EVERTEC, Inc. (NYSE:EVTC) ("EVERTEC" or the "Company") today announced results for the third quarter ended September 30, 2014.

Third-Quarter 2014 Highlights
  • Total revenue increased to $88.6 million; Merchant Acquiring segment revenue increased 6% and Payment Processing segment revenue increased 4%
  • Adjusted Net Income per diluted share increased 11% to $0.40
  • Announced $75 million stock repurchase plan, and bought back approximately 1 million shares or $25 million of common stock

Commenting on the quarter, Peter Harrington, EVERTEC's President and Chief Executive Officer, said, "Our business continues to perform well. We continued to expand in our markets, despite the lingering impact of lower hardware and software sales, along with some unexpected softness in Puerto Rico consumer spending in the quarter. We are very pleased to have implemented our first Colombian processing customer. With the implementation of this customer, we have established our first business in South America."

Harrington continued, "Reflecting both our confidence in our long-term growth prospects and our commitment to enhancing total shareholder value, in September this year we announced a new $75 million stock repurchase program. As of October 31, 2014, we bought back approximately $25 million of our stock under this authorization supported by our strong free cash flow generation and significant balance sheet flexibility. Overall, I remain optimistic about our outlook based on our leading franchise, diversified business model, and ability to capitalize on the strong secular growth trends in the Latin American markets we serve."

Third-Quarter 2014 Results

Revenue. Total revenue for the quarter ended September 30, 2014 was $88.6 million, an increase of 1% compared with $87.4 million in the prior year.

Merchant Acquiring net revenue was $19.2 million, an increase of 6% compared with $18.2 million in the prior year. Revenue growth in the quarter was driven mainly by an increase in transaction volumes.

Payment Processing revenue was $25.6 million, an increase of 4% compared with $24.7 million in the prior year. Revenue growth in the quarter was driven mainly by an increase in accounts on file and transactions within the card products business.

Business Solutions revenue was $43.8 million, a decrease of 2% compared with $44.5 million in the prior year. The decrease in revenue was mainly due to a $1.9 million year-over-year decline in hardware and software sales, partially offset by increased revenue from core banking solutions and IT consulting services.

Adjusted EBITDA. For the quarter ended September 30, 2014, Adjusted EBITDA was $44.5 million, an increase of 3% compared with $43.4 million in the prior year. The increase in Adjusted EBITDA was due primarily to revenue growth and operating leverage in our Merchant Acquiring and Payment Processing businesses. Adjusted EBITDA margin was 50.2%, compared with 49.7% in the prior year.

Adjusted Net Income. For the quarter ended September 30, 2014, Adjusted Net Income was $31.4 million, an increase of 6% compared with $29.5 million in the prior year. The increase in Adjusted Net Income was driven mainly by Adjusted EBITDA growth and lower levels of operating depreciation and amortization expense. Adjusted Net Income per diluted share increased 11% to $0.40 compared with $0.36 in the prior year.

Earnings Conference Call and Audio Webcast

The Company has scheduled a conference call to discuss its third -quarter 2014 financial results today at 5:00 PM ET. Hosting the call will be Peter Harrington, President and Chief Executive Officer, and Juan José Román, Executive Vice President and Chief Financial Officer. The conference call can be accessed live over the phone by dialing (888) 428-9473 or (719) 325-2448 for international callers. A replay will be available at 8:00 PM ET and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the pin number is 2119933. The replay will be available until Wednesday, November 12, 2014. The call will be webcast live from the Company's website at www.evertecinc.com under the Investor Relations section or directly at http://ir.evertecinc.com.

About EVERTEC

EVERTEC, Inc. (NYSE:EVTC) is the leading full-service transaction processing business in Latin America, providing a broad range of merchant acquiring, payment processing and business solutions services. The largest merchant acquirer in the Caribbean and Central America—and one of the largest in Latin America—EVERTEC serves 19 countries in the region from its base in Puerto Rico. The Company manages a system of electronic payment networks that process more than 2.1 billion transactions annually, and offers a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. In addition, EVERTEC owns and operates the ATH network, one of the leading personal identification number ("PIN") debit networks in Latin America. The Company serves a diversified customer base of leading financial institutions, merchants, corporations and government agencies with "mission-critical" technology solutions. For more information, visit http://www.evertecinc.com.

About Non-GAAP Financial Measures

This earnings release presents EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share information. These supplemental measures of the Company's performance are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP"). They are not measurements of the Company's financial performance under GAAP and should not be considered as alternatives to total revenue, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities, as indicators of cash flows or as measures of the Company's liquidity. We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of the Company's performance and believe they are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. In addition, the Company's presentation of Adjusted EBITDA is consistent with the equivalent measurements contained in the Credit Agreement in testing EVERTEC Group's compliance with covenants therein such as the senior secured leverage ratio. We use Adjusted Net Income to measure the Company's overall profitability because it better reflects the Company's cash flow generation by capturing the actual cash taxes paid rather than the Company's tax expense as calculated under GAAP, and excludes the impact of the non-cash amortization and depreciation resulting from our 2010 merger involving an affiliate of Apollo Global management, LLC (the "Merger"). For more information regarding EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share, including a quantitative reconciliation of EBITDA, Adjusted EBITDA and Adjusted Net Income to the most directly comparable GAAP financial performance measure, which is net income, see Schedule 4: Reconciliation of GAAP to Non-GAAP Operating Results in this earnings release.

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 that 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 revenue; our ability to renew our client contracts on terms favorable to us; the effectiveness of our risk management procedures; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems, and the risk that our systems may experience breakdowns or fail to prevent security breaches or fraudulent transfers; 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; regulatory limitations on our activities due to our relationship with Popular and our role as a service provider to financial institutions; 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; operating in countries and counterparties that put us at risk of violating U.S. sanctions laws; 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 (Loss) and Comprehensive Income (Loss)
   
Quarters ended September 30, Nine months ended September 30,
(Dollar amounts in thousands, except per share data)   2014       2013     2014       2013  
Revenues
Merchant Acquiring, net $ 19,227 $ 18,211 $ 58,345 $ 53,835
Payment Processing 25,611 24,731 77,019 73,128
Business Solutions   43,804     44,472     131,609     136,965  
Total revenues   88,642     87,414     266,973     263,928  
 
Operating costs and expenses
 
Cost of revenues, exclusive of depreciation and amortization shown below 38,625 38,903 115,109 121,176
Selling, general and administrative expenses 7,104 8,990 25,629 30,477
Depreciation and amortization   16,453     17,657     49,457     53,074  
Total operating costs and expenses   62,182     65,550     190,195     204,727  
 
Income from operations   26,460     21,864     76,778     59,201  
 
Non-operating (expenses) income
Interest income 91 54 245 147
Interest expense (6,370 ) (6,403 ) (19,780 ) (31,414 )
Earnings of equity method investment 241 198 905 823
Other income (expenses):
Loss on extinguishment of debt - - - (58,464 )
Termination of consulting agreement - - - (16,718 )
Other income (expenses)   (249 )   448     2,127     (1,838 )
Total other expenses   (249 )   448     2,127     (77,020 )
Total non-operating expenses   (6,287 )   (5,703 )   (16,503 )   (107,464 )
Income (loss) before income taxes 20,173 16,161 60,275 (48,263 )
Income tax expense (benefit)   1,082     1,358     5,205     (3,603 )
Net income (loss) 19,091 14,803 55,070 (44,660 )
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments   378     (210 )   (6,573 )   1,750  
Total comprehensive income (loss) $ 19,469   $ 14,593   $ 48,497   $ (42,910 )
 
 
Net income (loss) per common share: (1)
Basic $ 0.24 $ 0.18 $ 0.70 $ (0.57 )
Diluted $ 0.24 $ 0.18 $ 0.70 $ (0.57 )
 
Shares used in computing net income (loss) per common share: (1)
Basic 78,666,241 81,905,566 78,485,109 77,890,406
Diluted 79,216,924 82,862,538 79,193,452 77,890,406

__________

(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) September 30, 2014 December 31, 2013
Assets
Current Assets:
Cash $ 29,226 $ 22,485
Restricted cash 6,126 5,433
Accounts receivable, net 68,969 68,434
Deferred tax asset 3,378 2,537
Prepaid expenses and other assets   21,880     17,524
Total current assets 129,579 116,413
Investment in equity investee 11,492 10,639
Property and equipment, net 29,482 33,240
Goodwill 369,304 373,119
Other intangible assets, net 338,248 367,780
Other long-term assets   12,335     18,162
Total assets   890,440     919,353
Liabilities and stockholders' equity
Current Liabilities:
Accrued liabilities 26,023 26,571
Accounts payable 14,748 18,630
Unearned income 8,866 5,595
Income tax payable 1,945 259
Current portion of long-term debt 19,000 19,000
Short-term borrowings 8,000 51,200
Deferred tax liability, net   350     543
Total current liabilities 78,932 121,798
Long-term debt 652,102 665,680
Long-term deferred tax liability, net 20,308 20,212
Other long-term liabilities   238     333
Total liabilities   751,580     808,023
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; 78,672,101
shares issued and outstanding at September 30, 2014 (December 31, 2013- 78,286,465) 787 783
Additional paid-in capital 83,296 80,718
Accumulated earnings 60,924 29,403
Accumulated other comprehensive (loss) income, net of tax   (6,147 )   426
Total stockholders' equity   138,860     111,330
Total liabilities and stockholders' equity   890,440     919,353
 
 

EVERTEC, Inc.

Schedule 3: Unaudited Consolidated Statements of Cash Flows
 
Nine months ended September 30,
  2014       2013  
Cash flows from operating activities
Net income (loss) $ 55,070 $ (44,660 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 49,457 53,074
Amortization of debt issue costs and premium and accretion of discount 2,315 3,136
Write-off of debt issue costs, premium and discount accounted as loss on extinguishment - 16,555
Provision for doubtful accounts and sundry losses 1,102 954
Deferred tax benefit (1,486 ) (6,723 )
Share-based compensation 1,314 5,719
Unrealized loss (gain) of indemnification assets 459 (21 )
Loss on disposition of property and equipment and other intangibles 23 30
Earnings of equity method investment (905 ) (823 )
Dividend received from equity method investment 326 500
Decrease (increase) in assets:
Accounts receivable, net 309 9,035
Prepaid expenses and other assets (4,283 ) (2,591 )
Other long-term assets 2,497 (1,928 )
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (7,357 ) (18,485 )
Income tax payable 1,686 (2,713 )
Unearned income   3,271     2,625  
Total adjustments   48,728     58,344  
Net cash provided by operating activities   103,798     13,684  
 
Cash flows from investing activities
Net increase in restricted cash (693 ) (157 )
Intangible assets acquired (9,100 ) (9,591 )
Property and equipment acquired (7,463 ) (7,380 )
Proceeds from sales of property and equipment   44     16  
Net cash used in investing activities   (17,212 )   (17,112 )
 
Cash flows from financing activities
Proceeds from initial public offering, net of offering costs of $12,567 - 112,369
Proceeds from issuance of long-term debt - 700,000
Statutory minimum withholding taxes paid on cashless exercises of stock options (1,004 ) (16,704 )
Debt issuance costs - (12,077 )
Net decrease in short-term borrowing (42,000 ) (22,663 )
Proceeds from short-term borrowing for purchase of equipment - 1,800
Repayment of short-term borrowing for purchase of equipment (1,200 ) -
Dividends paid (23,547 ) (8,192 )
Tax windfall benefits on exercises of stock options 1,937 1,627
Issuance of common stock, net 314 91
Repayment of other financing agreement (95 ) (224 )
Repayment of long-term debt   (14,250 )   (750,273 )
Net cash (used in) provided by financing activities   (79,845 )   5,754  
 
Net increase in cash 6,741 2,326
Cash at beginning of the period   22,485     25,634  
Cash at end of the period $ 29,226   $ 27,960  
 
 

EVERTEC, Inc.

Schedule 4: Reconciliation of GAAP to Non-GAAP Operating Results
   
Quarters ended September 30, Nine months ended September 30,
(Dollar amounts in thousands)   2014         2013     2014       2013  
 
Net income (loss) $ 19,091 $ 14,803 $ 55,070 $ (44,660 )
Income tax expense (benefit) 1,082 1,358 5,205 (3,603 )
Interest expense, net 6,279 6,349 19,535 31,267
Depreciation and amortization   16,453     17,657     49,457     53,074  
EBITDA 42,905 40,167 129,267 36,078
 
Software maintenance reimbursement and other costs(1) 661 588 1,770 1,679
Equity income (2) (241 ) (198 ) (580 ) (322 )
Compensation and benefits (3) 648 324 1,573 6,873
Pro forma cost reduction adjustments(4) - 25 - 175
Transaction and other non-recurring fees (5) 269 2,515 2,785 64,030
Management fees (6) - - - 20,109
Purchase accounting (7)   286     (2 )   459     (21 )
Adjusted EBITDA 44,528 43,419 135,274 128,601
 
Pro forma EBITDA adjustments (8) - (25 ) - (175 )
Operating depreciation and amortization (9) (7,338 ) (7,896 ) (22,102 ) (23,790 )
Cash interest expense, net (10) (5,500 ) (5,582 ) (16,911 ) (16,692 )
Cash income taxes (11)   (300 )   (373 )   (703 )   (2,039 )
Adjusted Net Income $ 31,390   $ 29,543   $ 95,558   $ 85,905  
 
Adjusted Net income per common share: (12)
Basic $ 0.40 $ 0.36 $ 1.22 $ 1.10
Diluted $ 0.40 $ 0.36 $ 1.21 $ 1.06
 
Shares used in computing Adjusted Net Income per common share: (12)
Basic 78,666,241 81,905,566 78,485,109 77,890,406
Diluted 79,216,924 82,862,538 79,193,452 80,675,185

__________
(1)   Predominantly 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) Predominantly represents non-cash equity based compensation expense.
(4) Represents the pro forma effect of the expected net savings mainly in compensation and benefits from the reduction of certain employees. This pro forma amount was calculated using the net amount of actual expenses for the twelve-month period prior to their separation.
(5) Represents fees and expenses associated with non-recurring corporate transactions, including $1.1 million of fees associated with the withdrawn senior secured notes offering in the second quarter of 2014 and refinancing and debt extinguishment of $58.6 million in the second quarter of 2013.
(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 whereby 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 nine months ended September 30, 2013, represents pro forma cash interest expense assuming EVERTEC's April 2013 refinancing occurred on January 1, 2013, less interest income, as they appear on our consolidated statements of income (loss) and comprehensive income (loss), adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount. For the three and nine months ended September 30, 2014 and the three months ended September 30, 2013, represents interest expense, less interest income, as they appear on our consolidated statements of income (loss) and comprehensive income (loss), adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.
(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 September 30, Nine months ended September 30,
(Dollar amounts in thousands)   2014       2013     2014       2013  
 
Segment income from operations
 
Merchant Acquiring, net $ 8,518 $ 8,568 $ 25,700 $ 25,963
Payment Processing 14,707 14,056 44,738 38,536
Business Solutions   12,696     11,282     36,232     30,600  
Total segment income from operations 35,921 33,906 106,670 95,099
Merger related depreciation and amortization
and other unallocated expenses (1)   (9,461 )   (12,042 )   (29,892 )   (35,898 )
Income from operations $ 26,460   $ 21,864   $ 76,778   $ 59,201  

__________
(1)   Predominantly 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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