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EVERTEC, Inc. (NYSE:EVTC) Q1 2024 Earnings Call Transcript

EVERTEC, Inc. (NYSE:EVTC) Q1 2024 Earnings Call Transcript May 1, 2024

EVERTEC, Inc. beats earnings expectations. Reported EPS is $0.72, expectations were $0.67. EVTC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone, and welcome to EVERTEC's First Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to Beatriz Brown-Saenz of Investor Relations. Please go ahead.

Beatriz Brown-Saenz: Thank you, and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquín Castrillo, our Chief Financial Officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company website at www.evertecinc.com. I will now hand the call over to Mac.

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Mac Schuessler: Thanks, Beatriz, and good afternoon, everyone. We are pleased to announce a good start to the fiscal year with strong revenue growth driven by a full quarter contribution from Sinqia and organic growth across all our segments. I will begin today's call with a summary of our first quarter 2024 financial results, followed by a discussion of the Puerto Rico environment and an update on Latin America. I will then turn the call over to Joaquin, who will provide some additional details on our Q1 results and an update on our 2024 outlook. Beginning on Slide 4. Let's start with some financial highlights from our first quarter. We reported $205 million in revenue, a 28% increase over the prior year quarter and adjusted EBITDA was $78.2 million, up approximately 16% when compared with the prior year, driven by the revenue increase.

Adjusted EBITDA margin was 38.1%, down from a year ago and aligned with our expectations, driven by a full quarter of Sinqia contribution at lower margins. Adjusted EPS for the quarter was $0.72, up 4% year-over-year. Operating cash flow for the quarter was $36 million. On the capital allocation front, we returned approximately $3 million to shareholders through dividends and entered into a $70 million ASR as anticipated on our last call, which we expect to complete by the third quarter. Our liquidity remains strong at approximately $408 million as of March 31. Turning to our Puerto Rico update on Slide 5. All our Puerto Rico segments performed well during the quarter, reflecting solid organic growth over prior year. Payments Puerto Rico revenue grew approximately 10% year-over-year, driven by higher POS transactions and continued strength in ATH Móvil Business.

Merchant Acquiring grew approximately 7% on a year-over-year basis, benefiting from sales volume growth and a higher spread. The Business Solutions segment returned to growth, up approximately 4% year-over-year, reflecting growth across various lines of business. The Puerto Rico macro environment continues to be supportive for EVERTEC as we move through 2024. The unemployment rate remained low at 5.7% in the first quarter and the level of employment remained steady at 1.1 million, the highest number since 2009. Travel also remains robust with airport arrivals up over 10% year-over-year in the first quarter. Turning to Latin America on Slide 6. LATAM revenue was up significantly year-over-year in the quarter, reflecting the contribution from the Sinqia acquisition that closed in the fourth quarter as well as continued organic growth from our legacy business.

On our last call, we discussed our area of focus with Sinqia for 2024, and we continue to make strides in all fronts. From a technology modernization perspective, we have laid out detailed road maps and have identified the key projects that we will prioritize throughout 2024 with a focus on those investments that will have the largest impact for our clients. We believe these enhancements will open the door for pricing initiatives with existing customers and better offerings to capture market share. As for our customer-centric initiatives, we have implemented regular visits to our top clients, and we are making a point of acting on the feedback they've given us. Our next step will be to leverage these relationships to cross-sell our products.

The integration process continues to be a priority for the executive team. And to that end, we have promoted Claudio Prado to Group Head of Brazil, replacing Bernardo Gomez, who for personal reasons, has decided to take a step back and shift to a consultant role. Bernardo did a fantastic job building Sinqia over the past years, and we thank him for his contributions during the integration process. Claudio has over 30 years of experience in the technology industry, including as CIO of Santander and Deutsche Bank, and over 7 years contributing to Sinqia. Claudio's entrepreneurship background provides a good perspective of the client-focused approach best suiting him to handle the day-to-day leadership responsibilities at Sinqia. We look forward to providing further updates on the integration process as we progress.

With that, I will now turn the call over to Joaquin.

Joaquín Castrillo: Thank you, Mac, and good afternoon, everyone. Turning to Slide 8. I'll begin by reviewing the first quarter results for EVERTEC. Total revenue for the first quarter was $205.3 million, up approximately 28% compared to the prior year, reflecting strong growth in our Latin America segment that benefited from a full quarter contribution from Sinqia as well as continued strong organic growth. The quarter also benefited from higher sales and transaction volumes, continued strength in ATH Móvil Business and a return to growth in Business Solutions. Adjusted EBITDA for the quarter was $78.2 million, an increase of approximately 16% from the prior year. And adjusted EBITDA margin was 38.1%, down approximately 390 basis points from the prior year, mostly as a result of the Sinqia's acquisition, but aligned to our expectations.

A businessman in a suit standing in front of a large payment processing system workstation.
A businessman in a suit standing in front of a large payment processing system workstation.

Adjusted net income was $48 million, an increase of approximately 5% year-over-year, mainly as a result of the higher adjusted EBITDA and a non-GAAP tax benefit compared with a non-GAAP tax expense in the prior quarter. The tax benefit will be partially offset in the remaining quarters, and we now expect our adjusted effective tax rate to be in a range of 6% to 7%. These positive balances were partially offset by higher operating depreciation and amortization, resulting from the increased CapEx in prior years and higher cash interest expense given the incremental debt raised to acquire Sinqia. Adjusted EPS was $0.72, an increase of approximately 4% from the prior year driven by the same reasons pointed out, impacting adjusted net income, partially offset by a higher share count due to the shares issued as part of the Sinqia acquisition.

Moving to Slide 9. I will now cover our first quarter results by segment, beginning with Merchant Acquiring. Net revenue increased by approximately 7% year-over-year to $43.1 million, driven by strong volumes and a higher spread. Sales volume was up 6%, driven by incremental volumes for existing merchants, effects of inflation on key verticals and new merchants signed towards the end of last year. Our overall spread per transaction was also higher than prior year, in part driven by card mix and partially offset by a declining average ticket. Trends for the month of April are aligned to Q1 results with mid-single-digit sales volume growth. Adjusted EBITDA for the segment was $16.2 million. And adjusted EBITDA margin was 37.6%, down approximately 110 basis points from the prior year.

The margin decrease was primarily due to higher transaction processing expenses given the lower average ticket per transaction. On Slide 10 are the results for the Payment Services, Puerto Rico and Caribbean segment. Revenue in the quarter was $53 million, an increase of approximately 10% from the prior year. The revenue increase was driven by transaction growth of 7% year-over-year as well as continued strength in ATH Móvil Business, which experienced a 27% year-over-year increase in transactions during the quarter. Adjusted EBITDA was $30.4 million, up approximately 9% from the prior year. And adjusted EBITDA margin was 57.2%. On Slide 11 are the results for Latin America Payments & Solutions. Revenue in the quarter was $74.2 million, up approximately 110% year-over-year, reflecting a full quarter of revenue contribution from Sinqia.

Contribution from the paySmart acquisition completed in March of the prior year and continued organic growth across the region as we continue to benefit from growth across key markets and from the Getnet relationship. Adjusted EBITDA was $16.3 million, up approximately 57% from the prior year, with adjusted EBITDA margin of approximately 22% down approximately 740 basis points and mainly driven by the inclusion of Sinqia, which contributes at lower margin compared to the segment average. Turning to Slide 12, you will see the results for our Business Solutions segment. Revenue was $58.1 million, an increase of approximately 4% from the prior year. There were a number of factors that contributed to the higher revenue this quarter, including the effect of the CPI increase that began in Q4 of approximately 1.5% and growth across several business lines driven by the impact of incremental volumes and specific consulting projects that impacted the quarter positively.

Adjusted EBITDA was $23 million up approximately 3% from a year ago, and adjusted EBITDA margin was 39.6%, down approximately 50 basis points from the prior year. The margin decline is consistent with our expectations and due primarily to higher cost of sales and higher cloud expenses. Moving to Slide 13, you will see a summary of our corporate and other expenses. Corporate and other expenses was $7.7 million in the quarter or 3.8% of total revenue, down from 5.7% in the prior year quarter due to lower professional services and personnel costs as we continue to manage expenses. Moving on to our cash flow overview on Slide 14. Net cash from operating activities was approximately $36 million. Capital expenditures were $21.9 million for the quarter.

We drew $80 million from our revolving facility, paid down $23.1 million in debt. Paid dividends of $3 million and entered into the $70 million ASR. Our ending cash balance in March was $317.3 million, a decrease of approximately $1.4 million from year-end 2023. On Slide 15, our net debt position at quarter end was approximately $793 million, comprised of approximately $1.1 billion in total loan and short-term debt, offset by approximately $294 million of unrestricted cash. Our net debt to trailing 12-month adjusted EBITDA was approximately 2.51x up from 0.9x a year ago, but still within our target range of 2 to 3x. As of December 31, our total liquidity, which excludes restricted cash and includes our borrowing capacity, was $407.6 million, up from $367.6 million from a year ago.

Now turning to Slide 16, I'll provide an update on our outlook for the remainder of the year. We are raising the lower end of our revenue outlook by maintaining the high end of our revenue range for the year resulting in a range of $846 million to $854 million, representing growth over the prior year of approximately 22% to 23%. Regarding overall margin, we continue to anticipate that our adjusted EBITDA margin will be between 38.5% to 39.5%. And on adjusted EPS, we are also raising the lower end of our outlook and maintaining the higher end resulting in a range of $2.85 to $2.94, representing growth of approximately 1% to 4%, when compared with $2.82 reported for the prior year. Our operating depreciation came in above our earlier forecast, and we now expect a higher overall operating depreciation for the full year with a partial offset to this impact coming from taxes where we now expect a lower effective tax rate in the 6% to 7% range for the full year.

In terms of segments and given our Q1 results, we now expect Merchant Acquiring to grow closer to mid-single digits. We continue to expect our Payment Processing Puerto Rico segment to grow in the mid-single digits. For LATAM Payments & Solutions segment, we expect growth in the low 70s. And for Business Solutions, we still expect revenue growth in the low single digits for the year. In summary, we are pleased with our first quarter results. We continue to work on integrating Sinqia, while also delivering strong results from our payment businesses in Puerto Rico and the rest of Latin America. We believe EVERTEC is well positioned for growth for the remainder of 2024 and beyond. We look forward to updating you on our progress in the coming year and hope to see some of you at conferences over the next few months.

With that, operator, please open the line for questions.

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