Evertec Inc (EVTC) 2012 Q2 法說會逐字稿

Good morning. My name is Pamela, and I'll be your conference operator for today. At this time I would like to welcome everyone to the EVERTEC 2012 second quarter earnings call.

(Operator Instructions)

I would now like to turn the conference over to M. Luis Cabrera. You may begin your conference.

Thank you, Operator. Good morning, everyone. Welcome to our second quarter 2012 earnings conference call. I'm Luis Cabrera, Senior Vice President, Treasurer, Head of Investors Relations and Corporate Development for EVERTEC. With me today is Peter Harrington, our President and Chief Executive Officer; Juan Jose Roman, Executive Vice President and Chief Financial Officer; and Mike Vizcarrondo, Executive Vice President, Head of Merchant Acquiring Business and ATH Network.

A replay of this call will be available through August 27. Access information for the replay is listed in today's financial press release, which is available through our website at evertecinc.com under the investors relations tab. As a reminder, this call may not be taped or otherwise reproduced without EVERTECs prior consent. For those listening to the replay, this call was held and recorded on August 13, 2012.

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 for 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, August 13, 2012, reflect the Company's current expectations only, and we undertake no obligation to update any statements to reflect events that occur after this call. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 27, 2012, and in other reports we file with the SEC from time to time for factors that could cause actual results to differ materially from forward-looking statements.

During today's call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as adjusted EBITDA. Certain information and reconciliations to GAAP measures required to be disclosed about these non-GAAP measures are also included in today's earnings press release.

With that, we'll begin by turning the call over to Peter Harrington, our President and CEO.

Thank you, Luis, and good morning, everyone. We are pleased to report another strong quarter of robust organic growth and free cash flow generation. Revenues increased across all of our business segments, and we continue to enjoy positive momentum as we expand our presence in Latin America, as evidenced by a 16% year-over-year increase in revenues outside of Puerto Rico for the quarter.

As part of this strategic growth plan, we recently established a foothold in South America with the opening of our first office in Columbia, and going forward believe that our leading technology platform will support continued strong growth in the region.

Adjusted EBITDA for the quarter ended June 30, 2012 was $40.9 million, an increase of $3.4 million or 9% as compared to the same period in 2011. The increase was primarily driven by higher revenues. Our adjusted EBITDA margin also continued to improve, increasing to 48.5% versus 47.6% in the second quarter of 2011 as a result of operating leverage and successful implementation of cost saving initiatives.

As mentioned during our last earnings call, we returned capital of approximately $270 million to shareholders during the second quarter through a special dividend. The special dividend was funded with a combination of cash on hand and net proceeds from the issuance of approximately $210 million of additional debt.

This distribution was facilitated by EVERTEC's significant deleveraging and free cash flow generation over the last 18 months. And as part of the transaction, we were also able to increase our maintenance covenant headroom, providing us additional financial flexibility going forward.

As we move into the second half of 2012, we remain focused on the strategic growth of our business, serving our clients and driving profitability and customer service enhancements through the ongoing optimization of our operations and organizational structure.

Consistent with this effort, we recently hired Philip Steurer as Executive Vice President and Chief Operating Office for EVERTEC. Philip brings to bear deep operational expertise and broad management skills that will enhance our existing integrated business platform and growth effort, and we are pleased to welcome him aboard.

With that, I'll turn the call over to Juan Jose for the financial details of the quarter.

Thank you, Peter, and good morning to everyone. For the second quarter of 2012, total revenues increased $5.7 million, or 7%, to $84.4 million, compared to $78.7 million in the second quarter of 2011.

Transaction Processing segment revenues increased by $3 million, or 15%. Merchant Acquiring segment net revenues increased by $2.3 million, or 16%. And the Business Solutions segment revenues increased by $0.3 million, or 1%.

Revenue growth in the Transaction Processing and Business Solutions segments was primarily attributable to an increase in transactions, and further penetration of our products and services in the markets we serve. The increase in the Merchant Acquiring segment revenues was driven by higher sales volumes and higher realized net margin.

Total operating costs and expenses, excluding depreciation and amortization, were $48.3 million for the quarter ended June 30, 2012, an increase of $1.7 million, or 4%, compared to $46.6 million for the same period in 2011.

The increase was primarily attributable to higher equipment expenses and professional services fees to support business growth, which was partially offset by a decrease in personnel expenses related to cost control measures implemented in late 2011. Total operating costs and expenses, excluding depreciation and amortization, as a percentage of total revenues, decreased by approximately 190 basis points to 57.3% from 59.2% in the prior year period.

Non-operating expenses for the quarter ended June 30, 2012 were $21.1 million, compared to $13.4 million in the same period in 2011. The $7.7 million increase reflects one-time expenses of $8.8 million associated with the issuance of additional debt, partially offset by an increase in other income and a slight decrease in interest expense.

Income tax benefit for the quarter ended June 30, 2012 amounted to $88.5 million, compared to $0.4 million for the corresponding 2011 period. The income tax benefit for the quarter ended June 30, 2012 was driven by the elimination of EVERTEC's deferred tax liability balance related to its operations in Puerto Rico following its conversion to a limited liability company on April 17, 2012.

As mentioned during our last earnings call, through this new structure EVERTEC will benefit from at least $30 million of net operating losses and certain other tax attributes going forward.

Adjusted EBITDA for the quarter ended June 30, 2012, was $40.9 million, an increase of $3.4 million, or 9%, compared to $37.5 million for the same period in 2011. This increase was primarily due to higher revenues and partially offset by a slight increase in cash expenses. Adjusted EBITDA margin improved by approximately 87 basis points to 48.5% as a result of operating leverage and successful implementation of cost savings initiatives.

With that, I will now turn the call over to Luis, who will discuss EVERTEC's balance sheet and liquidity position.

Thank you, Juan. [Pro forma] for the aforementioned financing transaction, EVERTEC continues to enjoy a strong balance sheet, and as of June 30, 2012, reported $25.7 million of unrestricted cash, and $745.5 million of total debt, which represents total net debt of $719.8 million.

As of June 30, 2012 our total net debt to adjusted last twelve months EBITDA ratio was 4.57, and liquidity stood at $75 million, which includes the $25.7 million in unrestricted cash on our balance sheet, plus $49.3 million of available capacity on our revolving line of credit.

Our senior secured credit agreement requires us to maintain a maximum senior secured leverage ratio no higher than 3.85. As of June 2012, this ratio stood at 2.98, so we are comfortably within the requirements.

With that, we'll open up today's call for your questions. Operator, please provide us the instructions.

(Operator Instructions)

And your first question comes from Arun Seshadri with Credit Suisse. Please proceed.

Hello, gentlemen. Thanks for taking my questions. Just wanted to start off, maybe if you could give us an idea for how transaction growth has progressed in July so far?

Can you repeat that question, please? We couldn't hear you very well.

Oh, sure. I was just asking if you could give us an update on how July transaction growth was?

We haven't seen any difference from what we've experienced in the first two quarters.

Okay, great. And then, as far as uses for free cash flow going forward over the next few quarters, are you seeing strong opportunities for acquisitions? If you could comment on how you expect to use your cash flow generated in the quarters going forward.

Certainly, acquisitions will be -- will always be part of the growth strategy of EVERTEC, following, obviously, organic growth. So, if those opportunities present themselves, certainly we will use the cash flow that we have on hand to help fund those. Other than that, we will use the cash to invest in the business, as we normally do, in the technology, in equipment and space areas.

Okay. Thanks, guys.

And with no further questions in queue, I'd like to turn the call back over to Mr. Peter Harrington for closing remarks.

I want to thank you all for joining us on our call today, and for your ongoing support of EVERTEC. We are very excited about the continued growth of EVERTEC's leading technology platform, and look forward on updating you again when we report third quarter results in November.

Operator, you may now end the call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.