Q3 2019 Earnings Call

Good afternoon, everyone and welcome to the Evertec Inc. third quarter 2019 earnings Conference call.

All participants will be in listen only mode.

So you need assistance please call from specialists by pressing star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

Ask a question you May proceed and then why don't you touched on telephones.

Charlie Your questions you May press star and too.

Please also note today's event is being recorded.

At this time I'd like to turn the conference call over to Best case, Sharpton, Vice President Investor Relations Ma'am you may begin.

Thank you and good afternoon with me today are back to support our President and Chief Executive Officer, and walking history, Our Chief Financial Officer, a replay of this call will be available until Wednesday November .

Access information that replaced listed in today's financial really.

Just available on our website under the Investor Relations section of Evertec <unk> Dot com.

Looking at a replay of this call withheld October Thirtyth. Please note there was a presentation that accompanies this conference call.

Accessible any investor relations section of our website.

Before we begin I'd like to remind everyone that this call may contain forward looking statements as defined under the private security Litigation Reform Act like 90, but these forward looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties.

Evertec cautions that these statements are not guarantees of future performance.

All forward looking statements made today reflect our current expectations only actually undertakes no obligation to update any statements to reflect the about it correctly. This all.

<unk> for the company's last weekend and report on Form 10-K filed with the SBC factors that could cause our actual results to differ materially from any forward looking statements.

During today's call management will provide certain information that will constitute non-GAAP financial measures under at these people such as adjusted EBITDA adjusted net income and adjusted earnings per common share reconciliations to GAAP measures in certain additional information are also included in todays earnings release and related supplemental slide.

I'll now turn the call over to Matt.

Okay and good afternoon, everyone.

We're pleased with our results for the third quarter, which were at the high end of our expectations, we're executing well and we continue to benefit from Puerto Rico's economic recovery or innovation strategies, and our Latin American focus.

Beginning on slide four I'll cover some of the quarter's financial highlights and provide you with an update on recent developments.

Total revenue was $119 million, an increase of 66% compared to 2018 as we saw growth across all segments. We benefited from some pricing actions our deployment of value added solutions, you managed services and the completion of projects popular.

That even I was $55 million or 6% growth over the prior year and adjusted earnings per share was 47 cents, an increase 4% compared to last year.

We generated significant operating cash flow and have returned approximately $39 million your today for our shareholders through dividends and share repurchases.

Moving on our progress in Latin America, beginning on slide five.

First we were pleased to their progress implementing our collection product for city as they now have several new client operating on our platform and a growing price I bought.

Additionally, we continue to make progress implementing payment systems for Santander Chile.

I continue to anticipate an early 2020 announcement of our first transaction.

Regarding the recent unrest in Chile or business remains strong and has been mostly affected although we are monitoring the situation closely.

Also we continue to see strong interest in our products and we have recently signed a license agreement with a Brazilian company see six back forest product.

Physics Bank is a recently launched digital bank in Brazil with over 200000 accounts already.

This new contract validates that our products are expanding their reach from traditional applies to new and emerging digital providers in the region.

Lastly, we continue to anticipate receiving approval and the fat and closing by year end on our <unk> acquisition of placed about Colombia based gateway and payment service provider.

Now moving on to our progress in Puerto Rico applied sex.

First revenue growth in Puerto Rico, and the Caribbean was approximately 7% driven by organic transaction growth or approximately 5% as well as pricing actions. In addition, we continue to benefit from contract wins now producing revenue and our business solutions segment as well is completed projects for Banco popular relate.

The conversion of their reliable acquisition.

Regarding innovation, we have successfully completed our pilot headed with restaurants and recently showcased the product that they annual restaurant industry Convention, Puerto Rico generating interest from a variety of clients and prospects. We will continue to focus on adding new features to the product based on client feedback.

From a more macro view, we benefited from the start of additional even see really finding an August and expect those funds to continue for the next 12 months.

We were also pleased to see the FEMA has again granted the government, Puerto Rico, you're starting to validate the disbursements requested by local agencies. Another positive note in the business environment and Puerto Rico was the recently released unemployment figure, which has declined to 7.6% its lowest point in recent memory.

Regarding the government's financial help you oversight Board recently filed that adjustment proposal would of course, which would modify over $35 billion an obligation.

And potentially reduce that that to almost a third of the amount outstanding.

Although the continues to be ambiguity on the timing of further federal funds and the resolution of the that situation the longer term positive impact will be contingent on these factors as well as the continued rebuilding a structural reforms on the island.

Lastly, I want to comment on recent events that reflect evertecs culture and values.

Puerto Rico spared during the recent hurricane season that our neighbors in the Bahamas were devastated by Hurricane Dorian we truly understand their challenges ahead donated $100000 that relief efforts.

Additionally, as part of our commitment education. This quarter, we awarded 135 scholarships to out adding students and Puerto Rico and Latin America.

Our support education over the last five years has told over $500000. We've also recently launched an initiative to increase women Africans Tar scholarship program in partnership with various female leaders I must demonstrate Puerto Rico, evertec values diversity, and inclusion and believes that supporting Tomorrow's leaders will yield tremendous EM.

Back to the communities we serve.

We look forward to sharing a further progress with you as we wrap up 2019 I looked ahead 2020 with that I'll now turn the call over to Lucky.

Thank you, Matt and good afternoon, everyone.

I'll now provide a review of our third quarter 2019 results.

Turning to slide eight you will see the consolidated third quarter results for ever thick.

Total revenue for the third quarter was 100, an 18.8 million up 6% compared to 100 I'm told me I'm in the prior year.

We continued to benefit from a higher net spread driven by pricing actions. We also benefited from fees owning teach mobile an h. mobile business increased core banking transactions and increasing network services as well, that's 2 million related to completed projects.

Total revenue for the nine months here today was 360.2 media, an up 7% year over year I.

Adjusted EBITDA for the quarter was 55.5 million an increase of 6% from 52.1 million in the prior year adjusted EBITDA margin was 46.7% and this represents a 20 basis point increase compared to the prior year there year over year, increasing margin primarily reflects higher revenues.

Hi margin projects completed in the border, partially offset by the impact of the elevated average ticket last year, the drove a higher than normal margin.

One other delay in government revenue as the government turnover experienced earlier this quarter resulted in contracts not being renewed timely while we continue to provide services.

FX also negatively impacted us by approximately 1 million this quarter.

Year to date adjusted EBITDA was 170.9 media an increase of 7% from 100 of 59.8 million in the prior year.

Adjusted net income in the quarter was 34.6 million, an increase of 3% of compared to the prior year, primarily reflecting the higher adjusted EBITA offset by increased operating depreciation amortization.

Our adjusted effective tax rate in the quarter was 13.7%, reflecting a discrete foreign tax impact in this quarter.

We continue to expect our full year effective tax rate to be close to 12%.

Adjusted EPS was 47 cents for the quarter and grew 4% compared to the prior year benefited from our share repurchase distillate.

Year to date adjusted net income was 100, an 8.8 million.

Up 6%, an adjusted earnings per common share was $1.40, 807% from $1.38 in the prior year.

Moving on to slide nine I will now cover our segment results starting with merchant upward.

In the third quarter merchant acquiring net revenue increased 8% year over year to approximately 26.4 million.

Revenue increase was driven primarily by embracing actually impacting both ours right I don't know transactional revenue offset by approximately 1% decrease in sales volume.

Average ticket declined approximately 8% versus the prior year and one in line with our expectations a spend continues to move towards more normalized levels.

Adjusted EBITDA for the segment was 11.2 million Oh.

Oh up 2%.

Adjusted EBITDA margin was 42.4 person down approximately 230 basis points as compared to last year, reflecting the impact on margin of the lower average ticket this quarter.

For the nine month period merchant acquiring increased 7% to 79.2 million.

Primarily due to the same reasons I referenced in the quarter.

Adjusted EBITDA and year to date for the segment was 35.4 million Oh, 3% adjusted EBITDA margin was 44.7% a 190 basis point decrease as compared to last year.

On Slide 10, you will see the results for the payment service as Puerto Rico on the Caribbean segment.

Revenue for the segment in the third quarter was 30.4 media.

Approximately 5% as compared to last year.

Transaction volumes grew approximately 5% Oh, we continued to benefit from transactional fee those services such as they teach mobile any teach mobile business, partially offset by you delay any government contract renewal of approximately two months.

Adjusted EBITDA for the segment was 18.4 million decreasing 5% as compared to last year.

Adjusted EBITDA margin was 60.4% down approximately 600 basis points as compared to last year, primarily due to increased expenses from voice that are underway this quarter and the impact of the delayed government contract renewal.

You are delayed revenue for the segment was 92.9 million approximately 10% compared to last year year to date I. Just said TV Dot was 60 media on adjusted EBITDA margin was 64.5% down approximately 70 basis points as compared to last year.

On Slide 11, you will see the results for our payment services segment revenue for the segment in the third quarter was 20.6 million approximately 9% as compared to last year.

This growth was driven by intercompany license and service revenue as well as organic revenue growth of approximately 1%, reflecting the anticipated $400000 a plan attrition on the timing of license revenue in the previous year.

We continue to see demand for license sales in some regions as evidenced by the seek six bank agreement in Brazil are focused on priority continues to be and shifting from a licensee mall twin processing mall, which will eventually resulting in more encouraging and growing revenue base that said, we're pleased with this new license agreement, which will benefit us other did implement that in early Twentys one.

<unk>.

Adjusted EBITDA for the segment was 7.6 million and it doesn't EBITDA margin was 36.8% approximately 220 basis points as compared to last year.

And by the intercompany services, a license sales to Puerto Rico, partially offset by FX.

Year to date revenue for the segment was 62.5 million or approximately 7% as compared to last year.

Year to date adjusted EBITDA for the segment Austin is 3.6 media on an adjusted EBITDA margin was 37.8%.

On Slide 12, you will find the results of the business social segment.

Minnesotans revenue for the third quarter was all by approximately 8% to 52.9 million.

Revenue growth in the segment was driven by new service as well as other projects completed in the quarter, representing revenue of $2 million, primarily resulting from the integration of a bubble burst reliable acquisition.

For the quarter adjusted EBITDA was 25.1 million, an adjusted EBITDA margin was 47.4%.

Approximately 280 basis points as compared to last year.

The increasing the adjusted EBITDA margin was primarily driven by the computer projects in the quarter.

Year to date, because solutions revenue was under 59.5 million.

9% and adjusted EBITDA for the segment was 72.4 major with a 45.4% margin.

Moving onto Slide 13, you will see summary of corporate another.

Our third quarter adjusted EBIDA wasn't being added 6.8 million an increase of 6% over prior year I'm, 5.7% as a percentage of total revenue, which was even with the prior year.

Corporate another includes than they had an impact of approximately $1.6 million related to intercompany elimination of the not takes place in the prior year.

Excluding the same bug.

Corporate another adjusted EBITDA would be 5.2 million, reflecting a decrease of approximately 1.2 million largely due to higher spend in the prior year related to the timing of projects.

Year to date, our corporate and other expense was 20.5 meter or 5.7% as a percentage of total revenue.

Moving on to our year to date cash flow overview on slide 14 are beginning gosh buttons was approximately 87 million, including restricted cash of approximately 17 million.

Net cash provided by operating activities was approximately 136 million, an 8 million dollar increase as compared to prior year and this includes the impact of settlement timing and other working capital differences.

On a positive note regarding our government receivables. These I'll continue to improve on our know at the lowest historical level at approximately 6.5 me Oh, we have continued to be paid on schedule.

Capital expenditures year to date were approximately 50 million an update of critical technology infrastructure development related to some other new contracts and those were the primary drivers in our year to date, but.

We're not anticipating our capex for the full year to be on the high end of our previous range of 50 to 55 meter.

Next we paid approximately 11 million in scheduled debt payments 6 million in withholding taxes on share based compensation and $1 million of other debt pay downs, resulting any total net debt decreased approximately 18 million.

We also paid cash dividends of approximately 11 million.

We repurchased approximately 28 million of common stock for a total of $39 million returned to our shareholders.

We have approximately 34 million available for future use under the company's share repurchase program through December 31st 2020.

Recently announced another five cents dividend to be paid on December 6th 2019 to shareholders of record as of November four.

Our ending cash balance of the number Thirtyth was 100 on 16 million on this included approximately $13 million of restricted cash.

Moving to slide 15, you will find a summary of our debt as of September Thirtyth 2019 per quarter, ending net debt position was approximately 432 million comprise up the 103 million of unrestricted gosh, an approximately 535 million.

Total short term borrowings on long term debt our weighted average interest rate was approximately 5%.

Our net debt to trailing 12 month adjusted EBITDA was 2.1 times, reflecting the create argument terms, which limits the cash applied to a total net that calculation to 60 meal.

As of September Thirtyth total liquidity was 219 million this balance excludes restricted cash and includes the available borrowing capacity under our revolver.

Moving to slide 16, I will now provide an update on our 2019 guidance adjusted primarily due to our Q3 results. We're increasing the lower end over revenue range to 479 to 482 million representing growth of 5% to 6% over last year compared with 400.

77 million to 482 million previously estimated.

Regarding overall margin, we continue to disagree that our adjusted EBITDA margin will be approximately 47% for the year.

Our adjusted earnings per common share outlook has been increased on the lower end to $1.95 to $1.98, which represents a range of 6% to 8% as compared to $1.84 in 2018.

Now turning to 2020, well, we're not prepared to give guidance I would like to comment on several considerations.

First we're pleased with our new agreements in love them as well as the pending places they acquisition, which are all anticipated to contribute to our let them growth in 22, and we will continue our transition from a licensing to process flow in 2020, which will provide some unevenness in our organic revenue growth in Latam throughout the year.

Additionally, we benefited from delays in client attrition, which will know total approximately 2 million in 2019.

We anticipate a headwind of between four to 5 million in 2020.

Second in Puerto Rico, we will continue to monitor the flow of federal funds on the potential positive impact to the accordingly, and our focus on innovation will continue to benefit us in 2020. The CBS Index for September was announced on October 10, only 1.7% I should positively impact the majority of our business solutions revenue.

Lastly, well, we are improving and investing in our relationship with popular. We're currently negotiating in connection with a disagreement related to certain pricing terms, although dms say, we're both actively working to find a mutually agreeable resolution and while I'm unable to give any further deals of this is on ongoing discussion I felt it was important to provide this update at this.

Hi.

We look forward to updating you with our full outlook next quarter.

In summary, and with a good quarter for Evertec, we're executing well against our longer term initiatives that will continue to benefit us in 2020 and beyond.

Im now completed one full year of earnings calls and Investor meetings, and they continue to be challenged and energized by what is ahead for evertec and as always I look forward to updating we will now open the call for questions.

Ladies and gentlemen at this time will begin the question and answer session to ask a question you May press star on that one using a touchtone telephone if you are using a speaker phone. We do actually you. Please pick up the handset before pressing the numbers to ensure the best sound quality.

So what's your yourself from the question can you maybe press star into.

Once again that is star and then one to ask your question.

Our first question today comes from Bob Napoli from William Blair. Please go ahead with your question.

Oh, Thank you had good afternoon.

Hey, Bob and.

Yes, I guess.

Confused on the popular.

Thing disagreement and the potential materiality.

That agreement I mean that contract spin in place for a long time it.

What is.

Can you give give me a little help and holler and what that means could mean.

Yeah. So from time to time, Bob we have these types of disagreements with the bank and we've always been able to work through and resolve those so this is not something that we have an experienced in the past. This type of dispute. So we're working through it with the bank, we can't give a lot more color than we'd given on the call as we do every third quarter or we try and give you some of the puts and.

Takes into to the following year into 2020, so just like we can't give you more on.

Lets city are sent and they're going to contribute.

This is not something we can give you any more detail on but we are actively working working through it with the bank defined a resolution.

Okay. As we think it suggests that that Eric I know you sit you can't do anything or give us any guidance for 2020, but do you think about that relationship.

Over the long term what type of a revenue do you think it's possible to generate out out of that say.

Five years from today.

Yeah, So and I would speak for second I'll, let mckean speed as we've said on previous calls. This is a processing deal. So as soon as were up and running and we're still targeting early next year will immediately book revenue with a margin and as they grow and they continue to take share that doesn't grow over time, we do have minimums.

So there is certainty, but if it goes beyond what we put as a minimums. This business will continue to grow as we add additional products because they expressed center today and as we sell this to other customers you know it could become a meaningful business for our Chilean operation.

Okay. Thank you and last question just on the Neo banks or you know the relationship with that resilient bank and so is this an expert at banking as a service.

Type of technology efforts for.

For Fintech says that they yeah. This abroad.

So what we're seeing Bob and so in Brazil, we're saying a lot of digital banks come up in Mexico, We're seeing a lot of syntax, new Fintech law and the point, we want to make it. This is a licensing business licensing deal, which we were moving to processing, so, but we're still selling licenses in Brazil. The reason we wanted to point this out was not because of.

The size of the revenue opportunity, but to demonstrate that the evertec and today is now being selected by some of these new fintechs in these digital banks, they are going to be using our risk product.

Primarily so that's that's what the that's what we want to point. This out it's not just the traditional banks and the traditional players, but the new entrance who are looking for the best technology are selecting us as well.

I'm sorry.

Great risk product is it something that you expect to expand into other products and services.

I hope I saw him a lot more products, but the rest product is the one that we when we bought the well when we bought pay agreement was the one right. It had a lot of traction we discuss it Santander Chile has it were deploying it internally as well so our hope would be that we can continue to sell them other products and could help us to other banks in the region.

Thank you very much appreciate it.

Thanks, Bob.

Our next question comes from James Friedman from Sig. Please go ahead with your question.

Hi, congratulations on the results, it's Jamie Susquehanna I, just get a couple of Brian first so.

You.

You talked about the the pricing actions you can see that in the increased deal.

If you could talk to maybe some examples of where that is showing up.

Helpful. That's the first one and then.

In terms of the completion were keen to the 2 million I think was the number used.

Like where it is no relative to where it started from and I think you made some comments on what to expect for next year. So that's the two first on pricing and next on the projects. Thank you.

So Jamie this is Mike.

Thanks for the congrats I'll hand, it to what came together that hi, Jamie So in terms of price being that's primarily in our merchant acquiring segment. We mentioned earlier in the year that as we were going to see a slow down sales volume given our tough compare in the previous year with all the fan funding coming through we were going to.

Put some pricing actions in place and so it's mainly in the merchant acquiring segment I mean as it relates to the two medium aim.

I don't if that answers the question or if you had oh.

Yeah, I mean, I'd, so and then in that same narrative. What can you had called out I may be confusion topics here, but with your early remarks are 2020 I thought you had said four to 5 million impact to 2020 is okay. Yes. It does that is.

Accounted for mission that we have been seeing in Latin America, we called out those those accounts.

A few years ago and given the time lapse in taking those clients to roll off we continue to see appeal and we expect that originally.

Three to five this current year those have gotten delayed which we benefited from and during the year point now we have a tail going to blend winning which we called out will be four to five meter.

Got it and that number just just for additional information is based on on communications with the clients on their expectations as to when they expect to actually roll off.

Understood, Okay, I'll jump back into the queue. Thank you.

Thanks, Jim.

Our next question comes from Vasu Govil from KBW. Please your with your question.

Hi, Thanks for taking my question I guess last question, there's been a fair amount of consolidation.

Going on on the island.

How do we see that it and backing out of it back in the near term on longer term I mean do you see that is creating more cross sell opportunity for you or is there risk on pricing as these relationships got larger can you talk about that a little bit.

Yes, so right now if you look at the deals for everybody Oriental is taking over Scotia, and first bank is taking over St and they're all of those our clients today and their members of H.T.H.

And we have you know business with them across different segments. So in in the short term, we don't see really any material impact because of the shared that we have today and that we already have existing relationships.

Understood and then just going back to the BOP and I comment I understand you said this is something that's happened before but I don't remember you guys everybody not calling it out before so just wanted to understand what's different this time and if you could give us a little bit more history on what typically happens in the past what kind of pricing negotiations have had to do historically.

Sure. So it so I'm not necessarily specific a pricing we've had many disputes with the bank, where we have had to sit down and negotiate and come up with some type of resolution.

Yeah a relationship this large in this complicated that's in variable and we've always been able to resolve those on the on this specific issue, we're bringing it up right now because as we go into 2020 as Q3 call. We always try and give you the puts and takes and unfortunately, sometimes theres ambiguous ambiguity to them I like the center there deal the city deal even the place to pay.

Revenue.

And similar to this we can't comment on the scope, but just that we have these types of disagreements we've historically resolve them and we're working on the specific line as well.

Got it and that's the very last one from me on the government contract did that you guys announced at any point anymore color on the magnitude have got contract and if you have visibility into one that might that's fine.

I'm, sorry, but the government contract that we that we.

Mentioned have all been already signed.

We went into our Q2 goal, we actually mentioned that we obviously given the turmoil and the turnover in the government and we have some some contracts up for renewal.

Not situation cost some delays that we're calling out impacted us in the payment Puerto Rico segment on our mission solutions segment, but we have no executed on all contracts. So we don't expect anything additional going forward.

Understood. Thank you very much.

Thanks for the.

Our next question comes from George Mihalos from Cowen. Please go with your question.

Hey, good afternoon guys. Thanks, Thanks for taking my questions are looking at the the payment services in a in Puerto Rico and Caribbean. The the pressure on EBITDA margin. This quarter sounds like there is here are some puts and takes some onetimers or were there how should we think about that going into fourth quarter. Now that you have the government contracts signed should.

We continue to think that it'll be elevated project expenses, though as we go from from Threeq to Fourq you.

And so yes, I mean, our expectation would be to get to a more normalized EBITDA margin as it relates to our payment Puerto Rico segment. As you mentioned George we did have somewhat since they are they going in there. We also had a platform going into production on where we have to incur specific expenses as part of our stabilization efforts to keep up and running as it's hot.

A new system, that's running it we still expect to see some kind of roll into Q4, but we do expect to get to warm up.

Something sent more similar to what we saw in Q1 acute.

Okay. That's helpful. And then just just a quick follow up you know, Brazil is a geography that we haven't heard much about I know the strategic reasons why you haven't gone from a processing standpoint or from upfront from an acquirer and standpoint.

But yeah, Matt there really are there additional.

Opportunities. There is this kind of more about a one off type opportunity.

No. So what I'd say about Brazil, I mean, it's one of the fast growing payment markets in the region, but it's highly highly competitive you've got style and you've got back cigarette and you've got the traditional players. So what we found and what pay group. It found their niche was is really providing licensed software to those businesses and Brazil, given that sort of we're focused on Spanish speaking smaller countries, where the other guys.

<unk> less focused it's not a priority for us.

Not localizing the products, we're not building the processing model in Brazil, but where we can sell a license where we can pick up business. We will continue so we do have sort of an active pipeline, but primarily license business license contracts.

Okay. Thank you.

Yes, Thanks Jordan.

Our next question comes from John Davis from Raymond James. Please go ahead with your question.

Hi, Good afternoon, guys, maybe just start with bigger picture questions here. So as we sit through three quarters of 19, you have exceeded expectations and raise your guidance here a couple of times. Despite yeah, I would say lack of upside on these babies talked about.

What's going on right.

Exceeding your expectations so far.

All of that but.

Yes, I'll speak to that at the highest level and then let joaquin give it give us parts as well you know it we said at the beginning of the year. We were very focused on innovation, we're very focused on being opportunistic as markets open we've been very very pleased with the opportunities that have unfolded in Latin America.

The acquisition of pay group has given us the rolodex the product set to open helped open up the Chilean market to help create a regional product with Citibank and so we think the combination of our positioning and the market timing has gone very very well this year.

So we've been incredibly pleased with that I'd say, specifically in Puerto Rico I've been very pleased with our innovation and our continued track record of rolling out functionality within a th mobile moving out to IDH mobile data its business and then the things that we're doing on the Pos with pivot.

And some of the other innovations where we're trying to compete more aggressively.

And and the other piece I'm wondering I think we've done well is making sure that we look at our customers, particularly commercial portfolio and look at May make sure where pricing them appropriately and looking for opportunities to maintain our growth trajectory and our margins are taking process pricing actions, where we think that.

This will be effective so those are the things that I've been really pleased with this year and that I think have gone well, including and I'll throw out there the reliable conversion with the bank to I think we've had some great success with the bank I don't know people notice, but if you look at 2014 versus 2019, the incidence that our operational incidents where the bank have gone down 70.

Yeah.

If you look at a reliable conversion we've had one of the best commercials that we've had with a new business that they bought and this was a one of the larger conversion. So I think execution. We've been very pleased with and then the timing of Latam business opportunities.

Okay.

Oh I think you hit on every point I mean, weve executing that we've been able to find some very important contracts that show what we've been able to do with the products that we've acquired in Puerto Rico, What I would say obviously the delaying funding continues to be able to create uncertainty for us what we've been able to execute through that with some of the pricing actions on executing on some of the projects that we.

We've been able to mention as part of these calls that we've been putting into production on them that are reflected in our financials.

Okay.

And then just as we kind of move to 2020 and appreciate the color on the puts and takes but it sounds like you're on the positive side you have Santander you have the PPI price increase.

And then continue continued.

Innovation with David Eightyish mobile and then potentially from on the headwind side you have.

Potentially whatever this pricing is skewed and with the bank.

And.

What are we thinking about from a absolute level.

From an absolute level.

Then in Puerto Rico, how the economy look today versus what you thought here the year, how do you think about going into next year.

I mean.

It's something that we continue to lines are and John .

The unemployment rate, which we mentioned on the call is that is that are the lowest level. It's been in recent memory. We continued to drug indicators versus pre hurricane levels on they seem to be a in a good place obviously.

Fed funds continue to be a significant factor in terms of what we can expect for 2020, we didn't see much of that fund flow into 2019, we are hopeful and expecting that we will see some of that start to move into plenty plenty. If you read the news holiday has been looking to put somebody down in Puerto Rico or.

One person to controls are on the funding and hopefully that creates some traction in terms of funds flow and bought I.

Yes, we need to one of very closely to have a better we see really de unless we go into our Q4 coal will have more details to share with you guys.

Okay. So so suffice it to say you probably feel better today about the next 12 months than you did when you sat here a year ago and gave initial color on 20 or actually a fair Sir.

Yeah.

Okay, and then last one for me obviously leverage is down.

Protein two turns didn't buy back much stocks in the quarter.

Maybe talk a little doubt the M&A pipeline, what you guys are thinking what the leverage comfort range is how well, we'll use leverage get and just kind of any commentary there would be helpful.

So what what I would start saying is our strategy hasn't changed we continue to execute our sorry in terms of looking for or deploying capital for growth and yes, our leverage ratio is down as we said in the beginning of the year, we want to be between 203 times. So we're still a is kind of in that range.

Page, we continue to be actively looking M&A as I said is a five one of the main items in our strategy and so we got due to look at US we find opportunities that make sense, we will execute on those this quarter was a slow one compared to our previous quarters, but we continue to be consistent in how we plan on deploying.

Hello.

Okay. Thanks, guys.

Yes.

Once again, if you would like to ask a question. Please press star and then one.

Our next question comes from James process from Morgan Stanley . Please go with your question.

Great. Thank you so much I want to follow up on on that last question you know you've highlighted the the activity in Brazil, and just the the amount of investment and activity and now and the Latin American market.

It seems to be fairly important right now wondering how that's impacting your ability to identify.

Potential M&A targets or partnerships I'm, even and and you know what the like how it if at any data activity is having on your your view and and objectives for the rest of Latin America.

So well kind of give you my view and then looking I give you here's what we're finding now is given that we had the products that were localizing and we said at the beginning it here in the countries, where localizing them and this is really opening up more organic opportunities and so we're investing more capex in Latin America around those organic opportunities, which we didnt have five years ago.

Two reasons, one is the market's Marne opening and and the second as we really didn't have the products to provide a in the event that they did so you will you have seen more investment inorganic growth.

We are still looking actively at M&A.

We're looking at you know placed a phase a good example of a product that will help strengthen our position in Colombia and more importantly, it will help us complement the products that we now have giving us a nice gateway and not only we can use in south America, but potentially back in Puerto Rico. So we're still focused on those both.

When we look at the opportunities in the region, but I would say you know our hes our previous acquisitions have maybe organic opportunities come more alive.

Well the only thing I would ideas on I'm not sure. If you're also talking about a capital going to into Brazil on someone in different countries from from outside some of those countries. We're looking at on that we're concentrating on Chile, Colombia worldwide. We have a presence in and we have people on the ground. There we know that the the landscape.

And so we feel that continues to give us an advantage in terms of identifying targets on what how long, where we want to deploy that capital.

Got it no that's really helpful. And then I want to ask specifically about merchant acquiring revenue growth you called out some some pricing benefits, but I'm wondering if that was in any particular segment of merchants and do you expect additional pricing actions just trying to think through kind of what does the puts.

And taking drivers of that merchant acquiring revenue growth might look like.

We haven't really broken down our pricing actions in terms of segments day, yeah, our or.

Parts of the portfolio ball at what I can tell you it's within our merchant acquiring segment now we will double transactional fees as well as non transactional fee and as we've said before and it's been sometimes as weve actually used pricing levers for for in terms of growth and it's something that we're very careful about.

Doing we analyze our portfolios and we look for relationships, where we think we have.

Where we need to execute on pricing actions to make their relationship profitable and.

Well, we haven't given the level of breakdown and sometimes it's we do care about additional services around PC.

So sometimes it's not just increasing pricing or changing price I mean, what keen has done a great job. It reevaluating the portfolio and look at where we thought we had margins that we.

No.

Now that we found that we need to increase but it's also been rolling out some additional functionality and features.

Got it.

Thank you and then last question for me as.

You've had a few quarters of a benefit benefit from monetizing you teach mobile can you talk about where were you are in those monetization efforts and how much. There is to go before you kind of feel like you're at a steady state <unk> and can treat that business a bit more organically yet if you will.

And yes, so we started monetizing each mauling Q3 of last years. The luxury we just lots that in this quarter and we didn't used to see growth on model, our MTGE mold PDP out as well as our intermodal business up we're very focused on continuing to get.

Merchants that use our PDP out for for billing business into our merger or our business side of the obligation and that should also continue our gives overtime. These to continue growing that that type of service. What are the same time are focused on innovations on on looking for additional features on ways in which we can see.

The one it is not just the same a service what additional features within Encaje mall. So that's how we're looking at it into the future.

Great. Thank you so much.

Ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call back over to Mac schuessler for any closing remarks.

I just wanted to thank everybody for joining us this evening and we look forward to saying you as we traveled on the road have a good evening.

Ladies and gentlemen that does conclude today's conference call with you. Thank you for attending you may now disconnect your lines.

[laughter].