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Ebix Inc. (NASDAQ:EBIX)

Q1 2014 Earnings Conference Call

May 9, 2014 11:00 AM ET

Executives

Steven Barlow – VP, IR

Robert Kerris – CFO

Robin Raina – Chairman, President and CEO

Analysts

Jeff Van Rhee – Craig-Hallum

Operator

Good day, ladies and gentlemen, and welcome to the Ebix Inc. First Quarter 2014 Investor Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over Mr. Steve Barlow, Vice President of Investor Relations. Sir, the floor is yours.

Steven Barlow

Thank you, Nicholas. Welcome everyone to Ebix’s first quarter 2014 earnings conference call. Joining me to discuss this quarter is Ebix Chairman, President and CEO, Robin Raina; and Ebix Senior Vice President and EVP, Robert Kerris. Following our remarks, we will open up the call for your questions.

Let me quickly go over the Safe Harbor. Some of the statements that we make today are forward-looking, including among others statements regarding Ebix’s future investments, our long-term growth and innovation, the expected performance or our businesses, and our use of cash. These statements involve a number of risks and uncertainties that might cause actual results to different materially from those projected in the forward-looking statements. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.

Additional information concerning factors that could cause actual results to materially differ from those of the forward-looking statements made today are contained in our SEC filings, which will list a more detailed description of the risk factors that may affect our results.

Our press release announcing the first quarter 2014 results was issued earlier this morning. This audio of this investor call is also being webcast live on the web at www.ebix.com/webcast. You can look at Ebix’s financials beyond what has been provided in release on our website, ebix.com. The audio and a text of the transcript will be available also on the Investor homepage on the website at 4’o clock today.

Let’s start by discussing results announced today. Bob and I will talk about the company from a financial perspective, and Robin will sum up and provide some color on the quarter and new products and revenue initiatives.

Revenue in Q1 increased sequentially by 1% from Q4 2013, while decreasing by 2% from a year ago to $51.4 million. On a constant currency basis, our growth is better as revenue would have been $53.3 million, up from reported revenue of $52.6 million in 1Q 2013.

Foreign exchange rate declines in Australia and Brazil continue to impact the P&L. On a sequential constant currency basis, our revenues grew by $1 million as compared to Q4 of 2013.

In Q1, our exchange revenue increased to become 82% of our total revenue this quarter compared to 79% in Q1 in 2013. The life and annuity platforms, which have seen the implementation of new products, aided revenue growth and should do so in future quarters.

With the Australian and Brazilian currency weakening as compared to the U.S. dollar and the revenues from these regions being primarily exchange-based, the FX rates hurt our exchange revenues substantially.

Our broker’s business revenue dropped by $236,000 in Q1, as compared to Q1 of 2013. The impact is primarily currency-based, since majority of our broker revenues are from international sources and it’s because of reduced professional services in Q1 2014, because of a shorter quarter for implementation services with an extended Christmas holidays, traditionally impacting our Q1 professional services revenue in international markets.

The BPO channel is renamed Risk Compliance Solutions in the first quarter to more accurately portray the scope of its business, which is the mitigation of risk for our clients by actually tracking insurance and monitoring compliance through a variety of SaaS-based subscription and transaction services.

CurePet, a startup and with Ebix-owned a minority interest of 19.8% was fully acquired in January. Since June of 2012, Ebix has been generating revenue from CurePet as its exclusive development partner. This revenue no longer exists of the startup, as 100% of the company was acquired by Ebix, with a view to build an end-to-end pet exchange for veterinary schools, hospitals and general pet practitioners.

This caused a year-over-year drop in revenue, but on the positive side, opens up an opportunity for us to be the pioneering pet insurance exchange in United States. We’re excited about the opportunities that we see ahead of us on that front.

The reduction in carrier channel revenues is because of reduced professional services in the quarter, as compared to a year ago, with certain implementations going into reduction. Once we start our new implementations, the revenue should accordingly start looking up.

The company’s gross margin remained in the 81% range, which is consistent with recent trends. Our operating margin for Q1 2014 was 38%, as compared to 37% in Q1 of 2013.

And I will now turn the call over to Bob.

Robert Kerris

Thank you, Steve, and thanks to all of you on the call for your interest in Ebix. In our last investor conference call, we talked about how one of the major financial goals in 2013 has strengthened company’s balance sheet.

We continue to do that in Q1 of 2014 and throughout, and we’ll continue to focus on that throughout the coming year. The company’s working capital position increased to a record high of $47 million compared to $35.7 million at year-end and $32.1 million a year ago on March 31, 2013.

This increase in working capital in the present quarter is due to higher cash balances, increased trade receivables and lower current earn-out obligations awaited from our business acquisitions. Accordingly, the company’s current ratio also improved to 1.8 at quarter end, up from 1.54 at year-end 2013.

We were able to sustain these attractive liquidity positions, and despite of having made the following major cash outflows in the first quarter of 2013, we reduced debt by $2.4 million, we paid $3.1 million of taxes. We used $2.2 million to repurchase 137,000 shares of our common stock. We paid $2.9 million in dividend, and we paid $4.2 million in satisfaction with the obligation owed to settle the class action suit as previously announced.

After spending all this cash, the company continues to hold substantial cash, cash equivalents and short-term investments, which in the aggregate had a combined balance of $58.6 million at March 31, 2014, up slightly from the year-end 2013.

We used some of our cash resources to paydown debt and we moved into a net cash position at quarter end of Q1 2014 of $3.3 million versus a net debt position of a year ago of $34.5 million and a net debt position of $179,000 at year-end 2013.

As of today, we are in a net cash position meaning debt less cash balances of approximately $6.1 million.

At quarter end 2014, the company’s debt leverage ratio was 0.65 at March 31 and our fixed charge coverage ratio was 2.35. Our cost of debt remains relatively low. This debt being our term loan and revolver with our banks, and that interest rate presently stand at 1.65%.

As of March 31, 2014, the company’s bank debt balances with our commercial banking facilities stands at $52.3 million, which consists of $22.8 million balance on the revolving line of credit and $29.5 million balance on our term loan. Furthermore, Ebix has access to approximately $22.2 million of additional borrowing capacity from its commercial banking facilities, which is unused at present.

As of today, the debt with our banks has been further reduced to $49.9 million from the $52.2 million spoke about earlier at March 31, 2014.

Cash generated from operations, a key performance measure for our company during the first quarter was $10.8 million, down from the $14.3 million from the first quarter of a year ago.

The decrease is primarily due to non-recurring – it’s due to the payment of the class action settlement, that we spoke about earlier which is a non-recurring item, and cash payments made during the quarter which add up to $3.1 million.

As of March 31, the company has access to $80.8 million of available cash resources from our commercial banking facilities, combined with our cash on hand working capital and the associated cash generated by our operating activities, which, going forward we intent to use to pay debt – further paydown debt to support the continuing growth in the company, both organically and with accretive business acquisitions, and to repurchase shares of our common stock as and when appropriate.

The company announced on Wednesday that we will pay a dividend of $0.075 payable on June 13 to shareholders of record as of May 30. Finally, Ebix will file its form 10-Q this coming Monday, May 12.

Thank you for your attention. And I’ll now pass the call on to Robin.

Robin Raina

Thanks Bob. Good morning. Bob and Steve have already discussed the financial metrics coming out of the quarter. I am going to try and review the business at a more qualitative level and will attempt to present certain key initiatives and the rationale behind them besides trying to give you a glance into the future as we see it.

First, let’s talk about the top line. Our revenues are moving in the right direction with the company showing revenue growth in constant currency terms, both year-over-year and quarter-over-quarter. I am especially pleased with the top line growth, considering that there were a number of factors that could have hurt our revenues. We’re in the midst of negotiating a material market aggregation deal in Europe.

Our revenues in Europe were impacted by the various market entities delaying any new decisions in Q1 of 2014, in view of this aggregation utility deal.

Secondly, with the acquisition of the CurePet exchange, we did not have the development revenues received from CurePet as their development partner in 2013.

Thirdly, as stated, in 2013, we had to bear the continuing impact of decreased professional services revenues from the delays associated with certain PlanetSoft implementations. In spite of all of that, the revenues were up quarter-over-quarter and we are pleased with that.

We have a number of exciting initiatives at present that we are pursuing. Let me talk about a few. In the end, I’ll discuss our press release today as regards A.D.A.M. OnDemand and why we are so excited about that initiative. Our EbixEnterprise straight-through processing health solution went into production with two leading health carriers in the United States in the first quarter, namely, IHC and Security Life Insurance Company.

A few years back, when we conceptualized the idea of straight-through processing enterprise platform for the health industry, our competitors and many customers thought of it as a venture in vain. Today, after more than two years of work from inception to delivery to successful execution, EbixEnterprise is live with both insurance carriers as a complete end-to-end solution.

This makes EbixEnterprise the only end-to-end cloud-based health straight-through processing solution in the market. Both these customers today are great references for us. The successful implementation of EbixEnterprise for health insurance interfaced with our CRM solution is also working with our annuity solution, and all of that is a unique initiative that sets Ebix apart from any other player in the insurance industry now.

We see this as an initiative that allows us to bid for large enterprise deals that earlier would go only to large players like IBM. We sell EbixEnterprise on a healthy mix of subscription and transaction basis, with Ebix getting paid recurring monthly fees based on the number of health, dental or visualize on the system. The solution plays well with a focus on high-margin recurring revenue services.

Recently, we purchased a startup called CurePet, wherein we had a minority shareholder interest. Ebix served as an exclusive IT partner in the year 2013, and help them build an EMR initiative for pets. We bought the company in January 2014 and have focused all our attention on building the world’s first electronic medical record, practice management billing, accounting and claims management system for pets, besides creating a pet insurance exchange that will endeavor to connect thousands of general practitioners with vendors, veterinarians and veterinary hospitals.

To give you an expanse of the market, there are an estimated 72 million pets in the U.S. alone. We bought the company as we see a large market for pet insurance across the world and our attempt will be to become the pioneers in defining and streamlining that market. We are presently in advanced discussions with two of the largest veterinary hospitals in the country towards deploying the solution on a SaaS basis, again our revenue model on the solution is a healthy mix of subscription and transaction basis with the enterprise solution paid for on a subscription basis, while the exchange connecting practitioners at hospitals and vendors and pet owners etcetera, charge on a per insured referral basis.

Recently, we deployed a vendor- pay model for the risk compliance services division. We are pleased to have started on a great note with Walmart of Canada signing a contract in Q1 of 2014 and already going into production in Q2. The deal involved us automating the certificate monitoring and compliance for Walmart Canada’s thousands of vendors, contractors and suppliers.

We’re going to work hard to ensure that we can try and replicate this across other countries also where the volumes could be even higher. We’re excited about this venture, as it allows us to price our offering appropriately based on each vendor, supplier or contractor while maintaining the subscription nature of the business, thereby trying to ensure that our margins from the RCS business can grow.

One of our key initiatives at present is on the CRM side. Our goal is to launch SmartOffice Anywhere, a device-independent CRM utility that puts the power of CRM in the hands of advisors wherever they are in the second quarter of 2014. Our goal is to provide it to our entire user base as an integrated offering and charge for it on a recurring monthly basis.

We’re also in the process of launching our Microsoft Outlook integration module for our CRM solution. That’s something that our illustrious large CRM competitors do not have, and thus that holds a lot of value for our customers. We expect CRM to be a key part of Ebix’s future growth story.

In Q1 of 2014, the professional services revenue from the PlanetSoft acquisition were down as we have announced earlier in 2013 itself, because of certain implementations being delayed by customers, while that did not help the quarter. The TPP solution set emerging out of the PlanetSoft acquisition interferes with our straight-through processing offering, holds a lot of promise for us in the future.

We are presently in the midst of many meaningful-sized deals with large carriers based on that solution set.

Now let me talk about the A.D.A.M. OnDemand initiative that we announced today and that you can look on ebix.com or on adamondemand.com. In simple terms, this was our attempt to open up a completely new revenue line and convert our A.D.A.M health brand also into a household healthcare brand for consumers, patients, medical students, nurses, doctors, hospital, researchers, national medical institutions, government and the pharmaceutical industry.

We’re planning the phased launch of a few key initiatives in that direction. In phase one, the A.D.A.M. OnDemand service will allow a user to access medical education courses, videos, content, patient journeys on a wide variety of medical topics at any time and watch them at leisure over the cloud. The service will be available to consumers and patients through Ebix partner network of online sites, as well as through search engines, social networking sites and other valuable destinations.

With hundreds of hours of content available, the users will be able to instantly seek access to our entire A.D.A.M. OnDemand library or medical e-learning programs without dedicating a single byte on their hard drive. The revenue model on this is going to be on a subscription basis. The service is also targeted for medical students, healthcare professionals and the pharmaceutical industry, providing them a highly creditable source of healthcare information and multimedia visual learning asset to enhance their knowledge and skills.

With built-in progress tracking and automated bookmarking, users can easily manage their learning across multiple sessions. For those who finish their program successfully, a certificate of completion is provided to help healthcare and pharma organizations track the knowledge of their staff.

In addition to cloud-based delivery, A.D.A.M. OnDemand is also available for white-label integration in corporate learning management systems and patient portals.

In the phase two and phase three, we are presently working on a detailed plan towards creating the world’s largest online aggregation of general physicians and specialists to offer medical advice and medical treatment to consumers across country boundaries. The company intends to get there through a mix of acquisitions and the innovative launch of new services.

This innovative service will allow consumers to reach out to doctors online and seek advice over a guaranteed short period of few hours. The paid-for-service will be accessible to users across the globe through search engines, social networking sites and product portals and a mix of B2C sites and healthcare destinations.

The service will allow consumers to upload their medical images and test results and seek advice online from these doctors. Working towards a fully integrated medical treatment exchange, the company intends to allow consumers to have video sessions with the doctors in the next phase of the launch of service. Integrated with A.D.A.M. OnDemand content and linked to local medical facilities, the service will allow patients and their families to understand a medical ailment better and seek advice on simple and complex medical issues from a large network of specialists. The revenue model on this is going to be on a subscription and transaction basis, both.

We see this as a launch of one of our biggest initiatives over the last several years, as it can help us launch a consumer plan, while monetizing our existing healthcare assets. We believe that these initiatives have immense revenue potential and are going to be an important part of the Ebix growth story in future years.

With the rising cost of healthcare, consumers are increasingly reaching out online, seeking advice on treatment. Insurance companies see patient education and telemedicine as key initiatives in their pursuit to control costs of servicing their patients. Healthcare professionals are looking for non-intrusive means to keep themselves up-to-date on medical research and advancements.

Doctors are looking for innovative ways to increase their earnings while building a dialog with their patients. These initiatives are an important step in that direction. As Bob referenced during his talk, we feel good about our cash generation abilities. We intend to use this cash to make accretive acquisitions, both in the short and the long-term.

We are focused on making accretive, complementary acquisitions that generate operating margins at our levels post-acquisitions, are accretive in the short-term, have a high subscription revenue rates and have a technology set-up that is a part with the cloud computing vision of Ebix.

In our viewpoint, there are some great companies in the industry at present that fit all these criteria well and thus a great target for us.

Let me now briefly touch the topic of expense and margins. Ebix has always been quite disciplined in its approach to expense control that has not changed. Our business model has a high subscription base and as such is high margin intensive.

Our focus presently is on growing our business – as we grow our business, margins will take care of themselves. We have set a high benchmark for ourselves on that front.

That brings me to the end of my talk. I’ll now hand it over to the operator to open it up for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Jeff Van Rhee with Craig-Hallum. Your line is now open. Please proceed with your question.

Jeff Van Rhee – Craig-Hallum

Great, thank you. A number of questions this morning. First, I guess just, Robin, as it relates to the sales organization, has there been any material structural changes to the organization with a focus on accelerating organic growth?

Robin Raina

Well, I think we put some changes in place quite some time back, and actually we’re just basically building on those changes now. We’re continuing to strengthen our sales team as we see it today. We’re going through the normal changes from time to time. If we find particular sales people not performing, we change them, but pretty much we have stayed on with our current structure by streamlining sales, by centralizing sales, by making sure that we create a multinational account program structure, whereby sales across the world all reports to a common sales head worldwide. And also there is emphasis on solution selling than rather than a product selling.

Jeff Van Rhee – Craig-Hallum

Okay. And then second for me. The A.D.A.M. OnDemand launched. Can you just – I guess, near-term as you look at phase one, I’m a little unclear on the revenue model, namely who is the buyer? Can you just clarify what the buyer – the ultimate payer is for just phase one?

Robin Raina

Well, phase one and phase two are going to quickly follow each other. I think soon you’re going to hear us talk about phase two. But talking about phase one first of all, A.D.A.M. OnDemand basically is a service that can be used by, first of all, all the B2B organizations, whether these are pharma companies, whether it is hospital, whether it is a medical student, whether it is – I’ll give you example of – we just agreed on a deal with a largest nursing association in Australia, which has a membership base of 258,000 nurses.

And A.D.A.M. OnDemand is a perfect tool available to make sure that these nurses now have the ability to keep their knowledge absolutely up-to-date. And it’s a requirement to make sure that those nurses are absolutely knowledgeable. So that’s an example of that. So medical students, nurses. And then you look at the consumers. When you look at the consumer world, what we are discovering is that, from a consumer perspective, there is – when there is a medical ailment in the family, the family members, the patient is trying to reach such a topic and he is trying to really get into the depths of what really is happening to my body. What is the research out there? People want to understand a patient journey out there. Is there a patient’s particular path? What medicine was – what are the particular medical treatment that worked and so on.

So what Ebix is doing, we are creating patient journeys where you would be able to see, for example, let’s say, we’re talking about a specific case like that, but we’re going to explain exactly what happened with let’s say a patient called Bruce [ph] and walk them through the whole example in video and animation through what happened with respect to medication with respect to the body and so on.

And similarly, under explaining the entire body, explaining why a disease happened, what could be done to prevent it and so on. And all of that is going to be sold to consumers through search engines. You’re going to see Ebix market through the Googles of the world, through social networking sites, through large health destinations and so on. There is a market for it. And there is a pretty large market for it.

And that’s basically phase one, wherein you’re selling this to the patients, their families, the practitioners, the nurses, the doctors, the medical students, the pharma companies and so on.

And then you look at the phase two of it. Phase two of that is basically aligned, for example, let’s say I have a medical ailment and I need specific advice on it. I have two options. I could go to a doctor or I could basically go in and go online and have 150 doctors available online to answer my question.

If a company can guarantee that in the next, maximum of three hours or so, I can get you an answer from these doctors, you’re able to upload your tests, you’re able to, for example, take a picture of a particular body part and upload it and have doctors basically opine on it. This could be a fist hand opinion, it could be second opinion for you, it could be a cross boundary. There could be a cancer patient in let’s say Dubai who is trying to reach out to specialist in the U.S.

And so there is – the idea is to create this large aggregation of doctors who would be available – specialized general physicians, who will be available to answer these questions. And the consumers will be paying for that on a different model basis. One model is a consumer paying virtually on a monthly basis by getting a subscription for the family. The other model is a consumer asking or being allowed for X number of dollars, X number of questions and so on. So that’s basically the revenue model. Did I answer your question?

Jeff Van Rhee – Craig-Hallum

Okay. Yes, you did. I guess just one more for you, Robin, and then I had some for Bob. I think back in November, you had discussed two large five-year deals that were going to go live in the earlier part of this year. Can you just update us on those? Are the implementations on track, the adoption as expected?

Robin Raina

Yes. We’re on target with both of those deals.

Jeff Van Rhee – Craig-Hallum

Are they both impacting revenue now? Are they live?

Robin Raina

Both are live. And again, there is a ramp up period with each one of those. Both our deals which are long-term deals have continuous scalability. It keeps getting scaled up. And so yes, they are live. And as we go forward, you’re going to see increased revenue from both those deals.

Jeff Van Rhee – Craig-Hallum

Okay. And then, Bob, just some clarifications. On the currency front, you noted the headwinds, is it related to revenue headwinds from currency? Was there an offsetting benefit to the expense side, and can you quantify that?

Robert Kerris

Yes, there was. On the expense side, the decrease in – obviously the change in the foreign exchange rates had the effect of reducing our operating expenses by $1.2 million. So we already talked about the effect they had on revenues. At the end of day overall on our operating income was decreased by $639,000 on a net basis as a result of the effect of the change in exchange rates.

Jeff Van Rhee – Craig-Hallum

Okay, great. And then the earn-out was reduced in the quarter. I guess, maybe this is for both of you. Just, what’s the driver there? I am assuming that’s PlanetSoft but can you just expand on what’s going on there?

Robert Kerris

So in total, our contention earn-out obligations were reduced by $1.8 million during the quarter, pertaining to Q2 2012 acquisitions, both PlanetSoft and TriSystems. And as is required in taking the current guidance, each quarter we’re obligated to go back and look at the and recalculate the fair value of those obligations based upon expected revenue streams and the present value of that earn-out discounted back.

And based upon the analysis until this past quarter and the projected revenues for these two acquisitions, those would need to bring down those earn-out current obligations and the offset to that is general and administrative expenses.

Robin Raina

Jeff, let me talk about both of those, because that’s very relevant question. As to when we look at these two – especially these two companies, PlanetSoft and the TriSystems, let me start first with PlanetSoft. PlanetSoft, while they’ve been – they started very well, they didn’t make up their revenue. Part of it was delayed implementation that we announced earlier and continually they kept trying, but ultimately they weren’t able to get to their earn-out.

Having said that, the product set from PlanetSoft had been fantastic. We feel that TPP solution set that we inherited from them that we interfaced into our straight-through processing solution is today at the core of some reasonably large deals that we are enrolled in. And we feel that it might so happen that the earn-out gets lower and we’re going to see increased revenues come through from PlanetSoft.

We’re quite bullish on the TPP side of things. Obviously everything has been integrated into a straight-through processing solution. It’s a pity that they – I feel the owners of PlanetSoft – the people that we inherited from PlanetSoft were extremely high quality employees and they did a fantastic job of integrating their solution, marketing their solution. It’s a wonderful solution, works extremely well, loved by the audience, by the customer base and so on.

It’s a pity they didn’t make it, mainly because the way the solution set works, that implementation cycle is large. And most of the clients are very large. And when these large clients make a determination, sometimes small delays on their side internally can cause lot of pain on a product like this.

So having said that, what we have done over the years is as we were – which wasn’t necessarily good for them from an earn-out perspective, but we worked over the last year and a half to build up the whole customer base, to build up a large prospect base on their solution set, put it in the center of our philosophy of exchanges. And what that has done, that has put Ebix in amidst of a lot of large deals today.

And we’re very bullish about this whole TPP solutions that we inherited from PlanetSoft. In the short-term for sure we had to reverse their earn-out, because if the earn-out period is basically getting lower for them and they want getting there. Having said that, then you look at the other one which is TriSystems. Again, TriSystems has been at the core of our – as you know, we made two acquisitions in London, TriSystems and Qatarlyst.

Between those two, we created this EbixExchange end-to-end solution in London and Europe. While TriSystems hasn’t made – we reversed that earn-out simply because again they are towards the end of their earn-out period. Again some of them, they got impacted lately, especially because of the simple fact that I referenced that during my talk, we are in the midst of negotiating material aggregation deal in Europe.

When you do a material aggregation deal, what really happens in the market is, that individual customers, all the large brokers, large carriers are aware that there is a deal happening, and that deal will grandfather everything. Since that deal with grandfather everything for the whole market, customers stop doing, giving you new business until that deal is in.

So that impacted TriSystems’ earn-out in the short-term. Overall, from an Ebix perspective, it hasn’t been bad. I think TriSystems has been an fantastic acquisition and we feel very good about where it has taken us in the European markets.

Jeff Van Rhee – Craig-Hallum

Could you comment how much earn-out is left there? How much more potential reversal in total from those could happen, if they continue to disappoint?

Robert Kerris

Yes, I’ll comment. There is only about $200,000 left

Jeff Van Rhee – Craig-Hallum

Okay.

Robin Raina

So there’s basically almost nothing.

Jeff Van Rhee – Craig-Hallum

Got it. Okay. And then, Bob, on the deferred tax assets bouncing around from quarter-to-quarter. Can you just expand on that? As I understand, it relates to the pre-payments related to some of your India taxes, which gets a little tricky to walk through, but if you could just walk through that?

Robert Kerris

I think there is two things that are affecting it. One is, as we do make payments of net VAT tax and then alternative tax in India, that increases deferred tax assets. Furthermore, during the quarter we had to adopt a new accounting pronouncement that had the effect of changing some of the reporting within the balance sheet of our deferred balances. I’m trying to get this, hang on one sec.

Jeff Van Rhee – Craig-Hallum

I had one other in the meantime. Maybe, Robin, you could answer. Just I’m curious on the legal side, the legal expenses. I think you had commented last quarter, are winding down somewhat. Can you just give us any update or any color there on what the spend is? I don’t know, if it was over the quarter, or over the year. Just give us some sense of how – as I build the model, what I should be thinking about for legal?

Robin Raina

Yes, the trend is that the legal continues to go down. The expenses were down in Q1 as compared to Q4 and the trend continues. We obviously would like to see that continue to go down. So right now, the legal expenses are continuing to wind down.

Jeff Van Rhee – Craig-Hallum

Okay. That’s all I had.

Robin Raina

I think from our perspective, like I referenced in my talk, as – the way the business is set-up. Our business is high margin intensive. And as we move forward and keep growing our revenues, I think the margins will take care of themselves. That’s not one of our biggest worries right now.

Jeff Van Rhee – Craig-Hallum

Okay. Then just, I guess just waiting for Bob’s final answer there and then I’m all set.

Robin Raina

I think, Bob, can come back to you offline on the answer on.

Robert Kerris

Yes.

Robin Raina

He is looking for the accounting pronouncement basically the other one.

Robert Kerris

Yes. I’ll get back to you on that one.

Jeff Van Rhee – Craig-Hallum

Okay. I’m all set. Thank you.

Operator

Thank you. (Operator Instructions) And pardon me speakers, I am not showing any further questions in the queue.

Robin Raina

With that, I think since there are no more questions, I’m going to finish the call. And we look forward to speaking to you at the end of the second quarter. And thank you for being there.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Have a great day everyone.

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