• With respect to Note 8 of the Condensed Notes to Consolidated Financial Statements, "Commitments and Contingencies", and "Contractual Obligations and Commercial Commitments" in MD&A, changes in the market value of our assets or the actual cost of our commitments or contingencies;

• Regarding Note 4 of the Condensed Notes to Consolidated Financial Statements related to acquired intangible assets 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 in particular the analysis of the nine month revenue trend, and the actual level of demand for our services 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, 2008. Company Overview
Ebix, Inc. is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry. Ebix provides a series of application software products for the insurance industry ranging from carrier systems, agency systems and exchanges to custom software development for all entities involved in the insurance and financial industries. Our goal is to be the leading powerhouse of backend insurance transactions in the world. The Company's technology vision is to focus on convergence of all insurance channels, processes and entities in a manner such that data can seamlessly flow once a data entry has been made. Our customers include many of the top insurance and financial sector companies in the world.
The insurance industry has undergone significant consolidation over the past several years driven by the need for, and benefits from, economies of scale and scope in providing insurance in a competitive environment. The insurance markets have also seen a steady increase in the desire to reduce paper based processes and improve efficiency both at the back-end side and also at the consumer end side. Such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed. Management believes the world-wide insurance industry will continue to experience significant change

and the need for increased efficiencies through online exchanges and streamlined processes. The changes in the insurance industry are likely to create new opportunities for the Company.
Ebix strives to work collaboratively with clients to develop innovative technology strategies and solutions that address specific business challenges. Ebix combines the newest technologies with its capabilities in consulting, systems design and integration, IT and business process outsourcing, applications software, and Web and application hosting to meet the individual needs of organizations. Over 70% of our operating revenues are of a recurring nature. We continue to expand both organically and through business acquisitions.
Effective May 1, 2009, Ebix, Inc. acquired Facts, a leading provider of fully automated software solutions for healthcare payers specializing in claims processing, employee benefits, and managed care. Facts' products are available in either an ASP or self-hosted model. The Company paid the Facts shareholders $7.0 million for all of Facts' outstanding stock. The Company combined Facts operations with its Pittsburgh health services division operating under the name of EbixHealth, which includes operating results of Facts starting in the second quarter of 2009. Ebix financed this acquisition with internal resources using 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; Coral Gables, Florida; Pittsburgh, Pennsylvania; Park City, Utah; Herndon, Virginia; Dallas, Texas; Columbus, Ohio, and Pasadena, California. 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 approximately 3,000 customers across six continents. The Company's product development unit in India 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 12 to the consolidated financial statements, included Part 1 in 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 and their results for the three and nine months ended September 30, 2009 and 2008 were as follows:

                                                        For the Three Months Ended                  For the Nine Months Ended
                                                               September 30,                              September 30,
(dollar amounts in thousands)                           2009                  2008                 2009                  2008
Revenue                                             $      23,292         $      20,168        $      66,381         $      54,609
Revenue growth (yr over yr)                                  15.5 %                70.8 %               21.6 %                78.2 %
Operating income                                    $       9,783         $       8,119        $      27,400         $      21,166
Operating margin                                             42.0 %                40.3 %               41.3 %                38.8 %
Net income                                          $       9,434         $       7,398        $      26,725         $      19,403
Diluted earnings per share                          $        0.76         $        0.62        $        2.17         $        1.65
Cash provided by operating activities               $       6,578         $       8,700        $      22,127         $      19,359

Results of Operations-Three Month Periods Ended September 30, 2009 and 2008 Operating Revenue
The Company generates its revenues from professional and support services, which includes revenues from software development projects and associated fees for consulting, implementation, training, and project management provided to customers with installed systems, subscription and transaction fees related to services delivered over our exchanges or on an ASP basis, fees for hosting software, fees for software license maintenance and registration, business process outsourcing revenue, and the licensing of proprietary and third-party software.
Our revenues are principally derived from four product/service groups. Presented in the table below is the breakout of our revenue streams for each of those product/service groups for the three and nine months ended September 30, 2009 and 2008.

                                   For the Three Months Ended             For the Nine Months Ended
                                          September 30,                         September 30,
(dollar amounts in thousands)       2009                2008              2009                2008
Carrier Systems                 $       2,587       $       2,920     $       8,112       $       8,053
Exchanges                       $      14,151       $      11,915     $      39,346       $      30,646
BPO                             $       3,617       $       1,851     $      10,692       $       5,365
Broker Systems                  $       2,937       $       3,482     $       8,231       $      10,545

Totals                          $      23,292       $      20,168     $      66,381       $      54,609

During the three months ended September 30, 2009 our operating revenue increased $3.1 million or 15.5%, to $23.3 million compared to $20.2 million during the same period in 2008. This revenue increase is a result of both the impact of strategic business acquisitions made in 2008 in our health insurance exchange and BPO channels, as well as organic growth realized in our annuity and life insurance exchange channels. However, partially offsetting these revenue increases was the significant year over year strengthening of the US dollar, which resulted in the exchange and broker division revenues generated in our international operations during the third quarter of 2009 decreasing by $430 thousand in US$ terms, as compared to the same period in 2008. In particular our reported revenues from our international operations in Australia, New Zealand, and Singapore for the third quarter of 2009 were adversely affected because of the strengthening US dollar wherein the relative year over year average exchange rates weakened by 6.5%, 5.7%, and 3.0% respectively. Carrier Systems revenue for the third quarter of 2009 versus 2008 is $333 thousand or 11.4% lower due temporary delays in our customer's capital spending decisions related to deployment of backend systems.
Cost of Services Provided
Costs of services provided, which includes costs associated with support, call center, consulting, implementation and training services, increased $525 thousand or 13.3%, from $3.9 million in the third quarter of 2008 to $4.5 million in the third quarter of 2009. This net of increase is primarily attributable to additional personnel, professional services, and facility costs associated with our acquisitions of ConfirmNet and Facts. Partially offsetting those cost increases were approximately $327 thousand of year over year cost reductions which were achieved as a result of off shoring certain functions within our domestic Exchange and BPO operations to our operating facilities in India.
Product Development Expenses
The Company's product development efforts are focused on the development new technologies for insurance carriers, brokers and agents, and the development of new exchanges for international and domestic markets. Product development expenses increased $926 thousand or 44.6%, from $2.1 million during the third quarter of 2008 to $3.0 million during the third quarter of 2009. This increase is primarily due to costs associated with new product development activities in support of domestic Exchange and BPO divisions, and the expansion of our technical operations in India.

Sales and Marketing Expenses
Sales and marketing expenses increased $427 thousand or 49%, from $871 thousand in the third quarter of 2008 to $1.3 million in the third quarter of 2009. This increase is primarily attributable to additional personnel and marketing costs in support of the increased revenues being generated by our property and casualty insurance exchange, health insurance exchange, and BPO operations.
General and Administrative Expenses
General and administrative expenses decreased by $557 thousand or 12.7%, from $4.4 million during the third quarter of 2008 to $3.8 million during the third quarter of 2009. This expense decrease is primarily the result of staffing reductions made in our property and casualty insurance exchange and BPO operations which lowered related personnel and facility costs. Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $139 thousand or 17.3%, from $804 thousand during the third quarter of 2008 to $943 thousand during the third quarter of 2009. The increase in depreciation expense is primarily attributable to additional capital equipment expenditures made in our Exchange and BPO operations.
Income Taxes
The income tax provision for the three months ended September 30, 2009 is $313 thousand which is a $78 thousand or 20% decrease compared to the $391 thousand recognized in the same period in 2008. Reported income tax expense for the three months ended September 30, 2009 was lower partially due to a $338 thousand reduction in the provision for unrecognized tax benefits. The Company's interim period income tax provisions are based on our estimate of the effective income tax rates applicable to related annual twelve month period, after considering discrete items uniquely related to the current interim reporting period. The effective tax rate for the third quarter of 2009 was 5.45% which is slightly down from the 5.76% for the same period in 2008 due to the change in the mix of taxable income amongst the various domestic and foreign countries, including certain low tax rate foreign jurisdictions, in which the Company conducts operations.
Results of Operations-Nine-Month Periods Ended September 30, 2009 and 2008 Operating Revenue
During the nine months ended September 30, 2009 our operating revenue increased $11.8 million or 21.6%, to $66.4 million in 2009 compared to $54.6 million during the same period in 2008. This revenue increase is a result of both the impact of strategic business acquisitions made in 2008 in our health insurance exchange and BPO channels, as well organic growth realized in our annuity and life insurance exchange channels. However partially offsetting these revenue increases was the significant year over year strengthening of the US dollar which resulted in the exchange and broker division revenues generated in our international operations decreasing by $3.5 million in US$ terms, as compared to the same period in 2008. In particular our reported revenues from our international operations in Australia, New Zealand, and Singapore for the three quarters ending September 2009 were adversely affected because of the strengthening US dollar wherein the relative year over year average exchange rates weakened by 17.6%, 20.1%, and 5.6% respectively. Cost of Services Provided
Costs of services provided, increased $3.2 million or 32.1% during the nine months ended September 30, 2009 to $13.3 million in 2009 as compared to $10.1 million incurred during the same period in 2008. This increase is principally attributable to additional personnel and facility costs associated with our recent acquisitions of ConfirmNet and Acclamation.

Product Development Expenses
Product development expenses increased $1.9 million or 30.8% during the nine months ended September 30, 2009 to $8.3 million in comparison to $6.3 million of costs incurred during the same period in 2008. This increase is primarily due to costs associated with product development activities in support of new product offerings for our health insurance exchange operations. Sales and Marketing Expenses
Sales and marketing expenses increased $1.0 million or 40.1% during the nine months ended September 30, 2009 to $3.6 million as compared to $2.5 million recognized during the same period in 2008. This increase is primarily attributable additional personnel and marketing related costs in support of the increased revenues being generated by our BPO and exchange divisions. General and Administrative Expenses
General and administrative expenses decreased $677 thousand during the nine months ended September 30, 2009 to $11.3 million as compared to the $12.0 million reported for the same period in 2008. This expense decrease is primarily the result of staffing and related reductions made in our property and casualty insurance exchange and BPO operations which lowered related personnel, consulting, and facility costs.
Amortization and Depreciation Expenses
Amortization and depreciation expenses of $2.5 million remained steady during the nine months ended September 30, 2009 as compared to the amount of expense recognized for the same period in 2008.
Income Taxes
The income tax provision for the nine months ended September 30, 2009 was $925 thousand which represents a $193 thousand or 17.3% decrease compared to the $1.1 million recognized during the same period of 2008. The Company's cumulative interim period income tax provisions are based on the estimated effective income tax rates applicable the entire annual reporting, after considering discrete items unique to the interim periods being reported. The effective tax rate for the interim nine month period thru September 30, 2009 was 5.47% which is comparable to the 5.45% for the same period in 2008. Reported income tax expense for the nine months ended September 30, 2009 are also lower due to $588 in reductions to the provision for uncertain tax positions. Liquidity and Capital Resources
Our ability to generate significant cash flows from operating activities is one of our 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. Due to the effect of temporary or timing differences resulting from the differing treatment of items for tax and accounting purposes and minimum alternative tax obligations in the U.S. and India, future cash outlays for income taxes are expected to substantially exceed current income tax expense but will not adversely impact the Company's liquidity position. We intend to utilize cash flows generated by our ongoing operating activities, in combination with renewing our revolving credit facility and the possible issuance of additional equity securities to fund capital expenditures and organic growth initiatives, to make acquisitions, and to retire outstanding indebtedness.
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 and the capital markets, if required and available, 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, cash flows, and the condition of the capital markets in general, as to

the availability of debt and equity financing, are subject to substantial uncertainty. In the event additional liquidity needs arise, we may raise funds from a combination of sources, including the potential issuance of debt or equity securities.
Our revolving line of credit, which has a current balance of $23.9 million, was set to mature on August 31, 2009, however, as a result of the Third Amendment to the Second Amended and Restated Loan and Security Agreement which was effective as of August 27, 2009, the revolving credit line facility was extended to December 11, 2009 at the same Libor plus 1.3% interest rate. During the fourth quarter of 2009 we expect to either renew the existing facility with Bank of America Corporation at favorable market terms or execute an agreement for new revolving credit facility with a major commercial bank at acceptable market terms.
Regarding the $20.0 million December 18, 2007 convertible note with Whitebox, on October 7, 2009 Ebix elected to exercise its mandatory conversion option. As specified by the applicable section of the convertible note agreement, since the price of the Company's common stock remained above the $42.67 per share threshold price for 30 consecutive trading days the Company caused Whitebox to surrender the underlying 2.5% Secured Convertible Promissory Note due December 18, 2009, and to convert the remaining principal on said Note in the amount of $5.3 million together with accrued interest thereon in the amount of $105 thousand into 254,270 shares of the Company's common stock at a conversion price of $21.28 per share.
Regarding the $15.0 million July 11, 2008 convertible note with Whitebox, through September 30, 2009 Whitebox converted $4.6 million of principal and accrued interest into 165,162 shares of the Company's common stock. In light of the current market value of the Company's common stock we anticipate that Whitebox will continue to convert the principal balance on this convertible note into shares of our common stock over the forthcoming months.
Our cash and cash equivalents were $30.9 million and $9.5 million at September 30, 2009 and December 31, 2008, respectively. Our cash and cash equivalents balance increased during the nine months ended September 30, 2009 primarily as a result of the cash generated from our operating activities.
Our current ratio improved to 0.83 at September 30, 2009 as compared to 0.47 at December 31, 2008, although a working capital deficit in the amount of $12.96 million remains at the end of the third quarter. The improvement in our short-term liquidity position is primarily the result of the proceeds from the issuance of new convertible debt in August 2009, additional trade receivable generated by our increased revenue streams, and increased cash provided by our ongoing operating activities. The existing working capital deficit is essentially due the current classification of the convertible notes issued in August 2009 and maturing in August 2011, but required to be classified as current due to their respective conversion prices as compared to the price of the Company's common stock on September 30, 2009. We believe that our ability to generate sustainable significant cash flows from operations will enable the Company to continue to fund its current liabilities from current assets including available cash balances for the foreseeable future. Operating Activities
For the nine months ended September 30, 2009, the Company generated $22.1 million of net cash flow from operating activities which is $2.8 million or 14.5% greater than the $19.3 million generated during the nine months ended September 30, 2008. The primary components of the cash provided by operations for the quarter consisted of net income of $26.8 million, net of $2.5 million of depreciation and amortization, $(8.0) million of working capital requirements, and $1.0 million of non-cash compensation.
The $19.4 million of net cash flows generated by our operating activities during the nine months ended September 30, 2008 principally consisted of net income of $19.4 million, net $2.5 million of depreciation and amortization, $(3.0) million of working capital requirements, and $0.5 million of non-cash compensation.
Investing Activities
Net cash used for investing activities during the nine months ended September 30, 2009 totaled $24.4 million, of which $6.2 million was used for the May 2009 acquisition of Facts (net of $796 thousand of cash acquired), $1.0 million was used to fulfill earn-out payment obligations to the former shareholders of IDS (a November 2007 business acquisition), $3.3 million was used to fulfill earn-out payment obligations to the former shareholders of ConfirmNet (a November 2008 business acquisition), and $1.9 million was used for purchases of operating

equipment pertaining to the enhancement of our technology platforms. In September 2009 the Company made advance payment deposits totaling $11.9 million with respect to two pending business acquisitions which were later closed and effective in October 2009. Partially offsetting these uses of cash for investment purposes was $167 thousand of net proceeds from investments in marketable securities (specifically bank certificates of deposit).
Net cash used for investing activities totaled $67.9 million for the nine months ended September 30, 2008, of which $42.9 million was used for the January 2008 acquisition of Telstra (net of $1.3 million of cash acquired), $21.4 million was used for the August 2008 acquisition of Acclamation (net of $635 thousand of cash acquired), $1.1 million was used for the April 2008 acquisition of Periculum, $500 thousand was used to fulfill earn-out payment obligations with respect the May 2006 acquisition of Infinity, $549 thousand was used for operating equipment purchases in support of our technology platforms, and $1.5 million was used for investments in marketable securities (specifically bank certificates of deposit).
Financing Activities
During the nine months ended September 30, 2009 the net cash provided by financing activities was $24.0 million. This financing cash inflow was comprised of $25.0 million from the proceeds two convertible debt issuances, $23.8 million of draws from our revolving line of credit facility, and $1.5 million from exercise of stock options. Partially offsetting these financing cash inflows was $24.9 million of payments against our line of credit, $871 thousand to service existing long-term debt and capital lease obligations, and $507 thousand to complete open market repurchases of our common stock.
Net cash provided by financing activities for the nine months ended September 30, 2008 totaled $13.0 million. This net financing cash inflow was comprised of $15.0 million from a convertible debt issuance, $12.5 million from sales of our common stock, $9.3 million of draws from our revolving line of credit facility, and $1.2 million from exercise of stock options. Partially offsetting these financing cash inflows was $24.5 million used to repurchase . . .