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Edited Transcript of EVTC earnings conference call or presentation 1-May-19 8:30pm GMT

Q1 2019 Evertec Inc Earnings Call

Rio Piedras May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Evertec Inc earnings conference call or presentation Wednesday, May 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joaquin A. Castrillo-Salgado

EVERTEC, Inc. - Executive VP & CFO

* Kay Sharpton

EVERTEC, Inc. - VP of IR

* Morgan M. Schuessler

EVERTEC, Inc. - President, CEO & Director

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Conference Call Participants

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* Georgios Mihalos

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* James Edward Schneider

Goldman Sachs Group Inc., Research Division - VP

* John Kimbrough Davis

Raymond James & Associates, Inc., Research Division - Research Analyst

* Korey Marcello

Deutsche Bank AG, Research Division - Research Analyst

* Robert Paul Napoli

William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology

* Vasundhara Govil

Morgan Stanley, Research Division - Former VP & Equity Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to the EVERTEC's First Quarter 2019 Earnings Conference Call. Today's conference call is being recorded.

At this time, I would like to turn the call over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.

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Kay Sharpton, EVERTEC, Inc. - VP of IR [2]

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Thank you, and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquin Castrillo, our Chief Financial Officer.

A replay of this call will be available until Wednesday, May 7. Access information for the replay is listed in today's financial release, which is available on our website under the Investor Relations section of evertecinc.com. For those listening to the replay, this call was held May 1. Please note there's a presentation that accompanies this conference call and it is accessible in the Investor Relations section of our website.

Before I begin, I'd like to remind everyone that this call may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainty. EVERTEC cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur after this call. Please refer to the company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statement.

During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules such as adjusted EBITDA, adjusted net income and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides.

I'll now hand the call over to Mac.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [3]

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Thanks, Kay, and good afternoon, everyone. We are pleased with our results for the first quarter of 2019, which was at the high end of our expectations. We are executing well and we continue to benefit from Puerto Rico's increased rebuilding and recovery activity.

Beginning on Slide 4, I'll cover some of the quarter's financial highlights and provide you with an update on recent developments. Total revenue was $119 million, an increase of 8% compared to 2018. January and February were elevated relative to last year as the economy was still recovering from the hurricanes that hit Puerto Rico and the Caribbean in September of 2017. We also benefited from revenue related to EBT services for the government of Puerto Rico.

Adjusted EBITDA was $58 million or 7% growth over the prior year and adjusted earnings per share was $0.50, an increase of 6% compared to last year. We generated significant operating cash flow and returned approximately $21 million to our shareholders through dividends and share repurchases.

Moving on to progress in Puerto Rico on Slide 5. First, we were pleased with the strong revenue in Puerto Rico and the Caribbean, which grew approximately 11%, driven by transaction growth of approximately 10%. We continue to benefit from relief and recovery programs, increased tax payments as well as our continued deployment of value-added solutions for merchants and partners.

Regarding the federal funds flowing into Puerto Rico, the government submitted to the PROMESA board a revised fiscal plan on March 27. And although it is not certified by the board at this time, it included revised timing of federal funds and offers us a view of the local government expectations.

Although the total anticipated funds continue to be the same at approximately $82 billion, deployment of such funds is expected to be slower than originally projected by the PROMESA board-certified plan. Based on these new projections, a fiscal 2019 estimate of $6.7 billion is now anticipated to be approximately half of the funds received in 2018. 2020 is projected to be higher than 2019 at $8.7 billion. Although the pace of federal funds is slower than we'd like to see, we continue to believe this will positively impact the island's economy over time.

On a positive note, the Treasury Department in Puerto Rico reported a significant increase in the number of Puerto Ricans that filed their tax returns compared to the previous year. The government expects to close the fiscal year above the previous tax revenue projections. We believe that these are important steps necessary for the debt restructuring process and ultimately a driver of long-term economic health on the island.

Moving to Slide 6 for Latin America update. Revenue was up 2% year-over-year and is performing as we anticipated given the impact of the attrition and the uneven license sales in any given quarter. We recently were informed of another delay in one of our client migrations this year, which will result in client migration at the lower end of our original expectations for the year.

In summary, we are pleased with the strong Q1 2019 financial results and we'll continue to focus on advancing our strategic initiatives in Latin America and Puerto Rico. We look forward to sharing our progress in the coming quarters.

With that, I will now turn the call over to Joaquin.

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [4]

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Thank you, Mac, and good afternoon, everyone. I will now provide a review of our first quarter 2019 results.

Turning to Slide 8. You will see the consolidated first quarter results for EVERTEC. Total revenue for the first quarter was $118.8 million, up 8% compared to $110.3 million in the prior year. While it was a somewhat easy comparison to last year given January and February were still feeling the effects of the hurricane, our sales volume for the month of March was relatively flat versus prior year. We benefited in the quarter from a onetime revenue of $2.7 million related to the EBT service contract we managed for the government of Puerto Rico. Lastly, we've also benefited from increased core banking transactions and an increase in network services related to new managed services projects.

Adjusted EBITDA for the quarter was $57.6 million, an increase of 7% from $54 million in the prior year. Adjusted EBITDA margin was 48.5% and this represents a 40 basis point decrease in our adjusted EBITDA margin compared to the prior year. The year-over-year decrease in margin primarily reflects the lower Corporate and Other expenses in the prior year quarter as well as the elevated average ticket we experienced last year as a result of disaster relief spending that drove a higher-than-normal margin.

The margin this year benefited from the EBT onetime revenue, partially offset by higher investment in our technology platforms. Without the EBT benefit, normalized adjusted EBITDA margin would have been approximately 47.3%.

The effective tax rate in the quarter was 12.5% and we continue to anticipate that our full year tax rate will be approximately 13% or slightly below. Adjusted EPS was $0.50 for the quarter, and grew 6% compared to the prior year.

Moving on to Slide 9. I'll now cover our segment results, starting with Merchant Acquiring. In the first quarter, Merchant Acquiring net revenue increased 11% year-over-year to approximately $26 million. The revenue increase was due to increased volumes driven by lapping the softer results in the first 2 months last year and the benefits of the extra EBT funding.

In March, we saw flat sales volume that were in part driven by the end of the disaster recovery extra EBT funding that began in March of prior year and ended in early March this year. Adjusting for the impact of the EBT funding in the month of March, sales volume growth would have been in the low to mid-single-digit range. Lower EBT transactions, however, contributed to a slightly higher net spread.

Average ticket declined 4% versus the prior year as well as sequentially, in line with our expectations as spend continues to move towards more normalized levels. For April, we have continued to see similar sales volume results to March, which were relatively flat to slightly up as compared to last year levels.

Adjusted EBITDA for the segment was $12 million, up 10%. Adjusted EBITDA margin was 46.1%, down approximately 40 basis points as compared to last year, reflecting the impact on margin of the lower average ticket this quarter. We anticipate a similar margin over the next few quarters.

On Slide 10, you will see the results of the Payment Services Puerto Rico and the Caribbean segment. Revenue for the segment in the first quarter was $32 million, up approximately 18% as compared to last year. Transaction volumes grew approximately 10% and also benefited from the softer comparable in January and February last year. Additionally, as I mentioned, we benefited from a onetime revenue in our EBT services contract and we continue to benefit from new transaction fees for services such as ATH Móvil Business and the ATH Móvil switching fees that we implemented last year.

Adjusted EBITDA for the segment was $21.3 million, increasing 23% as compared to last year. Adjusted EBITDA margin was 66.4%, up approximately 270 basis points as compared to last year primarily due to the high-margin EBT revenue and other new transaction fees. Adjusting for the EBT revenue, margins would have been relatively flat as compared to last year.

On Slide 11, you will see the results of our Payment Services LatAm segment. Revenue for the segment in the first quarter was $20.8 million, up approximately 2% as compared to last year. This growth was primarily driven by intercompany license and service revenue, offset by approximately $700,000 of client attrition. Organic revenue was down in the quarter due to license sales implementations and consulting services to third parties in the prior year that did not recur.

As we have mentioned previously, our LatAm revenues, through our Chile acquisition, include a component of license sales and consulting services that are nonrecurring and that will result in somewhat uneven revenues throughout the year. We continue to focus on our strategy of shifting from a licensing model to a processing model, which will eventually result in a more recurring and growing revenue base.

Additionally, we will have some further delays from our client migrations and now expect the full year impact of client migration to be closer to $3 million. Total revenue growth for the full year in LatAm segment is now anticipated to be low to mid-single digits.

Adjusted EBITDA for the segment was $8.3 million and adjusted margin was 39.6%, up approximately 530 basis points as compared to last year, driven by the intercompany services and license sales to Puerto Rico. For the full year, we now anticipate the adjusted EBITDA margin to be in the mid-30s due to intercompany services and license revenue.

On Slide 12, you will find the results for the Business Solutions segment. Business Solutions revenue in the first quarter was up approximately 7% to $51.4 million. Revenue growth in the segment was driven by lapping softer comparison to last year as well as new services for both Banco Popular and the government of Puerto Rico.

For the quarter, adjusted EBITDA was $23 million and adjusted EBITDA margin was 44.9%, down approximately 350 basis points as compared to last year. The decrease in the adjusted EBITDA margin was primarily driven by increased expenses related to infrastructure and other contractual obligation expenses that negatively impacted the quarter.

Moving on to Slide 13, you will see a summary of our Corporate and Other segment. Our first quarter expense was $6.9 million, an increase of 59% over prior year. Corporate and Other includes approximately a $2.1 million negative impact related to intercompany eliminations which were not in the prior year.

Intersegment revenue from Payment Services Latin America was capitalized in Payment Services Puerto Rico and Caribbean as we continue to use our LatAm resources to advance our efforts of shifting our products to a processing model.

Excluding this impact, Corporate and Other adjusted EBITDA would be $4.8 million, reflecting an increase of approximately $0.5 million largely due to lower spending in the prior year related to the lower post-hurricane activities and other timing delays.

As a percentage of total revenue, Corporate and Other was 5.8% and approximately 190 basis points above prior year, primarily due to the negative impact of the intercompany elimination and is now anticipated to be approximately 6% as a percentage of revenue on a full year basis as we expect a similar impact from intercompany transactions in the coming quarters.

Moving on to our year-to-date cash flow overview on Slide 14. Our beginning cash balance was approximately $87 million, including restricted cash of approximately $17 million. Net cash provided by operating activities was approximately $29 million or a $1 million decrease as compared to prior year and this includes the impact of settlement timing and other working capital differences. Capital expenditures year-to-date were approximately $14 million and we continue to anticipate capital expenditures in the range of $40 million to $45 million.

Next, we paid approximately $4 million in scheduled debt payments and $6 million withholding taxes on share-based compensation offset by use of our revolver, resulting in total net -- in a total net debt increase of approximately $6 million.

We've also paid cash dividends this quarter of approximately $4 million and we repurchased approximately 17.5 million of common stock for a total of $21 million returned to our shareholders year-to-date. We have approximately $45 million available for future use under the company's share repurchase program through December 31, 2020, and we recently announced another $0.05 dividend to be paid on June 7, 2019, to shareholders of record as of May 6. Our ending cash balance as of March 31 was $87 million and this included approximately $13 million of restricted cash.

Moving to Slide 15, you will find a summary of our debt as of March 31, 2019. Our quarter-ending net debt position was approximately $484 million comprised of the $73 million of unrestricted cash and approximately $557 million of total short-term borrowings and long-term debt. Our weighted average interest rate was approximately 5.2%. Our net debt to trailing 12-month adjusted EBITDA was 2.3x, reflecting the credit agreement terms which limits the cash supply to the net debt calculation to $60 million. As of March 31, total liquidity was $156 million. This balance excludes restricted cash and includes the available borrowing capacity under our revolver.

Moving to Slide 16, I will now provide an update on our 2019 guidance. We are raising the lower end of our revenue outlook and maintaining the high end of our revenue range for the year, resulting in a range of $469 million to $476 million, representing a range of 3% to 5% over last year.

The increase in the revenue range reflects our Q1 results on the higher end of our original expectations and our continued cautious outlook for the remainder of the year, particularly in light of the uncertainty around the disbursement of relief funding and the revised plan of the local government, which assumes a slower pace of disbursement in the funding originally expected for fiscal year 2019 and lower overall funding when compared to the previous year 2018.

Regarding overall margin, we continue to anticipate that our adjusted EBITDA margin will be approximately 47% for the year. Our operating depreciation came in slightly above our earlier forecast and our interest costs are now anticipated to be slightly below our original expectations due to the most recent fed indications on rate hikes for the remainder of the year.

Our adjusted earnings per common share outlook has been increased to $1.84 to $1.92, which represents a range of 0 to 4% as compared to $1.84 in 2019. And this change reflects the Q1 results as well as the benefit on share count from share repurchases made in Q1 as well as the benefit from the lower interest expense forecast for the remainder of the year.

In summary, it was a good quarter for EVERTEC and we're pleased to reflect these changes in our outlook for 2019. I look forward to meeting you and seeing you over the coming months.

We will now open the call for questions. Operator, please go ahead and open the line.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [5]

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Joaquin, before we open the line, I'd like to comment on a recent development in the local media today. Yesterday, the Special Claims Committee of the Financial Oversight and Management Board, an arm of the Puerto Rico's Financial Oversight Board filed more than 200 lawsuits seeking to recover payments received from the Puerto Rican government as the statute of limitation deadline expires tomorrow, May 2. The Oversight Board released a statement clarifying that the legal actions, and I quote, "Do not necessarily imply that any individuals and entities committed any wrongdoing. And if a vendor demonstrates the proper basis for the payment, the Oversight Board will dismiss the claim," and I end quote.

So EVERTEC was one of those more than 200 parties that were subject to a lawsuit. However, the complaint has various causes of action, all of which we feel confident we can properly defend. And we believe we should obtain a small -- I mean, obtain a dismissal on all the counts. So I did want to address that before we go into the Q&A in case anyone saw that in the media today. It has been in the Puerto Rican press.

So with that, we will turn over the call to any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Jim Schneider with Goldman Sachs.

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James Edward Schneider, Goldman Sachs Group Inc., Research Division - VP [2]

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I was wondering if you could maybe comment on, first of all, just the pipeline of any new kind of partnerships or deals that you see throughout Latin America in your business development efforts? I apologize if I missed that, but I just want to maybe get an update on that.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [3]

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Yes, Jim. This is Mac. We talked a lot on our call kicking the year off that we really did see these markets opening and we've seen some clear regulatory and competitive shifts in the market. We're still very focused on partnering with different financial institutions across the region, but we're not going to comment on those until we sign a specific contract. But we do have a healthy pipeline, both on the sales front and we are constantly looking at M&A as well. But we didn't have anything specific to announce on this call.

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James Edward Schneider, Goldman Sachs Group Inc., Research Division - VP [4]

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Very well. And then maybe as a follow-up, can you maybe just kind of comment on what you're seeing in terms of solutions wins on Business Solutions side? I think you've commented before on some of the knock-on effects of the hurricane relief effort and how that's benefited you from a local government perspective and also just elsewhere in terms of other contracts? Can you maybe comment on kind of how you'd expect those contracts to trend and whether you expect kind of a steady improvement in that line item over the course of the year?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [5]

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Yes. I'll talk qualitatively just like we talked about in the last call. I mean, the last call we talked about we signed an extension with Santander in Puerto Rico, which is one of our largest customers in the segment. We also signed a deal with the Department of Education to do consulting. The call wasn't that long ago. Between the Q4 and the Q1 calls, it's typically a shorter period of time.

We are still finding that there are opportunities with Business Solutions as we continue to perform well. We execute well in this market and we are the best provider in many of the areas in that segment. Again, nothing to announce on this call, but we are still seeing a demand for our services. Joaquin, I don't know if -- I mean, I think that's...

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [6]

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No, I think that covers it.

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Operator [7]

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Our next question comes from Vasu Govil with KBW.

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Vasundhara Govil, Morgan Stanley, Research Division - Former VP & Equity Analyst [8]

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Nice quarter. Just first question, I guess, the onetime revenue benefit that you called out for the quarter, was that already contemplated in the guidance?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [9]

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Hi, Vasu. So yes, we did have that as part of our higher end of the range when we guided on the last call. Obviously, we weren't sure if we were going to be able to close that modification with the government. And well, yes, we have included as part of our higher end of the range.

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Vasundhara Govil, Morgan Stanley, Research Division - Former VP & Equity Analyst [10]

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Got it. And then I guess just a question on how are you feeling about the rest of the year. I know you called out certain changes that the government has sort of proposed in the new fiscal plan, but versus where we were back in Feb, are you feeling better, worse, the same about the rest of the year? Any commentary, that would be helpful.

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [11]

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I think we're feeling confident in the guidance that we've put out. And based on what we said, we are increasing the lower end of the range, which is positive given the performance that we had in Q1. However, we continue to be cautious just given the information out there in terms of what the government expects from fed relief funding and what we see here on the island.

But we continue to work through our initiatives in both Merchant Acquiring and Payments to try and come up with new fees or incremental revenues. And in Business Solutions, we continue to, as Mac alluded to, look for opportunities to continue assisting the government and getting additional ground in helping them with their strategies and obviously with Popular as well.

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Vasundhara Govil, Morgan Stanley, Research Division - Former VP & Equity Analyst [12]

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That's helpful. And then I guess lastly, I know you don't provide quarterly guidance, but because we have these EBT benefits that are going away starting next quarter, I was hoping you could help us with just the quarterly cadence on revenue growth by segment.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [13]

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Revenue? I think you answered the question at the beginning. We can't give quarterly guidance because of the way the business, but that -- we would love to be able to, but given the way that our business operates, it's very, very difficult, but that was a great attempt. I think that...

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Vasundhara Govil, Morgan Stanley, Research Division - Former VP & Equity Analyst [14]

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Anything particular that we should be like careful while we model because of the EBT going away?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [15]

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The cadence would look very similar to what we've had in the past. We do expect Q2 to be slightly softer and -- but other than that, we do expect quarterly cadence to be similar to previous years; pre-hurricane, obviously.

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Operator [16]

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Our next question comes from George Mihalos with Cowen.

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Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [17]

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Not sure if I missed this, but the commentary on sort of some of the more flattish recent trends in Merchant Acquiring, is the expectation that, that business will grow sort of low single digits over the remainder of the year over sort of the last 3 quarters? And was there any sort of Easter impact that would be worth calling out there?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [18]

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So in terms of Easter, last year, Easter kind of had one of the days in Puerto Rico, which is Good Friday, fell in March and then Sunday fell in April, so we kind of had a split in how the Easter weekend impacted the business. This time around, we have that in April. So we don't really see anything particular to call out related to that specific holiday this time around.

As it relates to sales volume, obviously when we compare to the previous year, we had the EBT funding throughout the rest of 2019 as a comparable. So it will impact sales volume growth or transactional growth for the remainder of the year. And I would say that your assumption is reasonable given what we're seeing and what we continue to, as I mentioned before, look for different ways of implementing either fees or increases in transactional fees to offset some of that.

The other thing I'll mention is EBT was coming in at a lower spread. That volume that we had in the previous year, which was mainly going to supermarkets, et cetera, was coming in on a lower spread. So the fact that now the portfolio is kind of shifting back to even a more normalized levels pre-hurricane, it will result in a slight increase in the spread.

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Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [19]

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Okay. That's very helpful. And then, Mac, I think on the last call you talked about regulation and the like in some of the LatAm geographies opening up some markets for you, maybe creating some more conversation or opportunities. Any update there that you can provide that has maybe changed in the last couple of months?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [20]

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No. What I would say is I think we talked in the last call, you recall very well, that in Argentina, Prisma was sold to Advent and so those banks are going to probably be looking for alternatives over time -- or at least there's the opportunity to pitch those customers. In Chile, we talked about Santander Chile has been very vocal about they're not going to continue to process with Transbank. So we are seeing interest in different markets across Latin America in alternatives, and it is more than we've seen in the past. We don't have an update as to any wins, but we are very, very focused on making the best of those opportunities during the year.

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Operator [21]

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Our next question comes from Bryan Keane with Deutsche Bank.

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Korey Marcello, Deutsche Bank AG, Research Division - Research Analyst [22]

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This is Korey Marcello on for Bryan Keane. Just 2 quick questions. On the Business Solutions side, that continues to perform very well, but the margins are a little soft. Can you just give us some update on kind of how you're thinking about margins going forward in that business?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [23]

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Sure, Korey. The margin that we saw in the current quarter, as we mentioned, obviously we continue to invest in technology and we saw -- and from that will obviously impact that margin. Also, some of the business that we bring in from the government is usually at a slightly lower margin than our overall segment.

But in terms of what we saw also in Q1, we did have a good growth year-over-year even though some of the transactional services that we were providing weren't 100% in the first 2 years of last year given that some of those services -- the 2 months of prior year, they were still impacted by the hurricane. And obviously, we're seeing that in the year-over-year growth. And we don't expect that level of growth in the next 3 quarters. We expect that to come down a little bit and end up in mid to low single digits for the whole year.

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Korey Marcello, Deutsche Bank AG, Research Division - Research Analyst [24]

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Got it. That's clear. And then I guess on Latin America, you guys obviously are expecting kind of the low end on the attrition impact for the year, but does that change -- or has anything that has changed in terms of the conversions change from a timing perspective on how that will kind of impact? I think previously you guys were talking about it being pretty steady state throughout the quarters and I think it was $700,000 this quarter. So just curious how that kind of plays out through the year?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [25]

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The attrition.

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [26]

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Yes. We're still expecting it to be relatively consistent throughout the year, Korey, at this point.

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Operator [27]

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The next question comes from Bob Napoli, William Blair.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [28]

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Question on the growth in Latin American payments and growth outside of Puerto Rico generally. How is the performance of PayGroup? What's -- how is Colombia doing? What are the thoughts about -- I mean, are you -- do you have visibility on making that a steady double-digit type of organic growth business outside of Puerto Rico?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [29]

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Yes, Bob. This is Mac. So what I would say, we continue to be very pleased with the acquisition of PayGroup. As we talked about on the last call, I mean, from '15 to the end of last year, we doubled the business, some of it through acquisition, some of it organically and grown EBITDA even more so. We are finding that as these markets open, the products that we have in PayGroup that are running throughout the region typically in a license model in multiple banks, whether it's the risk product or it's the merchant processing product or issuing product, is being very, very well received.

So we continue to be happy with the performance of the current business, but we are very optimistic on the solution that we have and that it's unique. And then given we have a presence on some of these markets, we have a unique pitch as they open up. So our optimism has not changed since the last call.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [30]

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And then Colombia, you made a small acquisition there a few years ago. Obviously, a big market. Any chance of -- what's the outlook for making that a much bigger market for EVERTEC?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [31]

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Yes. So we talked about -- so Colombia is a market of focus for us because we have that investment, because it's one of the larger markets in the region. The move -- the trends we've seen in some of the other markets have been more significant as far as the markets opening. We're still hopeful that Colombia will as well, but when we -- and we're still making investments there.

So we're happy with the acquisition, but frankly, Chile and Argentina and some of the other markets appear to be moving a bit more quickly. But there's still noise in that market. There are 2, there's Redeban and Credibanco, and there's still noise about banks looking for alternatives. I would anticipate some of the other markets may move more quickly, though; some of the other markets that we're in.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [32]

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Lastly, can you give an update on pvot and ATH Móvil? How those are progressing?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [33]

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Sure. Joaquin, you want to?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [34]

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Yes, sure. In terms of ATH Móvil, as we've said before, while we don't necessarily break that out given that it's a processing product, what I can say is we continue to see a growth year-over-year. And obviously, we continue to monetize the fees related to ATH Móvil P2P, which we put in place in the second half of last year. And -- but in terms of usage, we continue to see very good usage. And we've actually seen also -- we continue to see the ATH Móvil business side continue to also gain some ground in terms of businesses continuing to register and volume going to that platform.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [35]

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And I would say too, I mean, even -- just today, I actually went through with the team sort of the product road map. We're very focused on investing in that platform to make sure that we're getting as many people to use ATH Móvil Business instead of the P2P because we can make more money on that. And we're also very focused on rolling out other products and functions and features to increase the utility, but also find other sources of revenue. So no update that's significant past the last call, but it's -- we're very focused on it and pleased with its performance.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [36]

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And the pvot or p.v.o.t. or...

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [37]

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Yes. With pvot, well, we continue to obviously also gain some ground, as we mentioned, in 30 days. So we continue to focus on functionality and continuing to add features to cater to the different clients that we are trying to sell these to. And it's very positive and continues to move very well. We continue to be very excited as to how we're competing with the product against some of the ISOs that are here in the island. And it continues to be a point of focus into the future.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [38]

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With a healthy pipeline.

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [39]

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Correct. A very healthy pipeline.

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Operator [40]

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Our next question comes from John Davis with Raymond James.

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John Kimbrough Davis, Raymond James & Associates, Inc., Research Division - Research Analyst [41]

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First, Joaquin, I just wanted to touch on the funding assumptions kind of baked in the guidance. Obviously, I think they're half of last year and probably half what people thought it was going to be at the beginning of this year, but it doesn't seem to have an impact on your guidance kind of flowing through the beat in the first quarter.

So is it safe to assume that you guys are playing it safe in saying -- or assuming that there will be very little to no federal aid this year and so therefore, even though it's coming in slower than expected, could be upside? Or just help us think about what level of aid you guys are expecting -- the government has their estimate, but kind of what do you have baked in the guide for the kind of last 3 quarters of the year?

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [42]

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Look, when we went on with guidance at the beginning of the year, obviously we kind of called this out in terms of timing and what we were seeing here in the island and just anecdotally and in the news and what funding is actually coming in, and that's why we are able to stay with our higher end of the range today. Obviously, we had a good first quarter.

What we're expecting throughout the remainder of the year, I can't get into specifics as to the amount of aid that we consider, but what I can say is that we're comfortable that what the expectations the government has and what we're seeing here internally, we're confident in what we were putting out there in terms of how we are expecting to perform.

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John Kimbrough Davis, Raymond James & Associates, Inc., Research Division - Research Analyst [43]

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Okay. And then, Mac, maybe I think the balance sheet is in the best shape it's ever been as a public company. Maybe just what's the M&A environment like out there? Are you seeing other deals coming up? What's the pricing environment look for? Maybe any commentary on the things you think would make sense. It just seems like it's definitely part of your strategy going forward. I'm just curious what the M&A environment looks like in Latin America.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [44]

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Yes. I would agree that we're very, very happy with our balance sheet. And as you can see for the quarter, we executed pretty well on the share repurchase program.

Again, M&A, we still see opportunities and we're actively looking at those opportunities. We've always said in the past that the sizable transactions are far and few between. The big one was the Prisma deal, which I think had a valuation above $1.4 billion, but we still are looking at opportunities. We would love to continue to bolt-on additional products if they are symbiotic and we're very focused on product type of investments right now and then potentially unlocking a new market. But we do feel like that we have a great product set today that we could use to enter markets. But it's still a very important part of our focus.

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John Kimbrough Davis, Raymond James & Associates, Inc., Research Division - Research Analyst [45]

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Okay. And then just lastly, any potential opportunity to take pvot or ATH Móvil and expand that outside of Puerto Rico? And I know it's still early days for pvot, but ATH Móvil has been fairly successful. Any -- can you take that in other LatAm markets where you already exist today? Or is it something that's pretty much just going to be in Puerto Rico?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [46]

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No. I mean, so they're very, very different products. What I would say with pvot is it definitely is a product that we think can help us in other markets because when you across Latin America, particularly the markets we're most focused on, so sort of ex-Brazil, that type of product isn't prevalent. So we think it's a differentiator for us when we pitch to banks across South America and Central America. So that would be core to our thesis that we can export that.

On ATH and ATH Móvil, it's a bit different in that it's a network product. So we love the technology. We love our strategy and we think that's one of the big reasons we've been successful, but it also is a product that requires a debit network and sort of a high level of bank participation to get the scale and adoption you need. So we have clients that are interested. We have banks that are interested, but it's a much more complicated product to export. So pvot is probably the one that's more likely we'd be able to export outside of Puerto Rico in the coming years.

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John Kimbrough Davis, Raymond James & Associates, Inc., Research Division - Research Analyst [47]

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Okay. Any impacts on early improvement and attrition in Puerto Rico from pvot? Any type of early signpost, without giving too many details, on how the product launch has gone in Puerto Rico?

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [48]

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Yes. Like Joaquin said, I mean, we still have a very healthy pipeline. We found that, again, in this market, we don't have a lot of those type of solutions. We have 1 or 2 that we compete against and we've had some competitive takeaways from those, but the early indication is novel for merchants on the island. Right now, we've rolled it out to mostly small retailers because that's the functionality and the features that we have. As we build out broader capabilities for different verticals, so restaurants or for different capabilities, we think that we can expand it more fully.

Again, the big benefit, we believe, that we have with this type of product is, one, is the local consultation and service that we can provide because these are sort of -- most of these merchants are very small. They tend to be bakers or musicians and really helping them automate their business. An installed technology is complicated. We do it in person. And the second thing is the ability to integrate into local networks and local capabilities. So we are still very optimistic on the product.

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Operator [49]

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(Operator Instructions) As there are no further questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over to Mac Schuessler for any closing remarks.

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Morgan M. Schuessler, EVERTEC, Inc. - President, CEO & Director [50]

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So I want to thank everyone for joining the call, and thanks again for your support. Joaquin and I and Kay look forward to seeing you guys on the road as we attend different conferences across the country.

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Joaquin A. Castrillo-Salgado, EVERTEC, Inc. - Executive VP & CFO [51]

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Thank you.

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Operator [52]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.