Q4 2020 Evertec Inc Earnings Call
Yes.
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And.
[music].
Good morning, everyone and welcome to the other Tech's fourth quarter and full year 2020 earnings Conference call. Today's conference call is being recorded at this time I would like to turn the call over to you. Please start the vice President of Investor Relations. Please go ahead.
Thank you and good morning with me today on the call are Mac Schuessler, our president and Chief Executive Officer, and walking the Pet's trio, our Chief Financial Officer.
A replay of this call will be available until Monday March eight access information for the replay is listed in todays financial relief.
Which is available on our website under the Investor Relations section of the protect Inc. Dot com for the.
Those listening to the replay this call was held on March 1st please.
Please note there is the presentation that accompanies this conference call and its accessible and the Investor Relations section of our website.
Before I begin I'd like to remind everyone that this call may contain forward looking statements as defined under the private Securities Litigation Reform Act of the 1995.
These forward looking statements about our expectations for future performance.
Due to known and unknown risks and uncertainties and protect cautions that these statements are not guarantees of future performance. All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur. After this call. Please refer to the company's most recent annual report on form 10-K.
<unk> filed with the Securities and Exchange Commission for 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 SEC rules, such as adjusted EBITDA and adjusted net income and adjusted earnings per common share reconcile.
The reconciliation to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides.
I'll now hand, the call over to Mac.
Yeah.
Thanks, Kate and good morning, everyone, our record fourth quarter and full year 2020 of the results are a testament to the resiliency of our business and our team and the challenging environment.
Also we were able to continue executing our strategy, creating an even stronger business entering 2021 of.
First off for some of the quarter highlights as well as discuss a few of recent developments and then update you on our strategies for growth in 'twenty and 'twenty, one and beyond.
Beginning on slide four we are of a summary of our 2020 of results total revenue for the year was approximately $511 million up 5% compared to 2019, which exceeded the top end of our initial expectations for the share.
We generated adjusted EBITDA of $240 million and increase of 6%.
We also delivered adjusted earnings per share of $2 seven zone and.
And increase of 6% as well.
The company generated significant operating cash flow of $199 million and liquidity as of December 31, 2020, with a strong $320 million and we returned approximately $22 million for our shareholders with over $7 million and stock buybacks and 40.
The million dollars and dividend current.
And the impressive results and my Thanks go to all of the average tech team members on a job well done and the rest of unusual kind of in here.
Now I'd like to give you more updates on our businesses beginning with Puerto Rico on slide five.
First we anticipate the benefit from the recent consolidation of the banking industry and Puerto Rico, specifically the integration of first by the center there.
We expect this will positively impact our 2021 merchant segment growth rate.
We also believe we will continue the benefit from the current trends of digital transactions as we localized twice a day and focus on Ath mobile product features we.
We made further progress throughout the fourth quarter implemented and QR codes for contactless payments, which are now available and more than 10% of our merger.
This continues to strengthen our ath brand and drives consumers to embrace digital transactions, which escalator durbin and debt.
Additionally, during the first half of the year, we plan to launch of new mobile App for electronic benefit for EBT users that provides access for their balances on the EBIT cars and notification of the next part of.
This new mobile App and the further complement our EBT services for the government of responds to the needs of the consumer.
Regarding the overall, Puerto Rico, economic environment, and pandemic impacts there haven't been any significant changes and restrictions.
One of the most places certain social distancing measures continued to be and was the most important being of maximum capacity requirement and 30% for restaurants and other businesses and.
And it relates to the economic environment unemployment levels have improved since the beginning of the pandemic, but continue to be significantly higher than prior year.
Other economic indicators, such as Siemens and sales and retail sales and reflect the positive variances against the prior year, which hopefully continue to drive growth into early 2021.
Federal stimulus payments that were received between Q2 and Q3 continued to support and increased sales volume for Q4, driven by the high average ticket, although transactions were down as compared to the prior year.
Sequentially, we have seen some decline and average ticket and the benefits from unemployment and other stimulus and begin to lap.
The new $600 stimulus and began rolling out and late January and early February and we are anticipating this to benefit the first quarter and.
Additionally, I'm delighted to say that the vaccine rollout and Puerto Rico is progressing with over 10% of of the island, having received the first dose to day.
Lastly in January the federal government announced the T mobile were $3 $7 billion to help rebuild Puerto Rico's water and wastewater treatment plant.
This award along with the 13 billion announced in September to rebuild the electric grid will be beneficial to the long term health of the economy.
Moving on to Latin America.
We achieved a number of significant implementations and the quarter and in early 2021 and.
I'm delighted to announce that we launched Mastercard debit card processing and the Mercado Libre and Mexico.
The libre and the leading online payment solution and Latin America Mercado Pago and is one of the most valuable companies out of Latin America known for their online marketplaces, and this is testament to our growth reputation with the banks financial institutions as well as technology players and Latin America and.
Additionally, I am pleased to announce that the Citi Banamex electron platform and.
And Santander, Chile kind of processing service or both and production.
Furthermore, centered there and received formal regulatory approval for the government of Chile, which is of significant milestone for the country's payment ecosystem.
Regarding other wins, we have been awarded the formal bids for Banco popular and Costa Rica, while the.
The contract will be finalized in the coming weeks. We are pleased to continue building on this relationship.
It is an important renewal of current services, we provide as well and the potential expansion of the relationship with some additional services.
Lastly, we renewed contracts with the Banco <unk> and Banco Estado, both in Chile and.
These new wins renewals and the implementations represent an important reputation of advancement for advertising and Latin America.
Growth for these new services with current and new customers will be important in 'twenty and 'twenty, one and beyond and particularly as these markets continue to evolve.
With respect of the economic environment, and Latin American markets COVID-19 continued to create challenges for the region.
<unk> revenue in Q4 was flat year over year as we continue to see the impact of the pandemic of previously discussed attrition.
Vaccine distribution has just begun in February which will likely further delay the recovery.
Moving to slide seven I want to update you on our perspective regarding the industry tailwind as well as our growth strategy and 2021 and beyond.
There continues to be and significant opportunity for growth across Puerto Rico, and Latin America, and given the dominant position of cash transactions and the low penetration of card volumes and mature markets like the U S. The UK cash transactions are estimated to be approximately 15% of total transactions.
And Puerto Rico, and Latin American markets cash use is more than 50%.
We believe the positive trends and cash the digital payment conversion driven by an increasing online presence and smartphone usage should fuel growth for many years to come.
And the country's move away from the controlling monopolies or duopolies and there'll be increasing opportunity to participate and this growth trajectory.
While some payment markets like Colombia and of all of more slowly and we anticipated and our investments may be lower there and the coming year, we would anticipate Chilean Paraguay, and Costa Rica, and Mexico to be more robust and 2021.
Turning to slide eight and take advantage of this digital transformation of our markets and to advance our growth strategy for we made progress of 2020 about accelerating innovation such as the QR code, which is shifting more of our consumers of the contact for the payment transactions and further solidifying our ath brand price.
Also seeing faster adoption of our new gateway product as we expand it into other geographies.
Innovation will remain at the forefront of of our strategy given the rapid evolution of the payments industry. We.
We remain committed to some cross selling some products for existing clients as well as Newport.
And 2021 shifting our risks and our and payments products from a licensing model to a processing model will allow us to grow and the payment transaction trends and expand our recurring revenue and the region going forward.
Lastly, acquisitions will continue to be <unk>.
And so our growth weather, and Puerto Rico, or and Latin America and <unk>.
The product solutions strong local presence and our financial capacity allows us to be uniquely positioned to become the partner of choice.
Moving to slide nine we are also proud of being included for the third consecutive year and the Bloomberg gender equality index, which distinguishes companies committed to transparency and gender reporting and advancing women's equality.
And every time one of our core of amendments to the diversity and the development of our employees and 2020, we survey of employees and had the highest participation rates and scores for employee engagement and years. While there is still work to do we believe that our employees are the key ingredient for successful innovation and a high performing and workforce I want to thank all of our.
And the team members for their commitment throughout 2020 and for building a strong foundation for growth into 'twenty and 'twenty, one and beyond with that I will now turn the call over to us.
Thank you Mac and good morning, everyone all.
I'll begin with the review of our consolidated fourth quarter and full year, 'twenty and 'twenty results and the review each segment in greater detail.
The slide 11 total revenue for the fourth quarter of 'twenty, and 'twenty was $134 2 million of 6% compared to $127 $2 million and the prior year driven by higher sales volume, while the big impact from growth and you teach mobile and engage mobile business and new services and for the implementation and just said.
EBITDA for the quarter was $63 9 million, an increase of 16% from $55 3 million in the prior year.
Just the EBITDA margin was 47, 6% and this represents a 410 basis point of increasing our adjusted EBITDA margin compared to the prior year.
And the increasing margin was primarily driven by revenue growth on the positive impact of foreign currency exchange related to balance sheet re measurement.
Adjusted net income in the quarter was $42 8 million and increase of 23% of compared to the prior year of <unk>.
<unk> nine on a per share basis, an increase of three 3%.
The increase primarily reflects the increase of adjusted EBITDA and includes the impact of higher operating and depreciation offset by lower interest expense and a lower effective tax rate in the quarter.
For the full year.
Total revenue was $510 6 million and was up 5% year over year Rev.
The revenue was favorably impacted by higher sales volume and higher spread and a.
The merchant acquiring business higher interchange model and the T mobile business transactional as well of the benefit of $4 4 million from the Puerto Rico Department of obligations and increase is related to COVID-19 specific services.
Adjusted EBITDA was $240 5 million and increase of 6% with an adjusted EBITDA margin of 47, 1%.
Up 70 basis points of compared to prior year.
Adjusted net income was 151 for me.
5% and adjusted earnings per common share was $2 seven all of approximately 6% year over year.
And our full year non-GAAP tax rate was 15, 2% and increased from 12, 3% and prior year, mainly due to the mix of business.
Moving onto slide 12, although cover of our segment results starting with merchant acquiring.
And the fourth quarter net revenue increased 8% year over year to approximately $29 3 million and the revenue increase was due to increased sales volume of well have increased spread driven by higher average ticket that was up 17% as we continued to benefit from the total wins from the unemployment benefits and stimulus programs that began.
And of the year.
And through Q4, we continued to see the mix of cards is skewed more towards debit no pre pandemic of all of a lot less international of cards because of less inbound travel both of which contributed to the improved spreads and higher revenue.
Although we continue to see higher average ticket year over year and continues to drift lower than the level and we saw in Q3 of the impact from the stimulus programs ease of pent up demand and begun to normalize.
And just that even though for the segment was $14 6 million and adjusted EBITDA margin was 49, 7% ballpark summit and the 650 basis points when compared to last year.
This increase was primarily driven by higher net revenue and the positive impact to operating expenses from overall lower transactional volume, resulting in lower transaction processing costs, which is the highest expense driver for the segment.
For the full year merchant acquiring and was approximately 3% year over year out of one.
And the $9 8 million, reflecting the growth over last year's results, primarily due to the same reasons mentioned and in the quarter.
Adjusted EBITDA for the full year was $55 1 million and increase of 17% and <unk>.
The EBITDA margin was 52% of 519 basis points of compared to last year, primarily due to the impact of the higher average ticket and higher spreads.
On slide 13 are the results for the payment services, Puerto Rico, and the Caribbean segment.
Revenue in the fourth quarter was $34 1 million, although fortunately, 5% of compared to last year.
We continue to benefit from the shift towards the digital transaction was reflected through growth and ath mobile and Ath mobile business with revenues of over 160% and contributing an incremental $2 3 million as well of the impact from other new services, partially offset by declines in both Pos and ECM transactions of 6% and 8% respectively.
The declining for U S transaction and aligns with the higher average ticket, we have been experiencing and our merchant acquiring segment.
Adjusted EBITDA for the segment was $19 1 million up 3% and adjusted EBITDA margin was 56% down approximately 110 basis points.
And just not even though margin was down due to increased operating expenses, including related expenses for the.
The full year the segment revenue decreased 1% for $124 8 million in part driven by lower Pos and India and transactional volume of consumer behavior changes through the pandemic resulted in higher average tickets and more digital transactions and.
And one time revenue last year related to one of your deep project, partially offset by Ath mobile and a piece of <unk> business increases, which benefited from the push the digital caused by the fund debt.
Adjusted EBITDA for the full year was $66 9 million down 15% and adjusted EBITDA margin was 53, 7% down 890 basis points as compared to last year, primarily due to decreased revenue and largely fixed expenses and this segment as well as the impact of last year's high margin.
The EVP project previously mentioned.
So of late for Dan you will find the results for payments or Latin America.
Revenue in the fourth quarter was $22 million approximately flat compared to last year, driven primarily by anticipated client attrition of $1 million annuity of FX impacting year over year growth of <unk> 7 million, partially offset by the revenue gains related to the basically paid for by our precision.
Adjusted EBITDA for this segment was $8 9 million and adjusted EBITDA margin was 46%.
Both of us compared to last year, due primarily to positive FX impact, resulting from the Remeasurement impact of U S. Dollar balances in the quarter of $1 9 million of compared to nearly the impact in Q4 of 2019 of.
For Megan.
Adjusting for the positive FX impact margin would've been approximately 32% and generally consistent with our expectations.
For the full year. The segment revenue was $84 6 million and flat to prior year driven by the same impact that I mentioned in the quarter. Additionally, as we make progress and transitioning our platform story and processing malls, we are selling for your licenses. While this was a headwind to growth in 'twenty and 'twenty This transition and will allow us to.
Fit from the transactional growth anticipated in the Latin America markets that momentum.
Throughout 'twenty and 'twenty, one we will continue progressing on this product transition and several geographies as well as begin to reap the benefits from the new processing type of contracts such as unfunded.
Adjusted EBITDA for the full year was $32 8 million and adjusted EBITDA margin was 38, 7%.
For 240 basis points as compared to last year.
Adjusting for the positive FX impact from Remeasurement, the normalized margin for the year would've been approximately 34%.
Moving to slide 15 liter solutions revenue and the fourth quarter increased 6% to $65 million. We benefited from the CPI increase the beginning of October 2020, we continued to benefit from Covid related services for the department of Labor New services for both <unk> as well as positive impact from projects that were for.
For you did in the quarter.
Adjusted EBITDA for the segment was $30 3 million and adjusted EBITDA margin was approximately 50%.
630 basis points as compared to last year due to revenue mix shift towards higher margin revenue and lower operating expenses as we completed several of projects.
For the year be the solutions grew 8% to 235 million driven by the one time project for the department of the litigation of $4 4 million positive impact from Covid related services as well as the new services and project implement that and for popular.
Full year adjusted EBITDA for the segment was $114 8 million of 18% and adjusted EBITDA margin was 48, 9% of.
319 basis points year over year.
Excluding the impact from the Department of Litigation project, which was recognized net of expenses and other one time benefits margin would've been more closely aligned with prior year.
Moving to slide 16, you will see a summary of our corporate expense, our fourth quarter corporate and other expense was $9 million a year over year increase of 26%. This increase primarily reflects higher expenses related to the timing of several corporate initiatives, partially offset by lower travel as compared to last year.
For the full year corporate and other expense was $29 2 million and as a percentage of revenue approximately flat with prior year at five 7%.
Moving on for year to date, the cash flow overview on slide 17, net cash provided by operating activities, while the approximately 199 million or and $19 million increase as compared to prior year as we continue to efficiently manage our working capital.
Capital expenditures were approximately 49 million and included a higher spend the normal towards innovation and other new product implementations, including the middle of vegetation and transition of our debt home platforms like the processing model.
We repaid approximately $31 million of our long term debt $8 million and withholding dark fiscal and share based compensation and 2 million in other debt pay downs and $2 million of FX.
FX impact, which resulted in total net debt decrease of approximately 38 million.
And finally, we paid cash dividends to stockholders of over 14 million and repurchased over $7 million and common stock.
For a total of approximately $22 million returned to our shareholders for the year.
We have of approximately $100 million available for future use under the company's share repurchase program.
Our ending cash balance as of December 31 was $221 million, which includes approximately $18 million and restricted cash.
Moving to slide 18, our year ending net debt position was approximately $298 million comprised of the $203 million of unrestricted cash and approximately $501 million of total short term borrowings and long term debt.
Our weighted average interest rate was approximately four 4% our.
Our net debt to trailing 12 months of adjusted EBITDA was approximately one eight times, reflecting a $60 million cash on cash.
Cash and in accordance with our credit facility.
As of December 31, total liquidity, which excludes restricted cash and includes the available borrowing capacity was 320 million of <unk>.
Minder, the terms of our credit agreement include and excess cash flow feature and I'd like some cash generated over a certain level to be paid against our loan and this payment will be made before the end of the first quarter and is contingent on the debt holders acceptance.
Moving to slide 19, I will now provide you with our 'twenty and 'twenty, one and outlook as well as some comments on Q1.
We expect revenue to be and a range of 533 million to 500 of 44 million representing growth of 4% to 7%.
Our adjusted earnings per share outlook of $2 of 15 cents to $2.23.
And represent a range of 4% to 8% as compared to the adjusted earnings per share in 2020 of $2 seven.
On a GAAP basis earnings per share is anticipated to be between $1 58 to $1 66.
I will now highlight some of the key underlying assumptions and uncertainties that we have analyzed and planned for.
We would expect to see a strong first half revenue growth given the tailwind from stimulus programs as well as from comparing to Covid impacted months last year the.
And the back half is anticipated to be flat to down given the strong performance and last year's second half driven by high levels of stimulus funds as well as benefits from Covid related services as well as the impact of onetime revenues such as the department of education projects and other multi year projects completed in the prior year.
The merchant segment will likely generate a double digit increase for the year as we continue to benefit from increased sales volumes in part driven by recent stimulus programs along with the benefits from banking consolidation that Mark mentioned.
Payments, Puerto Rico is anticipated to be high single digit revenue growth and also the first half weighted of Ath mobile and engage mobile business continue to fuel growth driven by the trend and digital payments.
Now that we will see low to mid teens growth given the contribution from new contracts such as both of them their CD by the makes sense of others. However, COVID-19 impacts of lower software license sales as we transition to a processing more will be partial headwinds.
And the solutions will likely be flat to low single digit growth with a first half positive and <unk>.
The carbon negative largely due to the onetime revenue I mentioned earlier.
Regarding corporate expenses, we are managing these well and would expect these to approximate 5% of total revenue, which is down both in dollars and as a percentage of revenue from the last several years.
Regarding our first quarter January revenue grew approximately 8% and based on the trends of this point our best interest of the first quarter revenue will be meet the high single digits revenue growth with an uptick and the second half of March and we lap the beginning of the Covid Lockdown.
All of these trends are considered in our guidance and combined we believe we will generate adjusted EBITDA margin and a range of 46% to 47% similar to last year with some headwind from the normalization of the average ticket and the high margin benefit of the amount of allocation contract last year.
Further this year, our nonoperating income does not include any potential impact from FX re measurement, which was favorable approximately $5 million to last year.
Our operating depreciation and amortization and some piece of.
And the increased to approximately $44 million of $4 million to $5 million, primarily reflecting our increased capex spend on resulting depreciation related to old year projects that went into production of last year and early in 2021.
Our non-GAAP effective tax rate is anticipated to be approximately 13% down slightly given a more normalized mix of business of compared to 2020.
This guidance also.
And was approximately flat average diluted shares of $73 1 million without any share buybacks included our capital expenditures for 2021.
Are expected to be approximately $50 million and rich.
Select our ongoing investment and technology localization of our products and Latin America and continued investment in transitioning our licensing model and not doing.
And towards the processing model.
Our company of elevation strategy remains unchanged, we will continue to focus on growth investments internally of us through M&A, while the timing of M&A is uncertain and we currently have a higher than normal cash items. We are constantly focused on evaluating our best use of the cash we plan to continue our dividends to shareholders and of <unk>.
Excess cash is available we would repurchase shares under our recently renewed and increased share repurchase program.
In summary, we executed well during 2020 and delivered strong cash generation as we continue to focus on our innovation and opportunity of these and Puerto Rico and expanding our dotcom business. We look forward to updating you on our progress in the coming year.
We will now open the call for questions. Operator. Please go ahead and open the line.
Thank you we will now begin the question and answer session to ask the question you May Press Star then one on you touched and so.
If you are using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
Yes.
The first question comes from George Melas with Cowen. Please go ahead.
Good morning. This is Allison on for George Thank you for taking my questions.
Start I was curious if you can provide color on the pipeline for additional deals in Latin America, and whether there is a preference for JV is or more processing partnerships like we saw in July.
Yeah. So this is Matt.
For the question.
I mean, if you look at what we announced.
Over the last year, and this quarter and specifically, we've announced more deals organically and Latin America, and and we have since I've been at the company and if you look at how Joaquin guided for the year to get double digit growth and Latam. That's all organic we felt pretty good about the pipeline that we close with and and implemented. So if you look at it we implemented the Citi Banamex, we implemented.
And of our Chile, We also announced Mercado Libre and the first time, we've talked about.
Those guys as one of our partners knowledge is one of the most valuable companies in Latin America, and probably one of the best Technology Company.
I think you know we don't comment on deals before we sign them or close them, but we feel very good about the pipeline and.
The demonstrate that we'd look back of what we've closed over the last year year and a half.
That's great color and great progress, thank you for that update and.
And then last one for me I caught and the total revenue performance of 8% and January I was wondering if you can provide color specifically on the trends you saw and both the merchant acquiring and payment services businesses and Puerto Rico quarter to date.
Versus the eight per cent and five per cent, we saw and <unk>.
Sure I mean looking for if we think of them in January there was and additional push of Jim and that's impacting the island right. So sales volume was up compared to what we saw it coming off of Q4, which is positive however, as I said before or in the prepared remarks the.
The average ticket does continue to come down sequentially and we.
Have seen.
And kind of inbound travel is starting to come back slowly, but surely and that will impact spreads and that's something that we also saw in the month of January as it relates to transactional and they teach mobile and engage mobile business. As we said also in the guidance and we are expecting that to be strong and the first half and we saw that in January and just because of kind of.
The the tailwind of of the shift to digital.
And of transactions are coming back off and we'll slowly still kind of flattish sort of prior year, but both positive.
Great. Thank you for taking my questions and congrats on the results.
Thank you. Thank you.
Yes.
The next question is from Bob Napoli with William Blair. Please go ahead.
Hi, Thank you just I guess are you.
Congratulations on a good year and a tough environment.
And you know really.
This job and the balance sheet now and do you have been really strong position.
And I know you don't have any buybacks and your guidance and so it is it I mean do you have what is the capital strategy.
From here and do you have a significant pipeline of of.
All of the M&A and and and so maybe a little bit of color around that strategy as opposed to returning capital.
Uh huh.
And I can say I mean, obviously, you've done a nice job with the balance sheet.
Sure Yeah. Thanks, Bob.
So what I would say that look 2020 was sort of a.
On a year, where everyone was very conservative and cautious.
We're very very focused on continuing to invest and our products are employees during a very difficult year, which as we learned that from hurricane Maria we do feel like ex coming into 2021, we have a little bit more confidence of what this year will look like we are focused on being appropriate with the capital allocation and making sure that we pull all of the levers this year.
And the pipeline from an M&A perspective, what I would tell you is as you know about we never talk about the yields and.
And so we have one but we will continue to focus on those deals. If you look at the portfolio of companies. We've acquired over the last five years. It has really created what we now have created some good business and Puerto Rico like the relationship we have with the first bank and its also created great assets and Latin America, where we know for the for the <unk>.
First time and a long time are seeing double digit organic growth and Latin America. So we will continue to focus on and are now investing and that business organically, but also we're continuing to look at M&A opportunities.
And what would you likely do larger M&A transactions and you have and the past given our net.
Net debt the expansion of the business and the strengthening of the balance sheet.
We would be opportunistic to look at any type of transaction available I mean, there are a couple of different types, we see in the region and Bob some of our small tuck ins like we've done in the past and we've been pleased that we've been able to get purchase of those out of at a reasonable valuation and then integrate those and really leverage those products to grow the company.
There's also the monopolies and duopolies across the region, which sometimes are.
Talked about will those sound like freedom of sold and Argentina. So we will look at everything, but we'll make sure that the the numbers makes sense and then it makes sense strategically for the company.
But we try and get visibility to as much flow as we can.
And then just last question.
The the chart that you show and its debt.
It's obvious that the cash and the markets that you serve is very high which should give you secular growth for a very long time.
But what's the is it and what.
The the the organic growth rate of this business seems like it should be accelerating over the next few years.
And given the the cash and the market state of it. So what are your thoughts around the acceleration of.
All of the topline revenue growth and shouldn't earnings grow faster than revenue and.
Hey, given the cash flow and B given that this is a good scale of business that usually leads to higher margin over the long term.
Yeah, the great questions for Bob first of all I would say is we really spent some time this year reaffirming.
Our strategy by taking a deep dive on each of the markets, we do business with and so that we can understand the opportunity and also sort of the competition and the product set and that's part of that output is what you see on the industry tailwind. So you are correct. We think the tailwind and Latin America are great because theres still a lot of cash because there is still.
And opportunity for new entrants as the markets continue to open and people look for alternatives and as more people move from bank and bank to bank or some type of financial services and they move to more digital and technology. So we think the tailoring and for Latin America are fantastic. When you think about the growth of the company Inc.
And if you dissect the the.
And the revenue guidance for this year.
We are seeing acceleration and growth organically and Latin America specifically.
So where we do have the double digit growth, we do have to look and even and so our merchant business and Puerto Rico, we anticipate double digit growth. So we are seeing that but we do and then payments of Latam is going to be high single price. So we are seeing an acceleration of our growth and nobody that's not the only things same store.
Right.
I'm sorry.
And it seems the payments, Puerto Rico was high single and so we are seeing the acceleration and our growth rate, particularly in Latam as your point too.
And we're going to be very focused on managing our expenses is walking towards of our corporate expenses are actually going to be lower this year.
But we are going to make sure we invest and the business so that as the market opportunities arise, we're able to capture those with great products, Great service and stability. So we do have to balance of those but we do thank for your point, Bob the tail winds of great and we are seeing that acceleration and our Latam business and starting to pay off.
Okay. Thank you I appreciate it thanks Bob.
The next question is from the <unk> with <unk>. Please go ahead.
Hi, Thank you for taking my question and congratulations, but the Eagle Ford and.
And of course.
The city. So I guess my first question was just on you know.
And any color that you could provide us on what percentage of margin interest and inactive as the recovery is taking shape. If you were seeing sort of the sales.
Improvement, the pretty broad based or being driven by a certain burden and called the industries.
So I also actually the number of and active merchants has pretty much come all the way back to pre fund the Nic levels and obviously, there's different puts and takes in terms of verticals, but when we see it on a general basis, where it took out might be of upper sent off where we were at the beginning.
And of the pandemic and the kind of move up and down and kind of from month to month in terms of of the vertical and so I mean, nothing really to call them and specific.
Got it that's helpful color.
And then my next question was on the business of you were saying that you know historically this business with the negative low single digit for.
And now you've had three years of sort of mid to high single digit growth. So what's the is there sort of a change and the way you were thinking about the sustainable growth of the segment of long term. If you could just sort of give us some color that Mac and looking for.
And if you look back for the past.
Two years, specifically right and even if we look at the 'twenty and 'twenty.
We've had several very specific either projects or situations that have helped us drive that segment at a faster pace of growth. So if you think this year, we had another bunch of relocation contract. We also because of all of our relationship with the government and the relationship with bank of Hope we are.
We're there to support them in terms of COVID-19, and either and helping them get to the workforce being completely remote or and they get from the government with printing and sending checks processing checks relate it to all of the unemployment and.
Benefits and Stephen of stuff was coming through.
I would say that that was a big driver of why is that the segment kind of outperformed what we expect that of the meaning this year and if you look at the prior year.
And we saw pulpwood or kind of acquire reliable. So the banking consolidation also helps us when we look at 2019 in terms of kind of speeding of the growth in that segment, but looking forward I think again, our sales process is longer the projects are longer it takes time for us to pull.
Put something in place on the and implement a few of the revenue come through so that's why we're going back to this kind of flattish to low single digit growth for 2021.
Got it and the last one if I may you know you've seen really strong growth and this ath ball of brought out is there anything you can do to capitalize this and sort of take it outside of Puerto Rico, just any thoughts there.
So if and when I look outside of Puerto Rico, We've really expanded the products. We have the risk management product. We now have issuing capabilities and we've talked about most recently in Mexico, we are acquiring capabilities that we're launching and.
In Chile, we also have the payment of the Bill collection platform that we're doing and Mexico, and we're also renew and some contracts and Shelly. So we definitely have a much broader set of products than we've historically had which has helped us for the business.
When you look at Ath and it's not a product that we've sold outside of Puerto Rico's of any substantial extent. It is something that we continue to present to customers.
But to this point, we haven't found a lot of opportunity.
But that may change and the future as people look for sort of digital labs, but it's not something that we have.
So recently and the region.
Got it thank you very much of a delta.
The next question is from Jamie Friedman with Susquehanna. Please go ahead.
Hi back kind of looking like a.
Good numbers here congratulations.
I just wanted to ask the first is it possible looking to help.
Quantified the.
And the term to processing.
Conversion impacts.
Mac you had discussed it in your prepared remarks and <unk>.
You did as well working so and <unk>.
Any quantification there.
Can you clarify Jamie are you do you mean, a lot of Tom when we moved from licensing to processing is that what you are referring to.
From licensee and the prostate, yes, and then left and right. How do we quantify that yeah, I mean look licensing internet based and there specifically around the the protocol we're selling now.
Well, it's probably in the 15% to 20% of the business. So that's why we're as we haven't decided right to move all of those products to processing, we've pretty much stopped selling licenses in those regions, where we're localizing. The platform. So we have the portion of our business that is kind of flat.
Flattish growth, mainly because we've been so focused in bringing these platforms up and bringing client for like some thunder into production and.
In the case of sand down there I mean, we've been we've been localizing and talking about the smell for for over a year. So that the does take some time to localize and get all of the specific regulatory requirements within each country set.
What do you think about what the mark kind of what.
Went through we have Santander up and running in Chile, we have Mercado Libre in Mexico, we renewed bundle of all our in and Costar and vessel I mean, and even those up and out on the platform and just shows that we've we now have the platform up and running in these two regions and we don't do the focus and Colombia, and Costa Rica to do the same.
Yes, I think the important piece of that transition is sort of a multi year and it not only is there some incremental expense, but theres also a learning curve and if you look at the new technology that we're deploying.
Across the region, we have now.
And moved two of processing model with many of the software solutions that we have maybe just one or two countries. So we've now gained the expertise and moving to the into.
And to localizing these platforms gain and the gain the expertise.
Implementing and of processing mode. So that's what we're pretty comfort and about is that we now have that experience with the software and different countries. So and that investment was made for the last year and going into this year now when we when we continue to localize and existing platform and the new country.
There will be some steps and there will be some additional incremental expense, but it should be less as we continue to deploy the software and.
And it should be more cost and time effect of.
As we move forward, but what we can tell you is we believe the opportunities exist and we're excited that financial institutions retailers and as we demonstrated in this current with Mercado Libre and <unk>.
Libre technology companies are looking for partners.
And of about that Mac.
And that's of Great of course Tabak.
Is that a source of the Mercado Libre is that the sole source relationship the Mexico.
How is that going to work.
So the relationship with Mercado Libre and so just for everyone that background Mercado Libre is.
And one of the largest ecommerce country and company than Latin America headquartered out of Argentina, large Mexican business large business of businesses in Brazil and across the region. They are now partnering with us on issuing and Mexico for their debit card product, which is the new product for them and the market.
And we have a direct relationship with Mercado Libre.
And the product is held under Mercado Pago is the payments brand.
But that is something we haven't talked about in the past and we're pretty excited about the specific opportunity, but also the long term potential relationship that we can have with Mercado libre.
Got it I'll jump back in the queue. Thank you.
The next question is from James Fawcett with Morgan Stanley. Please go ahead.
Hi, Good morning, just wanted to build on Jamie's question on Mercado Libre and <unk> and.
With that specific.
And.
Partnership and issuance that Youre doing how do you think about the potential for for expansion of other services with Mercado Libre like where would you think there could be opportunity et cetera, and and what does the speak to in terms of of similar type of opportunities maybe with other partners.
Throughout the region.
Sure.
So again, the Mercado Libre relationship today is debit processing and Mexico. So we provide other services and Mexico.
And that we would love.
Sales of Mercado Libre and they also are expanding across the region. So if we do well on this product and if we perform well we do believe there'll be additional opportunities.
And as we spoke about earlier, we're seeing this demand across Latin America, and what's happened and the.
And the United States, where you have so many different types of alternatives for online payments online marketplaces, and that's just now evolving and Latin America.
And given that we have technology, that's developed in the region of Spanish speaking programmers.
And this really puts us in a very good position to be a partner of choice. So.
We do hope the.
The successful relationships not only will help us broaden the relationships with these existing clients, but we are calling cards and new clients.
And then when you look at the the low to mid teens growth and Latin America, and that's certainly a huge promising at the same time, Inc. We realize that there are some still some attrition headwinds can you talk about the environment broadly and the market both of them. Both in terms of Covid, but maybe more generally your ability to enter into the.
The market or expand footprint, where you already have presence.
Yeah, so and as we talked about earlier, we really in 2020.
Focus on continuing to support our employees and support our customers and to try and accelerate development and.
And that was incredibly important to us and we think that our partners notice. So if you look and Chile, we believe that Santander, Chile is the.
One of the first institutions to go out with and acquiring product because of our relationship.
They received regulatory approval for the product. So we think that we've demonstrated.
And the ability to continue to invest and continue to deliver even under difficult circumstances.
We think the opportunities of continue I do think Latin America is and it's the fact, they are a little bit behind on vaccine.
So you know they may have some continued impact in 2021.
But it has not slowed our implementation of clients significantly I mean and of course, we had some delays, but again with Citi Banamex with Santander, Chile with Mercado Libre one of them.
Production.
And we were able to do that through the pandemic and I would.
Just that the even though right as Mac said.
And the vaccine rollout is behind the where maybe the USAID and the impact of some of the economies is expected to be true.
Uh huh.
And the more severe right just because of the ability of the government to support and the economy. We have seen other positive same Colombia for example of the way that the government is rolling out the.
And the benefits and has also driven people to open bank accounts, so the governments and the way the other pushing out the stimulus is also helping some of these underlying factors that help in terms of driving growth in digital payment for the bank of mutation and Colombia, I think they added more accounts and the last six.
And so for 'twenty and 'twenty and then they did all of 2019, so that kind of thing and it's kind of a silver lining and reading all of the Covid impact.
That's great color. Thank you very much.
The next question is from Matt <unk> with Goldman Sachs. Please go ahead.
Yeah, Hi, good morning, gentlemen, thanks for taking my question.
I was wondering if we get a little bit of and update on the MSA with the Banco popular and I was particularly curious about kind of the ongoing dialogue there and now that we're at and kind of the last third of the 15 year relationship as far as things like investments do you guys make on an ongoing basis and the core processing services and now any kind of requests or desires that you guys are.
And collectively working on from there and to the equation just as we start thinking about getting closer to the inevitable renegotiation phase on that contract. Thanks.
Sure. Good question. So as we said I mean, we've talked about this and the path. We're very focused on being a partner of the people want to do business with not have to do business with we've been very focused on improving the lives with the bank have been very focused on improving our products and making sure that we are closely aligned we just had our employee town hall at the end of the year and every.
The year I give employees the top five headlines and I want to see and the price about our company. So that every employee can relate to that and this year of last year. One of those is that Banco popular.
Chooses us as a partner of choice. So we're very very focused on that very focused on making sure. We continue to improve our services, our quality and making sure that we're constantly engaging with the bank because we know of long term debt.
Contract is very very important for overtime.
Okay.
Got it and I guess just drilling into the the core processing itself for when that agreement was initially signed back in 2010, Yeah decade later, there's been a lot of innovation and it's moving from more of a license to outsource model and the industry more private cloud open API based solutions.
And from larger kind of outsource Corp, providing processors.
And the U S. For example, and so I was just kind of curious what what's the kind of state of that business today, and where they were where is it and its kind of evolutionary path.
The state of.
Core banking of the yeah of EVAR.
Core processing services that are being provided to the Banco popular.
Yeah. So if you look at what we've done across our different products. If you look at Ath and of QR codes that we've delivered.
And so building Apis with our ath products of easier for them to implement those types of products. So we're continually trying to evaluate what's the best service, we can provide and what do those investments we need to make long term.
We will continue to evaluate this year are there places we need to invest more like MSP, MSP, providing and sort of a hosted service.
The offering to not only popular are but other clients.
Something that we're looking at this year is that of business that we should also invest and so we will continue this year to evaluate where we want to invest just like we have done with our payments business.
And.
Got it that's all of them I guess, just the last one day round out here it looks like the the original MSA was signed on September 30th of 10.
Is that one is that like the 15 year sort of exploration would be September 30th of 25, or you got a point of renewal of presumably.
Correct.
Okay. Thanks, so much and I'll hop back and Kipp.
Yes.
Yeah.
And my next question is from John Davis with Raymond James. Please go ahead.
Hey, it's Matt <unk> on for Jade, Thanks for taking my questions.
For the detail and the full year guidance. Two quick clarifications is the next round of stimulus that looks like will pass in the near future and in the full year guide and.
And then any update on hurricane relief funding and how much is embedded in the guide.
Hi, so in terms of additional Cmos. We have we have included some incrementals for the minutes as part of the high side of our guidance and what I would say is right wing to see what actually gets passed and the Senate and then we also need to see.
How some of the factors that benefited us through 'twenty and 'twenty like the average ticket the shift between domestic cards on international Guards now that people are getting vaccinated and I'm, probably travel will start to pick up those are a couple of things that helped us in 'twenty and 'twenty that we need to see if they continuing for 'twenty and 'twenty one of it relates to the profit out of it.
The deal for example, the merchant acquiring business, but we have included some incremental stimulus that's part of the high side I'd say that the range pretty much reflects kind of of the opportunities and risks that we we have some of these people related to at this point in terms of all of the the hurricane and funding.
I think it's positive everything that we're seeing the news and you got administration and being proactive and kind of re leasing funding for Puerto Rico and everything that had been previously approved under the previous administration and based on the and the most recent reports heart of strings attached to it and that's why some of the middle of the funding was actually use of.
Disbursed by the Puerto Rico government. So I think its definitely encouraging we need to and I'll see how quickly this moves because and there's still kind of of bureaucratic process, but well definitely positive in light of what we're seeing in the bus.
Okay, great. Thanks for that and then you mentioned 10 per cent of merchants now have contactless enabled where do you see of the trajectory going are there any major milestones you have in mind and increasing that percentage that contactless. Thanks.
Yes, I mean look we.
We roll that out fairly quickly and to get to 10% penetration with the focus of the company and also of folks to get a certain number of merchants as well.
So we feel pretty good about the progress today.
Okay.
Alright, great. Thanks, guys.
This concludes our question and answer session I would like to turn the conference back over to Matt Smith for any closing remarks.
Thank you so again I want to thank all of my colleagues.
And a challenging year, we continue to deliver and we feel like that.
You know not only make sure that our customers are taken care of our employees and our communities and we're incredibly proud of what we've accomplished and we look forward to speaking with many of you over the coming year at different conferences. So thank you.
Yeah.
Okay.
The conference has now concluded.
And then well now.