Evertec, Inc.

Hey, and welcome to the Evertech Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now, I would like to turn the call over to Mr. Kevin Hunt of Investor Relations. Please go ahead, sir.

Thank you and good afternoon. With me today are Max Fischler, 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 gap 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 website at www.evertechinc.com. I'll now hand over the call to Max.

Thanks, Kevin, and good afternoon, everyone. Our business performed well in the quarter, despite the headwinds we faced, some of which we knew about coming into the quarter. and others that were unanticipated. Our Payments Puerto Rico and LATAM revenues continue to grow very well, driven by organic growth and also benefiting in part from the acquisitions that we completed during the year. In Payments Puerto Rico, the year-over-year growth was driven by a combination of strong POS transactions, ATH mobile business growth, and the contribution from the small acquisition completed in the second quarter. In Latin America, we continue to see very strong results driven by organic growth across the region, as well as the initial contribution from the VPR acquisition that closed on July 1st. In terms of expected headwinds, the impact from the popular transaction that closed on July 1st was in line with our expectations, as it affected year-over-year revenue growth and margins primarily in the business solutions and MAB segments. We also experienced some modest revenue and margin impacts from Hurricane Fiona over the final two weeks of the quarter, primarily in our merchant acquiring segments. Margin and EPS were also negatively impacted by a $7.8 million non-cash foreign currency remeasurement loss during the quarter, and Joaquin will provide more details on that in a few minutes. On today's call, I will start with the additional highlights from the quarter and will then turn it over to Joaquin, who will provide further details on our third quarter results, as well as an update to our 2022 outlook and high-level commentary on 2023. Beginning on slide four, total revenue was $146 million for the third quarter, flat when compared to the third quarter of 2021. Adjusted EBITDA was $52 million, a decrease of approximately 25%. And adjusted earnings per share was 40 cents, a decrease of approximately 35% from the prior year. Excluding the impact from FX remeasurement, adjusted EBITDA and adjusted EPS would have been $60 million and 53 cents, a decrease of 14 and 15% respectively. During the quarter, we returned approximately $41 million to our shareholders through dividends and share repurchases, and our liquidity remained strong at $344 million as of September 30th. Moving to our Puerto Rico update on slide five. Hurricane Fiona was an unfortunate event this quarter. We are happy to say that all our employees are safe and our own operations were largely unaffected by the hurricanes. That said, Fiona was a disruption to the island, and over the final two weeks of the quarter we did see an impact to the merchant acquiring segment, and to a lesser extent, our payment processing segment. Certain parts of the island, especially the western part, were hit hard and are still recovering from the heavy flooding and damage. In line with our community values, we are deeply committed to helping the island recover from tragedies like Hurricane Fiona. To that end, Immediately after the storm, we announced that we would donate up to $250,000 to help communities as well as our employees that were impacted by the storm. We enabled the donate feature on ATH Mobile to support hurricane relief, and for a two-week period, we matched specific donations made through the app. Turning to business results in Puerto Rico, merchant acquiring revenue was down slightly year-over-year given the tough comparable period and the impact from Fiona. Payments in Puerto Rico was up 15% on a year-over-year basis, as we continue to benefit from POS transaction growth and the contribution from ATH Mobile Business, as well as the small acquisition completed last quarter. Finally, our business solution segment was down 15% year-over-year. That decline was expected given the one-time credit granted upon closing of the Popular transaction. Additionally, as you may recall, we sold certain assets to Popular that had an annual revenue run rate of roughly $30 million. Now turning to Latin America on slide six. LATAM revenue growth was strong once again, up 26% compared to the prior year. We continue to see growth across the region with robust organic growth with existing customers in a number of countries. We also had a nice contribution from the VBR acquisition. I'm also very pleased to announce that we have expanded our relationship with MercadoLibre into Chile, further positioning us as a payments leader in the region. As a reminder, we currently provide issuing services for MercadoLibre in Mexico. And this expansion reflects our ability to create long-term partnerships with important clients in the industry, as well as the strength of our regional products. Additionally, I am pleased to announce that we have signed Grupo Evol as a new customer for our Place to Pay Gateway in Colombia. Grupo Evol is one of the largest banking groups in Colombia with over 18 million banking clients. We are excited by the opportunity to partner with such an important player in the region. Next, let's turn to slide 7 to cover a few additional items. Last quarter, we discussed the highlights of the POPULAR transactions, and one of the benefits we mentioned was the requirement that POPULAR reduces ownership of Evertech to under 5%, thereby freeing us from the Bank Holding Company Act. We are pleased to report that this goal has been achieved, and thus an obstacle to being more nimble in pursuing M&A transactions has been removed. As I already noted, the two acquisitions that we have closed this year are performing well, and we remain committed to finding more deals in Latin America. Finally, I would like to turn to our people. specifically our commitment to our scholarship program in Puerto Rico and Latin America. This program is now in its eighth year, and we are pleased to report that this year we awarded 186 scholarships for a total of $190,000. We are proud to have awarded over $1 million in scholarships over the last eight years and look forward to continuing to support higher education in both Puerto Rico and Latin America. With that, I will now turn it over to Joaquin to provide an in-depth look at our third quarter results.

Thank you, Mac, and good afternoon, everyone. Turning to slide nine, I think it's important to briefly explain how Evertech is impacted by fluctuations in foreign currency, given that, as Mac mentioned, we have a 7.8 million non-cash remeasurement loss impacting our results this quarter. One of the effects is foreign currency translation, which involves the process of bringing the financial information of our subsidiaries outside of Puerto Rico from foreign currencies to the reporting currency, which for us is the U.S. dollar. Translation is very common, and most companies with foreign operations are subject to this process, which doesn't result in gains or losses on results, but can have an impact on year-over-year growth because of currency fluctuations. Translation is impacting our year-over-year growth negatively this quarter by about 900,000, or approximately 3% of growth for our LATAM segment. The second type of impact is foreign currency remeasurement, and this is a result of Evertech's foreign subsidiaries having U.S. dollar balances which need to be converted to the local currencies. This process does result in non-cash gains or losses that impact our results. In our case, remeasurement is driven primarily by our Costa Rica entity, where most of our customer contracts, our cash balances, and intercompany transactions are in U.S. dollars. This quarter, the Costa Rica currency had a drastic shift, which led to the $7.8 million non-cash remeasurement loss that is impacting our results. even though we still have the same cash and receivable balance in US dollars. With this brief overview in mind, I will now turn to slide 10, where you will see the consolidated third quarter results for Evertech. Total revenue for the third quarter was $145.8 million, relatively flat when compared with $145.9 million in the prior year, and generally in line with our expectations, as this quarter includes the impact of significant transactions that closed during that period, such as the popular transaction in Puerto Rico and the BBR acquisition in Latam. More specifically, our third quarter results in Puerto Rico reflected increased payment transaction volume, continued growth of ATH mobile business, and revenue contribution from the small acquisition completed last quarter. This was partially offset by expected declines in the business solution segment, primarily driven by the popular transaction, which included the $6.9 million one-time credit granted to Popular and the impact to revenue from the assets sold. An additional offset was the impact from Hurricane Fiona in the last few weeks of September, mainly in our merchant acquiring segment. Results in Latin America remain quite strong, reflecting double-digit organic growth and the contribution from the BBR acquisition. Adjusted EBITDA for the quarter was $52.4 million, a decrease of 25% from $69.8 million in the prior year, and excludes the $135.6 million gain from the popular transaction. Adjusted EBITDA margin was 35.9%, a 12 percentage point decrease compared to the prior year. The declining adjusted EBITDA margin includes the expected impacts from the popular transaction I just mentioned, as well as the impact from the non-cash foreign currency remeasurement loss of approximately $7.8 million. The popular transaction effects include the impact of the one-time credit granted to them, the effect of the EBITDA on margin from assets sold which were at high margin, and the impact from the revenue sharing agreement. The remeasurement loss, as previously discussed, is due to assets and liabilities held in U.S. dollars in some of our foreign subsidiaries, and in this case, mainly driven by Costa Rica. Normalizing for these one-time effects, specifically the one-time credit to Popular and the foreign currency remesherment loss, our adjusted EBITDA would have been approximately $67 million, a 4% decrease versus the prior year quarter, and our margin would have been approximately 44%, an approximately 400 basis point decrease versus the prior year, and in line with our expectations. Adjusted net income for the quarter was $27.1 million, a decrease of 40% as compared to the prior year, primarily reflecting the lower adjusted EBITDA and a higher adjusted tax rate. Our adjusted effective tax rate in the quarter was 24.8%, higher than expected and also negatively impacted by the foreign currency remeasurement loss. If we were to normalize for the remeasurement loss, our adjusted effective tax rate would have been approximately 18%. Adjusted EBS was 40 cents for the quarter, a decrease of 35% compared to the prior year. Normalizing for the foreign currency re-measurement impact, EPS for the quarter would have been approximately 53 cents for the quarter. Moving on to slide 11, I will now cover our segment results starting with merchant acquiring. In the third quarter, merchant acquiring net revenue decreased 2% year-over-year to approximately $36.9 million. as the prior year presented a tough comparable period given the benefits from COVID-related federal stimulus and the normalization of spending patterns this year to our pre-pandemic levels in terms of our mix of sales, domestic versus international transactions, and average ticket. As Mac noted, Hurricane Fiona caused a disruption to spending patterns over the final two weeks of the quarter, and we estimate this represented a $1 million impact to MAB revenues. Additionally, our overall spread was down year over year due to a decrease in the average ticket, which continues to slowly normalize. We also saw a shift in the mix of volume towards lower margin verticals, such as gas stations, supermarkets, and utilities, from higher margin verticals like retail. This was expected given the stimulus funding in the prior year, the effects of inflation, higher gas prices, and the effect of Hurricane Fiona in the last weeks of September. Adjusted EBITDA for the segment was 13.9 million, down 28%. Adjusted EBITDA margin was 37.6%, down approximately 14 percentage points as compared to last year. Most of this decline was expected given the revenue sharing agreement with Popular that commenced with the closing of the transaction, as well as high processing costs aligned with the lower average ticket. Our margin was also negatively impacted by the effect of Hurricane Fiona in the last couple of weeks of the quarter. On slide 12, you will see the results for payment services Puerto Rico and the Caribbean segment. Revenue for the segment in the third quarter was $44.6 million, up approximately 15%, driven by increased transaction volumes for POS processing of 4% year-over-year, continued growth of digital payments, mainly ATH mobile business, and continued benefit from increases in transaction processing and monitoring revenue from services provided to the LATAM segment. We also benefited from the small acquisition completed in the second quarter. Partially upsetting some of these positive drivers was the impact of the aforementioned one-time credit granted to Popular, as well as a small impact from Hurricane Fiona on processing volumes. Adjusted EBITDA for the segment was $25 million, up slightly as compared to last year. Adjusted EBITDA margin was 56.1%, a 13 basis point decrease as compared to last year. Normalizing for the impact of the one-time credit to Popular, margin for the quarter would have been 56.6%. On slide 13, you will see the results for our Payment Services Latam segment. Revenue for the segment in the third quarter was $33.7 million, up approximately 26% as compared to last year. Organic growth with existing customers continued to be quite strong with double-digit growth for the region overall, even with a foreign currency headwind of approximately $900,000. The BBR acquisition, which closed on July 1st, also contributed to the year-over-year growth this quarter. Normalizing for the effects of foreign currency translation, our year-over-year growth would have been approximately 29% in constant currency. Adjusted EBITDA for this segment was $3.2 million, and adjusted EBITDA margin was 9.5%. The year-over-year decrease was mainly driven by the $7.8 million non-cash foreign currency remeasurement loss previously discussed, which represented approximately 23 percentage points of margin decline, as well as the recognition of a low-margin hardware sale in the quarter. Normalizing for the effect of the non-cash remeasurement loss, our latent margin for the quarter would have been approximately 33% and aligned to our expectations. On slide 14, you will find the results for the business solutions segment. Business solutions revenue for the third quarter was down approximately 15% to $49.3 million. Most of the decline was related to the effects of the popular transaction. As Mike mentioned, we sold assets with an estimated $30 million annual run rate, and as part of the new MSA with Popular, we provided a one-time credit amounting to $6.3 million in the business solutions segment. There were several positive offsets to those headwinds as we completed several projects tied to the closing of the transaction, began some services that are part of the new MSA, and we also benefited from some smaller one-time hardware and software sales. For the quarter, adjusted EBITDA was $16.3 million, and adjusted EBITDA margin was 33%, down approximately 12 percentage points as compared to last year. As noted with the other segments, This decline was expected given the main driver is a 6.3 million credit, which flows directly to EBITDA. Additionally, the assets sold were of higher margin contribution, and this also impacted the margin in the quarter. Normalizing for the one-time credit, margin for the quarter would have been approximately 41% and aligned to our expectations. Moving on to slide 15, you will see a summary of corporate and other. Our third quarter adjusted EBITDA was approximately negative $6 million, a decrease of 18% compared to prior year. Our adjusted EBITDA as a percentage of total revenue was 4.1%, which is below prior year and slightly better than our expectations for 2022 of 5%. Moving on to our cash flow overview on slide 16. Our beginning cash balance was approximately $286 million, including restricted cash of approximately 20 million. Net cash provided by operating activities year-to-date was approximately 159 million. Capital expenditures for the nine-month period were approximately 45 million, and we continue to anticipate approximately 60 million of capex for the full 2022 year. As noted on previous calls, in the second quarter, we acquired a company in Puerto Rico and recognized a customer relationship of approximately 10.6 million in connection with the acquisition. On July 1st, we closed the BBR acquisition for approximately $51 million, including approximately $7.1 million in certificates of deposit. We paid approximately $10 million in long-term debt payments, approximately $6 million in withholding taxes on share-based compensation, and approximately $1 million of other debt paydowns, which resulted in a total net debt decrease of approximately $16 million. We paid cash dividends of approximately 11 million year-to-date, and during the third quarter, we repurchased approximately 1.2 million shares of common stock for a total of approximately 37 million, including 25 million from the secondary offering. And we have approximately 102 million remaining in the company's share repurchase program. We have repurchased approximately 73 million in shares through September 30. Additionally, on July 1st, we also received approximately 4.6 million Evertech shares from Popular in connection with the transaction close. Our ending cash balance as of September 30 was $244 million, and this included approximately $19 million of restricted cash. Moving on to slide 17, you will find a summary of our debt as of September 30, 2022. Our quarter ending net debt position was approximately $233 million, comprised of approximately $225 million of unrestricted cash and $458 million of total short-term borrowings and long-term debt. Our weighted average interest rate was approximately 5.9%. Our net debt to trailing 12-month adjusted EBITDA was approximately 1.4 times. As of September 30th, totally greedy was approximately $344 million, This balance excludes restricted cash and includes the available borrowing capacity under our revolver. Moving on to slide 18, I will now provide you with an update on our 2022 outlook, as well as some initial comments to help you think about 2023. We are pleased with the continued strong growth in both Puerto Rico and Latin America, and the impact to revenue from the popular transaction has been consistent with our expectations. We did see some impact from Hurricane Fiona at the end of the quarter, but we saw transaction volumes return to normal by mid-October, so we do not expect additional headwinds from the storm in Q4. It's worth noting that the new MSA does provide for a CPI adjustment for the fourth quarter capped at 1.5% for most MSA services and 5% for certain payment services. Given those factors, we continue to expect revenue to be in a range of $607 million to $615 million, representing growth of 3% to 4%. Excluding the impact from current currency re-measurement and the modest impacts from Fiona, EBITDA margin for the third quarter was largely in line with our expectations, including the anticipated impacts from the popular transaction. As discussed, the currency adjustment was significant in the quarter, providing an approximately 500 basis point headwind to the third quarter alone. We are not assuming any additional impact from currency re-measurement in the fourth quarter, but when we flow through the impact from third quarter, This reduces our EBITDA margin expectation for the full year closer to 44%, down from our prior expectation of between 45% to 46%. Given the tax impact noted earlier, we are now expecting our tax rate to be in a range of 17% to 18%, up from our prior expectation of between 14% to 15%. And our interest expense assumption continues to move higher given the rising rate environment. We are also including the third quarter foreign currency remeasurement in our updated adjusted EPS guidance for the year, which results in an expected adjusted EPS outlook of $2.36 to $2.47 per share. This represents a year-over-year decline of 14% to 10% as compared to the adjusted earnings per share in 2021 of $2.74. This guidance also includes the benefits of the sharing purchases of $73 million and the approximately $4.6 million reduction in share count that occurred on July 1st related to the popular transaction. Turning to 2023, I will highlight some key considerations. First, while we are pleased with the completion of the popular transaction, this will create important headwinds in the first half of next year. The MAB segment EBITDA and margin will be impacted by the revenue share with Popular and expected to reset closer to low 40s margins. And the business solution segment revenue will be impacted by the sale of assets, which as a reminder, we have stated is approximately $30 million in revenue on an analyzed basis. EBITDA and margin for the business solution segment are also expected to reset in the low to mid 40s as the assets sold were of higher margin contributions. Offsetting some of these headwinds is the CPI escalator, which under the renewed agreements has a 1.5% gap for most services under the MSA and 5% for some of our payment services with Popular. Additionally, we will anniversary the acquisition completed in Puerto Rico during the second quarter and will also anniversary the BBR acquisition in Latin America during the third quarter. Lastly, as we mentioned, the rate-in-rate environment will have an impact on our interest expense. and we expect this will be the case into 2023. In summary, we are pleased with our results through the first nine months of 2022 on our positioning for the future following the popular transaction. We look forward to hopefully seeing you in person at our conferences later in the coming months. Operator, please go ahead and open the line for questions.

Thank you. And I'll begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. Using the speakerphone, please pick up your handset before pressing the keys. To draw your question, please press stars and two. This time we'll pause momentarily to assemble the roster. First question comes from Jimmy Friedman of Susquehanna.

Please go ahead. Hi. A lot of hard work here. I'd appreciate the detail in the slides. I wanted to ask So did you say, you were going kind of quick there, what the contribution was for BVR, for the BVR acquisition? I think you said that FX neutral was 29% growth, but did you call out the acquired contribution?

Hey, this is Mac, Jamie. We did not. Well, we said it was 26% growth. We lost 3% of growth because of FX, but we didn't call out BVR, right?

Okay, thanks for that, Mac. And then, so if I'm doing the math right, if you're saying 30 million impact from BPOP on an annual basis, if I were to say seven and a half per quarter rounding, my calculation is that business solutions would have been roughly flat absent the transaction. Is that in the ballpark?

You had two impacts. One is you had the sold revenue. And so your calculation, you know, I mean, it's not necessarily even from quarter to quarter, but that's a good estimation. But you also had the reversal of the CPI, which was a pretty significant reversal that we called out as well.

Yeah, okay.

That's an additional $6.4 million or $6.3 million to the business solution segment, Jamie. So you have two max points. the $30 million annual run rate, which your computation is right based on that, and then incrementally for this quarter specifically, that $6.3 million impact from the one-time credit.

Got it. Okay. All right. Thanks for the details, guys. I'll drop back in the queue.

No problem. Thanks, Jamie.

Thank you. Next question will be from Mr. John Davis for Raymond James. Please go ahead.

Hey, good afternoon, guys. A lot of moving pieces here, Mack, Joaquin, but if I look at third quarter earnings, I think if you exclude FX, you said 53 cents. You're going quickly, Joaquin, but did you say a million-dollar revenue impact from the hurricane? I just want to make sure I understood that correctly, or any other color you can give on the third quarter impact from the hurricane.

That's correct, John. The impact was mostly to our merchant acquiring segment. We're estimating that to be about a million on the top line. And yeah, that does have a flow-through to EBITDA, but the main impact is, to your point, the foreign currency remeasurement loss that we detailed in the prepared remarks.

Okay, so lots of moving pieces here, but if I take a step back as we look, and I think a couple times you said that the transaction was kind of in line with your expectations, but if I just add back a couple pennies for the hurricane, it looks like 3Q was a little bit light, even excluding things, but 4Q is implied to be a little bit better. So is it fair to say that kind of excluding the one-time items, everything's kind of in line with expectations and absent interest expense, you know, nothing changes from your view of earnings power as we head into 2023? That's correct.

So when you start to kind of adjust for some of the one-times that we called out, John, And obviously, the impact from the tax rate, which was also affected by the foreign currency remesherment impact, we would have pretty much been within the earnings fiber that we kind of guided towards last quarter for this 2022 year.

Okay, so I guess the point, and you made some good call-outs for 23, but as we think about 2023, obviously these one-time things won't repeat. You're thinking similar revenue growth, similar margin profile. for 23 that you were thinking three months ago, maybe the only slight difference is we have a little bit higher rate, so you have a little bit of a higher interest expense going into next year.

That's fair. Obviously, we're not giving 23 guidance, but at a high level, I think what we wanted to highlight more than anything, John, is we've been giving some numbers based on what we expected kind of different segments to look like from a margin perspective post-transactions. And when we start to normalize for some of the one-time impacts, we're very close to what we expected. So your statement is correct.

Okay, and then last one for me, Mac. Just obviously you did this transaction with BPOP to clean it up, clean up the story, enable you to do M&A. So maybe just comments on the M&A pipeline. Obviously you guys were tied up for a while probably getting this BPOP transaction closed, but now that we're kind of three months in the rearview mirror, Maybe comments on the M&A pipeline, how you see it, obviously ample capacity with, you know, levered at 1.4 times, but any color there would be appreciated.

Yeah, I mean, as you know, we don't really talk about something that we haven't, but I would say we're even more focused than we were before. We've got a great balance sheet. We now don't have the regulatory requirement, and we're actively looking at targets as we speak. And we hope as, you know, markets start to rationalize, as rates stay up, that we'll continue to, you know, find some attractive opportunities. And then I would point you to the organic stuff. I mean, MercadoLibre is the most valuable and best e-commerce company in the region, and we just extended from Mexico now into Chile with those guys, which is a significant testament to our brand. And then also Grupo Evolve. Most people probably are not familiar with that bank, but they're a holding company that owns some of the largest banks in Colombia. They've got about 18 million bank clients and about 16 million pensioners in the country of Colombia, so we're pretty excited about those guys signing up for our e-commerce gateway.

Okay. Appreciate all the color. Thanks, guys.

Thank you. Next question will be coming from Vasu Govel of KBW. Please go ahead.

Hi. Thank you for taking my questions. I guess first question for you, Joaquin, on just the guidance. You know, for the fourth quarter, it seems to be still a pretty wide range, so maybe you could help us think about the key variables that could push us to the lower end versus the higher end. And then within that, I guess, as it relates to Hurricane Fiona, I know obviously a very unfortunate event, but in the past when, you know, calamities like that have happened, you've seen a pickup. There tends to be a pickup in insurance proceeds, and that sometimes drives increased spending and assuming periods. So, like, how are you thinking about those dynamics being out?

Hey, Basu. So taking the second part of your question first, what I would say as it relates to Fiona, I mean, there's no significant funding really expected as a result of the hurricane. Most of the metropolitan areas were up and running relatively quickly. There are certain areas that, and we said this in the remarks, are still pretty impacted. So there are some funds coming in to kind of do some reconstruction and help some of those businesses, but it's not to the extent or we are not expecting the type of impact that we saw or even close to that impact with Maria. So we're not expecting any real tailwind as a result of Fiona or any expected funding here into the fourth quarter. In terms of the range and the guidance, I mean, from the top line perspective, we kind of maintained the range that we had last quarter from the High size, I would say that it's mainly related to the spending here in Puerto Rico. Obviously, given the tough compares of the prior year, it is difficult from quarter to quarter to define what's really the normalized baseline from which to grow on. So that's why we're keeping that kind of wider range than usual.

Thank you. That was helpful, Gullar. And I guess my follow-up would be on the payments processing sort of segment in Puerto Rico and Caribbean. That was payment services segment, sorry. That was pretty strong, and I got the transaction growth and the ATH mobile, but maybe you could talk about what surprised you the most with the upside, and can we expect this trend to continue into the fourth quarter and then in the next year?

In terms of Payment Puerto Rico, number one, we have a small acquisition that we did in the second quarter that's definitely helping us in terms of the top line growth here over the prior year. But I would say that two things continue to perform very well. One is ATH Mobile Business, which continues to grow and continues to have a very good contribution per transaction. So we continue to look for ways to penetrate the cash environment in Puerto Rico, and ATH Mobile Business continues to be a very good product for that. In addition to that, some of the ancillary services that we have within payment services, like for example we do issuing for some of the healthcare companies here in Puerto Rico, we actually signed a few years back with them, have also continued to perform. Healthcare companies in Puerto Rico are continuing to look for ways to electrify some of the benefits that they are giving their customers, and we've become a pretty good source to help them do that, so we've also driven I would say better than expected growth from those products.

And I would just reiterate, the ATH mobile business, we're converting P2P transactions often to business transactions. That still will remain an opportunity into the future.

I will say, Vasu, as I did mention in kind of the 2023 considerations, we will anniversary the small acquisition we did in Q2 of next year. So I would say that there will be some moderation once we anniversary the acquisitions.

Super. And then, Mac, if I could sneak in just one small one for you just to follow up on the M&A question before. Have valuations started to reset to a level that you think can become actionable in the near term? And then, specifically, what type of assets are you most interested in? Is it more the bank JV type of stuff or more technology assets? What regions, if you could give more color on how you're thinking, what you think might make more sense?

Sure. I mean, what I would say is sellers haven't necessarily capitulated, but we are having some more reasonable conversations around valuations, and that, you know, targets realize they have to make money. So the conversations have changed and become a bit more reasonable. We're still focused on Latin America, and we're still focused on the countries, Colombia, Chile, Mexico, some countries that we're doing business in today. We're not focused, of course, on Venezuela or overly focused on Argentina at this time. And I would say we love the payments businesses. We would look at a JV. We would look at a issuing or acquiring business. And we also might consider some adjacencies. So we might look at an adjacency that is a technology that we would sell to the same customer type that we feel like we could scale given our network.

Super helpful. Thank you very much.

Thank you.

Thank you. Next question will be from Jane Fawcett of Morgan Stanley. Please go ahead, sir.

Hey, guys. This is Jeff Goldstein. I'm for James. Just following up on one of Vasu's questions, I know it's hard to have a crystal ball on these things, but if we're thinking about the Puerto Rico economy as a whole and you take some of the macro drivers, the issues around the hurricane, and then just what you're seeing in your own business, how are you feeling about the outlook for Puerto Rico today maybe compared to three months ago?

I mean, compared to three months ago, it's in a very long time frame. What I would say is Look, Puerto Rico is still slated to receive reconstruction funding from Maria, which we've discussed in the past. It's quite significant, but it's over a significant period of time, and that is still to come. So I would say that Puerto Rico isn't shielded from the general macroeconomic environment that we're seeing. I mean, from an inflation perspective, from an interest rates perspective, having said that, Puerto Rico, because of everything that happened with the hurricane and COVID stimulus, which on a per capita basis was more meaningful, there are certain economic factors that seem to be in a stronger place than they have been before. And that for us is encouraging in terms of continuing to have kind of a better macroeconomic backdrop with which to work on. But it's something that we need to continue to definitely monitor as time continues to go.

Yeah, I mean, I would just add, look, there's still funding for Maria that needs to come in, right, to rebuild some of the infrastructure and some of the housing. And there's also the infrastructure bill that Congress passed. So we still, you know, on a relatively small economy, have some nice tailwinds, you know, for the short term.

Got it. Okay, and then just on the expansion of the Mercado Libre relationship into Chile, is there anything you can talk about related to the economic contribution from that? And then you mentioned obviously having a relationship with Mercado Libre in Mexico right now, but how should we think about additional geographic expansion possibilities for that relationship?

We haven't broken out the financial impact. What I would say is in both countries now, in Mercado Libre we're very specific. We only announce those deals when we're in production. So we have been in production in Mexico for a while, and it's exceeded our expectations. And then we are now in production in Chile, where a group of all, we've just signed the contract. So we've got to bring that up, which is the IRE Commerce Gateway. It's prepaid and debit in both countries. And like I said, we're not breaking it out, the numbers. But I will tell you, we've exceeded our expectations in Mexico, which is contributing to the strong organic growth. And we now have implemented it in Chile, It will take a while to ramp, but it should have an impact on us over the long term as well.

The only thing I'll add is, to my last point there, I mean, this is a ramp-up. Mercado Libre is in production, but they are kind of starting this business in Chile. It's not like we're migrating a portfolio of cards. That's going to give us an immediate contribution to our top-line growth. Having said that, it's a great relationship with, to my point, exceeded expectations in Mexico, so Over time, we're expecting this to ramp up and start contributing in a more meaningful way.

All right. I appreciate the call.

Thank you.

Thank you. And again, if you have a question, please press star then one. Next, we'll have a question. Excuse me. Next question will come from Chris Kennedy of William Blair.

Please go ahead. Hey, good afternoon, and thanks for all the detail, and thanks for taking the question. Can you Talk a little bit about the acceleration of your Latin America business. I think you've had multiple quarters of accelerating growth. Just kind of talk about what's driving that, if you can.

I mean, from a high level, we've localized our place-to-pay platform now in over seven countries. So we're seeing that volume come through. As I talked about, MercadoLibre is exceeding expectations. So it's been some nice pieces of business that we've won over the last year or two, and it's the continued localization of the products that we've purchased through M&A.

A couple of more points. One, I think we've mentioned a couple of cross-sell opportunities that we've been able to close in the past couple of years that, again, have started small and have now gotten to a point where the contribution is is impacting the overall segment a little bit more. The same goes for some of the Mexico relationships that we've announced, Mercado Libre in Mexico and Casa Popular Mexicana in Mexico, both. We kind of announced those wins maybe a year, a year and a half ago, and they have now gotten to a point where they've gotten traction and they are contributing in a more meaningful way. So I think to the extent that we continue to put some of these pieces together and they start to grow over time, This has been the expectation, right? These are markets that are expected to grow at this pace, and we're trying to put ourselves in those positions with some of these client wins.

Yeah, I mean, Chris, what ultimately this has done is we've built distribution channels now in each of these countries, and now that we have products where we have our own IP, like Joaquin said, we can cross-sell and up-sell and over time create leverage. So we're pretty excited.

Yeah, fantastic. Appreciate that. And then just a small one, can you give the current revenue contribution from ATH Mobile Business and the other ATH Mobile initiative you have?

We haven't broken that out, Chris.

Okay, understood. Thank you.

Thank you.

Thank you. That concludes our question and answer session. I'd like to turn the call back over, Ruth. Mr. Max Schuessler for closing remarks.

Thank you. I want to thank everyone again for joining our call, and we look forward to seeing you at upcoming conferences. Good night.

The conference is now concluded. Thank you for attending today's presentation. You may now