Evertec, Inc.

Good afternoon, everyone, and welcome to Evertech's third quarter 2024 earnings conference call. Today's conference call is being recorded. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. I would now like to turn the conference over to Beatrice Brown Sines of Investor Relations. Please go ahead.

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 would 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. Reconsiderations 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 will now hand the call over to Mac.

Thanks, Beatrice. I'm pleased to report strong third quarter results with revenue growth across all segments and margins that were once again above our expectations. Growth remained strong in Puerto Rico, while LATAM continues to deliver strong organic growth, as well as the contribution from the CINCIA acquisition. I'm also pleased to announce that we have closed on the acquisition of Grandada in Latin America. On today's call, I will start with some highlights from the quarter, followed by discussion of our Puerto Rico segments, concluding with an update on Latin America. I will then turn it over to Joaquin, who will provide further details on our third quarter results, an update to our expectations for the remainder of the year, and some important items to consider for 2025. Beginning on slide four, total revenue was approximately $212 million for the third quarter, an increase of approximately 22% compared to the third quarter of 2023. Adjusted EBITDA was approximately $87 million, an increase of approximately 11% when compared with the prior year. Adjusted EBITDA margin was 41.3%, approximately 420 basis points below last year's level, but above our expectations and guidance. Adjusted earnings per share was 86 cents, an increase of 8% from the prior year adjusted EPS of 80 cents. Year to date, we have generated operating cash flow of $185 million and have returned approximately $92 million to our shareholders through dividends and share repurchases, including $12 million in repurchases this quarter. Additionally, our liquidity remains strong at approximately $469 million as of September 30th. Moving on to our business update on slide five. In Puerto Rico, we experienced growth across all of our segments. Merchant acquiring was quite strong, with the revenue up approximately 12% year over year, driven by higher sales volume and a higher spread. Payments Puerto Rico was up approximately 2%, driven by growth in ATH Mobile and POS transactions, partially offset by comparison against a strong prior year quarter. Our business solution segment revenue was up approximately 8%, as projects with Popular that have gone into production have started to contribute more meaningfully. Turning to the macro environment in Puerto Rico, the overall backdrop remains stable. The overall level of employment has continued its upward trend and was up 1.9% year over year for the most recent reading in August, with the unemployment rate ticking down to 5.7%, still near the lowest levels in decades. Travel and tourism trends continue to be a bright spot as arrivals to the international airport in San Juan accelerated during the third quarter, and are up approximately 19% year over year for the first nine months of the year. Non-resident hotel registrations remain up over 4% year to date through September. In sum, we continue to view the macroeconomic environment as supportive. Before leaving Puerto Rico, I want to call out some items to consider as you think about next year. As part of the renegotiation with Popular in 2022, Please recall that our MSA extension agreement provided for a 10% discount on certain MSA services beginning in October of 2025. We recognize that this discount will have an impact on our top line and margin for the fourth quarter of 2025 and full year 2026. And as such, we have already started executing on cost efficiency initiatives that we expect will more than offset the effect of the discount on our EBITDA. Some of these initiatives have already started to take place, and a part of the reason we delivered better margins this quarter. We expect the totality of these initiatives to be in place by the end of 2025 with a full effect in 2026. From a business perspective, this discount will enable us to become even more competitive in terms of pricing with our largest client, and we hope to use this advantage to drive more business over the coming years. Joaquin will provide more details on these efforts later in the call. Moving to Latin America on slide six, Revenue was at 65% year-over-year. The acquisition of Syncia was once again the major contributor in terms of year-over-year growth. We also recognized a one-time revenue from GetNet Chile of $1.8 million, given better than expected volumes from this relationship. But this compared to the $6.3 million recognized from GetNet in the prior year quarter. Currency was also a headwind, impacting the segment's growth by approximately 10 percentage points. If we remove the impacts of Syncia, Gatnet, and Currency, LATAM growth would have been in the low double digits on a year-over-year basis, consistent with our long-term goal for the segment. Turning to Syncia, it's been a year since the acquisition, and we continue to be extremely excited about the long-term opportunity in this business. I want to now update you on three of the five areas of focus that we have previously discussed. First, on product modernization, we continue to make progress on the key platforms which we have been focused on updating. As an example, we implemented a new version of our GRC platform and are already seeing results as we recently signed an important client to the newer version. A number of other banks have also expressed interest, and we expect to see additional new wins in the coming quarters. Second, on revenue synergies, we've identified a number of opportunities to reprice contracts on more favorable terms, and we did in fact see progress on that front in the third quarter, having repriced contracts representing 51 clients so far. And finally, from the margin optimization perspective, we are already executing on a plan to increase our margins for next year. Therefore, based on the ongoing modernization, repricing, and margin optimization efforts, we are confident that Syncio will experience higher revenue growth rates and margins in 2025. Moving on to slide seven, we are also pleased to announce that we have closed the acquisition of Grandata, a data analytics company operating in Latin America that specializes in leveraging behavioral data to provide credit risk insights with a focus on underbanked populations. This acquisition enhances our proprietary product offering as well as extends our relationship with two of the most important fintechs in the region, including MercadoLibre and one of the largest digital banks. This product is a natural extension to our issuing platform, positioning us as the preferred partner throughout Latin America. We are also encouraged by the organic client pipeline that we have for Latin America, the best pipeline we have had in the last couple of years, and we expect to sign new contracts as we exit this year and in the next year that should begin to impact revenues in 2026. Finally, I would like to highlight our commitment to our people and community. In October, we hosted the winners of our Chairman's Award in New York City, including a trip to the New York Stock Exchange. The Chairman's Award is the highest recognition that our collaborators at Evertech can achieve, and I would like to personally thank this year's winners for their contributions. I would also like to highlight our commitment to our scholarship program in Puerto Rico and Latin America. The program is now in its 10th year, having awarded approximately $1.4 million in scholarships over the 10-year life of the program, and we remain committed to supporting higher education in both Puerto Rico and LATAM as we go forward. In sum, this was another strong quarter for Evertech. We continue to deliver organic growth across all our segments while producing upside to our margin expectations. We're executing our own acquisition strategy, integrating Syncio while also closing deals like Grandata that further expand our product offering and presence in LATAM. I want to thank the teams that worked so hard this past quarter to deliver these results. We remain excited about our long-term growth prospects in both LATAM and Puerto Rico and our ability to deliver attractive margins over time. With that, I'll now turn it over to Joaquin to provide a more in-depth look at our third quarter results, our increased EPS outlook for 2024, and some items to consider for 2025.