As used herein, the terms “Ebix”, “the Company”, “we”, “our” and “our” refer to
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
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," 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 in Part I, Item 1A, "Risk Factors" in our Form 10-K for the year ended December 31, 2020which is incorporated by reference herein , and in Part II, Item 1A "Risk Factors" in this Form 10-Q, including but not limited to: 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 India, Australia, Asia, Latin America, and Europewherein we have significant and/or growing operations); fluctuations in the equity markets, including market disruptions and significant interest rate fluctuations, which may impede our access to, or increase the cost of, external financing; the impacts of the COVID-19 global pandemic on our operating performance; ability to secure additional financing to support capital requirements; Credit Facility provisions that could materially restrict our business; costs and effects of litigation, investigations or similar matters that could affect our business, operating results and financial condition; and international conflict, including terrorist acts. 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. Other important 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: â¢Our ability to efficiently and effectively integrate acquired business operations, as discussed in Note 3 of these Condensed Notes to the Condensed Consolidated Financial Statements pertaining to the business acquisitions we have made; â¢Our future liquidity needs discussed under "Liquidity and Financial Condition" regarding 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 (refer to Note 4 of the Notes to these Condensed Consolidated Financial Statements, "Debt"); â¢Uncertainties pertaining to the actual ultimate cost of our legal contingencies (refer to Note 5 of the Notes to these Condensed Consolidated Financial Statements, "Commitments and Contingencies", and "Contractual Obligations" in Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A"); and, â¢The MD&A and the analysis of the six-month revenue trends regarding actual realized level of demand for our products during the immediately foreseeable future, and fluctuations thereof. 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 32
Table of Contents SEC filings on our website, www.ebix.com in the âInvestor Informationâ section, or on the Internet at
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 MD&A contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2020.
Ebix is a leading international supplier of on-demand infrastructure exchanges to the insurance, financial, travel, cash remittances, 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 SaaS enterprise solutions in the areas of 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
Indiaand many ASEANcountries 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 Indiaand other Southeast Asian Markets. The Company has its headquarters in Johns Creek, Georgiaand also conducts operating activities in Australia, Canada, India, New Zealand, Singapore, the United Kingdom, Brazil, the Philippines, Indonesia, Thailandand United Arab Emirates. International revenue accounted for 85.9% and 66.4% of the Company's total revenue for the six months ended June 30, 2021and 2020, respectively. 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 channels, processes and entities in a manner such that data seamlessly flows once a data entry has initially been made. Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges and requirements. Ebix combines the newest technologies with its capabilities in consulting, systems design and integration, IT and business process outsourcing, application software, and web and application hosting to meet the individual needs of organizations. Offices and Geographic Information The Company's corporate headquarters, including substantially all of our corporate administration functions, is located in Johns Creek, Georgia, where we own a commercial office building and campus facility. In addition, the Company and its subsidiaries lease office space primarily for sales and operations support in Salt Lake City, Utah, Pittsburgh, Pennsylvania, Pasadena, California, Birmingham, Alabama, and Phoenix, Arizona. Additionally, the Company leases office space in New Zealand, Australia, Singapore, Dubai, Brazil, Canada, Indonesia, the Philippinesand the United Kingdomfor support, operations and sales offices. The Company also leases approximately 115 facilities across India, while owning six facilities in India.
Trends and uncertainties related to the COVID-19 pandemic
declared COVID-19 a pandemic, and on
In response to the COVID-19 pandemic, many state, local, and foreign governments implemented travel restrictions, quarantines, shelter-in-place orders, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and the cancellation or postponement of events. Beginning in
March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We have not experienced a material impact from shifting our employees to a remote work environment, which we primarily attribute to the professionalism of our workforce and our extensive use of technology throughout our business. However, COVID-19 could negatively impact the productivity of our workforce if the pandemic requires prolonged remote working conditions.
During the year ended
33 -------------------------------------------------------------------------------- Table of Contents remittance and consulting business areas, after certain government restrictions were put in place. This decreased demand continued throughout 2020 in varying degrees for each business area, and even persists through the date of this filing for all of the above mentioned business areas, but most notably in the travel and forex businesses. We expect that demand variability for our products and services will continue as a result of the COVID-19 pandemic, and cannot predict with any certainty when demand for these solutions/services will return to pre-COVID-19 levels. We continue to monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. Along with measures mentioned above to protect the health and safety of our employees, we took steps to strengthen our financial position to mitigate the adverse impact that COVID-19 has had or may have on our business and operations, including amending our credit facility, reducing salaries for certain employees, furloughing employees in the most negatively impacted business areas, eliminating certain employee positions, and eliminating, reducing, or deferring non-essential expenditures. As of
June 30, 2021most employees' compensation levels are at pre-Covid-19 levels. We have also taken steps to preserve cash balances, including a temporary cessation to our share repurchase program. Our reported results for the six-month period ended June 30, 2021may not be reflective of current market conditions, or of our results for any future periods, which may be negatively impacted by the COVID-19 pandemic to a greater extent than the reported period. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Quarterly Report. Refer to Item 1A, "Risk Factors" in our Form 10-K for the year ended December 31, 2020for a complete description of the material risks that the Company currently faces. Results of Operations Operating Revenue The Company derives its revenues primarily from subscription and transaction fees pertaining to products or services delivered over our exchanges or from our application service provider ("ASP") platforms, fees for business process outsourcing services, and fees for software development projects, including fees for consulting, implementation, training, and project management provided to customers with installed systems, e-governance solutions to governmental agencies in the health and education sectors, as well as foreign exchange, remittance (both inward and outward) and travel services from our financial exchanges. Ebix's revenue streams are derived from three product/service channels. Presented in the table below is the breakout of our revenues for each of those product/service channels for the three and six months ended June 30, 2021and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (In thousands) EbixCash Exchanges $ 189,947 $ 53,240422,499 131,095 Insurance Exchanges 41,916 42,959 85,151 86,960 Risk Compliance Solutions 14,459 15,113 28,725 31,133 Totals $ 246,322 $ 111,312 $ 536,375 $ 249,188
The table below provides an approximation (in% of total revenue) of revenue based on subscriptions and software maintenance, revenue based on transactions, and revenue from professional services and consulting fees:
Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Subscription 16 % 39 % 15 % 35 % Transaction-Based 78 % 44 % 80 % 48 % Professional Services/Consulting/Other 6 % 17 % 5 % 17 % 34
Table of Contents Results of Operations – Three Months Ended
During the three months ended
June 30, 2021, our total operating revenues increased $135.0 million, or 121%, to $246.3 millionas compared to $111.3 millionduring the second quarter of 2020. On March 11, 2020, COVID-19 was declared a global pandemic by the World Health Organization. Across the United Statesand the world, governments and municipalities instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closings, travel restrictions and the closure of non-essential businesses. Countries across the world are re-opening economies, but are doing so in a phased approach that differs in each country and, in many cases, within individual countries. While our travel, foreign exchange remittance businesses continue to be materially negatively impacted by COVID-19, total revenues increased year-over-year during the second fiscal quarter of 2021 due primarily to strong demand for the Company's payment solutions offerings in India(primarily prepaid gift cards), which increased by more than $128 millionyear-over-year, or greater than 375%. Reported revenues were positively impacted by the strengthening of foreign exchange rates in all of our operating geographies during the second quarter ended June 30, 2021. The largest positive impact due to stronger currencies was in the Indian rupee and Australian dollar. Specifically, the year-over-year impact from fluctuations of exchange rates in the countries that we operate, in the aggregate, increased reported revenues by approximately $6.3 millionfor the three months ended June 30, 2021. International revenue accounted for 84.7% and 62.5% of the Company's total revenue for the three months ended June 30, 2021and 2020, respectively. Cost of Services Provided Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $129.1 million, or 263%, to $178.2 millionin the second quarter of 2021 as compared to $49.1 millionin the second quarter of 2020. For the three months ended June 30, 2021, cost of services as a percentage of total revenues increased to 72.3% of total revenues as compared to 44.1% for the three months ended June 30, 2020. The increase in the Company's cost of services provided as a percentage of total revenues is primarily due to revenue mix changes year over year, particularly the increase of prepaid gift cards sold within the EbixCash India operations. Prepaid gift card revenues have increased at a materially higher rate versus other Ebix products and services since the COVID-19 pandemic began in March 2020. Payment solutions revenues increased by greater than 375% year-over-year in the second quarter ended June 30, 2021and carry lower gross margins relative to other solutions/services offered by the Company. Product Development Expenses The Company's product development efforts are focused on the development of new technologies for insurance carriers, brokers and agents, the development of new data exchanges for use in domestic and international insurance markets, as well as the Forex and travel sectors. Product development expenses increased $1.8 million, or 22%, to $10.1 millionduring the second quarter of 2021 as compared to $8.3 millionduring the second quarter of 2020. Product development costs in the second quarter remain below the four-quarter Company average prior to the advent of Covid-19 (Q2 2019 through Q1 2020) of approximately $10.9 million. Sales and Marketing Expenses Sales and marketing expenses of $3.4 millionin the second quarter of 2021 were slightly lower compared to $3.5 millionin the second quarter of 2020. Personnel-related costs declined (10.3)% year-over-year, but the reduction was offset, in part, by increased marketing/advertising expenditures (6.0% increase year-over-year). General and Administrative Expenses General and administrative expenses increased $7.9 million, or 51%, to $23.3 millionin the second quarter of 2021 as compared to $15.5 millionin the second quarter of 2020. The year-over-year increase is primarily due to increased personnel costs, including travel expenses, of approximately $4.5 million, increased rent expense of approximately $0.7 million, primarily from year-over-year rent increases in our foreign exchange offices at Indian airports (2020 closures for much of the second quarter due to Covid-19 pandemic), offset in part by a reduction in bad debt expense of approximately $1.3 millionas a result of a reduction in the Company's allowance for doubtful accounts associated with our Ebix Vayam joint venture and, in particular, related to a public sector entity in India, BSNL (see Note 8 - Investment in Joint Ventures). Additionally, general and administrative expenses in the second quarter of 2020 were reduced due to a $3.3 milliondecrease in the Company's acquisition earn-out accrual related to two prior acquisitions, which reduced second quarter 2020 general and administrative expenses. Acquisition earn-out contingent liabilities are re-measured quarterly based on the assessed fair values and changes in 35 -------------------------------------------------------------------------------- Table of Contents anticipated future revenue levels, with any changes reflected as reductions or increases to general and administrative expenses as reported in the Company's Condensed Consolidated Statements of Income. Amortization and Depreciation Expenses Amortization and depreciation expenses increased $876 thousand, or 28%, to $4.0 millionin the second quarter of 2021 as compared to $3.1 millionin the second quarter of 2020, primarily due to the impact of the reclassification of indefinite-lived intangibles to amortizing intangibles during the second half of 2020, as well as the impact of intangible amortization from acquisitions made in 2020 that are not reflected in Q2 2020 results. Interest Income
Interest income has declined
Interest expense of
$10.5 millionin the second quarter of 2021 increased 46% as compared to $7.1 millionin the second quarter of 2020. While the average outstanding balance under the Company's corporate credit facilities decreased year-over-year by approximately $42 million, the Company's interest rate increased by approximately 1.8% year-over-year. Additionally, interest expense incurred related to the Company's EbixCash business increased in the second quarter of 2021 versus the second quarter of 2020 when countrywide lockdowns were in place in India. Foreign Currency Exchange Gain (Loss) The Company recorded a net foreign currency exchange gain for the three months ended June 30, 2021in the amount of $9 thousandwhich consisted of net losses realized and unrealized upon the settlement of receivables or payables and re-measurement of cash balances denominated in currencies other than the functional currency of the respective operating division recording the instrument. Income Taxes The Company recorded net income tax expense of $627 thousand(4.03%) during the three months ended June 30, 2021, which included tax expense of $358 thousandfrom certain discrete items related to stock compensation and uncertain tax positions. The income tax expense, exclusive of discrete items, was $269 thousand(1.73%) during the three months ended June 30, 2021. The Company expects its full year effective tax rate to be in the range of 2.5% to 3.5% Results of Operations - Six Months Ended June 30, 2021and 2020 Operating Revenue During the six months ended June 30, 2021, our total operating revenues increased $287.2 million, or 115%, to $536.4 millionas compared to $249.2 millionfor the same period in 2020. Total revenues increased year-over-year during the six months ended June 30, 2021due primarily to increases in revenues from the Company's payment solutions offerings in India(primarily prepaid gift cards), which increased by more than $309 millionyear-over-year, or greater than 540%. Reported revenues were positively impacted by the strengthening of foreign exchange rates in all of our operating geographies except Brazilduring the six months ended June 30, 2021. The largest positive impact due to stronger currencies was in the Australian dollar and Indian rupee. Specifically, the year-over-year impact from fluctuations of exchange rates in the countries that we operate, in the aggregate, increased reported revenues by approximately $5.7 millionfor the six months ended June 30, 2021. International revenue accounted for 85.9% and 66.4% of the Company's total revenue for the three months ended June 30, 2021and 2020, respectively. Cost of Services Provided Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $292.0 million, or 274%, to $398.6 millionfor the six months ended June 30, 2021as compared to $106.6 millionfor the same period in 2020. For the six months ended June 30, 2021, cost of services as a percentage of total revenues increased to 74.3% of total revenues as compared to 42.8% for the six months ended June 30, 2020. The increase in the Company's cost of services provided as a percentage of total revenues is primarily due to revenue mix changes year over year, particularly the increase of prepaid gift cards sold within the EbixCash Indiaoperations. Prepaid gift card revenues have increased at a materially higher rate versus other Ebix products and services since the COVID-19 pandemic began in March 36 -------------------------------------------------------------------------------- Table of Contents 2020. Payment solutions revenues increased by greater than 540% year-over-year in the six months ended June 30, 2021and carry lower gross margins relative to other solutions/services offered by the Company. Product Development Expenses
Product development expenses increased
Sales and marketing costs
Selling and Marketing Costs of
General and administrative expenses for the six months ended
June 30, 2021of $44.7 millionwere flat compared to the comparable prior year period. For the six months ended June 30, 2021increased personnel costs, including travel expenses, of approximately $1.9 million, were more than offset by decreased rent expense of $3.0 millionand a reduction of bad debt expense of approximately $2.8 million. Additionally, general and administrative expenses for the six months ended June 30, 2020were reduced by $3.3 milliondue to a decrease in the Company's acquisition earn-out accrual related to two prior acquisitions. Acquisition earn-out contingent liabilities are re-measured quarterly based on the assessed fair values and changes in anticipated future revenue levels, with any changes reflected as reductions or increases to general and administrative expenses as reported in the Company's Condensed Consolidated Statements of Income. Amortization and Depreciation Expenses Amortization and depreciation expenses increased $1.0 million, or 15%, to $7.8 millionfor the six months ended June 30, 2021as compared to $6.8 millionfor the same period in 2020, primarily due to the impact of the reclassification of indefinite-lived intangibles to amortizing intangibles during the second half of 2020, as well as the impact of intangible amortization from acquisitions made in 2020 that are not reflected in the year-to-date 2020 results. Interest Income Interest income decreased $58 thousand, or 70%, to $25 thousandfor the six months ended June 30, 2021as compared to $83 thousandin the second quarter of 2020. Interest Expense Interest expense of $18.5 millionfor the six months ended June 30, 2021increased by 13.2% year-over-year as compared to $16.4 millionfor the same period in 2020. The Company's average debt outstanding under its corporate credit facilities decreased by over $30 millionfor the six months ended June 30, 2021as compared to the same period in the prior year, but the average interest rate in the year-to-date period in 2021 increased by approximately 60 basis points. Secondarily, increased interest expense was incurred related to the Company's EbixCash business in the second quarter of 2021 versus the second quarter of 2020 when countrywide lockdowns were in place in India. Foreign Currency Exchange Gain (Loss) The Company recorded a net foreign currency exchange loss for the six months ended June 30, 2021in the amount of $616 thousand, which consisted of net losses realized and unrealized upon the settlement of receivables or payables and re-measurement of cash balances denominated in currencies other than the functional currency of the respective operating division recording the instrument. Income Taxes The Company recorded net income tax expense of $1.8 million(4.80%) during the six months ended June 30, 2021, which included tax expense of $696 thousandfrom certain discrete items related to stock compensation and uncertain tax positions. The income tax expense, exclusive of discrete items, was $1.1 million(2.98%) during the six months ended June 30, 2021. The Company expects its full year effective tax rate to be in the range of 2.5% to 3.5% Liquidity and Capital Resources 37
Our principal sources of liquidity are the cash flows provided by our operating activities and cash and cash equivalents on hand. We intend to utilize cash flows generated by our operations, in combination with the possible issuance of additional debt or equity, to fund capital expenditures and organic growth initiatives, to make strategically accretive business acquisitions, to retire outstanding indebtedness, and to repurchase shares of our common stock if and as market and operating conditions warrant. We believe that anticipated cash flows provided by our operating activities, together with current cash balances and access to credit and capital markets, if required, will be sufficient to meet our projected cash requirements for the next twelve months, although any projections of future cash needs, cash flows, and the general market conditions for credit and equity securities is subject to substantial uncertainty. In the event additional liquidity needs arise, we may raise funds from a combination of sources, including the potential issuance of debt or equity securities. However, there are no assurances that such financing will be available in amounts or on terms acceptable to us, if at all. In addition, the covenants in our Credit Facility could adversely affect our ability to obtain such financing and our ability to make strategic acquisitions, fund investments, repurchase shares of our common stock or engage in other business activities that could be in our interest. Our cash and cash equivalents were
$85.1 millionand $105.0 millionat June 30, 2021and December 31, 2020, respectively. The Company holds material cash and cash equivalent balances overseas in foreign jurisdictions. The free flow of cash from certain countries where we hold such balances may be subject to repatriation tax effects and other restrictions. Furthermore, the repatriation of earnings from some of our foreign subsidiaries would result in the application of withholding taxes at the foreign source and taxation at the U.S.parent level upon receipt of the repatriation amounts.
The approximate balances of cash, cash equivalents, restricted cash and short-term investments held in our
Country/Region Cash, Restricted Cash and ST investments (In thousands) India $ 54,749 United States 20,007 Australia 12,969 Philippines 7,440 Europe 2,339 Singapore 3,055 Canada 3,041 Latin America 2,186 New Zealand 1,199 United Arab Emirates 1,319 Indonesia 854 Mauritius 3 Total $ 109,161 Our current ratio increased to 1.96 at
June 30, 2021from 1.89 at December 31, 2020and our working capital position decreased to $170.3 millionat June 30, 2021from $170.5 millionat December 31, 2020.
The Company seeks to execute 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. 38
During the six months ending
During the twelve months ended
December 31, 2020, the Company completed two business acquisitions, as follows: Effective May 4, 2020, Ebix acquired from bankruptcy India-based Trimax IT Infrastructure & Services Ltd("Trimax"), which provides IT and integration services to state-owned transport corporations, operates data centers, and is an IT infrastructure solution provider, for approximately $9.9 millionof upfront consideration. Additionally, Ebix issued preferred shares in Trimax to the selling shareholders that can be sold five years from the closing of the acquisition based on an independent valuation performed by a Big 4 valuation firm. The maximum value of the preferred shares upon sales is approximately $9.9 million. The valuation and purchase price allocation was finalized during the second quarter of 2021. On October 1, 2020the Company acquired a 70% interest in AssureEdge Global Services ("(AssureEdge") for a total purchase price of approximately $5.0 million, including net working capital acquired. AssureEdge is a pan- Indiabased BPO company, with a variety of BPO offerings via six contact centers across the country. It serves a number of industries and clients that have cross-selling value for EbixCash services. The valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable, but in no event longer than one year from the effective date of this transaction. A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential subsequent cash earn-out payment based on reaching certain specified future revenue targets. The terms for the contingent earn out payments in most of the Company's business acquisitions typically address the GAAP recognizable revenues achieved by the acquired entity over a one-, two-, and/or three-year period subsequent to the effective date of their acquisition by Ebix. These terms typically establish a minimum threshold revenue target to achieve over the agreed upon period post acquisition to earn the specified cash earn out payment. The Company applies these terms in its calculation and determination of the fair value of contingent earn out liabilities for purchased businesses as part of the related valuation and purchase price allocation exercise for the corresponding acquired assets and liabilities. The Company recognizes these potential obligations as contingent liabilities and are reported as such on its Condensed Consolidated Balance Sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. As of June 30, 2021, the total of these contingent liabilities was $2.6 million, while at December 31, 2020, the total of these contingent consideration liabilities was $0.
Net cash provided by our operating activities was
$21.7 millionfor the six months ended June 30, 2021. The primary components of the cash provided by our operating activities during the six-month period consisted of net income of $37.3 million, $7.8 millionof depreciation and amortization, $2.7 millionof non-cash share-based compensation, $2.5 millionof right-of-use assets amortization, $1.6 millionof amortization of capitalized software development costs and $(28.3) millionof working capital requirements, primarily due to decreased accounts payable and accrued expenses, an increase in other assets during the year-to-date period, and an increase in receivables from service providers. During the six months ended June 30, 2021, the Company made $12.1 millionof tax payments. Net cash provided by our operating activities was $58.4 millionfor the six months ended June 30, 2020. The primary components of the cash provided by our operating activities during the six-month period consisted of net income of $48.2 million, $6.8 millionof depreciation and amortization, $2.3 millionof non-cash share-based compensation, $3.3 millionof right-of-use assets amortization, $1.7 millionof amortization of capitalized software development costs and $3.0 millionof working capital requirements primarily due to decreased accounts receivable, receivables from service providers, payables to service agents and accounts payable and accrued expenses. Offsetting these amounts were a reduction of contingent acquisition earn out accruals of $3.3 million, a reduction in lease liabilities of $3.0 million, and $489 thousandof net losses attributable to noncontrolling interest. During the six months ended June 30, 2020, the Company made $2.1 millionof tax payments. Investing Activities
Net cash used for investing activities during the half-year ended
(in particular bank certificates of deposit).
Net cash used for investing activities during the six months ended
June 30, 2020was $36.5 million, and consisted primarily of $5.2 millionused for acquisition-related payments for acquisitions consummated in prior periods, $3.3 millionfor 39
the development costs of table of contents software that have been capitalized,
(in particular bank certificates of deposit).
During the six months ended
June 30, 2021, net cash used by financing activities was $43.1 million, which consisted primarily of a $6.9 millionreduction in EbixCash working capital facilities in India, $31.3 millionused to make scheduled payments on the existing term loan and $4.6 millionof quarterly dividends to our common stockholders. During the six months ended June 30, 2020, net cash used by financing activities was $33.9 million, which consisted primarily of a $19.8 millionreduction in EbixCash working capital facilities in India, $9.4 millionused to make scheduled payments on the existing term loan and $4.6 millionof quarterly dividends to our common stockholders. Partially offsetting these financing cash outflows was $1.4 millionof cash proceeds from draws on the Company's revolving line of credit. Credit Facility The Company maintains a senior secured syndicated credit facility, dated 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") that provides a $450 millionrevolving line of credit (the "Revolver") as well as a term loan (the "Term Loan"), which at June 30, 2021had a balance of $224.2 million. The Credit Facility matures in February 2023. On April 9, 2021, The Company entered into Amendment No. 12 to its Credit Facility. Amendment No. 12 provided for, among other things, a waiver of any potential event of default arising under the Credit Facility from the failure to timely deliver the Company's audited financial consolidated financial statements and related compliance certificate for the year ended December 31, 2020, provided that there is no good faith determination by the requisite lenders under the Credit Facility of a "Material Circumstance" (as defined and further described in Amendment No. 12), which determination (if any) may only be made within a specified period described in Amendment No. 12 and is subject to certain cure rights of the Company. Amendment No. 12 also modified the applicable margin that applies from the date of the amendment forward, modified certain mandatory prepayment provisions, as well as certain other covenants related to restricted payments, investments and certain reporting requirements. On March 31, 2021, Ebix entered into Amendment No. 11 to the Credit Facility. Amendment No. 11 provided, for, among other things, a limited waiver through April 10, 2021, of any potential event of default arising under the Credit Facility from failure to deliver the Company's audited consolidated financial statements and related compliance certificate for the year ended December 31, 2020. Amendment No. 11 also modified certain covenants contained in the Credit Facility, including with respect to certain permitted restricted payments and investments. On May 7, 2020, Ebix entered into Amendment No. 10 to the Credit Facility. Amendment No. 10 provided for, among other things, increased flexibility under financial maintenance covenants, which the Company sought in part due to the unforeseen negative effects of the COVID-19 pandemic. On March 30, 2020, the Company and certain of its subsidiaries entered into a waiver related to the Credit Facility (the "Waiver"). The Waiver provided that so long as the Company's leverage ratio is below 5.0 to 1.0 for the Company's fiscal quarter ending March 31, 2020pursuant to the terms of its compliance certificate required by the Credit Facility, the existing leverage ratio requirement of 3.5 to 1.0 was waived. At June 30, 2021, the outstanding balance on the Revolver was $439.4 millionand the facility carried an interest rate of 5.50% at June 30, 2021, an increase from 3.50% at the closing of Amendment No. 12 to the Credit Facility. The balance on the Revolver is included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. During the six months ended June 30, 2021, the average and maximum outstanding balances of the revolving line of credit component of the credit facility were $439.4 millionand $439.4 million, respectively. At December 31, 2020, the outstanding balance on the revolving line of credit with Regions was $439.4 millionand the facility carried an interest rate of 3.50%. This balance was included in the long-term liabilities section of the Condensed Consolidated Balance Sheets. During 2020, the average and maximum outstanding balances on the revolving line of credit were $438.9 millionand $439.4 million, respectively. At June 30, 2021, the outstanding balance on the Term Loan was $224.2 million, of which $24.5 millionis due within the next twelve months. $31.3 millionof principal payments were made during the six months ended June 30, 2021, of which $11.3 millionwere scheduled amortization payments. This term loan also carried an interest rate of 5.50% at June 30, 2021, 40 -------------------------------------------------------------------------------- Table of Contents subject to the same above mentioned increase in interest rate as the Revolver. The current and long-term portions of the Term Loan are included in the respective current and long-term sections of the Condensed Consolidated Balance Sheets, the amounts of which were $24.5 millionand $199.7 million, respectively at June 30, 2021. At December 31, 2020, the outstanding balance on the Term Loan was $255.5 million, of which $22.6 millionwas due within twelve months. The Term Loan also carried an interest rate of 3.50% during the quarter ended December 31, 2020. Contractual Obligations For a presentation regarding material changes outside the ordinary course of business to the Company's contractual obligations please refer to Notes 4 and 5 of the Notes to Condensed Consolidated Financial Statements. Off-Balance Sheet Arrangements
We do not enter into off-balance sheet financing arrangements. Recent accounting positions
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 2020 Form 10-K. Application of Critical Accounting Policies The preparation of financial statements in conformity with GAAP, as promulgated in
the United States, requires our management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures 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, and changes in the accounting estimates that we used are reasonably likely to occur from period to period both of 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. COVID-19 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. As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments, or to revise the carrying value of our assets or liabilities. However, these estimates may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. While we considered the effects of COVID-19 in our estimates and assumptions, due to the current level of uncertainty over the longevity of the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that were not currently considered. Such judgments and assumptions could result in a meaningful impact to our financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on our financial statements. Revenue Recognition The Company derives its revenues primarily from software subscription and transaction fees, software license fees, financial transaction fees, risk compliance solution services fees, and professional service fees, including associated fees for consulting, implementation, training, and project management provided to customers with installed systems and applications. Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company determines revenue recognition by applying the following steps: â¢ identification of the contract (s) with a customer;
41 -------------------------------------------------------------------------------- Table of Contents â¢identification of the performance obligations in the contract; â¢determination of the transaction price; â¢allocation of the transaction price to the performance obligations in the contract; and â¢recognition of revenue when, or as, we satisfy a performance obligation.
The Company analyzes its various departments individually to determine the appropriate basis for revenue recognition, as further described below. In addition, some services exist in multiple channels. As Ebix derives revenue from three product / service channels – EbixCash Exchanges, Insurance Exchanges and
The Company assesses the terms of customer contracts, including termination rights, penalties (implicit or explicit) and renewal rights. EbixCash Exchanges (“EbixCash”)
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 various 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:
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 partner(s) 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 10,000 INR or approximately $140). 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 card 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 June 30, 2021are recorded as deferred revenues in the financial results. EbixCash Travel Exchanges EbixCash Travelrevenues 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 Travelrevenue is for a single performance obligation and is recognized at a point in time. Travel revenues include 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; ancillary fees, including travel insurance-related revenues and certain reservation booking fees; and credit card processing rebates and customer processing fees. EbixCash Travelservices 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. 42
EbixCash Travelrevenue for the corporate MICE (Meetings, Incentives, Conferences, and Exhibitions) packages is recognized at full purchase value at the completion of the obligation, with the corresponding costs recorded under direct expenses. For MICE revenues, EbixCash Travelacts as the principal in transactions and, accordingly, reports revenue on a gross basis. EbixCash Travelcontrols 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 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: 1) the customer's acknowledgment of EbixCash's terms and conditions and the receipt of payment information, 2) the money transfer has been processed, 3) the customer has received a unique transaction identification number, and 4) 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.
Currency exchange and 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 transactions, 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 such as: 1)
whopays the fee to EbixCash (consumer or biller), 2) whether or not the service is offered to all potential consumers, or only to those for EbixCash has a relationship with the biller and 3) whether the service utilizes a physical agent network offered for consumers' convenience, among other factors. 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, thus, simplifying 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 services
EbixCash also provides on-demand technology to various providers in the areas of lending, wealth and asset management, and travel around the world.
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 43 -------------------------------------------------------------------------------- Table of Contents 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. We also have separate software licensing (on premise/perpetual), unrelated to our SasS platforms, which is recognized at a 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 that are accounted for as variable consideration. Revenue accounted for as variable consideration is recognized using the "right to invoice" practical expedient when the invoiced amount equals the value provided to the customer. Software-as-a-Service ("SaaS") 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 judgement. 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 the 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 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 revenue is comprised of fees applied to the volume of transactions that are processed through our SaaS platforms. These fees 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 service revenue primarily consists of fees for setup, customization, training, or consulting. Professional service fees are generally on a time and materials basis or a 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 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.
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 are transaction-based revenues. 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 44
The Company provides services to issue and track certificates of insurance in
the United Statesand 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 and development. Consulting services fees are generally on a time and materials basis 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. 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. 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. Foreign Currency Matters
The functional currency is the
subsidiaries support the Company’s operating divisions around the world, which are primarily dealt with in
The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into
U.S.dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of other comprehensive income in the accompanying Condensed Consolidated Balance Sheets. Foreign exchange transaction gains and losses that are derived from transactions denominated in a currency other than the subsidiary's functional currency are included in the determination of net income. 45
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