| Segment Information | Segment Information In December of 2017 , as a result of the PayGroup acquisition, the Chief Operating Decision Maker ("CODM") completed an evaluation of the current Company structure and the information regularly reviewed for purposes of allocating resources and assessing performance. As a result of this evaluation, Management concluded that the operating segments are determined by the products and services the Company provides and the geographic regions in which the Company operates, resulting in four business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America (collectively "Payment Services segments"), Merchant Acquiring, and Business Solutions. The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions) and electronic benefit transfer (“EBT”) (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants).For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file. The Payment Services - Latin America segment revenues consist of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), as well as, licensed software solutions for risk and fraud management and card payment processing. For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value. EVERTEC also charge merchants for other services that are unrelated to the number of transactions or the transaction value. The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally one-time transactions. In addition to the four operating segments described above, Management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These units could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these units are aggregated and presented as “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments. The overhead and leveraged costs relate to activities such as: • marketing, • corporate finance and accounting, • human resources, • legal, • risk management functions, • internal audit, • corporate debt related costs, • non-operating depreciation and amortization expenses generated as a result of the Merger, • intersegment revenues and expenses, and • other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level The CODM reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with Accounting Standards Codification Topic 280, "Segment Reporting" given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and adjusted EBITDA performance. As such, segment assets are not disclosed in the notes to the accompanying consolidated financial statements. The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below. Historical information has been conformed to the updated presentation. December 31, 2017 (Dollar amounts in thousands) Payment Payment Merchant Business Corporate and Other (1) Total Revenues $ 101,687 $ 62,702 $ 85,778 $ 189,077 $ (32,100 ) $ 407,144 Operating costs and expenses 57,463 66,786 57,574 119,761 19,477 321,061 Depreciation and amortization 8,993 8,880 2,254 15,774 28,349 64,250 Non-operating income (expenses) 2,229 8,726 1 13 (7,708 ) 3,261 EBITDA 55,446 13,522 30,459 85,103 (30,936 ) 153,594 Compensation and benefits (2) 589 816 573 1,687 6,090 9,755 Transaction, refinancing, exit activity and other fees (3) 2,499 3,220 6,465 — 2,495 14,679 Adjusted EBITDA $ 58,534 $ 17,558 $ 37,497 $ 86,790 $ (22,351 ) $ 178,028 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $32.1 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees. (2) Primarily represents share-based compensation and other compensation expense and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and an impairment charge and contractual fee accrual for a third party software solution that was determined to be commercially unviable. December 31, 2016 (Dollar amounts in thousands) Payment Payment Merchant Business Corporate and Other (1) Total Revenues $ 99,680 $ 47,162 $ 91,248 $ 184,276 $ (32,859 ) $ 389,507 Operating costs and expenses 49,128 45,304 52,771 113,082 22,077 282,362 Depreciation and amortization 7,597 7,285 2,672 13,783 28,230 59,567 Non-operating income (expenses) 2,238 5,584 — 24 (7,354 ) 492 EBITDA 60,387 14,727 41,149 85,001 (34,060 ) 167,204 Compensation and benefits (2) 637 627 480 1,961 6,777 10,482 Transaction, refinancing, exit activity and other fees (3) 2,062 — — 2,277 5,650 9,989 Adjusted EBITDA $ 63,086 $ 15,354 $ 41,629 $ 89,239 $ (21,633 ) $ 187,675 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $32.9 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees. (2) Primarily represents share-based compensation and other compensation expense and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and consulting, audit and legal expenses incurred as part of the prior year restatement of financial results, certain fees paid to resolve a software maintenance contract mater, fees paid in connection with the debt refinancing and a software impairment charge. December 31, 2015 (Dollar amounts in thousands) Payment Payment Merchant Business Corporate and Other (1) Total Revenues $ 99,311 $ 37,523 $ 85,411 $ 179,532 $ (28,249 ) $ 373,528 Operating costs and expenses 48,853 35,790 42,804 117,079 25,642 270,168 Depreciation and amortization 7,488 5,766 1,438 16,128 34,154 64,974 Non-operating income (expenses) 2,909 4,147 — 428 (5,031 ) 2,453 EBITDA 60,855 11,646 44,045 79,009 (24,768 ) 170,787 Compensation and benefits (2) 1,420 132 1,361 4,044 5,280 12,237 Transaction, refinancing, exit activity and other fees (3) 22 22 41 139 2,928 3,152 Adjusted EBITDA $ 62,297 $ 11,800 $ 45,447 $ 83,192 $ (16,560 ) $ 186,176 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $28.2 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees. (2) Primarily represents share-based compensation and other compensation expense and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and reimbursements received for certain software maintenance expenses as part of the Merger. The reconciliation of EBITDA to consolidated net income is as follows: Years ended December 31, (Dollar amounts in thousands) 2017 2016 2015 Total EBITDA $ 153,594 $ 167,204 $ 170,787 Less: Income tax expense (benefit) 4,780 8,271 (3,335 ) Interest expense, net 29,145 24,240 23,771 Depreciation and amortization 64,250 59,567 64,974 Net Income $ 55,419 $ 75,126 $ 85,377 The geographic segment information below is classified based on the geographic location of the Company’s subsidiaries: Years ended December 31, (Dollar amounts in thousands) 2017 2016 2015 Revenues (1) Puerto Rico $ 329,533 $ 326,073 $ 322,457 Caribbean 14,909 16,272 13,551 Latin America 62,702 47,162 37,520 Total revenues $ 407,144 $ 389,507 $ 373,528 (1) Revenues are based on subsidiaries’ country of domicile. Major customers For the years ended December 31, 2017 , 2016 and 2015 , the Company had one major customer which accounted for approximately $175.4 million or 43% , $174.4 million or 45% , and $167.3 million or 45% , respectively, of total revenues. See Note 21. The Company’s next largest customer, the Government of Puerto Rico, consolidating all individual agencies and public corporations, represented 7% , 7% and 9% of the Company’s total revenues for the years ended December 31, 2017 , 2016 and 2015 , respectively. |
