inflation, and increased employee attrition, as well as the ongoing uncertainty related to the pandemic, may adversely impact our business.
Some of these countries have experienced problems that commonly confront the economies of developing countries, including high inflation, erratic gross domestic product growth and shortages of foreign exchange. Government actions concerning these countries’ economies could have a material adverse effect on private sector entities like us. In the past, certain governments have provided significant tax incentives and relaxed certain regulatory restrictions to encourage foreign investment in specified sectors of the economy, including the software development services industry. Programs that have benefited us include, among others, tax holidays, liberalized import and export duties and preferential rules on foreign investment and repatriation. Notwithstanding these benefits, as noted above, changes in government leadership or changes in policies in these countries that result in the elimination of any of the benefits realized by us or the imposition of new taxes applicable to such operations could have a material adverse effect on our business, results of operations and financial condition.
Our international business activities and processes expose us to numerous and often conflicting laws and regulations, policies, standards or other requirements and sometimes even conflicting regulatory requirements, and to risks that could harm our business, financial position, profit, and cash flows.
We are a global company and currently market our products and services in Australia, Brazil, Canada, India, Indonesia, New Zealand, the Philippines, Singapore, the United Arab Emirates, the U.K. and the U.S., amongst other countries. Additionally, we currently sell to customers that reside in over 70 countries all over the world. Our business in foreign countries is subject to numerous risks inherent in international business operations. Among others, these risks include:
•data protection and privacy regulations regarding access by government authorities to customer, partner, or employee data;
•data residency requirements (the requirement to store certain data only in and, in some cases, also to access such data only from within a certain jurisdiction);
•conflict and overlap among tax regimes;
•possible tax constraints impeding business operations in certain countries;
•expenses associated with the localization of our products and compliance with local regulatory requirements;
•discriminatory or conflicting fiscal policies;
•operational difficulties in countries with a high corruption perception index;
•works councils, labor unions, and immigration laws in different countries;
•difficulties enforcing intellectual property and contractual rights in certain jurisdictions;
•country-specific software certification requirements;
•compliance with various industry standards; and
•market volatilities or workforce restrictions due to changing laws and regulations resulting from political decisions (e.g. Brexit, government elections, governmental sanctions).
As we expand into new countries and markets, these risks could intensify. The application of the respective local laws and regulations to our business is sometimes unclear, subject to change over time, and often conflicting among jurisdictions. Compliance with these varying laws and regulations could involve significant costs or require changes in products or business practices. Non-compliance could result in the imposition of penalties or cessation of orders due to alleged non-compliant activity. We do not believe we have engaged in any activities sanctionable under these laws and regulations, but governmental authorities could use considerable discretion in applying these statutes and any imposition of sanctions against us could be material. One or more of these factors could have an adverse effect on our operations globally or in one or more countries or regions, which could have an adverse effect on our business, financial position, profit, and cash flows.
We conduct money transfer transactions in some regions that are politically and economically volatile, which could increase our cost of operating in those regions.
We conduct money transfer transactions in some regions that are politically volatile and economically unstable, which could increase our cost of operating in those regions. For example, it is possible that our money transfer services or other products could be used in contravention of applicable law or regulations. Such circumstances could result in increased compliance costs, regulatory inquiries, suspension or revocation of required licenses or registrations, seizure or forfeiture of assets and the imposition of civil and/or criminal fees and penalties, inability to settle due to currency restrictions or volatility, or other restrictions on our business operations. In addition to monetary fines or penalties that we could incur, we could be subject to reputational harm that could have a material adverse effect on our business, financial condition and results of operations.
A significant change or disruption in international migration patterns could adversely affect our business, financial condition and results of operations.
Our money transfer business relies in part on international migration patterns, as individuals move from their native countries to countries with greater economic opportunities or a more stable political environment and significant changes in international migration patterns could adversely affect our business, financial condition and results of operations. A significant portion of money transfer transactions are initiated by immigrants or refugees sending money back to their native countries. Changes in immigration laws that discourage international migration and political or other events (such as war, trade wars, terrorism or health emergencies) that make migration of work abroad more difficult could adversely affect our money transfer remittance volume or growth rate.
Additionally, sustained weakness in global economic conditions caused by COVID-19 could reduce economic opportunities for migrant workers and result in reduced or disrupted international migration patterns. Reduced or disrupted international migration patterns could reduce money transfer transaction volumes and therefore have an adverse effect on our business, financial condition and results of operations.
Our earnings may be adversely affected if we change our intent not to repatriate foreign earnings or if such earnings become subject to U.S. tax on a current basis.
We have earnings outside of the U.S. Other than amounts for which we have already accrued U.S. taxes, we consider foreign earnings to be indefinitely reinvested outside of the U.S. While we have no plans to do so, events may occur that could effectively force us to change our intent not to repatriate such earnings. If such earnings are repatriated in the future or are no longer deemed to be indefinitely reinvested, we may have to accrue taxes associated with such earnings at a substantially higher rate than our projected effective income tax rate, and we may be subject to additional tax liabilities in certain foreign
jurisdictions in which we operate. These increased taxes could have a material adverse effect on our business, results of operations and financial condition.
New legislation that would change U.S. or foreign taxation of business activities, including the imposition of tax based on gross revenue, could harm our business and financial results.
Reforming the taxation of international businesses has been a priority for some U.S. politicians, and a wide variety of changes have been proposed or enacted. Due to the large and expanding scale of our international business activities, any changes in the taxation of such activities may increase our tax expense, the amount of taxes we pay, or both, and could harm our business and financial results. For example, the Tax Cuts and Jobs Act (the “TCJA”), was enacted in December 2017, significantly reformed the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The TCJA lowered U.S. federal corporate income tax rates, changed the utilization of future net operating loss carryforwards, allowed for the expensing of certain capital expenditures, and put into effect sweeping changes to U.S. taxation of international business activities. The U.S. also enacted the IRA in August 2022, which includes a new corporate alternative minimum tax, beginning in fiscal 2024, of 15% on the global adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period and an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022. We are evaluating the Corporate AMT and its potential impact on our future U.S. tax expense, cash taxes, and effective tax rate, as well as any other impacts the Inflation Reduction Act may have on our financial position and results of operations. In addition, it is possible that the U.S. Congress could advance other tax legislation proposals in the future that could have a material impact on our tax rate.
In addition, many jurisdictions and intergovernmental organizations have been discussing proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. Some jurisdictions have enacted, and others have proposed, taxes based on gross receipts applicable to digital services regardless of profitability. The Organization for Economic Co-operation and Development (the “OECD”) has been working on a proposal that may change how taxable presence for digital services is defined and result in the imposition of taxes based on net income in countries where we have no physical presence. We continue to examine the impact these and other tax reforms may have on our business. The impact of these and other tax reforms is uncertain and one or more of these or similar measures may adversely affect our business.
Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, and changes in foreign currency exchange rates. Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary course of our business there are many transactions and calculations for which the ultimate tax determination is uncertain. The U.S. Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on the application and administration of the Tax Act. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.
We may have exposure to greater than anticipated tax liabilities.
Our future income taxes could be adversely affected by lower than anticipated earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions where we have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or due to changes in tax laws, regulations, and income tax accounting principles in the domestic and foreign jurisdictions in which we operate. We are subject to regular review and audit by both domestic and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our operating results and financial condition. In addition, the determination of our worldwide provision for income taxes requires significant judgment, and there are some transactions for which the ultimate tax treatment is uncertain. Although we believe our estimates are reasonable and appropriate, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. The tax rates in the foreign jurisdictions in which the Company operates could increase and have a significant impact on the Company's financial results.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially affect our financial position, results of operations, and cash flows. For example, changes to U.S. tax laws enacted in December 2017 had a significant impact on our tax obligations and effective tax rate upon implementation. The Inflation Reduction Act of 2022 enacted in August 2022, includes a new corporate alternative minimum tax, beginning in fiscal 2024, of 15% on the global adjusted financial statement income of corporations with average AFSI exceeding $1.0 billion over a three-year period and an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022. In addition, many
countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business. The OECD has been working on a Base Erosion and Profit Shifting Project, issued in 2015, and is expected to continue to issue guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. The European Commission has conducted investigations in multiple countries, focusing on whether local country tax rulings or tax legislation provides preferential tax treatment that violates E.U. state aid rules and concluded that certain countries, including Ireland, have provided illegal state aid in certain cases. These investigations may result in changes to the tax treatment of our foreign operations. Due to the large and expanding scale of our international business activities and expiring tax holiday benefits, many of these types of changes to the taxation of our activities could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows.
Our financial position and operating results may be adversely affected by the changing U.S. Dollar rates and fluctuations in other currency exchange rates.
We will be exposed to currency exchange risk with respect to the U.S. dollar in relation to the foreign currencies in the countries where we conduct operations because a significant portion of our operating expenses are incurred in foreign countries. This exposure may increase as we expand in foreign countries.
The rapid spread of contagious illnesses such as COVID-19 can have an adverse effect on our business and results of operations.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. Since then, the outbreak of COVID-19 throughout the world, including North America, Europe and Asia, has adversely impacted the U.S. and global economies. We have experienced and expect to continue to experience negative impacts to our business due to COVID-19. Governmental authorities and public health officials recommended and mandated varying countermeasures to slow the outbreak, including shelter-in-place orders, restrictions on travel, and the closure of local government facilities and parks, schools, restaurants, many businesses and other locations of public assembly.
Although the impact of COVID-19 is diminishing, there could be other pandemics or epidemics that could affect our business. The rapid spread of a contagious illness such as COVID-19, or fear of such an event, can have a material adverse effect on the demand for worldwide travel and therefore have an adverse effect on our business and results of operations. Similarly, travel restrictions or operational issues resulting from the rapid spread of contagious illnesses in a part of the world in which we have significant operations may have an adverse effect on our business and results of operations.
Risks Related To Corporate Governance
Principal shareholders may be able to exert control over our future direction and operations.
If our principal shareholders and the holdings of entities controlled by them vote in the same manner, this could delay, prevent or facilitate a change in control of Ebix or other significant changes to Ebix or its capital structure. Refer to the disclosure regarding “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our annual proxy statement for more information.
Provisions in our articles of incorporation, bylaws, and Delaware law may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders.
Our certificate of incorporation and bylaws, and the provisions of Delaware law may delay, prevent or otherwise increase the difficulty of our acquisition by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids, and to encourage persons seeking to acquire control of us to first negotiate with us. We are subject to the “business combination” provisions of Section 203 of the Delaware General Corporation Law. In general, those provisions prohibit a publicly held Delaware corporation from engaging in various “business combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
•the transaction is approved by the board of directors prior to the date the interested stockholder obtained interested stockholder status;
•upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
•on or subsequent to the date the business combination is approved by the board of directors, it is authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
These provisions could prohibit or delay mergers or other takeover or change of control attempts with respect to us and, accordingly, may discourage attempts to acquire us.
The Company has an Amended SAR Agreement with Mr. Robin Raina which could have the effect of discouraging or making more difficult an acquisition or change of control of the Company even in situations that may be viewed as desirable by our shareholders.
On April 10, 2018, the Company entered into a Stock Appreciation Right Award Agreement, which was amended on May 7, 2019 (the “Amended SAR Agreement”) with Robin Raina, the Company’s Chairman, President and Chief Executive Officer. The Amended SAR Agreement replaced the Acquisition Bonus Agreement (the “ABA”) between the Company and Mr. Raina, dated July 15, 2009. At the time that Mr. Raina and the Company entered into the ABA, the Board had concluded that Mr. Raina’s retention was critical to the future success and growth of the Company and, consequently, the Board’s intention in entering into the ABA was to ensure that Mr. Raina would be appropriately rewarded for his contributions to the Company prior to an Acquisition Event (as defined below), as well as to further motivate Mr. Raina to maximize the value received by all stockholders if the Company were to be acquired. The Amended SAR Agreement also recognizes Mr. Raina’s critical role in the future success and growth of the Company.
Upon the effective date of the original SAR Agreement, Mr. Raina received 5,953,975 stock appreciation rights with respect to the Company’s common shares (the “SARs”). Upon an Acquisition Event (as defined in the Amended SAR Agreement), each of the SARs entitles Mr. Raina to receive a cash payment from the Company equal to the excess, if any, of the net proceeds per share received in connection with an Acquisition Event over the base price of $7.95. Mr. Raina will only be entitled to receive a payment with respect to the SARs if he is employed by the Company at the time of an Acquisition Event or was terminated by the Company without cause within the 180-day period immediately preceding an Acquisition Event. The Amended SAR agreement further provides that if an Acquisition Event occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause (as defined in the Amended SAR Agreement), 1,000,000 SARs will be deemed accrued and will be eligible to vest on the closing date of the Acquisition Event, which number will be increased by 750,000 SARs beginning on the first anniversary of the effective date of the Amended SAR Agreement and each anniversary thereafter (subject in each case to Mr. Raina’s continued employment on each anniversary date), until 100% of the SARs (including any Shortfall Grants) have accrued and are eligible to vest on the closing date of an Acquisition Event that occurs more than 180 days after, but not later than the tenth anniversary of, the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause; provided, however, that, (i) no additional SARs will accrue following the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, (ii) any accrued SARs will be forfeited if an Acquisition Event does not occur prior to the tenth anniversary of the date that Mr. Raina’s employment is involuntarily terminated by the Company without Cause, and (iii) all of the SARs will be forfeited if Mr. Raina’s employment terminates for any other reason prior to the closing date of an Acquisition Event.
Annually, while Mr. Raina is employed by the Company and prior to an Acquisition Event, the Board shall determine whether a “shortfall” (as defined in the SAR Agreement) existed as of the end of the immediately preceding fiscal year. In the event the Board determines that a shortfall existed, Mr. Raina will be granted additional SARs (or, in the Board’s sole discretion, restricted shares or restricted stock units (each a “Share Grant”)) in an amount sufficient to eliminate such shortfall (each a “Shortfall Grant”). A “shortfall” will exist if the number of Mr. Raina’s shares is less than 20% of the total of (a) the number of SARs, plus (b) the number of outstanding shares reported by the Company in its audited consolidated financial statements as of the end of the immediately preceding fiscal year, minus (c) the number of shares paid, awarded or otherwise received by Mr. Raina from the Company as compensation after April 10, 2018, including any shares received as a result of Mr. Raina exercising stock options granted after April 10, 2018 or the grant or vesting of restricted stock or settlement of RSUs granted to Mr. Raina after April 10, 2018, but excluding any shares received as a result of the grant, vesting or settlement of any Share Grants.
In the event that an Acquisition Event had occurred on December 31, 2022, and assuming that the stockholders of the Company received net proceeds of $19.96 per share (the closing price of the Company’s common stock on December 30, 2022) in connection with the Acquisition Event, Mr. Raina would have received a $71.5 million payment with respect to the SARs upon the occurrence of the Acquisition Event, determined by multiplying the number of SARS by the excess of the Net Proceeds per share over the base price of $7.95 per share.
Risks Related To Accounting and Financial Statements
We could potentially be required to recognize an impairment of goodwill or other indefinite-lived intangible assets which could impact earnings for future periods.
We carry a significant amount of goodwill and identifiable intangible assets on our consolidated balance sheets. Goodwill represents the excess of the amounts paid by us to acquire businesses over the fair value of their net assets at the date of acquisition. The Company’s indefinite-lived assets are associated with the contractual customer relationships existing with those property and casualty insurance carriers in Australia using our property and casualty data exchange. At December 31, 2022, we had $881.7 million of goodwill and $16.6 million of indefinite-lived intangible assets carried on the Company's consolidated balance sheet. See Note 1 to the consolidated financial statements for a discussion of our goodwill and indefinite-lived intangible assets. We evaluate goodwill and indefinite-lived intangible assets at least annually for any potential impairment. We have concluded that there was no impairment of goodwill, indefinite-lived or definite-lived intangibles in 2022. If we determine that a significant impairment has occurred in the value of our intangible assets, right of use assets or fixed assets for any reason, including related to the disruption of business caused by COVID-19 in 2022 or beyond, we could be required to write down the goodwill and indefinite-lived intangible assets by the amount of the impairment, with a corresponding charge to net income. These write downs could have a material adverse effect on our results of operations and financial condition.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could harm our business and the market value of our common shares.
Effective internal controls over financial reporting are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires us to evaluate and report on the effectiveness of our internal controls over financial reporting and have our independent auditors issue their own opinion regarding the effectiveness of our internal control over financial reporting and related disclosures. While we continually undertake efforts to maintain an effective system of internal controls and compliance with SOX, we cannot always be certain that we will be successful in maintaining adequate control over our financial reporting and related financial processes. Furthermore, as we grow our business, our internal control structure may become more complex, and could possibly require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness or significant deficiency in our controls over financial reporting, the disclosure of that fact, even if immediately remedied, could significantly reduce the market value of our common stock. In addition, the existence of any material weakness or significant deficiency may require management to devote significant time and incur significant expense to remediate any such weaknesses, and management may not be able to remediate the same in a timely manner.
Any deficiencies in our internal controls over financial reporting, including those identified through testing conducted by us or subsequent testing by our independent registered public accounting firm could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we are unable to meet the demands that have been placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results in future periods, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in material weaknesses or significant deficiencies, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
The nature of our business requires the application of complex revenue and expense recognition rules that require management to make estimates and assumptions. Additionally, the current legislative and regulatory environment affecting U.S. Generally Accepted Accounting Principles (“GAAP”) is uncertain and significant changes in current principles could affect our financial statements going forward.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenues and expenses that are not readily apparent from other sources.
While we believe that our financial statements have been prepared in accordance with GAAP, we cannot predict with certainty the impact of future changes to accounting principles or our accounting policies on our financial statements going forward. In addition, were we to change our critical accounting estimates, including the timing of recognition of license revenue and other revenue sources, our reported revenues and results of operations could be significantly impacted. Additionally, the accounting rules and regulations that we must comply with are complex. The Financial Accounting Standards Board (the “FASB”) and the SEC, or other accounting organizations or governmental entities frequently issue new pronouncements or new interpretations of existing accounting standards. Recent actions and public comments from the FASB and the SEC have focused
on the integrity of financial reporting. In addition, many companies' accounting policies are being subject to heightened scrutiny by regulators and the public. Changes in accounting standards, how the accounting standards are interpreted, or the adoption of new accounting standards, particularly concerning revenue recognition, can have a significant effect on our reported results, and could even retroactively affect previously reported transactions and financial statements, and may require that we make significant changes to our systems and operational policy, processes and controls.
Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls. Such changes in accounting standards may have an adverse effect on our business, financial position, and income, which may negatively impact our financial results.
Risks Related to Litigation and Regulation
We may be exposed to risks relating to the resignation of our prior registered public accounting firm.
As previously disclosed by the Company in its Current Report on Form 8-K filed with filed with the SEC on February 19, 2021 (the “February 19 8-K”), on February 15, 2021, the Company received notice from its registered public accounting firm, RSM, that RSM resigned effective immediately. As further described in the February 19, 2021 8-K, RSM informed the Company that it was “resigning as a result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020, including whether such transactions have been properly accounted for and disclosed in the financial statements subject to the Audit.”
As a result, there have been approximately five derivative and class action lawsuits filed with respect to the Company based on the RSM resignation. These lawsuits are described in “Part I, Item 3 - Legal Proceedings” and “Part II - Item 8. Financial Statements and Supplementary Data - Note 5 - Commitments and Contingencies” of this Report. We cannot predict the outcome of these lawsuits. Further, regardless of how these matters proceed, it could divert our management's attention and other resources away from our business.
The costs and effects of litigation, investigations or similar matters involving us or our subsidiaries, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition. Our insurance may not cover these costs.
We may be involved from time to time in a variety of litigation, investigations, inquiries or similar matters arising out of our business, including those described in “Part I, Item 3 - Legal Proceedings” and “Part II - Item 8. Financial Statements and Supplementary Data - Note 5 - Commitments and Contingencies” of this Report. We cannot predict the outcome of these or any other legal matters. In the future, we may need to record litigation reserves with respect to these matters. Further, regardless of how these matters proceed, it could divert our management's attention and other resources away from our business. Our insurance may not cover all claims that may be asserted against us and indemnification rights to which we are entitled may not be honored, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations. In addition, premiums for insurance covering directors' and officers' liability are rising. We may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.
Government investigations may require significant management time and attention, result in significant legal expenses or damages and cause the Company's business, financial condition, results of operations and cash flows to suffer. The Company could face additional governmental investigations, could incur substantial costs to defend any such investigations and be required to pay damages, fines and penalties, or incur additional expenses or be subject to injunctions as a result of the outcome of such investigations. The unfavorable resolution of one or more matters could adversely impact the Company.
The Company has been subject to government investigations in the past and may be subject to new government investigations in the future. The amount of time needed to resolve any such investigations is uncertain, and the Company cannot predict the outcome of any such investigations. Subject to certain limitations, the Company is obligated to indemnify current and former directors, officers and employees in connection with any such governmental investigations, inquiries, or actions. Such matters could require the Company to expend significant management time and incur significant legal and other expenses, result in civil and criminal actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company and adversely affect our ability to attract and retain customers and employees, which could have a material effect on the Company's financial condition, business, results of operations and cash flow. Additionally, marketplace rumors regarding any such investigations could affect the trading price of our common stock, regardless of whether these rumors are accurate.
If governmental authorities were to commence legal action related to any such investigations, then the Company could be required to pay significant penalties and could become subject to injunctions, a cease and desist order and other equitable remedies. The Company can provide no assurances as to the outcome of any such governmental investigation.
Federal Trade Commission laws and regulations that govern the insurance industry could expose us or the agents, brokers and carriers with whom we conduct business in our online marketplace to legal penalties.
We perform functions for licensed insurance agents, brokers and carriers and need to comply with complex regulations that vary among states and nations. These regulations can be difficult to comply with, and open to interpretation. If we fail to properly interpret or comply with these regulations, we, the insurance agents, brokers or carriers doing business with us, our officers, or agents with whom we contract could be subject to various sanctions, including censure, fines, cease-and-desist orders, loss of license or other penalties. This risk, as well as other laws and regulations affecting our business and changes in the regulatory climate or the enforcement or interpretation of existing law, could expose us to additional costs, including indemnification of participating insurance agents, brokers or carriers, and could require changes to our business or otherwise harm our business. Furthermore, because the application of online commerce to the consumer insurance market is relatively new, the impact of current or future regulations on our business is difficult to anticipate. To the extent that there are changes in regulations regarding the manner in which insurance is sold, our business could be adversely affected.
Potential liabilities under the Foreign Corrupt Practices Act ("FCPA") could have a material adverse effect on our business.
We are subject to the FCPA, which prohibits people or companies subject to U.S. jurisdiction and their intermediaries from engaging in bribery or other prohibited payments to foreign officials for the purposes of obtaining or retaining business or gaining an unfair business advantage. It also requires proper record keeping and characterization of such payments in reports filed with the SEC. Our international operations subject us to possible FCPA violations, likely more so than most companies. To the extent that any of our employees, supplies, distributors, consultants, subcontractors, or others engage in conduct that subjects us to exposure under the FCPA, or other anti-corruption legislation, we could suffer financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on our business, financial condition or results of operations.
Risks Related To Our Common Stock
The price of our common stock may be extremely volatile.
In a future period, our results of operations may be below the expectations of public market investors, which could negatively affect the market price of our common stock. Furthermore, the stock market in general has experienced heightened price and volume fluctuations recently. We believe that, in the future, the market price of our common stock could fluctuate widely due to variations in our performance and operating results or because of any of the following factors:
•announcements of new services, products, or technological innovations, or strategic relationships by us or our competitors;
•announcements of business acquisitions or strategic relationships by us or our competitors;
•trends or conditions in the insurance, financial services, software, business process outsourcing and internet/e-commerce markets;
•changes in market valuations of our competitors; and
•general political, economic, regulatory and market conditions.
In addition, the market prices of securities of technology companies, including our own, have been volatile and have experienced fluctuations that have often been unrelated or disproportionate to a specific company's operating performance. As a result, investors may not be able to sell shares of our common stock at or above the price at which an investor paid. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against that company. Any securities litigation would involve substantial costs and our management's attention could be diverted from our business.
Our ability and intent to pay cash dividends in the future may be limited.
Historically the Company has paid a $0.075 quarterly dividend on our common shares, and while the Board of Directors intends to pay quarterly dividends in the future, the Board will make the determination of the timing and amount of future cash dividends, if any, to be declared and paid based on, among other things, our financial condition, funds from operations, the level of our capital expenditures and future business prospects.
Quarterly and annual operating results may fluctuate, which could cause our stock price to be volatile.
Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors related to our revenues or operating expenses in any particular period. Results of operations during any particular period are not necessarily an indication of our results for any other period. Factors that may adversely affect our periodic results may include the loss of a significant insurance agent, carrier or broker relationship or the merger of any of our participating insurance carriers with one another. Our operating expenses are based in part on our expectations of our future revenues and are partially fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.