News Column

EVERTEC Reports Second-Quarter 2014 Results

August 6, 2014

SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- EVERTEC, Inc. (NYSE:EVTC) (“EVERTEC” or the “Company”) today announced results for the second quarter ended June 30, 2014.

Second-Quarter 2014 Highlights

  • Total revenue increased to $91.1 million; Merchant Acquiring and Payment Processing segments revenue each increased 9%.
  • Adjusted EBITDA increased 5% to $45.5 million.
  • Adjusted Net Income increased 11% to $32.2 million and Adjusted Net Income per diluted share increased 17% to $0.41.

    Peter Harrington, EVERTEC’s President and Chief Executive Officer, commented on the results: “We delivered solid second quarter results highlighted by the combination of 9% growth in our payments businesses, 50% adjusted EBITDA margin, and 17% EPS growth. Looking forward, we will continue to capitalize on the strong secular growth in the Latin American payments markets by executing our strategy and winning market share.”

    Second-Quarter 2014 Results

    Revenue. Total revenue for the quarter ended June 30, 2014 was $91.1 million, an increase of 2% compared with $89.2 million in the prior year.

    Merchant Acquiring net revenue was $19.8 million, an increase of 9% compared with $18.2 million in the prior year. Revenue growth in the quarter was driven mainly by an increase in transaction volumes.

    Payment Processing revenue was $26.4 million, an increase of 9% compared with $24.3 million in the prior year. Revenue growth in the quarter was driven mainly by new customer additions and an increase in accounts on file within the card products business, an increase in ATH and POS network and processing transactions, and fees generated from an annual Department of Education program the Company processes in Puerto Rico.

    Business Solutions revenue was $44.9 million, a decrease of 4% compared with $46.7 million in the prior year. The decrease in revenue was due almost entirely to a $2.9 million year-over-year decline in hardware and software sales in the quarter, partially offset by increased revenue from other products and services including network solutions and IT consulting.

    Adjusted EBITDA. For the quarter ended June 30, 2014, Adjusted EBITDA was $45.5 million, an increase of 5% compared with $43.4 million in the prior year. The increase in Adjusted EBITDA was due mostly to revenue growth and operating leverage in our Merchant Acquiring and Payment Processing businesses. Adjusted EBITDA margin was 50.0%, an increase of 130 basis points compared with 48.7% in the prior year.

    Adjusted Net Income. For the quarter ended June 30, 2014, Adjusted Net Income was $32.2 million, an increase of 11% compared with $28.9 million in the prior year. The increase in Adjusted Net Income was driven mainly by Adjusted EBITDA growth, lower levels of operating depreciation and amortization expense, and lower cash taxes. Adjusted Net Income per diluted share increased 17% to $0.41 compared with $0.35 in the prior year.

    Earnings Conference Call and Audio Webcast

    The Company has scheduled a conference call to discuss its second-quarter 2014 financial results today at 5:00 PM ET. Hosting the call will be Peter Harrington, President and Chief Executive Officer, and Juan JosÉ RomÁn, Executive Vice President and Chief Financial Officer. The conference call can be accessed live over the phone by dialing (877) 718-5101 or (719) 325-4778 for international callers. A replay will be available at 8:00 PM ET and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the pin number is 6668719. The replay will be available until Wednesday, August 13, 2014. The call will be webcast live from the Company’s website at www.evertecinc.com under the Investor Relations section or directly at http://ir.evertecinc.com.

    About EVERTEC

    EVERTEC, Inc. (NYSE: EVTC) is the leading full-service transaction processing business in Latin America, providing a broad range of merchant acquiring, payment processing and business solutions services. The largest merchant acquirer in the Caribbean and Central America—and one of the largest in Latin America—EVERTEC serves 19 countries in the region from its base in Puerto Rico. The Company manages a system of electronic payment networks that process more than 2.1 billion transactions annually, and offers a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. In addition, EVERTEC owns and operates the ATH network, one of the leading personal identification number (“PIN”) debit networks in Latin America. The Company serves a diversified customer base of leading financial institutions, merchants, corporations and government agencies with “mission-critical” technology solutions. For more information, visit http://www.evertecinc.com.

    About Non-GAAP Financial Measures

    This earnings release presents EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share information. These supplemental measures of the Company’s performance are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). They are not measurements of the Company’s financial performance under GAAP and should not be considered as alternatives to total revenue, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities, as indicators of cash flows or as measures of the Company’s liquidity. We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of the Company’s performance and believe they are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. In addition, the Company’s presentation of Adjusted EBITDA is consistent with the equivalent measurements contained in the Credit Agreement in testing EVERTEC Group’s compliance with covenants therein such as the senior secured leverage ratio. We use Adjusted Net Income to measure the Company’s overall profitability because it better reflects the Company’s cash flow generation by capturing the actual cash taxes paid rather than the Company’s tax expense as calculated under GAAP, and excludes the impact of the non-cash amortization and depreciation resulting from our 2010 merger involving an affiliate of Apollo Global management, LLC (the “Merger”). For more information regarding EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share, including a quantitative reconciliation of EBITDA, Adjusted EBITDA and Adjusted Net Income to the most directly comparable GAAP financial performance measure, which is net income, see Schedule 4: Reconciliation of GAAP to Non-GAAP Operating Results in this earnings release.

    Forward-Looking Statements

    Certain statements in this press release constitute “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” and “plans” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

    Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: the Company’s reliance on its relationship with Popular for a significant portion of revenue; our ability to renew our client contracts on terms favorable to us; the effectiveness of our risk management procedures; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems, and the risk that our systems may experience breakdowns or fail to prevent security breaches or fraudulent transfers; our ability to develop, install and adopt new technology; a decreased client base due to consolidations in the banking and financial-services industry; the credit risk of our merchant clients, for which we may also be liable; the continuing market position of the ATH® network; the Company’s dependence on credit card associations; regulatory limitations on our activities due to our relationship with Popular and our role as a service provider to financial institutions; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of the Company’s business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; operating in countries and counterparties that put us at risk of violating U.S. sanctions laws; our ability to execute our expansion and acquisition strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; our ability to comply with federal, state, and local regulatory requirements; evolving industry standards; the Company’s high level of indebtedness and restrictions contained in the Company’s debt agreements; and the Company’s ability to generate sufficient cash to service the Company’s indebtedness and to generate future profits.

    Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in the reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by the Company and its businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

    EVERTEC, Inc.
    Schedule 1: Unaudited Consolidated Statements of Income and Comprehensive Income
         
    Quarters ended June 30,Six months ended June 30,
    (Dollar amounts in thousands, except per share data)2014   20132014   2013
    Revenues
    Merchant acquiring, net $ 19,827 $ 18,165 $ 39,118 $ 35,624
    Payment processing 26,406 24,285 51,408 48,397
    Business solutions   44,888     46,725     87,805     92,493  
    Total revenues   91,121     89,175     178,331     176,514  
     
    Operating costs and expenses
     
    Cost of revenues, exclusive of depreciation and amortization shown below 38,839 41,771 76,484 82,273
    Selling, general and administrative expenses 10,463 12,624 18,525 21,487
    Depreciation and amortization   16,390     17,842     33,004     35,417  
    Total operating costs and expenses   65,692     72,237     128,013     139,177  
     
    Income from operations   25,429     16,938     50,318     37,337  
     
    Non-operating (expenses) income
    Interest income 79 49 154 93
    Interest expense (6,501 ) (9,747 ) (13,410 ) (25,011 )
    Earnings of equity method investment 343 348 664 625
    Other income (expenses):
    Loss on extinguishment of debt - (58,464 ) - (58,464 )
    Termination of consulting agreement - (16,718 ) - (16,718 )
    Other income (expenses)   385     (2,353 )   2,376     (2,286 )
    Total other income (expenses)   385     (77,535 )   2,376     (77,468 )
    Total non-operating expenses   (5,694 )   (86,885 )   (10,216 )   (101,761 )
    Income (loss) before income taxes 19,735 (69,947 ) 40,102 (64,424 )
    Income tax expense (benefit)   1,962     (5,012 )   4,123     (4,961 )
    Net income (loss) 17,773 (64,935 ) 35,979 (59,463 )
    Other comprehensive income (loss), net of tax
    Foreign currency translation adjustments   794     (394 )   (6,951 )   1,960  
    Total comprehensive income (loss) $ 18,567   $ (65,329 ) $ 29,028   $ (57,503 )
     
     
    Net income (loss) per common share: (1)
    Basic $ 0.23 $ (0.82 ) $ 0.46 $ (0.78 )
    Diluted $ 0.22 $ (0.82 ) $ 0.45 $ (0.78 )
     
    Shares used in computing net income (loss) per common share: (1)
    Basic 78,410,554 78,928,780 78,393,042 75,849,551
    Diluted 79,199,964 78,928,780 79,204,642 75,849,551
     


    (1) Share count was adjusted for the 2:1 stock split that occurred on April 1, 2013.

    EVERTEC, Inc.
    Schedule 2: Unaudited Consolidated Balance Sheets
       
    (Dollar amounts in thousands, except per share data)

      June 30, 2014  

    December 31, 2013

    Assets
    Current Assets:
    Cash $ 27,831 $ 22,485
    Restricted cash 5,195 5,433
    Accounts receivable, net 71,479 68,434
    Deferred tax asset 2,812 2,537
    Prepaid expenses and other assets   21,846     17,524
    Total current assets 129,163 116,413
    Investment in equity investee 11,287 10,639
    Property and equipment, net 29,371 33,240
    Goodwill 369,203 373,119
    Other intangible assets, net 347,114 367,780
    Other long-term assets   13,745     18,162
    Total assets   899,883     919,353
    Liabilities and stockholders' equity
    Current Liabilities:
    Accrued liabilities 29,159 26,571
    Accounts payable 14,256 18,630
    Unearned income 8,498 5,595
    Income tax payable 1,801 259
    Current portion of long-term debt 19,000 19,000
    Short-term borrowings 23,000 51,200
    Deferred tax liability, net   461     543
    Total current liabilities 96,175 121,798
    Long-term debt 656,626 665,680
    Long-term deferred tax liability, net 20,702 20,212
    Other long-term liabilities   251     333
    Total liabilities   773,754     808,023
    Commitments and contingencies
    Stockholders' equity
    Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued - -
    Common stock, par value $0.01; 206,000,000 shares authorized; 78,631,847

    shares issued and outstanding at June 30, 2014 (December 31, 2013- 78,286,465)

    786 783
    Additional paid-in capital 82,167 80,718
    Accumulated earnings 49,701 29,403
    Accumulated other comprehensive (loss) income, net of tax   (6,525 )   426
    Total stockholders' equity   126,129     111,330
    Total liabilities and stockholders' equity   899,883     919,353
     
    EVERTEC, Inc.
    Schedule 3: Unaudited Consolidated Statements of Cash Flows
       

    Six months ended June 30,

    2014

    2013

     
    Cash flows from operating activities
    Net income (loss) $ 35,979 $ (59,463 )
    Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    Depreciation and amortization 33,004 35,417
    Amortization of debt issue costs and premium and accretion of discount 1,538 2,369
    Write-off of debt issue costs, premium and discount accounted as loss on extinguishment - 16,555
    Provision for doubtful accounts and sundry losses 1,058 826
    Deferred tax benefit (430 ) (6,251 )
    Share-based compensation 665 5,483
    Unrealized loss (gain) of indemnification assets 173 (19 )
    Loss on disposition of property and equipment and other intangibles 64 32
    Earnings of equity method investment (664 ) (625 )
    Dividend received from equity method investment 326 500
    (Increase) decrease in assets:
    Accounts receivable, net (2,045 ) 492
    Prepaid expenses and other assets (4,267 ) (5,417 )
    Other long-term assets 1,811 (323 )
    (Decrease) increase in liabilities:
    Accounts payable and accrued liabilities (4,120 ) (3,347 )
    Income tax payable 1,542 (1,867 )
    Unearned income   2,903     1,736  
    Total adjustments   31,558     45,561  
    Net cash provided by (used in) operating activities   67,537     (13,902 )
     
    Cash flows from investing activities
    Net decrease (increase) in restricted cash 238 (44 )
    Intangible assets acquired (5,841 ) (7,927 )
    Property and equipment acquired (3,895 ) (4,384 )
    Proceeds from sales of property and equipment   3     11  
    Net cash used in investing activities   (9,495 )   (12,344 )
     
    Cash flows from financing activities
    Proceeds from initial public offering, net of offering costs of $12,567 - 112,432
    Proceeds from issuance of long-term debt - 700,000
    Statutory minimum withholding taxes paid on cashless exercises of stock options (770 ) (16,688 )
    Debt issuance costs - (12,077 )
    Net decrease in short-term borrowing (27,000 ) (14,000 )
    Repayment of short-term borrowing for purchase of equipment (1,200 ) (4,332 )
    Dividends paid (15,680 ) -
    Tax windfall benefits on exercises of stock options 1,482 470
    Issuance of common stock, net 54 28
    Repayment of other financing agreement (82 ) (112 )
    Repayment of long-term debt   (9,500 )   (745,522 )
    Net cash (used in) provided by financing activities   (52,696 )   20,199  
    Net increase (decrease) in cash 5,346 (6,047 )
    Cash at beginning of the period   22,485     25,634  
    Cash at end of the period $ 27,831   $ 19,587  
     
    EVERTEC, Inc.
    Schedule 4: Reconciliation of GAAP to Non-GAAP Operating Results
       
    Quarters ended June 30,Six months ended June 30,
    (Dollar amounts in thousands)2014     20132014   2013
     
    Net income (loss) $ 17,773 $ (64,935 ) $ 35,979 $ (59,463 )
    Income tax expense (benefit) 1,962 (5,012 ) 4,123 (4,961 )
    Interest expense, net 6,422 9,698 13,256 24,918
    Depreciation and amortization   16,390     17,842     33,004     35,417  
    EBITDA42,547(42,407)86,362(4,089)
     
    Software maintenance reimbursement and other costs(1) 563 489 1,109 1,091
    Equity income (2) (17 ) 153 (338 ) (124 )
    Compensation and benefits (3) 437 6,218 925 6,549
    Pro forma cost reduction adjustments(4) - 75 - 150
    Transaction and other non-recurring fees (5) 1,999 59,645 2,516 61,515
    Management fees (6) - 19,261 - 20,109
    Purchase accounting (7)   (6 )   (3 )   173     (19 )
    Adjusted EBITDA45,52343,43190,74785,182
     
    Pro forma EBITDA adjustments (8) - (75 ) - (150 )
    Operating depreciation and amortization (9) (7,281 ) (8,079 ) (14,764 ) (15,894 )
    Cash interest expense, net (10) (5,655 ) (5,434 ) (11,410 ) (11,110 )
    Cash income taxes (11)   (402 )   (969 )   (402 )   (1,666 )
    Adjusted Net Income$32,185   $28,874   $64,171   $56,362  
     
     
    Adjusted Net income per common share: (12)
    Basic $ 0.41 $ 0.37 $ 0.82 $ 0.74
    Diluted $ 0.41 $ 0.35 $ 0.81 $ 0.70
     
    Shares used in computing Adjusted Net Income per common share: (12)
    Basic 78,410,554 78,928,780 78,393,042 75,849,551
    Diluted 79,199,964 82,747,507 79,204,642 80,076,665
     
    (1)   Predominantly represents reimbursements received for certain software maintenance expenses as part of the Merger.
    (2) Represents the elimination of non-cash equity earnings from our 19.99% equity investment in CONTADO, net of cash dividends received.
    (3) Predominantly represents non-cash equity based compensation expense.
    (4) Represents the pro forma effect of the expected net savings mainly in compensation and benefits from the reduction of certain employees. This pro forma amount was calculated using the net amount of actual expenses for the twelve-month period prior to their separation.
    (5) Represents fees and expenses associated with non-recurring corporate transactions, including $1.1 million of fees associated with the withdrawn senior secured notes offering in the second quarter of 2014 and refinancing and debt extinguishment of $58.6 million in the second quarter of 2013.
    (6) Represents consulting fees paid to Apollo and Popular. In connection with our initial public offering during the second quarter of 2013, our consulting agreements with Apollo and Popular were terminated.
    (7) Represents the elimination of the effects of purchase accounting in connection with certain customer service and software-related arrangements whereby EVERTEC receives reimbursements from Popular.
    (8) Represents the elimination of the pro forma benefits described in note 4 above.
    (9) Represents operating depreciation and amortization expense, which excludes amounts generated as a result of the Merger.
    (10) For the three and six months ended June 30, 2013, represents pro forma cash interest expense assuming EVERTEC’s April 2013 refinancing occurred on January 1, 2013, less interest income, as they appear on our consolidated statements of income (loss) and comprehensive income (loss), adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount. For the three and six months ended June 30, 2014, represents interest expense, less interest income, as they appear on our consolidated statements of income (loss) and comprehensive income (loss), adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.
    (11) Represents cash taxes paid for each period presented.
    (12) Share count was adjusted for the 2:1 stock split that occurred on April 1, 2013.
     

    Schedule 5: Unaudited Income from Operations by Segment

       
    Quarters ended June 30,Six months ended June 30,
    (Dollar amounts in thousands)2014   20132014   2013
     
    Segment income from operations
    Merchant acquiring, net $ 8,777 $ 8,161 $ 17,181 $ 17,395
    Payment processing 15,314 11,720 30,031 24,480
    Business solutions   12,113     8,784     23,537     19,318  

    Total segment income from operations

    36,204 28,665 70,749 61,193
    Merger related depreciation and amortization
    and other unallocated expenses (1)   (10,775 )   (11,727 )   (20,431 )   (23,856 )
    Income from operations $ 25,429   $ 16,938   $ 50,318   $ 37,337  
     
    (1)   Predominantly represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.
     





    EVERTEC, Inc.

    Investor Contact

    Luis M. Cabrera, 787-773-5302

    Senior Vice President

    Head of Investor Relations

    IR@evertecinc.com

    or

    Media Contact

    Wanda Betancourt, APR, 787-773-5302

    Senior Vice President

    Communications and Marketing

    NewsMedia@evertecinc.com

    Source: EVERTEC, Inc.


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