December 5, 2015

Executive Summary

On August 6, 2014, a letter (enclosed with this memo) was sent to Cherry Bekaert Holland, Ebix’s auditor,
to outline major concerns with transactions among Ebix’s foreign subsidiaries and the company’s use of
earnout reversals. On February 19, 2015, a letter (enclosed with this memo) was sent to Justin Jeffries at
the SEC further outlining significant concerns with Ebix’s accounting and disclosure that had not been
previously addressed. This memo serves as an update to those letters, highlighting subsequent business
developments and financial disclosures by Ebix. Ebix continues to have no organic growth, a questionable
M&A strategy, extremely low earnings quality, and other critical unresolved questions.

I. Unequivocal Lack of Organic Growth

 Acquisitions have been a cornerstone of the EBIX story since the early 2000s, but since the
beginning of 2014, Ebix has acquired seven companies for total initial consideration of $73M and
potential earnouts of $32M
 While these acquisitions have contributed to “headline” topline growth, they account for over 100%
of the company’s consolidated revenue growth—on an organic growth basis (presented as pro
forma revenue by the company itself), 2014 revenue growth was minimal and every quarter in 2015
has been negative1:

2014 1Q15 2Q15 3Q15

Reported yoy revenue growth 4.7% 24.0% 25.7% 31.5%
1
Organic growth 0.9% -2.0% -2.2% -4.1%

1
Defined by Ebix as "Pro forma" revenue: for 2014, assumes all acquisitions
were completed on 1/1/13, and for 2015, assumes all acquisitions were
completed on 1/1/14
2014 10-K

1Q15 10-Q

2Q15 10-Q

                                                            
1 Source: US SEC Filings
3Q15 10-Q

II. Questionable Acquisition Practices

We suspect Ebix acquired businesses that were in poor condition or unrelated to its core operations in part
to mask the company’s declining organic revenue growth.
 Healthcare Magic – this was an $18MM acquisition (including earnout) of an India-based
healthcare Q&A platform whose sales fell 53% from 3/31/12 to 3/31/152

 Via Media Health – this was a $1.37MM acquisition (including earnout) of a healthcare PR
agency, a business completely unrelated to Ebix’s technology business with much lower margins
than the corporate average3

Via Media Health

4/1/11-3/31/12 4/1/12-3/31/13 4/1/13-3/31/14
Revenue (Rs) 38,620,124 44,358,458 64,518,166
% yoy growth 14.9% 45.4%
Profit before tax (Rs) (7,799,450) 5,085,475 6,004,846
% margin -20.2% 11.5% 9.3%

 Curepet – in 2012, Ebix acquired 19.8% of Curpet for $2MM, which designs veterinary practice
management software, implying a $10.1MM valuation for the business
o Ebix subsequently acquired Curepet (which was valued at $10.1MM in 2012) for
$1.35MM (plus a $5MM earnout which is now estimated to be zero) in 2014
o The $1.35MM acquisition price was offset by an equivalent amount owed by Curepet to
Ebix4
                                                            
2 Source: Indian MCA filings, CIN #U25517KA2008PTC045385
3 Source: Indian MCA filings, CIN #U74300DL2000PTC104259
4 Source: 2014 EBIX 10-K
  We suspect this was a tidy way to avoid a write down of the initial investment

o In 2015, Ebix contributed Curepet to a JV with IHC Health Holdings Corporation, and
valued the contribution of Curepet at $2MM – we suspect Ebix moved Curepet into the JV
to avoid a write down of the asset

o Of the $82MM in assets acquired in 2014, acquisitions for which a purchase price
allocation was disclosed, over $68MM, or 84%, was allocated to goodwill, which is not
amortizable and continues to become an increasingly larger part of Ebix’s balance sheet4

2014 Acquisitions - purchase price allocation

Fair value of consideration transferred
Cash 59,514
Contingent earnout 4,312
Previous cash consideration in inv of step up acq - Curepet 2,000
Cash consideration offset against open receivable balances due to Ebix, Inc. from CurePet 1,350
Total 67,176

Fair value of assets acquired and liabilities assumed

Cash 323
Other current assets 5,263
PP&E 670
Other long term assets 54
Intangible assets 6,872
Goodwill 68,503
Total assets acquired 81,685
Deferred tax liability (1,040)
Current and other liabilities (13,469)
Less: Total liabilities acquired (14,509)
Total net assets acquired 67,176

III. Low Quality of Earnings

 Taxes: Ebix’s effective tax rate is considerably lower than its actual cash tax rate
o In 1Q15, Ebix made a $20.5MM payment to IRS to settle income tax audits for 2008-2012
o After applying this payment to cash taxes over the audit period in question, it is apparent
that Ebix’s cash tax rate meaningfully exceeds its reported effective income tax rate

$000s 2008 2009 2010 2011 2012 2013 2014 1Q15 2Q15 3Q15
Cash taxes 1,937 4,752 2,396 3,796 8,590 13,779 11,433 20,163 763 3,737
Adjusted cash taxes 1 6,037 8,852 6,496 7,896 12,690 13,779 11,433 (337) 763 3,737

Cash flow from operations before income taxes 30,608 41,244 57,928 80,365 88,390 81,209 71,909 12,982 24,113 18,980
and deferred tax payments

Adjusted cash tax rate2 19.7% 21.5% 11.2% 9.8% 14.4% 17.0% 15.9% -2.6% 3.2% 19.7%
Reported effective income tax rate 4.8% 2.5% 1.1% 2.9% 9.6% 15.5% 17.9% 11.6% 5.6% 8.5%

1
Spreading $20.5MM tax payment across 5 years of audits reviewed by IRS
2
Adjusted cash taxes as a % of CFFO before income taxes and deferred tax payments

o Ebix’s effective tax rate is persistently lower than its cash tax rate. It appears that Ebix’s
reported earnings are benefiting from a tax rate that doesn’t reflect the actual cash
obligations the company has to its taxing authorities
o If Ebix had a 20% tax rate over the last 12 months, its TTM EPS would have been $1.84
instead of the reported $2.09
  Earnout Reversals: Most critically, Ebix has continued to use a reversal of contingent earnout
liabilities to boost earnings – since 2008, Ebix has reversed 52%, or $29MM, of its earnout
liability into earnings, suggesting either an inability to assess whether earnouts are attainable or
creation of an earnings cookie jar5

Contingent Liability for Accrued Earn-out Acquisition Consideration ($000s)

2008 2009 2010 2011 2012 2013 2014 1Q15 2Q15 3Q15 Total
Beginning balance 0 4,049 4,700 8,911 7,590 17,495 14,420 5,367 5,330 10,080
Total remeasurement adjustments:
Gain or losses included in earnings 0 0 (1,500) (4,589) (699) (10,253) (10,237) 0 0 (1,533) (28,811)
Gain or losses recorded against goodwill 0 3,279 0 0 0 0 0 0 0 (2,000)
Foreign currency translation adjustments 0 0 0 0 (143) 730 (314) (37) 50 (60)
Acquisitions and settlements
Business acquisitions 4,549 1,500 8,700 4,000 16,258 9,425 4,312 0 4,700 1,526 54,970
Settlements (500) (4,279) (2,992) (577) (5,511) (2,977) (2,814) 0 0 0
Adjustment to tie-out 0 151 3 (155) 0 0 0 0 0 0
Ending balance 4,049 4,700 8,911 7,590 17,495 14,420 5,367 5,330 10,080 8,013

% of booked liability that has been reversed 52%

oEbix’s earnout reversals contributed 13% of Ebix’s 2014 operating income and 22c to EPS
of $1.67
o In the most recent TTM period, earnout reversals contributed 5% of operating income and
6c to EPS of $2.09
 Foreign Exchange: In the most recent TTM period, gains on foreign currency have contributed
3% to pretax income and 7c to EPS of $2.09
 Excluding earnout reversals, forex gains, and bringing the effective tax rate inline with the cash tax
rate (assume 19%), TTM earnings would have been 18% lower than reported, implying that Ebix,
a business with negative organic growth, is trading north of 21x TTM EPS

($000s) 4Q14 1Q15 2Q15 3Q15 TTM

Operating income 21,068 20,499 20,423 21,968 83,958
Less: benefit from earnout reversal (2,704) - - (1,533) (4,237)
Adjusted operating income 18,364 20,499 20,423 20,435 79,721
Net interest expense & other (2,471) (658) (581) (996) (4,706)
Adjusted earnings before taxes excl forex gains 15,893 19,841 19,842 19,439 75,015
Effective income tax rate 19% 19% 19% 19% 19%
Adjusted net income 12,873 16,071 16,072 15,746 60,762
Adjusted EPS $0.35 $0.45 $0.46 $0.46 $1.71

Reported Net Income 16,547 18,336 19,036 20,232 74,151

Reported EPS $0.45 $0.51 $0.54 $0.59 $2.09

% diff (Adjusted vs Reported)

Net income -22.2% -12.4% -15.6% -22.2% -18.1%
EPS -22.3% -12.4% -15.1% -22.7% -18.1%

III. Other Unresolved Issues

 In the third quarter of 2015, Ebix transferred $32M in long-lived assets out of the US, and the long
lived assets in India grew by $34M – the company has not provided any explanation for this6

 Ebix has still not filed 2014 financial statements with the Indian regulator (despite completion of
the 2014 10-K and audit)
 Ebix has not filed 2013 or 2014 financial statements with the Singaporean regulator (despite
completion of the 2013 and 2014 10-Ks and audits)
                                                            
5 Source: EBIX 10-Ks and 10-Qs
6 Source: 3Q15 and 2Q15 EBIX 10-Q
 o Ebix is not in compliance with the Singaporean authority’s filing requirements

oThis is particularly problematic as Singapore is the parent entity for at least six other
subsidiaries, including the India operations
 Ebix appointed a new auditor in India in late 2014, but that auditor subsequently expressed its
“inability to continue as Statutory Auditors of the Company for the Financial Year 2014-2015”7

 In 2014, Ebix restructured its European subsidiary by merging Ebix Europe into Ebix UK, with the
resulting company named Ebix Europe – the company did not disclose this in any of its SEC filings

o Effective August 1, 2015, Ebix Europe’s auditor, Akshar & Company, resigned – Ebix did
not reveal this change in the 3Q15 10-Q

                                                            
7 Indian MCA filings CIN #U72900DL2002PTC115124