As used herein, the terms "Ebix," "the Company," "we," "our" and "us" refer to Ebix, Inc., a Delaware corporation, and its consolidated subsidiaries as a combined entity.

The information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document. The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties including, but not limited to: demand and acceptance of services offered by us, our ability to achieve and maintain acceptable cost levels, rate levels and actions by competitors, regulatory matters, general economic conditions, and changing business strategies. Forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations, including, but not limited to our performance in future periods, our ability to generate working capital from operations, the adequacy of our insurance coverage, and the results of litigation or investigation. Our forward-looking statements can be identified by the use of terminology such as "anticipates," "expects," "intends," "believes," "will" or the negative thereof or variations thereon or comparable terminology. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

OVERVIEW

Ebix, Inc. is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry. Ebix provides various 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. Approximately 80% of the Company's revenues are of a recurring nature. Rather than license our products in perpetuity, we typically either license them for a few years with ongoing support revenues, or license them on a limited term basis using a subscription hosting or ASP model. During the year 2011 combined subscription-based and transaction-based revenues grew to 83% of the Company's total revenues, as compared to 74% in the year 2010, and in particular subscription-based revenues grew to 65% of total revenue in 2011 versus 56% in 2010. 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 continuously increased their demands for cutting edge solutions to reduce paper based processes and improve efficiency both at the back-end side and at the consumer end side of their insurance transaction processing. 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.

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 our business is efficiently managed and that effective controls are maintained.

The key performance indicators for the twelve months ended December 31, 2011, 2010, and 2009 were as follows:

                                                                 Key Performance Indicators
                                                              Twelve Months Ended December 31,
(Dollar amounts in thousands except per share data)        2011               2010             2009
Revenue                                                 $   168,969         $ 132,188        $ 97,685
Revenue growth                                                   28 %              35 %            31 %
Operating income                                        $    68,748         $  52,507        $ 39,256
Operating margin                                                 41 %              40 %            40 %
Net Income                                              $    71,378         $  59,019        $ 38,822
Diluted earnings per share *                            $      1.75         $    1.51        $   1.03
Cash provided by operating activities                   $    71,286         $  52,779        $ 33,877

* Adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010

RESULTS OF OPERATIONS

                                    Year Ended          Year Ended          Year Ended
                                   December 31,        December 31,        December 31,
                                       2011                2010                2009
                                                      (In thousands)
 Operating revenue:               $      168,969      $      132,188      $       97,685
 Operating expenses:
 Costs of services provided               33,589              29,599              21,274
 Product development                      19,208              13,607              11,362
 Sales and marketing                      13,642               6,372               5,040
 General and administrative               26,268              24,065              16,798
 Amortization and depreciation             7,514               6,038               3,955

 Total operating expenses                100,221              79,681              58,429

 Operating income                         68,748              52,507              39,256
 Interest income (expense), net             (202 )              (383 )              (871 )
 Other non-operating income                  647               6,319                  89
 Foreign exchange gain                     4,302               1,211               1,358

 Income before taxes                      73,495              59,654              39,832
 Income tax expense                       (2,117 )              (635 )            (1,010 )

 Net income                       $       71,378      $       59,019      $       38,822

TWELVE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Operating Revenue

The Company derives its revenues primarily from professional and support services, which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our ASP platforms, revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and business process outsourcing revenue. Ebix's revenue streams come from four product channels. Presented in the table below is the breakout of our revenues for each of those product channels for the years ended December 31, 2011 and 2010.

                                                     For the Year Ended
                                                        December 31,
            (dollar amounts in thousands)            2011          2010
            Exchanges                              $ 130,638     $  94,212
            Broker Systems                            18,006        13,841
            Business Process Outsourcing ("BPO")      14,944        15,586
            Carrier Systems                            5,381         8,549

            Totals                                 $ 168,969     $ 132,188

During the twelve months ended December 31, 2011 our total revenue increased $36.8 million or 28%, to $169.0 million compared to $132.2 million in 2010. The increase in revenues is primarily the result of revenue from the acquisition of ADAM since February 2011, revenue from business acquisitions made during 2010, and continued growth achieved in our Exchange channel. $23.1 million of ADAM's operating revenues recognized since February 7, 2011 are included in the Company's revenues reported in its consolidated statement of income for the year ended December 31, 2011. The Company continues to immediately and efficiently leverage product cross-selling opportunities across all channels, as facilitated by our operating philosophy and business acquisition strategy. With respect to business acquisitions completed during the fiscal years 2011 and 2010 on a pro forma basis, as disclosed in the table in Note 4 "Pro Forma Financial Information" to the enclosed consolidated financial statements, combined revenues increased 2.8% for the year 2011 versus full year 2010, whereas there was a 27.8% increase in reported revenues for the same comparative periods. The 2.8% increase in pro forma revenues was associated with a 0.7% decrease in full year 2011 versus 2010 revenues pertaining to the businesses acquired during the years 2010 and 2011(i.e. ADAM, HealthConnect, MCN, Trades Monitor, Connective Technologies, USIX, and E-Trek), offset by a 3.5% increase in revenues associated with Ebix's legacy operations preceding these business acquisitions. The cause for the difference between the 27.8% increase in reported 2011 revenue versus 2010 revenue, as compared to the 2.8% increase in 2011 pro forma versus 2010 pro forma revenue is due to the effect of combining the revenue derived from those businesses acquired during years 2010 and 2011 with the Company's pre-existing operations. Also partially effecting reported revenues was the impact from fluctuations in the exchange rates of the foreign currencies in the countries in which we conduct operations. During each of the years 2011, 2010, and 2009 the change in foreign currency exchange rates increased/(decreased) reported consolidated operating revenues by $4.2 million, $4.6 million, and $(1.9) million, respectfully. The specific components of our revenue and the changes experienced during the past year are discussed further below.

Exchange division revenues increased $36.4 million or 39% due to net increases of approximately $5.0 million in the life and annuity sector, $7.2 million in the property and casualty insurance sector, $22.0 million in the health services sector, and $2.4 million from the customer relationship insurance "CRM" services sector and $(218) thousand from the risk management & workers compensation sector .

BPO division revenues decreased slightly by $642 thousand or 4% due to reduced demand for some of our insurance certificate creation and tracking services. The Company's performance in this product channel is still marginally affected by the downturn in the commercial and residential housing industry which accounts for almost a third of the insurance certificates created, although the Company has recently experienced some improvement in this market segment.

Broker Systems division revenue increased $4.2 million or 30% due to growth realized in our both our Asia-Pacific markets, regarding services delivered by on-demand back-end systems, and in our domestic U.S. market regarding systems designed for use by insurance brokers.

Carrier Systems division revenue decreased $3.2 million or 37% due to the lack of demand by large insurance carriers for perpetually licensed back-end systems. The Company is developing and launching new on-demand products and services for prospective clients in this market that are designed to facilitate a subscription-based recurring model. We expect insurance carriers to deploy these new technologies and increase their spending for system development, and that our revenues from this channel will increase over the next few years.

Costs of Services Provided

Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $4.0 million or 13%, from $29.6 million in 2010 to $33.6 million in 2011. This increase is due to additional personnel, facility, and customer support costs associated with the acquisition of ADAM and other expenses in support of our increasing revenue streams.

Product Development Expenses

Product development expenses increased $5.6 million or 41%, from $13.6 million in 2010 to $19.2 million in 2011. The Company's product development efforts continue to be focused on the development of new technologies for insurance carriers, brokers and agents, and the development of new data exchanges for domestic and international insurance markets. The cost increase incurred in 2011 was associated with the expansion of our research and development efforts dedicated to the provision of additional on-demand based products and services in support of each of our product channels, and is primarily attributable to the associated incremental staffing and facilities costs that were incurred during the year.

Sales and Marketing Expenses

Sales and marketing expenses increased $7.3 million or 114%, from $6.4 million in 2010 to $13.6 million in 2011. Approximately half of this increase is associated with the acquisition of ADAM and the remaining increase in expenses is attributable to additional sales personnel that have been hired to support the continued expansion and increase in revenues generated by our Exchange, Broker System, and BPO channels.

General and Administrative Expenses

General and administrative expenses increased $2.2 million or 9%, from $24.1 million in 2010 to $26.3 million in 2011. This increase is primarily due to additional staffing necessary to fill critical positions, and increased corporate and employee health insurance costs. Partially offsetting these cost increases was a $2.8 million net expense decrease associated with reductions to previously recorded contingency based earnout accruals pertaining to business acquisitions made during 2010. The Company reduced these estimated accruals after considering both information available at the date the business acquisitions were made and analyzing the ongoing performance of these businesses since they were acquired.

Amortization and Depreciation Expenses

Amortization and depreciation expenses increased $1.5 million, or 24%, from $6.0 million in 2010 to $7.5 million in 2011. This increase is primarily due to additional amortization costs associated with the customer relationship, developed technology, and trademark intangible assets that were recognized in connection with the acquisition of ADAM, and $376 thousand of additional depreciation expenses in connection with the purchases of equipment and facilities necessary to support our continued expanding operations.

Interest Income

Interest income increased $38 thousand or 7% from $519 thousand in 2010 to $557 thousand in 2011 primarily due to earnings realized on funds invested in foreign banks.

Interest Expense

Interest expense decreased $143 thousand or 16% from $902 thousand in 2010 to $759 thousand in 2011. This decrease is primarily due to the conversion of the Company remaining $5.0 million of convertible debt that occurred in April 2011 thereby ceasing further recognition of the imputed interest expense associated with this debt instrument, and also due a lower rate of interest incurred with our revolving line of credit.

Other Non-Operating Income

Other non-operating income of $647 thousand for the year ending December 31, 2011 consists of a $537 thousand gain recognized in regards to the net decrease in the fair value of the put option that was issued to the two former stockholders of E-Z Data whom received shares of Ebix common stock as part of the acquisition consideration paid by the Company; this put option expired on October 31, 2011. Also in addition to this gain on the put option was a $108 thousand gain that was recognized upon the settlement of a $5.0 million convertible note that was fully converted and settled in April 2011.

Foreign Exchange Gain

Net foreign exchange gains of $4.3 million for the year ended December 31, 2011 consisted of $6.9 million of gains recognized upon the re-measuring of certain intercompany debt obligations partially offset by $2.6 million of losses recorded in connection with the changes in the fair value of related derivative instruments the Company holds to hedge the impact of fluctuations in the exchange rates in the foreign jurisdictions in which we certain international operations.

Income Taxes

The Company recognized a net tax expense of $2.1 million for the year ended December 31, 2011. The Company's tax provision for the year, before the effect of discrete items, was an expense of $6.9 million and reflects an effective tax rate 9.5% as compared to the 4.8% effective tax rate for the same period a year earlier. The effective rate increased primarily due to an increased proportion of our taxable income having been generated in jurisdictions with higher tax rates. Included in the discrete items recognized during the year ended December 31, 2011 were the releases of the remaining valuation allowances held against deferred tax assets associated with tax net operating losses carry forwards obtained from earlier business acquisitions. The valuation allowances were released based on analysis of the levels of taxable income being generated by these business units, available prudent and feasible tax planning strategies, and an analysis of the relevant income tax regulations. As a result of the release of the valuation allowances the Company recognized a tax benefit of $6.6 million. Also included in recognized discrete items was a $1.9 million income tax expense pertaining to charges associated with windfall gains realized from tax deductions in connection with exercised stock options and vested restricted stock grants, and a $233 thousand income tax benefit from certain enhanced research and development tax deductions realized in our foreign operations. Facilitating our relatively low consolidated world-wide effective tax rate is the advantages the Company realizes from conducting activities in certain foreign low tax jurisdictions. The pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2011 was as follows:

                                   United                     Latin                                             New
                                   States       Canada       America        Australia        Singapore        Zealand        India        Sweden        Total
Pre-tax income                    $ 12,043      $   831      $  1,260      $     2,734      $    18,084      $     488      $ 31,715      $ 6,340      $ 73,495
Statutory tax rate                    35.0 %       30.5 %        34.0 %           30.0 %           10.0 %         30.0 %          -  %         -  %

TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009

Operating Revenue

Presented in the table below is the breakout of our revenues from each of our
four product channels the years ended December 31, 2010 and 2009.



                                                 For the Year Ended
                                                    December 31,
               (dollar amounts in thousands)      2010          2009
               Exchanges                       $   94,212     $ 60,764
               Broker Systems                      13,841       11,599
               BPO                                 15,586       14,698
               Carrier Systems                      8,549       10,624

               Totals                          $  132,188     $ 97,685

During the twelve months ended December 31, 2010 our total revenue increased $34.5 million or 35%, to $132.2 million compared to $97.7 million in 2009. The increase in revenues was principally a result of the impact from strategic business acquisitions made during 2010 and 2009 in our Exchange and BPO channels, and continued growth realized in our Exchange channels. Our ability to quickly integrate business acquisitions into existing operations was instrumental to achieving these results. The specific components of our revenue and the changes experienced during the past year are discussed further below.

Exchange division revenues increased $33.4 million or 55% primarily due to net increases of approximately $17.9 million in the life and annuity sector, $13.4 million in the property & casualty sector, and $2.6 million from the health insurance sector.

BPO division revenues increased $880 thousand or 6% due to greater demand for our insurance certificate creation and tracking services. The Company's growth in this channel was strongly impacted by the downturn in the commercial and residential housing industry, which drove down the transaction volume derived from clients associated within the construction industry, which traditionally accounts for approximately 35% of the insurance certificates in the United States.

Broker Systemsdivision revenue increased $2.2 million or 19% principally due to further expansion into the international markets, and the associated growth of our on-demand back-end systems designed for use by insurance brokers.

Carrier Systems division revenue decreased $2.1 million or 20% due to continued delays in capital spending decisions related to large investments in perpetually licensed back-end systems designed for use by large insurance companies.

Costs of Services Provided

Costs of services provided, which includes costs associated with customer support, consulting, implementation, and training services, increased $8.3 million or 39%, from $21.3 million in 2009 to $29.6 million in 2010. This cost increase was attributable to additional personnel, professional services, and facility costs associated with our 2009 acquisitions of E-Z Data and Peak, the 2010 expansion into the Latin America market.

Product Development Expenses

Product development expenses increased $2.2 million or 20%, from $11.4 million in 2009 to $13.6 million in 2010. 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. This cost increase was associated with the expansion of our technical operations in India in regards to increased research and development efforts towards designing new futuristic on-demand based services, and our expanding intellectual property management operations in Singapore, both in support of the Company's Exchange, Broker Systems, and Carrier Systems divisions.

Sales and Marketing Expenses

Sales and marketing expenses increased $1.3 million or 25%, from $5.1 million in 2009 to $6.4 million in 2010. This expense increase was primarily attributable to additional personnel, marketing, consulting, and facility related costs in support of the increased revenues generated by our Exchange and Broker Systems channels.

General and Administrative Expenses

General and administrative expenses increased $7.3 million or 43%, from $16.8 million in 2009 to $24.1 million in 2010. This increase was primarily associated with additional personnel, increased health and business insurance costs, additional consulting services, increased business travel costs, and additional share-based and discretionary bonus compensation. Also a factor contributing the net increase to general and administrative expenses was the $822 thousand of bad expense that was recognized in connection with the Company's decision to increase its reserve for doubtful accounts receivable. Partially offsetting these increases in general and administrative expenses was a $1.5 million benefit associated with the reversal of a previously recorded contingent liability earnout obligation associated with our October 2009 acquisition of Peak, because during the subsequent 2010 earnout period the defined revenue targets was not achieved by the Peak operations.

Amortization and Depreciation Expenses

Amortization and depreciation expenses increased $2.1 million, or 54%, from $3.9 million in 2009 to $6.0 million in 2010. This increase was due to $1.3 million of additional amortization expense incurred in connection with the customer relationship, developed technology, and non-compete intangible assets that were recognized in connection with our 2010 business acquisitions of MCN, Trades Monitor, and USIX, and our 2009 business acquisitions of E-Z Data, Facts, and Peak. We also incurred increased depreciation expense amounting to $795 thousand related to additional capital equipment expenditures in support of our growing businesses.

Interest Income

Interest income increased $320 thousand or 161% from $199 thousand in 2009 to $519 thousand in 2010 primarily due to earnings realized on funds invested in foreign banks.

Interest Expense

Interest expense decreased $168 thousand or 16% from $1.1 million in 2009 to $902 thousand in 2010. This decrease was primarily due to the full conversion of $20.0 million of convertible debt during the third and fourth quarters thereby ceasing further recognition of the imputed interest expense associated with these debt instruments.

Other Non-Operating Income

Other non-operating income of $6.3 million for the year ending December 31, 2010 consisted of a $6.0 million gain recognized for the decrease in the fair value of the put option that was issued to the two former stockholders of E-Z Data whom received shares of Ebix common stock as part of the acquisition consideration paid by the Company, and a $262 thousand gain realized upon the sale of a building.

Foreign Exchange Gain

Net foreign exchange gains decreased $147 thousand or 11% from $1.4 million in 2009 to $1.2 million in 2010. This net decrease is due to the $949 thousand impact of re-measuring certain intercompany debt obligations largely offset by $802 thousand of gains recorded in connection with the changes in the fair value of the related derivative instruments the Company holds to hedge the impact of fluctuations in the exchange rates in the foreign jurisdictions in which we conduct our international operations.

Income Taxes . . .