Business Combinations

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

During the nine months ended September 30, 2016, the Company completed one business acquisition as follows:

Effective July 1, 2016 Ebix and IHC jointly executed a Call Notice agreement, whereby Ebix purchased additional common units in the EbixHealth JV from IHC constituting eleven percent (11%) of the EbixHealth JV for $2.0 million cash which resulted in Ebix holding an aggregate fifty-one percent (51%) controlling equity interest in the EbixHealth JV. Commensurate with additional equity stake in the joint venture a contemporaneous valuation of the business was completed. In accordance with the technical accounting guidance pertaining to step acquisitions the Company recorded goodwill in the amount of $21.8 million, a non-controlling interest in the amount of $11.3 million, and recognized a $1.2 million gain on its previously carried 40% equity interest in the EbixHealth JV. This recognized gain is reflected as a component of other non-operating income in the accompanying Condensed Consolidated Statement of Income. The valuation of the EbixHealth JV is considered preliminary as the allocation to the identified tangible and intangible assets (e.g. customer lists, trade name, developed technology), and the determination of the residual goodwill has yet to performed, but will be completed in line with the filing of the Company's 2016 annual report on Form 10-K. Previously, effective September 1, 2015 Ebix and Independence Holdings Corporation ("IHC") formed a joint venture named Ebix Health Exchange Holdings, LLC ("EbixHealth JV"). Ebix paid $6.0 million and contributed a license to use certain CurePet software and systems valued by the EbixHealth JV at $2.0 million, for its initial 40% membership interest in the EbixHealth JV.

During the year ended December 31, 2015, the Company completed two business acquisitions, as follows:

The Company acquired PB Systems, Inc. (a U.S. company) and PB Systems Private Limited (an Indian company) (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 Company has determined that the fair value of the contingent earn out consideration is zero as of September 30, 2016. In the Company's Form 10-Q for the six months ended June 30, 2015, Form 10-Q for the nine months ended September 30, 2015, Form 10-K for the year ended December 31, 2015, and Form 10-Q for the three months ended March 31, 2016 the Company had disclosed that the valuation and purchase price allocation for the PB Systems acquisition was preliminary because all of the information necessary to determine the fair value of the acquired customer relationship intangible asset and fair value of the revenue-based earn out contingent liability was still in the process of being evaluated by management and the Company's external valuation firms. This evaluation was completed during the second quarter ended June 30, 2016 and resulted in a $1.8 million reduction to the developed technology intangible asset, a $1.6 million reduction to the customer relationship intangible asset, a $657 thousand reduction to the deferred tax liability, a $4.4 million reduction to the revenue-based earn out contingent liability, and a corresponding and offsetting $1.6 million reduction to goodwill to what was originally recorded in the second quarter of 2015. Additionally, since December 31, 2015 this resulted in a $8.2 million reduction to the customer relationship intangible asset, a $3.2 million reduction to the deferred tax liability, a $664 thousand reduction to the revenue-based earn out contingent liability, and a corresponding and offsetting $4.3 million increase to goodwill.

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 of up to $1.0 million depending upon revenue growth realized in the business over the subsequent twenty-four month period following the effective date of the acquisition. The Company has determined that the fair value of the contingent earn out consideration is zero as of September 30, 2016.

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 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 with achievement of revenues recognized over that target being awarded in the form of a 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. During the nine months ended September 30, 2016 and 2015, these aggregate contingent accrued earn-out business acquisition consideration liabilities were reduced by $2.4 million and $1.5 million, respectively, due to remeasurements 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 of $1.7 million to general and administrative expenses as reported on the Condensed Consolidated Statements of Income and a reduction of $664 thousand to goodwill as reported in the enclosed Condensed Consolidated Balance Sheets. As of September 30, 2016, the total of these contingent liabilities was $1.62 million, of which none is reported in long-term liabilities, and $1.62 million is included in current liabilities in the Company's Condensed Consolidated Balance Sheet. As of December 31, 2015 the total of these contingent liabilities was $4.28 million, of which $2.57 million was reported in long-term liabilities, and $1.71 million was 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, 2015 and September 30, 2016, which includes the acquisitions of Via Media Health (acquired in March 2015), PB Systems (acquired June 2015), and the EbixHealth JV (being fully consolidated effective July 1, 2016) 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 2016 and 2015 pro forma financial information below assumes that all such business acquisitions were made on January 1, 2015, whereas the Company's reported financial statements for the three months ended September 30, 2016 only include the operating results from these businesses since the effective date that they were acquired by Ebix.



	Three Months Ended September 30, 2016				Three Months Ended September 30, 2015				Nine Months Ended September 30, 2016				Nine Months Ended September 30, 2015
	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	$	74,608	$	74,608	$	66,813	$	69,854	$	218,248	$	224,534	$	195,278	$	211,013
Net Income attributable to Ebix, Inc.	$	24,067	$	24,067	$	20,232	$	19,574	$	69,218	$	68,249	$	57,604	$	56,206
Basic EPS	$	0.74	$	0.74	$	0.59	$	0.57	$	2.12	$	2.09	$	1.65	$	1.61
Diluted EPS	$	0.74	$	0.74	$	0.59	$	0.57	$	2.10	$	2.07	$	1.63	$	1.59

During the three months ended September 30, 2016 the Company's reported total operating revenues increased by $7.8 million or 12% to $74.6 million as compared to $66.8 million during the same period in 2015. Reported revenues were effected by the continuing weakening in the foreign currencies in which we conduct operations (particularly in Australia, Brazil, Great Britain, and India) as compared to the strengthening of the U.S. dollar. Specifically, the adverse impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations, in the aggregate reduced reported revenues by $348 thousand and $3.3 million for the three and nine months ended September 30, 2016, respectively.

With respect to business acquisitions completed during the years 2016 and 2015 on a pro forma basis, as disclosed in the above pro forma financial information table, combined revenues increased 7% and 6% for the three and nine months ending September 30, 2016, respectively, versus the same periods in 2015. The 2016 and 2015 pro forma financial information assumes that all business acquisitions made during this period were made on January 1, 2015, whereas the Company's reported financial statements for Q3 2016 and Q3 2015 only includes the revenues from these businesses since the effective date that they were acquired or consolidated by Ebix, being March 2015 for Via Media Health, June 2015 for PB Systems, and July 2016 for the EbixHealth JV.

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

•2016 and 2015 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 line with the Company's initiatives to maximize profitability.