EVERTEC, Inc. 2023 Form 10-K Summary
Business context and reporting period
EVERTEC is a payment transaction processor and financial technology provider operating across 26 countries in Latin America, Puerto Rico and the Caribbean. Its services include merchant acquiring, payment processing, the ATH debit network, digital payments, core banking, business-process management and technology outsourcing. The filing covers the fiscal year ended December 31, 2023, with comparisons to 2022.
Revenue remained geographically concentrated: 73% was generated in Puerto Rico and 27% in Latin America and the Caribbean. Popular represented approximately 35% of 2023 revenue, while the Government of Puerto Rico represented 7%.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $694.7 million | $618.4 million | Up 12% |
| Income from operations | $136.2 million | $157.4 million | Down 13% |
| Operating margin | 19.6% | 25.5% | Down 5.9 percentage points |
| Net income attributable to EVERTEC | $79.7 million | $239.0 million | Down 67% |
| Diluted EPS | $1.21 | $3.45 | Down 65% |
| Adjusted EBITDA | $292.0 million | $276.1 million | Up 6% |
| Adjusted EBITDA margin | 42.0% | 44.6% | Down 2.6 percentage points |
| Cash flow from operations | $224.3 million | $223.4 million | Essentially flat |
| Capital expenditures and software additions | Approximately $85.0 million | Approximately $71.9 million | Up approximately $13.1 million |
Net income was affected by the absence of the $135.6 million gain on the 2022 Popular Transaction, a $24.1 million loss on a foreign currency swap, higher interest expense and increased acquisition-related costs. The 2023 effective tax rate was 6.4%, compared with 10.8% in 2022.
Segment performance
| Segment | 2023 revenue | Revenue change | 2023 adjusted EBITDA | Margin |
|---|---|---|---|---|
| Payment Services—Puerto Rico & Caribbean | $203.2 million | Up 14% | $118.3 million | 58.2% |
| Latin America Payments and Solutions | $186.5 million | Up 45% | $60.2 million | 32.3% |
| Merchant Acquiring | $162.4 million | Up 7% | $61.0 million | 37.6% |
| Business Solutions | $227.0 million | Down 4% | $86.9 million | 38.3% |
Growth was led by Latin America Payments and Solutions, including acquisitions, organic growth and a $6.3 million contribution from the Getnet Chile processing contract. Payment Services benefited from higher POS volumes and ATH Movil activity. Merchant Acquiring revenue increased, but profitability declined because of revenue sharing with Popular, higher operating expenses and processing costs. Business Solutions declined because of assets sold in the Popular Transaction.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $295.6 million at December 31, 2023. Including restricted cash and cash included in settlement assets, total reported cash was $343.7 million.
- Cash flow from operations was $224.3 million. Investing cash outflow was $507.9 million, including $417.6 million for acquisitions. Financing cash inflow was $403.3 million, primarily from acquisition-related debt issuance.
- Debt principal was approximately $993.5 million at year-end; debt carrying value was $978.1 million. The debt consisted primarily of a Term A facility and a Term B facility, with maturities in 2027 and 2030. Borrowings are predominantly variable-rate.
- The revolving credit facility was $200.0 million, of which $194.0 million was available at year-end, subject to reductions for letters of credit.
- The secured net leverage ratio was 2.24 to 1.00, below the maximum covenant of 4.50 to 1.00 applicable through September 30, 2024 and 4.00 to 1.00 thereafter. Management reported no default or event of default as of the filing date.
- A hypothetical 100-basis-point increase in interest rates would increase annual interest expense by approximately $7.4 million based on year-end debt balances.
- The Company paid quarterly dividends of $0.05 per share, or $0.20 for 2023, and repurchased 1.0 million shares for $36.1 million. Approximately $137.5 million remained available under the repurchase authorization at year-end.
Material changes versus the prior comparable period
- Revenue increased 12%, but operating income declined 13% as operating expenses grew 21%, including higher personnel, professional fees, cloud services, amortization and acquisition-related costs.
- Adjusted EBITDA increased 6%, although the consolidated margin declined because of higher expenses and a less favorable mix.
- EVERTEC acquired paySmart in February 2023 for approximately $25 million and completed the Sinqia acquisition in November 2023 for approximately $472 million. Sinqia contributed approximately 3% of 2023 revenue and represented approximately 35% of consolidated assets, principally goodwill and intangible assets, at year-end.
- Goodwill increased from $423.4 million to $791.7 million and other intangible assets increased from $200.3 million to $518.1 million, primarily because of the acquisitions.
- Interest expense increased 30% to $32.3 million due to additional debt raised for Sinqia. Depreciation and amortization increased 19% to $93.6 million.
- Net cash provided by operations was essentially unchanged, while acquisition spending increased substantially from $44.4 million to $417.6 million.
Guidance, outlook, commentary and risks
The filing does not provide quantified 2024 revenue, earnings or cash-flow guidance. Management expects continued opportunities from electronic-payment adoption, digital payments, technology outsourcing, cross-selling, Latin American expansion and the integration of paySmart and Sinqia. Management stated that existing operating cash flow and available revolving capacity should meet liquidity needs for at least the next twelve months, subject to operating performance and market conditions.
- Popular remains the largest customer. The principal master services agreement expires in 2028, the merchant acquiring agreement in 2035 and the ATH network agreement in 2030. Renewal terms and potential pricing concessions are material risks.
- Puerto Rico concentration exposes the Company to fiscal, political, economic, infrastructure, migration and natural-disaster risks. Net receivables from the Government of Puerto Rico and certain public corporations were $11.1 million at year-end.
- Cybersecurity incidents, system failures, fraud, chargebacks, data privacy requirements and dependence on third-party providers could create operational, regulatory, financial and reputational liabilities. The Company reported no known cybersecurity incident that materially affected operations or financial condition, but identified cybersecurity threats that could reasonably have a material impact if realized.
- Integration of Sinqia and realization of expected synergies remain uncertain. The Company excluded Sinqia from management’s internal-control assessment for the permitted one-year period following the acquisition and is continuing integration efforts.
- Variable-rate debt, rising interest rates, foreign exchange volatility and inflation may pressure cash flow and margins. The Company recorded an $8.3 million foreign currency remeasurement loss and a $24.1 million foreign currency swap loss in 2023.
- EVERTEC benefits from Puerto Rico preferential tax arrangements, including a 4% rate on certain income. Failure to meet the requirements or expiration of applicable grants could increase taxes.
- Legal proceedings are ordinary-course matters and management does not expect aggregate liabilities to be material, although loss estimates were not available for some early-stage claims.
Most important facts for investors to verify
- Whether Popular agreements are renewed on economically favorable terms and whether revenue concentration declines.
- Organic growth, retention, margins and cash generation excluding the partial-year contributions from Sinqia and paySmart.
- Sinqia integration progress, goodwill and intangible-asset valuation, redeemable non-controlling interests and any impairment indicators.
- Debt paydown, variable-rate exposure, leverage covenant headroom and the ability to fund acquisitions, dividends and repurchases simultaneously.
- Trends in Merchant Acquiring and Business Solutions margins, where 2023 profitability weakened.
- Puerto Rico government receivable collections, tax-incentive compliance and the effect of regulatory, cybersecurity, fraud and network-rule changes.
- The distinction between GAAP net income of $79.9 million and adjusted net income of $185.5 million, including the recurring nature of excluded costs and acquisition-related amortization.