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EVERTEC Reports Second Quarter 2013 Results

Stocks in this article: EVTC

Forward-Looking Statements

Certain statements in this press release constitute “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” and “plans” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: the Company’s reliance on its relationship with Popular for a significant portion of our revenues; our ability to renew our client contracts on terms favorable to us; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems; our ability to develop, install and adopt new technology; a decreased client base due to consolidations in the banking and financial-services industry; the credit risk of our merchant clients, for which we may also be liable; the continuing market position of the ATH® network; the Company’s dependence on credit card associations; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of the Company’s business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; our ability to execute our expansion and acquisition strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; our ability to comply with federal, state, and local regulatory requirements; evolving industry standards; the Company’s high level of indebtedness and restrictions contained in the Company’s debt agreements; and the Company’s ability to generate sufficient cash to service the Company’s indebtedness and to generate future profits.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in the reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by the Company and its businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

EVERTEC, Inc.
Schedule 1: Unaudited Consolidated Statements of Income and Comprehensive Income
       
Quarters ended June 30, Six months ended June 30,
(Dollar amounts in thousands, except per share data) 2013     2012 2013     2012
Revenues
Merchant acquiring, net $ 18,165 $ 17,028 $ 35,624 $ 34,689
Payment processing 24,285 23,803 48,397 46,702
Business solutions   46,725     43,541     92,493     85,469  
Total revenues   89,175     84,372     176,514     166,860  
 
Operating costs and expenses
 
Cost of revenues, exclusive of depreciation and amortization shown below 42,257 39,831 82,759 77,572
Selling, general and administrative expenses 12,138 8,477 21,001 17,464
Depreciation and amortization   17,842     17,830     35,417     35,752  
Total operating costs and expenses   72,237     66,138     139,177     130,788  
 
Income from operations   16,938     18,234     37,337     36,072  
 
Non-operating (expenses) income
Interest income 49 77 93 199
Interest expense (9,747 ) (13,254 ) (25,011 ) (24,430 )
Earnings of equity method investment 348 509 625 575
Other expenses:
Loss on extinguishment of liability (58,464 ) - (58,464 ) -
Termination of consulting agreement (16,718 ) - (16,718 ) -
Other expenses   (2,353 )   (8,397 )   (2,286 )   (10,657 )
Total other expenses   (77,535 )   (8,397 )   (77,468 )   (10,657 )
Total non-operating expenses   (86,885 )   (21,065 )   (101,761 )   (34,313 )
(Loss) income before income taxes (69,947 ) (2,831 ) (64,424 ) 1,759
Income tax (benefit) expense   (5,012 )   (798 )   (4,961 )   258  
Net (loss) income (64,935 ) (2,033 ) (59,463 ) 1,501

Other comprehensive income, net of tax of $18, $7, $18 and $13

Foreign currency translation adjustments   (394 )   1,230     1,960     2,336  
Total comprehensive (loss) income $ (65,329 ) $ (803 ) $ (57,503 ) $ 3,837  
 
 
Net (loss) income per common share: (1)
Basic $ (0.82 ) $ (0.03 ) $ (0.78 ) $ 0.02
Diluted $ (0.82 ) $ (0.03 ) $ (0.78 ) $ 0.02
 
Shares used in computing net income per common share: (1)
Basic 78,928,780 72,672,852 75,849,551 72,659,463
Diluted 78,928,780 72,672,852 75,849,551 76,903,210
 
(1)   Share count was adjusted for the 2:1 stock split that occurred on April 1, 2013.
 
EVERTEC, Inc.
Schedule 2: Unaudited Consolidated Balance Sheets
       
(Dollar amounts in thousands, except per share data)

   June 30, 2013   

December 31, 2012

Assets
Current Assets:
Cash $ 19,587 $ 25,634
Restricted cash 4,983 4,939
Accounts receivable, net 77,662 78,621
Deferred tax asset - 1,434
Prepaid expenses and other assets   24,623     19,345  
Total current assets 126,855 129,973
Investment in equity investee 10,751 11,080
Property and equipment, net 33,031 36,737
Goodwill 373,298 372,307
Other intangible assets, net 384,375 403,170
Other long-term assets   18,971     24,478  
Total assets $ 947,281 $ 977,745  
Liabilities and stockholders' equity
Current Liabilities:
Accrued liabilities $ 30,257 $ 34,609
Accounts payable 25,589 24,482
Unearned income 2,902 1,166
Income tax payable 1,092 2,959
Current portion of long-term debt 19,000 6,052
Short-term borrowings 8,663 26,995
Deferred tax liability, net   1,204     632  
Total current liabilities 88,707 96,895
Long-term debt 674,738 730,709
Long-term deferred tax liability, net 16,526 24,614
Other long-term liabilities   633     3,072  
Total liabilities   780,604     855,290  
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued - -
Common stock, par value $0.01; 206,000,000 shares authorized; 81,876,332 and 72,846,144
shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively 819 728
Additional paid-in capital 153,789 52,155
Accumulated earnings 10,951 70,414
Accumulated other comprehensive income (loss)   1,118     (842 )
Total stockholders' equity   166,677     122,455  
Total liabilities and stockholders' equity $ 947,281   $ 977,745  
 
EVERTEC, Inc.
Schedule 3: Unaudited Consolidated Statements of Cash Flows
       
2013 2012
Cash flows from operating activities
Net (loss) income $ (59,463 ) $ 1,501
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 35,417 35,752
Amortization of debt issue costs and premium and accretion of discount 2,369 2,427
Write-off of debt issue costs, premium and discount accounted as loss on extinguishment 16,555 -
Provision for doubtful accounts and sundry losses 826 1,173
Deferred tax benefit (6,251 ) (5,212 )
Share-based compensation 5,483 557
Unrealized (gain) loss of indemnification assets (19 ) 216
Amortization of a contract liability - (703 )
Loss on disposition of property and equipment 32 47
Earnings from equity method investment (625 ) (575 )
Dividend received from equity method investment 500 728
Premium on issuance of long-term debt - 2,000
(Increase) decrease in assets:
Accounts receivable, net 492 4,247
Prepaid expenses and other assets (5,417 ) 993
Other long-term assets (323 ) -
Increase (decrease) in liabilities: - -
Accounts payable and accrued liabilities (3,347 ) 260
Income tax payable (1,867 ) (1,292 )
Unearned income   1,736     (124 )
Total adjustments   45,561     40,494  
Net cash (used in) provided by operating activities   (13,902 )   41,995  
 
Cash flows from investing activities
Net increase in restricted cash (44 ) (233 )
Intangible assets acquired (7,927 ) (3,712 )
Property and equipment acquired (4,384 ) (5,166 )
Proceeds from sales of property and equipment   11     43  
Net cash used in investing activities   (12,344 )   (9,068 )
 
Cash flows from financing activities
Proceeds from initial public offering, net of offering costs of $12,567 112,369 -
Proceeds from issuance of debt 700,000 208,725
Statutory minimum withholding taxes paid on cashless exercises of stock options (16,688 ) -
Debt issuance costs (12,077 ) (2,174 )
Repayment of short-term borrowings (18,332 ) -
Dividends paid - (269,772 )
Tax windfall benefits on exercises of stock options 470 -
Issuance of common stock 91 250
Repayment of other financing agreement (112 ) -
Repayment of long-term debt   (745,522 )   -  
Net cash provided by (used in) financing activities   20,199     (62,971 )
Net decrease in cash (6,047 ) (30,044 )
Cash at beginning of the period   25,634     56,200  
Cash at end of the period $ 19,587   $ 26,156  
 
EVERTEC, Inc.
Schedule 4: Reconciliation of GAAP to Non-GAAP Operating Results
       
Quarters ended June 30, Six months ended June 30,
(Dollar amounts in thousands) 2013     2012 2013     2012
 
Net (loss) income $ (64,935 ) $ (2,033 ) $ (59,463 ) $ 1,501
Income tax (benefit) expense (5,012 ) (798 ) (4,961 ) 258
Interest expense, net 9,698 13,177 24,918 24,231
Depreciation and amortization   17,842     17,830     35,417     35,752  
EBITDA (42,407 ) 28,176 (4,089 ) 61,742
 
Software maintenance reimbursement and other costs (1) 489 667 1,091 1,307
Equity income (2) 153 219 (124 ) 153
Compensation and benefits (3) 6,218 593 6,549 3,100
Pro forma cost reduction adjustments (4) 75 - 150 -
Transaction and other non-recurring fees (5) 59,645 10,477 61,515 11,734
Management fees (6) 19,261 746 20,109 1,491
Purchase accounting (7)   (3 )   41     (19 )   (102 )
Adjusted EBITDA 43,431 40,919 85,182 79,425
 
Pro forma EBITDA adjustments (8) (75 ) - (150 ) -
Operating depreciation and amortization (9) (8,079 ) (7,636 ) (15,894 ) (15,370 )
Cash interest expense, net (10) (5,434 ) (11,920 ) (11,110 ) (21,804 )
Cash income taxes (11)   (969 )   (622 )   (1,666 )   (1,428 )
Adjusted Net Income $ 28,874   $ 20,741   $ 56,362   $ 40,823  
 
 
Adjusted Net income per common share: (12)
Basic $ 0.37 $ 0.29 $ 0.74 $ 0.56
Diluted $ 0.35 $ 0.27 $ 0.70 $ 0.53
 
Shares used in computing Adjusted Net Income per common share: (12)
Basic 78,928,780 72,672,852 75,849,551 72,659,463
Diluted 82,747,507 76,623,841 80,076,665 76,903,210
 
1)   Primarily represents reimbursements received for certain software maintenance expenses as part of the Merger.
2) Represents the elimination of non-cash equity earnings from our 19.99% equity investment in CONTADO, net of cash dividends received.
3) Primarily represents non-cash equity based compensation expense.
4) Represents the pro forma effect of the expected net savings primarily in compensation and benefits from the reduction of certain employees, temporary employees and professional services. This pro forma amount was calculated using the net amount of actual expenses for temporary employees and professional services for the twelve month period prior to their replacement, separation and/or elimination net of the incremental cost of the new full-time employees that were hired.
5) Represents fees and expenses associated with non-recurring corporate transactions.
6) Represents consulting fees paid to Apollo and Popular. In connection with our initial public offering during the second quarter of 2013, our consulting agreements with Apollo and Popular were terminated.
7) Represents the elimination of the effects of purchase accounting in connection with certain customer service and software related arrangements where EVERTEC receives reimbursements from Popular.
8) Represents the elimination of the pro forma benefits described in note 4 above.
9) Represents operating depreciation and amortization expense which excludes amounts generated as a result of the Merger.
10) For the quarter and the six months ended June 30, 2013 represents pro forma cash interest expense assuming EVERTEC’s April 2013 refinancing occurred on January 1, 2013.
11) Represents cash taxes paid for each period presented.
12) Share count was adjusted for the 2:1 stock split that occurred on April 1, 2013.
 

Schedule 5: Unaudited Income from Operations by Segment

       
Quarters ended June 30, Six months ended June 30,
(Dollar amounts in thousands) 2013    

2012

2013     2012
 
Segment income from operations
 
Merchant acquiring, net $ 8,161 $ 7,970 $ 17,395 $ 16,511
Payment processing 11,719 12,756 25,270 25,065
Business solutions   8,784     8,870     19,318     17,950  
Total segment income from operations 28,664 29,596 61,983 59,526
Merger related depreciation and amortization
and other unallocated expenses (1) (11,726 ) (11,362 ) (24,646 ) (23,454 )
       
Income from operations $ 16,938   $ 18,234   $ 37,337   $ 36,072  
 
1)   Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.
 




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