Evertec, Inc.

Good morning, everyone, and welcome to the Evertech's fourth quarter and full year 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.

Thank you, and good morning. With me today on the call are Max Schuessler, our President and Chief Executive Officer, and Joaquin Castrillo, our Chief Financial Officer. A replay of this call will be available until Monday, March 8th. Access information for the replay is listed in today's financial release, which is available on our website under the investor relations section of evertechinc.com. For those listening to the replay, this call was held on March 1st. Please note, there is a presentation that accompanies this conference call, and it's accessible in the investor relations section of our website. Before I begin, I'd like to remind everyone that this call may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. Evertech cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur after this call. please refer to the company's most recent annual report on Form 10-K filed with the Security and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements. 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. Reconciliation to GAAP measures and certain additional information are also included in in today's earnings release and related supplemental slides. I'll now hand the call over to Mac.

Thanks, Kate, and good morning, everyone. Our record fourth quarter and full year 2020 results are a testament to the resiliency of our business and our team in a challenging environment. Also, we were able to continue executing our strategy, creating an even stronger business entering 2021. I'll first cover some of the quarter highlights as well as discuss a few recent developments and then update you on our strategies for growth in 2021 and beyond. Beginning on slide four, we have a summary of our 2020 results. Total revenue for the year was approximately $511 million, up 5% compared to 2019, which exceeded the top end of our initial expectations for the year. We generated adjusted EBITDA of $240 million, an increase of 6%. We also delivered adjusted earnings per share of $2.07, an increase of 6% as well. Our company generated significant operating cash flow of $199 million. Our liquidity as of December 31, 2020, was a strong $320 million, and we returned approximately $22 million to our shareholders with over $7 million in stock buybacks and $14 million in dividends. Truly impressive results, and my thanks go to all the Evertech team members on a job well done in the most unusual pandemic year. Now I'd like to give you more updates on our businesses, beginning with Puerto Rico on slide five. First, we anticipate to benefit from the recent consolidation in the banking industry in Puerto Rico, specifically the integration of First Bank and Sentinel there. We expect this will positively impact our 2021 merchant segment growth rate. We also believe we will continue to benefit from the current trends of digital transactions as we localize place to pay and focus on ATH mobile product features. We made further progress throughout the fourth quarter implementing QR codes for contactless payments, which are now available in more than 10% of our merchants. This continues to strengthen our ATH brand and drives consumers to embrace digital transactions, which escalated during the pandemic. Additionally, during the first half of the year, we plan to launch a new mobile app for electronic benefit, or EBT, users that provides access to their balances on their EBT cards and notification of their next deposit. This new mobile app will further complement our EBT services to the government and respond to the needs of the consumer. Regarding the overall Puerto Rico economic environment and pandemic impact, there haven't been any significant changes in restrictions. Similar to most places, certain social distancing measures continue to be in place, the most important being a maximum capacity requirement at 30% for restaurants and other businesses. As it relates to the economic environment, unemployment levels have improved since the beginning of the pandemic but continue to be significantly higher than prior year. Other economic indicators, such as cement sales and retail sales, have reflected positive variances against the prior year, which hopefully continue to drive growth into early 2021. The federal stimulus payments that were received between Q2 and Q3 continue to support an increase in sales lines in Q4, driven by a high average ticket, although transactions were down as compared to the prior year. Sequentially, we have seen some decline in average ticket as the benefits from unemployment payments and other stimulus begin to land. The new $600 stimulus payment began rolling out in late January and early February, and we are anticipating this to benefit the first quarter. Additionally, I am delighted to say that the vaccine rollout in Puerto Rico is progressing with over 10% of the island having received their first dose to date. Lastly, in January, federal government announced that FEMA will award $3.7 billion to help rebuild Puerto Rico's water and wastewater treatment plants. This award, along with the $13 billion announced in September to rebuild the electric grid, will be beneficial to the long-term health of the economy. Moving on to Latin America, on slide six, we achieved a number of significant implementations in the quarter and in early 2021. I'm delighted to announce that we launched MasterCard debit card processing with MercadoLibre in Mexico. MercadoLibre owns the leading online payment solution in Latin America, MercadoPago, and is one of the most valuable companies out of Latin America known for their online marketplaces. This is testament to our growing reputation with leading banks, financial institutions, as well as technology players in Latin America. Additionally, I am pleased to announce that the Citi Banamax collection platform and Santander Chile Payment Processing Service are both in production. Furthermore, Santander received formal regulatory approval from the government of Chile, which is a significant milestone for the country's payment system. Regarding other wins, we have been awarded the formal bid for Banco Popular of Costa Rica. While the contract will be finalized in the coming weeks, we are pleased to continue building on this relationship. It is an important renewal of current services we provide, as well as a potential expansion of the relationship with some additional services. Lastly, we renewed contracts with both Banco Ito and Banco Estado, both in Chile. These new wins, renewals, and implementations represent an important reputational advancement for Evertech in Latin America. Growth from these new services with current and new customers will be important in 2021 and beyond, particularly as these markets continue to evolve. With respect to the economic environment in Latin American markets, COVID-19 continues to create challenges for the regions. But TAM revenue in Q4 was flat year over year as we continue to see the impact of the pandemic and previously discussed attrition. Vaccine distribution has just begun in February, which will likely further delay the recovery. Moving to slide seven, I want to update you on our perspective regarding industry tailwinds as well as our growth strategies in 2021 and beyond. There continues to be a significant opportunity for growth across Puerto Rico and Latin America given the dominant position of cash transactions. and the low penetration of card volumes. In mature markets like the US and the UK, cash transactions are estimated to be approximately 15% of total transactions. In Puerto Rico and Latin American markets, cash use is more than 50%. We believe the positive trends in cash-to-digital payment conversion, driven by an increasing online presence and smartphone usage, should fuel growth for many years to come. Additionally, as countries move away from the controlling monopolies or duopolies, there will be increasing opportunity to participate in this growth trajectory. While some payment markets like Columbia have evolved more slowly than we anticipated, and our investments may be lower there in the coming year, we would anticipate Chile, Uruguay, Costa Rica, and Mexico to be more robust in 2021. Turning to slide eight, to take advantage of this digital transformation in our markets and to advance our growth strategy further, we made progress in 2020 by accelerating innovation such as the QR code, which is shifting more of our consumers to contactless payment transactions and further solidifying our ATH brand presence. We are also seeing faster adoption of our new gateway product as we expand it into other geographies. Innovation will remain at the forefront of our strategy given the rapid evolution of the payments industry. We remain committed to cross-selling our products for existing clients as well as new clients. In 2021, shifting our risk center and payments products from a licensing model to a processing model will allow us to grow with the payment transaction trends and expand our recurring revenue in the region going forward. Lastly, acquisitions will continue to be important to our growth, whether in Puerto Rico or in Latin America. Our multi-product solutions, strong local presence, and our financial capacity allow us to be uniquely positioned to become the partner of choice. Moving to slide nine, we are also proud of being included for the third consecutive year in the Bloomberg Gender Equality Index. which distinguishes companies committed to transparency in gender reporting and advancing women's equality. At Evertech, one of our core commitments is to diversity in the development of our employees. In 2020, we surveyed our employees and had the highest participation rates and scores for employee engagement in years. While there is still work to do, we believe that our employees are the key ingredient for successful innovation and a high-performing workforce. I want to thank all of our dedicated team members for their commitment throughout 2020 and for building a strong foundation for growth into 2021 and beyond. With that, I will now turn the call over to Joaquin.