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spk03: Good afternoon, everyone, and welcome to the Evertech Third Quarter 2020 Earnings Conference Call. Today's conference call 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.
spk01: Thank you, and good afternoon. With me today are Max Schuessler, our President and Chief Executive Officer, and Joaquin Castrillo, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. 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 common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the investor relations section of our company's website at www.evertechinc.com. I'll now hand the call over to Mac.
spk06: Thanks, Kay, and good afternoon, everyone. We achieved strong results with the highest quarterly performance in our company's history driven by consumer demand as the economy reopens, as well as the impact from new business. Additionally, we have continued to execute on our Latin America initiatives, which will position us for growth over the longer term. Beginning on slide four, total revenue was $137 million for the third quarter, an increase of 15% compared to 2019. Adjusted EBITDA was $70 million, an increase of 26% as compared to the prior year. An adjusted earnings per share was 65 cents, an increase of 38%. We generated significant operating cash flow year-to-date of $121 million, and we returned approximately $18 million to our shareholders through share repurchases and dividends. Additionally, our liquidity as of September 30th was $246 million. Moving on to our update on slide five for Puerto Rico. We continue to see significant transaction revenue as a result of the federal and Puerto Rico government stimulus programs earlier in the quarter, timing of tax payments, and the further reopening of businesses. Merchant revenue surged in July to over 30% growth, tapering off in the subsequent months for a total quarterly revenue growth of 16%. The Puerto Rico government further reduced COVID restrictions beginning in early September, However, consumer demand has been tempered by the expiration of the stimulus support. That said, we are encouraged by the recently announced release of $13 billion in federal funds to rebuild the electric infrastructure on the island, which will be a longer-term benefit to the economy. Additionally, we would expect to see a more immediate impact from the additional $300 per week of unemployment benefit, as outlined by the President's Executive Order, which was approved by FEMA for Puerto Rico only a few weeks ago and began to be distributed last week. Our recent contract with the Department of Education, in which we recently provided new computers and support to the public education system, produced a one-time revenue increase of approximately $4.4 million in the quarter. We also continue to benefit from our digital channels related to the ATH network. Our ATH mobile and ATH mobile business continue to deliver superior growth and we are encouraged by the adoption rate of both consumers and businesses. We have also expanded the contactless functionality through QR codes from 400 merchants in July to over 1,500 businesses today. On slide six, I'll review our Latin American business. Regarding the environment, we continue to see different responses to the COVID-19 pandemic and varying levels of restrictions and reopenings. Chile and Colombia have stabilized their COVID-19 trends and recently lifted certain restrictions. Mexico and Brazil are allowing many merchants to reopen with Brazil recently achieving more than a month of stability. However, we remain cautious about the outlook throughout the region given the continuing uncertainty surrounding the virus. Despite the pandemic, we remain focused on executing on our LATAM growth initiatives. We continue to leverage our investment in place to pay by localizing the gateway in Costa Rica and Panama. This platform has enabled our partner banks to transition existing merchants to the new gateway, as well as add new e-commerce merchants. Our PayStudio acquiring platform is now in production with two new customers, Alelo in Brazil and ANDA in Uruguay. As we mentioned on our Q4 2019 call, Alelo is one of the largest financial service companies in Brazil, specializing in benefits, incentives, and corporate expense management. ANDA is the largest nonprofit in Uruguay which serves as a benefits provider for a wide range of services, such as medical, legal, travel, and other services through employee payroll deductions. Both clients were term license agreements. We continue to expect to be in production on our acquiring processing services with Santander and Chile and our collection platform with Citi Banamax by the end of the year. We anticipate all of these wins to contribute to growth in 2021 for our Latin America payment segment and over the longer term. As always, we have continued to invest in our employees and communities. Recently, we completed an employee engagement survey, and despite the challenges of working through the COVID pandemic, we saw a 13% increase in participation in the engagement survey to 85%, as well as significant improvements in many areas of employee satisfaction. While we were delighted with the engagement and the feedback, we still have areas of opportunity that we will focus on this year and next. In Puerto Rico and across Latin America, we continued our commitment to the scholarship program, which is in its sixth year, and we awarded over 160 scholarships, an increase of almost 20% from the previous year. This year, we were particularly focused on gender equality, and through specific initiatives, we were able to achieve a balance of 50% female and 50% male STEM scholarship recipients in Puerto Rico. Further, over the past year, we have focused on our environment, social, and governance We have seen increases in the scores provided by various rating agencies. We are proud of our progress on these important areas of corporate citizenship. With that, I will now turn the call over to Joaquin.
spk02: Thank you, Mac, and good afternoon, everyone. Turning to slide nine, you will see the consolidated third quarter results for Evertech. Total revenue for the third quarter was $136.5 million, up 15% compared to $118.8 million in the prior year, reflecting the strong bounce back in consumer demand, positively impacting all our transactional revenue. As Mac mentioned, we also benefited from one-time revenue of $4.4 million with our new Department of Education contract. Total revenue for the nine months was $376.4 million, an increase of 4% year over year. Adjusted EBITDA for the quarter was $70 million, an increase of 26% from $55.5 million in the prior year. Adjusted EBITDA margin was 51.3%, and this represents a 460 basis point increase compared to the prior year. The increase in margin primarily reflects the higher transactional revenue and additional services provided to the government. Additionally, we benefited from non-operating income of approximately $2 million due to firm currency gains related to balance sheet remeasurement. Year-to-date, adjusted EBITDA was $176.5 million. an increase of 3% from $170.9 million in the prior year. Adjusted net income for the quarter was $47.2 million, an increase of 37% as compared to the prior year, primarily reflecting the higher adjusted EBITDA and lower cash interest. This was partially offset by increased operating depreciation and amortization driven by capital expenditures in the prior year, as well as key projects that went into production this year and late last year. Our adjusted effective tax rate in the quarter was 13.6%, reflecting the mix of business in Q3. We now expect our tax rate in Q4 to range from 13% to 14%, depending on the mix of business. Adjusted EPS was $0.65 for the quarter and increased 38% compared to the prior year. Year to date, adjusted net income was $108.5 million, and approximately flat with last year. And adjusted earnings per common share was $1.49, an increase of 1% from $1.48 in the prior year. Moving on to slide 10, I'll now cover our segment results, starting with merchant acquiring. In the third quarter, merchant acquiring net revenue increased 16% year over year to approximately $30.6 million, driven by the impact of increased sales volume. The quarter began with over 30% year-over-year revenue growth in July and moderated to a high single-digits average for the remainder of the quarter. The quarter results were driven by the reopening of business, pent-up consumer demand, as well as extra funding from federal programs as a result of COVID-19. The merchant mix during the quarter shifted to a more normal distribution, and we continued to benefit from a high average ticket, although transactions were down approximately 8% for the quarter. Spread was up primarily due to the higher average ticket and benefit from card mix, shifting from credit to debit as well as from international cards to local cards. Adjusted EBITDA for the segment was $15.9 million, up 42%. Adjusted EBITDA margin was 51.8%, up approximately 940 basis points as compared to the last year, reflecting the impact of the higher revenue and lower operating expenses primarily due to lower transactions. We'll likely see these elevated margins decline as average ticket normalizes in the fourth quarter. For the nine-month period, merchant acquiring revenue increased 2% to $80.5 million. Adjusted EBITDA year-to-date for this segment was $40.6 million, up 14%, and adjusted EBITDA margin was 50.4%, a 560 basis point increase as compared to the last year. On slide 11, you will see the results for the payment services Puerto Rico and the Caribbean segment. Revenue for the segment in the third quarter was $33.3 million, up approximately 9% as compared to last year, primarily due to the higher ATH mobile and ATH mobile business transactions and other new services. We saw an over 200% increase in ATH mobile revenues, which contributed an incremental $2.3 million in the quarter. This benefit was partially offset by a decline in ATM transaction volumes. Adjusted EBITDA for the segment was $18.5 million, up 1% as compared to last year. Adjusted EBITDA margin was 55.5%, down 490 basis points as compared to last year, primarily due to higher operating expenses driven by higher cloud expenses, POS repair and maintenance, and other project-related expenses. Year-to-date revenue for the segment was $90.6 million, down approximately 2% as compared to last year. Year-to-date adjusted EBITDA was $47.8 million, down approximately 20%, and adjusted EBITDA margin was 52.8%, down approximately 11.8 percentage points as compared to last year. On slide 12, you will see the results for our Payment Services Latam segment. Revenue for the segment in the third quarter was $21.2 million, of approximately 3% as compared to last year. The increase was driven by the acquisition of place to pay, as well as revenue related to the implementation of Alelo, partially offset by COVID-19 impact on transactional revenue, the negative effect of anticipated attrition of approximately $1 million, as well as negative foreign currency impact of approximately $700,000. Adjusted EBITDA for the segment was $9.5 million and adjusted EBITDA margin was 44.9% of approximately 810 basis points as compared to last year, driven by higher revenue and the benefit of balance sheet re-measurement in non-functional currencies of approximately $2 million. Excluding the re-measurement, adjusted EBITDA margin would have been approximately 34% and generally consistent with our expectation. Year-to-date revenue for this segment was $62.7 million, approximately flat as compared to last year. Year-to-date adjusted EBITDA for this segment was $23.9 million, and adjusted EBITDA margin was 38.1%. On slide 13, you will find the results for the business solutions segment. Business solutions revenue for the third quarter was up approximately 19% to $63 million. The revenue increase in the quarter was primarily due to the Department of Education contract of $4.4 million, new services for popular, and increases related to government contracts, coupled with delays in last year's government renewals. For the quarter, adjusted EBITDA was $33 million, and adjusted EBITDA margin was 52.4%, up approximately 500 basis points as compared to last year. The adjusted EBITDA margin increase was primarily driven by higher revenue, particularly the Department of Education one-time revenue, which was recorded net of expenses. If we normalize for the one-time revenue, the adjusted EBITDA margin would be in our normal percentage range of the mid-40s. Year-to-date Visa Solution revenue was $174.5 million, up 9%. and adjusted EBITDA for the segment was 84.5 million with a 48.4% margin. Moving on to slide 14, you will see a summary of corporate and other. Our third quarter adjusted EBITDA was a negative 6.9 million, an increase of 1% compared to prior year. Our adjusted EBITDA as a percentage of total revenue at 5% was favorable by approximately 70 basis points as compared to prior year, primarily due to higher revenues in the quarter. Year-to-date, our corporate and other adjusted EBITDA was $20.2 million, or 5.4% as a percentage of total revenue, and favorable approximately 30 basis points as compared to last year. Moving on to our year-to-date cash flow overview on slide 15, our beginning cash balance was approximately $131 million, including restricted cash of approximately $20 million. Net cash provided by operating activities was approximately $121 million, a $15 million decrease compared to prior year, which includes an increase in our account receivables as a result of the new computers provided under the Department of Education contract. Most of these receivables were paid by the government subsequent to the end of the quarter. Capital expenditures year to date were approximately $37 million. we continued to anticipate approximately $45 million of capex for the full year. We paid approximately $28 million in long-term debt payments, $3 million in withholding taxes and share-based compensation, and $2 million of other debt paydowns, which resulted in a total net debt decrease of approximately $33 million. Year-to-date, we paid cash dividends of $11 million. Although we did not repurchase any stock in the quarter, Total repurchases of common stock year-to-date were approximately $7 million. We have approximately $23 million available for future use under the company's share repurchase program. We recently announced another $0.05 dividend to be paid on December 4, 2020 to shareholders of record as of November 2, 2020. Our ending cash balance as of September 30 was $162 million, and this includes approximately $18 million of restricted cash. Moving to slide 16, you will find a summary of our debt as of September 30, 2020. Our quarter-ending net debt position was approximately $361 million, comprised of approximately $144 million of unrestricted cash and approximately $505 million of total short-term borrowings and long-term debt. Our weighted average interest rate was 4.5 percent. our net debt to trailing 12-month adjusted EBITDA was 1.9 times. This multiple below the two times threshold will provide a 25 basis point improvement in our interest rate on approximately 40% of our debt in the next quarter. As of September 30th, total liquidity was approximately $246 million. This balance excludes restricted cash and includes the available borrowing capacity under our revolver, which remains fully available. Now, moving on to our thoughts on the remainder of this year, as well as some initial comments for 2021. Although we're not providing guidance given the continued uncertainty of COVID-19, we believe we could see low to mid-single-digit revenue growth in Q4 2020 if there are no significant changes in the impact of the pandemic. We expect to see sales volume growth slowing in Puerto Rico, as well as average ticket normalizing. We would anticipate modest business solutions revenue growth and LATAM should be delivering mid-single-digit revenue growth driven by the new contracts partially offset by the continued impact of COVID-19 and attrition. Margins should move to more normal levels between 46% and 47% as the average ticket comes down, and unlike Q3, we do not anticipate any significant one-time revenue benefits in the quarter. Now turning to 2021, I would like to comment on several considerations. First, we're pleased with our new agreement in LATAM, which are anticipated to contribute to high single to low teens growth in LATAM, assuming some normalization of the COVID-19 impact and recovering currencies that have been in headwind in 2020. We are pleased with the Place to Pay Gateway and anticipate further expansion as we cross-sell this product to other clients in broader geographies. While we had some delays in client attrition in 2020, which will now be realized in 2021, We plan to stop updating these given that 2021 attrition will likely be at similar levels to 2020. Second, in Puerto Rico, we will continue to monitor the flow of federal funds and the potential positive impact to the economy from rebuilding and investment, but the timing still remains unclear, as is the impact of COVID-19. We believe our focus on innovations and digital solutions will continue to benefit us in 2021. Lastly, the CPI index for September was announced on October 13th, and was 1.4%, which will benefit our popular revenues as per the MSA agreement, largely affecting the business solution segment. In summary, it is gratifying to see the results in Q3, and we are executing well against our longer-term initiatives. We look forward to updating you with our full 2021 outlook next quarter. We will now open the call for questions. Operator, please go ahead and open the line.
spk03: Yes, thank you. We will now begin the question-and-answer session. To ask a question... you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To try your question, please press star then two. At this time, we will pause momentarily to assemble the roster. And the first question comes from Bob Napoli with William Blair.
spk08: Thank you. Good afternoon. Nice job on the quarter. What do you expect from Chile and cities Citigroup in 2021?
spk06: Yes, so Bob, we're not giving, this is Mac, and good to talk to you. So we are still very focused on getting those implemented this year, and in fact, in Chile, we already have some merchants that we are processing transactions for. So we feel like that those will contribute to 2021, and we have been able to continue to get those projects done on time by the end of the year, but we're not giving guidance about what those will contribute until we give guidance at the next call.
spk08: Okay. Very good. And that is included, I guess, in the LATAM high single to low teens revenue growth?
spk06: That's correct, Bob. It is included in it.
spk08: Okay. And then, you know, the growth in the merchant acquiring segment, the higher ticket, What are you looking for in the fourth quarter for the merchant segment as far as growth in the merchant acquiring segment? And just Banco Popular had some pretty strong growth in spend, I think 27% for the quarter, debit and credit card spend. Does that not match up with Evertech's business?
spk02: I mean, the way that... One, I mean, the numbers for popular do include certain transactions that we don't necessarily see, right? So it won't necessarily correlate perfectly. I mean, we saw, as we said on the call, very strong sales volume across the board, across the quarter. Obviously, there is a lot of stimulus that was impacting Q3. As we go into Q4, I think we're trying to obviously Some of the stimulus packages have come down from the levels that people were receiving, and we still have uncertainty as to whether there's going to be another package coming in Q4, but to the extent that that does not happen, and we go back to a more normalized economy, let's say, without the stimulus, we are expecting the average ticket to start to come down and normalize, which is actually something we saw throughout the quarter as well. That's a big driver in what we're seeing in that segment and the impact to margin as well. So we would expect the margin to also start to normalize for the merchant acquiring segment as we move into Q4, considering everything I just mentioned.
spk06: But Bob, two things are certain. One is the $300 stimulus for the unemployment. The Puerto Rican government has approved those and they've already started putting those into the island, into the system. The second thing is the shift to digital. Just like probably every other company you're following, we've seen a huge shift. So we saw significant growth that we talked about on ATH Mobile and ATH Mobile Business on both P2P transactions. And the business transactions were up, I think, over 350% for the quarter. But between the two of them, it was over 200% increase between P2P and B2B. And then as we talked about, too, the demand for the QR codes, the ability to go in to Starbucks, to McDonald's, to Burger Kings, and actually not have to pull out a card and hand it to someone else. We have increased the number of locations by 275% since our last call, and we're still seeing a significant demand. So 5% of the merchants now that are ATH merchants now accept that form of payment, the QR codes, and it's some of the higher activity merchants. And we're rolling out a significant number of merchants every week as we speak. So the digital shift we continue to see.
spk08: Yeah, that was my next question. It seems like Puerto Rico has set up for a massive digital shift, and you gave me a thank you for the color on that. And the ATH, the $2.3 million, was that the revenue in the quarter from ATH?
spk02: No, so that was the contribution of both the P2P and the business toward growth in Q3, so not the actual revenue generated by those products.
spk08: The $2.3 million was the growth in dollars over the prior year or the prior quarter?
spk07: Over the prior quarter.
spk08: Okay, and can you tell me what... The growth over the prior quarter. Okay, from the prior quarter. And what is the total revenue from that in the quarter?
spk06: From the prior year quarter. Okay, prior year quarter.
spk08: Okay. Okay, thank you. Appreciate it. Thanks, Bob.
spk03: Thank you. And the next question comes from John Davis with Raymond James.
spk04: Hey, good afternoon, guys. Encouraging to hear the $13 billion being released. How is that supposed to layer in over the next, I assume, couple of years? And also, any update on the $8 billion of HUD funding that's still, I think, in limbo? And then last one here, the $300 a week, how long is that supposed to last in Puerto Rico for the unemployment?
spk02: In terms of the 300, that started last week, and there was actually a retroactive payment going back to the beginning of August. The program is pretty much the same as in the U.S. Our understanding is that that will go on for about another month.
spk06: And then you were asking about the 13 billion on the electrical grid. That's going to be over a series of time, but that's going to do two things. One is you're going to have to have workers. I mean, there's going to be stimulus to the economy and the direct investment in rebuilding the electrical grid. And then you also have, you know, the trickle effect to the broader economy. And then hopefully long-term, one of the biggest costs of doing business here is the utilities and the electric. Hopefully, you know, it'll continue to make it a competitive, more competitive place to do business.
spk04: Okay. No, that's helpful. And then as I think about outside of Puerto Rico, I mean, I think Chile and beginning to ramp here towards the end of this year and into next year, what are some of the other markets that you potentially are targeting for growth outside of Puerto Rico? And has there been any further progress or, you know, any, I guess, events of note in some of the other markets, whether it's bank consortium is breaking up or, you know, we just focused on Chile at this point, maybe just to kind of an ex-Puerto Rico broader update would be helpful.
spk06: Sure, so we're seeing a couple of trends. One, we are seeing, as we've talked about for several calls, we're seeing the monopolies either getting broken up or sold, like in Argentina and then TransBank. And as we've talked about with Bob, we do have Centender Chile on track to implement by the end of the year. We're already processing transactions from some merchants that have now opened. So you are seeing sort of a shift where people are willing to move outside of the monopolies or duopolies. The second thing we're seeing is really regulators issuing new licenses to FinTech so they can provide payments to banking services. And those are becoming some of our customers as well. So we talked about, I think, at the beginning of this year and last, that we're very focused on localizing our platforms in Chile, Colombia, Mexico, and Costa Rica. As we tucked in the place-to-pay acquisition, we've now place-to-pay, which is our e-commerce gateway that we're going to continue to invest in going forward, is in Colombia and Ecuador at the time of purchase. Now we've localized it in Central America and Panama and Costa Rica for some of our existing clients because, frankly, the product that they had was not to the level that we really wanted to provide to them, and we've now given them a product where they're migrating their existing merchants to this new platform and it's allowing them to sell new merchants as well because the place-to-pay platform is much improved. And we also are looking at plans to localize the place-to-pay platform in both Puerto Rico and Chile as well. So those are sort of the key countries that we now have. You know, the great thing is, John, we've now got the product between the risk product, the payments product across issuing and acquiring, and then the gateway to, you know, we're making the investments to localize it based on where we're running business.
spk04: Okay, that's helpful. And the last one for me, do we have – do you have any sort of stats or, you know, more than just directionally – what you think card penetration either was in Puerto Rico or what the increase has been. I mean, can you see, like, on a same-store sales basis, you're seeing, you know, an X percent increase in transactions and, you know, volume. If you look at, you know, for example, BPOP is up 27%. Just anything to help us kind of dimensionalize this shift to electronic payments. It's clearly happening in Puerto Rico. Any stats at all would be super helpful. Thanks, guys.
spk02: I mean, a specific stat, John, is really that there isn't one source. We're taking into consideration many different data points that we have here to kind of give some direction. Obviously, we're seeing every category in terms of consumption going up from a sales volume perspective, and we're seeing the banks here also report that they're seeing volumes across credit and debit increase. We're seeing the use of all digital channels increasing as well, and these are all driven by by the use of cards at the end of the day. So we continue to see a very big opportunity to continue to make inroads into kind of the cash business here in Puerto Rico, which continues to be a big part of the economy. And as Max said, ATH mobile and ATH mobile business for us is kind of the best way for us to continue to get additional penetration.
spk06: Yeah, and John, the thing I would say is there's still, this looks a little bit more like a more sophisticated Latin American country if you look at penetration rates versus the states because you still have a large underground economy and you still have sort of an unofficial economy. So even across traditional categories like gas stations or supermarkets or restaurants, you might have a lower level of penetration than you would see in the U.S., but the big opportunity is where we're breaking into new markets with P2P, with ATH mobile business, where you're paying service contractors, food trucks, which is a significant opportunity as well. So that's where we're seeing a lot. And as I told Bob earlier, I mean, if you look at P2P, for the quarter it was up 70%, right? And if you look at ATH mobile business, which that is primarily new electronic payment volume, that was up over 350% for the quarter. So there's still a lot of opportunity.
spk04: All right. Very helpful. Thanks, guys.
spk03: Thank you. And the next question comes from James Friedman with Susquehanna.
spk05: Hey, guys. Good results by you and your team. I just want to ask, in your prepared remarks, you called out the $300 a week stimulus. I know you referenced that in a prior question, but if you could just give us some sense of um how enduring you see that and uh you know how long is it's going to last and i'll just ask my second one up front um joaquin uh you said that in 21 the client attrition would be similar to that in 2020 can you just remind us i don't mean to beat a dead horse because it sounds like you're not going to focus on that but what what was it in 2020 thank you yeah so on the 300 it's the uh
spk06: I think everybody's familiar with the amount that was approved by the president by executive order, that the local government has to match a portion of that. And it's less than the previous unemployment funding that was coming out of the federal government. The duration of that currently is probably a couple of more weeks. But we do think that's going to be helpful. If this continues, though, I mean, the economy still remains open here. It's a smaller amount. but for the next couple of weeks, it'll have an impact.
spk02: What's the other part of your question, James, on the attrition?
spk05: What can you talk?
spk02: Yeah, so the attrition this year, we said for this quarter, the impact is about a million, and we're going to see three to four million this year. We had originally... expected 4 to 5, and that's why we made a reference to a slight delay in attrition, which, as we said in previous calls, has been coming down for a few years. We're expecting an additional 3 to 4 next year. And given that it's at the same level, we're trying to move away from kind of keeping updating that on a quarterly basis.
spk05: Got it. Okay. Thank you, guys. All the best.
spk03: Thank you. Thank you. And the next question comes from James Fawcett with Morgan Stanley.
spk00: Hi, this is Priscilla Russo on for James. Just two quick questions. On the Latin American trends as these markets have been opening up, can you talk about what you've been seeing in terms of spend uplift or transaction growth and normalization there? And then on generally the health of the merchants within Puerto Rico, obviously travel is an issue. outside portion of your GDP, and so even though you may not have direct exposure to travel, I just want to understand how businesses there are doing. Are they buying more products from you, perhaps using the Pivot POS devices? Any color on that would be helpful. Thanks.
spk02: Yeah, in terms of just the overall portfolio and our exposure to tourism, as we've mentioned in the past, we don't have any significant direct exposure. Most hotels or airlines that we see here in Puerto Rico are usually processing transactions through a corporate processor, so we have limited direct exposure. Obviously, tourism is a bigger part of the Puerto Rico economy, although it's really closer to 5% really of GDP, and it has an indirect impact through restaurants and retail sales. Even though it's down, again, as we said, we have seen sales volumes up in pretty much every category. In terms of the general state of the portfolio of merchants, we have seen a slightly higher percentage of inactive merchants over the quarter. Many merchants that haven't started back to process or that are having maybe a little bit more difficulty in getting up to business. But in general terms, that continues to also move towards normalization. So nothing really that we're overly concerned in terms of those getting back online. In terms of Latin America, we continue to focus on the four countries that we've mentioned in the past, Chile, Colombia, Mexico, and Costa Rica. And in getting our processing platform up and running, making sure that we are putting ourselves in a position to continue to expand margin into the future. And as we said with Santander, it's kind of our first client onto this platform and showing the success that we can bring by having a processing platform in these cultures.
spk03: Hello? Okay. Thank you. And the next question comes from George Mahalos with Cowan.
spk07: Hey, guys. Thanks for taking my questions. Really, just Two clarification points for me. I want to make sure I'm thinking about some of these things correctly. So just on the acquiring side, I think you said July was up 30%, and then it had moderated to kind of high single digits in September. I'm just curious. Have those high single-digit trends continued in October, or have you seen any sort of moderation from there? And then just as it relates to the EBITDA, I think you called that the $4.4 million one time from the DOE and then another $2 million. Anything else that we would need to adjust to kind of come up with a normalized margin? I think I'm kind of backing into like a 48% margin if I do the math.
spk02: That's correct, George. Those are the two main items really that we called out and that you should be taking into consideration as kind of one-time impact to kind of that higher margin that we reported. Okay. In terms of... What was the first part of the question, George?
spk07: As it relates to the acquiring segment, I think you said in September, kind of up high singles.
spk02: Yep. No, I mean, so in October, I would say that there has been some slight moderation in terms of sales volume. We continue to see... fairly strong sales volume. We have seen the average ticket, however, come down and transactions continue to be lower than the prior year. But as we said before, those usually go hand in hand. So as we have seen a slight improvement or recovery from the transactional side, we have seen that average ticket start to come down. So it's something that even though the high sales volume that we saw in July was there, But on a sequential basis, we have seen that average ticket come down, and that is reflecting itself in October as well.
spk07: Thank you. Appreciate it.
spk03: Thank you. And the next question comes from Corey Marzallo with Deutsche Bank.
spk09: Hey, guys. Thanks for taking my question. You mentioned 5% of the ATH merchants have the QR code now, and that's kind of ramping quite quickly. I'm just curious if you could just give some high-level thoughts on kind of where you see that penetration going forward. And more importantly, do you guys see a lift on kind of QR code transactions per merchant versus other transactions? Just trying to think about that a little bit deeper.
spk06: Sure. So we launched this product during the previous quarter, so in Q2. And we've seen, you know, the velocity of the adoption at the merchant level is pretty rapid. And what I would tell you is... trying to understand how that changes the volume of an emergent we're now analyzing because we want to do two things. One is we'd like to convert more of the transactions to electronic transactions because of ease of use. And we'd also like to convert more of the transactions to ATH versus other types of electronic payments because that's our debit network. So we're in the process of analyzing that and we are noticing, yes, we've increased by 275% the number of locations and within each location it appears that the volume or the tendency to use the QR code is increasing as well. Our goal is to get, by the end of 2021, as much of the volume, so focus on the larger chains, the largest merchants, and sort of hold their hands and get them up and running. And then we're in the process of finding an easier way for smaller merchants that were already in process of testing so that they can sort of implement the product on their own. But it's a significant focus for us because we think it reinforces our relationship with these merchants, and then it will increase not only the electronic payments, but when it is an electronic payment, it will be an ATH payment.
spk09: Got it. That's very helpful. And then I'm just curious if you could talk a little bit more about just e-comm in general in Puerto Rico and some of the markets you serve. Like, what are you seeing there in terms of, you know, a trend to e-comm and how is Evertech positioned to take on the e-comm opportunity over the next couple of years?
spk06: Yeah, so, I mean, again, as we talked about, whether it's APH, whether it's our gateway, it's a trend that we're seeing like all of the other payment providers. Our focus has really been the place-to-pay product as our e-commerce gateway. We have seen significant volume growth in Ecuador during the quarter. And then, like I told you, now that we've localized it in Costa Rica and Panama, we're seeing success with those banks because they're adding new merchants, not just going sort of static with the existing banks when they had the previous product. Because the previous product we had, again, is not a product that we felt like we could really grow the rate we'd like to across the regions. In Puerto Rico, we'll also convert to that product. But it's a place-to-pay product and acquisition that's been incredibly successful, and that will be the future gateway for the company.
spk09: Okay. Thanks, guys.
spk06: Thank you.
spk03: Thank you. And as there are no more questions, I would like to return the floor to Max Fusler for any closing comments.
spk06: Thank you, and I want to thank everyone for joining the call. I hope each of you and your families remain safe. We look forward to connecting with you virtually over the coming months and really look forward to seeing you again in person once we get past the pandemic. Thank you and good night.
spk03: Thank you. The conference has now concluded. Thank you for attending today's presentation.
spk06: May I disconnect your line?
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