EVERTEC Reports Third Quarter 2012 Results

Third Quarter 2012 Highlights

  • Total revenues were $83.8 million, an increase of 3%, as compared to the third quarter of 2011.
  • Adjusted EBITDA was $38.4 million, an increase of 2%, as compared to the third quarter of 2011.
  • Net debt (unpaid principal balance, net of cash) decreased to $696.0 million as of September 30, 2012 compared to $719.8 million as of June 30, 2012.
  • Recently received a 15-year tax grant from the Government of Puerto Rico providing for a reduced income tax rate of 4.0% on data processing activities (approximately 80% of FY 2011 total revenues) as well as a 90% and 60% exemption on property and municipal taxes, respectively.


SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- EVERTEC Group, LLC ("EVERTEC" or the "Company") today reported consolidated results for the third quarter ended September 30, 2012.

"We are pleased to report another quarter of growth and the continued penetration of our products and services in Latin America and the Caribbean," said Peter Harrington, EVERTEC's President and Chief Executive Officer. "In addition, we recently received a 15-year tax grant from the Government of Puerto Rico under the Tax Incentive Act 73 of 2008 that covers EVERTEC's data processing activities in Puerto Rico. This grant structurally enhances our advantaged tax position and free cash flow profile, enabling continued investment in our leading technology platform and growth of our transaction processing business both locally and in international markets."

Third Quarter 2012 Financial Results

For the quarter ended September 30, 2012, total revenues increased by $2.8 million, or 3%, to $83.8 million compared to $81.0 million in the corresponding 2011 period. Merchant Acquiring segment revenues increased by $2.2 million, or 15%. The increase was primarily driven by higher realized net margin. Payment Processing (formerly referred to as "Transaction Processing") segment revenues increased by $1.1 million, or 5% primarily driven by an increase in volume and accounts on file. Business Solutions segment revenues decreased by $0.5 million, or 1% primarily driven by lower demand for certain IT consulting services.

Total operating costs and expenses, excluding depreciation and amortization, decreased by $0.4 million, or 1%, to $47.8 million for the quarter ended September 30, 2012, compared to $48.2 million for the same period in 2011. The decrease was primarily due to a reduction in personnel and equipment expenses, partially offset by higher cost of sales associated with the increase in total revenues. Total operating costs and expenses, excluding depreciation and amortization, as a percentage of total revenues decreased by approximately 248 basis points to 57.0% from 59.5% in the prior period.

Non-operating expenses for the quarter ended September 30, 2012, were $14.4 million, a decrease of $8.7 million from $23.1 million for the same period in 2011. The decrease was primarily the result of a $13.2 million reduction in other expenses, partially offset by a $3.4 million increase in interest expense. The variance of other expenses was primarily driven by a $14.2 million non-recurring expense related to the voluntary retirement program ("VRP") in 2011. The higher interest expense was the result of the issuance of additional debt in May 2012.

Income tax expense for the quarter ended September 30, 2012, amounted to $0.5 million, compared to an income tax benefit of $5.1 million for the corresponding 2011 period. The income tax expense for the quarter ended September 30, 2012, related to income before taxes generated by our international operations. The income tax benefit for the 2011 period was the result of a loss before income taxes primarily associated with the aforementioned VRP expense.

Adjusted EBITDA for the quarter ended September 30, 2012, was $38.4 million, an increase of $0.7 million, or 2%, compared to $37.7 million for the same period in 2011. This increase was primarily due to higher revenues and a slight decrease in cash expenses.

Nine Months Ended September 30, 2012 Financial Results

Total revenues for the nine months ended September 30, 2012, increased by $15.1 million, or 6%, to $250.7 million compared to $235.6 for the same period in 2011. Merchant Acquiring segment revenues increased by $7.5 million, or 17%; Payment Processing segment revenues increased by $6.8 million, or 11%; and Business Solutions segment revenues increased by $0.9 million, or 1%. Revenue increases in our Merchant Acquiring and Payment Processing segments for the nine months ended September 30, 2012 were primarily driven by the same factors previously described for the quarter ended September 30, 2012. The increase Business Solutions segment revenues was primarily driven by higher demand for certain network services partially offset by lower demand for certain IT consulting services.

Total operating costs and expenses, excluding depreciation and amortization, were $142.8 million for the nine months ended September 30, 2012, compared to $140.8 million for the same period in 2011. The $2.0 million increase was primarily due to higher equipment expenses and cost of sales, partially offset by a decrease in personnel expenses from cost control measures implemented in late 2011. Total operating costs and expenses, excluding depreciation and amortization, as a percentage of total revenues decreased by approximately 281 basis points to 57.0% from 59.8% in the prior year period.

Non-operating expenses for the nine months ended September 30, 2012, amounted to $48.7 million, compared to $54.2 million for the corresponding 2011 period. The decrease in non-operating expenses was primarily driven by lower other expenses of $6.5 million. Other expenses for the nine months ended September 30, 2012, were primarily comprised of debt issuance costs of $8.8 million and personnel related charges of $2.2 million. For the corresponding 2011 period, other expenses were primarily comprised of the $14.2 million VRP expense, debt issuance costs of $2.2 million and $1.2 million from the settlement of a derivative related to our acquisition of an equity interest in CONTADO from Popular.

The Company reported income tax benefit of $87.0 million for the nine months ended September 30, 2012, compared to $34.7 million for the corresponding 2011 period. The income tax benefit for 2012 was primarily driven by the elimination of EVERTEC's deferred tax liability balance of $89.2 million following its conversion to a limited liability company on April 17, 2012. The income tax benefit for the corresponding 2011 period was mainly due to a reduction in EVERTEC's deferred tax liability of $27.6 million as a result of a reduction in the marginal Puerto Rico corporate income-tax rate from 39% to 30% and taxable loss for the nine months ended September 30, 2011.

Adjusted EBITDA for the nine months ended September 30, 2012 increased by $8.9 million, or 8%, to $117.8 million when compared to the same period in 2011. This increase was primarily driven by revenue growth across all three business segments, partially offset by an increase in cash expenses. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved by approximately 76 basis points to 47.0% from 46.2% in the prior year period.

Cash and Liquidity

As of September 30, 2012, EVERTEC's unrestricted cash balance was $49.5 million, and the Company had $49.3 million of net borrowing capacity available under its revolving credit facility.

Debt

As of September 30, 2012, the Company's unpaid principal balance was $745.5 million.

Conference Call Information

EVERTEC will host an investor conference call to review the operating results for the third quarter of 2012 as follows:

      Date:   November 13, 2012
Time:   10:30 a.m. (Eastern Standard Time)
Telephone access:   (866) 770-7051 (U.S.) or (617) 213-8064 (outside U.S.) Passcode 53088737
Live webcast:  

www.evertecinc.com , in the 'Investor Relations' section

The teleconference replay will be available two hours after completion through November 27, 2012, at (888) 286-8010 (U.S.) or (617) 801-6888. The conference ID for the replay is 14821679. The archived webcast will be on the EVERTEC website, www.evertecinc.com, in the 'News and Market Information' area of the 'Investor Relations' section, under 'Event Calendar'.

About EVERTEC

EVERTEC is the leading, full-service transaction processing business in Latin America and the Caribbean. Based in Puerto Rico, EVERTEC provides a broad range of merchant acquiring, payment processing and business process management services across 19 countries in the region. EVERTEC processes over 1.2 billion transactions annually, and manages the electronic payment network for over 4,900 automated teller machines ("ATM") and over 107,000 point-of-sale payment terminals. EVERTEC is the largest merchant acquirer in the Caribbean and Central America and the sixth largest in Latin America. EVERTEC owns and operates the ATH network, one of the leading ATM and personal identification number debit networks and financial services brands in Latin America. In addition, EVERTEC provides a comprehensive suite of software and services for core bank processing, cash processing and technology outsourcing. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with mission critical technology solutions.

EVERTEC is 51% owned by an affiliate of Apollo Global Management, LLC, a leading private equity investor, and 49% owned by Popular, Inc., the largest financial institution in Puerto Rico and the Caribbean. For more information about EVERTEC, please visit www.evertecinc.com.

Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements" within themeaning 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 which 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: our high level of indebtedness and restrictions contained in our debt agreements; our ability to generate sufficient cash to service our indebtedness and to generate future profits; our reliance on our relationship with Popular for a significant portion of our revenues; our ability to renew our client contracts on terms favorable to us; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems; 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; our dependence on credit card associations; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of our business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; 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; and evolving industry standards.

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 Company's Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission ("SEC") on March 27, 2012, and in the other reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by us and our 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 Group, LLC (Unaudited) Consolidated Balance Sheets

   
(Dollar amounts in thousands) September 30, 2012 December 31, 2011
 
Assets
Current Assets:
Cash $ 49,491 $ 53,523
Restricted cash 4,706 5,288
Accounts receivable, net 67,475 60,930
Prepaid expenses and other assets   14,264   21,526  
Total current assets 135,936 141,267
Investments in equity investees 10,131 12,267
Property and equipment, net 32,103 36,685
Goodwill 373,472 371,712
Other intangible assets, net 413,506 448,914
Other long-term assets   21,505   22,894  
Total assets $ 986,653 $ 1,033,739  
Liabilities and member's equity
Current Liabilities:
Accrued liabilities $ 44,351 $ 29,581
Accounts payable 17,738 21,786
Unearned income 935 900
Income tax payable 2,182 3,383
Deferred tax liability, net   870   9,321  
Total current liabilities 66,076 64,971
Long-term debt 736,197 523,833
Long-term deferred tax liability, net 6,976 91,431
Other long-term liabilities   337   449  
Total liabilities   809,586   680,684  
Member's equity
Member's units (100 units issued and outstanding) - -
Contributed capital 175,169 326,367
Accumulated earnings 665 28,006
Accumulated other comprehensive income (loss), net of tax of $0 and $13   1,233   (1,318 )
Total member's equity   177,067   353,055  
Total liabilities and member's equity $ 986,653 $ 1,033,739  
 

EVERTEC Group, LLC (Unaudited) Consolidated Statements of Income and Comprehensive Income

   
Quarters ended September 30, Nine months ended September 30,
(Dollar amounts in thousands) 2012   2011 2012   2011
Revenues (1)
Merchant acquiring, net $ 16,810 $ 14,576 $ 51,499 $ 44,043
Payment processing 23,284 22,199 69,986 63,235
Business solutions   43,745     44,249     129,214     128,273  
Total revenues   83,839     81,024     250,699     235,551  
 
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below 40,897 39,673 118,469 114,832
Selling, general and administrative expenses 6,921 8,548 24,385 26,005
Depreciation and amortization   17,765     17,513     53,517     51,977  
Total operating costs and expenses   65,583     65,734     196,371     192,814  
 
Income from operations   18,256     15,290     54,328     42,737  
 
Non-operating (expenses) income
Interest income 38 178 230 637
Interest expense (14,784 ) (11,396 ) (39,214 ) (39,272 )
(Losses) earnings of equity method investments (472 ) 429 103 685
Other expenses (income)   855     (12,309 )

 

  (9,802 )   (16,288 )
Total non-operating (expenses) income   (14,363 )   (23,098 )   (48,683 )   (54,238 )
Income (loss) before income taxes 3,893 (7,808 ) 5,645 (11,501 )
Income tax expense (benefit)   512     (5,132 )   (86,960 )   (34,669 )
Net income (loss) 3,381 (2,676 ) 92,605 23,168
Other comprehensive income (loss), net of income tax expense of $0, $8, $13 and $8
Foreign currency translation adjustments   215     (3,004 )   2,551     (1,590 )
Total comprehensive income (loss) $ 3,596   $ (5,680 ) $ 95,156   $ 21,578  
 
___________
(1) Certain prior period balances have been reclassified to conform to the current presentation format which did not have any impact on net income.
 

EVERTEC Group, LLC (Unaudited) Consolidated Cash Flows

 
Nine months ended September 30,
2012   2011
Cash flows from operating activities
Net income $ 92,605 $ 23,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 53,517 51,977
Amortization of debt issue costs and premium and accretion of discount 3,748 6,499
Provision for doubtful accounts and sundry losses 1,291 918
Deferred tax benefit (93,140 ) (24,400 )
Share-based compensation 889 684
Realized loss on derivative - 1,399
Unrealized gain of indemnification assets (334 ) (676 )
Amortization of a contract liability (703 ) (5,151 )
Loss on disposition of property and equipment 62 56
Earnings from equity investee (103 ) (685 )
Dividend received from equity investee 728 738
Prepayment penalty related to debt refinancing - (3,387 )
Premium on issuance of long-term debt 2,000 -
(Increase) decrease in assets:
Accounts receivable, net (3,831 ) 12,189
Prepaid expenses and other assets 2,433 (13,507 )
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 10,991 9,813
Income tax payable (1,201 ) 553
Unearned income 35 84
Other long-term liabilities   -     (449 )
Total adjustments   (23,618 )  

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