EVTC - Earnings call transcript Q1 2018

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Operator

Good afternoon, everyone, and welcome to the EVERTEC's First Quarter 2018 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.

Kay Sharpton

Thank you and good afternoon. Mac Smith, President our are Officer; Chief today Peter and Chief me Schuessler, and our Executive With Financial Officer. this of May replay call available be A until X. will Tuesday, financial website under Relations the listed replay Access evertecinc.com. Investor is information our in section for today's on available release, is of which

of For Investor it a website. held accompanies presentation our May those this replay, Relations is Please X. conference was to call the and accessible that the in note, section listening call, this on there is

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

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

Morgan Schuessler

XXXX over quarter. speak today. increased recovering afternoon, increased X, our recent growth I'll significant which that progressively revenue a than exceeded and rebuilding Rico's sales pleasure provide financial very Beginning with $XXX compared average of and expectations. the driven the an for Kay, and Slide the pleased in everyone. first benefited on We million, volume Puerto increased anticipated It's highlights Total increase developments. quarter and stronger margin Thanks, from you cover improved good our update results which ticket activity, net X% We're to on to an an a mix. revenue due of was volume and sales was XXXX, of by some the quarter's to you with increase drove

million, increase to Additionally, operating to our expenses per up over million of initiatives last than adjusted compared helped last $XX in prior adjusted to above common the million the or $X of We $XX X% EBITDA year. year. generated us more an quarter $X.XX, manage was deliver year; flow earnings significant of XX% share cash

our for the guidance the the year. Given increasing quarter expectations and full the remainder are for our we year, results of

to more for Slide provide distribution I on approximately Before like I'd our is you specific business, Power X. some on give XX%. additional comments updates Rico at Puerto

base We in are a we merchants, has with our impacted our improvement last call positively in and seen encouraged which smaller from merchant rebound our have our spread. local that

focused our of every we compared business. back transactions not merchants XX% approximately normal still and levels on in have We remain processing we can to merchant getting

and $XX address seriously U.S. Rico, to power funds to Housing the housing, it infrastructure, earmarked is the grant may the for Puerto the Urban Puerto Regarding updates HUD. for by by This ever distribution initial take April largest billion six made unclear Rico or timing Department announced of distributions. of largest also funds the received Development XX, including Puerto of for and Rico relief months it and grid. the more grant, The is for ever that damaged on businesses was

which billion private is $X in total release the we payments, With PROMESA are the plan of $XXX total. could a in the Puerto from of that plan estimates given receive of current sources, private be initial meaningful Rico support, other benefitting insurance GDP believe FEMA approximately these per funds, billion. which $XX funding approximately and should PROMESA We million the

Additionally, in the ended And have helps from we by Rican loan moratoriums these spending. the of offered banks experienced far, that any Puerto believe not also termination first the that negative quarter impacts thus we programs.

reforms Governor and plan, XX% a in as agreement other in the Puerto with well in certified spending. as Rico's economy, and these ultimately We pensions, certain and not fiscal implemented the reductions stimulus once immigration by benefit impact funds reform the when spending could board Regarding or be or will legislator It measures. relief believe what's received unclear federal the was Rico remains are in proceeds that labor government includes public spending it PROMESA reduction consumer late The reductions yet to provide and these austerity will and plans and the and EVERTEC. Puerto economy April how insurance on be.

this paramount potentially could In is employment. sector offset the sustainable Puerto private austerity long-term it end that improved Rico's and provides grows over time. government benefit However,

Turning to on X. our business Slide update

in experienced in pleased in volumes. transaction which X% stronger-than-expected grew Puerto a Rico, the were approximately decline revenue we the First, with quarter X%. We

smaller ticket to improved and processed significantly merchants volume. gained the improved continued prior above over average Merchant quarter be However, year, significantly more market X%. the mix as share

products, have our we focus on PayGroup our our commercializing given acquisition. continued Second,

are we clients We our educating on and solutions. rebranding have our completed our

an offerings of completed service our country. We by recently website that now also our enhancement features

more of XX% PayGroup was Third, than up the impact the Latin revenue, we acquisition America anticipated. as including year-over-year

XXXX, $XX up from updates their range was migrations. of million revenue in to despite deconversions. We client in impact acquisition, now the related delays migration additional on client clients the expect some that a Excluding be given high-single-digits of to

grid, strong between ambiguity funds. to as environment compared these of well in uncertainties, continue expectations, well Rico power presents lack our we the of the the the the of results on multiple and migration, timing to execute as Although agreement are PROMESA and Puerto government, fragility the still relief as including

I provide said, results and in these the to we With of with our provided suspension this along totality further guidance board for details. in have expectations turn the Peter. will with the remainder uncertainties our of call time. significant strong dividend year, will the to given that, continue such, our the As increase QX, chose That a now over Peter our range at

Peter Smith

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

year. Turning $XXX.X to of to results. X, million, the consolidated first in up first revenue was the X% the Slide Total you quarter will $XXX.X quarter see for compared XXXX prior million XXXX

categories. Our our sales an elevated expectation. volume second significantly revenue in the of merchant finishing the at half in across all quarter, unexpectedly grew Consequently, exceeded payment March level

the margin quarter results initial projections. will from a That I surpassed This prior was in $XX.X our effectively certain and basis year We EBITDA increase and in offset segment $XX primarily XX% benefitted expenses a an said our executed lower initiatives adjusted EBITDA increase in and also $XXX,XXX in the on tax for X% million, XX quarter provide strong the of the of results The that far adjusted as primarily a plan $XX.X tax well EBITDA, further increase prior net improvement details rate. point cost XX.X% to We in the to contained higher includes I reflects quarter. Adjusted increase million to is last in as year. year. rate this and million, the income margin included related Adjusted produced when higher an an delay expenses prior the the increase timing as from margin volume rate the from in to higher compared our This sales effective represents the by was the the of margin EBITDA was interest Adjusted well. contributed contribution compared PayGroup. item moment. quarter combination the to as a discrete review that XX.X% year-over-year approximately as in tax year. of the compared of

our QX, the to range now tax grew slightly year XX%. X%, compared XX% slightly the count a full is higher prior higher of a Given share EPS the expectation for year. rate Adjusted to reflecting in

with X, margin, increased to average revenue X% transactions versus revenue million. by now results, contributed first due net in cover $XX.X segment net to year-over-year of quarter, Slide acquiring approximately revenue a ticket, increase which spite to acquiring. last driven I'll volumes increased In Moving lower the the merchant year. our higher to starting was merchant The high

estimates, our higher than to we compared experienced sales As anticipated quarter. the volume over progressively

growth. grew grew to sales quarter, Also, in stronger in steadily X% just to revenue in quarter. resulting approximately more the it volumes in our over was first significantly too a half X.X% than volume way year-over-year projected X% net the down and spread, had the year-over-year our January we XX% the During slightly February, all March, through higher although of

impact The merchant we volume as our of half categories. our came online. reason significantly ticket, is Our And the the of average two-fold. Puerto increase payment base quarter spread second merchants experienced for and the small Rico back more improved the core which in merchant across secondly, grew higher the

EBT in a this on the merchant a made the margin that Prior composed and more volumes In are of hurricane electronic pre-hurricane overall volumes The significant of revenue of approximately a small lower payment to gas was in the growth of merchants, the both of cards, our Puerto EBT mix and large Rican merchants to Puerto retailers to national the to pertained context, results of and XX% transactions shifted supermarkets improve revenue mix first mix of which remaining acquired the such led merchants, by drove small. a on U.S. segment. as benefit volume improved net margin. aftermath cards retailers XX% recovered decline to merchant the net Puerto bit XX% approximately first cards. to distribution low sales and revenue made In transactions put is an retailers net larger second sales sales approximately U.S. better levels. processed or quarter large the to sales cards, all improved volume mix XX% half For card in which to our point, of volume of and/or background are national card EBT in and between hurricanes our to spread. made Net mix transactions stations, X% XX% merchants Rican merchant larger on volumes based our quarter, in contribute Rican to approaching national XX% and reflected

dynamic. quarter. this insight helpful segment And to compared the post-Hurricane million Adjusted Maria the experienced we up hopefully, as to Our and approximately half be was of additional EBITDA environment basis margin improvement the into second provides information unexpected was points the in in XXX EBITDA average results the $XX.X continues Caribbean of last revenue to for see XX.X%, adjusted forecasting quarter year, and the $XX.X the increased approximately primarily Revenue as margin increased Services, for to the the segment. ticket. you segment Rico X% last from On the compared contribution will Payment XX, year. first and volumes sales improved due Puerto was up million, Slide the

Adjusted acquisition, due the was than points were attrition EBITDA compared XX.X%, for PayGroup customer of and will On expense increased for by As segment margin margins Mac as contribution. last for approximately quarter with fees, Revenue the that terminals and lower first points last year than The segment On due segment to be was revenue in was was America was Business Adjusted increase PayGroup which as XX, $XX.X EBITDA the transactions as $X find and XX% revenue new the in quarter approximately and Payment and the Slide high-single-digit. for PayGroup margin to year, from results up stronger year, for XXX expenses. revenue approximately well Solutions expense referenced XX primarily year. in containment now processing Slide basis margin to primarily ATH This EBITDA favorable items. was the the approximately anticipate the revenues the as lower million even year compared the license last segment results was the million. was mid-XXs driven million, LatAm ATMs. see adjusted Solutions approximately to the the EBITDA in revenue at and last year, Services prior driven margin and $XX.X largely certain $XXX,XXX, for the impact reflects network the excluding in the will nonrecurring million growth basis service you point-of-sale primarily as reduced and revenue XXXX. the Latin XX, the segment. was up we XX.X%, X% compared growth the estimated for to first the in included will $XX.X operating adjusted you timing Business the to was revenue full due updated primarily revenue down of We quarter segment.

benefit revenues. continue from We to Popular increased

approximately offset segment $XX.X initiatives an revenues million Adjusted nonrecurring was cost year, fee IT for lower due EBITDA primarily basis as the the up well and increase margin of and points by EBITDA in increase adjusted consulting last revenue. to compared to was XXX this deferred approximately However, was XX.X%, $XXX,XXX. as management as

will Moving you Corporate on to our see XX, and Other of a Slide summary expense.

expense reduction XX%. Our of was million, first a quarter year-over-year $X.X

percent a and Other delays in year. revenue, expense as prior X.X% decline XXX As prior reflects points some as and of was our expense the initiatives total the Corporate below expenses timing well year. basis and significant The

to Other expenses anticipate full-year our continue We year-over-year the to and flat on basis. Corporate be

cash year-to-date on our to on Moving overview XX. flow Slide

approximately million compared prior was including $XX year-to-date $X million, Our by restricted beginning cash million was balance as increase Net million. were provided approximately cash year. activities $X Capital expenditures million. or to of operating cash $XX $XX

principal Next, million approximately reduced debt short-term net in $XX and in million $XX million. payments approximately we borrowings, paid a approximately decrease in resulting debt total $X of

not did use had company's repurchase under we any the for program. share stock Although, available this $XX repurchase future million quarter, approximately we

March $XX and restricted was $XX million XX this cash million balance as ending of Our included cash. of

will to a of Slide XX, find summary of XXXX. XX, as debt our you Moving March

million net ending and comprised quarter of approximately million unrestricted $XXX and was of Our of $XX long-term debt $XXX approximately addition cash debt. borrowings short-term total million the

rate approximately Our was weighted average interest X.X%.

the trailing to credit debt $XX agreement, limits to times, EBITDA debt the supplied reflecting cash million. net calculation adjusted in Our which the X.X was XX-month net

liquidity, total and our capacity million. cash $XXX In XX, revolver, under April, million. the restricted And debt the our A April, with end $XX As of off million of we includes excludes was of $XX revolver paid long-term borrowings and were revolver drop. borrowing Loan a approximately $XXX of which cash available the March mix was Term existing debt million of and approximately as our XXXX

and our credit in accordance the million As revolving with reduced conditions $XXX from a reminder, facility. facility terms loan $XX to million of

Our is the monitor use current balance, to the cash recovery Puerto as in QX to revolver continue plan to flow we Rico. reduce

We on end March Puerto from as down continue million approximately make XXXX. balance $X.X and was Rican well, progress million is the XX, government to approximately which our $X.X of on receivable the of

end by XXXX, that to reporting Given quarterly half a on we and reduced basis. since our roughly normal have plan on receivable continue client significantly we in course with the discontinue work receivables the or our of to this

will provide now XXXX update Moving guidance. our an to I Slide XX. on

results levels, lower of for million are raising We to year-over-year the our year million, a revenue the guidance than $XXX volumes volume and revenue And a April's improved throughout March. to year. continue QX over to volumes slightly increase the a $XXX we range strong sales March range our reflects revenue The last to of the approximated range of remainder X% growth representing X% and was year. ticket. average transaction projection of high see in

uncertainties to decelerate out mid-single-digits. but to continue, We grow now We revenues of have that Merchant modestly project caution referenced. the this segment trend we projected for the

and Our similarly We Caribbean anticipated for mid mentioned Payment improved margin segment, continuation Latin to reflecting as our of low-single-digits, now American the guidance I and Solutions earlier revenue and Rico segment Services, is these single-digit Business outlook. segment to of maintain low Puerto assumptions. the growth our trends grow

by be not will of for in are first Margins to driven lower year revenue expenses that now of and lower margin, quarter, the incurred EBITDA for the remainder net be XX% in projected assumed the quarter. XX% year. anticipated first overall mix the we were that adjusted an to than margin anticipate incremental the our Regarding range other primarily the

American in the the than been $X.XX, of sales represents we initiatives, share we stronger our to summary, $X.XX executed XXXX. quarter, has our which outlook as half increased range to on to make a volumes growth anticipated due common benefited Puerto to Latin cost $X.XX on from Our adjusted X% of plans. compared earnings progress back Rico to and continue the we XX% per in In

to While, on thus you in year. progress uncertainties look performance Puerto encouraged updating forward throughout far we our we are our and managed the Rico, through by the

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

Operator

Thank you.

Our from the go comes We begin will question ahead. William Instructions] Bob question-and-answer first Blair. Napoli now Please session. of [Operator

Robert Napoli

And rebound, congratulations you. really to great see a on Thank nice that.

Morgan Schuessler

Hi, Bob.

Robert Napoli

guidance guidance the - for the the Just acquiring I at merchant merchant missed for the segment, acquiring looking growth the of year.

Peter Smith

hi, It's Bob. Yeah, Peter.

Robert Napoli

Hi, Peter.

Peter Smith

We it's that this first rise in as from had mid-single-digits. said the we the that whether it be we our the unclear really in is decline But for a the year. modest projected We will would rest of uncertainty do we see average quarter ticket. impressive What there. had some sustain level

So a it the of year. arrives little bit for just off at caution out we mid-single-digits that backed and full

Robert Napoli

that that with So improve? it you're have kind even that mean, guidance. isn't - throughout could funds you in, But that recovery even that's you your - the basic theory and of the I likely or coming maintain you as get

Peter Smith

And experienced terms pattern, which is the that addressing of of timing in here as Well, as relief ticket because this think been we in, elevated hadn't we occur the that. federal are that we're banks. that the this is funding uncertainties the we increased look just unclear immigration come then at the respect And predominately specifically then we're have just with the hopeful funds the as which the that in QX it's approved for that's expect payments coming to the and point, funds, itself, obviously At on. we relief the insurance to traditional timing with moratorium has before. the summer, well still been the spending

Morgan Schuessler

Bob, And, is this Mac.

the summer, ends, continue as decisions. austerity this thing people immigration started the predictability island Again, not has make takes. and puts with are second the they migrate off the is there government. about school And to said, Peter will as as that So

the But measures So in forecast at in. as at look and the we that. it's looks to takes year. the to there predict bake are rightsizing, government But businesses austerity those to and puts hard try

Robert Napoli

is a What growing PayGroup on it if pro-forma basis? at compared you

Peter Smith

but can just we growth going really our be that at more it not the look the that organic Bob, out. you breaking at out called then for less high-single-digits to segment. business. you We We're the look combine and or derive if

Robert Napoli

the are then, all very balance I and the with And and sheet back you right. in the leverage your healthy, all sudden market? your Okay, of recovery looking guess, M&A

Morgan Schuessler

So, mean, focused mean, PayGroup really always on getting said and we is do really, as I well. opportunities integrated Bob, earlier, we'll at actively we to Latin continue I looking we're this America Mac. But are in that.

Robert Napoli

Great. Thank you much. very appreciate I it.

Morgan Schuessler

Thanks, Bob.

Operator

comes question next of from James ahead. go Please Schneider Goldman Sachs. Our

James Schneider

Thanks How acquiring? question. on the obviously you is seeing little efforts? segment? recovery either outperformance organic be kind kind or on good attributed merchant to in or the of any and taking afternoon. Maybe sense, much contribution in island, rebuilding external people of to terms incremental color might Good the That's you very of us could see. of payment us to a there for my give due bit the you're give payments release recovery themselves, just much effort how Can

Morgan Schuessler

mean, and because more let which means local Peter we increase encouraging, I'll small that's merchants, broad-based that reactivating are in I isolate. then moving answer any… spending think to back to I And But is our us for economy. it's difficult the very saying and

Peter Smith

well. it summarized Mac think I

respect the the half that substantially was to as continued We things But part was in and have broad-based. that and just isolated home second recovery. large the What with quarter through such pretty nature construction in surprising much increased of it and has categories in in obviously are it seen of April. elevated been spending

James Schneider

deconversion things through you over there just the in and on, been to look you And are obviously cadence margins some expenses for incremental get and proximate to past kind upside then of than are there quarters I given like some year bring through they've you But the the of you extent the as the terms flow new to is the understand. of extent impact how incremental better expect better? to some are reasons. or in revenues couple margin that of investments potential year. end and understand - I would we the expenses to would rationalized expect potentially obvious

Peter Smith

that respect with expenses We're and sales our committed to and under terms initiatives product to activities. way in development have we of other plans on

to It guided We our entire have containing very about But improve. very, job and this revenue. do quarter here. see then our we across margins a what great But good we've containing again job two-fold. excited performance extent was would our we've team the done it we're expenses expect revenues as the a And surpass to, expenses the was a done to company. really

James Schneider

relative at of then your would just That's they've And that PayGroup, the others maybe to looking you comment good. in of you more any kind you've cetera, internal terms done, Processa, and acquisitions stand kind Accuprint, like them back of just can score finally, out et plan? how How underperformance? performed than over

Morgan Schuessler

Yeah, a all been PayGroup, take PayGroup, Processa more with we've look so FirstBank, closed pleased maybe Accuprint, the we at recently. and acquisitions.

call, we've we significant some that and business, business win because the last retain of talked acquisition. on about been able some As to

So the the like and have performance Puerto but changed of have company those businesses, company changed underlying feel the particularly the those outside we strategically, of Rico.

James Schneider

much. very you Thank

Operator

ahead. Mihalos of question Please & next Company. from Cowen go comes Our George

George Mihalos

and guys, afternoon, quarter. the on Good Great. congrats

of or bit cause you to of guidance. to steady from half can else $XXX the revenue of historically to the first in the worth that of the that in outside something to back de-conversion Is Bob's hold quarter at a tends lower? the come think, calling out? just of And the the did, the on if of you the of portfolios that's dovetail that Just gets us sort we high-end least we wanted some XXXX, year million What just question. look part. on, that kind most If for I ramp usually

Peter Smith

Peter. it's George, Hi,

so I still recovery the we is thing it's important quite think, unpredictable. are note that that to environment, it's disaster operating in first natural a

the down took year. spend of had sustained in a ticket half We've quarter in really and Our lower it the little slightly off than transactions seen and and for this the the March April. second elevated prior are

have unpredictability. look timing moratorium QX, So as those of of the We that that it that fully impact understand the we could extent take place and on explained, I actions don't there's the fiscal the out, immigration. and as the of the may

been out. we've So also bit as We is have second looked cautious we've in with all do the that from a taken which into Latin attrition impacting America half, also us. consideration, the

that the projected So is the as - full we for are those that out variables the year. considered we

Morgan Schuessler

let just Yeah. add. is timing. And George, me I mean, part of this

So the been what if think and on we're looked it, of fourth you proceeds about hurricane based interest a months only six after the distributed have people at.

and some think to through because get flowed time they're put some trying still types to really high federal hasn't - I we funding was it and place has because events. very on average had ticket, which based of the trying and to it is processes in of these the taken because agreements system, approved, unusual,

time government, they've the the that LatAm have are then, end against business. the now. given released you this forecast layer to been we point, of some migrations budget that trying by given year significant information the to made to each the because and is immigration, cuts those other of next yet And complex. it right our could best your pensions on weigh But again on the against that, timing kind cuts hasn't So on against some

Peter Smith

Right.

well sustains And and just and that's driver be the could year little prudent unclear cautious, that it's but in payments it what fact, the George, to we at a point. did. money, very spend through the we thought that, if continue and way primary would people another to of sustain, just it be and this insurance rebuild Just are thinking

George Mihalos

Thank Okay. you.

Morgan Schuessler

Thanks, George.

Operator

Vasu comes Morgan of [Operator Please go Stanley. Govil Instructions] question next Our ahead. from

Vasundhara Govil

Hi, thanks a taking on questions, and my congratulations for great quarter.

quarter couple pricing just the a were outside was of mix to changes, of things, you any that the might that there able helped? on take guys Just have spreads the during

Peter Smith

in merchants the - to of was change be with sustain ability to assumption an business. our versus our pricing encouraging We'd respect only

do the surprised been that, and work primary than driver are to still an they back merchants online, that their sustained terminals we've merchants we charging a though been did the put fees anything And not improvement. that all So we've do we for Other not the even ordinary fixed and in bit they've we've course. than transactions. hard processing get for other that's our in

Vasundhara Govil

assuming think the said Got SMBs of last guys business changes the back. half what expectations guide you that seen quarter, of you in I would it. any And to the those were you in that were about have that out quarter? given Have made come you've

Peter Smith

No.

have encouraging, our resilience paying continue the of as to just these is an still that in of referenced, merchants We've will in We But back assumption not. seen business get I half in us. them not projections. place

Vasundhara Govil

the to of measures government these And when think a timeline will some into Like the be of they austerity place? a then, measures have Do have announce referenced few things? does I it. we have Got time. you idea any austerity put when these

Peter Smith

at this take first the with the which should to which plan, to they board is time, fiscal board - due this respect place in are Well, will plan our of fiscal the fiscal Friday. fiscal certain XXXX the that certified. But be first reform over as such information fiscal plan pension disagreement And the draft government and labor conditions reform. and upcoming on it. the was control The of

fiscal have And insight. a ultimately to need budget year, put when reconciled then into that's for be and we'll next so, those matters and

Vasundhara Govil

Rico. update labor I the or had proposal approved for Puerto do that reforms and proposal the not? when we last approval or announced find the Understood, just out in - Any if very governor earlier was not on and some the that know approved one. was

Morgan Schuessler

being that's when around upon. what positive the agree [ph] news and heard between the take but think PRAPA is the forth Yeah, the effect, the PROMESA Peter's reform. will of we'd of reforms the back some Again, some ambiguity I think And I some still and government, parties they're part of will point, encouraging two and and privatized of austerity. actually then to the labor also

TBD. So I still think it's

Vasundhara Govil

much. it. you Got very Thank

Operator

turn remarks. the to for conference Mac This would concludes to like our back question-and-answer closing session. Schuessler I any over

Morgan Schuessler

a So, and again, you to quarters. us start we Thank a been call to you look have good It's the today. remaining for year. throughout you the the thank on talking to And joining good night. forward

Operator

The conference you attending has concluded. Thank presentation. today's for

now may disconnect. You

EVERTEC (EVTC) 1 May 182018 Q1 Earnings call transcript