Notes to Unaudited Consolidated Condensed Financial Statements
Note 1 – The Company and Basis of Presentation
The Company
EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) and its subsidiaries (collectively the “Company,” or “EVERTEC”) is a leading full-service transaction processing business in Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing and business process management. The Company provides services across
26
countries in the region. EVERTEC owns and operates the ATH network, one of the leading debit networks in Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing, cash processing and technology outsourcing in the regions the Company serves. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with solutions that are essential to their operations, enabling them to issue, process and accept transactions securely. EVERTEC's common stock is listed under the ticker symbol "EVTC" on the New York Stock Exchange.
Basis of Presentation
The unaudited consolidated condensed financial statements of EVERTEC have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying unaudited consolidated condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited consolidated condensed financial statements. Actual results could differ from these estimates.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these consolidated condensed financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended
December 31, 2018
, included in the Company’s Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated condensed financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.
Note 2 – Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In December 2018, SEC Release No. 33-10532,
Disclosure Update and Simplification,
became effective, amending certain disclosure requirements that were redundant or outdated. The amendments include replacing the requirement to disclose the high and low trading prices of the Company’s common stock with a requirement to disclose the ticker symbol of the common stock. In addition, the amendments expanded the disclosure requirements on the analysis of stockholder’s equity for interim financial statements. Under the amendments, the changes in each caption of stockholder’s equity presented in the balance sheet must be provided in a note or separate statement for the current and comparative year-to date interim periods. The Company adopted the new disclosure requirements in the first quarter of 2019.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance for leases, codified as Topic 842
,
to increase transparency and comparability among organizations by recognizing Right of Use ("ROU") assets and lease liabilities on the balance sheet for all leases, notwithstanding the lease classification. Under the standard, organizations are required to provide disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. In January 2018, July 2018 and March 2019, the FASB issued Accounting Standards Update (“ASU”) 2018-01, 2018-10, 2018-11 and 2019-01, to amend narrow aspects of the standard, to add new and optional transition method for the adoption of the standard and provide lessors with a practical expedient, among others. These standards are effective for public reporting companies for annual periods, and interim within annual periods beginning December 15, 2018 and replaced the leasing guidance of Topic 840. The Company adopted the standard effective January 1, 2019 using the modified retrospective transition approach and the transition provisions provided by ASU 2018-11. In addition, the Company applied all the practical expedients available for transition, except for the practical expedient pertaining to land easements, since it was not applicable to the Company. Accordingly, the Company accounted for its existing leases without reassessing whether (a) the contract contains a lease under Topic 842, (b) the lease classification was different in accordance to Topic 842, and (c) initial direct costs before transition met the definition of the new leasing standard. For the lease terms determination, the Company considered all facts and circumstances from the lease contract inception up to the effective date of
Topic 842. The Company, as a lessee, changed the characterization of the asset recognized for financing leases to an ROU asset, and the obligation to a lease liability. The Company recognized lease liabilities of
$36.2 million
, with corresponding ROU assets for the same amount based on the present value of the remaining lease payments of existing operating leases entered into as a lessee with the implementation of the new leasing standard as of January 1, 2019. As a lessor, the Company changed the characterization of the asset recognized for financing leases to a net investment in lease. Results for reporting periods beginning after January 1, 2019 are presented under the new guidance provided by Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840.
Refer to Note 12,
Commitments and Contingencies,
for discussions of the implementation of the Topic 842 on the Company’s consolidated condensed financial statements for the period ended March 31, 2019.
In June 2018, the FASB issued updated guidance for accounting for non-employee share-based payments. The update was issued as part of the FASB simplification initiative and requires an entity to apply the requirements of Topic 718 to nonemployee awards, with certain exceptions, which were previously accounted under Topic 505. The Company adopted this update in the first quarter of 2019 with no material impact on the financial statements. Any future grants to non-employees will be accounted for under this update.
In July 2018, the FASB issued codification improvements for various standards. The amendments represent changes to clarify, correct errors in, or make minor improvements to the codification. Certain amendments included in the update were effective upon issuance of the guidance and the Company adopted them without a material impact on the consolidated condensed financial statements. The remaining guidance improvements with effective dates for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, were adopted by the Company in the first quarter of 2019, except for the amendments with a later effective date (i.e., Topic 820, Fair Value Measurement), with no material impact on the financial statements.
Accounting pronouncements issued prior to 2019 and not yet adopted
In June 2016, the FASB issued updated guidance for the measurement of credit losses on financial instruments, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance was further clarified and amended by an update issued in November 2018. The update requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses as valuation account is deducted from the amortized cost basis of the financial asset or assets to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectibility of the reported amount. An entity should use judgment in determining the relevant information and estimation methods that are appropriate to its circumstances. The Company expects to adopt this guidance in the fiscal period required by the update (i.e., fiscal years beginning after December 15, 2019, including interim periods within those fiscal years) and currently continues to evaluate if the adoption will have an impact on its consolidated financial statements.
In August 2018, the FASB issued an updated disclosure framework for fair value measurements. The amendments in the issued update remove, modify and add disclosure requirements on fair value measurements in Topic 820 Fair Value Measurements. The amendments in this update are effective to all entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amendments in the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the adoption of this update on the notes to the consolidated financial statements.
In August 2018, the FASB issued updated guidance for customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments in this update align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of the adoption of this update to the consolidated financial statements.
In October 2018, the FASB issued updated guidance to improve related party guidance for variable interest entities. The updated guidance requires entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making fee is a variable interest. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
In November 2018, the FASB issued updated guidance to clarify the interaction between the guidance for collaborative arrangements and the updated revenue recognition guidance. The amendments in this update, among other things, provide guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
Note 3 – Property and Equipment, net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Useful life
in years
|
|
March 31, 2019
|
|
December 31, 2018
|
Buildings
|
|
30
|
|
$
|
1,436
|
|
|
$
|
1,440
|
|
Data processing equipment
|
|
3 - 5
|
|
123,802
|
|
|
110,673
|
|
Furniture and equipment
|
|
3 - 20
|
|
7,667
|
|
|
7,761
|
|
Leasehold improvements
|
|
5 -10
|
|
2,638
|
|
|
2,625
|
|
|
|
|
|
135,543
|
|
|
122,499
|
|
Less - accumulated depreciation and amortization
|
|
|
|
(91,036
|
)
|
|
(86,990
|
)
|
Depreciable assets, net
|
|
|
|
44,507
|
|
|
35,509
|
|
Land
|
|
|
|
1,271
|
|
|
1,254
|
|
Property and equipment, net
|
|
|
|
$
|
45,778
|
|
|
$
|
36,763
|
|
Depreciation and amortization expense related to property and equipment for the
three months ended March 31, 2019
amounted to
$4.0 million
compared to
$3.6 million
for the same period in
2018
.
Note 4 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (See Note 14):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payment
Services -
Puerto Rico & Caribbean
|
|
Payment
Services -
Latin America
|
|
Merchant
Acquiring, net
|
|
Business
Solutions
|
|
Total
|
Balance at December 31, 2018
|
|
$
|
160,972
|
|
|
$
|
49,728
|
|
|
$
|
138,121
|
|
|
$
|
45,823
|
|
|
$
|
394,644
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
1,079
|
|
|
—
|
|
|
—
|
|
|
1,079
|
|
Balance at March 31, 2019
|
|
$
|
160,972
|
|
|
$
|
50,807
|
|
|
$
|
138,121
|
|
|
$
|
45,823
|
|
|
$
|
395,723
|
|
Goodwill is tested for impairment on an annual basis as of August 31, or more often if events or changes in circumstances indicate there may be impairment. The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the fair value does not exceed the carrying value, an impairment loss equaling the excess amount is recorded, limited to the recorded balance of goodwill.
No
impairment losses were recognized for the
three months ended March 31, 2019
or
2018
.
The carrying amount of other intangible assets at
March 31, 2019
and
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollar amounts in thousands)
|
|
Useful life in years
|
|
Gross
amount
|
|
Accumulated
amortization
|
|
Net carrying
amount
|
Customer relationships
|
|
8 - 14
|
|
$
|
342,891
|
|
|
$
|
(201,038
|
)
|
|
$
|
141,853
|
|
Trademark
|
|
2 - 15
|
|
41,495
|
|
|
(29,781
|
)
|
|
11,714
|
|
Software packages
|
|
3 - 10
|
|
230,114
|
|
|
(155,588
|
)
|
|
74,526
|
|
Non-compete agreement
|
|
15
|
|
56,539
|
|
|
(32,040
|
)
|
|
24,499
|
|
Other intangible assets, net
|
|
|
|
$
|
671,039
|
|
|
$
|
(418,447
|
)
|
|
$
|
252,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollar amounts in thousands)
|
|
Useful life in years
|
|
Gross
amount
|
|
Accumulated
amortization
|
|
Net carrying
amount
|
Customer relationships
|
|
8 - 14
|
|
$
|
342,738
|
|
|
$
|
(194,570
|
)
|
|
$
|
148,168
|
|
Trademark
|
|
2 - 15
|
|
41,357
|
|
|
(28,888
|
)
|
|
12,469
|
|
Software packages
|
|
3 - 10
|
|
224,855
|
|
|
(151,666
|
)
|
|
73,189
|
|
Non-compete agreement
|
|
15
|
|
56,539
|
|
|
(31,096
|
)
|
|
25,443
|
|
Other intangible assets, net
|
|
|
|
$
|
665,489
|
|
|
$
|
(406,220
|
)
|
|
$
|
259,269
|
|
For both the
three
months ended
March 31, 2019
and 2018, the Company recorded amortization expense related to other intangibles of
$12.2 million
.
The estimated amortization expense of the balances outstanding at
March 31, 2019
for the next five years is as follows:
|
|
|
|
|
|
(Dollar amounts in thousands)
|
Remaining 2019
|
|
$
|
36,798
|
|
2020
|
|
40,633
|
|
2021
|
|
35,497
|
|
2022
|
|
31,868
|
|
2023
|
|
30,245
|
|
Note 5 – Debt and Short-Term Borrowings
Total debt at
March 31, 2019
and
December 31, 2018
follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2019
|
|
December 31, 2018
|
Secured Credit Facility (2023 Term A) due on November 27, 2023 paying interest at a variable interest rate (LIBOR plus applicable margin
(1)(2)
)
|
|
215,157
|
|
|
217,791
|
|
Senior Secured Credit Facility (2024 Term B) due on November 27, 2024 paying interest at a variable interest rate (LIBOR plus applicable margin
(2)(3)
)
|
|
319,864
|
|
|
320,515
|
|
Senior Secured Revolving Credit Facility
(1)
|
|
15,000
|
|
|
—
|
|
Note Payable due on April 30, 2021
(2)
|
|
269
|
|
|
300
|
|
Note Payable due on December 28, 2019
|
|
$
|
6,434
|
|
|
$
|
—
|
|
Total debt
|
|
$
|
556,724
|
|
|
$
|
538,606
|
|
|
|
(1)
|
Applicable margin of
2.00%
at
March 31, 2019
and
2.25%
at
December 31, 2018
.
|
|
|
(2)
|
Net of unaccreted discount and unamortized debt issue costs, as applicable.
|
|
|
(3)
|
Subject to a minimum rate ("LIBOR floor") of
0%
plus applicable margin of
3.50%
at
March 31, 2019
and
December 31, 2018
.
|
2018 Secured Credit Facilities
On November 27, 2018, EVERTEC and EVERTEC Group (“Borrower”) entered into a credit agreement governing the secured credit facilities, consisting of a
$220.0 million
term loan A facility that matures on November 27, 2023 (“2023 Term A”), a
$325.0 million
term loan B facility that matures on November 27, 2024 (“2024 Term B”) and a
$125.0 million
revolving credit facility (the “Revolving Facility”) that matures on November 27, 2023, with a syndicate of lenders and Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent, swingline lender and line of credit issuer (collectively the “2018 Credit Agreement”).
The unpaid principal balance at
March 31, 2019
of the 2023 Term A Loan and the 2024 Term B Loan was
$217.3 million
and
$324.2 million
, respectively. The additional borrowing capacity for the Revolving Facility at
March 31, 2019
was
$82.9 million
. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.
Notes payable
In May 2016, EVERTEC Group entered into a non-interest bearing financing agreement amounting to
$0.7 million
to purchase software. As of both
March 31, 2019
and
December 31, 2018
, the outstanding principal balance of the note payable was
$0.3 million
. The current portion of this note is recorded as part of accounts payable and the long-term portion is included in other long-term liabilities.
In January 2019, EVERTEC Group entered into a non-interest bearing financing agreement amounting to
$10.0 million
to purchase data processing equipment and maintenance. As of
March 31, 2019
, the outstanding principal balance of the note payable was
$6.4 million
, recorded as part of accounts payable.
Interest Rate Swaps
At
March 31, 2019
, the Company has
two
interest rate swap agreements, entered in December 2015 and December 2018, which convert a portion of the interest rate payments on the Company's 2024 Term B Loan from variable to fixed:
|
|
|
|
|
|
|
|
|
|
|
|
Swap Agreement
|
|
Effective date
|
|
Maturity Date
|
|
Notional Amount
|
|
Variable Rate
|
|
Fixed Rate
|
2015 Swap
|
|
January 2017
|
|
April 2020
|
|
$200 million
|
|
1-month LIBOR
|
|
1.9225%
|
2018 Swap
|
|
April 2020
|
|
November 2024
|
|
$250 million
|
|
1-month LIBOR
|
|
2.89%
|
The Company has accounted for these transactions as cash flow hedges.
At
March 31, 2019
and
December 31, 2018
, the carrying amount of the derivatives on the Company’s balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2019
|
|
December 31, 2018
|
Other long-term assets
|
|
$
|
1,032
|
|
|
$
|
1,683
|
|
Other long-term liabilities
|
|
$
|
7,851
|
|
|
$
|
4,059
|
|
During the
three months ended
March 31, 2019
, the Company reclassified gains of
$0.3 million
from accumulated other comprehensive loss into income through interest expense. Based on current LIBOR rates, the Company expects to reclassify gains of
$1.0 million
from accumulated other comprehensive loss into income through interest expense over the next 12 months. Refer to Note 6 for tabular disclosure of the fair value of derivatives and to Note 7 for tabular disclosure of gains recorded on cash flow hedging activities.
The cash flow hedges are considered highly effective.
Note 6 – Financial Instruments and Fair Value Measurements
Recurring Fair Value Measurements
Fair value measurement provisions establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These provisions describe three levels of input that may be used to measure fair value:
Level 1
: Inputs are unadjusted, quoted prices for identical assets or liabilities in an active market at the measurement date.
Level 2
: Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3
: Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The Company uses observable inputs when available. Fair value is based upon quoted market prices when available. If market prices are not available, the Company may employ models that mostly use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. The Company limits valuation adjustments to those deemed necessary to ensure that the financial instrument’s fair value adequately represents the price that would be received or paid in the marketplace. Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria. The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in estimating fair value could affect the results. The fair value measurement levels are not indicative of risk of investment.
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions. The following table summarizes the fair value measurement by level at
March 31, 2019
and
December 31, 2018
for the asset measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Financial asset:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
1,032
|
|
|
$
|
—
|
|
|
$
|
1,032
|
|
Financial liability:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
7,851
|
|
|
—
|
|
|
7,851
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Financial asset:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
1,683
|
|
|
$
|
—
|
|
|
$
|
1,683
|
|
Financial liability:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
4,059
|
|
|
—
|
|
|
4,059
|
|
The following table presents the carrying value, as applicable, and estimated fair values for financial instruments at
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(In thousands)
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
1,032
|
|
|
$
|
1,032
|
|
|
$
|
1,683
|
|
|
$
|
1,683
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
7,851
|
|
|
7,851
|
|
|
4,059
|
|
|
4,059
|
|
2023 Term A
|
|
215,157
|
|
|
214,806
|
|
|
217,791
|
|
|
218,625
|
|
2024 Term B
|
|
319,864
|
|
|
323,377
|
|
|
320,515
|
|
|
319,517
|
|
The fair values of the term loans at
March 31, 2019
and
December 31, 2018
were obtained using the prices provided by third party service providers. Their pricing is based on various inputs such as: market quotes, recent trading activity in a non-active market or imputed prices. Also, the pricing may include the use of an algorithm that could take into account movement in the general high yield market, among other variants.
The secured term loans, which are not measured at fair value in the balance sheets, would be categorized as Level 3 in the fair value hierarchy.
Note 7 – Equity
Accumulated Other Comprehensive Loss
The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the
three months period ended March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Foreign Currency
Translation
Adjustments
|
|
Cash Flow Hedges
|
|
Total
|
Balance - December 31, 2018, net of tax
|
|
$
|
(21,626
|
)
|
|
$
|
(2,163
|
)
|
|
$
|
(23,789
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
1,965
|
|
|
(3,773
|
)
|
|
(1,808
|
)
|
Effective portion reclassified to Net Income
|
|
—
|
|
|
(282
|
)
|
|
(282
|
)
|
Balance - March 31, 2019, net of tax
|
|
$
|
(19,661
|
)
|
|
$
|
(6,218
|
)
|
|
$
|
(25,879
|
)
|
Note 8 – Share-based Compensation
Long-term Incentive Plan ("LTIP")
In the first quarter of 2017, 2018 and 2019, the Compensation Committee of the Company's Board of Directors ("Board") approved grants of restricted stock units (“RSUs”) to executives and certain employees pursuant to the 2017 LTIP, 2018 LTIP and 2019 LTIP, respectively, all under the terms of our 2013 Equity Incentive Plan. Under the LTIPs, the Company granted restricted stock units to eligible participants as time-based awards and/or performance-based awards.
The vesting of the RSUs is dependent upon service, market, and/or performance conditions as defined in the grants. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee is providing services to the Company on the vesting date. Time-based awards vest over a period of
three years
in substantially equal installments commencing on the grant date and ending on February 24 of each year for the 2017 LTIP, February 28 of each year for the 2018 LTIP, and February 22 of each year for the 2019 LTIP.
For the performance-based awards under the 2017 LTIP, 2018 LTIP, and 2019 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDA") as the primary performance measure while maintaining focus on total shareholder return through the use of a market-based total shareholder return ("TSR") performance modifier. The TSR modifier adjusts the shares earned based on the core Adjusted EBITDA performance upwards or downwards (+/-
25%
) based on the Company’s relative TSR at the end of the
three
-year performance period as compared to the companies in the Russell 2000 Index. The Adjusted EBITDA performance measure will be calculated for the
one
-year period commencing on January 1 of the year of the grant and ending on December 31 of the same year, relative to the goals set by the Compensation Committee for this same period. The shares earned will be subject to a further
two
-year service vesting period.
Performance and market-based awards vest at the end of the performance period that commenced on February 24, 2017 for the 2017 LTIP, February 28, 2018 for the 2018 LTIP, and February 22, 2019 for the 2019 LTIP. The periods end on February 24, 2020 for the 2017 LTIP, February 28, 2021 for the 2018 LTIP, and February 22, 2022 for the 2019 LTIP. Unless otherwise specified in the award agreement, or in an employment agreement, awards are forfeited if the employee voluntarily ceases to be employed by the Company prior to vesting.
The following table summarizes nonvested restricted shares and RSUs activity for the
three months ended March 31, 2019
:
|
|
|
|
|
|
|
|
|
Nonvested restricted shares and RSUs
|
|
Shares
|
|
Weighted-average
grant date fair value
|
Nonvested at December 31, 2018
|
|
2,036,163
|
|
|
$
|
15.09
|
|
Vested
|
|
(715,251
|
)
|
|
28.50
|
|
Granted
|
|
432,216
|
|
|
18.16
|
|
Nonvested at March 31, 2019
|
|
1,753,128
|
|
|
$
|
18.18
|
|
For the
three months ended March 31, 2019
, the Company recognized
$3.3 million
of share based compensation expense compared with
$3.6 million
for the same period in
2018
.
As of
March 31, 2019
, the maximum unrecognized cost for restricted stock and RSUs was
$23.2 million
. The cost is expected to be recognized over a weighted average period of
2.1
years.
Note 9 - Revenues
Summary of Revenue Recognition Accounting Policy
The Company's revenue recognition policy follows the guidance from Accounting Standards Codification ("ASC") 606
Revenue from Contracts with Customers
, which provides guidance on the recognition, presentation and disclosure of revenue in consolidated financial statements.
Revenue is measured on the consideration specified in a contract with a customer. Once the Company determines a contract's performance obligations and the transaction price, including an estimate of any variable consideration, the Company allocates the transaction price to each performance obligation in the contract using a stand-alone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service to a customer. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
At contract inception, the Company assesses the goods and service promised in the contract with a customer and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised in the contract regardless of whether they are explicitly stated or implied. Payment for the Company's contracts with customers are typically due in full within 30 days of invoice date.
Disaggregation of revenue
The Company disaggregates revenue from contracts with customers into primary geographical markets, nature of the products and services, and timing of transfer of goods and services. The Company's operating segments are determined by the nature of the products and services the Company provides and the primary geographical markets in which the Company operates. Revenue disaggregated by segment is discussed in Note 14,
Segment Information.
In the following table, revenue is disaggregated by timing of revenue recognition for the three months ended March 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
(In thousands)
|
Payment Services - Puerto Rico & Caribbean
|
|
Payment Services - Latin America
|
|
Merchant Acquiring, net
|
|
Business Solutions
|
|
Total
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
2,677
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
877
|
|
|
$
|
3,624
|
|
Products and services transferred over time
|
20,073
|
|
|
18,678
|
|
|
25,974
|
|
|
50,487
|
|
|
115,212
|
|
|
$
|
22,750
|
|
|
$
|
18,748
|
|
|
$
|
25,974
|
|
|
$
|
51,364
|
|
|
$
|
118,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
(In thousands)
|
Payment Services - Puerto Rico & Caribbean
|
|
Payment Services - Latin America
|
|
Merchant Acquiring, net
|
|
Business Solutions
|
|
Total
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
126
|
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
973
|
|
|
$
|
1,491
|
|
Products and services transferred over time
|
18,457
|
|
|
19,999
|
|
|
23,379
|
|
|
46,948
|
|
|
108,783
|
|
|
18,583
|
|
|
20,391
|
|
|
23,379
|
|
|
47,921
|
|
|
110,274
|
|
Contract balances
The following table provides information about contract assets from contracts with customers.
|
|
|
|
|
(In thousands)
|
March 31, 2019
|
Balance at beginning of period
|
$
|
996
|
|
Services transferred to customers
|
49
|
|
Transfers to accounts receivable
|
(151
|
)
|
March 31, 2019
|
$
|
894
|
|
The current portion of contract assets is recorded as part of prepaid expenses and other assets and the long-term portion is included in other long-term assets.
Accounts receivable, net at
March 31, 2019
amounted to
$96.3 million
. Unearned income and Unearned income - Long term, which refer to contract liabilities, at
March 31, 2019
amounted to
$12.2 million
and
$30.2 million
, respectively, and generally arise when consideration is received or due in advance from customers prior to performance. Unearned income is mainly related to upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with managed services. During the
three months ended
March 31, 2019
, the Company recognized revenue of
$6.1 million
that was included in unearned income at
December 31, 2018
. During the
three months ended
March 31, 2018
, the Company recognized revenue of
$3.7 million
that was included in unearned income at
December 31, 2017
.
The estimated aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at
March 31, 2019
is
$267.6 million
. This amount primarily consists of professional service fees for implementation or set up activities related to managed services and maintenance services, typically recognized over the life of the contract, which vary from
2
to
5
years. It also includes professional service fees for customizations or development of on-premise licensing agreements, which are recognized over time based on inputs relative to the total expected inputs to satisfy a performance obligation.
Note 10 – Income Tax
The components of income tax expense for the
three months ended March 31, 2019
and
2018
, respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Current tax provision
|
|
$
|
4,691
|
|
|
$
|
5,087
|
|
Deferred tax benefit
|
|
(882
|
)
|
|
(1,152
|
)
|
Income tax expense
|
|
$
|
3,809
|
|
|
$
|
3,935
|
|
The Company conducts operations in Puerto Rico and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the Puerto Rico government as well as foreign jurisdictions. The following table presents the
components of income tax expense for the
three months ended March 31, 2019
and
2018
, and its segregation based on location of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Current tax provision
|
|
|
|
|
Puerto Rico
|
|
$
|
1,813
|
|
|
$
|
2,399
|
|
United States
|
|
112
|
|
|
80
|
|
Foreign countries
|
|
2,766
|
|
|
2,608
|
|
Total current tax provision
|
|
$
|
4,691
|
|
|
$
|
5,087
|
|
Deferred tax benefit
|
|
|
|
|
Puerto Rico
|
|
$
|
(476
|
)
|
|
$
|
(839
|
)
|
United States
|
|
(372
|
)
|
|
(87
|
)
|
Foreign countries
|
|
(34
|
)
|
|
(226
|
)
|
Total deferred tax benefit
|
|
$
|
(882
|
)
|
|
$
|
(1,152
|
)
|
Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements.
As of
March 31, 2019
, the Company has
$51.1 million
of unremitted earnings from foreign subsidiaries. The Company has not recognized a deferred tax liability on undistributed earnings for the Company’s foreign subsidiaries because these earnings are intended to be indefinitely reinvested.
As of
March 31, 2019
, the gross deferred tax asset amounted to
$12.6 million
and the gross deferred tax liability amounted to
$19.5 million
, compared to
$10.8 million
and
$18.8 million
, respectively, as of
December 31, 2018
.
Note 11 – Net Income Per Common Share
The reconciliation of the numerator and denominator of the income per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(Dollar amounts in thousands, except per share information)
|
|
2019
|
|
2018
|
Net income attributable to EVERTEC, Inc.’s common stockholders
|
|
$
|
26,644
|
|
|
$
|
23,022
|
|
Less: non-forfeitable dividends on restricted stock
|
|
6
|
|
|
14
|
|
Net income available to EVERTEC, Inc.’s common shareholders
|
|
$
|
26,638
|
|
|
$
|
23,008
|
|
Weighted average common shares outstanding
|
|
72,378,532
|
|
|
72,409,462
|
|
Weighted average potential dilutive common shares
(1)
|
|
1,391,534
|
|
|
963,373
|
|
Weighted average common shares outstanding - assuming dilution
|
|
73,770,066
|
|
|
73,372,835
|
|
Net income per common share - basic
|
|
$
|
0.37
|
|
|
$
|
0.32
|
|
Net income per common share - diluted
|
|
$
|
0.36
|
|
|
$
|
0.31
|
|
|
|
(1)
|
Potential common shares consist of common stock issuable under the assumed release of restricted stock awards using the treasury stock method.
|
On February 15, 2019, the Board declared a quarterly cash dividend of
$0.05
per share of common stock, which was paid on March 22, 2019 to stockholders of record as of the close of business on February 26, 2019.
Note 12 – Commitments and Contingencies
EVERTEC is a defendant in a number of legal proceedings arising in the ordinary course of business. Based on the opinion of legal counsel and other factors, Management believes that the final disposition of these matters will not have a material adverse
effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss would be insignificant. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material.
Leases
The Company’s leases accounting policy follows the guidance from Accounting Standards Codification (“ASC”) 842, Leases, which provides guidance on the recognition, presentation and disclosure of leases in consolidated condensed financial statements.
The Company determines if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease payable, and operating lease liabilities in the consolidated condensed balance sheet. Finance leases are included in property and equipment, accrued liabilities, and other long-term liabilities in the consolidated condensed balance sheet.
ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. The lease payment terms may include fixed payment terms and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index or “CPI”) or rate are considered in the determination of the operating lease liabilities. While lease liabilities are not remeasured because of changes to the CPI, changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Variable payments that do not depend on an index or rate are not included in the lease liabilities determination. Rather, these payments are recognized as variable lease expense when incurred. Variable lease payments are included within operating costs and expenses in the consolidated condensed statement of income and comprehensive income. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For finance leases, lease expense is composed of interest expense and amortization expense. The lease liability of these leases is measured using the interest rate method. The ROU asset from financing leases are amortized on a straight-line basis, as part of Property and Equipment, net.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company elected the practical expedient of not separating lease and related non-lease components for all classes of underlying assets (i.e., building and equipment). The Company also elected as an accounting policy to not recognize lease liabilities and ROU assets for any future short-term leases (i.e., leases with a lease term of 12 months or less).
The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from
1 year
to
10 years
, some of which may include options to extend the leases for up to
5 years
, and some which may include the option to terminate the lease within
1 year
.
As of March 31, 2019, equipment leases classified as finance leases, which are included within Property and Equipment, net, were
$1.6 million
, net of accumulated depreciation.
Total lease cost for the three months ended March 31, 2019, was as follows:
|
|
|
|
|
|
(in thousands)
|
|
|
Operating lease cost
|
|
$
|
1,923
|
|
Finance lease cost
|
|
|
Amortization of right-of-use assets
|
|
67
|
|
Interest on lease liabilities
|
|
8
|
|
Variable lease cost
|
|
714
|
|
|
|
$
|
2,712
|
|
Other information related to leases, for the three months ended March 31, 2019, was as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations:
|
|
$
|
140
|
|
Weighted average remaining lease term, in years
|
|
|
Operating leases
|
|
7
|
|
Finance leases
|
|
2
|
|
Weighted Average Discount Rate
|
|
|
Operating leases
|
|
4.8
|
%
|
Finance leases
|
|
4.3
|
%
|
Future minimum lease payments under leases as of March 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2019
|
|
$
|
4,651
|
|
|
$
|
324
|
|
2020
|
|
5,853
|
|
|
328
|
|
2021
|
|
5,773
|
|
|
34
|
|
2022
|
|
5,579
|
|
|
—
|
|
2023 and thereafter
|
|
17,504
|
|
|
—
|
|
Total future minimum lease payments
|
|
39,360
|
|
|
686
|
|
Less: imputed interest
|
|
(4,427
|
)
|
|
(19
|
)
|
|
|
$
|
34,933
|
|
|
$
|
667
|
|
Reported as of March 31, 2019
|
|
|
|
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
410
|
|
Operating lease payable
|
|
9,458
|
|
|
—
|
|
Operating lease liabilities - long term
|
|
25,475
|
|
|
—
|
|
Other long-term liabilities
|
|
—
|
|
|
257
|
|
|
|
$
|
34,933
|
|
|
$
|
667
|
|
Note 13 – Related Party Transactions
The following table presents the Company’s transactions with related parties for the
three months ended March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(Dollar amounts in thousands)
|
|
2019
|
|
2018
|
Total revenues
(1)(2)
|
|
$
|
49,030
|
|
|
$
|
45,535
|
|
Cost of revenues
|
|
$
|
523
|
|
|
$
|
384
|
|
Operating lease cost and other fees
|
|
$
|
2,128
|
|
|
$
|
1,963
|
|
Interest earned from affiliate
|
|
|
|
|
Interest income
|
|
$
|
28
|
|
|
$
|
32
|
|
|
|
(1)
|
Popular revenues as a percentage of total revenues were
41%
for each of the periods presented above.
|
|
|
(2)
|
Includes revenues generated from investee accounted for under the equity method of
$0.3 million
for each the periods presented above.
|
At
March 31, 2019
and
December 31, 2018
, EVERTEC had the following balances arising from transactions with related parties:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
March 31, 2019
|
|
December 31, 2018
|
Cash and restricted cash deposits in affiliated bank
|
|
$
|
27,447
|
|
|
$
|
29,136
|
|
Other due/to from affiliate
|
|
|
|
|
Accounts receivable
|
|
$
|
30,984
|
|
|
$
|
25,714
|
|
Prepaid expenses and other assets
|
|
$
|
4,019
|
|
|
$
|
2,796
|
|
Operating lease right-of use assets
|
|
$
|
24,105
|
|
|
$
|
—
|
|
Other long-term assets
|
|
$
|
130
|
|
|
$
|
166
|
|
Accounts payable
|
|
$
|
6,353
|
|
|
$
|
6,344
|
|
Unearned income
|
|
$
|
30,915
|
|
|
$
|
25,401
|
|
Operating lease liabilities
|
|
$
|
24,182
|
|
|
$
|
—
|
|
Note 14 – Segment Information
The Company operates in
four
business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America, Merchant Acquiring, and Business Solutions.
The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and point of sale ("POS") transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions) and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants). For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.
The Payment Services - Latin America segment revenues consist of revenues related to providing access to the ATH network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), as well as, licensed software solutions for risk and fraud management and card payment processing. For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services.
The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value. EVERTEC also charges merchants for other services that are unrelated to the number of transactions or the transaction value.
The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network managed services, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally non-recurring.
In addition to the
four
operating segments described above, Management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented as “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments. The overhead and leveraged costs relate to activities such as:
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•
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corporate finance and accounting,
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•
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risk management functions,
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•
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corporate debt related costs,
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•
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non-operating depreciation and amortization expenses generated as a result of merger and acquisition activity,
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•
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intersegment revenues and expenses, and
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•
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other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level
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The Chief Operating Decision Maker ("CODM") reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with Accounting Standards Codification Topic 280, "Segment Reporting" given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and adjusted EBITDA performance. As such, segment assets are not disclosed in the notes to the accompanying consolidated financial statements.
The following tables set forth information about the Company’s operations by its
four
business segments for the periods indicated:
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Three months ended March 31, 2019
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(In thousands)
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Payment
Services -
Puerto Rico & Caribbean
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Payment
Services -
Latin America
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Merchant
Acquiring, net
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Business
Solutions
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Corporate and Other
(1)
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Total
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Revenues
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$
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32,017
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$
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20,831
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$
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25,974
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$
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51,364
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$
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(11,350
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)
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$
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118,836
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Operating costs and expenses
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14,215
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17,573
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14,718
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32,910
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2,015
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81,431
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Depreciation and amortization
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2,643
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2,196
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468
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3,854
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7,112
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16,273
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Non-operating income (expenses)
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581
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2,634
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21
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186
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(2,992
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)
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430
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EBITDA
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21,026
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8,088
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11,745
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22,494
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(9,245
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)
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54,108
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Compensation and benefits
(2)
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237
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166
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220
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554
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2,262
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3,439
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Transaction, refinancing and other fees
(3)
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—
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2
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—
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—
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47
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49
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Adjusted EBITDA
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$
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21,263
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$
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8,256
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$
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11,965
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$
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23,048
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$
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(6,936
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$
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57,596
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(1)
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Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the
$9.2 million
processing fee from the Payments Services - Puerto Rico & Caribbean segment to the Merchant Acquiring segment, intercompany software sale and developments of
$2.1 million
from the Payment Services - Latin America segment charged to the Payment Services - Puerto Rico & Caribbean segment. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be
$4.8 million
.
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(2)
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Primarily represents share-based compensation, other compensation expense and severance payments.
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(3)
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Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and the elimination of non-cash equity earnings from our
19.99%
equity investment in Consorcio de Tarjetas Dominicanas S.A.
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Three months ended March 31, 2018
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(In thousands)
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Payment
Services -
Puerto Rico & Caribbean
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Payment
Services -
Latin America
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Merchant
Acquiring, net
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Business
Solutions
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Corporate and Other
(1)
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Total
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Revenues
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$
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27,168
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$
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20,391
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$
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23,379
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$
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47,921
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$
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(8,585
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)
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$
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110,274
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Operating costs and expenses
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12,933
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18,060
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13,141
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29,015
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3,570
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76,719
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Depreciation and amortization
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2,316
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2,449
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420
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3,519
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7,163
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15,867
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Non-operating income (expenses)
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816
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1,813
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4
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300
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(1,917
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)
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1,016
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EBITDA
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17,367
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6,593
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10,662
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22,725
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(6,909
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)
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50,438
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Compensation and benefits
(2)
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193
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400
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190
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440
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2,606
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3,829
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Transaction, refinancing and other fees
(3)
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(250
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)
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—
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—
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—
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(49
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)
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(299
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)
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Adjusted EBITDA
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$
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17,310
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$
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6,993
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$
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10,852
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$
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23,165
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$
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(4,352
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)
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$
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53,968
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(1)
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Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the
$8.6 million
processing fee from the Payments Services - Puerto Rico & Caribbean segment to the Merchant Acquiring segment.
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(2)
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Primarily represents share-based compensation, other compensation expense and severance payments.
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(3)
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Primarily represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and the elimination of non-cash equity earnings from our
19.99%
equity investment in Consorcio de Tarjetas Dominicanas S.A.,
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The reconciliation of EBITDA to consolidated net income is as follows:
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Three months ended March 31,
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(In thousands)
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2019
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2018
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Total EBITDA
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$
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54,108
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$
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50,438
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Less:
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Income tax expense
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3,809
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3,935
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Interest expense, net
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7,292
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7,522
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Depreciation and amortization
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16,273
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15,867
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Net Income
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$
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26,734
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$
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23,114
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Note 15 – Subsequent Events
On
April 25, 2019
, the Board declared a regular quarterly cash dividend of
$0.05
per share on the Company’s outstanding shares of common stock. The dividend will be paid on
June 7, 2019
to stockholders of record as of the close of business on
May 6, 2019
. The Board anticipates declaring this dividend in future quarters on a regular basis; however future declarations of dividends are subject to the Board’s approval and may be adjusted as business needs or market conditions change.