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TMCNet:  EBIX INC - 10-Q/A - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[November 15, 2012]

EBIX INC - 10-Q/A - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) As used herein, the terms "Ebix," "the Company," "we," "our" and "us" refer to Ebix, Inc., a Delaware corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Ebix, Inc.



Safe Harbor for Forward-Looking Statements-This Form 10-Q and certain information incorporated herein by reference contains forward-looking statements and information within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, acceptance of the Company's products by the market, and management's plans and objectives. In addition, certain statements included in this and our future filings with the Securities and Exchange Commission ("SEC"), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seeks," "plan," "project," "continue," "predict," "will," "should," and other words or expressions of similar meaning are intended by the Company to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are found at various places throughout this report and in the documents incorporated herein by reference. These statements are based on our current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.

Our actual results may differ materially from those expressed or implied in these forward-looking statements. Factors that may cause such a difference, include, but are not limited to those discussed and identified in Part I, Item 1A, "Risk Factors" in our 2011 Form 10-K which is incorporated by reference herein, as well as: the willingness of independent insurance agencies to outsource their computer and other processing needs to third parties; pricing and other competitive pressures and the company's ability to gain or maintain share of sales as a result of actions by competitors and others; changes in estimates in critical accounting judgments; changes in or failure to comply with laws and regulations, including accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax interpretations) in domestic or foreign jurisdictions; exchange rate fluctuations and other risks associated with investments and operations in foreign countries (particularly in Australia, Singapore, and India wherein we have significant operations); equity markets, including market disruptions and significant interest rate fluctuations, which may impede our access to, or increase the cost of, external financing; and international conflict, including terrorist acts. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update any such factors, or to publicly announce the results of, or changes to any of the forward-looking statements contained herein to reflect future events, developments, changed circumstances, or for any other reason.

The important risk factors that could cause actual results to differ materially from those in our specific forward-looking statements included in this Form 10-Q include, but are not limited to, the following: • Regarding Note 4 of the Notes to the Condensed Consolidated Financial Statements, and our future liquidity needs discussed under "Liquidity and Financial Condition," as pertaining to our ability to generate cash from operating activities and any declines in our credit ratings or financial condition which could restrict our access to the capital markets or materially increase our financing costs; • With respect to Note 5 of the Notes to the Condensed Consolidated Financial Statements, "Commitments and Contingencies", and "Contractual Obligations and Commercial Commitments" in MD&A, as regarding changes in the market value of our assets or the ultimate actual cost of our commitments and contingencies; • With respect Note 3 of the Condensed Notes to the Condensed Consolidated Financial Statements as pertaining to the business acquisitions we have made and our ability to efficiently and effectively integrate acquired business operations, and our ability to accurately estimate the fair value of tangible and intangible assets; and, • With respect this Management Discussion & Analysis of Financial Condition and Results of Operation and the analysis of the three and six month revenue trends including the actual realized level of demand for our products during the immediately foreseeable future.

Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including future reports on Forms 10-Q and 8-K, and any amendments thereto. You may obtain our SEC filings at our website, www.ebix.com under the "Investor Information" section, or over the Internet at the SEC's web site, www.sec.gov.

23-------------------------------------------------------------------------------- Table of Contents The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part 1. Item 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Company Overview Ebix, Inc. is a leading international supplier of software and e-commerce solutions to the insurance and financial industries. Ebix provides a variety of application software products for the insurance and financial industries ranging from carrier systems, agency systems and data exchanges to custom software development for all entities involved in insurance and financial services. Our goal is to be the leading powerhouse of backend insurance transactions in the world. The Company's vision is to focus on the convergence of technology platforms for all insurance channels, processes and entities in a manner such that data can seamlessly flow once a data entry has been made. Our customers include many of the top insurance and financial sector companies in the world.

The insurance and financial service industries have undergone significant consolidation over the past several years driven by the need for, and benefits from, economies of scale and scope in providing insurance and financial services in a competitive environment. The insurance markets have particularly experienced a steady increase in the desire to reduce paper-based processes and improve efficiency both at the back-end side and consumer end side. Such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed.

Management believes the insurance industry will continue to experience significant change and increased efficiencies through online exchanges, as the transition from paper-based processes are increasingly becoming the norm across world insurance markets. Changes in the insurance industry are likely to create new opportunities for the Company.

Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges.

Ebix combines the newest technologies with its capabilities in consulting, systems design and integration, IT and business process outsourcing, applications software, and Web and application hosting to meet the individual needs of insurance and financial service organizations. We continue to expand both organically and through strategic business acquisitions.

Offices and Geographic Information The Company has its worldwide headquarters in Atlanta, Georgia with its international operations being managed from its Singapore offices. The Company has operations across the United States with offices in Walnut Creek, San Diego, Pasadena, and Hemet, California; Miami, Florida; Pittsburgh, Pennsylvania; Park City, Utah; Herndon and Lynchburg, Virginia; Dallas and Houston, Texas; and Columbus, Ohio, as well as an additional operating facilities in Atlanta, Georgia. The Company also has offices in Australia, Brazil, China, Japan, New Zealand, United Kingdom, Canada and India. In these offices, Ebix employs insurance and technology professionals who provide products, services, support and consultancy to thousands of customers across six continents. The Company's product development unit in India has been awarded Level 5 status of the Carnegie Mellon Software Engineering Institute's Capability Maturity Model Integrated (CMMI), ISO 9001:2000 certification, and ISO 2700 security certification.

Results of Operations - Three Months Ended June 30, 2012 and 2011 Operating Revenue The Company derives its revenues primarily from subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, fees for business process outsourcing services, and fees for software development projects including associated fees for consulting, implementation, training, and project management provided to customers with installed systems.

24 -------------------------------------------------------------------------------- Table of Contents Ebix's revenue streams come from four product channels. Presented in the table below is the breakout of our revenues for each of those product channels for the three and six months ended June 30, 2012 and 2011, respectively.

Three Months Ended Six Months Ended June 30, June 30, (dollar amounts in thousands) 2012 2011 2012 2011 Exchanges $ 38,182 $ 32,222 $ 72,828 $ 63,287 Broker Systems 4,422 4,824 9,176 8,666 Business Process Outsourcing ("BPO") 3,890 3,753 7,461 7,372 Carrier Systems 1,222 1,468 2,078 2,992 Totals $ 47,716 $ 42,267 $ 91,543 $ 82,317 During the three months ended June 30, 2012 our total operating revenues increased $5.4 million or 13%, to $47.7 million as compared to $42.3 million during the second quarter of 2011. This increase is the result of growth in our Exchange channel and recent business acquisitions. $6.4 million of operating revenues pertaining to our acquisition of ADAM in 2011 were recognized since its acquisition on February 7, 2011were included in the Company's revenues reported in its condensed and consolidated statement of income for the three months ended June 30, 2011. Correspondingly included in the Company's revenues as reported in its condensed and consolidated statement of income for the three months ended June 30, 2012 is $6.0 million of ADAM's operating revenue. The Company continues to effectively leverage product cross-selling opportunities across all channels, as facilitated by our business acquisitions. Also partially effecting reported revenues was the impact from fluctuations in the exchange rates of the foreign currencies in the countries in which we conduct operations. During the three months ended June 30, 2012 and 2011 the change in foreign currency exchange rates (decreased)/increased reported consolidated operating revenues by approximately $(1.0) million and $1.7 million, respectfully.

Cost of Services Provided Costs of services provided, which includes costs associated with maintenance, support, call center, consulting, implementation and training services, increased $243 thousand or 3%, from $8.9 million in the second quarter of 2011 to $9.2 million in the second quarter of 2012. This increase is due to additional personnel costs and professional service expenses in support of new revenue streams associated with recent business acquisitions completed during 2012 and 2011.

Product Development expenses The Company's product development efforts are focused on the development of new operating technologies and services for use by insurance carriers, brokers and agents, and the development of new data exchanges for use in both the domestic and international insurance and financial services industries. Product development expenses increased $1.0 million or 21% from $4.8 million during the second quarter of 2011 to $5.8 million during the second quarter of 2012. This increase is attributable to increased software and system development activities in our India and Singapore operating units in support of our Exchanges and recent business acquisitions.

Sales and Marketing Expenses Sales and marketing expenses increased $1.0 million or 32%, from $3.3 million in the second quarter of 2011 to $4.3 million in the second quarter of 2012. This increase is attributable to personnel costs and trade show expenses associated with additional sales personnel and related marketing activities in support of our Exchange and Carrier System channels.

General and Administrative Expenses General and administrative expenses increased by $3.9 million or 83% from $4.7 million in the second quarter of 2011 to $8.6 million in the second quarter of 2012. This increase is partially due to the fact that in Q2 of 2011 the Company recognized a $1.9 million net reduction to previously recorded contingency based earn-out accruals pertaining to business acquisitions made during 2010. Also causing the increase to general and administrative expenses is $1.0 million of additional personnel related costs associated with recent business acquisitions made over the last nine months.

Amortization and Depreciation Expenses Amortization and depreciation expenses increased $170 thousand or 9%, from $2.0 million in the second quarter of 2011 to $2.2 million in the second quarter of 2012. This increase is essentially due to $228 thousand of additional amortization costs associated with the customer relationship and developed technology intangible assets that were recognized in connection with recent business combinations completed over the last nine months.

25-------------------------------------------------------------------------------- Table of Contents Income Taxes The Company recognized an income tax expense of $2.3 million for the three months ended June 30, 2012. The Company's effective tax rate used in the determination of its interim period tax provision for the quarter was 10.46% as compared to the 8.83% effective tax rate for the same period a year earlier. The effective rate increased due to a greater proportion of our taxable income being generated from jurisdictions with higher tax rates. The Company's interim period income tax provisions are based on our estimate of the effective income tax rates applicable to related annual twelve month period, after eliminating discrete items uniquely related to the respective interim reporting period.

During the second quarter the Company recognized a discrete income tax expense in the amount of $578 thousand with respect to an increase to our recorded liability reserves for unrecognized tax benefits.

Results of Operations - Six Months Ended June 30, 2012 and 2011 Operating Revenue During the six months ended June 30, 2012 our total operating revenues increased $9.2 million or 11%, to $91.5 million as compared to $82.3 million during the same period in 2011. During this period $12.2 million of operating revenue was recognized in connection with our 2011 acquisition of ADAM and included in the Company's revenues reported in its condensed and consolidated statement of income. Correspondingly included in the Company's revenues as reported in its condensed and consolidated statement of income for the six months ended June 30, 2011 was $10.6 million of ADAM's operating revenue since the February 7, 2011 effective date of its acquisition. With respect to the acquisitions of ADAM completed in February 2011 and PlanetSoft completed in June 2012 presented on a pro forma basis, as disclosed in the table in Note 3 "Business Combinations" to the enclosed consolidated financial statements, combined revenues increased 6.3% for the six months ending June 30, 2012 versus the six months ending June 30, 2011, whereas there was a 11.2% increase in reported revenues for the same comparative periods. The 6.3% increase in pro forma revenues is primarily associated with a 3.5% increase in revenues for the six months ending June 30, 2012 as compared to the same six-month period in 2011 pertaining to the businesses acquired during these periods, which includes increases in revenues for these businesses that was generated since Ebix acquired them as facilitated by product cross selling initiatives with the Company's pre-existing divisions and customer base, combined with a 2.8% increase in revenues associated with Ebix's legacy operations preceding these business acquisitions. The cause for the difference between the 11.2% increase in reported revenue for the six months ending June 30, 2012 versus the same period in 2011 revenue, as compared to the 6.3% increase in pro forma revenue for the six months ending June 30, 2012 versus the same six-month period in 2011 is due to the effect of combining the additional revenue derived from those businesses acquired during these periods with the Company's pre-existing operations. Also partially effecting reported revenues was the impact from fluctuations in the exchange rates of the foreign currencies in the countries in which we conduct operations. During the six months ended June 30, 2012 and 2011 the change in foreign currency exchange rates (decreased)/increased reported consolidated operating revenues by approximately $(633) thousand and $2.8 million, respectfully.

Cost of Services Provided Costs of services provided, increased $2.0 million or 12% during the six months ended June 30, 2012 to $18.2 million as compared to $16.2 million incurred during the same period in 2011. This increase is due to additional personnel costs and professional services expenses in support of our increased revenue streams from the growth of our Exchange channel and from recent business acquisitions completed during last nine months.

Product Development Expenses Product development expenses increased $665 thousand or 7% during the six months ended June 30, 2012 to $10.1 million as compared to $9.4 million of costs incurred during the same period in 2011. This increase is attributable to increased software and system development activities in our India operating unit in support of our Exchanges and recent business acquisitions.

Sales and Marketing Expenses Sales and marketing expenses increased $2.0 million or 33% during the six months ended June 30, 2012 to $8.1 million as compared to $6.1 million recognized during the same period in 2011. This increase is attributable to additional personnel, advertising, and trade show costs in support of our Exchange channel and recent business acquisitions.

26-------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses General and administrative ("G&A") expenses increased $2.6 million or 21% for the six months ended June 30, 2012 to $15.0 million from $12.5 million for same period in 2011. Included in G&A costs for this six month period ended June 30, 2012 is the net benefit in the approximate amount of $971 thousand related to a termination fee received by the Company in connection with a failed business acquisition (net of directly related internal operating costs incurred by the Company and a portion of the fee that had to be paid to our investment banker).

Offsetting this benefit is a $1.9 million adverse year over year variance caused by the fact that in Q2 of 2011 the Company recognized a reduction to previously recorded contingency based earn-out accruals pertaining to business acquisitions made during 2010 and $1.3 million of additional personnel related costs associated with recent business acquisitions made over the last nine months.

Amortization and Depreciation Expenses Amortization and depreciation expenses increased by $234 thousand or 6% during the six months ended June 30, 2012 to $4.1 million as compared to $3.9 million recorded during the same period in 2011. This increase is due to $275 thousand of additional amortization costs associated with the customer relationship and developed technology intangible assets that were recognized in connection with recent business combinations completed over the last nine months.

Income Taxes The Company recognized an income tax expense of $4.6 million for the six months ended June 30, 2012. The Company's effective tax rate used in the determination the interim period tax provision for the six months ending June 30, 2012 was 10.46% as compared to the 8.83% effective tax rate for the same period a year earlier. The effective rate increased due to a greater proportion of our taxable income being generated from jurisdictions with higher tax rates. The Company's interim period income tax provisions are based on our estimate of the effective income tax rates applicable to related annual twelve month period, after eliminating discrete items uniquely related to the respective interim reporting period. During the six months ended June 30, 2012 the Company recognized a discrete income tax expense in the amount of $578 thousand with respect to an increase in our recorded liability reserves for unrecognized tax benefits.

Dividends, Liquidity and Capital Resources The Company's ability to generate significant cash flows from its ongoing operating activities is one of our fundamental financial strengths. Our principal sources of liquidity are the cash flows provided by the Company's operating activities, our commercial banking credit facility, and cash and cash equivalents on hand. Due to the effect of temporary or timing differences resulting from the differing treatment of items for tax and accounting purposes (including the treatment of net operating loss carryforwards and minimum alternative tax obligations in the U.S. and India), future cash outlays for income taxes are expected to exceed income tax expense. We intend to utilize cash flows generated by our operations, in combination with our bank credit facility, and the possible issuance of additional equity or debt securities, to fund capital expenditures and organic growth initiatives, to make strategic business acquisitions in the insurance and financial services sector, and to repurchase shares of our common stock as market conditions warrant.

In the 4th quarter of 2011 the Company paid its first quarterly dividend in the amount of $0.04 per common share, paying $1.5 million in the aggregate in regards to this dividend issuance. This same quarterly dividend per share was paid in February 2012. The dividend rate was increased to $0.05 effective with the dividend payment made in May 2012, and the same dividend payment to be made in August 2012. The Company intends to use a portion of its operating cash flows to continue issuing dividends to its shareholders in the foreseeable future, while remaining dedicated to using most of its cash to generate improvement in future earnings by funding organic growth initiatives and accretive business acquisitions.

We believe that anticipated cash flows provided by our operating activities, together with current cash and cash equivalent balances and access to our credit facilities and the capital markets, if required and available, will be sufficient to meet our projected cash requirements for the next twelve months, and the foreseeable future thereafter, although any projections of future cash needs, cash flows, and the condition of the capital markets in general, as to the availability of debt and equity financing, are subject to substantial uncertainty. In the event additional liquidity needs arise, we may raise funds from a combination of sources, including the potential issuance of debt or equity securities. However, there are no assurances that such financing facilities or the equity capital markets will be available in amounts or on terms acceptable to us, if at all.

We continue to strategically evaluate our ability to sell additional equity or debt securities, to expand existing or obtain new credit facilities from lenders in order to strengthen our financial position. We regularly evaluate our liquidity requirements, including the need for additional debt or equity offerings, when considering potential business acquisitions and repurchases of our common stock.

27 -------------------------------------------------------------------------------- Table of Contents Our cash and cash equivalents were $25.3 million and $23.7 million at June 30, 2012 and December 31, 2011, respectively. Our cash and cash equivalents balance has increased by $1.6 million since year end 2011, as a result of both cash generated by our ongoing operating activities and funds provided by our new financing facility with Citi Bank. The Company holds material cash and cash equivalent balances overseas in foreign jurisdictions. The free flow of cash from certain countries where we hold such balances may be subject to repatriation tax effects and other restrictions. Furthermore, the repatriation of earnings from some of our foreign subsidiaries would result in the application of withholding taxes at source as well as a tax at the U.S. parent level upon receipt of the repatriated amounts. The approximate cash, cash equivalents, and short-term investments balances held in our domestic U.S.

operations and each of our foreign subsidiaries as of August 6, 2012 is presented in table below (figures denominated in thousands): United Latin New States Canada America Australia Singapore Zealand India Sweden Total Cash and ST investments $ 8,450 $ 979 $ 1,905 $ 3,855 $ 1,508 $ 585 $ 4,511 $ 15 $ 21,808 Our current ratio decreased modestly to 1.19 at June 30, 2012 from 1.28 at December 31, 2011 and our working capital position decreased to $11.2 million at June 30, 2012 as compared to $14.0 million at the end of the 2011. The Company's accounts receivable DSO stood at 57 days at June 30, 2012 and reflects a continuing favorable trend being down 4 days from December 31, 2011 and 14 days from Q2 2011. Overall the decrease in the current ratio and our short-term liquidity position is the result of increased trade payables associated with the timing of payments to certain vendors and service providers, and the increased current portion of new term loan with Citi Bank, N.A. We continue to believe that our ability to generate sustainable and robust cash flows from operations will enable the Company to continue to fund its current liabilities from current assets including available cash balances for the foreseeable future.

Business Combinations The Company executes accretive business acquisitions in combination with organic growth initiatives as part of its comprehensive business growth and expansion strategy. The Company' looks to acquire businesses that are complementary to Ebix's existing products and services. During the six months ended June 30, 2012 the Company executed and completed a number of business acquisitions, none of which were material individually or in the aggregate.

Operating Activities Net cash provided by our operating activities was $34.7 million for the six months ended June 30, 2012. The primary components of the cash provided by operations during this six months interim period consisted of net income of $33.8 million, net of $(856) thousand of net non-cash gains recognized on derivative instruments and foreign currency exchange, $4.1 million of depreciation and amortization, $(3.3) million of working capital requirements primarily associated with reductions to trade payables and accrued liabilities, and $1.1 million of non-cash share-based compensation.

Net cash provided by our operating activities was $29.7 million for the six months ended June 30, 2011. The primary components of the cash provided by operations during that six month interim period consisted of net income of $37.5 million, net of $(1.1) million of net non-cash gains recognized on derivative instruments and foreign currency exchange, $3.9 million of depreciation and amortization, $(11.5) million of working capital requirements primarily associated with reductions to trade payables and accrued liabilities, and increased outstanding trade receivables, and $1.1 million of non-cash share-based compensation.

Investing Activities Net cash used for investing activities during the six months ended June 30, 2012 was $49.1 million, of which $44.7 million in the aggregate was used to complete business acquisitions closed during the year, $2.0 million was used for the investment in Curepet, $1.5 million was used in payment of an earnout obligation in connection with our 2010 acquisition of MCN in Brazil, $1.1 million was used for capital expenditures pertaining to the enhancement of our technology platforms and the purchases of operating equipment to support our expanding operations. Partially offsetting these investment cash outflows partially was $194 thousand consisting from maturities of marketable securities (specifically bank certificates of deposit), net of purchases.

Net cash provided from investing activities during the six months ended June 30, 2011 totaled $6.1 million of which $4.5 million was provided from maturities of marketable securities (net of purchases), and $3.5 million of net cash proceeds from the acquisition of ADAM in February 2011. Partially offsetting these investing cash inflows were $1.3 million used for capital expenditures and $565 thousand used to settle earn out obligations in connection with a prior business acquisition.

28-------------------------------------------------------------------------------- Table of Contents Financing Activities During the six months ended June 30, 2012 net cash provided by financing activities was $18.4 million which consisted of $30.0 million provided by the Company's new term loan facility with Citi Bank (net of the repayment of the remaining balance from the prior term loan with BOA), $1.1 million was provided from our commercial bank revolving credit facility (net of repayments), and $714 thousand of proceeds from the exercising of common stock options. Partially offsetting these aggregate cash proceeds was $9.4 million used to repurchase shares of our common stock, $3.3 million used to pay quarterly dividends to our common stockholders, and $765 thousand used to make principal payments on long-term debt and capital lease obligations.

During the six months ended June 30, 2011 net cash used in financing activities was $36.1 million. This net financing cash outflow consisted of $26.2 million used to complete open market repurchases of our common stock, $16.3 million used to reduce the balance of our commercial bank revolving credit facility, $6.8 million was used to fully settle outstanding convertible debt obligations, and $186 thousand was used towards principal repayments on existing capital lease obligations, as partially offset by $13.2 million of proceeds from our commercial bank term loan facility (net of $3.0 million of scheduled principal repayments).

Commercial Bank Financing Facility On April 26, 2012 Ebix entered into a credit agreement providing for a $100 million secured syndicated credit facility (the "Secured Syndicated Credit Facility") with Citi Bank, N.A. as administrative agent and Citibank, N.A., Wells Fargo Capital Finance, LLC, and RBS Citizens, N.A. as joint lenders. The financing is comprised of a four-year, $45 million secured revolving credit facility, a $45 million secured term loan which amortizes over a four year period with quarterly principal and interest payments commencing on June 30, 2012 and a final payment of all remaining outstanding principal and accrued interest due on April 26, 2016, and an accordion feature that provides for the expansion of the credit facility by an additional $10 million. This new $100 million credit facility with Citibank, N.A., as administrative agent, replaced the former $55 million facility that the Company had in place with Bank of America, N.A. The initial interest rate applicable to the Secured Syndicated Credit Facility is LIBOR plus 1.50% or currently 1.75%. Under the Secured Syndicated Credit Facility the maximum interest rate that could be charged depending upon the Company's leverage ratio is LIBOR plus 2.00%. The credit facility is and will be used by the Company to fund working capital requirements primarily in support of current operations, organic growth, and accretive business acquisitions. The underlying financing agreement contains financial covenants regarding the Company's annualized EBITDA, fixed charge coverage ratio, and leverage ratio, as well as certain restrictive covenants pertaining to such matters as the incurrence of new debt, the aggregate amount of repurchases of the Company's equity shares, and the consummation of new business acquisitions. The Company currently is in compliance with all such financial and restrictive covenants.

On April 26, 2012, Ebix fully paid all of its obligations and related fees then outstanding to Bank of America N.A. ("BOA") and as pertaining to the Credit Agreement dated February 12, 2010 (as amended). The aggregate amount of the payment was $45.14 million and was funded from a portion of the proceeds of the Citi Bank led Secured Syndicated Credit Facility discussed immediately above.

Upon the effective date this payoff, BOA's commitment to extend further credit to the Company terminated.

At June 30, 2012, the outstanding balance on the Company's revolving line of credit with Citi Bank was $32.8 million and the facility carried an interest rate of 1.75%. This balance is included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. Regarding the Company's revolving line of credit during the six months ended June 30, 2012, the average outstanding balance was $28.2 million and the maximum outstanding balance was $32.8 million.

At June 30, 2012, the outstanding balance on the Company's term loan with Citi Bank was $45.0 million of which $10.7 million is due within the next twelve months. This term loan also carried an interest rate of 1.75%. During the six months ended June 30, 2012, $1.7 million of scheduled principal payments were made against the Company outstanding commercial term loans. The current and long-term portions of the term loan are included in the respective current and long-term sections of the Condensed Consolidated Balance Sheets.

Off-Balance Sheet Arrangements We do not engage in off -balance sheet financing arrangements.

29-------------------------------------------------------------------------------- Table of Contents Contractual Obligations and Commercial Commitments The following table summarizes our significant contractual purchase obligations and other long-term commercial commitments as of June 30, 2012. The table excludes obligations or commitments that are contingent based on events or factors uncertain at this time.

Payment Due by Period Less Than 1-3 3-5 More than Total 1 Year Years Years 5 years (in thousands) Revolving line of credit $ 32,840 $ - $ 32,840 $ - $ - Long-term debt $ 47,400 $ 11,256 $ 36,144 $ - $ - Operating leases $ 16,728 $ 5,086 $ 6,138 $ 2,916 $ 2,588 Capital leases $ 730 $ 350 $ 380 $ - $ - Total $ 97,698 $ 16,692 $ 75,502 $ 2,916 $ 2,588 Recent Accounting Pronouncements For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 1 of the condensed notes to the condensed consolidated financial statements in this Form 10-Q and Note 1 of the notes to consolidated financial statements in our 2011 Form 10-K.

Application of Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP"), as promulgated in the United States, requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our Condensed Consolidated Financial Statements and accompanying notes. We believe the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates and assumptions about the effects of matters that are inherently uncertain. The following accounting policies involve the use of "critical accounting estimates" because they are particularly dependent on estimates and assumptions made by management about matters that are uncertain at the time the accounting estimates are made.

In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, or changes in the accounting estimates that we used are reasonably likely to occur from period to period which may have a material impact on our financial condition and results of operations. For additional information about these policies, see Note 1 of the Condensed Notes to the Condensed Consolidated Financial Statements in this Form 10-Q. Although we believe that our estimates, assumptions and judgments are reasonable, they are limited based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition The Company derives its revenues primarily from subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, fees for business process outsourcing services, and fees for software development projects including associated fees for consulting, implementation, training, and project management provided to customers with installed systems.

In accordance with Financial Accounting Standard Board ("FASB") and Securities and Exchange Commission Staff Accounting (the "SEC") accounting guidance on revenue recognition the Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, provided that the arrangement fee is fixed or determinable, (b) delivery or performance has occurred, (c) customer acceptance has been received, if contractually required, and (d) collectability of the arrangement fee is probable. The Company generally uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant generally accepted accounting principles related to all transactions involving the license of software where the software deliverables are considered more than inconsequential to the other elements in the arrangement.

30-------------------------------------------------------------------------------- Table of Contents For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the relevant technical accounting guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate units of accounting for the purpose of revenue recognition. Generally these types of arrangements include deliverables pertaining to software licenses, system set-up, and professional services associated with product customization or modification. Delivery of the various contractual elements typically occurs over periods of less than eighteen months.

These arrangements generally do not have refund provisions or have very limited refund terms.

Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by FASB using the percentage-of-completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.

Allowance for Doubtful Accounts Receivable Management specifically analyzes accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

Valuation of Goodwill Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. Indefinite-lived intangible assets represent the fair value of acquired contractual customer relationships for which future cash flows are expected to continue indefinitely. In accordance with the relevant FASB accounting guidance, goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurs or circumstances change that would likely have reduced the fair value of a reporting unit below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, and the sale or disposition of a significant portion of the business. The impairment evaluation process involves an assessment of certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than their than its carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not perform the two-step quantitative impairment testing described further below.

The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values. We determine the fair value of our reporting units by applying the discounted cash flow method using the present value of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying value, then no further testing is required. However, if a reporting unit's fair value were to be less than its carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the reporting unit's goodwill exceeded its implied value. Projections of cash flows are based on our views of growth rates, operating costs, anticipated future economic conditions and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. We perform our annual goodwill impairment evaluation and testing as of September 30th of each year. During the year ended December 31, 2011 we had no impairment of our reporting unit goodwill balances.

Income Taxes Deferred income taxes are recorded to reflect the estimated future tax effects of differences between financial statement and tax basis of assets, liabilities, operating losses, and tax credit carry forwards using the tax rates expected to be in effect when the temporary differences reverse. Valuation allowances, if any, are recorded to reduce deferred tax assets to the amount management considers more likely than not to be realized. Such valuation allowances are recorded for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible.

The Company also applies FASB accounting guidance on accounting for uncertainty in income taxes positions. This guidance clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

31 -------------------------------------------------------------------------------- Table of Contents Foreign Currency Matters Our reporting currency is the U.S. dollar. The functional currency of the Company's foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of other comprehensive income in the accompanying consolidated financial statements. Foreign exchange transaction gains and losses that are derived from transactions denominated in other than the subsidiary's' functional currency is included in the determination of net income.

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