Safe Harbor for Forward-Looking Statements under the Securities Litigation Reform Act of 1995-This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seek," "plan," "project," "continue," "predict" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors, including the items identified in Part I, Item 1A, "Risk Factors" in our 2007 Form 10-K which is incorporated by reference herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
The important factors that could cause actual results to differ materially from those in our specific forward-looking statements included in this Form 10-Q include, but are not limited to, the following:
• Regarding Notes 8, 10, and 13 of the Notes to Consolidated Financial Statements, and our future liquidity needs discussed under "Liquidity and Financial Condition," and specifically our ability to generate cash from operating activities and any declines in our credit ratings or financial condition which could restrict our access to the capital markets or materially increase our financing costs;

• With respect to Note 9 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies", and "Contractual Obligations and Commercial Commitments" in MD&A, and specifically changes in the market value of our assets or the actual cost of our commitments or contingencies;

• Regarding Note 6 of the Notes to Consolidated Financial Statements pertaining to estimated future amortization expense related to definite-lived acquired intangible assets at September 30, 2008, and our ability to accurately estimate the fair value of such assets; and,

• With respect this Management Discussion & Analysis of Financial Condition and Results of Operation and the analysis of the nine month revenue trend, the actual level of demand for our products during the immediately foreseeable future.

The following information should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part 1. Item 1 of this quarterly report, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. Company Overview
Ebix is focused on the convergence of all insurance channels, processes, and entities in order to facilitate the seamless flow of data. The Company designs products and services that are pioneering and ahead of our competition. The Company's marketing efforts are concentrated on the insurance company, broker, data exchange, and business process outsourcing channels. We offer solutions including an end-to-end insurance portal, exchanges for data transmission, agent management systems, and carrier systems (including end-to-end rating, quoting, policy processing, claims processing, and on-line risk binding). Our customers include many of the top insurance and financial sector companies in the world. Over 70% of our operating revenues are of a recurring nature.

The Company's revenues are derived from four (4) product or service groups. Presented in tabular format below is the breakout of our revenue streams for each those product or service groups for the three and nine months ended September 30, 2008 and 2007.

                                   For the Three Months Ended             For the Nine Months Ended
                                          September 30,                         September 30,
(dollar amounts in thousands)       2008                2007              2008                2007
Carrier Systems                 $       2,920       $       3,930     $       8,053       $       7,855
Data Exchanges                  $      11,915       $       5,215     $      30,646       $      14,203
BPO                             $       1,851       $          66     $       5,365       $         127
Broker Systems                  $       3,482       $       2,595     $      10,545       $       8,455


Totals                          $      20,168       $      11,806     $      54,609       $      30,640

On November 1, 2007, Ebix completed the acquisition of Jenquest, Inc. ("Jenquest" or "IDS"), a leader in the certificate of insurance tracking industry located in Hemet, California. The Company acquired all of the stock of IDS for a purchase price of $11.25 million which was primarily financed from internal sources using our own cash reserves.
Effective January 2, 2008 Ebix completed the acquisition of Telstra eBusiness Services Pty Limited ("Telstra"), a premier insurance exchange located in Melbourne, Australia. The purchase price was $43.8 million and was financed with a combination of available cash reserves, proceeds from the issuance of convertible debt, proceeds from the sales of unregistered shares of the Company's common stock, and funding from the Company's revolving line of credit. On April 25, 2008 Ebix completed the acquisition of Periculum Services Group ("Periculum") a provider of certificate of insurance tracking services located in Portland, Michigan. The Company acquired all of the stock of Periculum for a payment of $1.1 million in cash and financed the transaction using available cash reserves.
On August 1, 2008 the Company completed the acquisition of Acclamation Systems, Inc ("Acclamation") a developer of supplier software and e-commerce solutions to the health insurance industry located in Pittsburgh, Pennsylvania. The Company acquired all of the stock of Acclamation for a payment of $22 million. Ebix financed this acquisition with a combination of the proceeds from the issuance of convertible debt and available cash reserves. Offices and Geographic Information
The Company has its headquarters in Atlanta, Georgia, and it also has domestic operations in Walnut Creek and Hemet, California; Pittsburgh, Pennsylvania; Park City, Utah; Herndon, Virginia; Dallas, Texas, and Portland, Michigan. The Company also has offices in Australia, New Zealand, Singapore, United Kingdom and India. In these offices, Ebix employs insurance and technology professionals who provide products, services, support and consultancy to our 3,000 customers across six continents. Ebix also has established a product development unit in India which has been awarded Level 5 status of the Carnegie Mellon Software Engineering Institute's Capability Maturity Model Integrated (CMMI) and ISO 9001:2000 certification. Information on the geographic dispersion of the Company's revenues, assets, and employees is provided in Note 16 to the consolidated financial statements, included in Part 1 of this Form 10-Q. Key Performance Indicators
Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of revenue growth, operating income, operating margin, income from continuing operations, diluted earnings per share, and cash provided by operating activities. We monitor these indicators, in conjunction with our corporate governance practices, to ensure that business vitality is maintained and effective control is exercised.

The key performance indicators for the nine months ended September 30, 2008 and 2007 were as follows:

                                              For the Three Months Ended              For the Nine Months Ended
                                                     September 30,                          September 30,
(dollar amounts in thousands)                  2008                2007               2008                2007
Revenue                                    $      20,168       $      11,806      $      54,609       $      30,640
Revenue growth                                      70.8 %              61.8 %             78.2 %              53.4 %
Operating income                           $       8,119       $       3,712      $      21,166       $       8,248
Operating margin                                    40.3 %              31.4 %             38.8 %              26.9 %
Net income                                 $       7,398       $       3,693      $      19,403       $       8,168
Diluted earnings per share                 $        0.62       $        0.33      $        1.65       $        0.80
Cash provided by operating activities      $       8,700       $       5,042      $      19,359       $       8,848

Results of Operations - Three Month Period Ended September 30, 2008 and 2007 Operating Revenue
Total revenue-Total revenue is comprised of "Services" revenue and "Software" revenue. Services revenue is primarily derived from professional and support services and includes consulting, implementation, training and project management provided to the Company's customers with installed systems and those in the process of installing systems. In addition, Services revenue includes fees for the maintenance of software licenses, Application Service Provider (ASP) services, hosting and other miscellaneous revenues. Software revenue is derived from the licensing of proprietary and third party software ("Software"). During the three months ended September 30, 2008 our total revenue increased $8.4 million or 71%, to $20.2 million in the third quarter of 2008 compared to $11.8 million during the third quarter of 2007. The increase in our third quarter 2008 revenue as compared to the third quarter of 2007 is a result of increases in our exchange division revenues of $5.5 million, BPO division revenues of $1.8 million, and broker systems revenues of $114 thousand, as well as revenues from our newly formed health benefits division in the amount of $2.1 million. Partially offsetting these revenue increases was a $1.1 million decrease in revenues from our carrier systems division due to completed 2007 sales contracts involving the sales of source code.
Services revenue increased $10.0 million or 105%, from $9.5 million in the third quarter of 2007 to $19.5 million in the third quarter of 2008. The Company achieved a $5.5 million revenue increase in our exchange divisions, a $1.8 million revenue increase in our BPO division, an $131 thousand revenue increase in our broker systems division, and an $864 thousand revenue increase in our carrier systems division, as well as additional service revenues from our newly formed health benefits division in the amount of $1.8 million. These improvements in service revenues were facilitated by a combination of both organic growth and acquisitions.
Software revenue decreased $1.7 million or 71%, from $2.3 million during the third quarter of 2007 to $676 thousand during the third quarter of 2008. This decrease in software revenues was primarily due to completed 2007 sales contracts involving the sales of source code. Cost of Services Provided
Costs of services provided, which includes costs associated with support, call center, consulting, implementation and training services, increased $2.1 million or 114%, from $1.8 million in the third quarter of 2007 to $3.9 million in the third quarter of 2008. This increase is primarily attributable to the recent acquisitions of IDS, Telstra, and Acclamation which added $848 thousand, $384 thousand, and $861thousand respectively in payroll, facility, and support related expenses.
Product Development Expenses
Product development expenses remained steady at $2.1 million for both third quarter of 2008 and the third quarter of 2007. The Company's product development efforts continue to be focused on the enhancement of the EbixASP, BRICS, eGlobal, EbixLife, EbixExchange, IDS, AnnuityNet, and LifeSpeed product and service lines, the development of new technologies for insurance carriers, brokers and agents, and the development of new exchanges for international and domestic markets.

Sales and Marketing Expenses
Sales and marketing expenses decreased $228 thousand or 21%, from $1.1 million in the third quarter of 2007 to $871 thousand in the third quarter of 2008. This decrease is primarily attributable to $313 thousand of cost reductions in our U.S. exchange division and related costs in support of our legacy products, partially offset by $104 thousand of additional costs attributable to the recent acquisitions of IDS, Telstra, and Acclamation. General and Administrative Expenses
General and administrative expenses increased $1.9 million or 78%, from $2.4 million during the third quarter of 2007 to $4.3 million during the third quarter of 2008. Approximately $1.4 million of this increase is associated with payroll, communications, and facility costs attributable to the recent acquisitions of IDS, Telstra, and Acclamation. We also experienced modest net increases in general and administrative expenses in our U.S. operations aggregating to $340 thousand, which were principally associated with increases in discretionary compensation, travel related, and professional service costs. Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $172 thousand or 27%, from $632 thousand in the third quarter of 2007 to $804 thousand in the third quarter of 2008. The increase is primarily due to the amortization of the customer relationship and developed technology intangible assets that were acquired in connection with our acquisitions of IDS, Telstra, and Acclamation, which increased amortization expense $53 thousand, $124 thousand, and $28 thousand, respectively.
Interest Expense
Interest expense increased $433 thousand, from $7 thousand in the third quarter of 2007 to $440 thousand in the third quarter of 2008. The increase is primarily due to additional borrowings on the Company's revolving line of credit in the amount of $24.5 million at an average interest of 3.75% giving rise to $239 thousand of additional interest expense, and the issuance of two convertible debt promissory notes in the aggregate amount of $35 million at an interest rate of 2.5% giving rise to $197 of additional interest expense. Income Taxes
The income tax provision for the three months ended September 30, 2008 was $391 thousand which represents a $23 thousand or 6% increase as compared to the $368 thousand tax provision recorded in the third quarter of 2007. The Company's interim period income tax provisions are based on our current estimate of the effective income tax rates applicable to the related annual twelve month period, after considering discrete items specific to the respective interim reporting period. The effective tax rate utilized in the third quarter of 2008 was 5.76%. Results of Operations - Nine Month Period Ended September 30, 2008 and 2007 Operating Revenue
Total revenue-During the nine months ended September 30, 2008 our total revenue increased $23.9 million or 78%, to $54.6 million compared to $30.6 million during the same period in 2007. This increase is a result of increases in our exchange division revenues of $16.1 million, BPO division revenues of $5.3 million, broker systems revenue of $163 thousand, and carrier systems revenues of $973 thousand, as well as revenues from our newly formed health benefits division in the amount of $2.1 million. Partially offsetting these revenue increases was an $863 thousand decrease in support revenues from our legacy products.
Services revenue increased $25.6 million or 93% to $53.2 million during the nine months ended September 30, 2008, from $27.6 million during the same period in 2007. The Company achieved a $16.1 million revenue increase in our exchange divisions, a $5.3 million revenue increase in our BPO division, a $648 thousand increase in our broker systems division revenue, and a $2.7 million revenue increase in our carrier system division, as well as revenues from our newly formed health benefits division in the amount of $1.8 million. Partially offsetting these revenue increases was an $859 thousand decrease in support revenues from our legacy products. The net improvement in service revenues were facilitated by a combination of both organic growth and acquisitions.

Software revenue decreased $1.6 million or 53% to $1.4 million during the nine months ended September 30, 2008 as compared to $3.0 million during the same period in 2007. This decrease is due to two factors: firstly, during the same period in 2007 the Company fulfilled contractual sales obligations pertaining to the delivery source code; and secondly the decrease in domestic software licensing sales reflects management's emphasis on increasing recurring services revenue.
Cost of Services Provided
Costs of services provided increased $5.0 million or 98% to $10.1 million during the nine months ended September 30, 2008 as compared to $5.1 million for the same period in 2007. This increase is primarily attributable to the recent acquisitions of IDS, Telstra, and Acclamation which added $2.7 million, $1.2 million, and $861 thousand respectively in payroll, facility, and support related expenses. During this interim year-to-date period, costs of services provided increased slightly as a percentage of revenue to 18.5% from 16.7% during the same period in 2007.
Product Development Expenses
Product development expenses increased $192 thousand or 3% to $6.3 million during the nine months ended September 30, 2008 as compared to $6.1 million for the same period in 2007. This cost increase is due to product development and enhancement initiatives in our carrier systems division and additional staff resources in our India product development facility. During this interim year-to-date period, product development expenses decreased as a percentage of revenue to 11.6% from 19.9% during the same period in 2007. Sales and Marketing Expenses
Sales and marketing expenses decreased $593 thousand or 19% to $2.5 million during the nine months ended September 30, 2008 as compared to $3.1 million for the same period in 2007. This decrease is attributable to $971 thousand of cost reductions in our U.S. operations as a result of deploying more efficient means of reaching out to our market base, partially offset by $272 thousand of additional costs attributable to the recent acquisitions of IDS, Telstra, and Acclamation. During this interim year-to-date period, sales and marketing expenses decreased as a percentage of revenue to 4.6% from 10.2% during the same period in 2007.
General and Administrative Expenses
General and administrative expenses increased $5.9 million or 97% to $12.0 million during the nine months ended September 30, 2008 as compared to $6.1 million during same period in 2007. Approximately $4.1 million of this increase is associated with payroll, communications, and facility costs attributable to the recent acquisitions of IDS, Telstra, and Acclamation. We also experienced increases in general and administrative expenses in our U.S. headquarters and in our New Zealand operations aggregating to $1.6 million, which were principally associated with increases in discretionary share-based compensation and travel related costs. During this interim year-to-date period, general and administrative expenses increased as a percentage of revenue to 22.0% from 20.0% during the same period in 2007. Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $578 thousand, or 31%, to $2.5 million during the nine months ended September 30, 2008, as compared to $1.9 million for the same period in 2007. The increase is primarily due to the amortization of the customer relationship and developed technology intangible assets that were acquired in connection with our acquisitions of IDS, Telstra, and Acclamation, which increased amortization expense $143 thousand, $372 thousand, and $28 thousand respectively. Interest Expense
Interest expense increased $799 thousand, from $377 thousand for the nine months ending September 30, 2007 to $1.2 million for the nine months ending September 30, 2008. The increase is primarily due to borrowings on the Company's revolving line of credit in the amount of $24.5 million at an average interest of 3.75% as compared to borrowings of $10 million during the first nine months ended September 30, 2007 giving rise to $381 thousand of additional interest expense. In addition there was the issuance of two convertible debt promissory notes in the aggregate amount of $35 million at an interest rate of 2.5% giving rise to $428 of additional interest expense. During the first nine months ended September 30, 2007 the Company paid $298 thousand on borrowings on the Company's revolving line of credit in the amount of $10.0 million.

Income Taxes
The income tax provision for the nine months ended September 30, 2008 was $1.1 million which represents a $725 thousand or 184% increase when compared to the $393 thousand tax provision recorded during the same period in 2007. The Company's interim period income tax provisions are based on our estimates of the expected effective income tax rates applicable to the corresponding annual twelve month period, after considering discrete items specific to the respective interim reporting period. The effective tax rate utilized during the nine month period ending September 30, 2008 was 5.76%, an increase over the 4.59% effective tax rate for the same period in 2007, due principally to the taxable income being generated by our EbixExchange division in Australia. This division was acquired in January 2008 and was formerly known as Telstra eBusiness Services. In the United States the Company's effective federal income tax rate is reduced because of the use of available net operating loss ("NOL") carry-forwards used to partially offset taxable income. As of September 30, 2008 the Company has remaining NOL carry-forwards of approximately $39.3 million (net of approximately $6.8 million utilized to offset estimated current year-to-date taxable income). The Company maintains a full valuation allowance against the deferred tax asset associated with these NOL's because of the uncertainties concerning future taxable income in the United States and the realization of these deferred tax assets and their utilization. The Company continues to evaluate these uncertainties. Changes in the valuation allowance could have a material effect on the Company's future effective tax rate.
In India taxable income, other than passive income, is subject to a tax holiday, which will expire in 2010. The Company's operations in India are also subject to the 11.33% Minimum Alternative Tax ("MAT"). The tax paid under the MAT provisions can be carried forward for a period of seven years and set off against future tax liabilities computed under the regular corporate income tax provisions. Through September 30, 2008 the Company was required to pay $782 thousand in MAT. Accordingly, a long-term deferred tax asset and a current tax liability in the amount of $782 thousand has been recognized on the Company's balance sheet.
Liquidity and Capital Resources
Our ability to generate significant cash flows from operating activities is one of the Company's fundamental financial strengths. Our principal sources of liquidity are the cash flows provided by our operating activities, our revolving credit facility, and cash and cash equivalents on hand. We use and intend to continue using cash flows from operations in combination with borrowings and the issuance of equity securities to fund capital expenditures, make acquisitions, retire outstanding indebtedness, and to purchase outstanding shares of our common stock.
We believe that anticipated cash flows provided by our operating activities, together with current cash and cash equivalent balances and access to our credit facilities will be sufficient to meet our projected cash requirements for the next twelve months, and the foreseeable future thereafter, although any projections of future cash needs and cash flows are subject to substantial uncertainty. In the event additional liquidity requirements arise, we may need to raise funds from a combination of sources, including the potential issuance of equity or debt securities.
Our cash and cash equivalents were $13.2 million and $49.5 million at September 30, 2008 and December 31, 2007, respectively. The primary factors causing the substantial decrease in our available cash balances at September 30, 2008 were funds used to finance the acquisitions of Telstra in January 2008 and Acclamation in August 2008, and to repurchase stock from Brit, an affiliate, an April 2008.
Operating Activities
For the nine months ended September 30, 2008, the Company generated $19.4 million of net cash flow from operating activities which is $10.5 million or 119% greater than the $8.8 million generated during the nine months ended September 30, 2007. The major sources of cash provided by operating activities for the nine months ending September 30, 2008 were net income of $19.4 million, net of $(3.1) million of working capital requirements, $2.5 million of depreciation and amortization, and $525 thousand of non-cash compensation. The $8.8 million of net cash flow generated from operating activities during the nine months ended September 30, 2007 was principally the result of net income of $8.2 million, net of $(1.5) million of working capital requirements, $1.9 million of depreciation and amortization, and $263 thousand of non-cash compensation.
Investing Activities
Net cash used for investing activities totaled $66.4 million for the nine months ended September 30, 2008, of which $43.0 million was used for the January 2008 acquisition of Telstra (net of $1.3 million of cash acquired), $1.1 million was used for the April 2008 acquisition of Periculum (net of $30 thousand of cash acquired), $21.4 million was used for the August 2008 acquisition of Acclamation (net of $635 thousand of cash acquired), and $549 thousand was used for capital expenditures pertaining to the enhancement of our technology platforms and the purchases of operating equipment. The Telstra acquisition was financed with a combination of $1.6 million of available cash reserves, $16.5 million from the Company's line of credit, $20.0 million of convertible debt, and $5.7 million from sales of the Company's common stock. The Periculum acquisition was financed using available cash reserves. The Acclamation acquisition was financed with a combination of $7.0 million of available cash reserves and $15.0 million of convertible debt.
During the nine months ended September 30, 2007 cash used in investing activities totaled $534 thousand which was primarily used primarily for operating equipment expenditures in India, U.S, and Australia.

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