Evertec Inc (EVTC) 2011 Q1 法說會逐字稿

Good morning, my name is Alisha, and I'll be your conference operator for today. At this time I would like to welcome everyone to the 2011 First Quarter Evertec, Incorporated Conference call. At this time, all participants are in listen only mode. Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes. Thank you, Mr. Luis Cabrera, you may begin your conference.

Thank you, operator, good morning everyone. Welcome to our 2011 First Quarter Investors Conference Call. With me today is Felix Villamil, our CEO and president, and Luis Abreu, our CFO. This call will also be available through June 2 by dialing 888-286-8010 on the US or 617-801-6888 outside the US Please use PIN number 81387674. As reminder, this call cannot be taped or otherwise duplicated without the company's prior consent.

Before I begin, I would remind everyone that this call may contain forward-looking statements. And that term is defined under the Private Securities Litigation Reform Act of 1995. This forward-looking statement about our expectations for future performance are subject to known and unknown risks and uncertainties. The company cautions that this 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 statement to reflect events that occurred after this call.

Please refer to reports and other information made available to our [pon] holder from time to time to that are posted on the company's Web site for factors that could cause actual results to differ materially, from forward-looking statements. In addition, during the call management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as adjust EBITDA.

Certain information and reconciliation to GAAP measures required to be disclosed about this non-GAAP measures are included in today's press release, which can be found on our Web site at www.evertecinc.com. With that we will begin the call by turning it over to Felix Villamil.

Thank you Luis. Good morning, and thank you all for joining us for our 2011 First Quarter Investors Conference Call. We continue to make very good progress in our transition to a stand-alone company. And we are very pleased with our first quarter results. The economy in Puerto Rico continue to show signs of improvement and we are seeing this translate into healthy increases in transaction volumes across our three big business segments.

For the first quarter in 2011, we recorded revenues of approximately $73.5 million, which represented a 12 percent increase compared to the same period for 2010. All three of our business segments benefitted from organic volume growth, both in number of transactions and value of transactions. In addition, many of our business benefitted from additional volumes generated as a result of the consolidation of a financial institution in Puerto Rico that occurred during the second quarter of 2010.

Adjusted EBITDA for the first quarter 2011 was $32.1 million. That's 10 percent higher than the first quarter of 2010. Our adjusted EBITDA margin remain relatively unchanged at 44 percent for the three month ended March 31, 2011 and 2011. Now, I will turn it over to Luis Abreu, our CFO, who will go through the specifics of our financial results.

Thank you, Felix. As Felix said, we are pleased with our results for the first quarter of 2011. For the first quarter 2011, we record the revenues of approximately $73.5 million, which represented a 12 percent increase when compared to the same period for 2010. Revenue increased across all three of our business segments mostly driven by organic volume growth. Our transaction processing segment had revenues of approximately $20.3 million; this is an increase of 14 percent when compared to the first quarter of 2010.

Our merchant acquiring segment had revenues of approximately $14.0 million. This is an increase of 20 percent when compared to the first quarter of 2010. Our business solutions segment had revenues of approximately $38.5 million. This is an increase of 8 percent when compared to the first quarter of 2010.

The increases in our three segments were mostly the result of high transaction volumes, new service offerings and new customer additions. Expenses for the quarter ended March 31, 2011 increased by $50 million when compared to the same period in 2010.

Excluding depreciation and amortization and nonrecurring expenses, total expenses increased by approximately $1.5 million or 4 percent when compared to the same period in 2010. Incremental depreciation and amortization expense of approximately $10.2 million relates to purchase account adjustments in connection with a merger.

In addition, $1.7 million in professional fees were incurred related to legal and transition advice re-cost in connection with the merger and a higher personnel cost mostly due the addition of [keepers on air] required to operate as a stand-alone company.

Management fees for our equity sponsors and higher [audit] expenses necessary to support the additional reporting requirements. Non-operating expenses for the three months ended March 31, 2011 total $17.7 million in net non-operating expenses compared to a net non-operating income of $1.3 million for the same period in 2010.

This negative variance of approximately $90 million was mostly due to [incurred] expenses of $14.1 million related to the credit facilities incurred in connection with a merger. Nonrecurring refinancing cost of $2.2 million and a nonrecurring non-cash loss of $1.2 million from the settlement of the [Naritive] related to Contado and a result of the acquisition of 19.99 percent equity interest.

In terms of adjusted EBITDA, we achieved $32.1 million for the first quarter of 2011. That is 10 percent higher than in the first quarter of 2010. The increase is primarily the result of the increases in revenues in our three business segments. As a result of a new tax reform in Puerto Rico, which became effective during the first quarter of 2011, Evertec recorded a one-time adjustment of $28.2 million of non-cash income tax benefit.

This benefit is a result of the revaluation of our deferred tax liability to reflect the reduction of a marginal corporate income tax rate to corporations from 39 percent to 30 percent. This adjustment reduced the deferred tax liability by the same amount. In addition, the income tax expense was impacted by a loss before income taxes of $5.3 million for the first quarter, compared to income before taxes of $21 million for the same period in 2010.

No 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 quarter in a very strong position. As of March 31, 2011, we had $60.7 of unrestricted cash and $573.2 million on debt. We ended the quarter with a total net debt to adjusted EBITDA ratio of 3.9 times. Our liquidity stood at $110.7 million, which includes the $60.7 million of unrestricted cash on the balance sheet plus $50 million of readily available capacity on a revolving line of credit, which remain undrawn.

Subsequent to the end of the quarter, on April 7, in connection with the Contado acquisition, we repaid a mandatory $1.7 million on our senior secured term loan. In addition, on May 4, the company made a $24.7 million voluntary repayment on our senior secured term loan. The voluntary pay down is a result of our strong end of the quarter liquidity position and our current forecast of additional cash generation and needs for the remainder of 2011.

After giving pro-forma effect to these repayments our total debt at March 31 stands at $546.8 million. Total debt consists of $220 million of our senior notes and $326.9 million on our senior secured debt. We have reduced this senior secured debt by approximately $28.1 million since September 30, 2010. With that, we'll open up the call for your questions.

Operator, please provide us the instructions.

(Operator Instructions). [Matt LaPitt], RB Partners.

Morning gentlemen, thank you. I was just wondering if you could -- on page five of the earnings release, you've got the schedule of adjusted EBITDA. I was just wondering if you could give a little more detail about the $4.2 million add back with respect to run rate and other, and talk about what that is and sort of how you see that progressing over the next few quarters.

Yes. Most of that $4 million are related to the nonrecurring expenses that I mentioned related to professional fees and consulting fees related to the transaction or transition period.

Right

We definitely anticipate those expenses going down in the future.

Is that a -- sort of from an order of magnitude perspective, is that 12 month sort of melt-away period? Or is it 36 moths? How should we think those?

It's a more like a 12 month time frame.

Got it. Okay. Thank you. That's it.

(Operator Instructions). [Paula Sen], Morgan Stanley.

Hi, good morning, gentlemen, it's actually [Jake Kemidy] at Morgan Stanley. Thanks for taking the question. Just wanted to ask about the revenue. The reported revenue, is that in constant currency? Or is that -- are there any benefits from currency in the revenue growth?

No, that's -- it's constant currency.

Okay. Great. And then on the volume and revenue per transaction trends that you saw, do you think that those are sustainable? Is there anything special in the quarter? And you know what's your outlook on the continuation on those trends?

This is Mike Vizcarrando from the merchant acquiring side. The revenues I would say, are solid but there are some benefits there that come from the consolidation from the financial industry here in Puerto Rico that naturally brings in more transactions to our main banks. But we definitely consider the economy improving and we see some of these revenue growths sustainable. But there are some of that effects on the first quarter, yes.

Okay. And I'm sorry, I missed the last question. In terms of the achieving of the cost savings over what period of time do you think that will occur?

I said 12 months.

Okay. And is that kind of spread evenly over the next 12 months, or is it more weighted towards the backend of the year?

We will be achieving the benefits over the next couple of quarters already.

Okay. Okay, great, thank you.

At this time, there are no further questions. I would now like to turn the call back over to management for any closing remarks.

Okay. Thank you, this is Felix Villamil. I just want to thank you all for joining us on our call today. I thank again our participating investors for extending us credit and allowing us to manage this great company. We will continue to perform our best for the benefit of our (inaudible) counterparts and investors. And we look forward on updating you on our progress during our next quarterly call. So now, operator, you may end this call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.