EVERTEC, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Quarterly Highlights: Total revenue was approximately $212 million for the third quarter, an increase of approximately 22% compared to the third quarter of 2023. Adjusted EBITDA was approximately $87 million, an increase of approximately 11% compared to the prior year. Adjusted earnings per share was $0.86, an increase of 8% from the prior year.
• Puerto Rico: Growth across all segments. Merchant Acquiring had revenue up ~12% YOY. Payments Puerto Rico up ~2% driven by ATH Mobile and POS transactions. Business Solutions revenue up ~8% as projects with Popular went into production. Mentioned a 10% discount on certain MSA services beginning in October 2025 and cost efficiency initiatives to offset its impact.
• Latin America: Revenue up 65% YOY, with Sinqia acquisition being a major contributor. Closed acquisition of Grandata. Focus on product modernization, revenue synergies, and margin optimization for Sinqia, expecting higher revenue growth rates and margins in 2025.

Segment Performance

• Merchant Acquiring: Net revenue increased approximately 12% year-over-year to approximately $45.4 million. Adjusted EBITDA was approximately $18.2 million, up approximately 19%, and adjusted EBITDA margin was 40.1%, an increase of 240 basis points from the prior year quarter.
• Payment Services Puerto Rico and Caribbean: Revenue in the third quarter was $52.8 million, up approximately 2% from the prior year. Adjusted EBITDA for the segment was $28.4 million, a decline of approximately 7% compared to last year, with an adjusted EBITDA margin of 53.7%, down approximately 510 basis points.
• LATAM Payment and Solutions: Revenue in the third quarter was $76 million, up approximately 65% compared to last year. Adjusted EBITDA for the segment was $20.7 million and adjusted EBITDA margin was 27.3%, down approximately 11 percentage points compared to last year. Foreign currency represented a 10% headwind to growth.
• Business Solutions: Revenue for the third quarter was up approximately 8% to $61.1 million. Adjusted EBITDA was $25.5 million and adjusted EBITDA margin was 41.7%, up approximately 430 basis points compared to the third quarter last year.

Guidance

• Revenue range expected to be $840.5 million to $846.5 million, a growth of approximately 21% to 22% year-over-year, considering foreign currency headwinds.
• Adjusted EBITDA margin expected to range from 39.5% to 40%.
• Adjusted earnings per common share expected in a range of $3.09 to $3.15, a 10% to 12% increase.
• Merchant Acquiring segment expected in the high single to low double digits. Payments Puerto Rico segment in mid single digit growth range. Payments Latin America expected in the low 60s. Business Solutions revenue growth in the mid-single digits for the full year, including two months of Grandata acquisition contribution.

Risks

• Foreign currency headwinds impacting revenue growth, especially in Latin America due to devaluation of currencies like the Brazilian Real and Chilean currency.
• Client attrition in Latin America, including known attrition from Mercado Libre and other unmentioned clients, which could be a headwind.

Question and Answer

Q: Nate Stevenson with Deutsche Bank asked about pricing initiatives in Merchant Acquiring and trends in October.

A: Joaquin Castrillo said volumes were consistent with previous quarters, and pricing initiatives involved re-pricing contracts. Mac Schuessler discussed Grandata acquisition and Sinqia initiatives including re-pricing, platform modernization, and margin optimization.

Q: Cris Kennedy with William Blair asked about cost initiatives to offset MSA contract change.

A: Mac Schuessler said they've identified cost efficiencies to more than offset the EBITDA impact of the 10% discount on MSA services, with initiatives already underway.

Q: Vasu Govil with KBW asked about cost initiatives and issuing services in Payment Services Puerto Rico.

A: Mac Schuessler discussed cost efficiencies for MSA and Joaquin Castrillo explained issuing services headwind was from healthcare providers purging inactive cards.

Q: Jamie Friedman with Susquehanna asked about MSA agreement and pricing opportunity in Sinqia.

A: Mac Schuessler explained the MSA agreement details and pricing opportunities in Sinqia through re-pricing old contracts, modernizing platforms, and aligning with volume growth.

Q: John Davis with Raymond James asked about revenue guide, client churn in LATAM, and capital allocation.

A: Joaquin Castrillo discussed FX headwinds in revenue guide, Mac Schuessler talked about client churn as anomalies, and Joaquin Castrillo mentioned opportunistic capital allocation for buybacks.

Q: Shefali Tamaskar with Morgan Stanley asked about software market in Brazil and visibility into Sinqia growth.

A: Joaquin Castrillo noted continued softness in the software market in Brazil, and Mac Schuessler and Joaquin Castrillo discussed tracking metrics and initiatives for Sinqia's reacceleration.