| Segment Information | Segment Information The Company operates in four business segments: Payment Services - Puerto Rico & Caribbean, Latin America Payments and Solutions, 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), ATH Movil (person-to-person) and ATH Business (person-to-merchant) digital transactions and 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 of 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 Latin America Payments and Solutions segment payment revenues consist of revenues related to providing access to the ATH network of ATMs 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 network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from transaction switching, processing fees, and the leasing of 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. Solutions revenues consist of (a) licensing, support and maintenance (“subscription”), implementation and customization of software used to provide financial products in areas such as core banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortium, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection; and (b) outsourcing of mission critical IT services. Revenues are based on monthly fixed fees and, in several cases, variable fees based on usage. 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 charges 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 fixed fee and from fees based on the number of accounts on file (i.e., savings or checking accounts, loans, etc.), server capacity usage 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 non-recurring. 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 areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented within the “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 merger and acquisition activity, • 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 Chief Operating Decision Maker ("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 EBITDA. Effective for the quarter ended March 31, 2023, the Company modified the manner in which it calculates and reports Adjusted EBITDA presented to the CODM for assessing segment performance to exclude the impact of non-cash unrealized gains and losses from foreign currency remeasurement. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash unrealized items and unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting , given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA. 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. As such, segment assets are not disclosed in the notes to the consolidated financial statements. The following tables set forth information about the Company’s operations by its four business segments for the periods indicated: December 31, 2023 (In thousands) Payment Latin America Payments and Solutions Merchant Business Corporate and Other (1) Total Revenues $ 203,232 $ 186,503 $ 162,366 $ 226,960 $ (84,352) $ 694,709 Operating costs and expenses 114,817 167,047 109,254 161,763 5,668 558,549 Depreciation and amortization 25,178 25,235 4,569 17,672 20,967 93,621 Non-operating income (expenses) 713 (6,201) 308 804 (22,622) (26,998) EBITDA 114,306 38,490 57,989 83,673 (91,675) 202,783 Compensation and benefits (2) 2,908 3,609 3,003 3,207 16,585 29,312 Transaction, refinancing, and other fees (3) 1,163 9,676 — — 40,761 51,600 (Gain) loss on foreign currency remeasurement (4) (111) 8,383 — — 4 8,276 Adjusted EBITDA $ 118,266 $ 60,158 $ 60,992 $ 86,880 $ (34,325) $ 291,971 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $52.9 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of $17.1 million from Latin America Payments and Solutions to both Payment Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $14.3 million from Payment Services - Puerto Rico & Caribbean to Latin America Payments and Solutions. (2) Primarily represents share-based compensation and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, the foreign currency swap loss and the elimination of unrealized equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of dividends received. (4) Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. December 31, 2022 (In thousands) Payment Latin America Payments and Solutions Merchant Business Corporate and Other (1) Total Revenues $ 178,481 $ 128,221 $ 151,085 $ 235,299 $ (74,677) $ 618,409 Operating costs and expenses 103,773 106,693 94,976 156,915 (1,348) 461,009 Depreciation and amortization 20,379 14,121 4,160 17,027 22,931 78,618 Non-operating income (expenses) 1,258 (3,318) 1,372 138,033 (5,242) 132,103 EBITDA 96,345 32,331 61,641 233,444 (55,640) 368,121 Compensation and benefits (2) 3,357 3,598 1,641 2,114 9,625 20,335 Transaction, refinancing, and other fees (3) 1,078 145 325 (134,990) 13,461 (119,981) Loss on foreign currency remeasurement (4) 80 6,533 — — 1,032 7,645 Adjusted EBITDA $ 100,860 $ 42,607 $ 63,607 $ 100,568 $ (31,522) $ 276,120 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $49.5 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of $14.5 million from Latin America Payments and Solutions to both Payment Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $10.7 million from Payment Services - Puerto Rico & Caribbean to Latin America Payments and Solutions. (2) Primarily represents share-based compensation and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the 2022 Credit Agreement, the gain from the Popular transaction and the elimination of unrealized equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of dividends received. (4) Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. December 31, 2021 (In thousands) Payment Latin America Payments and Solutions Merchant Business Corporate and Other (1) Total Revenues $ 155,392 $ 105,963 $ 143,965 $ 243,807 $ (59,331) $ 589,796 Operating costs and expenses 84,742 86,152 75,795 150,433 (3,840) 393,282 Depreciation and amortization 16,085 11,395 3,583 18,930 25,077 75,070 Non-operating income (expenses) 842 8,216 1,107 3,056 (7,109) 6,112 EBITDA 87,577 39,422 72,860 115,360 (37,523) 277,696 Compensation and benefits (2) 1,702 3,080 1,012 1,775 7,575 15,144 Transaction, refinancing, exit activity and other fees (3) 660 — — (647) 1,965 1,978 Loss (gain) on foreign currency remeasurement (4) 75 (1,972) — — — (1,897) Adjusted EBITDA $ 90,014 $ 40,530 $ 73,872 $ 116,488 $ (27,983) $ 292,921 (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $42.4 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of $9.2 million from Latin America Payments and Solutions to Payment Services-Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $7.6 million from Payment Services - Puerto Rico & Caribbean to Latin America Payments and Solutions. (2) Primarily represents share-based compensation and severance payments. (3) Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, the elimination of unrealized equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of dividends received, a software impairment charge and a gain from sale of assets. (4) Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. The reconciliation of EBITDA to consolidated net income is as follows: Years ended December 31, (In thousands) 2023 2022 2021 Net Income $ 79,876 $ 238,869 $ 161,143 Add: Income tax expense 5,477 28,983 20,562 Interest expense, net 23,809 21,651 20,921 Depreciation and amortization 93,621 78,618 75,070 Total EBITDA $ 202,783 $ 368,121 $ 277,696 The geographic segment information below is classified based on the geographic location of the Company’s subsidiaries: Years ended December 31, (In thousands) 2023 2022 2021 Revenues (1) Puerto Rico $ 505,246 $ 481,676 $ 473,647 Caribbean 20,053 22,969 18,917 Latin America 169,410 113,764 97,232 Total Revenues $ 694,709 $ 618,409 $ 589,796 (1) Revenues are based on subsidiaries’ country of domicile. Major customers The Company has revenue concentration with Popular, revenues as a percentage of total revenues, were 35%, 39% and 42%, for the years ended December 31, 2023, 2022 and 2021, respectively. The Company’s next largest customer, the Government of Puerto Rico, consolidating all individual agencies and public corporations, represented 7%, 7%, and 6% of the Company’s total revenues for the years ended December 31, 2023, 2022 and 2021, respectively. |
