EVERTEC, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - EVERTEC, Inc.	a8k06302017.htm

Exhibit 99.1

EVERTEC REPORTS SECOND QUARTER 2017 RESULTS

INCREASES 2017 GUIDANCE RANGE

SAN JUAN, PUERTO RICO - August 1, 2017 - EVERTEC, Inc. (NYSE: EVTC) (“EVERTEC” or the “Company”) today announced results for the second quarter ended June 30, 2017.

Second Quarter 2017 and Recent Highlights


•	Revenue grew 6% to $103.5 million


•	GAAP Net Income attributable to common shareholders was $20.1 million or $0.27 per diluted share


•	Adjusted EBITDA increased 3% to $50.1 million


•	Adjusted earnings per common share was $0.44, an increase of 2%


•	$11.2 million returned to shareholders in share repurchases and dividends


•	Completed acquisition of PayGroup in Chile

Six-Month Year-to-Date 2017 Highlights


•	Revenue grew 6% to $204.8 million


•	GAAP Net Income attributable to common shareholders was $43.1 million, or $0.59 per diluted share


•	Adjusted EBITDA increased 5% to $99.3 million


•	Adjusted earnings per common share $0.89, an increase of 6%


•	$22.2 million returned to shareholders through share repurchases and dividends

Mac Schuessler, President and Chief Executive Officer, stated “We are pleased with our execution and performance in the quarter. Additionally, with the closing of the acquisition of PayGroup, we significantly advanced our Latin American growth strategy.”

Second Quarter 2017 Results

Revenue. Total revenue for the quarter ended June 30, 2017 was $103.5 million an increase of 6% compared with $97.7 million in the prior year.

Merchant Acquiring net revenue was $23.5 million, an increase of 1% compared with $23.3 million in the prior year. Revenue growth in the quarter was driven by volume growth and fees partially offset by the shift of revenue from the Merchant Acquiring segment to the Payment Processing segment, reflecting two months of a second quarter 2016 client contract change.

Payment Processing revenue was $30.7 million, an increase of 9% compared with $28.2 million in the prior year. Revenue results in the quarter reflected the previously referenced client contract change from Merchant Acquiring to Payment Processing and increases in ATH® debit network transaction volumes, card processing volumes, POS rental income, as well as increased revenue related to government programs.

Business Solutions revenue was $49.3 million, an increase of 7% compared with $46.2 million in the prior year. Business Solutions revenue growth in the quarter primarily reflects increased revenue related to the acquisition of Accuprint and increased core banking revenue.

Adjusted EBITDA. For the quarter ended June 30, 2017, Adjusted EBITDA was $50.1 million, an increase of 3% compared to the prior year. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) decreased 160 basis points to 48.4% compared with 50.0% in the prior year. The decrease in Adjusted EBITDA margin was driven by increased compliance and information security expenses as well as increases in withholding taxes, severance and other operating expenses partially offset by favorable revenue mix on increased volumes and the impact of foreign currency gains.

Net Income attributable to common shareholders. For the quarter ended June 30, 2017, GAAP Net Income attributable to common shareholders was $20.1 million, or $0.27 per diluted share, compared with $20.2 million or $0.27 per diluted share in the prior year.

Adjusted Net Income. For the quarter ended June 30, 2017, Adjusted Net Income was $32.2 million, an increase of 1% compared with $32.0 million in the prior year and included the impact of increased depreciation and amortization expense and increased interest expense in the current year. Adjusted earnings per common share was $0.44, an increase of 2% as compared to $0.43 in the prior year.

Share Repurchase

During the three months ended June 30, 2017, the Company repurchased approximately 0.24 million shares of common stock at an average price of $16.47 per share for a total of $3.9 million. As of June 30, 2017, a total of approximately $72 million remained available for future use under the Company’s share repurchase program.

Acquisition

On July 3, 2017, the Company’s main operating subsidiary, Evertec Group, LLC, and Evertec Panama S.A. completed the acquisition of EFT Group S.A., a Chilean-based company known commercially as PayGroup for approximately US $46 million, which comprises a cash payment of approximately US $38.5 million and the assumption of approximately US $7.5 million in debt and other liabilities. PayGroup is a payment processing and software company serving primarily financial institutions throughout Latin America.

2017 Outlook

The Company is updating its financial outlook for 2017 as follows:


•	Total consolidated revenue between $411 and $417 million representing growth of 5% to 7%


•	Earnings per share (GAAP) of $1.06 to $1.14


•	Effective tax rate ranging between 10.0% to 10.5%


•	Adjusted earnings per common share guidance of $1.63 to $1.71 representing a range of -2% to 2% as compared to $1.67 in 2016

The Company continues to expect:


•	Capital expenditures ranging between $35 and $45 million

Earnings Conference Call and Audio Webcast

The Company will host a conference call to discuss its second quarter 2017 financial results today at 4:30 p.m. ET. Hosting the call will be Mac Schuessler, President and Chief Executive Officer, and Peter Smith, Executive Vice President and Chief Financial Officer. The conference call can be accessed live over the phone by dialing (888) 338-7153 or for international callers by dialing (412) 317-5117. A replay will be available one hour after the end of the conference call and can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the pin number is 10110465. The replay will be available through Tuesday August 8, 2017. The call will be webcast live from the Company’s website at www.evertecinc.com under the Investor Relations section or directly at http://ir.evertecinc.com. A supplemental slide presentation that accompanies this call and webcast can be found on the investor relations website at ir.evertecinc.com and will remain available after the call.

About EVERTEC

EVERTEC, Inc. (NYSE: EVTC) is a leading full-service transaction processing business in Latin America, providing a broad range of merchant acquiring, payment processing and business solutions services. The Company manages a system of electronic payment networks that process more than two billion transactions annually, and offers a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. In addition, EVERTEC owns and operates the ATH® network, one of the leading personal identification number (“PIN”) debit networks in Latin America. Based in Puerto Rico, the Company operates in 27 Latin American countries and serves a diversified customer base of leading financial institutions, merchants, corporations and government agencies with “mission-critical” technology solutions. For more information, visit www.evertecinc.com.

About Non-GAAP Financial Measures

This earnings release presents EBITDA, Adjusted EBITDA, Adjusted Net Income, and adjusted earnings per common share information. These supplemental measures of the Company’s performance are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). They are not measurements of the Company’s financial performance under GAAP and should not be considered as alternatives to total revenue, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities, as indicators of operating performance or as measures of the Company’s liquidity. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the Company believes are pertinent to the daily management of the Company’s operations and believe they are frequently used by securities analysts, investors and other interested parties to evaluate companies in the industry. Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.

Forward-Looking Statements

Certain statements in this press release constitute “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” and “plans” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: the Company’s reliance on its relationship with Popular for a significant portion of revenue; our ability to renew our client contracts on terms favorable to us; the effectiveness of our risk management procedures; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems, and the risk that our systems may experience breakdowns or fail to prevent security breaches or fraudulent transfers; our ability to develop, install and adopt new technology; a decreased client base due to consolidations in the banking and financial-services industry; the credit risk of our merchant clients, for which we may also be liable; the continuing market position of the ATH® network; reduction in consumer confidence leading to decreased consumer spending; the Company’s dependence on credit card associations; regulatory limitations on our activities, including the potential need to seek regulatory approval to consummate transactions, due to our relationship with Popular and our role as a service provider to financial institutions; changes in the regulatory environment and changes in international, legal, tax, political, administrative or economic conditions; the geographical concentration of the Company’s business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; increased compliance risks associated with operating an international business; operating in countries and counterparties that put us at risk of violating U.S. sanctions laws; our ability to execute our expansion and acquisition strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; our ability to comply with federal, state, and local regulatory requirements; evolving industry standards; the Company’s high level of indebtedness and restrictions contained in the Company’s debt agreements; and the Company’s ability to generate sufficient cash to service the Company’s indebtedness and to generate future profits.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in the reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by the Company and its businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Investor Contact

Kay Sharpton

(787) 773-5442

IR@evertecinc.com

EVERTEC, Inc.

Schedule 1: Unaudited Consolidated Condensed Statements of Income and Comprehensive Income



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
(Dollar amounts in thousands, except share data)
Revenues
Merchant acquiring, net	$	23,506		$	23,277		$	45,991		$	46,167
Payment processing	30,693			28,157			60,809			55,132
Business solutions	49,312			46,238			97,991			91,852
Total revenues	103,511			97,672			204,791			193,151
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below	43,030			41,966			87,203			85,374
Selling, general and administrative expenses	14,588			12,573			25,419			23,408
Depreciation and amortization	15,899			14,941			31,583			29,611
Total operating costs and expenses	73,517			69,480			144,205			138,393
Income from operations	29,994			28,192			60,586			54,758
Non-operating income (expenses)
Interest income	216			92			401			179
Interest expense	(7,406		)	(6,138		)	(14,442		)	(12,016		)
Earnings (losses) of equity method investment	115			29			258			(101		)
Other income	1,363			860			2,637			1,258
Total non-operating expenses	(5,712		)	(5,157		)	(11,146		)	(10,680		)
Income before income taxes	24,282			23,035			49,440			44,078
Income tax expense	4,068			2,801			6,088			4,677
Net income	20,214			20,234			43,352			39,401
Less: Net income (loss) attributable to non-controlling interest	125			(1		)	234			18
Net income attributable to EVERTEC, Inc.’s common stockholders	20,089			20,235			43,118			39,383
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments	(1,956		)	(2,047		)	(2,601		)	(1,579		)
Gain (loss) on cash flow hedge	(242		)	(1,475		)	376			(4,547		)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	17,891		$	16,713		$	40,893		$	33,257
Net income per common share:
Basic	$	0.28		$	0.27		$	0.59		$	0.53
Diluted	$	0.27		$	0.27		$	0.59		$	0.53
Shares used in computing net income per common share:
Basic	72,508,852			74,706,042			72,572,157			74,826,946
Diluted	73,074,591			75,019,485			73,087,387			74,958,126

EVERTEC, Inc.

Schedule 2: Unaudited Consolidated Condensed Balance Sheets



(Dollar amounts in thousands)	June 30, 2017			December 31, 2016
Assets
Current Assets:
Cash and cash equivalents	$	93,060		$	51,920
Restricted cash	8,196			8,112
Accounts receivable, net	76,902			77,803
Prepaid expenses and other assets	26,500			20,430
Total current assets	204,658			158,265
Investment in equity investee	12,646			12,252
Property and equipment, net	36,095			38,930
Goodwill	371,204			370,986
Other intangible assets, net	284,316			299,119
Long-term deferred tax asset	988			805
Other long-term assets	4,720			5,305
Total assets	$	914,627		$	885,662
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities	$	34,203		$	34,243
Accounts payable	31,697			40,845
Unearned income	5,383			4,531
Income tax payable	2,687			1,755
Current portion of long-term debt	46,344			19,789
Short-term borrowings	48,000			28,000
Total current liabilities	168,314			129,163
Long-term debt	565,425			599,667
Long-term deferred tax liability	14,378			14,978
Unearned income - long term	20,577			17,303
Other long-term liabilities	11,918			16,376
Total liabilities	780,612			777,487
Stockholders’ equity
Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued	—			—
Common stock, par value $0.01; 206,000,000 shares authorized; 72,381,305 shares issued and outstanding at June 30, 2017 (December 31, 2016 - 72,635,032)	723			726
Additional paid-in capital	—			—
Accumulated earnings	144,175			116,341
Accumulated other comprehensive loss, net of tax	(14,616		)	(12,391		)
Total EVERTEC, Inc. stockholders’ equity	130,282			104,676
Non-controlling interest	3,733			3,499
Total equity	134,015			108,175
Total liabilities and equity	$	914,627		$	885,662

EVERTEC, Inc.

Schedule 3: Unaudited Consolidated Condensed Statements of Cash Flows



	Six months ended June 30,
(Dollar amounts in thousands)	2017			2016
Cash flows from operating activities
Net income	$	43,352		$	39,401
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,583			29,611
Amortization of debt issue costs and accretion of discount	2,490			1,939
Provision for doubtful accounts and sundry losses	107			858
Deferred tax benefit	(1,799		)	(1,537		)
Share-based compensation	4,189			3,403
Loss on disposition of property and equipment and other intangibles	176			122
(Earnings) losses of equity method investment	(258		)	101
Decrease (increase) in assets:
Accounts receivable, net	953			2,776
Prepaid expenses and other assets	(6,067		)	(2,972		)
Other long-term assets	188			(1,826		)
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities	(9,215		)	(6,793		)
Income tax payable	932			1,553
Unearned income	4,126			2,578
Other long-term liabilities	297			210
Total adjustments	27,702			30,023
Net cash provided by operating activities	71,054			69,424
Cash flows from investing activities
Net (increase) decrease in restricted cash	(83		)	4,217
Additions to software	(9,989		)	(10,015		)
Property and equipment acquired	(5,485		)	(9,017		)
Acquisitions, net of cash acquired	—			(5,947		)
Proceeds from sales of property and equipment	25			40
Net cash used in investing activities	(15,532		)	(20,722		)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation	(1,485		)	(290		)
Net increase in short-term borrowings	20,000			3,000
Repayment of short-term borrowing for purchase of equipment and software	(996		)	(778		)
Dividends paid	(14,523		)	(14,964		)
Repurchase of common stock	(7,671		)	(15,602		)
Repayment of long-term debt	(9,707		)	(9,500		)
Net cash used in financing activities	(14,382		)	(41,721		)
Net increase in cash	41,140			6,981
Cash at beginning of the period	51,920			28,747
Cash at end of the period	$	93,060		$	35,728

EVERTEC, Inc.

Schedule 4: Unaudited Income from Operations by Segment



	Three months ended June 30,						Six months ended June 30,
(Dollar amounts in thousands)	2017			2016			2017			2016
Segment income from operations
Merchant Acquiring	$	7,192		$	8,786		14,100			$	17,212
Payment Processing	16,566			14,276			33,799			26,690
Business Solutions	13,521			15,126			27,172			28,369
Total segment income from operations	37,279			38,188			75,071			72,271
Merger related depreciation and amortization and other unallocated expenses (1)	(7,285		)	(9,996		)	(14,485		)	(17,513		)
Income from operations	$	29,994		$	28,192		$	60,586		$	54,758


1)	Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

EVERTEC, Inc.

Schedule 5: Reconciliation of GAAP to Non-GAAP Operating Results



	Three months ended June 30,						Six months ended June 30,
(Dollar amounts in thousands, except share data)	2017			2016			2017			2016
Net income	$	20,214		$	20,234		$	43,352		$	39,401
Income tax expense	4,068			2,801			6,088			4,677
Interest expense, net	7,190			6,046			14,041			11,837
Depreciation and amortization	15,899			14,941			31,583			29,611
EBITDA	47,371			44,022			95,064			85,526
Software maintenance reimbursement and other costs⁽¹⁾	—			149			—			461
Equity (income) loss ⁽²⁾	(115		)	(29		)	(258		)	101
Compensation and benefits⁽³⁾	2,127			2,349			4,203			6,030
Transaction, refinancing and other fees ⁽⁴⁾	747			611			280			970
Restatement related expenses ⁽⁵⁾	—			1,737			—			1,796
Adjusted EBITDA	50,130			48,839			99,289			94,884
Operating depreciation and amortization⁽⁶⁾	(7,696		)	(7,081		)	(15,157		)	(14,087		)
Cash interest expense, net ⁽⁷⁾	(6,036		)	(5,264		)	(11,738		)	(10,301		)
Income tax expense ⁽⁸⁾	(4,072		)	(4,438		)	(6,969		)	(7,470		)
Non-controlling interest ⁽⁹⁾	(170		)	(69		)	(325		)	(88		)
Adjusted net income	$	32,156		$	31,987		$	65,100		$	62,938
Net income per common share (GAAP):
Diluted	$	0.27		$	0.27		$	0.59		$	0.53
Adjusted Earnings per common share (Non-GAAP):
Diluted	$	0.44		$	0.43		$	0.89		$	0.84
Shares used in computing adjusted earnings per common share:
Diluted	73,074,591			75,019,485			73,087,387			74,958,126


1)	Predominantly represents reimbursements received for certain software maintenance expenses as part of the Merger, recorded as part of cost of revenues.


2)	Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received.

Primarily represents share-based compensation and other compensation expense of $2.2 million and $1.9 million for the quarters ended June 30, 2017 and 2016 and severance payments $0.4 million for the quarter ended June 30, 2016. For June 30, 2017 share-based compensation expense of $0.6 million was recorded as part of cost of revenues, while share-based compensation of $1.5 million was recorded as part of selling, general and administrative expenses. For June 30, 2016, share-based compensation expense of $0.4 million and severance payments of $0.4 million were recorded as part of cost of revenues, while share-based compensation of $1.4 million was recorded as part of selling, general and administrative expenses. For the six months ended June 30, 2017 and 2016 primarily represents share-based compensation and other compensation expense of $4.2 million and $3.4 million, respectively and severance payments $$0.1 million and $2.5 million for the same period, respectively. For June 30, 2017 share-based compensation expense of $1.1 million and severance payments of $.01 million were recorded as part of cost of revenues, while share-based compensation of $3.1 million was recorded as part of selling, general and administrative expenses. For June 30, 2016, share-based compensation expense of $0.7 million and severance payments of $2.2 million were recorded as part of cost of revenues, while share-based compensation of $2.8 million and severance payments of $0.3 million were recorded as part of selling, general and administrative expenses.


4)	Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, recorded as part of selling, general and administrative expenses and cost of revenues.


5)	Represents consulting, audit and legal expenses incurred as part of the restatement, recorded as part of selling, general and administrative expenses.


6)	Represents operating depreciation and amortization expense, which excludes amounts generated as a result of the Merger and other from intangibles generated from acquisitions.


7)	Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.


8)	Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate.


9)	Represents the 35% non-controlling equity interest in Processa, net of amortization for intangibles created as part of the purchase.

EVERTEC, Inc.

Schedule 6: Outlook Summary and Reconciliation to Non-GAAP Adjusted Earnings per Share



	2017 Outlook⁶							2016 Actual
(Dollar amounts in millions, except share data)

Revenues	$	411		to	$	417		$	390

Earnings per Share (EPS) - Diluted (GAAP)	$	1.06		to	$	1.14		$	1.01

Per share adjustment to reconcile GAAP EPS to Non-GAAP Adjusted EPS:
Share-based comp, non-cash equity earnings and other ⁽¹⁾	0.18				0.18			0.27
Merger related depreciation and amortization ⁽²⁾	0.41				0.41			0.42
Non-cash interest expense ⁽³⁾	0.05				0.05			0.05
Tax effect of non-GAAP adjustments ⁽⁴⁾	(0.06		)		(0.06		)	(0.07		)
Non-controlling interest ⁽⁵⁾	(0.01		)		(0.01		)	—
Total adjustments	0.57				0.57			0.67

Adjusted Earnings per common share (Non-GAAP)	$	1.63		to	$	1.71		$	1.67
Shares used in computing adjusted earnings per share (in millions)					73.5			74.5


1)	Represents share based compensation, the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A. , and other adjustments to reconcile GAAP EPS to Non-GAAP EPS.


2)	Represents depreciation and amortization expenses amounts generated as a result of the Merger.


3)	Represents non-cash amortization of the debt issue costs, premium and accretion of discount.


4)	Represents income tax expense on non-GAAP adjustments using the applicable GAAP tax rate (in an anticipated range of 10.0% to 10.5%).


5)	Represents the 35% non-controlling equity interest in Processa, net of amortization of intangibles created as part of the purchase.


6)	The 2017 Outlook does not consider any potential impact pursuant to Title III from the Puerto Rico Oversight, Management and Economic Stability Act.

EVERTEC, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 1, 2017

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