EVERTEC Reports Fourth Quarter and Full Year 2017 Results

Announces 2018 Outlook

SAN JUAN, Puerto Rico--()--EVERTEC, Inc. (NYSE:EVTC) (“EVERTEC” or the “Company”) today announced results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017

  • Revenue decreased 2% to $99.6 million
  • GAAP Net Income attributable to common shareholders was $5.8 million, or $0.08 per diluted share
  • Adjusted EBITDA decreased 22% to $37.0 million
  • Adjusted earnings per common share was $0.24, or a 44% decline

Full Year 2017 Highlights

  • Revenue grew 5% to $407.1 million
  • GAAP Net Income attributable to common shareholders was $55.1 million, or $0.76 per diluted share
  • Adjusted EBITDA decreased 5% to $178.0 million
  • Adjusted earnings per common share was $1.47, or a 12% decline
  • $29 million returned to shareholders in share repurchases and dividends

Mac Schuessler, President and Chief Executive Officer, stated “We executed well in the fourth quarter and exceeded the high end of our full year 2017 revenue guidance range, as fourth quarter transaction volume was stronger than previously expected in Puerto Rico. Reflecting on 2017, we made significant progress on our core growth initiatives, including advancing our Latin American expansion strategy through acquisitions and recent customer wins.”

Schuessler continued, "Looking to 2018, while the post-hurricane economy in Puerto Rico has improved, many uncertainties still remain and are reflected in our 2018 financial outlook. We will continue to work to restore our customers' operations in Puerto Rico and remain committed to supporting our community as the Island rebuilds. At the same time, we are focused on capitalizing on our expanded opportunities in Latin America.”

Fourth Quarter 2017 Results

Revenue. Total revenue for the quarter ended December 31, 2017 was $99.6 million, a decrease of 2% compared with $101.9 million in the prior year. The decrease in the quarter was driven primarily by the impact of reduced volumes caused by the significant hurricanes in the third quarter of 2017 partially offset by the acquisition of PayGroup.

Net Income attributable to common shareholders. For the quarter ended December 31, 2017, GAAP Net Income attributable to common shareholders was $5.8 million, or $0.08 per diluted share, compared with $16.0 million or $0.22 per diluted share in the prior year. The decline was primarily caused by the impact of the hurricanes.

Adjusted EBITDA. For the quarter ended December 31, 2017, Adjusted EBITDA was $37.0 million, a decrease of 22% compared to the prior year. The decrease in Adjusted EBITDA was primarily driven by reduced high margin revenues due to the hurricanes and a $5.0 million impairment charge on a multi-year software development project that was impacted by delays caused by the hurricane and projected increased costs with a third party vendor.

Adjusted Net Income. For the quarter ended December 31, 2017, Adjusted Net Income was $17.7 million, a decrease of 43% compared with $31.3 million in the prior year. Adjusted earnings per common share was $0.24, a decrease of 44% compared with $0.43 in the prior year. The results included the impact of an increased tax rate in our Latin American region and a higher than anticipated proportion of Puerto Rico taxable income outside our preferential tax decree.

Full Year 2017 Results

Revenue. Total revenue for the year ended December 31, 2017 was $407.1 million, an increase of 5% compared with $389.5 million in the prior year. The increase in revenues was driven by increases in ATH debit network transaction volumes and card processing volumes, revenue generated from the PayGroup acquisition, increased revenue from the Accuprint acquisition and an increase in core banking revenue. Revenues in 2017 were negatively impacted by the two hurricanes that made landfall in Puerto Rico and the Caribbean in September of 2017.

Net Income attributable to common shareholders. For the year ended December 31, 2017, GAAP Net Income attributable to common shareholders was $55.1 million , or $0.76 per diluted share, compared with $75.0 million or $1.01 per diluted share in the prior year. The decline was caused by the impact of the hurricanes, charges taken in connection with an exit activity for a third party software solution that is no longer commercially viable, an impairment loss related to a software asset under development, expenses attributable to the PayGroup acquisition, increased depreciation expense, and higher interest expense.

Adjusted EBITDA. For the year ended December 31, 2017, Adjusted EBITDA was $178.0 million, a decrease of 5% compared to the prior year. The decrease in Adjusted EBITDA was primarily driven by reduced high margin revenues due to the hurricanes and an impairment loss related to a software asset under development.

Adjusted Net Income. For the year ended December 31, 2017, Adjusted Net Income was $107.1 million, a decrease of 14% compared with $124.7 million in the prior year. Adjusted earnings per common share was $1.47, a decrease of 12% compared with $1.67 in the prior year. The decline was primarily caused by the impact of the hurricanes, increased depreciation, higher interest expense and an increased tax rate.

Segment Reporting Change

The Company realigned its operating segments in the quarter ended December 31, 2017. The Company's operating segments are as follows: 1) Merchant Services 2) Payment Services (Puerto Rico and Caribbean) 3) Payment Services (Latin America) 4) Business Solutions. Additionally, the Corporate and Other category is presented and it 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. Historical results for the new operating segments for reported full-year 2015 through 2017 and quarterly periods for 2016 and 2017 are provided in a supplemental schedule attached to this release.

Share Repurchase

For the full year 2017, the Company repurchased a total of 0.5 million shares of common stock at an average price of $16.48 per share for a total of $7.7 million. As of December 31, 2017, a total of approximately $72.3 million remained available for future use under the Company’s share repurchase program.

2018 Outlook

The Company financial outlook for 2018 is as follows:

  • Total consolidated revenue between $411 million and $425 million representing growth of 1 to 5%
  • Adjusted earnings per common share guidance of $1.25 to $1.41 representing a range of -15 to -4% as compared to $1.47 in 2017
  • Capital expenditures ranging between $35 and $40 million
  • Effective tax rate ranging between 11 to 13%

Earnings Conference Call and Audio Webcast

The Company will host a conference call to discuss its Fourth quarter 2017 financial results today at 4:30 p.m. ET. Hosting the call will be Mac Schuessler, President and Chief Executive Officer, and Peter Smith, Executive Vice President and Chief Financial Officer. The conference call can be accessed live over the phone by dialing (888) 338-7153 or for international callers by dialing (412) 317-5117. A replay will be available one hour after the end of the conference call and can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the pin number is 10098091. The replay will be available through Wednesday, March 1, 2018. 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. A supplemental slide presentation that accompanies this call and webcast can be found on the investor relations website at ir.evertecinc.com and will remain available after the call.

About EVERTEC

EVERTEC, Inc. (NYSE: EVTC) is a leading full-service transaction processing business in Latin America, providing a broad range of merchant acquiring, payment processing and business solutions services. The Company manages a system of electronic payment networks that process approximately two 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. Based in Puerto Rico, the Company operates in 26 Latin American countries and serves a diversified customer base of leading financial institutions, merchants, corporations and government agencies with “mission-critical” technology solutions. For more information, visit www.evertecinc.com.

Use of Non-GAAP Financial Information

The non-GAAP measures referenced in this release material are supplemental measures of the Company’s performance and 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 operating performance or as measures of the Company’s liquidity. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the Company believes are pertinent to the daily management of the Company’s operations and believes that they are also frequently used by analysts, investors and other interested parties to evaluate companies in the industry. Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release. These non-GAAP measures include EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share and are defined below.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.

Adjusted Net Income is defined as net income adjusted to exclude unusual items and other adjustments

Adjusted Earnings per common share is defined as Adjusted Net Income divided by diluted shares outstanding

In addition, our presentation of Adjusted EBITDA is substantially consistent with the equivalent measurements that are contained in the senior secured credit facilities in testing EVERTEC Group’s compliance with covenants therein such as the senior secured leverage ratio. We use Adjusted Net Income to measure our overall profitability because we believe better reflects our comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of Apollo Global Management LLC’s acquisition of a 51% indirect ownership in EVERTEC Group. In addition, in evaluating EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future we may incur expenses such as those excluded in calculating them. Further, our presentation of these measures should not be construed as an inference that our future operating results will not be affected by unusual or nonrecurring items.

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; reduction in consumer confidence leading to decreased consumer spending; the Company’s dependence on credit card associations; regulatory limitations on our activities, including the potential need to seek regulatory approval to consummate transactions, 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, tax, 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; increased compliance risks associated with operating an international business; 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

 
Quarter ended December 31, Year ended December 31,
(Dollar amounts in thousands, except per share data) 2017     2016 2017     2016
Revenues $ 99,628   $ 101,889   $ 407,144   $ 389,507  
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below 50,748 48,682 200,650 175,809
Selling, general and administrative expenses 16,130 12,760 56,161 46,986
Depreciation and amortization 16,061   15,067   64,250   59,567  
Total operating costs and expenses 82,939   76,509   321,061   282,362  
Income from operations 16,689   25,380   86,083   107,145  
Non-operating income (expenses)
Interest income 156 111 716 377
Interest expense (7,407 ) (6,325 ) (29,861 ) (24,617 )
Earnings (losses) of equity method investment 191 6 604 (52 )
Other income (expense), net (172 ) (1,203 ) 2,657   544  
Total non-operating expenses (7,232 ) (7,411 ) (25,884 ) (23,748 )
Income before income taxes 9,457 17,969 60,199 83,397
Income tax expense 3,532   1,955   4,780   8,271  
Net income 5,925 16,014 55,419 75,126
Less: Net income attributable to non-controlling interest 91   41   365   90  
Net income attributable to EVERTEC, Inc.’s common stockholders 5,834 15,973 55,054 75,036
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments (117 ) (740 ) (635 ) (3,360 )
Gain (loss) on cash flow hedge 1,421   3,015   2,178   (1,449 )
Total comprehensive income $ 7,138   $ 18,248   $ 56,597   $ 70,227  
Net income per common share:
Basic $ 0.08 $ 0.22 $ 0.76 $ 1.01
Diluted $ 0.08 $ 0.22 $ 0.76 $ 1.01
Shares used in computing net income per common share:
Basic 72,390,977 73,020,599 72,479,807 74,132,863
Diluted 72,857,756 73,563,167 72,872,188 74,473,369
 
       

EVERTEC, Inc.

Schedule 2: Unaudited Consolidated Balance Sheets

 
(Dollar amounts in thousands) December 31, 2017 December 31, 2016
Assets
Current Assets:
Cash and cash equivalents $ 50,423 $ 51,920
Restricted cash 9,944 8,112
Accounts receivable, net 83,328 77,803
Prepaid expenses and other assets 25,011   20,430  
Total current assets 168,706 158,265
Investment in equity investee 13,073 12,252
Property and equipment, net 37,924 38,930
Goodwill 398,575 370,986
Other intangible assets, net 279,961 299,119
Other long-term assets 4,549   6,110  
Total assets $ 902,788   $ 885,662  
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities $ 38,451 $ 34,243
Accounts payable 41,135 40,845
Unearned income 7,737 4,531
Income tax payable 1,406 1,755
Current portion of long-term debt 46,487 19,789
Short-term borrowings 12,000   28,000  
Total current liabilities 147,216 129,163
Long-term debt 557,251 599,667
Deferred tax liability 13,820 14,978
Unearned income—long-term 23,486 17,303
Other long-term liabilities 13,039   16,376  
Total liabilities 754,812 777,487
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;
72,393,933 shares issued and outstanding at December 31, 2017
(December 31, 2016 - 72,635,032)

723 726
Additional paid-in capital 5,350
Accumulated earnings 148,887 116,341
Accumulated other comprehensive loss, net of tax (10,848 ) (12,391 )
Total EVERTEC, Inc. stockholders’ equity 144,112 104,676
Non-controlling interest 3,864   3,499  
Total equity 147,976   108,175  
Total liabilities and equity $ 902,788   $ 885,662  
 
   

EVERTEC, Inc.

Schedule 3: Unaudited Consolidated Statements of Cash Flows

 
Years ended December 31,
(Dollar amounts in thousands) 2017     2016
Cash flows from operating activities
Net income $ 55,419 $ 75,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 64,250 59,567
Amortization of debt issue costs and accretion of discount 5,128 4,334
Loss on extinguishment of debt 1,476
Provision for doubtful accounts and sundry losses 843 1,990
Deferred tax benefit (4,306 ) (4,594 )
Share-based compensation 9,642 6,408
Loss on impairment of software 11,441 2,277
Loss on disposition of property and equipment and other intangibles 430 453
(Earnings) losses of equity method investment (604 ) 52
(Increase) decrease in assets:
Accounts receivable (2,099 ) (2,583 )
Prepaid expenses and other assets (4,048 ) (1,426 )
Other long-term assets 1,654 (1,790 )
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (870 ) 14,594
Income tax payable (349 ) 405
Unearned income 8,444 8,018
Other long-term liabilities 811   3,747  
Total adjustments 90,367   92,928  
Net cash provided by operating activities 145,786   168,054  
Cash flows from investing activities
Net (increase) decrease in restricted cash (1,832 ) 3,705
Additions to software and purchase of customer relationship (22,174 ) (23,819 )
Acquisitions, net of cash acquired (42,836 ) (15,600 )
Property and equipment acquired (11,290 ) (18,450 )
Proceeds from sales of property and equipment 32   81  
Net cash used in investing activities (78,100 ) (54,083 )
Cash flows from financing activities
Proceeds from issuance of long-term debt 75,763
Debt issuance costs (4,830 )
Net (decrease) increase in short-term borrowings (16,000 ) 11,000
Repayments of borrowings for purchase of equipment and software (2,373 ) (2,213 )
Dividends paid (21,762 ) (29,696 )
Withholding taxes paid on share-based compensation (1,588 ) (548 )
Repurchase of common stock (7,671 ) (39,946 )
Repayment of long-term debt (19,789 ) (96,741 )
Credit amendment fees   (3,587 )
Net cash used in financing activities (69,183 ) (90,798 )
Net (decrease) increase in cash and cash equivalents (1,497 ) 23,173
Cash and cash equivalents at beginning of the period 51,920   28,747  
Cash and cash equivalents at end of the period $ 50,423   $ 51,920  
 
   

EVERTEC, Inc.

Schedule 4: Unaudited Segment Information

 
Quarter Ended December 31, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 22,866 $ 19,336 $ 18,232 $ 46,133 $ (6,939 ) $ 99,628
Operating costs and expenses 17,759 19,520 11,028 28,776 5,856 82,939
Depreciation and amortization 2,317 2,553 441 3,653 7,097 16,061
Non-operating income (expenses) 553   1,539     10   (2,083 ) 19
EBITDA 7,977   3,908   7,645   21,020   (7,781 ) 32,769
Compensation and benefits (1) 159 371 141 394 2,139 3,204
Transaction, refinancing and other fees (2)         1,055   1,055
Adjusted EBITDA $ 8,136   $ 4,279   $ 7,786   $ 21,414   $ (4,587 ) $ 37,028
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $6.9 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 severance payments.
(3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement.
 
    Quarter Ended December 31, 2016
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 25,680 $ 12,438 $ 23,111 $ 49,439 $ (8,779 ) $ 101,889
Operating costs and expenses 14,053 11,986 13,717 31,152 5,601 76,509
Depreciation and amortization 2,027 1,894 594 3,486 7,066 15,067
Non-operating income (expenses) 563   1,155     10   (2,925 ) (1,197 )
EBITDA 14,217   3,501   9,988   21,783   (10,239 ) 39,250  
Compensation and benefits (2) 59 8 63 146 2,173 2,449
Transaction, refinancing and other fees (3) 2,062       2,167   1,647   5,876  
Adjusted EBITDA $ 16,338   $ 3,509   $ 10,051   $ 24,096   $ (6,419 ) $ 47,575  
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.8 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, 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.
 
    Year Ended December 31, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

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, 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.
 
    Year Ended December 31, 2016
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

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, 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, 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.
 
       

EVERTEC, Inc.

Schedule 5: Reconciliation of GAAP to Non-GAAP Operating Results

 
Quarter ended December 31, Year ended December 31,
(Dollar amounts in thousands, except share data) 2017     2016 2017     2016
Net income $ 5,925 $ 16,014 $ 55,419 $ 75,126
Income tax expense 3,532 1,955 4,780 8,271
Interest expense, net 7,251 6,214 29,145 24,240
Depreciation and amortization 16,061   15,067   64,250   59,567  
EBITDA 32,769 39,250 153,594 167,204
Software maintenance reimbursement and other costs(1) 521
Equity (income) loss(2) (191 ) (6 ) (604 ) 52
Compensation and benefits (3) 3,204 2,449 9,755 10,482
Transaction, refinancing and other fees (4) 1,246 5,882 2,500 7,579
Exit activity (5) 12,783
Restatement related expenses (6)       1,837  
Adjusted EBITDA 37,028 47,575 178,028 187,675
Operating depreciation and amortization (7) (7,459 ) (7,302 ) (30,585 ) (28,468 )
Cash interest expense, net (8) (6,422 ) (5,137 ) (24,660 ) (20,468 )
Income tax expense (9) (5,264 ) (3,748 ) (15,100 ) (13,752 )
Non-controlling interest (10) (150 ) (89 ) (581 ) (258 )
Adjusted Net Income $ 17,733   $ 31,299   $ 107,102   $ 124,729  
Net income per common share (GAAP):
Diluted $ 0.08 $ 0.22 $ 0.76 $ 1.01
Adjusted earnings per common share (Non-GAAP):
Diluted $ 0.24 $ 0.43 $ 1.47 $ 1.67
Shares used in computing adjusted earnings per common share:
Diluted 72,857,786 73,563,167 72,872,188 74,473,369
 

________________________________

(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 Dominican Republic, Consorcio de Tarjetas Dominicanas, S.A. (“CONTADO”).
(3) Primarily represents share-based compensation and other compensation expense of $3.1 million and $1.8 million for the quarters ended December 31, 2017 and 2016 and severance payments $0.6 million for the quarter ended December 31, 2016. For the year ended December 31, 2017 and 2016 primarily represents share-based compensation and other compensation expense of $9.6 million and $6.7 million, respectively, and severance payments of $4.1 million for the year ended December 31, 2016.
(4) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, recorded as part of selling, general and administrative expense and cost of revenues, as well as relief contributions related to the Hurricanes.
(5) Impairment charge and contractual fees accrual for a third party software solution that was determined to be commercially unviable.
(6) Represents consulting, audit and legal expenses incurred as part of the restatement.
(7) Represents operating depreciation and amortization expense, which excludes amounts generated as a result of the Merger and other from purchase accounting intangibles generated from acquisitions.
(8) Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.
(9) Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate.
(10) Represents the 35% non-controlling equity interest in Processa, net of amortization for intangibles created as part of the purchase.
 
               

EVERTEC, Inc.

Schedule 6: Outlook Summary and Reconciliation to Non-GAAP Adjusted Earnings per Share

2017
2018 Outlook Actual
(Dollar amounts in millions, except per share data)
Revenues $ 411 to $ 425 $ 407
Earnings per Share (EPS) (GAAP) $ 0.60 to $ 0.76 $ 0.76
Per share adjustment to reconcile GAAP EPS to Non-GAAP Adjusted EPS:
Share-based comp, non-cash equity earnings and other (1) 0.21 0.21 0.33
Merger and acquisition related depreciation and amortization (2) 0.47 0.47 0.42
Non-cash interest expense (3) 0.06 0.06 0.07
Tax effect of non-gaap adjustments (4) (0.08 ) (0.08 ) (0.10 )
Non-controlling interest (5) (0.01 ) (0.01 ) (0.01 )
Total adjustments 0.65 0.65 0.71
Adjusted EPS (Non-GAAP) $ 1.25 to $ 1.41 $ 1.47
Shares used in computing adjusted earnings per common share 73.5 72.9
 

________________________________

(1)   Represents share based compensation, the elimination of non-cash equity earnings from our 19.99% equity investment in CONTADO, severance and other adjustments to reconcile GAAP EPS to Non-GAAP EPS.
(2) Represents depreciation and amortization expenses amounts generated as a result of the Merger and intangibles related to acquisitions.
(3) Represents non-cash amortization of the debt issue costs, premium and accretion of discount.
(4) Represents income tax expense on non-GAAP adjustments using the applicable GAAP tax rate (in an anticipated range of 11 to 13%).
(5) Represents the 35% non-controlling equity interest in Processa, net of amortization for intangibles created as part of the purchase.
 
EVERTEC, Inc.

Schedule 7: Supplemental Segment Information

 
    Quarter Ended March 31, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 26,452 $ 12,964 $ 22,485 $ 47,997 $ (8,618 ) $ 101,280
Operating costs and expenses 11,802 12,266 13,413 29,765 3,442 70,688
Depreciation and amortization 2,149 1,871 599 4,014 7,051 15,684
Non-operating income (expenses) 553   2,731   1     (1,868 ) 1,417  
EBITDA 17,352   5,300   9,672   22,246   (6,877 ) 47,693  
Compensation and benefits (2) 99 151 95 226 1,505 2,076
Transaction, refinancing and other fees (3) (660 )       50   (610 )
Adjusted EBITDA $ 16,791   $ 5,451   $ 9,767   $ 22,472   $ (5,322 ) $ 49,159  
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.6 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, other compensation expense and severance payments.
(3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement.
 
    Quarter Ended June 30, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 27,144 $ 12,973 $ 23,506 $ 48,672 $ (8,784 ) $ 103,511
Operating costs and expenses 11,682 13,603 13,688 29,600 4,944 73,517
Depreciation and amortization 2,269 1,848 596 4,082 7,104 15,899
Non-operating income (expenses) 556   2,724     3   (1,805 ) 1,478
EBITDA 18,287   3,942   10,414   23,157   (8,429 ) 47,371
Compensation and benefits (2) 125 156 121 286 1,439 2,127
Transaction, refinancing and other fees (3)         632   632
Adjusted EBITDA $ 18,412   $ 4,098   $ 10,535   $ 23,443   $ (6,358 ) $ 50,130
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.8 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, other compensation expense and severance payments.
(3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement.

 

    Quarter Ended September 30, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 25,225 $ 17,432 $ 21,555 $ 46,275 $ (7,762 ) $ 102,725
Operating costs and expenses 16,219 21,396 19,444 31,620 5,238 93,917
Depreciation and amortization 2,259 2,608 618 4,024 7,097 16,606
Non-operating income (expenses) 567   1,732       (1,952 ) 347
EBITDA 11,832   376   2,729   18,679   (7,855 ) 25,761
Compensation and benefits (2) 205 139 216 781 1,007 2,348
Transaction, refinancing, exit activity and other fees (3) 3,160   3,221   6,464     757   13,602
Adjusted EBITDA $ 15,197   $ 3,736   $ 9,409   $ 19,460   $ (6,091 ) $ 41,711
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $7.8 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, 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.
 
    Quarter Ended December 31, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 22,866 $ 19,336 $ 18,232 $ 46,133 $ (6,939 ) $ 99,628
Operating costs and expenses 17,759 19,520 11,028 28,776 5,856 82,939
Depreciation and amortization 2,317 2,553 441 3,653 7,097 16,061
Non-operating income (expenses) 553   1,539     10   (2,083 ) 19
EBITDA 7,977   3,908   7,645   21,020   (7,781 ) 32,769
Compensation and benefits (1) 159 371 141 394 2,139 3,204
Transaction, refinancing and other fees (2)         1,055   1,055
Adjusted EBITDA $ 8,136   $ 4,279   $ 7,786   $ 21,414   $ (4,587 ) $ 37,028
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $6.9 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 severance payments.
(3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement.
 
    Year Ended December 31, 2017
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

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, 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.
 
    Quarter Ended March 31, 2016
(In thousands)

Payment
Services -
Puerto Rico & Caribbean

   

Payment
Services -
Latin America

    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 24,828 $ 10,171 $ 22,890 $ 45,154 $ (7,564 ) $ 95,479
Operating costs and expenses 12,001 10,664 12,616 28,299 5,333 68,913
Depreciation and amortization 1,879 1,621 689 3,375 7,106 14,670
Non-operating income (expenses) 581   1,186     (3 ) (1,496 ) 268
EBITDA 15,287   2,314   10,963   20,227   (7,287 ) 41,504
Compensation and benefits (2) 369 400 238 1,103 1,571 3,681
Transaction, refinancing, exit activity and other fees (3)       110   750   860
Adjusted EBITDA $ 15,656   $ 2,714   $ 11,201   $ 21,440   $ (4,966 ) $ 46,045
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $7.6 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, 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.
 
    Quarter Ended June 30, 2016
(In thousands) Payment
Services -
Puerto Rico & Caribbean
   

Payment
Services -
Latin America

    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 25,182 $ 11,608 $ 23,277 $ 45,737 $ (8,132 ) $ 97,672
Operating costs and expenses 11,577 10,705 12,934 27,845 6,419 69,480
Depreciation and amortization 1,912 1,881 704 3,502 6,942 14,941
Non-operating income (expenses) 529   1,848     5   (1,493 ) 889
EBITDA 16,046   4,632   11,047   21,399   (9,102 ) 44,022
Compensation and benefits (2) 154 144 121 489 1,351 2,259
Transaction, refinancing and other fees (3)         2,558   2,558
Adjusted EBITDA $ 16,200   $ 4,776   $ 11,168   $ 21,888   $ (5,193 ) $ 48,839
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.1 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, 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.
 
    Quarter Ended September 30, 2016
(In thousands) Payment
Processing -
Puerto Rico & Caribbean
   

Payment
Services -
Latin America

    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 23,990 $ 12,944 $ 21,970 $ 43,947 $ (8,384 ) $ 94,467
Operating costs and expenses 11,497 11,951 13,504 25,786 4,722 67,460
Depreciation and amortization 1,779 1,889 685 3,420 7,116 14,889
Non-operating income (expenses) 565   1,396     13   (1,442 ) 532
EBITDA 14,837   4,278   9,151   21,594   (7,432 ) 42,428
Compensation and benefits (2) 57 74 58 223 1,591 2,003
Transaction, refinancing and other fees (3)         714   714
Adjusted EBITDA $ 14,894   $ 4,352   $ 9,209   $ 21,817   $ (5,127 ) $ 45,145
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.4 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, 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.
 
    Quarter Ended December 31, 2016
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

Corporate
and Other (1)

    Total
 
Revenues $ 25,680 $ 12,438 $ 23,111 $ 49,439 $ (8,779 ) $ 101,889
Operating costs and expenses 14,053 11,986 13,717 31,152 5,601 76,509
Depreciation and amortization 2,027 1,894 594 3,486 7,066 15,067
Non-operating income (expenses) 563   1,155     10   (2,925 ) (1,197 )
EBITDA 14,217   3,501   9,988   21,783   (10,239 ) 39,250  
Compensation and benefits (2) 59 8 63 146 2,173 2,449
Transaction, refinancing and other fees (3) 2,062       2,167   1,647   5,876  
Adjusted EBITDA $ 16,338   $ 3,509   $ 10,051   $ 24,096   $ (6,419 ) $ 47,575  
 

________________________________

(1)   Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $8.8 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, 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.
 
    Year Ended December 31, 2016
(In thousands) Payment
Services -
Puerto Rico & Caribbean
    Payment
Services -
Latin America
    Merchant
Acquiring, net
    Business
Solutions
   

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, 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, 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.
 
    Year Ended December 31, 2015
(In thousands) Payment
Services -
Puerto Rico & Caribbean
   

Payment
Services -
Latin America

    Merchant
Acquiring, net
    Business
Solutions
   

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, 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, other compensation expense and severance payments.
(3) Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement.
 

Contacts

Investors
EVERTEC, Inc.
Kay Sharpton, 787-773-5442
IR@evertecinc.com

Release Summary

EVERTEC REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS ANNOUNCES 2018 OUTLOOK

Contacts

Investors
EVERTEC, Inc.
Kay Sharpton, 787-773-5442
IR@evertecinc.com