SAN JUAN, Puerto Rico -- (BUSINESS WIRE) -- EVERTEC Group, LLC (“EVERTEC” or the “Company”) today reported consolidated results for the fourth quarter and year ended December 31, 2012.
“We are pleased to report another strong quarter and year of double-digit Adjusted EBITDA growth and revenue increases across our business lines,” said Peter Harrington, EVERTEC’s President and Chief Executive Officer. “Our continued strong financial performance is a testament to the value of our diversified business model, which has enabled us to provide our customers with differentiated, value-add capabilities and successfully penetrate new markets and geographies. In addition to our commercial accomplishments during 2012, we also took a number of important steps in our corporate development including obtaining a 15-year tax grant from the Government of Puerto Rico. This grant has structurally enhanced our advantaged free cash flow profile and further positions us to compound our momentum in the Latin American payments market.”
Fourth Quarter 2012 Financial Results
Total revenues for the quarter ended December 31, 2012 were $91.0 million, representing an increase of $5.4 million, or 6% as compared to the corresponding 2011 period. The aforementioned consolidated growth reflects an increase in Merchant Acquiring revenues of $0.1 million, Payment Processing revenues of $2.4 million or 11%, and Business Solutions revenues of $2.9 million or 6%. The increase in Payment Processing and Business Solutions segment revenues was primarily due to an increase in volume and higher demand for our services.
Total operating costs and expenses, excluding depreciation and amortization, for the quarter ended December 31, 2012 were $47.3 million, representing a decrease of $0.6 million or 1% as compared to the corresponding 2011 period. The decrease was primarily due to a reduction in personnel related costs.
Total non-operating expenses for the quarter ended December 31, 2012 remained flat when compared to the 2011 period.
Income tax benefit for the quarter ended December 31, 2012 amounted to $0.8 million as compared to an income tax expense of $1.6 million for the corresponding 2011 period. The income tax benefit for the 2012 period was primarily related to the impact of the tax grant received by EVERTEC during the fourth quarter of 2012.
Adjusted EBITDA for the quarter ended December 31, 2012 was $51.8 million, an increase of $11.5 million or 29% as compared to $40.2 million for the same period in 2011. The increase in Adjusted EBITDA was primarily driven by the aforementioned growth in revenues and significant operating leverage in our leading technology platform. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved to 56.9% from 47.0% in the corresponding 2011 period.
Year Ended December 31, 2012 Financial Results
Total revenues for the year ended December 31, 2012 were $341.7 million, representing an increase of $20.6 million or 6% as compared to the corresponding 2011 period. Merchant Acquiring revenues for the year ended December 31, 2012 were $69.6 million, representing an increase of $7.6 million or 12% as compared to the corresponding 2011 period. The increase in Merchant Acquiring revenues during 2012 was primarily attributable to volume growth in our core business of $5.0 million. Payment Processing revenues for the year ended December 31, 2012 were $94.8 million, representing an increase of $9.1 million or 11% as compared to the corresponding 2011 period. The increase in Payment Processing revenues during 2012 was primarily attributable to an increase in volume. Business Solutions revenues for the year ended December 31, 2012 were $177.3 million, representing an increase of $3.9 million or 2% as compared to the corresponding 2011 period. The increase in Business Solutions revenues during 2012 was primarily due to higher demand for our services.
Total operating costs and expenses, excluding depreciation and amortization, for the year ended December 31, 2012 were $190.2 million, representing an increase of $1.5 million or 1% as compared to the corresponding 2011 period. The increase was primarily attributable to the increase in revenues as described above, partially offset by a reduction in personnel costs.
Total non-operating expenses for the year ended December 31, 2012 were $61.9 million, representing a decrease of $5.6 million or 8% as compared to the 2011 period. The decrease in non-operating expenses in 2012 was primarily driven by lower other expenses of $9.7 million, partially offset by an increase in interest expense of $3.4 million from the issuance of additional debt in May 2012.
Income tax benefit for the year ended December 31, 2012 was $87.7 million as compared to $33.1 million for the corresponding 2011 period. The income tax benefit in 2012 was primarily attributable to a $90.9 million income tax benefit from the elimination of EVERTEC’s deferred tax liability following the Conversion and the effect of the tax grant received during the fourth quarter of 2012. The income tax benefit in 2011 was primarily attributable to a $27.6 reduction in the Company’s deferred tax liability following the enactment of certain tax reforms in Puerto Rico on January 31, 2011 which reduced in the marginal corporate income tax rate from 39% to 30%.
Adjusted EBITDA for the year ended December 31, 2012 was $169.6 million, an increase of $20.5 million or 14% as compared to the same period in 2011. This increase was primarily driven by revenue growth across all three business segments and lower incremental costs. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved to 49.6% from 46.4% in the corresponding 2011 period.
Cash and Liquidity
As of December 31, 2012, EVERTEC’s unrestricted cash balance was $25.0 million. Also, as of December 31, 2012 EVERTEC had $35.3 million of net borrowing capacity available under its revolving credit facility after giving effect to $14.0 million of short-term borrowings and a $0.7 million letter of credit on behalf of EVERTEC Costa Rica, S.A.
As of December 31, 2012, the Company’s unpaid principal balance was $759.5 million.
EVERTEC is the leading full-service transaction processing business in Latin America and the Caribbean. Based in Puerto Rico, EVERTEC provides a broad range of merchant acquiring, payment processing and business process management services across 19 countries in the region. EVERTEC processes over 1.8 billion transactions annually, and manages the electronic payment network for over 4,100 automated teller machines (“ATM”) and over 104,000 point-of-sale payment terminals. EVERTEC is the largest merchant acquirer in the Caribbean and Central America and the sixth largest in Latin America. EVERTEC owns and operates the ATH network, one of the leading ATM and personal identification number debit networks in Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with ‘mission critical’ technology solutions and believes its business is well positioned to continue to expand across the fast growing Latin American region.
EVERTEC is 51% owned by an affiliate of Apollo Global Management, LLC, a leading private equity investor, and 49% owned by Popular, Inc., the largest financial institution in the Caribbean. For more information about EVERTEC, please visit www.evertecinc.com.
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: our high level of indebtedness and restrictions contained in our debt agreements; our ability to generate sufficient cash to service our indebtedness and to generate future profits; our reliance on our 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; our dependence on credit card associations; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of our 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; and evolving industry standards.
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 us and our 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 Group, LLC Consolidated Balance Sheets
|(Dollar amounts in thousands)||2012||2011|
|Accounts receivable, net||78,672||60,930|
|Prepaid expenses and other assets||13,005||21,526|
|Total current assets||121,609||141,267|
|Investment in equity investee||11,080||12,267|
|Property and equipment, net||36,737||36,685|
|Other intangible assets, net||403,170||448,914|
|Other long-term assets||24,478||22,894|
|Liabilities and member's equity|
|Income tax payable||2,959||3,383|
|Current portion of long-term debt||6,052||-|
|Deferred tax liability, net||632||9,321|
|Total current liabilities||95,531||64,971|
|Long-term deferred tax liability, net||6,827||91,431|
|Other long-term liabilities||3,072||449|
|Member's units (100 units issued and outstanding)||-||-|
|Accumulated other comprehensive loss, net of tax of $0 and $13||(842||)||(1,318||)|
|Total member's equity||133,242||353,055|
|Total liabilities and member's equity||$||969,381||$||1,033,739|
EVERTEC Group, LLC Consolidated Statements of Income and Comprehensive Income
|Quarters ended December 31,||Years ended December 31,|
|(Dollar amounts in thousands)||2012||2011||2012||2011|
|Merchant acquiring, net||$||18,092||$||17,954||$||69,591||$||61,997|
|Operating costs and expenses|
|Cost of revenues, exclusive of depreciation and amortization shown below||40,391||40,545||158,860||155,377|
|Selling, general and administrative expenses||6,927||7,334||31,312||33,339|
|Depreciation and amortization||17,975||17,914||71,492||69,891|
|Total operating costs and expenses||65,293||65,793||261,664||258,607|
|Income from operations||25,692||19,778||80,020||62,515|
|Non-operating (expenses) income|
|Earnings of equity method investment||461||148||564||833|
|Other expenses (income):|
|Voluntary Retirement Program ("VRP") expense||-||(332||)||-||(14,529||)|
|Other income (expenses)||1,312||(1,581||)||(8,490||)||(3,672||)|
|Total other income (expenses)||1,312||(1,913||)||(8,490||)||(18,201||)|
|Total non-operating (expenses) income||(13,261||)||(13,327||)||(61,944||)||(67,565||)|
|Income (loss) before income taxes||12,431||6,451||18,076||(5,050||)|
|Income tax (benefit) expense||(786||)||1,615||(87,746||)||(33,054||)|
|Other comprehensive (loss) income, net of income tax expense of $0, $5, $13 and $13|
|Foreign currency translation adjustments||(2,075||)||414||476||(1,176||)|
|Total comprehensive income||$||11,142||$||
EVERTEC Group, LLC Consolidated Statements of Cash Flows
|Years ended December 31,|
|Cash flows from operating activities|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation and amortization||71,492||69,891|
|Amortization of debt issue costs and premium and accretion of discount||5,091||7,995|
|Provision for doubtful accounts and sundry losses||1,645||1,005|
|Deferred tax benefit||(93,402||)||(25,910||)|
|Realized loss on derivative||-||1,399|
|Unrealized (gain) loss of indemnification assets||(966||)||292|
|Amortization of a contract liability||(703||)||(7,440||)|
|Loss on disposition of property and equipment and other intangibles||1,671||122|
|Earnings of equity method investment||(564||)||(833||)|
|Dividend received from equity investment||1,630||1,467|
|Prepayment penalty related to debt refinancing||-||(3,387||)|
|Premium on issuance of long-term debt||2,000||-|
|(Increase) decrease in assets:|
|Accounts receivable, net||(16,301||)||3,704|
|Prepaid expenses and other assets||1,916||(7,409||)|
|Other long-term assets||(3,567||)||-|
|Increase (decrease) in liabilities:|
|Accounts payable and accrued liabilities||5,846||(1,977||)|
|Income tax payable||(424||)||944|
|Net cash provided by operating activities||82,656||69,335|
|Cash flows from investing activities|
|Net decrease in restricted cash||349||812|
|Intangible assets acquired||(10,896||)||(14,466||)|
|Property and equipment acquired||(16,613||)||(8,963||)|
|Proceeds from sales of property and equipment||118||114|
|Acquisition of an equity method investment||-||(9,244||)|
|Net cash used in investing activities||(27,042||)||(31,747||)|
|Cash flows from financing activities|
|Proceeds from issuance of long-term debt||208,725||-|
|Debt issuance costs||(2,174||)||-|
|Repayment and repurchase of long-term debt||-||(38,590||)|
|Repayment of other financing agreement||(225||)||(674||)|
|Net distributions to parent company||(317,465||)||-|
|Net cash used in financing activities||(84,144||)||(39,264||)|
|Net decrease in cash||(28,530||)||(1,676||)|
|Cash at beginning of the period||53,523||55,199|
|Cash at end of the period||$||24,993||$||53,523|
Net Income Reconciliation to EBITDA and Adjusted EBITDA
We define “EBITDA” as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA as further adjusted to exclude unusual items and other adjustments described below. We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our presentation of Adjusted EBITDA is consistent with the equivalent measurements that are contained in our senior secured credit facilities and the indenture governing the notes in testing our compliance with covenants therein such as the senior secured leverage ratio and the fixed charge coverage ratio. In addition, in evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses such as those excluded in calculating them. Further, our presentation of these measures should not be construed as an inference that our future operating results will not be affected by unusual or nonrecurring items.
Some of the limitations of EBITDA and Adjusted EBITDA are as follows:
EBITDA and Adjusted EBITDA are not measurements of liquidity or financial performance under accounting principles generally accepted in the United States of America (“GAAP”). You should not consider EBITDA and Adjusted EBITDA as alternatives to cash flows from operating activities or any other performance measures determined in accordance with GAAP, as an indicator of cash flows, as a measure of liquidity or as an alternative to operating or net income determined in accordance with GAAP.
A reconciliation of net income to EBITDA and Adjusted EBITDA is provided below:
|Reconciliation of EBITDA and Adjusted EBITDA|
|Quarter ended December 31,||Years ended December 31,|
|(Dollar amounts in thousands)||2012||2011||2012||2011|
Income tax (benefit) expense
|Interest expense, net||15,034||11,562||54,018||50,197|
|Depreciation and amortization||17,975||17,914||71,492||69,891|
|Software maintenance reimbursement and other costs (1)||507||720||2,429||2,570|
|Equity income (2)||432||582||1,057||635|
|Compensation and benefits (3)||315||608||3,795||15,970|
|Pro forma cost reduction adjustments (4)||2,150||-||2,150||-|
|Pro forma VRP benefits (5)||-||-||-||4,751|
|Transaction, refinancing and other non-recurring fees (6)||2,800||715||14,871||8,015|
|Management fees (7)||745||636||2,982||2,532|
|Purchase accounting (8)||(632||)||1,020||(1,284||)||(393||)|
(1) Primarily represents reimbursements received for certain software maintenance expenses as part of the Merger.
(2) Represents CONTADO’s non-cash equity income, net of cash dividends received.
(3) For the year ended December 31, 2012, mainly represents a one-time payment of $2.2 million as a result of the former CEO’s employment modification agreement. For the year ended December 31, 2011 includes one-time costs related to the voluntary retirement program (“VRP”). All periods include other adjustments related to non-cash equity based compensation.
(4) Represents the pro forma effect of the expected net savings primarily in compensation and benefits from the reduction of certain temporary employees and professional services.
(5) Represents the pro forma net savings in compensation and benefits from the VRP.
(6) Represents primarily: (i) costs associated with the issuance and refinancing of EVERTEC’s debt of approximately $4,000 and $0.2 million in the quarters ended December 31, 2012 and 2011, respectively, and $8.8 million and $2.4 million in the years ended December 31, 2012 and 2011, respectively; (ii) costs associated with certain non-recurring corporate transactions, including, for example, costs related to EVERTEC’s conversion to an LLC and the distributions made to EVERTEC’s direct parent during 2012, of $1.0 million and $0.3 million in the quarters ended December 31, 2012 and 2011, respectively, and $3.5 million and $4.0 million in the years ended December 31, 2012 and 2011, respectively; and (iii) a nonrecurring, non-cash asset write-off of $1.6 million in the quarter and year ended December 31, 2012 and other non-recurring expenses of $1.6 million in the year ended December 31, 2011.
(7) Represents the management fee payable to our equity sponsors.
(8) Represents the elimination of purchase accounting impacts associated with (i) certain customer service and software related arrangements where EVERTEC receives reimbursements from Popular and (ii) EVERTEC’s rights and obligations to buy equity interests in CONTADO and Serfinsa in 2011.