EVERTEC, Inc. 2021 Q2 Form 10-Q Summary
Business context and reporting period
EVERTEC is a transaction-processing company based in Puerto Rico, serving 26 countries across Puerto Rico, the Caribbean and Latin America. Its businesses include payment services, merchant acquiring and business process management, including operation of the ATH debit network. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Financial performance and key metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $149.1 million | $117.9 million | $288.7 million | $239.9 million |
| Revenue growth | 26% | — | 20% | — |
| Income from operations | $54.3 million | $25.6 million | $99.3 million | $58.4 million |
| Operating margin | 36.4% | 21.7% | 34.4% | 24.3% |
| Net income attributable to EVERTEC | $49.2 million | $15.5 million | $84.7 million | $37.7 million |
| Diluted EPS | $0.68 | $0.21 | $1.16 | $0.52 |
| Adjusted EBITDA | $80.3 million | $50.2 million | $149.2 million | $106.5 million |
| Adjusted EBITDA margin | 53.8% | 42.6% | 51.7% | 44.4% |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided for the quarter | $112.0 million | $87.3 million |
Six-month revenue increased across all segments. Revenue was $74.9 million in Payment Services–Puerto Rico & Caribbean, $50.8 million in Payment Services–Latin America, $69.2 million in Merchant Acquiring and $121.3 million in Business Solutions. Six-month segment Adjusted EBITDA margins were 59.3%, 41.3%, 52.1% and 49.7%, respectively.
At June 30, 2021, cash and cash equivalents were $199.9 million, restricted cash was $19.4 million and total cash, cash equivalents and restricted cash were $219.3 million. Total debt was $471.8 million, consisting primarily of the 2023 Term A Loan and 2024 Term B Loan. The revolving facility had $119.1 million of additional borrowing capacity. The secured leverage ratio was 1.50 to 1.00, and management reported compliance with the debt agreement without any default.
Material changes versus the prior comparable period
- Quarterly revenue increased 26%, while six-month revenue increased 20%, reflecting recovery from COVID-19-related restrictions in the 2020 comparison periods, higher consumer spending and federal stimulus in Puerto Rico.
- Puerto Rico and Caribbean revenue benefited from higher point-of-sale activity and increased ATH Movil and ATH Movil Business usage.
- Latin America growth reflected new and expanded client implementations, including Santander in Chile, Banco Popular de Costa Rica, Mercado Libre in Mexico and expanded Place to Pay activity.
- Operating income increased 112% in the second quarter and 70% for the first six months. Cost of revenue rose more slowly than revenue, while selling, general and administrative expense declined because 2020 included higher professional-service and transaction-related costs.
- Net income attributable to EVERTEC increased 218% in the quarter and 125% for the six-month period. The effective tax rate declined to 5.1% in the quarter and 8.0% for the six months, primarily due to the reversal of a potential uncertain-tax-position liability and the company’s tax-exemption benefits.
- Operating cash flow increased $24.8 million year over year to $112.0 million for the six months. Investing outflows increased because of a $14.8 million customer-relationship acquisition, higher software additions and the purchase of debt securities.
- Financing outflows increased to $66.9 million, driven by $24.4 million of share repurchases, $7.2 million of dividends and $24.9 million of debt repayment. The company repurchased 231,314 shares during the second quarter and had approximately $75.6 million remaining under its repurchase authorization.
Outlook, commentary, risks and unusual items
Management stated that operating cash flow and available revolving-credit capacity should be adequate to meet liquidity needs for the next twelve months. The Board declared a regular quarterly dividend of $0.05 per share payable September 3, 2021 and indicated that it anticipates continuing regular dividends, subject to future Board approval and business conditions.
The filing does not provide formal quantitative revenue or earnings guidance. Management expects continued opportunities from the migration from cash to electronic payments, increased digital adoption, outsourcing by financial institutions and growth in Latin America. Results remain exposed to consumer spending, economic conditions, COVID-19 developments, foreign exchange movements and the geographic concentration of operations.
- Popular accounted for approximately 42% of total revenue in both the quarter and six-month period. EVERTEC relies on its long-term Master Services Agreement with Popular and must renew significant customer contracts on acceptable terms.
- The company remains exposed to cybersecurity, fraud, system availability, technology-integration and third-party service-provider risks.
- Debt is primarily variable-rate, although a $250 million interest-rate swap fixes a portion of the 2024 Term B Loan at 2.89%. A 100-basis-point increase in applicable interest rates would increase annual interest expense by approximately $2.7 million.
- The company identified LIBOR discontinuation, Puerto Rico’s fiscal and economic conditions, political and economic instability in Latin America and the Caribbean, regulatory changes, tax-rate risk and natural disasters as material risks.
- Unusual or non-GAAP adjustments included share-based compensation, transaction and refinancing items, a $0.6 million software impairment charge and a gain on asset sales. The company also acquired a Puerto Rico customer relationship for $14.8 million in the first quarter.
- Legal proceedings are described as arising in the ordinary course of business; management believes any aggregate loss will not materially affect the company. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the sustainability of revenue growth after the comparison benefit from COVID-19 disruption and federal stimulus fades.
- Monitor Popular’s contribution, the renewal and economics of the Master Services Agreement, and customer concentration.
- Assess cash conversion after capital expenditures, acquisitions, debt repayments, dividends and share repurchases.
- Review variable-rate debt exposure, LIBOR transition effects, swap obligations and mandatory excess-cash-flow repayments.
- Evaluate the sustainability of the unusually low effective tax rate and the company’s Puerto Rico tax-exemption status.
- Track digital-payment adoption, ATH Movil growth, Latin American implementations, Place to Pay performance and any client attrition.
- Reconcile Adjusted EBITDA and Adjusted EPS to GAAP results, recognizing that these non-GAAP measures exclude expenses and do not represent liquidity.