Evertec Inc (EVTC) 2016 Q3 法說會逐字稿

Good afternoon, everyone and welcome to the Evertec third quarter 2016 earnings conference call. Today's conference is being recorded. At this time I would like to turn the call over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.

Welcome to the Evertec third quarter 2016 earnings call. With me today are Mac Schuessler, our President and Chief Executive Officer and Peter Smith, our Chief Financial Officer. A replay of this call will be available until Wednesday, November 9. Access information for the replay is listed in today's financial release which is available on our website under the investor relations tab.

As a reminder, this call may neither be recorded nor otherwise reproduced without Evertec's prior written consent. For those listening to the replay this call was held on November 2. Please note there is a presentation that accompanies this conference call and it is accessible in the IR section of our website as well as by the link provided in the earnings release earlier today.

Before we began, I'd like to remind everyone that this call may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performances are subject to known and unknown risks and uncertainties.

Evertec cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur after this call. Please refer to the Company's most recent annual report on Form 10-K filed on May 26, 2016 with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements.

During today's call management will provide certain information that will constitute non-GAAP financial measures under SEC rules such as adjusted EBITDA, adjusted net income and adjusted earnings per share. Reconciliation to GAAP measures, and certain additional information, are also included in today's earnings release and related supplemental slides. I'll now hand the call over to Mac.

Thanks, Kay and good afternoon everyone. We are pleased to announce our third-quarter results. I'll cover some of the quarter's highlights and provide you with an update on our recent developments.

Beginning on slide 4, we have a summary of the quarter. Total revenue was approximately $94.5 million, an increase of 2% compared to the third quarter of 2015. We delivered adjusted earnings per share of $0.41, an increase of 5%. We generated significant free cash flow and returned approximately $22 million to our shareholders through stock buybacks and dividends.

On slide 5 is an update on Puerto Rico. Before I review the results of the quarter, I want to briefly comment on our pending acquisition for approximately $10 million. This acquisition will leverage our excess capacity in the business solutions segment as well as provide some cost synergies. We are currently waiting for Federal Reserve Board approval and anticipate closing in the fourth quarter. This acquisition is yet another example of our ability to utilize our skill and financial flexibility to take advantage of additional opportunities in Puerto Rico.

Moving on to our results in Puerto Rico, this quarter we experienced the strongest transaction growth in almost two years. Transactions grew 8%, offset by average ticket declines as well as merchant mix shifts. Transaction growth was primarily driven by increased tax payments as well as continued increases in cash-to-card conversion. While the Zika virus has negatively impacted the Puerto Rican tourism industry, our diversified business has limited direct exposure and thus was not meaningfully impacted this quarter.

Unfortunately, during the quarter, we were disappointed with a project that reduced our payment revenue growth. This revenue reduction, combined with the Oriental contract change, contributed to a 3% revenue decline in the quarter. Delivering this project is a high priority for us and the team is actively working to resolve it. Our primary focus is to satisfy our client.

We are also diligently working on innovating new solutions to differentiate and strengthen our value proposition to our clients and their customers. To this end we continue to see fast-paced growth in our person-to-person ATH Movil application which has over 700,000 registered users today. With the explosion of smartphones and tablets, ATH Movil is becoming part of the fabric of life here in Puerto Rico. From paying the babysitter to pay in the food truck vendor, it further reinforces our ATH brand and today, this service is free. In coordination with the financial institutions on the island we are now working on a commercial offering that will provide new features to our merchants to capitalize on the rapid acceptance of the ATH Movil product.

It is also worth noting that in September Puerto Rico experienced the most significant powder outage in 30 years, but I am pleased to report that Evertec's back up infrastructure worked as planned and our business was largely unaffected.

Moving on to slide 6. I'll give you an update regarding PROMESA, known as the Puerto Rico Oversight Management and Economic Stability Act. The Federal Oversight Board was appointed September 1, and we are pleased with the overall composition of the board and the strong Puerto Rican representation.

Additionally Governor Garcia Padilla presented his long-term fiscal plan for Puerto Rico to the Oversight Board on October 14. The plan laid out the significant financial challenges of the island and the Board now has a better understanding of the severity of the situation. Governor Garcia Padilla is not running for reelection and thus the election will bring a transition to the next administration which will be tasked with the implementation of the 2017 plan approved by the Board. Additionally the Board's Executive Director appointment deadline has been extended until mid-January.

We will continue to monitor the situation, but visibility remains unclear. We will have a better perspective with the new government is in place and the 2017 plan is finalized.

That said, it was very clear in the governor's presentation of the fiscal plan that investments are necessary to improve the government's IT infrastructure to reduce costs and improve efficiencies. We continue to believe that Evertec is well positioned to assist the government to achieve these goals leveraging our local workforce, knowledge of existing systems, and payments infrastructure.

Additionally, the Economic Task Force created under PROMESA and headed by Senator Orrin Hatch, is working on compiling a report that will include recommendations on how to remove federal impediments that inhibit the growth of the Puerto Rican economy. This report is due to Congress on December 31. The task force is working through the challenge of obtaining reliable data on the economic, financial and fiscal situation in Puerto Rico and they have called on and received proposals from stakeholders for law changes or initiatives to simulate growth.

During this difficult time in Puerto Rico here at Evertec we are focused on three things. One, to deliver services that help the government achieve their goals. Two, drive more transactions to our payment networks through innovations and service. And three, continue to position ourselves and our partners for opportunities that leverage our scale to drive attractive returns.

Turning to our Latin America results on slide 7. Revenue growth was significant with continued strong organic volumes, a hardware sale, and the ongoing strong performance of the Processa acquisition. On a comparable basis, Latin America, excluding the hardware sale and Processa, generated mid-teens revenue growth and continues to outperform our expectations due to delayed client migrations.

The LatAm team continues to pursue new opportunities as well as contract renewals. Additionally they were able to retain clients totaling approximately $1 million in annual revenues that had previously indicated that they would be migrating off our platforms. As we mentioned on our last call we now anticipate the majority of our client migrations to occur in 2017 and Peter will provide more details on the estimated potential impact to our revenue.

In summary, although we anticipate headwinds in 2017 in both Puerto Rico and Latin America, we are pleased with our strategic progress including having announced our third acquisition within 12 months. With that, I will now turn the call over to Peter.

Thank you Mac and good afternoon everyone. I'll now provide a review of our third quarter results and then review our financial outlook for 2016 and provide some comments on 2017.

Turning to slide 9, you'll see the third quarter and nine months revenue for the total company in our segment revenue details. Total revenue for the third quarter of 2016 was $94.5 million, up 2% compared to $92.9 million in the prior year. We had a positive impact from the inclusion of the Q4 15 expanded FirstBank relationship as well as the contribution from this years Processa acquisition. This growth was offset by a project delay in our payment segment that negatively impacted revenues approximately $2 million in the quarter. Total revenue for the nine months ended September 30 was $287.6 million, up 4% year-over-year.

With respect to the segment mix, in the third quarter, Merchant Acquiring net revenue increased 6% year-over-year to approximately $22 million driven by the FirstBank Merchant Acquiring relationship. This growth was partially offset by a shift of revenue from the Merchant Acquiring segment to the Payment Processing segment, reflecting a new contracting arrangement with Oriental Bank in Q2. This shift impacted the segment revenues growth by approximately 6% to 7%. Also, as a reminder, the FirstBank transaction anniversaries this November.

As we have experienced throughout this year, revenue growth was impacted positively by ongoing transaction growth offset by a lower average ticket as well as other merchant mix shifts. For the nine-month period, Merchant Acquiring grew 10% year-over-year to $68.1 million.

Payment Processing revenue in the third quarter was $27.6 million, approximately even with last year. Revenue growth was driven primarily by increases in our ATH debit network and card processing volume, Processa revenue, and the Oriental contract change I referenced. This revenue growth was offset by the segment revenue shift associated with the change in the FirstBank agreement and the terminated government lottery tax program, both of which occurred in the fourth quarter of 2015.

Additionally, as Mac referenced we had a project delay that impacted us approximately $2 million in the quarter. The delay pertains to a contract renewal where we agreed to deliver an enhanced solution while we continue to process transactions on the existing solution. The delay prevents us from recognizing revenue until we deliver the solution and resolve the impact of the delay with the client. Our primary focus is to take care of our client and we are working diligently to deliver the new solution.

In the quarter, transaction growth in Puerto Rico was strong, growing approximately 8% year-over-year and this elevated transaction level has continued into October, in part driven by increased processing of electronic payments by government agencies. We also benefited from the recent legislative initiatives to require the acceptance of electronic payments for small businesses although it's difficult to estimate the sustained impact at this time.

For the nine-month period, Payment Processing grew 3% to $82.7 million driven by these same reasons I previously mentioned. Business solutions revenue in Q3 increased 1% to $44.9 million. Our growth was driven by the new government tax hosting service and other IT services. Which added approximately $1.6 million more than last year. This growth was partially offset by year-over-year decreases in our paper-based businesses. The nine-month period, business solutions grew 1% to $136.8 million primarily reflecting growth in our core banking services partially offset by lower item processing and IT services.

Moving on to the next, number 10, you will find a reconciliation of our adjusted EBITDA. We incurred restructuring severance expense of $0.6 million along with share based compensation of $1.4 million. Additional adjustments include transaction related expenses and the equity income in our subsidiary for total of $0.7 million.

Adjusted EBITDA for the quarter was $45.1 million, a decrease of 4% from $46.9 million in the prior year. Adjusted EBITDA margin was 47.8% and this represents a 270 basis point decline in our adjusted EBITDA margin compared to the prior year. Our Q3 adjusted EBITDA growth and our adjusted EBITDA margin percentage are explained in more detail on the next slide. Year-to-date adjusted EBITDA was $140 million, approximately even with last year.

Moving to slide 11, you will see a year-over-year adjusted EBITDA margin bridge for Q3. Starting from the left column the bridge begins with the adjusted EBITDA margin in the third quarter of 2015 of 50.5%. Moving to the right, first, we were positively impacted approximately 20 basis points by our revenue mix which was then offset by approximately 100 basis points by the project delay I referenced. Third, investment expense increased year over year by approximately 90 basis points, primarily due to incremental investment expense related to our Latin America growth initiatives. Fourth, the business to business tax impacted us by approximately 60 basis points, or approximately $500,000, in Q3 and as a reminder this tax will anniversary in Q4.

Additionally, in 2016 and in the future, we no longer receive an expense offset related to maintenance expense reimbursements provided for in the Popular merger agreement, which impacted us approximately 40 basis points and this will anniversary in Q3 2017. The combined impact of these referenced items resulted in an adjusted EBITDA margin of 47.8% for the third quarter of 2016.

Moving to slide 12, adjusted net income in the third quarter was $30.4 million, approximately even with the prior year. Our effective tax rate in the third quarter was 7.7% and includes the impact of a discrete tax item in the quarter that decreased the rate. For the year to date period, we had an effective tax rate of 9.7% and we expect this rate to approximate the full year rate.

Q3 adjusted earnings per diluted share was $0.41, an increase of 5% from $0.39 in the prior year and reflects the benefit of the lower diluted share count as a result of our share repurchase program. Year to date, adjusted net income was $93.4 million, up 4% and adjusted diluted earnings per share was $1.25, up 8% from $1.16 for the nine-months ended September 30.

Moving on to our year-to-date cash flow overview on slide 13. Net cash provided by operating activities was approximately $125 million, roughly even with the prior year and this includes the adverse impact of re-statement related expenses earlier in the year, settlement timing and other working capital timing differences. There has been an approximate $4 million decrease in the restricted cash as we substituted $4 million of our unused revolver to satisfy a card network cash collateral requirement related to our card processing business.

Next the Processa acquisition was approximately $6 million. Capital expenditures year to date were approximately $31 million. We expect CapEx for the year to be at the high end of our $35 million to $40 million range driven in part by increased point-of-sale hardware purchases. Next, the company made a total of approximately $16 million of principal debt payments, $3.6 million for the credit waiver amendment fee, and a reduction of approximately $2 million in short term borrowings.

Finally year-to-date we paid cash dividends to stockholders of approximately $22 million and repurchased approximately $30 million of common stock, for a total of nearly $52 million returned to our shareholders. We have approximately $90 million available for future use under the Company's share repurchase program and we recently announced another $0.10 dividend to be paid on December 2, 2016 to shareholders of record as of November 14, 2016. Our ending cash balance at September 30 was $45 million, an increase of approximately $16 million from our 2015 year-end balance.

Moving to slide 14. Before I review a summary of our debt at the end of the third quarter, I'd like to comment on a future change to our credit facilities. Earlier this week we received commitments to extend the maturity of our Term Loan A and revolver facilities. We received commitments to amend and extend $215 million of our Term Loan A and $65 million of our revolving credit facility to January 2020, from the existing April 2018 maturities.

The remaining $35 million of our existing Term Loan A and $35 million of our existing revolver, respectively, will remain in place and mature is scheduled in April 2018. As consideration for the extension, we agreed to pay 100 basis point consent fee and to amend the coupon to a LIBOR plus 250 basis point fixed rate, or a 25 basis point increase from our current rate, which varies based on our leverage ratio.

We also agreed to amend and reduce the maximum senior secured leverage ratio from 6.6 times to 4.75 times and then to a further step down after 24 months to 4.25 times. And finally the amendment requires scheduled amortization payments over the extended term. We expect to close the transaction later this week and total cash charges are expected to be approximately $4.5 million in the fourth quarter. Importantly, this transaction will closely align our Term Loan A maturity to our 2020 Term Loan B maturity and extend our favorable debt cost structure.

As a reminder we entered into a one year forward interest rate swap in the fourth quarter of 2015 on $200 million of Term Loan B principal and the swap becomes effective in January of 2017. Previously all of our debt was variable and the swap provides for approximately 30% of the overall facility to be at a fixed rate of approximately 4.4%. At constant current rates, we anticipate our cash interest expense to increase in 2017 approximately $2.5 million because of this swap and refinancing.

Now onto a summary of our debt for the third quarter 2016. Our quarter ending net debt position was approximately $611 million comprised of the $45 million of unrestricted cash and approximately $656 million of total short term borrowings and long term debt. Our weighted average interest rate was approximately 3% and our net debt to trailing 12 month adjusted EBITDA has been reduced to 3.27 times from our year-end 2015 multiple of 3.5 times. As of September 30, total liquidity, which includes unrestricted cash and available borrowing capacity under our existing revolver, was approximately $125 million.

At this time I'd like to provide you with an update on the status of our government receivables. Our receivable at September 30 was approximately $18 million, which is essentially flat with the balance at the end of 2015 and down from the Q2 balance. Given the government debt situation, the upcoming Puerto Rican elections, and the PROMESA process, we continue to monitor our receivables accordingly.

Moving to slide 15, I will now provide a review of our 2016 guidance. We are reaffirming our guidance ranges on revenue EBITDA margin and adjusted earnings per share. We expect revenue to be in a range of $382 million to $388 million representing growth of 2% to 4%. Our EBITDA margin guidance of 48% to 49% remains unchanged. Our adjusted diluted earnings per share guidance of $1.61 to $1.67 represents a growth range of 1% to 5%.

Now turning to some comments on 2017, we have number of items that are notable that I'd like to review. First, the Oriental contract change that was effective this past June will continue to have approximately 1% negative revenue impact through the first half of 2017.

Second, in Latin America, we are currently estimating attrition of $7 million to $10 million in revenue related to client migrations and anticipate these to be evenly spread throughout the year. This estimate is based on migration dates provided to us by these clients.

Third, the pending acquisition we announced should help partially offset these anticipated revenue headwinds but will have a lower margin contribution as compared to the LatAm attrition which is high-margin card processing revenue.

Fourth, the CPI index for September was announced October 18 and was 1.5%. Which will positively impact a significant portion of our Business Solutions revenue.

Finally, although the impact of PROMESA remains unclear we do anticipate some economic headwinds in Puerto Rico related to potential (technical difficulty) also look forward to competing for potential 2017 IT and payments initiatives as they arise. We're carefully monitoring the PROMESA process and we believe that the final 2017 fiscal plan should give us a clear perspective.

We will update you with our full 2017 outlook next quarter. We will now open the call for questions. Operator, please go ahead and open the line.

Thank you.

(Operator Instructions)

Jim Schneider Goldman Sachs. Please go ahead.

Good afternoon. Thanks for taking my question. Thanks for the early guidance and outlook on 2017. Can you maybe provide a little bit of color on what's going on with the client migrations you mentioned. Is that a competitive takeaway from another card processor? Can you give us a little bit of color on how many clients that is and the relative size of those?

Yes, Jim, this is Mac. So we've been talking about this for about a year now that we had some clients that had notified us they were going to migrate based on the servicing that we provided in the past. We had thought many of those would roll off and 2016 and now we believe those will rollout off in 2017.

Most of these have gone to --they've either brought it in-house, gone to competitors, but there's no really competitor concentration on these departures. And as far as customers we're not naming any or citing individual customers, but it's multiple customers it's not just one customer.

So again it's something we talk about in the past. It occurred because of the way they were serviced in the past. We thought they would leave this year, but they're not going to be leaving until next year. I don't know, Peter, if you want to add anything.

I'll just add that we didn't feel it was appropriate earlier to quantify this as we were still the process of trying to retain the clients and we feel that we had diligently explored that to the fullest at this time and it was just responsible to share the amount with -- publicly.

As said earlier, we did save a minimal amount; we saved about $1 million of revenue over the past year and they're not gone until they're gone. So we're going to continue to try and see if there are ways to keep these customers. But we have been working on it for a year now. And we think there's going to have an impact next year.

Thanks for clarifying that. I had assumed that they had already -- were always runoff mode, so that's helpful. And then maybe as a follow-on to that, can you maybe just give us -- Mac, from your comments on Promesa, it sounds like you have some hope that you might actually benefit from some of the IT infrastructure initiatives that might get initiated under that plan. Can you give us some kind of a color about -- understanding it's early days, what form those programs might take and if that's in fact a correct conclusion?

Yes so it would be premature to tell you exactly what programs and plans they're going to implement. What I would tell you is if you look at the dialogue with Promesa, people that we've talked it's very clear that economic stimulus is as important as creating more efficiency in the government, and given where the largest employer on the island, the largest technology company, I believe there's an understanding that we are very well-positioned to assess that.

We've been building good relationships on the island, with the government, to make sure that we're positioned. We do think that's going to be an opportunity next year, to some extent. But you've got a remember once the programs are decided and put in place, it may have some impact in 2016, but beyond 2016 in particular.

(Multiple speakers) 2017 and I think another very important aspect of it is getting the respective agencies on a common platform, so there will be a lot of consolidation we believe hopefully to get the agencies on this -- on a central platform, and leverage infrastructure across the government, and we view that as a big opportunity for the government and ourselves.

Yes and we talked earlier too, if you look at the transaction growth in our payments business, 8% is pretty good and a lot of that was because of government -- accepting payments in government initiatives. So we think our business has had the opportunity to benefit from some of the changes and improvements to the island.

And just -- we will learn more next quarter as the plan is taking shape. There was an initial document that was presented by the governor, but that is under review by the Board and it will only be finalized after the new government takes shape and that will give us a clearer picture which we'll share next quarter with everyone.

That's helpful. And maybe just last one from me, on the margin commentary provided on 2017, are you saying that the rolloff of those customer migrations is going to flatten the margin profile heading into 2017? Or are you just going to get less margin extension than you otherwise would given the incremental -- higher incremental margins in the core business?

Yes. Well we have high margins showing a typical payment processing business which, this is in Latin America. It's a card issuing business where we switch transactions for ATM and card products. And so if you lose that revenue we use the same leverage infrastructure. So it's going to be challenging for us to offset the entire amount of the margin loss that we expect.

We will obviously work towards that and then the other thing we highlighted in the script is that the pending acquisition that we expect to close in the quarter should partially offset that with its contribution, but won't fully offset it as we anticipate right now. So there will be margin pressure as a consequence of those two things.

Thank you.

Thanks, Jim.

Bob Napoli, William Blair. Please go ahead.

Thank you just to follow-up on the migration. The $7 million to $10 million that you said is coming off equally, is that the amount of revenue that you will lose last year -- next year, or is that -- and so the run rate going into 2018 is higher? Or is that the total? I'd like to understand how much total revenue you're losing?

Yes, Bob. $7 million to $10 million would be the aggregate amount of revenue lost that we anticipate in 2017 as a consequence of the projected timing of those departures. The aggregate value of that is slightly higher than that range, but that is the amount that we anticipate to impact 2017.

So the aggregate amount is more like $15 million?

No. It's a couple million different.

So the $7 million to $10 million is the view on what we think would exit next year. But that doesn't not factor in any organic growth in the base.

Okay, then, the migration. Are you through the clients that are going to migrate? Have you been able to -- are we going to see net additions of clients from here? I understand that those were long-standing issues and I know you've made a lot of organizational adjustments, Mac, since you've been there. But would we expect this to be the end of the migrations of materiality?

Yes, so our view is, again this is something we're facing going into 2016, our goal in 2016 was to do two things. One is, retain as much as we could and then focus on new business. This is -- what we believe today is what will depart based on historical decisions and we believe that this -- with our understanding today, the limit of that and that we've saved about $1 million.

So, it would've and greater but our efforts have saved $1 million. So we think we have our arms around the issue of the past and that we're managing, you know, the business beyond that, so we don't anticipate more beyond this.

Yes and then, Bob, just in terms of an annualized number, it would be $10 million to $14 million would be the ballpark range of the aggregate volume.

Okay and then as far as new business that you're adding and acquisition, it would've been nice to see an acquisition in payment processing and -- outside of Puerto Rico. But why the acquisition in business solutions and how much revenue and EBITDA does this add?

Let me answer. So, I'll try to answer a couple of pieces of that and then I'll hand it to Peter. One is we're still focused on new business because you asked about new business in M&A, we're still very focused on new business in LatAm.

As we said, at the beginning of the year, we want to continue to ensure that we're adding new accounts in the new territories. Right now, we don't have anything to announce, but that's still a significant focus of the team. And you know it's like M&A, we can't really talk about it until we have one to talk about.

On the M&A side what I'd say the team is still focused on opportunities in Latin America. It's a priority for the Company and were continually looking at opportunities. This deal specifically, the valuation was very good and it really leverages existing capabilities and has a great synergy. So we like the valuation, we like the leverage and we think financially it's a great deal, or a good deal. And I'll hand back to Peter.

Yes I would just add to that, this was, we stated before publicly if we came across an opportunity here in Puerto Rico where we could leverage our scale and get real attractive returns on our capital, that we would take advantage of that and this is an example of that. Until we close the transaction, we're not going to give further detail other than the purchase price. But we expect to close that in Q4 and we'll update everybody in advance of next year's guidance.

But Bob, it doesn't change our focus on LatAm. We said it's three types of deals: geographic expansion, product expansion, and leveraging scale in Puerto Rico. And again this is that third, but we're still focused on those to provide the opportunities in the other two buckets.

Great, thank you.

Thanks Bob.

(Operator Instructions)

George Mihalos, Cowen. Please go ahead.

Great, thanks guys. Just wanted ask as it relates to the 2016 guidance and what it implies for fourth quarter revenue, it's a pretty wide range. It is anywhere from minus one to plus five. Can you talk a little bit about the puts and takes that you've built into that and, just to be clear, does that include any potential revenue from the business solutions acquisition?

First, we will not include now or ever any revenue from an acquisition until we announce it, so it does not include any revenue from acquisition. Secondly, there really two key puts. One is just uncertainty as we go through Promesa here and just not knowing how that's all going to unfold here in the quarter.

And the other is the project delay, just not knowing exact resolution of that. We debated bringing up the bottom of our range, but then ultimately decided to leave it where it was just not knowing those two things. So that hopefully gives you a little color into our thought process and how we arrived at that number.

Okay. So it sounds like you're hopeful that you can resolve the $2 million delay this quarter. Is that a fair characterization?

We are extremely focused on doing that, yes.

Okay.

It requires, obviously, us to deliver and a client to accept what we deliver and so forth. So we're working on that diligently.

Okay. And I know you guys don't want to include any revenue obviously until the acquisition closes, but is the thinking right now, that from a revenue perspective, almost all of the lost contract headwind will be made up by the acquisition. But you're still going to have a profitability delta or an EBITDA delta given the lower margins?

I think that's a reasonable way to consider it.

Okay. And just last question from me, the pipeline of new business in LatAm: anything new there? Do you feel any differently than maybe you have over the last quarter or so? Thank you.

Yes, so no, nothing to announce at this time. As we [test] the beginning of the year we'd be disappointed if we didn't announced it throughout the year, so every quarter that we don't, I'm not happy. But this, we'll continue to focus on it and when we have deals we'll announce them.

Thank you.

Thanks.

Bob Napoli, William Blair. Pleased go ahead.

Yes how is the business progressing in Columbia?

Yes, so I would say we are very pleased with the performance of the business in Columbia. And as we told you, the business organically in LatAm, the historical business grew well, and when you add in Processa it grew exceptionally well. So we're very pleased with that acquisition, it's exceeding our expectation.

Yes, I would just add with a little more specificity, with a significant currency headwind it's still mid-teen growth even after factoring that in. So it's exceeded our plan and it's doing very well.

Yes and the other thing, Bob, I would to say, we don't have a history of acquisitions up until the last 1.5 years. Those that we've announced, we feel very good about how they performed post acquisition, which I think is a good sign for the Company.

Is your pipeline, I understand you're not going to announce anything, but do you feel like you're seeing enough opportunities now that fit to such that the likelihood of you closing attractive deals related to your goals are more likely today than they were a year ago or -- ?

I don't think our thesis has changed, the reason is complicated because every country in the industry is different. As I've said Mexico has started selling Merchant Acquiring businesses in Columbia. In some of the other countries there is noise that some of the processors may come on the market. In some countries there's nothing like that. So every country's different, it's complicated. To me that should be our advantage, so I don't think our thesis on M&A has dramatically changed.

And then mid-teens growth in Latin America sounds good. How do we think about that though? When you're looking at next year essentially you have the migrations obviously. And I don't know ex the migrations, the ex the bad stuff is that type of a growth rate sustainable, or can it accelerate?

I believe it is. We have got the same clients there and have the same trends in place. I think we can aspire to do better by improving the solutions for the markets as we're working on and in investing on that. So that's our aim and then obviously we have to close business here, and that would potentially improve that.

Last question. The tax rate for 2017. What would you expect to be your -- ?

Yes, Bob. We expect that to approximate where we were exiting 2016; so right in the middle of 9 and 10 or 9.5, 9.7-ish range.

And then I'm sorry the revenue benefit from the CPI increase?

Yes that's about $0.5 million per quarter for three quarters.

$0.5 million per quarter for three quarters starts in -- ?

Then we anniversary it next year Q4.

All right so you get it in the fourth quarter, it'll be -- you get, okay. All right. Thank you.

Thanks Bob.

Tien-tsin Huang, JPMorgan. Please go ahead.

Hey thanks just to follow up on Bob's question, just on the acquisition and the deal front. Just any change in priority across three business lines? I know Puerto Rico sounds like more it's more of a business solutions opportunity. Has the merchant versus payer processing changed in a priority for you?

What I would say is, outside of Puerto Rico, we're still focused on the payments business. But again what we do today it's not just Merchant Acquiring, we also do processing. So, we are looking at different types of businesses as it relates to payments, is the main targets outside of Puerto Rico.

Yes I would just add that anything that could complement our business here in Puerto Rico, on either the payment side or the merchant side, we would -- obviously looked for that as well in terms of Puerto Rico and then otherwise as we've always stated our focus outside Puerto Rico is payments.

Got it. Any change in the regulatory tone in some of the countries you're going after that might change the pace of deals?

Well what we've noticed is that from a regulatory perspective, some of these countries have one or two processors or Merchant Acquirer's and there's interest in more competition and the banks are looking for more innovation. So it's hard to predict. I think the pace of the industry changing in some of the larger countries is going to increase, but the pace at which these assets turnover is hard to predict.

Because of your selling a straight Merchant Acquirer, like Bandamax that's an easier transaction, than if you're trying to break up a processor that has 10 or 12 banks participating. So I think that is an acknowledgement that the industry needs to shift, but have some of these assets unfold or transform themselves may be a little bit less clear.

Okay, no, that's helpful to hear. Because it feels like the whole level playing field concept is getting louder, but hard to see what the real movement is on the ground. Thank you.

Yes. Thanks, Tien-tsin

(Operator Instructions)

John Davis, Stifel. Please go ahead.

Hey, good afternoon guys. Wondering maybe if we could talk a little bit about the 8% transaction growth in Puerto Rico and why that didn't translate to better revenue growth acquiring and processing and maybe what some of the puts and takes are there?

Yes, hi John. First we're encouraged by the aggregate transaction volume, obviously, and that continues to be better than what we project. So having that and then seeing that also continue in October, is great. In terms of the conversion on the merchant line, really we have the same trends in place.

One is a continued lower average ticket price, which we are experiencing, and then the merchant mix shift, which, based on the pricings we have, with the respect of larger merchants and the government, that doesn't translate into the same revenue growth as transactions or sales volumes.

Okay, but on an apples to apples basis, small merchants, large merchants, are there any changes in the pricing dynamics or are those pretty stable?

No, it's the same. It's really the mix.

Okay. And then final one from me would be, I appreciate the puts and takes for the EBITDA margin this quarter, but as I look out into 2017 I try and think about growth investments. When should we be able to start to see those year-over-year changes be more flat? And basically when do you think you're going to have the level of growth or investment spending's level out and stop weighing on the margins? Thanks guys.

Well I would say that in the investments that we have today, we've really made, in two areas, one is with respect to having the Latin American Management Team that's in place and the accounts function that we've added. So that will anniversary this year.

And then separately in terms of products we've continued to invest as we have to tailor products to suit the needs in each particular market as we continue our strategy of building products to serve to market. So we'd anticipate that to go certainly through next year and then we'd have to revisit that. But we'd expect some sustained investment on products going into next year.

Okay. That's it for me. Thanks guys.

Thank you.

This will conclude our question-and-answer session. I would now like to turn the conference back over to Mac Schuessler for any closing remarks.

Great, thank you. I want to thank everyone once again for joining us on today's call. I look forward to meeting and spending time with each of you at our analysts and our investors over the coming months. I hope you all have a great evening. Thank you. Please close the call.

The conference is now concluded. Thank you for attending today's presentation, you may now disconnect your lines.