Ebix (EBIX) - Get Report shares tumbled Monday after the software and e-commerce services provider said RSM had resigned as its independent registered public accounting firm after identifying "a material weakness."
Shares of the Johns Creek, Ga., company at last check were 39% lower at $39.83. They've traded on Monday as low as $24.41, down 52%.
RSM said in a letter that its resignation was the “result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020" relating to Ebix's gift-card business in India.
For full-year 2020, operating income from the gift card business was less than $1.4 million, Ebix said.
The growth in the gift-card business revenue was driven by the increased use of digital money in India during the pandemic and by the company's renewed push to grow its payment-solutions business.
Last year, India's Yatra Online Inc., one of the largest travel companies in the country, terminated a pending merger agreement with Ebix and filed suit, seeking "substantial" damages for Ebix's alleged breach of deal terms.
Ebix said in a statement that it "intends to move as quickly as possible to replace RSM and to complete its 2020 financial audit."
"The company believes that the accounting for its gift card business is consistent with GAAP requirements," Ebix said. "The company will communicate with its public shareholders as appropriate."
RSM also it had identified a material weakness because “management did not design or implement the necessary procedures and controls over the gift or prepaid card revenue transaction cycle sufficient to prevent or detect a material misstatement.”
In addition, RSM also said there was a disagreement with respect to the classification of $30 million held in a trust account for the benefit of the company.
Ebix said that in December it had transferred $30 million to a trust account of its outside legal counsel in connection with a pending acquisition.
There were no restrictions on the company’s ability to have the cash returned, Ebix said, and in fact, after RSM opined on the issue of classification of these funds, the company had the cash returned on Feb. 2.
RSM said it "believed that these funds should be classified on the balance sheet under the 'Other Current Asset' line item of the financials, instead of being classified as cash as the company had initially classified it."
"There were communications with RSM on this issue after which the company was prepared to classify the $30 million held in the trust account at December 31, 2020 as a current asset.
"[Ebix] considered this issue to be an initial difference of opinion based on incomplete facts or preliminary information rather than a 'disagreement' under" Securities and Exchange Commission Regulation S-K Item 304(a)(1)(iv).
This item defines a disagreement as one occurring “at the decision-making level, i.e., between personnel of the registrant responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report.”