Evertec Inc (EVTC) 2011 Q2 法說會逐字稿

Good Afternoon. My name is Chris and I'll be your conference operator for today. At this time, I would like to welcome everyone to the 2011 Second Quarter EVERTEC Incorporated Earnings Call. Presently, all participants are in listen-only mode. Later, we will facilitate a question and answer session.

(Operator Instructions)

Thank you. Mr. Luis Cabrera, you may begin your conference sir.

Thank you, operator, and good afternoon, everyone. Welcome to our 2011 second quarter investors conference call. With me today are Felix Villamil, our CEO and President, Juan Jose Roman our recently appointed Executive Vice President and CFO, Luis Abreu, our Senior Vice President and former CFO, Mr. Mike Vizcarrondo, our Senior Vice President in-charge of the Merchant Acquiring business, and Luisa Wert our in-house counsel.

This call will also be available through August 19 by dialing 888-286-8010, and outside the US by dialing 617-801-6888, please use reference pin 94689111. As a reminder, this call cannot be taped or otherwise duplicated without the Company's prior consent.

Before I begin, I have 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. This forward-looking statement about our expectations for future performance are subject to known and unknown risk and uncertainties. The Company cautions that these statements are not guaranteed of future performance.

All forward-looking statements made today reflect the Company's current expectations only, and the Company undertakes no obligations to update any statements to reflect events that occur after this call. Please refer to the Registration Statement on Form S-4, and other reports filed from time to time with the SEC 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 we'll provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as adjusted EBITDA. Certain information and reconciliation to GAAP measures requires to be disclosed about these non-GAAP measures are included in today's earnings press release, which can be found on our website at www.evertecinc.com under the Investor Relations sections.

With that we'll begin today's call by turning over to Felix Villamil, our President and CEO. Felix?

Thank you, Luis. Good afternoon. Thank you all for joining us for our 2011 second quarter investor conference call.

First of all, I want to start by introducing Mr. Juan Jose Roman, our new Executive Vice President and CFO, who recently joined the EVERTEC team. Previously, Juan Jose served as Vice President of Finance and Chief Financial Officer of SSS Management Corporation. SSS Management Corporation is a Puerto Rico-based New York Stock Exchange listed corporation. Juan Jose brings valuable senior financial experience, strategic insight, and broad management skills. We are all very excited to have Juan Jose join the team.

Also here with us today is Mr. Luis Abreu, our former CFO, who recently decided to retire from the Company. Luis will stay with us for a few months to help transition Juan Jose into his role. I would like to take this opportunity to extend our sincerest gratitude to Luis for his invaluable service to the Company. Over the years, Luis built a strong team and he is mainly behind a solid foundation to support our company's continued growth. All of us here at EVERTEC wish Luis the best.

Now, let's turn to the financial results for the second quarter. We continue to make good progress in our transition to a standalone company and we are very pleased with the results of the second quarter. The economy of Puerto Rico continues to show some signs of improvement. We believe the recently enacted tax reform is having a positive effect on retail sales in our economy, and thus on our business.

As discussed on our prior conference call, the government recently lowered the effective tax rate for individuals and corporations in Puerto Rico. While there appears to be some signs of improvements, uncertainty exists and the economy is still operating below normalized growth levels.

GNP growth for the fiscal year ended June 30, 2011 was estimated to have been negative 1%, official number has not been released yet. And the estimated growth for next fiscal year is 0.7%. If growth in the economy picks up, we would expect to see a positive impact in our business. However, as can be seen from our results, our business is positioned in end markets and with customers that enable us to grow in both the strong and weak economic environments.

For the second quarter of 2011, we recorded revenues of approximately $76.2 million. That represented an 11% increase when compared to the same period in 2010. All three of our business segments benefited from organic volume growth both in number of transactions and value of transactions in both our local and international markets, and higher demand for our consulting and banking services.

Adjusted EBITDA for the second quarter of 2011 was $35.9 million that is 18% higher than the second quarter of 2010. Our adjusted EBITDA margins also improved to 47.1% from 44.2% for the same period in 2010.

Now, let me give you a brief update on the Durbin Amendment of the Dodd Frank Act. As most of you know, the final rules regarding the Durbin Amendment came out last month. In summary, the Federal Reserve implemented a higher than expected cap of $0.24 on average, including a variable portion of the transaction value.

This means that merchants will still obtain transaction cost reductions, but less than originally expected. In turn, banks who are the most affected by Durbin will lose about half their interchange income but not 80% at once anticipated.

Like many of our counterparts in the US, our merchant acquiring, an ATH network businesses, are still evaluating their new rules and determining the best ways to work with our issuing banks and merchant assessing customer to implement these new rules. At this time, we do not expect these rules to have any immediate material impact on our business.

Our business unit leaders are in continuous dialogue with our customers, and continue to monitor their marketplace to see how different players react to these rules. We expect to have much more clarity on this matter by the end of this year.

Also, I am pleased to announce that on August 2, 2011, our Registration Statement on Form S-4 was declared effective by the Securities and Exchange Commission, and we commenced the exchange offer for the senior notes within the required deadline.

Now, I will turn it over to Juan Jose to go through the specifics of our financial results.

Thank you, Felix. I also want to welcome everyone to this call. I am very happy to have joined EVERTEC, and I look forward to working with Felix and the rest of the team to continue to grow this business.

As Felix had stated, we are pleased with the results for the second quarter of 2011. The consolidated revenues increased by $7.4 million, or 11%, to $76.2 million when compared to the same period of last year. Revenue increases in each of our three business segments, mostly driven by higher volume and average value of transactions, as well as an increase in the demand for our consulting and banking services.

Now, looking at revenues by segment. Our transaction processing segment had revenues of approximately $20.8 million. This is an increase of 9% when compared to the second quarter of 2010. This increase was primarily due to higher volumes processed over the ATH network, as well as higher volumes in our payment services and card product businesses.

Our Merchant Acquiring segment has net revenues of approximately $14.7 million. This is an increase of 9% when compared to the second quarter of 2010. This increase was primarily driven by higher volume and average value of credit and debit card transactions.

Our business solutions segment has revenues of approximately $40.7 million. This is an increase of 13% when compared to the second quarter of 2010. This increase was mainly driven by higher volumes in our core banking business, and increase in business in our network services and our IT consulting businesses.

Total operating cost and expenses increased $12.3 million or 25% for the quarter ended June 30, 2011 when compared to the same period last year. Excluding depreciation and amortization and non-recurring expenses, total operating costs and expenses decreased by $100,000 or less than 1% when compared to the same period last year.

The decrease is mainly related to lower expenses due to the elimination of corporate expenses and overhead allocations of $2.9 million charged by Popular last year. This decrease is partly offset by higher personnel costs mostly related to the addition of key personnel, higher audit and legal fees that are necessary to support the regional reporting requirements, higher programming fees to support business growth, and management fees for the equity sponsors.

Depreciation and amortization expense increased by $10.7 million, or 166%, primarily as a result of additional expenses of $10.2 million related to the purchase price adjustments in connection with the merger, to reflect the fair value of the acquired property and equipment and intangible assets.

Non-recurring expenses are mostly related to consulting services and legal fees amounting to $1.4 million necessary to support the transition of the Company to a standalone entity, and non-recurring compensation and benefits charges of $400,000.

Non-operating expenses amounted to $13.4 million, compared to a net operating income of $3.5 million for the same period in 2010. This variance of approximately $17 million was mostly due to interest expenses of $13.9 million related to the credit facilities and senior notes incurred in connection with the Merger, and to a decrease in other income of $2.4 million, primarily driven by a $2.3 million pre-tax gain related to the sale of an equity ownership recognized during the second quarter of 2010.

In term of our adjusted EBITDA, we achieved $35.9 million for the second quarter of 2011. This is 18% higher than in the second quarter of 2010. This increase is primarily the result of increases in revenues in our three business segments, and a lower growth rate in our expenses.

For the six months ended June 30, 2011, total revenues increased $15 million, or 11%, to $149.7 million. Total operating costs and expenses, excluding depreciation and amortization and non-recurring expenses, increased by $1.5 million or 2%, when compared to the same period in 2010. The adjusted EBITDA for the six months ended June 30, 2011 was $68 million or an increase of $8.5 million or 14%, when compared to the same period for 2010.

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

Thank you Juan Jose. Turning to the balance sheet, we ended the quarter in a strong position. As of June 30, 2011, we had $31.7 million of unrestricted cash, and $545 million of debt, which represents a total net debt of $514.2 million. We ended the quarter with a total net debt to adjusted EBITDA ratio of 3.79 times.

Our liquidity stood at $81.7 million, which includes the $31.7 million of unrestricted cash on our balance sheet plus $50 million of readily available capacity under our revolving lines of credit, which remain undrawn.

During the quarter and in connection with the CONTADO acquisition, we repaid a mandatory $1.7 million on our secured notes. In addition, on May 4th, we made a $24.7 million voluntary repayment on our senior secured term loan. This voluntary pay down is the result of our strong liquidity position and cash management strategy.

We have reduced the senior secured debt by approximately $29 million since September 30, 2010. As mentioned by Felix, our registration statement on Form S-4 was declared effective on August 2nd. We are now in the process of exchanging our outstanding senior notes for a nice principal amount of registered senior notes. Please visit our corporate website under the Investor Relations section for a copy of our S-4 Registration Statement.

With that, we will open up the call for questions. Operator, please provide us further instructions.

(Operator Instructions)

Our first question comes from Paula Sen of Morgan Stanley, you may proceed.

Hi, thanks for taking the call. I just had a couple of quick questions. Firstly, your revenue growth numbers, are they reported in constant currency dollars? And two, I was wondering if you could give a little more color on the quarter in cash flow.

Could you repeat the question? Sorry.

Sure. The first question was about revenue growth, I was just wondering if your revenue growth numbers are reported in constant currency dollars, excluding the impact of foreign exchange. And the other question was, I was wondering if you could provide a little more detail about your cash flow for the quarter.

Hi, Paula, this is Juan Jose. Regarding your first question, the answer is yes. The translation is already included there. Regarding our cash flows, basically we have net operating cash flows for the quarter of $26.1 million, which is kind of similar to the same period of last year of $26.9 million.

Regarding our investing activities, we have net cash use of $22 million as compared to cash provided last year of $12.7 million. Regarding our financial activities, we have cash use of $28.1 million as compared to $40.4 million of last year. So, overall, basically we continue our positive cash flow from operations. So, as it has been in the past, we have enough cash flow to sustain our operations.

Great. Thank You

(Operator Instructions)

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

Okay. Thank you. I just want to thank you all for joining us on our call today. As you have seen, we continue growing our company and improving our operations together with our growth strategy to keep our momentum. We look forward on updating you all on our progress during our next quarterly call.

Chris, now you can end this call.

Thank you for joining the 2011 EVERTEC Incorporated Second Quarter Earnings Conference Call. This concludes the call, so everyone may now disconnect. Have a great day.