Evertec Inc (EVTC) 2010 Q4 法說會逐字稿

Good day. My name is Melanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2010 EVERTEC, Incorporated Earnings Call. At this time all participants are in a listen-only mode.

(Operator Instructions)

We will accept your questions at the end of this session. Thank you. Ms. Wert, you may begin your conference.

Thank you, Melanie, and good afternoon, everyone. Welcome to our first investor conference call. With me today are Felix Villamil, our CEO and President, Luis Abreu, our CFO, and Luis Cabrera, our Treasurer and Head of Investor Relations.

This call will also be available through April 28 by dialing 888-286-8010 in the US or 617-801-6888 outside the US, reference pin number 84097682. As a reminder, this call cannot be taped or otherwise duplicated without the Company's prior consent.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations or future performance are subject to known and unknown risks and uncertainties. The Company cautions that these statements are not guarantees of future performance.

All forward-looking statements made today reflect the Company's current expectations only, and the Company undertakes no obligation to update any statements to reflect events that occur after this call. Please refer to the reports and other information made available to our bondholders from time to time that are posted on the Company's website for factors that could cause actual results to differ materially from any forward-looking statements.

In addition, during the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as EBITDA. Certain information and reconciliation to GAAP measures required to be disclosed about these non-GAAP measures are included in today's earnings press release, which can be found on our website, www.EVERTECinc.com.

With that, we'll begin by turning the call over to Mr. Villamil.

Thank you, Luisa. Good afternoon. Thank you all for joining us for our first investors' conference call. We are very pleased with our fourth quarter and full year 2010 results, and I will walk you through some of the highlights. Before I do, let me just say a few words about the past six months.

During the past six months, we have transformed EVERTEC from being a division of the leading bank in Puerto Rico to a standalone company. As you know, on September 30, Apollo Management acquired a 51% interest in EVERTEC from Popular.

As part of the transaction, EVERTEC issued $220 million of senior notes and entered into a $405 million senior secured credit facility, which was composed of a $355 million term loan and a $50 million committed revolving line of credit. We are happy to report that the transition to a standalone Company has progressed according to plan. We have experienced no interruptions with our business nor our customers, and we continue to have an excellent relationship with Popular, our largest customer and 49% owner.

As a reminder, as part of the transaction, we entered into a 15 year master services agreement with Popular, in which EVERTEC is exclusive provider of our current services at agreed upon prices. Popular continues to be the market leader in Puerto Rico and the Caribbean and currently ranks among the top 40 financial institutions in the United States. Feedback from all our customers has been very positive also, and we expect certain customers, who were previously reluctant to work with EVERTEC, given its ownership and control of Popular, are now showing keen interest for our products and services.

As part of the change of ownership, we have reviewed, strengthened, and implemented various initiatives to assure our company is well positioned to continue our growth strategy. We have realigned our [reporting line] and assigned our key business leader new responsibilities in order to better balance a sales and service culture.

Also, during the last quarter of 2010, we added key personnel that will help us operate as a substantial independent company. In particular, we added James Gonzalez, a Senior Vice President in charge of corporate development and strategy, to help lead our expansion into Central and Latin America. James comes from Hewlett-Packard, where he was Senior Director of Strategy and Corporate Development.

We also added Mr. Luis Cabrera as Treasurer and Head of Investor Relations. Previously, Luis served as a portfolio manager for UBS [bonds] and as Treasurer of First Bank of Puerto Rico, the island's second largest bank.

Our primary geographic market continues to be Puerto Rico, and there have been some positive developments that I want to highlight. First and foremost, the economy in Puerto Rico continues to show signs of improvement.

As you know, we are in the unique position of being able to see [real time] transactions activity in the local economy through our ownership of the ATH network and also from being the largest merchant acquirer on the island. We can say we have seen positive transaction trends in terms of number of transactions, value of transactions, and dollars spent per transaction in recent months.

Additionally, all data points have confirmed what we have been seeing in our own data. Both new and existing home sales have recently shown positive growth, year-over-year, and retail sales and auto sales have both been positive, now, for the last several months.

Further, the employment situation has shown some positive momentum. In particular, service sector employment has shown positive growth on a year-over-year basis for the past several months. Also, S&P upgraded its rating for Puerto Rico general obligation bonds to triple B from triple B minus in March of this year, the first upgrade S&P has given Puerto Rico in 28 years.

Also, we are pleased with recent government initiatives designed to improve the economy, including efforts to reduce the budget deficit and recently enacted a tax reform that will reduce the maximum corporate rate from 41% to 30%. Like most other economies, Puerto Rico still faces some challenges, but certainly, there appears to be positive momentum in the local economy.

Now, let's turn to the highlights of our financial performance. All three of our business segments performed well in 2010. We maintained our leading market position in our various end markets and benefited from transaction volume increases across the portfolio. The ATH Network processed over 582 million transactions in 2010. For the year, the ATH network processed over 70% of all ATM transactions and over 80% of all debit transactions in Puerto Rico.

Our merchant acquiring business processed over 256 million transactions for the year. This is an increase of approximately 13%, when compared with 2009. When looking at [total] volume, this segment processed over $10.4 billion, which is an increase of 7%, when compared to 2009. At year-end, this segment had over 16,000 merchants in Puerto Rico and the Virgin Islands.

Our merchant acquiring business processed transactions from approximately 28,000 POS devices at 27,000 merchant locations. Currently, it ranks among the top five merchant acquirers in terms of transactions across all of Latin America.

For the fourth quarter of 2010, we recorded revenues of approximately $77.1 million, which represented a 12% increase, compared to 2009. For full year 2010, we recorded revenues of $285 million, which was 7% higher than 2009. Both our fourth quarter and full-year increases in revenues was driven by organic volume growth across each of our three business segments, as well as new service offerings and new customer additions. Our business benefited from the consolidation of the financial industry in Puerto Rico.

Adjusted EBITDA for the fourth quarter 2010 was $34.9 million, 8% higher than the fourth quarter of 2009. For the full year 2010, we recorded adjusted EBITDA of $127.2 million, an increase of $9.6 million, or 8%, when compared to the previous year. We are very proud of these results and remain on track in 2010 to hit our growth plans.

Now, I will turn it over to Luis Abreu, our CFO, who will go through the financial results.

Thank you, Felix. As Felix said, we are pleased with our results for the fourth quarter of 2010 and for the full year. We'll start with the details behind the fourth quarter results, and then we'll go to the full year results. For the fourth quarter 2010, we recorded revenues of approximately $77.1 million, which represented a 12% increase compared to 2009.

Revenue increased across all three of our business segments. Our transaction processing segment consists of products, services, and technology that help facilitate electronic payments and similar transactions. This segment had revenues of approximately $21 million. This is an increase of 12%, when compared to the fourth quarter of 2009.

Our merchant acquiring segment offers payment solutions to enable electronic transactions at the point of sale. This segment had net revenues of approximately $14.8 million. This is an increase of 11%, when compared to the fourth quarter of 2009.

Our business solutions segment provides value added services and solutions to help manage critical business processes for financial institutions and customers in other industries. This segment had approximately $41.2 million of revenues, or an increase of 12%, when compared to the fourth quarter of 2009.

The increases in our segments were mostly a result of higher transaction volumes, new service offerings, and new customers additions, including new customers added as a result of the consolidation of financial institutions in Puerto Rico.

Expenses for the quarter ended December 31, 2010, increased by $15.9 million, when compared to the same period in 2009. The increase is primarily a result of incremental depreciation and amortization expense of approximately $10 million related to certain accounting adjustments in connection with the merger.

In addition, $1.8 million in professional fees were incurred related to transaction and transition advisory costs in connection with the merger. Excluding depreciation and amortization and nonrecurring professional fees, total cash operating costs and expenses increased by approximately $2.1 million, or 5%, when compared to the same period in 2009.

In terms of adjusted EBITDA, we achieved $34.9 million for the fourth quarter of 2010. That is 8% higher than in the fourth quarter of 2009. The increase is primarily the result of increases in revenues in our three business segments.

Now, let's turn to the full year results. Total revenues for the year 2010 were approximately $285 million. This is an increase of 7%, when compared to 2009. Each of our segments contributed to this growth. For our transaction processing segment, revenues for the year were approximately $78 million. This is an increase of 4%, primarily due to higher volumes and revenues generated from new service offerings.

Our merchant acquiring segment generated approximately $55 million in net revenues, an increase of 12%, when compared to 2009 results. The increase was mainly due to higher transaction volumes, new customer additions, and selected price increases.

Our business solutions segment accounted for approximately $153 million in revenues. This is an increase of 6%, when compared to 2009. The increase was mostly due to higher volumes and new services provided to certain clients. As previously mentioned, all of our three segments benefited from additional volumes generated as a result of the consolidation of financial institutions in Puerto Rico.

Our adjusted EBITDA for the year ended 2010 increased to approximately $127.2 million, which is an increase of $9.6 million, or 8%, when compared to the previous year. Our adjusted EBITDA margin improved to 45% from 44% in 2009. The improvement was mostly driven by our ability to support additional business volume with low incremental costs, due to our highly scalable technology platform.

For the year ended December 31, 2010, total operating costs and expenses increased by approximately $24.3 million, or 13%, when compared to the same period last year. Total operating costs and expenses, excluding depreciation and amortization, increased $11.6 million, or 7%, for the year ended December 31, 2010, when compared to the same period last year.

The increase was primarily associated with merger related, nonrecurring compensation bonuses, including payroll taxes of $7.8 million and audit and consulting fees of $1.8 million to support additional requirements related to the transition to a standalone entity. Excluding nonrecurring expenses and depreciation and amortization, cash operating costs and expenses increased by approximately $2 million, or 1%, when compared to the year ended December 31, 2009.

Now, let me turn it over to Luis Cabrera, our Treasurer, to go over the balance sheet.

Thank you, Luis. Turning to the balance sheet, we ended the year in a very strong position. At year end 2010, we had $55.7 million of unrestricted cash and [574.1] of debt. We ended the year with the net debt to adjusted EBITDA ratio of 4.08 times. Our liquidity stood at $105.7 million, which includes the $55.7 million of unrestricted cash plus $50 million of available capacity in our revolver line of credit, which remained undrawn.

As most of you know, on March 3, we completed our first amendment to the credit agreement. As part of the amendment, we lowered our interest margins and interest rate floors. We lowered our margins, under the LIBOR option, from 525 basis points to 400 basis points or a reduction of 125 basis points. A similar reduction was also performed under the ABR option.

Also, we lowered the interest rate floor under the LIBOR option from 175 basis points to 150 basis points for a reduction of 25 basis points. A similar reduction was also achieved for the ABR option. When combined, the reduction on the margin and the interest rate floor resulted in 150 basis points of savings starting on March 3. We had strong participation from our existing lenders, so we thank all the participating firms and banks that are joining us on today's conference call.

With that, let me turn it back to Felix.

Thank you, Luis. I would also like to take this opportunity to give you an overview of the recent transaction relating to the minority interest in CONTADO. With regard to CONTADO, on March 31, 2011, EVERTEC acquired a 19.99% minority equity interest in CONTADO from Popular.

Pursuant to the merger agreements and related documents, we transferred to Popular the $20 million that was -- that were held back at the time of the merger, and we received cash proceeds of $10.8 million, representing 50% of the after tax sales proceeds of the 33.98% equity interest in CONTADO not transferred to us from Popular.

On April 7, 2011, we made the repayment of our senior secured term loans of $1.65 million. This repayment was required under the terms of our senior secured credit facilities. We are very pleased that this transaction is completed, and we fully expect that CONTADO will continue to be a contributor to our business going forward.

As previously mentioned, we are very pleased with our results for 2010 and how we are currently performing and continue to anticipate we will meet our expectations.

With that, I will open up the call for questions. Operator, please provide the instructions.

Yes, sir.

(Operator Instructions)

And I show no questions at this time. I'd like to turn the call back over to Mr. Villamil for closing remarks. Please proceed, sir.

I just want to thank you all for joining us on this -- the first call from EVERTEC, and thank you for your support in this last -- past six months.

Thank you for joining the 2010 EVERTEC, Incorporated Earnings Conference Call. This concludes the presentation. You may now disconnect. Have a wonderful day.