Evertec(EVTC) - 2024 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements The unaudited Q1 2024 consolidated financial statements show 28% revenue growth to $205.3 million driven by the Sinqia acquisition, but net income decreased to $16.0 million due to higher operating and interest expenses Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $293,666 | $295,600 | | Goodwill | $777,932 | $791,700 | | Other intangible assets, net | $490,188 | $518,070 | | Total Assets | $1,996,486 | $2,060,263 | | Liabilities & Equity | | | | Total current liabilities | $354,432 | $298,313 | | Long-term debt | $941,717 | $946,816 | | Total Liabilities | $1,444,589 | $1,424,887 | | Total Equity | $511,239 | $598,408 | Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $205,318 | $159,814 | | Income from operations | $32,803 | $40,090 | | Interest expense | ($19,939) | ($5,643) | | Net income | $16,387 | $30,063 | | Net income attributable to EVERTEC, Inc. | $15,979 | $30,052 | | Diluted EPS | $0.24 | $0.46 | Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,975 | $54,511 | | Net cash used in investing activities | ($21,994) | ($36,637) | | Net cash used in financing activities | ($16,350) | ($40,579) | | Net decrease in cash | ($6,137) | ($22,980) | - The company completed the acquisition of Sinqia S.A. on November 1, 2023. During Q1 2024, adjustments were made to the provisional amounts for assets and liabilities related to the acquisition. The preliminary purchase price allocation includes $341.8 million in goodwill and $291.0 million in other intangible assets[30][31] Total Debt Outstanding (in thousands) | Debt Component | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | 2027 Term A Loan | $443,736 | $449,450 | | 2030 Term B Loan | $521,848 | $521,233 | | Revolving Facility | $80,000 | $0 | | Total Debt | $1,071,635 | $997,553 | - As of March 31, 2024, the company had four interest rate swap agreements to convert a portion of its variable-rate term loan payments to fixed rates, hedging against interest rate risk[44][45] - On March 6, 2024, the company entered into an accelerated share repurchase (ASR) agreement to buy back $70 million of its common stock. An initial delivery of approximately 1.5 million shares was received on March 8, 2024[60] - Revenue from the company's single largest customer, Popular, Inc., represented approximately 31% of total revenues for the quarter ended March 31, 2024, down from 37% in the same period of 2023[69] Segment Revenues and Adjusted EBITDA - Q1 2024 vs Q1 2023 (in thousands) | Segment | Q1 2024 Revenue | Q1 2023 Revenue | Q1 2024 Adj. EBITDA | Q1 2023 Adj. EBITDA | | :--- | :--- | :--- | :--- | :--- | | Payment Services - Puerto Rico & Caribbean | $53,031 | $48,429 | $30,352 | $27,875 | | Latin America Payments and Solutions | $74,216 | $35,317 | $16,297 | $10,355 | | Merchant Acquiring, net | $43,099 | $40,347 | $16,220 | $15,626 | | Business Solutions | $58,128 | $55,695 | $23,039 | $22,367 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, noting 28% revenue growth to $205.3 million from the Sinqia acquisition, but an 18% decrease in income from operations to $32.8 million due to higher costs, and a decline in operating cash flow to $36.0 million, while Adjusted EBITDA was $78.2 million and Adjusted EPS was $0.72 Comparison of Operations - Q1 2024 vs Q1 2023 (in thousands) | Line Item | Q1 2024 | Q1 2023 | Variance | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $205,318 | $159,814 | $45,504 | 28% | | Cost of revenues | $102,448 | $76,417 | $26,031 | 34% | | SG&A expenses | $35,626 | $23,875 | $11,751 | 49% | | Depreciation and amortization | $34,441 | $19,432 | $15,009 | 77% | | Income from operations | $32,803 | $40,090 | ($7,287) | (18)% | - The increase in operating costs was primarily driven by the addition of Sinqia, higher personnel costs, and increased software amortization[120][121][123] - Non-operating expenses increased by $8.9 million, mainly due to a $14.3 million rise in interest expense from debt used to finance the Sinqia acquisition[124] - Payment Services - Puerto Rico & Caribbean: Revenue grew $4.6 million (9.5%) driven by higher POS transactions and strong growth in ATH Movil[135] - Latin America Payments and Solutions: Revenue surged by $38.9 million (110%) due to a full quarter contribution from the Sinqia acquisition and organic growth[136] - Merchant Acquiring: Revenue increased by $2.8 million (6.9%) due to higher sales volume and an improved overall spread[137] - Business Solutions: Revenue rose by $2.4 million (4.3%) from growth across several lines of business[138] - As of March 31, 2024, the company had cash and cash equivalents of $293.7 million and $114.0 million available for borrowing under its Revolving Facility[139][140] - Net cash from operating activities decreased to $36.0 million in Q1 2024 from $54.5 million in Q1 2023, primarily due to lower net income and decreased collections[143] - Net cash used in financing activities was $16.4 million, a decrease from $40.6 million in the prior year, mainly due to an $80.0 million draw on the Revolving Facility, partially offset by a $63.7 million increase in share repurchases[145] - The Board declared a quarterly cash dividend of $0.05 per share, paid on March 15, 2024, and declared another for payment on June 7, 2024[147] Reconciliation of Net Income to Adjusted Net Income (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $16,387 | $30,063 | | Adjusted EBITDA | $78,177 | $67,135 | | Adjusted net income | $48,004 | $45,587 | GAAP vs. Non-GAAP EPS | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.24 | $0.46 | | Adjusted Diluted EPS (Non-GAAP) | $0.72 | $0.69 | Quantitative and Qualitative Disclosures About Market Risk The company identifies primary market risks as interest rate fluctuations, foreign currency exchange volatility, and inflation, with a 100 basis point interest rate increase potentially raising annual interest expense by $5.2 million, and a $4.5 million foreign currency remeasurement loss in Q1 2024 - A hypothetical 100 basis point increase in interest rates on outstanding variable-rate debt as of March 31, 2024, would increase annual interest expense by approximately $5.2 million[171] - The company is exposed to foreign exchange risk from its Latin American operations. In Q1 2024, it recognized a non-cash unrealized loss of $4.5 million from foreign currency remeasurement[175] - Inflation risk is present in the geographies where the company operates, potentially impacting input costs like wages and benefits, which may not be fully recoverable from customers[176] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2024, excluding the recently acquired Sinqia business which is currently being integrated - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[178] - The assessment of internal controls over financial reporting excluded the recently acquired Sinqia business, with integration into the company's control environment currently in progress[179] Part II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings arising from the ordinary course of business but does not expect them to have a material adverse effect on its financial condition, results of operations, or cash flows - Management believes that the aggregated liabilities, if any, from various lawsuits and arbitration proceedings will not have a material adverse effect on the Company[182] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2023 have been reported[183] Unregistered Sales of Equity Securities and Use of Proceeds In March 2024, the company repurchased 1,516,793 shares, primarily through an accelerated share repurchase (ASR) agreement, and the Board increased the total share repurchase authorization to $220 million, with approximately $150 million remaining available Share Repurchase Activity - Q1 2024 | Period | Total Shares Purchased | Approx. Dollar Value Remaining Under Program | | :--- | :--- | :--- | | March 2024 | 1,516,793 | $150,000,000 | - The Board increased the share repurchase authorization to an aggregate of $220 million, valid through December 31, 2025[184] Other Information On March 5, 2024, the company's President and CEO, Morgan M. Schuessler, terminated a Rule 10b5-1 trading arrangement that was originally adopted on August 30, 2023 - On March 5, 2024, CEO Morgan M. Schuessler terminated a Rule 10b5-1 trading arrangement that had been established on August 30, 2023[188] Exhibits This section lists the exhibits filed with the Form 10-Q, including various award agreements and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act