Business Combinations

The Company seeks to execute accretive business acquisitions in combination with organic growth initiatives as part of its comprehensive business growth and expansion strategy, which primarily consist of businesses that are complementary to Ebix's existing products and services.

During the nine months ended September 30, 2015, the Company completed two business acquisitions, as follows:

The Company acquired PB Systems, Inc. and PB Systems Private Limited (together being "PB Systems"), effective June 1, 2015. PB Systems develops and implements software solutions for insurance clients. Ebix acquired PB Systems for upfront cash consideration in the amount of $12.4 million, plus possible future contingent earn out payments of up to $8.0 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. The valuation and purchase price allocation for the PB Systems acquisition is preliminary and will be finalized prior to December 31, 2015.

The Company acquired Via Media Health Communications Private Limited ("Via Media Health"), effective March 1, 2015. Via Media Health is one of India’s leading health content and communication companies. Ebix acquired Via Media Health for upfront cash consideration in the amount of $1.0 million, plus a possible future one time contingent earn out payment of up to $372 thousand based on earned revenues over the subsequent twelve month period following the effective date of the acquisition, and an additional possible one time future performance bonus depending upon revenue growth realized in the business over the subsequent twenty-four month period following the effective date of the acquisition. The valuation and purchase price allocation for the Via Media Health acquisition remains preliminary and will be finalized prior to December 31, 2015.

During the year ended December 31, 2014 the Company complete the following business acquisitions, as follows:

Effective December 2, 2014, Ebix acquired Oakstone Publishing, LLC ("Oakstone") in a membership interest purchase agreement for total net cash consideration in the amount of $23.72 million ($31.37 million less a closing net working capital adjustment of $7.65 million). Oakstone is leading provider of continuing education, certification materials for physicians, dentists and allied healthcare professionals, as well as wellness resources for various organizations. Ebix acquired all of the outstanding membership interests of Oakstone and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix. The Company accounted for this acquisition by recording $28.8 million of goodwill, $1.7 million of intangible assets pertaining to customer relationships, $501 thousand of intangible assets pertaining to acquired technology, and a $6.5 million deferred revenue liability. The valuation and purchase price allocation for the Oakstone acquisition remains preliminary and will be finalized prior to December 31, 2015.

On December 1, 2014, Ebix acquired the DCM Group Inc. (d.b.a. i3 Software) ("i3") in an asset purchase agreement for total cash consideration in the amount of $2 million and a possible contingent earn out of up to $4 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. i3 is a provider of software services and solutions to the insurance industry. Ebix acquired all of the assets of i3 and funded the purchase using internal cash reserves. The Company accounted for this acquisition by recording $1.6 million of goodwill, $310 thousand of intangible assets pertaining to customer relationships, and $48 thousand of intangible assets pertaining to acquired technology.

On November 3, 2014, Ebix acquired Vertex, Incorporated ("Vertex"), with an effective date of October 1, 2014, in a share purchase agreement for total cash purchase consideration in the amount of $27.25 million and a possible contingent earn out of $2 million based on earned revenues over the subsequent twenty-four month period following the date of the acquisition. Vertex is a specialized software and services firm focused primarily on the life and annuity insurance marketplace since 1991. Ebix acquired all of the outstanding capital stock of Vertex and funded the purchase using a mix of internal cash reserves and the bank credit line available to Ebix. The Company accounted for this acquisition by recording $27.7 million of goodwill, $2.5 million of intangible assets pertaining to customer relationships, and $235 thousand of intangible assets pertaining to acquired technology.

On May 21, 2014, Ebix acquired HealthCare Magic Private Limited ("HealthCare Magic"), a medical advisory service with an online network of approximately fifteen thousand General Physicians and Surgeons spread across fifty specialties including alternative medicine. The Company acquired HealthCare Magic for aggregate cash consideration in the amount of $6.0 million plus a possible future one time contingent earn out payment of up to $12.36 million based on earned revenues over the subsequent twenty-four month period following the effective date of the acquisition. This contingent earnout liability is currently estimated to have a fair value of $596 thousand. The Company funded the HealthCare Magic acquisition from available cash reserves on hand. The Company accounted for this acquisition by recording $5.6 million of goodwill, $452 thousand of intangible assets pertaining to customer relationships, $100 thousand of intangible assets pertaining to acquired technology, $59 thousand on intangible assets pertaining to trademarks and tradenames, and $226 thousand of intangible assets pertaining to non-compete agreements.

On January 27, 2014, Ebix acquired CurePet. CurePet was a developmental-stage enterprise that developed an insurance exchange that connects pet owners, referring veterinarians, animal hospitals, academic institutes, and suppliers of medical and general pet supplies, while providing a wide variety of services related to pet insurance to each constituent including practice management, electronic medical records, and billing. Previously Ebix had a minority investment in CurePet. Ebix acquired the entire business of CurePet in an asset purchase agreement with total purchase consideration being $6.35 million which includes a possible future one time contingent earnout payment of up to $5.0 million based on earned revenues over the subsequent thirty-six month period following the effective date of the acquisition. This contingent earnout liability is currently estimated to have a fair value of zero. Additional required cash consideration of $1.35 million was offset against open accounts receivable balances due to the Company from CurePet, and no actual cash outlay was made by the Company. As discussed in Note 9, "Investment in Joint Venture," to the accompanying financial statements, upon the formation of Ebix Health Solutions, LLC, effective September 1, 2015, a joint venture between Ebix and IHC Health Holdings Corporation, Ebix contributed certain portions of its investment in CurePet to said joint venture as part of the consideration towards Ebix's 40% membership interest. The agreed upon value of the contributed CurePet investment was $2.0 million.

A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential subsequent cash earnout payment based on reaching certain specified future revenue targets. The Company recognizes these potential obligations as contingent liabilities and are reported accordingly 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. During the nine months ended September 30, 2015 and 2014 these aggregate contingent accrued earn-out business acquisition consideration liabilities were reduced by $1.5 million and $7.5 million, respectively, due to remeasurements as based on the then assessed fair value and changes in anticipated future revenue levels. These reductions to the contingent accrued earn-out liabilities resulted in a corresponding reduction to general and administrative expenses as reported on the Condensed Consolidated Statements of Income. As of September 30, 2015, the total of these contingent liabilities was $8.01 million, of which $6.32 million is reported in long-term liabilities, and $1.69 million is included in current liabilities in the Company's Condensed Consolidated Balance Sheet. As of December 31, 2014 the total of these contingent liabilities was $5.37 million, of which $4.48 million is reported in long-term liabilities, and $887 thousand is included in current liabilities in the Company's Condensed Consolidated Balance Sheet.

Consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce.

The aggregated unaudited pro forma financial information pertaining to all of the Company's acquisitions made during the nine months ended September 30, 2014 and September 30, 2015, which includes the acquisitions of CurePet (acquired in January 2014), Via Media Health (acquired in March 2015), and PB Systems (acquired June 2015), as well as the effect of other businesses acquired in 2014, namely HealthCare Magic (May 2014), Vertex (October 2014), Oakstone (December 2014), and i3 (December 2014), as presented in the table below is provided for informational purposes only and is not a projection of the Company's expected results of operations for any future period. No effect has been given in this pro forma information for future synergistic benefits that may still be realized as a result of combining these companies or costs that may yet be incurred in integrating their operations. The 2015 and 2014 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2014, whereas the Company's reported financial statements for the three and nine months ended September 30, 2015 only include the operating results from these businesses since the effective date that they were acquired by Ebix.



	Three Months Ended September 30, 2015				Three Months Ended September 30, 2014				Nine Months Ending September 30, 2015				Nine Months Ending September 30, 2014
	As Reported		Pro Forma		As Reported		Pro Forma		As Reported		Pro Forma		As Reported		Pro Forma
	(unaudited)				(unaudited)				(unaudited)				(unaudited)
	(In thousands, except per share data)
Revenue	$	66,813	$	66,813	$	50,808	$	69,642	$	195,278	$	202,031	$	153,688	$	209,622
Net Income	$	20,232	$	20,232	$	18,015	$	17,711	$	57,604	$	57,834	$	47,011	$	47,075
Basic EPS	$	0.59	$	0.59	$	0.47	$	0.47	$	1.65	$	1.65	$	1.23	$	1.23
Diluted EPS	$	0.59	$	0.59	$	0.47	$	0.46	$	1.63	$	1.64	$	1.22	$	1.22

During the three months ended September 30, 2015 the Company's reported total operating revenues increased by $16.0 million or 32% to $66.8 million as compared to $50.8 million during the third quarter of 2014. Revenues increased as a result of revenue growth from Life, Annuity, Underwriting, Health Content services, in addition to revenue growth generated from the Company's 2014 acquisitions of HealthCare Magic, Vertex, and Oakstone and the 2015 acquisition of PB Systems, partially offset by the drop in revenue from international locations due to the strengthening of the U.S. dollar and a modest decrease in revenues from the company’s pharmaceutical and P&C carrier backend operations. The adverse impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations which in the aggregate reduced reported revenues in the 3rd quarter of 2015 by $3.4 million.

With respect to business acquisitions completed during the years 2015 and 2014 on a pro forma basis, as disclosed in the above “Pro Forma Financial Information”, combined revenues decreased 4.1% for the third quarter of 2015 versus the third quarter of 2014. The 2015 and 2014 pro forma financial information assumes that all business acquisitions made during this period were made on January 1, 2014, whereas the Company's reported financial statements for Q3 2015 and Q3 2014 only includes the revenues from these businesses since the effective date that they were acquired by Ebix, being January 2014 for CurePet, May 2014 for HealthCare Magic, October 2014 for Vertex, December 2014 for Oakstone and i3, March 2015 for Via Media Health, and June 2015 for PB Systems.

The above referenced pro forma information and the relative comparative change in pro forma and reported revenues are based on the following premises:

•2015 and 2014 pro forma revenue contains actual revenue of the acquired entities before acquisition date, as reported by the sellers, as well as actual revenue of the acquired entities after acquisition. Whereas the reported growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition.

•Revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business.

•Any existing products sold to new customers obtained through a newly acquired customer base, are assigned to the acquired section of our business.

•Pro formas do not include post acquisition revenue reductions as a result of discontinuation of any product lines and/or customer projects by Ebix in its bid to maximize profitability.