Description of Business and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Description of Business and Summary of Significant Accounting Policies | ' |
Description of Business and Summary of Significant Accounting Policies |
Description of Business— Ebix, Inc. and its subsidiaries (“Ebix” or the “Company”) is an international supplier of on-demand software and e-commerce solutions for the insurance industry. Ebix provides various software solutions and products for the insurance industry ranging from data exchanges, carrier systems, and agency systems, to custom software development for business entities across the insurance industry. The Company's products feature fully customizable and scalable on-demand software designed to streamline the way insurance professionals manage distribution, marketing, sales, customer service, and accounting activities. The Company has its headquarters in Atlanta, Georgia and also conducts operating activities in Australia, Canada, China, India, Japan, New Zealand, Singapore, United Kingdom and Brazil. International revenue accounted for 31.8%, 29.3%, and 28.5% of the Company’s total revenue in 2013, 2012, and 2011, respectively. |
The Company’s revenues are derived from four product/service groups. Presented in the table below is the breakout of our revenue streams for each of those product/service groups for the years ended December 31, 2013 , 2012 and 2011. |
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| For the Year Ended | |
| December 31, | |
(dollar amounts in thousands) | | 2013 | | 2012 | | 2011 | |
Exchanges | | $ | 163,925 | | | $ | 159,678 | | | $ | 130,638 | | |
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Broker Systems | | 18,378 | | | 18,612 | | | 18,006 | | |
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Business Process Outsourcing (“BPO”) | | 15,678 | | | 16,140 | | | 14,944 | | |
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Carrier Systems | | 6,729 | | | 4,940 | | | 5,381 | | |
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Totals | | $ | 204,710 | | | $ | 199,370 | | | $ | 168,969 | | |
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Summary of Significant Accounting Policies |
Basis of Presentation— The consolidated financial statements include the accounts of Ebix and its wholly owned subsidiaries. The effect of inter-company balances and transactions has been eliminated. |
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Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during those reporting periods. Management has made material estimates primarily with respect to revenue recognition and deferred revenue, accounts receivable, acquired intangible assets, contingent earnout liabilities in connection with business acquisitions, business investments, and the provision for income taxes. Actual results may be materially different from those estimates. |
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Reclassification—Certain of the reported balances and results for prior year or prior quarters, including the notes thereto, have been reclassified to conform to the current year presentation. In particular the short-term and long-term portions of the contingent liability for accrued earn-out acquisition consideration is now disclosed separately in the respective sections of the consolidated balance sheets rather than in other current liabilities or other liabilities. The change in reserve for potential uncertain income tax return positions had been previously netted against the provision for deferred taxes line in the consolidated statements of cash flows, it is now shown separately. Also the excess tax benefits from share-based compensation is now reported as a component of financing cash flows rather than being netted against the provision for deferred taxes as a component of operating cash flows in the consolidated statements of cash flows. |
Segment Reporting—Since the Company, from the perspective of its chief operating decision maker, allocates resources and evaluates business performance as a single entity that provides software and related services to a single industry on a worldwide basis, the Company reports as a single segment. The applicable enterprise-wide disclosures are included in Note 16. |
Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Such investments are stated at cost, which approximates fair value. The Company does maintain cash balances in banking institutions in excess of federally insured amounts and therefore is exposed to the related potential credit risk associated with such cash deposits. |
Short-term Investments—The Company’s short-term investments consist of certificates of deposits with established commercial banking institutions with readily determinable fair values. Ebix accounts for investments that are reasonably expected to be realized in cash, sold or consumed during the year as short-term investments that are available-for-sale. The carrying amount of investments in marketable securities approximates their fair value. The carrying value of our short-term investments was $801 thousand and $971 thousand at December 31, 2013 and 2012, respectively. |
Fair Value of Financial Instruments—The Company follows the relevant GAAP guidance regarding the determination and measurement of the fair value of financial instruments in which fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction valuation hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used in the methodology to measure fair value: |
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• | Level 1 — Quoted prices available in active markets for identical investments as of the reporting date; | | | | | | | | | | | | |
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• | Level 2 — Inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date; and, | | | | | | | | | | | | |
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• | Level 3 — Unobservable inputs, which are to be used in situations where there is little or no market activity for the asset or liability and wherein the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk. | | | | | | | | | | | | |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. |
As of December 31, 2013 and 2012 the Company has the following financial instruments to which it had to consider fair values and had to make fair assessments: |
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• | Common share-based put option for which the fair value was measured as Level 2 instrument. | | | | | | | | | | | | |
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• | Short-term investments for which the fair values are measured as a Level 1 instrument. | | | | | | | | | | | | |
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• | Contingent accrued earn-out business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3. | | | | | | | | | | | | |
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Other financial instruments not measured at fair value on the Company's consolidated balance sheets at December 31, 2013 and 2012 but which require disclosure of their fair values include: cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related benefits, capital lease obligations debt under the revolving line of credit and term loans with Citibank, and business investments. The estimated fair value of such instruments at December 31, 2013 and 2012 reasonably approximates their carrying value as reported on the consolidated balance sheets. |
Additional information regarding the Company's assets and liabilities that are measured at fair value on a recurring basis is presented in the following tables: |
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| | Fair Values at Reporting Date Using* |
Descriptions | | Balance at December 31, 2013 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
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Assets | | | | | |
Available-for-sale securities: | | | | | |
Commercial bank certificates of deposits | | $ | 801 | | $ | 801 | | $ | — | | $ | — | |
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Total assets measured at fair value | | $ | 801 | | $ | 801 | | $ | — | | $ | — | |
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Liabilities | | | | | |
Derivatives: | | | | | |
Common share-based put option (a) | | $ | 845 | | $ | — | | $ | 845 | | $ | — | |
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Contingent accrued earn-out acquisition consideration (b) | | 14,420 | | — | | — | | 14,420 | |
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Total liabilities measured at fair value | | $ | 15,265 | | $ | — | | $ | 845 | | $ | 14,420 | |
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(a) In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to the PlanetSoft's three shareholders. The put option, which expires in June 2014, is exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying 296,560 shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of $16.86 per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $1.4 million using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return. |
(b) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. |
* During the year ended December 31, 2013 there were no transfers between fair value Levels 1, 2 or 3. |
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| | Fair Values at Reporting Date Using* |
Descriptions | | Balance at December 31, 2012 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
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Assets | | | | | |
Available-for-sale securities: | | | | | |
Commercial bank certificates of deposits ($213 thousand is recorded in the long term asset section of the consolidated balance sheets) | | $ | 1,184 | | 1,184 | | — | | — | |
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Total assets measured at fair value | | $ | 1,184 | | $ | 1,184 | | $ | — | | $ | — | |
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Liabilities | | | | | |
Derivatives: | | | | | |
Common share-based put option (a) | | $ | 1,186 | | — | | 1,186 | | — | |
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Contingent accrued earn-out acquisition consideration (b) | | 17,495 | | — | | — | | 17,495 | |
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Total liabilities measured at fair value | | $ | 18,681 | | $ | — | | $ | 1,186 | | $ | 17,495 | |
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(a) In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to the PlanetSoft's three shareholders. The put option, which expires in June 2014, is exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying 296,560 shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of $16.86 per share, which represents the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $1.4 million using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return. |
(b) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments. |
* During the year ended December 31, 2012 there were no transfers between fair value Levels 1, 2 or 3. |
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For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the year. |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | | | | |
Contingent Liability for Accrued Earn-out Acquisition Consideration | | Balance at December 31, 2013 | | Balance at December 31, 2012 | | | | | |
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Beginning balance | | $ | 17,495 | | | 7,590 | | | | | | |
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Total remeasurement adjustments: | | | | | | | | | |
(Gains) or losses included in earnings ** | | (10,253 | ) | | (699 | ) | | | | | |
(Gains) or losses recorded against goodwill | | — | | | — | | | | | | |
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Foreign currency translation adjustments *** | | 730 | | | (143 | ) | | | | | |
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Acquisitions and settlements | | | | | | | | | |
Business acquisitions | | 9,425 | | | 16,258 | | | | | | |
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Settlements | | (2,977 | ) | | (5,511 | ) | | | | | |
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Ending balance | | $ | 14,420 | | | $ | 17,495 | | | | | | |
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The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end. | | $ | (9,954 | ) | | $ | (802 | ) | | | | | |
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** recorded as a component of reported general and administrative expenses | | | | | | | |
*** recorded as a component of other comprehensive income within stockholders' equity | | | | | | | |
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Quantitative Information about Level 3 Fair Value Measurements |
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows: |
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(in thousands) | | Fair Value at December 31, 2013 | | Valuation Technique | | Significant Unobservable | | | | | | | |
Input | | | | | | | |
Contingent acquisition consideration: | | $14,420 | | Discounted cash flow | | Expected future annual revenue streams and probability of achievement | | | | | | | |
(Taimma, PlanetSoft, TriSystems, and Qatarlyst acquisitions) | | | | | | | |
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(in thousands) | | Fair Value at December 31, 2012 | | Valuation Technique | | Significant Unobservable | | | | | | | |
Input | | | | | | | |
Contingent acquisition consideration: | | $17,495 | | Discounted cash flow | | Expected future annual revenue streams and probability of achievement | | | | | | | |
(USIX, HealthConnect, Taimma, PlanetSoft, and TriSystems acquisitions) | | | | | | | |
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Sensitivity to Changes in Significant Unobservable Inputs |
As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecasts. The discount rate used in these calculations is 1.75%. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement. |
Revenue Recognition and Deferred Revenue—The Company derives its revenues primarily from professional and support services, which includes revenue generated from subscription and transaction fees pertaining to services delivered over our exchanges or from our application service provider (“ASP”) platforms, software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and business process outsourcing revenue ("BPO"). Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities. |
The Company follows the relevant technical accounting guidance regarding revenue recognition as issued by the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission's ("SEC"). The Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been received or is reasonably assured, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements related to all transactions involving the license of software where the software deliverables are considered more than inconsequential to the other elements in the arrangement. For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the appropriate authoritative guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate units of accounting for the purpose of revenue recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable evidence of the fair value for all arrangement deliverables; and c) if the arrangement includes a general right of return relative to the delivered items, the delivery or performance of the undelivered items is probable and substantially controlled by the Company. Under the relevant accounting guidance, when multiple-deliverables included in an arrangement are to be separated into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative fair values. We determine the relative selling price for a deliverable based on vendor-specific objective evidence of selling price (“VSOE”), if available, or third-party evidence ("TPE") in the alternative if available, or finally our best estimate of selling price (“BESP”), if VSOE or TPE is not available. |
The Company begins to recognize revenue from license fees for its exchange (SAAS) and ASP products upon granting customer access to the respective processing platform. Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as the transactions occur and are generally billed in arrears. Revenues from BPO arrangements, which include data entry and call center services, and insurance certificate creation and tracking services, are recognized as the services are performed. Service fees for hosting arrangements are recognized over the requisite service period. Revenue derived from the licensing of third party software products in connection with sales of the Company’s software licenses is recognized upon delivery together with the Company’s licensed software products. Fees for training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenue for maintenance and support services are recognized ratably over the term of the support agreement. |
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of-completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee. |
Deferred revenue includes payments or billings that have been received or made prior to performance and, in certain cases, cash collections and primarily pertain to maintenance and support fees, initial setup or registration fees under hosting agreements, software license fees received in advance of delivery and acceptance, and software development fees paid in advance of completion and delivery. Approximately $6.7 million and $7.0 million of deferred revenue were included in billed accounts receivable at December 31, 2013 and 2012, respectively. |
Accounts Receivable and the Allowance for Doubtful Accounts Receivable—Reported accounts receivable as of December 31, 2013 include $31.2 million of trade receivables stated at invoice billed amounts (net of a $1.05 million estimated allowance for doubtful accounts receivable), and $7.9 million of unbilled receivables. Reported accounts receivable at December 31, 2012 include $28.5 million of trade receivables stated at invoice billed amounts (net of a $1.16 million estimated allowance for doubtful accounts receivable), and $8.8 million |
of unbilled receivables. The unbilled receivables pertain to certain professional service engagements and long-term development projects for which the timing of billing is tied to contractual milestones. The Company adheres to such contractually stated performance milestones and accordingly issues invoices to customers as per contract billing schedules. Accounts receivable are written off against the allowance for doubtful accounts receivable when the Company has exhausted all reasonable collection efforts. Management specifically analyzes the aging of accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends, and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable. Bad debt expense was $1.1 million, $442 thousand, and $1.0 million for the year ended December 31, 2013, 2012, and 2011 respectively. |
Costs of Services Provided—Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain our proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided. |
Goodwill and Indefinite-Lived Intangible Assets— Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of a reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, and the sale or disposition of a significant portion of the business. Starting in 2011, the Company applied the then new guidance concerning goodwill impairment evaluation. In accordance with that new technical guidance the Company first assessed certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than its carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not perform the two-step quantitative impairment testing described further below. |
The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values; we determine fair value of our reporting units by applying the discounted cash flow method using the present value of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying value, then no further testing is required. However, if a reporting unit’s fair value were to be less than its carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the reporting unit’s goodwill exceeded its implied value. Projections of cash flows are based on our views of growth rates, operating costs, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values and terminal values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates, and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. We perform our annual goodwill impairment evaluation and testing as of September 30 each year. During the years ended December 31, 2013, 2012, and 2011, we had no impairment of our reporting unit goodwill balances. |
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The following table summarizes the goodwill recorded in connection with the acquisitions that occurred during 2013 and 2012: |
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Company acquired | | Date acquired | | (in thousands) | | | | | | | |
Qatarlyst ("Qatarlyst") | | Apr-13 | | $ | 11,136 | | | | | | | | |
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Total during 2013 | | | | $ | 11,136 | | | | | | | | |
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Benefit Software, Inc. ("BSI") | | Mar-12 | | $ | 3,243 | | | | | | | | |
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Taimma Communications, Inc. ("Taimma") | | Apr-12 | | 7,557 | | | | | | | | |
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PlanetSoft Holdings, Inc. ("PlanetSoft") | | Jun-12 | | 44,116 | | | | | | | | |
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Fintechnix Pty Limited ("Fintechnix") | | Jun-12 | | 3,706 | | | | | | | | |
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TriSystems, Ltd. ("Trisystems") | | Aug-12 | | 8,754 | | | | | | | | |
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Total during 2012 | | | | $ | 67,376 | | | | | | | | |
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In addition, during 2012 the Company recorded a $25 thousand increase to goodwill, in connection to a 2009 acquisition, for an earn-out payment not previously recognized. |
Changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 are as follows: |
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| December 31, 2013 | | December 31, 2012 | | | | | | |
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Beginning Balance | $ | 326,748 | | | $ | 259,218 | | | | | | | |
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Additions, net (see Note 3) | 11,136 | | | 67,401 | | | | | | | |
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Foreign currency translation adjustments | (816 | ) | | 129 | | | | | | | |
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Ending Balance | $ | 337,068 | | | $ | 326,748 | | | | | | | |
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The Company’s indefinite-lived assets are associated with the estimated fair value of the contractual customer relationships existing with the property and casualty insurance carriers in Australia using our property and casualty ("P&C") data exchange and with certain large corporate customers using our client relationship management (“CRM”) platform in the United States. Prior to these underlying business acquisitions Ebix had pre-existing contractual relationships with these carriers and corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue to renew these contracts indefinitely and has the ability to do so. The proprietary technology supporting the P&C data exchange and CRM platform that is used to deliver services to these carriers and corporate clients, cannot feasibly be effectively replaced in the foreseeable future, and accordingly the cash flows forthcoming from these customers are expected to continue indefinitely. With respect to the determination of the indefinite life, the Company considered the expected use of these intangible assets, historical experience in renewing or extending similar arrangements, and the effects of competition, and concluded that there were no indications from these factors to suggest that the expected useful life of these customer relationships would be finite. The Company concluded that no legal, regulatory, contractual, or competitive factors limited the useful life of these intangible assets and therefore their life was considered to be indefinite, and accordingly the Company expects these customer relationships to remain the same for the foreseeable future. The fair values of these indefinite-lived intangible assets were based on the analysis of discounted cash flow (“DCF”) models extended out fifteen to twenty years. In that indefinite-lived does not imply an infinite life, but rather means that the subject customer relationships are expected to extend beyond the foreseeable time horizon, we utilized fifteen to twenty year DCF projections, as the valuation models that were applied consider a fifteen to twenty year time frame to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually. We perform our annual impairment testing of indefinite-lived intangible assets as of September 30th of each year. During the years ended December 31, 2013, 2012, and 2011, we had no impairments to the recorded balances of our indefinite-lived intangible assets. We perform the impairment test for our indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. |
Purchased Intangible Assets—Purchased intangible assets represent the estimated fair value of acquired intangible assets from the businesses that we acquire in the U.S. and foreign countries in which we operate. These purchased intangible assets include customer relationships, developed technology, informational databases, and trademarks. We amortize these intangible assets on a straight-line basis over their estimated useful lives, as follows: |
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Category | (yrs) | | | | | | | | | | | |
Customer relationships | 20-Jul | | | | | | | | | | | | |
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Developed technology | 12-Mar | | | | | | | | | | | | |
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Trademarks | 15-Mar | | | | | | | | | | | | |
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Non-compete agreements | 5 | | | | | | | | | | | | |
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Database | 10 | | | | | | | | | | | | |
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Intangible assets as of December 31, 2013 and December 31, 2012, are as follows: |
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| December 31, | | | | | | |
| 2013 | | 2012 | | | | | | |
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Finite-lived intangible assets: | | | | | | | | | |
Customer relationships | $ | 62,408 | | | $ | 57,638 | | | | | | | |
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Developed technology | 14,630 | | | 14,025 | | | | | | | |
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Trademarks | 2,646 | | | 2,638 | | | | | | | |
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Non-compete agreements | 538 | | | 538 | | | | | | | |
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Backlog | 140 | | | 140 | | | | | | | |
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Database | 212 | | | 212 | | | | | | | |
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Total intangibles | 80,574 | | | 75,191 | | | | | | | |
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Accumulated amortization | (29,840 | ) | | (22,600 | ) | | | | | | |
Finite-lived intangibles, net | $ | 50,734 | | | $ | 52,591 | | | | | | | |
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Indefinite-lived intangibles: | | | | | | | | | |
Customer/territorial relationships | $ | 30,887 | | | $ | 30,887 | | | | | | | |
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Income Taxes— The Company follows the asset and liability method of accounting for income taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities, and operating loss and tax credit carry forwards, and their financial reporting amounts at each period end using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is recorded for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible. |
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. The guidance utilizes a two-step approach for evaluating tax positions. Recognition (“Step 1”) occurs when an enterprise concludes that a tax position, based solely on its technical merits is more likely than not to be sustained upon examination. Measurement (“Step 2”) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement. As used in this context, the term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%. |
Foreign Currency Translation—Historically the functional currency for the Company's foreign subsidiaries in India and Singapore had been the Indian rupee and Singapore dollar, respectively. As a result of the Company's rapid growth, including the acquisition of PlanetSoft in June 2012, the expansion of its intellectual property research and development activities in its Singapore subsidiary, and the expansion of its product development activities and information technology enabled services for the insurance industry provided by its India subsidiary in support of Ebix's operating divisions across the world (both of which are transacted in U.S. dollars), management undertook a reconsideration of functional currency designations for these two foreign subsidiaries in India and Singapore, and concluded that effective July 1, 2012 the functional currency for these entities should be changed to the U.S. dollar. Management believes that the acquisition of PlanetSoft in combination with the other recent business acquisitions, and the cumulative effect of business acquisitions made over the last few years which necessitated the rapid growth of the Company's operations in India and Singapore, were indicative of a significant change in the economic facts and circumstances that justified the reconsideration and ultimate change in the functional currency. Had the change in the functional currency designation for our India and Singapore subsidiaries not been made, the Company would have incurred and recognized approximately $49 thousand of additional foreign currency exchange gains during the year ended December 31, 2012. Furthermore, a portion of monetary assets and liabilities for these two foreign subsidiaries that are denominated in foreign currencies are re-measured into U.S. dollars at the exchange rates in effect at each reporting date. These corresponding re-measurement gains and losses are included as a component of foreign currency exchange gains and losses in the accompanying Consolidated Statements of Income and amounted to a $151 thousand loss for the year ended December 31, 2012. |
The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign exchange transaction gains and losses that are derived from transactions denominated in a currency other than the subsidiary's functional currency are included in the determination of net income. |
Advertising—Advertising costs are expensed as incurred. Advertising costs amounted to $1.0 million, $1.4 million, and $1.0 million in 2013, 2012, and 2011, respectively, and are included in sales and marketing expenses in the accompanying Consolidated Statements of Income. |
Sales Commissions —Certain sales commission paid with respect to subscription-based revenues are deferred and subsequently amortized into operating expenses ratably over the term of the related customer subscription contracts. As of December 31, 2013 and 2012, $434 thousand and $442 thousand, respectfully, of sales commissions were deferred and included in other current assets on the accompanying Consolidated Balance Sheets. During the years ended December 31, 2013 and 2012 the Company amortized $915 thousand and $1.1 million, respectively, of previously deferred sales commissions and included this expense in sales and marketing costs on the accompanying Consolidated Statements of Income. |
Property and Equipment—Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of the expected life of the improvements or the remaining lease term. Repairs and maintenance are charged to expense as incurred and major improvements that extend the life of the asset are capitalized and depreciated over the expected remaining life of the related asset. Gains and losses resulting from sales or retirements are recorded as incurred, at which time related costs and accumulated depreciation are removed from the Company’s accounts. Fixed assets acquired in acquisitions are recorded at fair value. The estimated useful lives applied by the Company for property and equipment are as follows: |
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| Life | | | | | | | | | | | | |
Asset Category | (yrs) | | | | | | | | | | | | |
Computer equipment | 5 | | | | | | | | | | | | |
Furniture, fixtures and other | 7 | | | | | | | | | | | | |
Buildings | 30 | | | | | | | | | | | | |
Leasehold improvements | Life of the lease | | | | | | | | | | | | |
Recent Accounting Pronouncements |
The following is a summary brief discussion of recently released accounting pronouncements that are pertinent to the Company’s business: |
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". This accounting standard states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This accounting standards update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The accounting standards update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company will adopt this new standard in 2014, and it may have an effect on how unrecognized tax benefits are accounted for and presented in the Company's balance sheet. |
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment" (the revised standard). The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance the related technical accounting guidance. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company has not yet adopted this new guidance, and accordingly applied quantitative methods to evaluate its indefinite-lived intangible assets for impairment during 2013. The Company expects to adopt this new financial accounting standard in 2014 for use in its annual impairment evaluations of indefinite-lived intangible assets, which are performed as of September of each year. |
In June 2011, the FASB issued new financial reporting guidance regarding the reporting of "other comprehensive income, or (OCI)". This guidance revises the manner in which entities present comprehensive income in their financial statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income, or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used currently, and the second statement would include components of OCI. Under either method, entities must display adjustments for items that are reclassified from OCI to net income in both net income and OCI. The new reporting guidance does not change the items that must be reported in OCI. This new reporting standard is effective for interim and annual periods beginning after December 15, 2011. After adoption, the guidance must be applied retrospectively for all periods presented in the financial statements. The Company adopted this new guidance during 2012. It did not have a material impact on our financial position or operating results as the only element of comprehensive income relevant to Ebix is in regards to cumulative foreign currency translation adjustments. |
In September 2011, the FASB issued new technical guidance regarding an entity's evaluation of goodwill for possible impairment. Under this new guidance an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step quantitative impairment test is unnecessary. This new technical guidance was effective for fiscal years beginning after December 15, 2011. Early adoption was permitted for annual and interim goodwill impairment evaluations performed as of a date before September 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The Company elected to adopt early and accordingly applied this new guidance to its 2011 annual impairment evaluation of goodwill, and its adoption did not have a material impact on the Company's statements of financial position or operations. |