Q1 2020 Earnings Call

[music].

Good morning, everyone well.

First quarter 2020 on this conference call today's conference call is being recorded at this time I would like to turn the call. The look to pay Sharpton, Vice President Investor Relations.

Go ahead.

Thank you and good morning with me today are Mac Schuessler, our president and Chief Executive Officer, and Joachim Christine Cho, our Chief Financial Officer.

Well, we began I'd 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 SPP report.

During today's call management will provide certain information that will constitute non-GAAP financial measures under SPP roles, such as adjusted EBITDA adjusted net income and adjusted earnings per common share.

Reconciliations to GAAP measures and certain additional information are also included in todays earnings release and related supplemental slides, which are available in investor Relations section of our company's website at www Dot evertec in dotcom.

I'll now hand, the call over to Matt.

Thanks, Kate and good morning, everyone.

Oh, let's begin on behalf of our company I'd like to sure sympathies with all of those who had been affected by this global pandemic in particular I want to express my regrets to those who have lost loved ones and my gratitude to those and the medical community and all the central workers were on that front lines for the benefit of this all.

I also want to thank my colleagues, who are diligently working remotely as well as those who continue to tireless work on side given the nature of their roles.

Just as with Hurricane Maria the Evertec team is continually demonstrating their adaptability persistence and strong values, making the incredibly proud and honored to lead this organization.

While we continue to cautiously monitor the impact over 19, we believe that our past experiences with extreme circumstances have proven the resiliency of our business and our people.

Fortunate to be able to highlight on this call.

That's all efforts of our team to maintain our business operation and even implement you solutions during the quarter.

Turning to slide four I'd like to cover some of these highlights.

In preparation for Cobot 19, we deployed our business continuity plan a few days before the Puerto Rico government enacted shelter in place directed on March the six thing.

Since then every country in which we operate has implemented some type social doesn't take measures.

Our priority has been the safety in support of our colleagues as we transitioned to a work from home environment also implementing safety measures for those critical employees that were needed on site.

Through our internal initiatives, we were able to provide equipment remote access to our colleagues as well as clear direction focus throughout the organization to keep everyone informed and productive.

Our colleagues who needed to be on site.

The network operations running as well as cash handling and other critical operations for our customers, we implemented safety procedures, such as temperature checks each day as they enter the building provided protective gear.

Develop say the big spaces and increase the overall sanitation at our offices.

In March a significant focus of ours with supporting our clients evolving needs as well.

Our largest customer popular we assisted them and the transition of over 1400 employees to work from home environment.

Many of our customers depend on us for communication security and numerous other business functions that required modifications in this new environment.

Adjustments included increasing the capacity of our phone lives to allow from our customer calls as well as modifying our systems for our customers as it related to late fees and interest charges.

Jason and packs handling and the acceleration of other projects necessary to serve clients and this new environment.

For the small business clients and our Puerto Rico merchant portfolio, we are particularly mindful of the severe impact to their finances brought on by the pandemic.

And our assisting them with applying freight as well as finding other ways that we can provide support.

And for the communities throughout organizations footprint, we are already promoting our application to the 2020 scholarship program to which we have contributed over $500000 over the past five years that need has never been greater to help these students and our commitment firmly remains.

While our results in the quarter were impacted by Texas, depending on that.

Both in Puerto Rico in Latin America, we believe our unwavering investment in our employee customers. It communities. During this time a crisis strengthens our relationship with each of our stakeholders over the long run.

[noise] beginning on slide five I'll cover some of the quarter's financial highlights and provide you with an update on recent developments.

Total revenue was $122 million, an increase of 3% compared to 2019.

Our revenue results January and February we're on track with our expectation, but in mid March transactional revenue was impacted by co. The 19 measures.

Additionally, we had some onetime revenue last year that was a headwind for Q1 this year.

Adjusted EBITDA was $56 million or a 2% decrease as compared to the prior year and adjusted earnings per share was 46 cents, a decrease of 8% compared to last year.

We generated significant operating cash flow and returned approximately $7 million for our shareholders through share repurchases.

Dividends approved by the board in February or paid on April the third and our next dividend will be page and Seth.

Our quarter end liquidity was over $220 million.

Moving onto our business update on slide six.

First in Latin America. We are pleased that we were able to continue to provide our customers with new innovative solutions such as the new service implement it for access the largest supermarket chain in Colombia.

Real portal customers can purchase a card for necessity that is then redeemable using a virtual card at exodus establishment or online.

I agree 50000 pay says a car purchases through April the Thirtyth Exodus contributed 5000 pesos to really fun.

This is a creative solution that is helpful. During this challenging time to support the community in Colombia.

This new services supported by our recently acquired digital payment Gateway place today.

We also implemented an E commerce solution for our large U.S. retailer operating in Central America to further support their card not present payment.

These payments became critical as a result, cobot 19, as they easily facilitate home delivery and pick up.

Additionally, we implemented a virtual benefit card program for the Dominican Republic government.

Is it should be aid to those families with economic they impacted by the endemic.

This program, which was implemented by April 1st has impacted over 530000 families in the community by distributing over $64 million, which helped both the bank and on bank population.

Lastly, we are pleased with the progress on our Santander, Chile project and have now successfully tested the acceptance Latin American Express.

We still have more work to do but this is a significant milestone.

We have delayed our go live date as most markets are close to Santiago and we're using this time to do further testing and preparation with an expected implementation and just a few months.

We continue to see interest in our products and although timelines maybe extended due to covert 19, we're seeing growth opportunity.

We have differentiate ourselves from our competitors for our customer focus our service and our investments and we believe we will emerge as a unique payment service provider in Latin America.

Moving on to Puerto Rico, the environment is challenging and just like the rest of world. We are seeing significant increases in unemployment and small businesses are struggling.

ERICO is anticipated to receive $5 billion federal aid through cares and the government of Puerto Rico provided their own a package, which included approximately 800 million hours.

Local government has also supported the economy by continuing to employ the government workforce as for the reopening of Puerto Rico earlier. This week, several industries, where laterals in business, which is <unk>, which is positive or provide some economic activity.

The government is evaluating the opening of additional business segments by May 18, depending on how Kevin 19 cases developed over the next few weeks.

We will continue to focus on serving our clients need on innovation and on executing new opportunities as they arise.

Turning to the rest of 2020, while the cobot 19 impact was clearly evident in our results in March it is challenging to provide annual guidance given the uncertainty around the depth and duration of the pandemic at this time.

The best perspective, we can provide on the impact on our business is to share preliminary trends, we're seeing so far in the month April.

Mccain will share those trends and provide an illustration of how if they continue they will impact due to.

We are encouraged by the recently released government plans for the gradual reopening of the economy and we would expect to see some improvement at least as these planes are implemented.

Fortunately, we continue to have a strong balance sheet with low leverage expected in his tenure to have positive cash flow under all the scenarios, we have modeled and we believe we have adequate liquidity to weather the storm.

Our commitment is to continue to keep steady admits the turbulence and focus on the longer term opportunities. There remain ahead of us.

Whether the recovery is as either you or a W. We're confident and one thing based on our previous challenges the human spirits ability to prevail over I personally with understanding we will continue to focus on our values, where the Buda the future and we believe we will become better for it with that I'll now turn the call over to walking.

Thank you, Mike and good morning, everyone I'll now provide a review over first quarter 2020 results.

Turning to slide eight you will see the consolidated first quarter results for Evertec.

Total revenue for the first quarter was honored and 21.9 million up 3% compared to 100, an 18.8 million in the prior year, which included a one time revenue benefit of 2.7 million.

Our overall performance over the first two most of the year were inline with expectations as we saw modest sales volume and transaction growth in Puerto Rico and.

That's what awesome would progress in some of our key projects.

Beginning in mid March however, our merchant payment, Puerto Rico, and payment and let them segments were directly affected by the pandemic did some of our business solutions nine so fitness that aren't transactional.

All the time segment was also negatively impacted by FX.

We estimate that dates back to revenue related to covet 19 in the quarter was approximately $3 million.

Adjusted EBITDA for the quarter was 56.3 major a decrease of 2% from 57.6 million in the prior year.

Adjusted EBITDA margin was 46.2% on this represents a 230 basis point decrease compared to the prior year.

A year over year decrease in margin primarily reflects a decrease interest section on revenue. The increase me some business Im not business solutions, which are lower margin. That's what's the impact of the car. Your one think project revenue.

Yeah, just mentioned the quarter for adjusted EBITDA included our normal adjustment for non-GAAP equity and shared based compensation and also include any $2.1 million charge related to transactional fees.

Adjusted net income in the quarter was 33.5 media a decrease of 10% as compared to the prior year, primarily reflecting the lower adjusted EBITDA as well as increased operating depreciation and amortization, partially offset by lower cash interest expense.

Our adjusted effective tax rate in the quarter was 17.6%, primarily reflecting the impact of called it think team on the mix of business as well say discrete tax item of approximately 500000 voters.

We expect our full year effective tax rate to be higher than prior year, primarily due to the impact of connecting to our mix of business.

Adjusted EPS was 46 cents for the quarter decreased 8% compared to the prior year.

Moving on to slide nine I'll know cover our segment results starting with merchant acquiring.

In the first quarter merchant acquiring net revenue decreased 3% year over year to approximately 25.1 million.

Their revenues through February increase by low single digits and then in March decreased approximately 11% driven primarily by lower sales volume. The last two weeks of approximately 40, 40% year over year.

What are you go social dispensing measures began in March 16th and allowed for all your central business is to remain open such a supermarkets pharmacies bags gas stations and only for a limited period of time of day all their businesses have to remain closed on people could only go out of their homes to buy groceries medications and did the doctors and hospitals.

These measures drove down sales volume for old business categories, except for supermax So pharmacies.

Average ticket, which had stabilized in January and February increased the March driven by changes in consumer behavior towards larger purchases that enabled them to remain in their homes for longer periods of time.

Spread however declined mainly driven by the mix shift.

Adjusted EBITDA for the segment was 11.3 million down 6%.

Adjusted EBITDA margin was 44.9% down approximately a 120 basis points as compared to last year, reflecting the impact of lower transactional revenue have been exposed business expenses are mostly viable in this segment.

On Slide 10, you will see the results of the payment services, Puerto Rico and the Caribbean segment.

Revenue for the segment into first quarter was 29.9 million down approximately 7% as compared to last year, primarily due to 2.7 million onetime project revenue last year.

In addition, we hadn't there these transactional growth year over year, maybe for the same covered 19 reasons that impacted our merchant segment after March 16th.

January February stop your restaurants sexual growth in the mid single digit range, and then down approximately 17% into multiple March we experienced a similar drop off on ATM transaction volumes as well.

These were partially offset by out there Jim or are they actually mobile business transaction growth as well as new transactional volumes, an incremental revenue recognized from the new service with Medicaid benefits, we discussed last quarter.

Adjusted EBITDA for this segment was 16.1 million decreasing 24% that's compared to last year.

Adjusted EBITDA margin was 53.8%.

Don't over a thousand basis points as compared to last year, primarily due to lower revenue and higher operating expenses related to post implementation costs from the E. B T project.

Segment has mostly fixed cost related to technology infrastructure.

On Slide 11, you will see the results for our payments I was just let them segment revenue for this segment in the first quarter was 21.6 million all by approximately 4% as compared to last year.

This growth was driven by the acquisition of place to be as well as organic growth.

This growth was partially offset by attrition of approximately 500000 in the quarter negative FX impact of the Chilean pesos <unk> under Colombian peso all declined approximately 20% versus prior year.

Our year also included 500000, a onetime intercompany license revenue.

Other than effects, the transactional impact to our let them segment from carbon 19 was limited I was just social dispensing ministers in some of the countries in which we operate were less strict started later in the month of March a many of our contracts have minimums.

And also hobby revenue component based on accounts on file or plastics issue, we expecting more significant impact doesn't move into Q2 based on some of the trends we have been following some of our implementation projects get delayed.

Adjusted EBITDA for the segment was 8.2 million adjusted EBITDA margin was 38.1% down approximately 100, and fake 50 basis points compared to last year driven by the impact the onetime intercompany license revenue I suppose the high margin attrition in the quarter.

We now anticipate that we may see somebody raising the attrition this year given the current environment and anticipate you addressed running 2022, no between three to 4 million.

On Slide 12, you will find the results for the business solutions segment.

Solutions revenue for the first quarter was up approximately 9% to 55.9 million.

Revenue growth into segment was driven by new services for but with our that's what US project implementation that impacted the quarter by approximately 1.5 million.

For the quarter adjusted EBITDA was 27.4 million, an adjusted EBITDA margin was 49.1% or approximately 420 basis points as compared to last year. They increasingly adjusted EBITDA margin was primarily driven by the increased revenue in the quarter.

Moving onto Slide 13, you will see a summary of corporate another or first quarter. Adjusted EBIDA wasn't had these 6.8 million a decrease of 3% us compared to prior year and 5.5% US a percentage of total revenue.

Approximately 30 basis points favorable to the prior year.

Moving onto our your do they Cashel overview on slide 14 are beginning cash balance was approximately 131 million, including restricted cash of approximately 20 million.

Net cash provided by operating activities was approximately 34 million.

<unk> million increase as compared to prior year and this includes the impact of settlement timing and other working capital differences.

Total expenditures year to date were approximately 9 million.

We paid approximately 21 billion debt payments, which included a 17 million dollar payment related to an excess cash flow sweep feature Intercreditor agreement, which applies to cash generated over a certain level to be paid I guess or no.

3 million withholding taxes on share based compensation on 1 million of other debt Paydown, resulting in a total net decrease of approximately $24 million.

We didn't know paid cash dividends in the quarter due to timing of the payment occurring after quarter end on April Sir.

We repurchased approximately $7 million of common stock.

We have approximately 23 million available for future use under the company's share repurchase program and we recently announced another five cents dividend to be paid on June 2022 shareholders of record as of May four.

Our ending cash balance as of March 30, Onest was 125 million on this included approximately 22 million of restricted cash.

Moving to slide 15, you'll find a summary of our debt as of March 31st 2040.

Our quarter ending net debt position was approximately 408 million comprised of approximately.

104 million of unrestricted cash spend approximately 512 million of total short term borrowings under long term debt.

Well, our weighted average interest rate was 4.41%.

Our net debt to trailing 12 month adjusted EBIDA wasn't there are two tons for the first time.

A multiple below two times threshold will provide a 25 basis point improvement into interest rate on approximately 45% of our debt. However, we will likely go up a bit to play multiple in Q2, given the impact on adjusted EBIDA related to covered 19.

As of March 31st total liquidity was over 220 million.

Respondents excludes restricted gosh and includes the available borrowing capacity under our revolver.

We ended the quarter, although we are confident over cash and liquidity position, we decided to drill 30 million of our revolver for a further buffer on or liquidity.

The cost to draw under revolver will have a minor impact on our interest expense on seemed prudent given the uncertainty of them by element.

Moving to slide 16, given the very unique nature of the covered 19 pandemic, we're spending or annual guidance well to provide some visibility on perspective on how carbon dunking is impacting our business. We're sharing a view of our preliminary April revenue impact and then for illustrative purposes, showing the estimated second quarter revenue and adjusted EPS at these levels.

Based on this total revenue would be down approximately 12% from prior year, resulting in total revenue of 108 million, an adjusted EPS would be down approximately 41% or 30 cents per share in Q2.

Adjusted EBITDA margin is an estimate assuming relatively fixed costs.

Although we are focusing on cost containment were possible for purpose of this illustration. We have assumed limited members most of which would be offset by covet 19 potentially bucks.

That said at these levels, we expect to deliver about 42 million in adjusted EBITDA.

As Mike mentioned in his remarks, the Puerto Rico government announced last week that several business verticals could begin to opened this past Monday. This is certainly positive and we have seen an improvement over the last few days in terms of volume central sanctions.

However, there's still much uncertainty as to what impact that pandemic, we'll have we'll be economy and future consumer behavior and also this opening of the economy subject to public cases remaining under control.

We will continue to monitor the situation and provide an update when we have greater clarity on the depth and breadth of the covet 19 pandemic impact to our business.

But I wanted if no we continue to anticipate positive cash flows even in the loss in our remote and depending on the results. We would see an uptick in a leverage ratio. What's the remaining below three times levered in summary, it was a challenging quarter, but we continue to execute well I guess the longer term initiatives that we believe we'll continue to benefit us in 2020 Emil.

We'll now open the call for questions. Operator. Please go ahead and open the line.

We will now begin the question and answer session to ask a question you made press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before passing the key to withdraw your question Press Star then to at this time, we will pause momentarily to assemble a rough.

<unk>.

First question is from Boston go Veny.

Some KBW.

Well I had I hi, thanks for taking my question. It's good to talk to you on and that that everyone is safe and healthy.

I guess my first question. We then I think the trends on April that you gave us like but within the mind can you.

Sockets too if you saw a much improved meant to watch the end of the month and into early may answer to what the Mac, what's the magnitude changes aren't that you're seeing and the input and.

Sure Vescos just watching answered it cannot too just walk you through what we've been seeing.

In March the the security voting, Puerto Rico started in March 16, So I would say the second half of March we saw a declining volume kind of getting too high thirtys, a that grew a little bit more going into the first two weeks of April as everybody got really seriously Michel during place and then.

So we saw high Thirtys low fortys on its stabilized there through the first two weeks of April it improved slightly towards the end coming down to low Thirtys I know I think setting their prepared remarks. The governor allows several businesses to open up this past Monday, and we don't have that.

Much of the CBD, because it's only been a few days, but we've seen a couple of days combing the into high teens low twentys. So we need to see how this continues to develop and hopefully in the next stage of business is opening, albeit it may 18th.

No we are able to kind of control. The policy. These cases and more sectors continue to open we would expect to continue to see a positive trend, but but it's still early so we're definitely looking at this very closely.

Thanks, that's very helpful and Mac at a very high level, what we're hearing across the payments industry is that the spend any sort of accelerating to shift the digital by multiple years in many cases.

And let digital won't be then you'll be able to life for many people I still stick to your transacting in a certain way are you seeing evidence of that in Puerto Rico input to get to get them. After that anaconda needs that were more cash focused and he was saying that coming out if it incorporates couldn't be structurally higher Robertex, Inc.

So it wasn't what we agree with what you're hearing from from our peers Theres a lot, but there's a significant move to digital payments I mean, I will tell you what we've seen with 80 age mobile and particularly age mobile business. It's for currently become the preferred payment method for many of the small businesses some of the small grocery stores.

So we have seen that trend in that business has held up we've even seen as we've talked about in Colombia, when we talked about exit of trying to create a virtual card to make shopping more in a digital environment. So we are seeing that trend. We do they did that trend will continue to accelerate coming out over 19.

And we're very happy that we divested native mobile and that we've also made the investment in place today. So you know during this period given sort of where we are from a liquidity perspective, we're continuing to invest to this technology. So a committed a stronger.

Great. Thank you very much.

Thanks Lisa.

Our next question is from Cowen Marcello from Deutsche Bank.

Go ahead.

Hey, guys. This is corey on for a for Bryan Keane.

Just wanted to ask first if you could talk a little bit about the merchant base kind of the mix of merchants that you have there.

Maybe a small merchants and then maybe online volume as well just any color you could give around that.

Yeah I've taken first I, just you got to remember in Puerto Rico, where were less a weighted on the travel and entertainment we have a lot of.

Local economy. So we've got a lot of the supermarkets, the pharmacies that utilities or our customers. So thats why you've seen the tied to that you know relative stability in some of our payments business segments.

And on the digital piece, we don't break that out separately, we have given some of the growth rates on a T.H. and actually if we were not on this call, but as I said earlier, that's become one of the preferred method of payment is the ability to pay with your cellphone a small businesses I personally you know I don't want to local Pizza places and.

You place or on the phone you walk up to the door and you're showing your found that you've already paid and the hand the piece out the door too. So we are saying the digital increase but that's sort of gives you sort of an understanding of the waiting a lot of the core economy is part of our processing I don't know if you want to add anything okay. Yeah, just to give up some additional color around the portfolio we have seen.

In a pretty significant shift a mainly driven by that businesses that are that have the ability to remain open because all other businesses were required to remain closed. So we are seeing a significant shift towards supermarkets, pharmacies and and and gas stations, mainly as those are the same.

Actual clinical businesses that could continue to to do business throughout this period and would be other inboard on or I guess.

Key factor to consider is we're also seeing an increasing the average ticket. So although these are as I mentioned in the script a lower margin businesses. We are seeing the average ticket core mall or at least that's what we saw in these past few weeks as people go out to the supermarket and make larger purchases. So they can stay within their homes for alone.

Her period of time, so that kind of offset a little bit some of the shift that we're seeing towards these lower margin businesses. They are looking to what Mark said I would just odd that attach im always on undies digital channels continue to grow and even throughout this whole period right. So.

Physical payment card present payments are taking this hit on given the sheltering place we have seen a slowdown in some of the IDR, Jim always happy to be transactions on ambitions transactions and they do continue to grow year over year.

Got it that's helpful.

I guess as a quick follow up you guys mentioned, some potential kind of outcomes for the upcoming quarter around EBITDA I'm. Just curious I think that was related to some fixed costs I'm. Just curious if you could go into some detail maybe what what type of cost takeout controls that you guys are taking and how that could potentially benefit.

Versus the a accidents taken that you laid out thanks very much.

Sure so.

As we've said in the past right, we run a very high margins on a on a normalized basis. Some of the best in the industry. So we are very cost conscious continuously we run the company very lean and so significant levers of cost and I really not there for US. However, we're always looking for areas where we.

Can be more efficient and we continue to focus on those given the obviously impact to the top line then on US we identify those will continue to execute yeah. Let me just a is it going into this we were very focused on taking care of our employees and our ability to take care of a customer. So we actually saw an acceleration of expenses.

For setting up in a virtual environment, making sure we had and then some additional compensation for those add to continue to work on site. So we were very focused on investing to make sure that the operation.

Good day to perform well and we were very very focused on productivity. So it's back to the other call. We are continuing to invest in our digital platforms, we're continuing to invest and sent into Chile, which as you know we made good progress on even during this period, but that being said, we did offset that of course TNT was down around travel budget went down we're very close.

The managing our marketing budget and other just and training budgets to make sure that we try and offset some of the incremental costs that weve incurred as we as we moved into the remote work going forward. We will continue to look at those discretionary expenses and make sure that we manage those as closely as possible without sacrificing the future growth of the company.

Because as a company in emerging markets that really entered some new countries with some interesting opportunities we don't want to cut expenses.

At the expense of future growth, but we're going to be very very diligent and making sure that we manage margin with some of the discretionary expenses.

Thanks, guys apparel, a stay healthy and well.

Thanks, Jim too.

Our next question is from Bob Napoli from William Blair.

So I'd say thank you.

Good morning, everybody good to hear about everybody is doing well and you guys are doing well.

D.

16, just following up on the April trend and the kind of the rough Guy. So yeah are you assuming that the April trend holds for the quarter to get you to the 42 million.

You know of EBITDA or or do you have there what is your.

Your thoughts on the trend through the quarter.

No I mean as I said this.

This always see assumes that April trends continue but again the governor just opened up you sectors of the business and Theres additional sectors that might open up in may at the same thing that's subject to the coping 19, continuing to aim. So so this is really a preliminary view based on what we saw.

In April that Bob the short answer is yes, we're assuming that that [laughter] at quarter end the in a slot, saying, but that assumption does not factor and that the economy has already opening and the governor is continuing to open businesses as we speak this week in next week, so, but if but also those businesses could open.

And then they could close again right. So.

Through the year thing on the quarter is yes for three months of April yes, right.

But we are already seeing a couple of things. One is we are seeing continued money hitting bank accounts.

The unemployed and we're also seeing the governor opening the economy.

Okay. Thank you.

And then the card not present growth rate and mix and then I think you said you haven't given that it would be it especially in this environment that would be really helpful to understand what percentage of your business their payments businesses card not present into kind of what the growth rate of that it yeah.

That is.

Yes, it's a great point and we may consider doing that in the future. What I would tell you is the good news is it's because it's a everyday becomes a bigger pieces of business and it is growing even through this environment, though.

Right now, we're not prepared to disclose that but given you on your feedback will take a look at doing that in the future.

Just last question or in tea Santander, Chile, what are your thoughts on what the revenue could be.

Out of that it you know overtime and do you have broader just a broader strategy for Chile that you want to use that to build off of.

Yes, so what I would tell you. It's what we said on previous calls and our goal in Chile is to replicate to some extent, we haven't already go and that's a broad set of products with a broad base of clients and we already have a lot of the Chilean banks and retailers as customers on our bill payment platform Misos hopefully you know one of several merge.

In acquiring customers overtime.

And merchant processing customers. So we plan to have sort of a broad customer base and solutions that we haven't given specific carve out of what the revenue is going to be sending their chile, but we did say on the previous call us we teed up 2020 that it would be a significant part of that segment for this year and really helped contribute to pre covered 19.

Into double digit growth in the segment.

Thank you appreciate it thanks.

Our next question, it's from John Davis from Raymond James.

Well that hey, good Oh.

Good afternoon guys.

Hi, Good morning, I, just want to maybe touch a little bit on card penetration and Puerto Rico I think many expect covert to accelerate cash the card I know that data little bit difficult, but maybe directionally can you give us a an idea of what card penetration looks like in Puerto Rico's today.

What I, what I would tell you Johnny.

We we obviously have been focused on trying to create additional avenues through some of our digital products to get to that gosh economy. What there continues to be a very it.

Large piece of the pie that is on informal aim unofficial economy that that is part of Puerto Rico. So.

It's tough for us to be about specific percentage what are what I could tell you is out through the products that we're putting out there like got that you're more we then I've touched on orbitz, there somewhere under under growth rates that we're seeing some of those digital products, a we're definitely making event in penetrating some of that no. One card aim economy that that exists here, yes, we do.

Okay, when it's definitely less penetrated in the U.S., there's still a significant.

Out of informal economy, what I would reiterate also I think the theme of several of the questions on the call. This is accelerating the adoption of technology. So people who didn't try in the past to use hgh mobile people that didnt try to Haiti age mobile business application. There is more rapid pace of adoption because people are being forced to us.

He even I think in each of our businesses.

We've really pushed the envelope, but what can be what physicians can work from home and you know more and more people within our own company or more comfortable resumed different technologies. So we're actually seeing that with a consumer base as well. So I do think this is gonna be a catalyst.

John to actually hopefully close the gap.

And digitizer or electronify payments at a faster pace.

Okay, Great and then any update on the approved HUD funding or any other kind of paid that was coming to the island from the hurricanes.

This sped it up slowed it down just kind of any update there would be helpful.

There's no real update John I mean, the construction side or the construction sector was one of the aim business. Our if that was able to go back to basis. This last Monday and so we are obviously looking at this very closely and seeing if no that people are getting back to work on.

Looking to get back to reconstruction on if we see a more of an inflow about funding, but not nothing specific that I would call out from our last call.

Okay. Thanks, and then one more maybe for Mac, just talk a little bit about your appetite for M&A here I think obviously, maybe not right now but touched on the other side of Tobin or wants things stabilize a little bit.

Valuations look better your balance sheet, especially if it's ever been answered just maybe talk about the pipeline and how you think about M&A I'm going forward from here.

Yeah. So I mean, I perspective has not changed in that part of the thesis on how we grow the company. It to your point, we do feel fairly good about the balance sheet and about the perform to the company, particularly compared to other payment peers. So it's still a focus of ours I can tell you, we're still whether even even a organic growth, we're still having calls with prospects, but thats.

Several throughout calls with leaders in South America, some potential clients on the inorganic side on the M&A side, it's a bit slower it's a bit more complicated because people aren't necessarily willing to sell it completely distressed price.

So there may have to be some normalization or sort of shaking out of was valuations look like but it's incredibly important part of our story and it's a place that we continue to focus.

All right. Thanks, guys.

Thank you.

Our next question is from James So sad from Morgan Stanley.

Go ahead.

Thank you very much. Thanks for taking my question. This morning, everybody. Just wanted to you know touch base is you're seeing and looking across different geographies are you seeing much variance in terms of activity levels and and at a rate of improvement as.

People open up the economies or start to and and within the regions that use or how much impact. If any has there been from from government stimulus on on what you're seeing in terms of your business well.

Yes, so what I would say is of course, each country is different and again, it's difficult for us to monitor because our businesses are different in each country. So we don't have apples to apples to apples between each country, we do business and necessarily but some countries went into a shelter in place faster than others. Some it had more of a broad base pandemic than others. So we have seen sort of a difference.

And how each country operates we have moved into a complete or where we can.

In every country, we've moved to remove workforce. So our philosophy has been the same protecting our employees make sure they're focused but it's been different from country to country and coming out of it has been different from each country, but we have seen a stimulus in several countries of course, we talked about what we've seen in Puerto Rico. We've also as I said earlier in the Dominican Republic supported the government there.

Distribute funds to both not only the banks population, but the Unbanked I think seeing those those dollars flow through trends for the country to countries, where we have significant piece of business like Puerto Rico, That's just now starting to occur.

Got it and then you know I think you've talked about and there's been a lot of talk about like kind of a potential for a permanent shift in the trajectory of adoption of what do you suppose electronic payments and the like.

And that makes sense to me I'm wondering how that is impacting both your own product development thoughts as well as what you're looking at for potential future M&A M&A has always been patent part of of Evertecs.

Opportunity set and just how how the current environment may be shifting that in an reprioritizing if at all.

My question and it goes back I think took question that was previously asked about expenses I will tell you the ship to electronic payments and to online I mean, we've historically seen in our products and then that was one of the reasons that we bought place to pay was because we knew this was just going to be a natural evolution, where the with with the pandemic over 19, we are.

Now again as I said earlier to what extent, we don't know, but it's the adoption is going to be faster, particularly if you know the shelter in place or the slow gradual reopening of economies occurs because then people are going to adapt to adopt to those technologies for a longer period of time. So our approach is going to be very cautious from an investor.

My perspective to make sure we not only do we continue to invest but at some places we accelerate our investment and we moved into more quickly on a different projects in different initiatives. So for us it's going to be tend not to beat me to continue to invest in those areas in some cases accelerate the investment.

That's great. Thanks, a lot.

Yes.

Yeah.

Hi, Dan if you wanted to ask a question. Please press Star then one I'm next question is some John cost saves from Susquehanna go ahead.

Hey, guys, it's a actually Jamie Friedman.

Good to hear your voices I'm glad you well. Thank you for this slide 16 are really interesting and incremental.

Might not lost on that slide is that business solutions, which is large segment for you is still growing right. So really suffering in merck's and here's my question I realize businesses business Gleason celebrating or maybe you could talk about.

Some of the characteristics of that business that may be less economically sensitive I think that'd be helpful.

Sure. Okay Governor Yeah. So sold just to give some context right within that segment, we provide a most of our core banking services to bankable, our and a lot of those services, which are a kind of the backbone on the back office or some of their key systems and are based on number of accounts on file number.

Of loans et cetera, which which aren't really.

Impacted by the without getting on transaction on basis. In addition to that from excellent before on digital and some of the questions that we've gotten and we also managed that digital channels and for the banks, what we've actually seen some increasing some of those channels and then you search going into those channels that are helping that that line of business on us. We also do some.

Of these support for all your mix in terms of Coveas 19, we also run their networks and have supported them in the in the work from home environment and all of those things are helping a from a 70 perspective and also from from this like growth that you see on the sheet and what I would say is even if we.

Going to some of our other businesses like printing, we do a lot of regulatory and printing a mailing, which again is it also impacted again by the volatility we do have some small pieces here that are more discretionary for our clients. So those we are already expecting them to come down.

And we do have some transaction on license business in there like item processing in cash processing, where we've actually seen a deceleration, but overall it is a stable.

Segment with some specific lines, where we're actually seeing some growth so thats why why we're.

Seemed up 2% on that.

Okay. Thanks for that and then a question I got from a if that's true was about your ATM exposure and I'm busy I can't.

Remember the details, but if you could talk about that a little bit sure. So we we ATM is a big part of our payment Puerto Rico segment, we process.

Most of the games in Puerto Rico, I would say and <unk> very much like fuel west we saw a deceleration and actually negative year over year growth on on ATM volumes.

Again people wanting to the sheltering place and there wasn't really a need to.

To get cash out of 80 answer because most businesses were closed and just like with POS is now that the businesses are kind of starting to open up.

Towards the beginning of this week, we are seeing some improvements in those trends still negative year over year able the expectation is that Oh. This is business is going to start opened all.

We kind of see those trends come back very similar to what we're seeing Pos.

Got it and I mean are last one Mac.

So.

You guys know <unk> better than probably any when I was just wondering if not quite soon category, but the good PPP.

The participation for small business.

Has been a big theme for some of the states like Fintechs.

So anyway I guess my question would be.

To what degree or are you involved in like SPD distributions. I think you did have a comment on or in the first slide but.

If you could talk about that a little it'd be helpful.

Sure I'll take that one Jamie I mean in terms of the PBP program on death your loans.

But obviously all of these unemployment benefits that are an add on to regular unemployment. So as part of the <unk>. We have all of the self employed receiving some money.

The local government also had an initiative stuff put money into People's pockets in especially also self employed in it. It's an interesting mix. Because obviously we are these are replacements of funds that these people would've otherwise generated through working and so we <unk> we need to waiting.

See how that impacts all of our transactional businesses.

What specifically on P.B.P., we're not we're not directly involved in any distribution.

God. Thank you.

Thank you.

Mm.

I'm next question is from not police from William Blair Go ahead.

I just wanted to follow up you know we listened in on the Banco popular earnings called last week, and they called out a 46% decline in debit and credit card spending in April and you're a lot lower than that and that was just trying your merchant acquiring business is a is so much lower is trying to under.

Stand why.

Your business would not would be you know not nearly as bad as beep hops was.

They they also take into consideration on their credit for <unk>.

Which from our perspective, I mean, we don't manage from the issuing sides. Those bottom say, obviously I don't know those credit cards are used here, but in terms of correlating <unk>. So I I mean, I, it's hard to do <unk>. They may be looking at their international spend so when there.

Customers are spending all file or is it somebody issuing business on the credit side, we don't manage so it's hard to compare apples to apples.

Well, how much of your mixes credit versus debit as it is it primarily Debbie.

It is primarily better yes. It is from early though.

Yeah. So if you're looking on the issue inside it's primarily data on the M.A.B. side, we process both.

Oh.

Thank you then just maybe a follow up on the the beep opera relationship cause I get this question a lot is there you know significant part of your revenue when they get contracts through 2025 and you have.

I mean, you mentioned a couple of quarters ago. There was a pricing discussion. He said is somewhat normal but you <unk> so that the need to call. It out any just any update on any pricing discussions and you know how long's before that contract. One you know terminates which is what would you like to renew it.

I mean, obviously extremely tied in with beep up.

So let me so it's a good question about what I would say as we did say that the pricing. This dispute we got behind US I would just say what this is similar to hurricane Maria and the fact that we think we've demonstrated the bank or popular how important if a partner we are we help to mobilize very very quickly their workforce to work remotely.

And implement some new programs to actually you know, we do cut checks on their behalf, we do manage a lot where some of these dispersed interrupting me. So we feel like in the feedback we've gotten a as you know.

Demonstrate how or or you are and I think you know that as well in the future because I don't always said every day, we're focused on how do we perform so that they want to review as much.

Mm.

Thank you.

Mm.

Huh.

At this time, we have no more question. So concludes that question unanswered question I would not like to turn the conference back over to Mark Sizzler for clothes in Vermont.

Thank you. So again I just want to reiterate I appreciate the the hard work of all of our colleagues, making sure that we focus on our customers and I look forward to speaking to some of you on some of the virtual conferences coming out thanks again.

The conference is no conclude that thank you fuck pending today's presentation you may now this format.

[laughter].

[laughter].