EVERTEC, Inc. — Form 10-Q Summary
Business Context and Reporting Period
EVERTEC is a transaction-processing company based in Puerto Rico, serving 26 countries across Latin America and the Caribbean. Its businesses include payment processing, merchant acquiring, the ATH debit and ATM network, core banking, technology outsourcing, and business process management.
This filing covers the unaudited quarter ended March 31, 2022, compared with the quarter ended March 31, 2021. EVERTEC reported four operating segments: Payment Services—Puerto Rico & Caribbean, Payment Services—Latin America, Merchant Acquiring, and Business Solutions.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $150.2 million | $139.5 million | Up 8% |
| Income from operations | $46.0 million | $45.0 million | Up 2% |
| Net income | $38.9 million | $35.6 million | Up 9% |
| Net income attributable to EVERTEC | $38.9 million | $35.5 million | Up 10% |
| Diluted EPS | $0.53 | $0.49 | Up $0.04 |
| Adjusted EBITDA | $75.4 million | $68.9 million | Up 9% |
| Adjusted EBITDA margin | 50.2% | 49.4% | Up approximately 80 bps |
| Cash flow from operations | $70.4 million | $34.7 million | Up $35.6 million |
GAAP operating margin was approximately 30.6%, compared with 32.3% in the prior-year quarter. Net margin attributable to EVERTEC was approximately 25.9%, compared with approximately 25.4% in Q1 2021. The effective tax rate increased to 13.7% from 11.7%.
- Payment Services—Puerto Rico & Caribbean revenue increased to $40.0 million from $36.3 million; adjusted EBITDA increased to $23.8 million from $20.8 million, with a 59.4% margin.
- Payment Services—Latin America revenue increased to $28.8 million from $25.0 million; adjusted EBITDA increased to $12.4 million from $10.0 million, with a 43.2% margin.
- Merchant Acquiring revenue increased to $35.6 million from $30.9 million; adjusted EBITDA increased to $17.1 million from $15.5 million. Margin declined to 47.9% from 50.3%.
- Business Solutions revenue increased to $62.6 million from $60.6 million; adjusted EBITDA was essentially flat at $29.6 million versus $29.6 million, and margin declined to 47.3% from 48.9%.
Cash Flow, Debt, Liquidity, and Capital Allocation
- Cash, cash equivalents, and restricted cash totaled $303.9 million at March 31, 2022, including $283.6 million of cash and cash equivalents.
- Operating cash flow was $70.4 million. Investing cash outflow was $14.3 million, primarily for software and property and equipment. Financing cash outflow was $36.2 million, including $21.2 million of share repurchases, $3.6 million of dividends, and $4.9 million of long-term debt repayment.
- Total debt was $459.9 million, consisting primarily of a $166.9 million Term A Loan and a $293.0 million Term B Loan. The loans carry variable interest rates based on LIBOR plus applicable margins.
- The revolving credit facility had $119.1 million of additional borrowing capacity at quarter-end. The secured leverage ratio was 1.36 to 1.00, and management reported no default or event of default.
- A $250 million interest-rate swap fixes a portion of the Term B Loan at 2.89% and matures in November 2024. A 100-basis-point increase in applicable interest rates would increase annual interest expense by approximately $2.6 million based on quarter-end debt.
- The company repurchased 521,643 shares for $21.2 million during the quarter. Remaining authorization under the repurchase program was approximately $128.8 million at March 31, 2022.
- Quarterly dividends were $0.05 per share. The board declared another $0.05 dividend payable June 3, 2022, subject to customary conditions and future board approval.
Material Changes Versus the Prior Comparable Period
- Revenue growth was broad-based, supported by higher transaction volumes, the full-quarter contribution from the expanded FirstBank relationship, growth in ATH Movil and ATH Business, new Latin American contracts, CPI-related pricing, and incremental printing activity.
- Cost of revenues increased 8%, primarily from higher personnel, equipment maintenance, and cloud-service costs. Selling, general and administrative expense increased 27%, driven by higher professional fees related to corporate transactions and increased personnel costs.
- Other income increased by $3.0 million, primarily from favorable remeasurement of U.S.-dollar-denominated assets and liabilities. Interest expense declined by $0.4 million because of lower rates and lower debt balances.
- Operating cash flow improved substantially because of stronger collections and improved working-capital management. Prior-year investing cash flow included a $14.8 million customer-relationship acquisition and $3.0 million of debt-security purchases.
- The company repurchased more shares than in Q1 2021, while debt repayment was lower than in the prior-year quarter.
- Goodwill and software totaling $5.8 million and $16.6 million, respectively, were reclassified to assets held for sale in connection with the Popular transaction.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide quantitative full-year revenue, earnings, or cash-flow guidance. Management stated that operating cash flow and available revolver capacity are expected to be adequate for liquidity needs over the next twelve months, subject to future operating performance and external conditions.
On February 24, 2022, EVERTEC agreed to sell certain software and prepaid assets and transfer related employees to Banco Popular and Popular in exchange for Popular-owned EVERTEC stock valued at approximately $196.6 million. The transaction was expected to close in mid-2022, subject to customary conditions, and was expected to generate a gain. The related agreements included extensions to the Popular merchant-acquiring, ATH network, and master services arrangements, but also eliminated exclusivity, added revenue-sharing provisions, established minimums through 2028, and provided for a 10% discount on certain services beginning in October 2025.
Popular represented approximately 43% of Q1 2022 revenue, compared with 44% in Q1 2021. Following closing, Popular agreed to reduce its voting interest in EVERTEC to 4.5% over three months through share sales or conversion to non-voting preferred shares.
- Key risks include dependence on Popular, renewal and pricing of major customer contracts, transaction closing and execution risk, regulatory approvals, cybersecurity and system failures, merchant credit exposure, economic and political conditions in Puerto Rico and Latin America, foreign-exchange movements, inflation, variable-rate debt, LIBOR discontinuation, tax-rate changes, natural disasters, and COVID-19 effects.
- The company had $247.8 million of remaining performance obligations at March 31, 2022, primarily relating to implementation, managed-services, maintenance, customization, and development arrangements.
- Legal proceedings were described as arising in the ordinary course of business; management believes potential aggregate losses are not material.
- Adjusted EBITDA and adjusted earnings measures exclude items including share-based compensation, transaction and refinancing fees, certain equity-method items, and acquisition-related amortization. These are non-GAAP measures and should not be viewed as substitutes for GAAP earnings or operating cash flow.
- The company reported effective disclosure controls and no material changes to internal control over financial reporting. No material changes were reported to the risk factors in the 2021 Form 10-K.
Important Facts for Investors to Verify
- Closing date, final consideration, accounting gain, and strategic and financial effects of the Popular transaction.
- Post-closing revenue concentration, amended pricing and revenue-sharing terms, minimum commitments, and the effect of reduced Popular voting ownership.
- Progress of revenue growth and margin trends in Merchant Acquiring and Business Solutions, where Q1 margins declined or remained flat.
- Exposure to variable interest rates, LIBOR transition, debt maturities in 2023 and 2024, and available revolver capacity.
- Sustainability of the unusually strong quarter-over-quarter improvement in operating cash flow and the company’s working-capital performance.
- Impact of share repurchases, dividends, and any future acquisitions on leverage and liquidity.
- Dependence on Popular, Puerto Rico economic conditions, cybersecurity resilience, foreign-exchange changes, and regulatory or tax developments.