EVERTEC (EVTC) Q1 2025 Earnings Call May 07, 2025 04:30 PM ET Company Participants Beatriz Brown-Sáenz - Reporting & IR ManagerMorgan M. Schuessler - President, CEO & DirectorJoaquin Castrillo-Salgado - Executive VP, Treasurer & CFOVasundhara Govil - Managing DirectorJohn Davis - Managing Director Conference Call Participants Cristopher Kennedy - Research Analyst, Financial Services and TechnologyJamie Friedman - Senior FinTech and IT Services Research Analyst Operator Good day, everybody, and welcome to th ...

Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $2.30, up 4% excluding currency translation compared to the prior year [24] - Sales increased by 2% on an organic basis, driven by higher volume but partially offset by deflation-related price reductions [25] - Adjusted EBITDA margin was strong at 16.4%, up 10 basis points compared to the prior year [25] - Free cash flow was approximately negative $50 million, consistent with historical trends for Q1 [26] - The net debt to adjusted EBITDA ratio at quarter-end was 2.3%, following the repayment of €500 million of debt [26] Business Line Data and Key Metrics Changes - Materials Group sales were up 1% on an organic basis, driven by low single-digit volume and mix growth, while high-value categories saw high single-digit growth [28] - Solutions Group sales increased by 5% on an organic basis, with base solutions up high single digits and high-value solutions up low single digits [33][35] - Overall label materials volume was in line with expectations, with North America showing low single-digit growth and Europe down low single digits [30] Market Data and Key Metrics Changes - North America volume was up low single digits, while Europe experienced a slight decline due to a strong prior year [30] - Asia Pacific and Latin America both saw low single-digit growth compared to the prior year [30] - Apparel growth was strong, up mid-single digits, but expected to decline mid-single digits in Q2 due to tariff impacts [9][41] Company Strategy and Development Direction - The company is focused on expanding its position in high-value categories, which now make up more than a third of Materials Group sales [6] - There is a strategic collaboration with Kroger to enhance inventory management in the food sector, with ongoing large-scale grocery pilots [12] - The company continues to invest in capturing significant opportunities in intelligent labels and RFID technology, positioning itself as a market leader [15][22] Management's Comments on Operating Environment and Future Outlook - Management noted elevated macro uncertainty due to changing trade policies and a reduced global GDP growth outlook [16] - The company is prepared for a lower volume environment and has initiated scenario planning to maximize opportunities [19] - For Q2 2025, adjusted earnings per share are expected to be in the range of $2.30 to $2.50, with overall sales growth anticipated to be roughly comparable to the prior year [40] Other Important Information - The company returned $331 million to shareholders through share repurchases and dividends in the first quarter, reducing share count by 2.3% [27] - The company has a strong balance sheet with ample capacity for capital allocation, providing flexibility for future investments [22] Q&A Session Summary Question: Impact of tariff prebuying on Q1 results - Management indicated that there was no significant pull forward due to tariffs in Q1, but some muted demand was observed in late March [50][51] Question: Working capital increase in Q1 - The increase in working capital was attributed to higher incentive compensation payments and customer rebate payments, rather than specific repositioning for tariffs [66] Question: Apparel demand change from positive to negative - The shift in apparel demand is primarily related to tariff issues, particularly concerning sourcing from China [73] Question: Share buyback strategy amid uncertainty - The company increased share buybacks due to confidence in intrinsic value, despite the recent tariff uncertainties impacting the outlook [78] Question: Logistics and supply chain capacity - The company has a robust network to support customers moving sourcing from China to other countries, with ample capacity to manage increased demand [87] Question: Raw material cost impacts - Management expects limited tariff impacts on raw materials, with a stable outlook for the raw material basket despite some inflationary pressures [115][125]

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