Description of Business and Summary of Significant Accounting Policies

Description of Business— Ebix, Inc., and its subsidiaries, (“Ebix” or the “Company”) is a leading international supplier of on-demand infrastructure Exchanges to the insurance, financial e-learning, 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, while also providing Software-as-a-Service ("SaaS") enterprise solutions in the area of customer relationship management, front-end & back-end systems, outsourced administrative and risk compliance. 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. With a "Phygital” strategy that combines physical distribution outlets in many Association of Southeast Asian Nations (“ASEAN”) countries to an Omni-channel online digital platform, the Company’s EbixCash Financial exchange portfolio encompasses leadership in areas of domestic & international money remittance, foreign exchange, travel, pre-paid & gift cards, utility payments, etc., in emerging countries such as India. EbixCash through its travel portal Via.com is also one of Southeast Asia’s leading travel exchanges with distribution outlets and corporate clients processing millions of transactions every year. The Company’s E-learning solutions are provided to schools across the breadth of India with the goal of educating students in a classroom through high quality 2-D and 3-D animation and multimedia learning. The Company has its headquarters in Johns Creek, Georgia and also conducts operating activities in Australia, Canada, India, New Zealand, Singapore, United Kingdom, Brazil, Philippines, Indonesia, and United Arab Emirates. International revenue accounted for 57.8% and 36.9% of the Company’s total revenue for the six months ended June 30, 2018 and 2017, respectively.

The Company’s revenues are derived from four product/service channels. Presented in the table below is the breakout of our revenue streams for each of those product/service channels for the three months ended June 30, 2018 and 2017.



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2018		2017		2018		2017
Exchanges	$	101,581	$	60,373	$	183,439	$	112,987
Broker Systems	3,696		3,595		7,306		7,383
Risk Compliance Solutions (“RCS”)	19,007		22,663		41,274		44,515
Carrier Systems	342		756		837		1,605
Totals	$	124,626	$	87,387	$	232,856	$	166,490

The Company is continuing to evaluate the classification of the 2017 and 2018 acquisitions that collectively make up the EbixCash Financial Exchanges, refer to Part I, Item I Business in our Form 10-K for the year ended December 31, 2017. Currently these acquisitions are reported under the Exchange channel, but this classification is subject to change based on the conclusions of our continued evaluations.

Summary of Significant Accounting Policies

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements and these notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") with the effect of inter-company balances and transactions eliminated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP and SEC rules have been condensed or omitted as permitted by and pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements contain adjustments (consisting only of normal recurring items) necessary to fairly present the consolidated financial position of the Company and its consolidated results of operations and cash flows. Operating results for the six months ended June 30, 2018 and 2017 are not necessarily indicative of the results that may be expected for future quarters or the full year of 2018. The condensed consolidated December 31, 2017 balance sheet included in this interim period filing has been derived from the audited financial statements at that date, but does not necessarily include all of the information and related notes required by GAAP for complete financial statements. These condensed interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Restricted Cash- As part of the ItzCash Card Limited ("ItzCash") acquisition, $4.0 million of the possible future contingent earn-out payments is being held in escrow accounts for the twelve month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual gross revenue threshold. This threshold has been achieved and will be paid out in the subsequent quarter. Additionally, as part of the Wdev Solucoes em Technologia SA ("Wdev") acquisition, upfront cash consideration is being held in an escrow account for the thirty-eight month period following the effective date of the acquisition to ensure that the acquired business achieves the minimum specified annual net revenue threshold, which if not achieved will result in said funds being returned to Ebix. As of June 30, 2018 there is $2.6 million included in other long-term assets of the Company's Condensed Consolidated Balance Sheet.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:



	Six Months Ended
	June 30,
(In thousands)	2018		2017
Cash and cash equivalents	$	113,410	$	68,449
Restricted cash	3,992		3,998
Restricted cash included in other long-term assets	2,591		2,855
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	119,993	$	75,302

Advertising—Advertising costs amounted to $3.9 million and $3.1 million in the first six months of 2018 and 2017, respectively, and are included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income. Under legacy US GAAP 340-20, direct response advertising was eligible for capitalization if certain conditions were met. During the first six months of 2017 reported sales and marketing expenses included $2.0 million of amortization of certain direct-response advertising costs associated with our medical education services, which have been capitalized in accordance with Accounting Standards Codification ("ASC") Topic 340. These costs were previously amortized to advertising expense over periods ranging from twelve to twenty-four months based on the type of product the customer purchased. Effective January 1, 2018 Subtopic 340-40 replaced that guidance to require the costs of direct-response advertising to be expensed as they are incurred or the first time the advertising takes place. The Company was required to recognize a cumulative effective change to opening retained earnings in the year of adoption of the standard. The Company recorded a one-time $1.9 million adjustment to retained earnings on January 1, 2018 and is expensing all future costs from this date forward. Under the new guidance Subtopic 340-40, the Company's expense decreased by $497 thousand during the first six months of 2018 from what would have been recorded under legacy US GAAP 340-20.

Fair Value of Financial Instruments—The Company follows the relevant GAAP guidance concerning fair value measurements which provides a consistent framework to define, measure, and disclose the fair value of assets and liabilities in financial statements. 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. This guidance establishes a three-level hierarchy priority for disclosure of assets and liabilities recorded at fair value. The ordering of priority reflects the degree to which objective data from external active markets are available to measure fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. The classifications are as follows:


•	Level 1 Inputs - Unadjusted quoted prices available in active markets for identical investments to the reporting entity at the measurement date.


•	Level 2 Inputs - Other than quoted prices included in Level 1 inputs, which are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.


•	Level 3 Inputs - Unobservable inputs, which are used to the extent that observable inputs are not available, and 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 June 30, 2018, the Company had the following financial instruments to which it had to consider fair values and had to make fair value assessments:


•	Short-term investments (commercial bank certificates of deposits and mutual funds), for which the fair values are measured as a Level 1 instrument.

•

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 re-measured quarterly 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.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheet at June 30, 2018 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, and the revolving line of credit and term loan debt under the syndicated credit agreement facility with Regions Financial Corporation. The Company believes that the estimated fair value of such instruments at June 30, 2018 and December 31, 2017 approximates their carrying value as reported on the unaudited Condensed Consolidated Balance Sheet.

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:



	Fair Values at Reporting Date Using*
Descriptions	Balance, June 30, 2018		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Commercial bank certificates of deposits ($4.71 million is recorded in the long term asset section of the consolidated balance sheets in "Other Assets")	$	25,968	$	25,968	$	—	$	—
Mutual Funds ($857 thousand recorded in the long term asset section of the consolidated balance sheets in "Other Assets")	857		857		—		—
Total assets measured at fair value	$	26,825	$	26,825	$	—	$	—

Liabilities
Derivatives:
Contingent accrued earn-out acquisition consideration (a)	$	21,608	$	—	$	—	$	21,608
Total liabilities measured at fair value	$	21,608	$	—	$	—	$	21,608

(a) 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 three and six months ended June 30, 2018 there were no transfers between fair value Levels 1, 2 or 3.



	Fair Values at Reporting Date Using*
Descriptions	Balance, December 31, 2017		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Commercial bank certificates of deposits ($2.19 million is recorded in the long term asset section of the consolidated balance sheets in "Other Assets")	$	22,293	22,293		$	—	$	—
Mutual Funds ($785 thousand recorded in the long term asset section of the consolidated balance sheets in "Other Assets")	6,278		6,278		—		—
Total assets measured at fair value	$	28,571	$	28,571	$	—	$	—

Liabilities
Derivatives:
Contingent accrued earn-out acquisition consideration (a)	$	37,096	$	—	$	—	$	37,096
Total liabilities measured at fair value	$	37,096	$	—	$	—	$	37,096

(a) 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 twelve months ended December 31, 2017 there were no transfers between fair value Levels 1, 2 or 3.

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 six months ended June 30, 2018 and during the year ended December 31, 2017:



Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Contingent Liability for Accrued Earn-out Acquisition Consideration	June 30, 2018			December 31, 2017
	(In thousands)

Beginning balance	$	37,096		$	8,510

Total remeasurement adjustments:
Gains included in earnings **	—			(164		)
Reductions recorded against goodwill	(13,718		)	(4,007		)
Foreign currency translation adjustments ***	(1,770		)	522

Acquisitions and settlements
Business acquisitions	—			34,156
Settlement payments	—			(1,921		)

Ending balance	$	21,608		$	37,096

The amount of total (gains) losses for the period included in earnings or changes to net assets, attributable to changes in unrealized gains relating to assets or liabilities still held at period-end.	$	—		$	—

** recorded as a reduction to reported general and administrative expenses
*** recorded as a component of other comprehensive income within stockholders' equity

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:

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 projected revenue forecasts as developed by the relevant members of Company's management team and the probability of achievement of those revenue forecasts. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly higher (lower) fair value measurement. 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. During 2017 and 2018, certain of the Company's contingent earn out liabilities were adjusted because of changes to anticipated future revenues from these acquired businesses, or as a result of finalizing purchase price allocations that were previously provisional.

Revenue Recognition—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which amends the guidance in those areas in the new revenue recognition standard.

The Company derives its revenues primarily from subscription and transaction fees pertaining to services delivered over our exchanges or from our application service provider ("ASP") platforms, fees for risk compliance solution services, and fees for software development projects 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.

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:


•	identification of the contract, or contracts, with a customer;


•	identification of the performance obligations in the contract;


•	determination of the transaction price;


•	allocation of the transaction price to the performance obligations in the contract; and


•	recognition of revenue when, or as, we satisfy a performance obligation.

For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the relevant technical accounting guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate performance obligations for the purpose of revenue recognition. These types of arrangements include obligations pertaining to software licenses, system set-up, and professional services associated with product customization or modification. Delivery of the various contractual obligations typically occurs over periods of less than eighteen months. These arrangements generally do not have refund provisions or have very limited refund terms.

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

Financial exchange revenue consists largely of transaction-based fees and fees from the corporate and retail segments. The transaction-based fees are primarily based on a percentage of payment value processed for solutions such as retail and corporate payments, international and domestic money transfers, foreign exchange, travel related transactions and general purpose reloadable cards. Transaction-based fees are recognized at the completion of the transaction.

The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective method and applying the new standard to those contracts which were not completed as of January 1, 2018. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption resulted in a decrease to retained earnings of $11.6 million for the cumulative effect of applying the Topic 606. This decrease was principally driven by the deferral of certain services revenues associated with programming, setup, and implementation activities related to our SaaS offering and changes related to costs to obtain customers, including the related amortization period.

During the first quarter of 2018 the company recorded its meetings, incentives, conference, events (“M.I.C.E.“) revenue on a net basis for its Via.com division. The net amount reported in operating revenues was $256 thousand ($2.06 million gross revenue less associated costs of $1.8 million). During the second quarter the company determined that it is the principal to these transactions under the relevant guidance in Topic 606, Revenue from Contracts with Customers, and the gross basis presentation is more appropriate for these type of revenue transactions. As a result the second quarter’s revenues included the gross presentation of the first quarter amounts. This resulted in an increase in the second quarter’s operating revenues of $1.80 million and costs of services provided of $1.8 million. Additionally the M.I.C.E. revenue pertaining to the second quarter was $1.14 million gross revenue, reported in Operating Revenues of the Company’s Condensed Consolidated Statements of Income, and associated costs of $1.03 million, reported in Costs of Services Provided of the Company’s Condensed Consolidated Statements of Income.

Impact of New Revenue Recognition Standard on Financial Statement Line Items

The cumulative effect of applying Topic 606 to all contracts was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018:



	Impact of Change in Accounting Policy
(In thousands)	As Reported December 31, 2017		Adjustments			Adjusted January 1, 2018
Other Current Assets	$	33,532	$	898		$	34,430
Current Assets	252,932		898			253,830
Deferred tax asset, net	43,529		2,843			46,372
Other Assets	11,720		1,502			13,222
Total Assets	1,113,013		5,243			1,118,256
Current Deferred Revenue	22,562		5,124			27,686
Current Liabilities	146,932		5,124			152,056
Long Term Deferred Revenue	1,423		8,921			10,344
Total Liabilities	579,254		14,045			593,299
Retained Earnings	510,975		(8,802		)	502,173

The following tables present the impact of adopting Topic 606 on the Company’s unaudited consolidated financial statements as of and for the three and six months ended June 30, 2018:



	Impact of Change in Accounting Policy
	As Reported Three Months Ended June 30, 2018			Adjustments			Balances without adoption of Topic 606
Condensed Consolidated Statement of Income	(In thousands)
Operating Revenue	$	124,626		$	(1	)	$	124,625
Costs of Services Provided	43,559			19			43,578
Total Operating Expenses	86,311			19			86,330
Operating Income	38,315			(20		)	38,295
Income before income taxes	31,293			(20		)	31,273
Income tax (expense) benefit	(2,222		)	5			(2,217		)



Net income including non-controlling interest	29,071			(15		)	29,056
Net income attributable to Ebix, Inc.	29,180			(15		)	29,165
Basic earnings per common share attributable to Ebix, Inc.	0.93			—			0.93
Diluted Earnings per common share attributable to Ebix, Inc.	0.92			—			0.92


	As Reported Six Months Ended June 30, 2018			Adjustments			Balances without adoption of Topic 606
Condensed Consolidated Statement of Income	(In thousands)
Operating Revenue	$	232,856		$	(624	)	$	232,232
Costs of Services Provided	83,150			(120		)	83,030
Total Operating Expenses	160,645			(120		)	160,525
Operating Income	72,211			(504		)	71,707
Income before income taxes	59,875			(504		)	59,371
Income tax (expense) benefit	(4,348		)	123			(4,225		)
Net income including non-controlling interest	55,527			(381		)	55,146
Net income attributable to Ebix, Inc.	55,388			(381		)	55,007
Basic earnings per common share attributable to Ebix, Inc.	1.76			(0.01		)	1.75
Diluted Earnings per common share attributable to Ebix, Inc.	1.75			(0.01		)	1.74

	As Reported June 30, 2018			Adjustments			Balances without adoption of Topic 606
Condensed Consolidated Balance Sheet	(In thousands)
Other current assets	$	33,205		$	(848	)	$	32,357
Total current assets	328,229			(848		)	327,381
Deferred tax asset, net	46,819			(2,309		)	44,510
Other assets	22,710			(1,312		)	21,398
Total assets	1,357,577			(4,469		)	1,353,108
Current Deferred Revenue	31,011			(4,618		)	26,393
Total current liabilities	194,077			(4,618		)	189,459
Long Term Deferred Revenue	7,152			(6,951		)	201
Total liabilities	809,675			(11,569		)	798,106
Retained earnings	550,480			7,100			557,580

	As Reported Six Months Ended June 30, 2018			Adjustments			Balances without adoption of Topic 606
Condensed Consolidated Statement of Cash Flows	(In thousands)
Net income attributable to Ebix, Inc.	$	55,388		$	(381	)	$	55,007
Other assets	(40		)	(120		)	(160		)
Deferred Revenue	(5,544		)	2,476			(3,068		)
Net cash provided by operating activities	39,893			1,975			41,868

Disaggregation of Revenue

The following tables present revenue disaggregated by primary geographical regions and product channels for the three months and six months ended June 30, 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	(In thousands)				(In thousands)
Revenue:	2018		2017⁽¹⁾		2018		2017⁽¹⁾
United States	48,400		52,900		$	98,302	$	105,079
Canada	1,456		2,034		3,056		4,142
Latin America	5,161		4,319		10,555		8,218
Australia	8,740		7,617		18,227		16,516
Singapore	1,924		1,394		4,140		3,125
New Zealand	526		543		1,013		1,023
India	51,351		14,379		83,354		19,999
Europe	3,841		4,201		7,872		8,388
Dubai	—		—		4		—
Indonesia	1,828		—		3,369		—
Philippines	1,245		—		2,593		—
United Arab Emirates	154		—		371		—
	$	124,626	$	87,387	$	232,856	$	166,490

See Note 7 for additional geographic information



	Three Months Ended				Three Months Ended
	June 30				June 30
(In thousands)	2018		2017⁽¹⁾		2018		2017
Exchanges	$	101,581	$	60,373	$	183,439	$	112,987
Broker Systems	3,696		3,595		7,306		7,383
RCS	19,007		22,663		41,274		44,515
Carrier Systems	342		756		837		1,605
Totals	$	124,626	$	87,387	$	232,856	$	166,490

(1) Prior period amounts have not been adjusted under the modified retrospective method.

Costs to Obtain and Fulfill a Contract

The Company capitalizes certain costs in order to maintain the ability to obtain and fulfill new contracts and contract renewals. These costs are primarily related to the setup and customization of our SaaS based platforms and such costs are amortized over the benefit period. Under our treatment prior to implementing Topic 606, these costs were expensed as incurred. As of June 30, 2018, the Company had $848 thousand of contract costs in “Other current assets” and $1.3 million in “Other Assets” on the Company's Condensed Consolidated Balance Sheets.



(In thousands)	June 30, 2018
Balance, beginning of period	$	—
Topic 606 adjustment	2,401
Adjusted beginning balance	$	2,401
Costs recognized from adjusted beginning balance	(469		)
Additions, net of costs recognized	228
Balance, end of period	$	2,160

Deferred Revenue

The Company records deferred revenue when it receives payments or invoices in advance of the performance of services. A significant portion of this balance relates to contracts where the customer has paid in advance for the use of our SaaS platforms over a specified period of time. This portion is recognized as the related performance obligation is fulfilled (generally less than one year). The remaining portion of the deferred revenue balance consists primarily of customer-specific customizations that are not distinct from related performance obligations that transfer over time. This portion is recognized over the expected useful life of the customizations.



(In thousands)	June 30, 2018
Balance, beginning of period	$	23,985
Topic 606 adjustment	14,045
Adjusted beginning balance	$	38,030
Revenue recognized from adjusted beginning balance	(22,887		)
Additions from business acquisitions	6,366
Additions, net of revenue recognized and currency translation	16,654
Balance, end of period	$	38,163

Practical Expedients and Exemptions

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed, and (iii) contracts from periods prior to the application of Topic 606.

Income Taxes

The adoption of Topic 606 resulted in an increase to deferred revenue, which in turn generated an additional deferred tax asset that increased the Company’s net deferred tax asset position.

Accounts Receivable and the Allowance for Doubtful Accounts—Reported accounts receivable include $107.0 million of trade receivables stated at invoice billed amounts and $41.3 million of unbilled receivables (net of the estimated allowance for doubtful accounts receivable in the amount of $6.1 million). The unbilled receivables pertain to certain projects for which the timing of billing is tied to contractual milestones. The Company is continuing to evaluate the 2017 and 2018 acquisitions that collectively make up the EbixCash Financial Exchanges, refer to Part I, Item I Business in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and their impact on our condensed consolidated balance sheets. The Company adheres to such contractually stated performance milestones and accordingly issues invoices to customers as per contract billing schedules. Approximately $5.8 million of deferred revenue is included in billed accounts receivable at June 30, 2018. The Company recognized and recorded bad debt expense in the amount of $1.1 million and $2.1 million for the three and six-month periods ended June 30, 2018 and $316 thousand and $723 thousand for the three and six-month periods ended June 30, 2017, respectively. Accounts receivable are written off against the allowance account when the Company has exhausted all reasonable collection efforts. During the six months ended June 30, 2018 and 2017, $137 thousand and $313 thousand, respectively, of accounts receivable, which had been specifically reserved for in prior periods, were written off.

Goodwill and Other Indefinite-Lived Intangible Assets—Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. Indefinite-lived intangible assets represent the fair value of certain acquired contractual customer relationships for which future cash flows are expected to continue indefinitely. In accordance with the relevant FASB accounting guidance, goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurs or circumstances change that would likely have reduced the fair value of a reporting unit below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, and the sale or disposition of a significant portion of the business. The impairment evaluation process involves an assessment of certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than 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 the Company 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 and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge.

In 2017 the goodwill residing in the Exchange reporting unit, the RCS reporting unit, and the Carrier reporting unit were evaluated for impairment using step-one of the quantitative testing process described above. The fair value of three of these reporting units were found to be greater than their carrying value and,therefore, step-two of the quantitative testing process described above became unnecessary because no impairment was indicated. In specific regards to the RCS reporting unit, its assessed fair value was $158.0 million which was $42.4 million or 36.7% in excess of its $115.6 million carrying value. Key assumptions used in the fair value determination were annual revenue growth of 7.5% to 12.5% and discount rate of 16%. As of September 30, 2017 there was $78.2 million of goodwill assigned to the RCS reporting unit. A significant reduction in future revenues for the RCS reporting unit would negatively affect the fair value determination for this unit and may result in an impairment to goodwill and a corresponding charge against earnings. We perform our annual goodwill impairment evaluation and testing as of September 30th of each year. This evaluation is performed during the fourth quarter each year. During the year ended December 31, 2017 we had no impairment of our reporting unit goodwill balances.

Changes in the carrying amount of goodwill for the six months ended June 30, 2018 and the year ended December 31, 2017 are reflected in the following table.



	June 30, 2018			December 31, 2017
	(Unaudited)
	(In thousands)
Beginning Balance	$	666,863		$	441,404
Additions (see Note 3)	192,271			233,095
Purchase accounting adjustments	(13,071		)	(12,158		)
Foreign currency translation adjustments	(20,537		)	4,522
Ending Balance	$	825,526		$	666,863

Capitalized Software Development Costs—In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. Costs incurred to enhance our software products, after general market release of the services using the products, are expensed in the period they are incurred.

Finite-lived Intangible Assets—Purchased intangible assets represent the estimated acquisition date fair value of customer relationships, developed technology, trademarks and non-compete agreements obtained in connection with the businesses we acquire. We amortize these intangible assets on a straight-line basis over their estimated useful lives, as follows:



Category		Life (yrs)
Customer relationships		7–20
Developed technology		3–12
Dealer networks		15-20
Trademarks		3–15
Non-compete agreements		5
Backlog		1.2
Database		10

The carrying value of finite-lived and indefinite-lived intangible assets at June 30, 2018 and December 31, 2017 are as follows:



	June 30, 2018			December 31, 2017
	(Unaudited)
	(In thousands)
Finite-lived intangible assets:
Customer relationships	$	72,870		$	73,725
Developed technology	16,157			15,076
Dealer network	9,871			10,581
Trademarks	2,690			2,698
Non-compete agreements	764			764
Backlog	140			140
Database	212			212
Total intangibles	102,704			103,196
Accumulated amortization	(60,662		)	(57,485		)
Finite-lived intangibles, net	$	42,042		$	45,711

Indefinite-lived intangibles:
Customer/territorial relationships	$	42,055		$	42,055

Amortization expense recognized in connection with acquired intangible assets was $1.7 million and $3.6 million for the

three and six months ended June 30, 2018, respectively, and $1.8 million and $3.6 million for the three and six months ended June 30, 2017, respectively.

Foreign Currency Translation—The functional currency for the Company's foreign subsidiaries in India, Dubai, and Singapore is the U.S. dollar because the intellectual property research and development activities provided by its Dubai and Singapore subsidiaries, and the product development and information technology enabled services activities for the insurance industry provided by its India subsidiary, both in support of the Company's operating divisions across the world, are transacted in U.S. dollars.

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, and are included in the condensed consolidated statements of comprehensive income. 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.

Income Taxes—Deferred income taxes are recorded to reflect the estimated future tax effects of differences between the 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 the relevant 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. In this regard we recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

Recent Relevant Accounting Pronouncements—The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company's business:

In June 2018 the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.

In February 2018, the FASB issued Accounting Standards Update ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides that the stranded tax effects from the Tax Act in accumulated other comprehensive loss may be reclassified to retained earnings. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.

In January 2017 the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment". To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities). Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A public business entity filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet.

In January 2017 the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business which amended the existing FASB ASC. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal 2019 with early adoption permitted. The Company has yet to assess the impact that the adoption of this ASU will have on Ebix's consolidated income statement and balance sheet

In November 2016 the FASB issued ASU 2016-18, Statement of Cash Flow (Topic 230) Restricted Cash amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company adopted the new guidance on January 1, 2018 with no material impact to its statement of cash flows. For the six months ended June 30, 2018 and 2017, the Company held $4.0 million and $4.0 million, respectively, in "Restricted cash" and $2.6 million and $2.9 million, respectively, in "Other long-term assets" of the Company's Condensed Consolidated Balance Sheet.

In October 2016 the FASB issued ASU 2016-16, "Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory". Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments specified by ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of the amendments are intellectual property, and property, plant and equipment. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments align the recognition of income tax consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards. IAS 12, Income Taxes, requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (including inventory) when the transfer occurs. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.

In August 2016 the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the following eight specific cash flow issues: Contingent consideration payments made after a business combination; distributions received from equity method investees; debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies; and beneficial interests in securitization transactions; and also addresses separately identifiable cash flows and application of the predominance principle. The amendments in this ASU apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the ASU for those issuers would be applied prospectively as of the earliest date practicable. The Company adopted the new guidance on January 1, 2018 with no material impact to its consolidated financial statements.

In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842). This new accounting guidance is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e., operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. For operating leases there will have to be the recognition of a lease liability and a lease asset for all such leases greater than one year in term. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all companies and organizations. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. See Note 5 for the Company’s current lease commitments. The Company is evaluating the impact that this new leasing ASU will have on its financial statements.

(In thousands)

Fair Value at June 30, 2018

Valuation Technique

Significant Unobservable
Input

Contingent acquisition consideration:
(Wdev and ItzCash acquisition)

Discounted cash flow

Projected revenue and probability of achievement