Q3 2021 Evertec Inc Earnings Call
[music].
Good afternoon, and welcome to the <unk> third quarter 2021 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question please.
Please press Star then two please note. This event is being recorded I would now like turn the conference over to Kevin Hunt of Investor Relations. Please go ahead.
Thank you and good afternoon.
With me today are Mac schuessler, our president and Chief Executive Officer, and Joaquin <unk>, Our Chief Financial Officer.
Before we begin I would 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 SEC report.
During today's call management will provide certain information that will constitute non-GAAP financial measures under SEC rules, 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 today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company website at Www AMETEK, Inc. Dot com.
I'll now hand over the call to Mark.
Thank you and good afternoon, everyone. Thank you for joining us on our third quarter 2021 earnings call we.
We are pleased to announce another strong quarter of financial results as we continued to benefit from strong sales volumes across our markets.
In Puerto Rico, the continued effect from federal funds increase digital usage and a return to some pre COVID-19 seasonality drove strong transaction volumes.
In Latin America, we're seeing strong growth driven by both recent implementations as well as organic growth from existing clients.
Beginning on slide four our total revenue for the third quarter was $146 million, an increase of approximately 7% compared to the third quarter of 'twenty 'twenty.
Adjusted EBITDA was $70 million roughly the same as the prior year and our adjusted earnings per share was <unk> 62 sounds a decrease of 5% year over year in.
In line with our expectations, despite a higher than expected adjusted effective tax rate.
We generated significant year to date operating cash flow of $176 million, and we returned approximately $35 million to our shareholders through dividends and share repurchases.
Our liquidity remains strong at $363 million as of September 30.
Moving onto our update for Puerto Rico on Slide five we saw continued strong volume and revenue growth in the third quarter.
The ongoing effect from the inflow of federal stimulus and EBIT funds earlier in the year was a major driver of growth.
As well as a pickup in back to school spending in August a sign that we are returning to pre COVID-19 spending patterns.
Merchant acquiring sales volume growth was approximately 23% year over year in.
And average ticket is coming down on a year over year basis, but remains above pre pandemic levels.
We remain pleased with the growth of Ath mobile, which was up 24% for the quarter as we continue to see a shift in preference to digital payment methods.
Turning to the operating environment in Puerto Rico vaccination rates continued to increase with over 70% of the population now fully vaccinated the highest level in the U S state or territory as reported by the CDC.
Hospitalization rates are down over 80% from Delta Marriott peaks back in August and this is moving us closer to a more normal environment with the government continuing to loosen restrictions.
The third quarter also had the highest hotel occupancy rates since the beginning of the pandemic and we saw the first cruise ship dock in Puerto Rico Since March 2020.
Now I'll turn to Latin America on slide six.
We continue to see strong double digit growth in Latin America as we are still benefiting from recent implementations as well as organic growth from existing clients in several countries.
We are pleased to announce our recent contract with Carhop popular Mexicana were issuing a deal that we've been working on for some time and then just recently received regulatory approval.
D. P. M is the largest savings alone cooperative in Mexico, with 479 branches and over 3 million members, representing about 35% market share.
They have been focused on increasing non traditional payment methods in Mexico, including ATM point of sale terminals and digital payments to that had recently launched several credit card products, which they will be rolling out to their members using our issuing platform Hay studio.
Our Santander relationship in Chile continues to progress ahead of our expectations.
When the bank launches Pos business back in March you had set a goal of bringing 20000 customers on board by the end of 2021.
Already about 37000 customers and have set a new goal of reaching 50000.
Year end.
We have also successfully localized our gateway place to pay in Chile.
These are good examples of the kind of growth opportunities that exist when previously closed markets open up competition.
While vaccination rates in reopening continue to vary country to country, we have seen encouraging progress in Chile and Uruguay.
And expect to continue to see a decrease in cases across the region as a vaccine has become widely available.
Turning to our people over 95% of AMETEK employees at our Puerto Rico headquarters have been now vaccinated and we reopened our Puerto Rico offices on a hybrid model of October the 12th.
We expect offices in other regions will follow in the coming months based on the conditions in each country.
We remain committed to our scholarship program in Puerto Rico and across Latin America.
Now in its seventh year, we awarded 177 scholarships to students across Puerto Rico, and Latin America, an increase of 10% from the prior year we.
We were once again able to maintain 50 50 generation, providing equal opportunities for both men and women.
We are proud to have awarded over $870000 in scholarships over the past seven years and look forward to continuing to support and education for stem careers in both Puerto Rico and Latin America.
In summary, we delivered strong third quarter results were once again, raising our 2021 outlook with a higher expected revenue range and an EPS range that is narrowing to the upper end of our prior expectations.
While we will certainly monitor the impacts of the different COVID-19 variance across our markets and remain cautious in certain countries. At this point, we have a positive view towards the future.
I will now hand, the call over to Joaquin to review our results and guidance in more detail.
Thank you Mac and good afternoon, everyone.
Turning to slide eight you will see that also eliminated third quarter results for everyday.
All revenue for the third quarter was $145 9 million approximately 7% compared to the prior year.
As Mike mentioned, our Q3 results reflect increased transaction volumes in Puerto Rico, mainly impacted by the inflow of Covid related federal see minutes earlier in the year and double digit growth in Latam as we continue to see more transactions from our recent misses implementations.
Adding growth from existing clients.
Adjusted EBITDA for the quarter was $69 8 million down slightly from the $70 million reported in the prior year.
<unk> EBITDA margin was 47, 8% down 350 basis points from a year ago now.
The decline in margin reflects a year over year comparison against the onetime and department of education contract and a $2 million benefit from nonoperating income due to foreign currency gains related to balance sheet remeasurement, both of which positively impacted last years margin.
Adjusted net income for the quarter was $45 million, a decrease of 5% as compared to the prior year the.
The decline in adjusted net income was primarily due to higher operating depreciation and amortization and a higher adjusted effective tax rate.
This was partially offset by lower cash interest expense.
Our adjusted effective tax rate in the quarter was 16, 9%, reflecting discrete foreign tax impact this quarter.
We now expect our full year tax rate to be approximately 14%.
Adjusted EPS was <unk> 62 cents for the quarter, a decrease of 5% compared to the prior year.
Moving on to slide nine I'll now cover our segment results starting with merchant acquiring.
In the third quarter merchant acquiring net revenue increased approximately 23% year over year to $37 6 million driven by both higher sales volume and revenue generated from the expanded relationship with first bank at the beginning of the year.
Sales volume in the quarter increased approximately 22% year over year and with a strong month of August as we know how to return to more normal back to school activity versus COVID-19 lockdowns or year ago.
The inflow of both pandemic related federal funds on EBIT funds remained growth drivers in the quarter, even though enhanced unemployment benefits ended in the month of September.
Partially offsetting our revenue growth in Q3 with a reduced rate primarily due to a lower average ticket and a more normalized product mix between credit and debit and local versus international transactions.
Average ticket, although down year over year continues to be above pre pandemic levels and we continue to expect a gradual decrease going forward as consumption patterns normalize.
Adjusted EBITDA for the segment was $19 2 million.
Approximately 21% driven by the high revenues in the quarter I.
Adjusted EBITDA margin was approximately 51% a decrease of approximately 70 basis points as compared to last year of the revenue upside was offset by increased operating expenses, mainly due to the higher volume of transactions process.
Yes.
Turning to slide 10, you will see the results for the payment services, Puerto Rico and the Caribbean segment.
Revenue for this segment in the third quarter was $38 8 million, although approximately 16% driven by increased transactional revenue from our Ath network and processing business on Ath mall.
We always transactions increased approximately 16% year over year, and Ath mobile revenues increased approximately 24% when compared to prior year as we continue to see the adoption of digital channels.
During the quarter. We also saw increased revenues of $2 2 million as a result of more services being provided to the Latam segment in support of the newly implemented platforms.
We expect these intercompany revenues to gradually increase our restaurants sections in Latin America increased.
Adjusted EBITDA for the segment was $21 8 million Approx.
Approximately 18% as compared to last year and adjusted EBITDA margin was approximately 56% an increase of approximately 70 basis points. The margin increase was primarily due to the strong revenue growth, partially offset by an increase in technology services.
On Slide 11, you will see the results for our payment services segment.
Revenue for the segment in the third quarter was $26 8 million.
Approximately 26% as compared to last year.
This increase was driven in part by recent business implementations and expand the relationships. We have highlighted in the past like Santander, Chile as Mike discussed.
We also saw strong organic growth from existing customers, mostly in Costa Rica, Panama as well as strong growth from our payment gateway place to be if we can do to localizing more of our existing countries.
Adjusted EBITDA for the segment was $10 million up 5% year over year.
While adjusted EBITDA margin was 37, 3% down 760 basis points as compared to last year.
The decrease in margin was mainly driven by the favorable impact in the prior year of the remeasurement of assets or liabilities denominated in U S dollars.
On Slide 12, you will find the results for the business solutions segment.
Business solutions revenue for the third quarter was down approximately 8% to $58 1 million.
Most of this decline is due to the benefit to prior year from the onetime departmental litigation contract, which contributed approximately $4 4 million as well as a decrease in gosh and item processing Robyn.
For the quarter adjusted EBITDA was $26 million a decrease of approximately 21% adjusted EBITDA margin was 44, 8% a decline of approximately 760 basis points as compared to last year.
Yeah, just that EBITDA margin decline was due primarily to the departmental litigation contract, which was a significant contribution to margin prior year.
Moving on to Slide 13, you will see a summary of corporate and other.
Our third quarter adjusted EBITDA was a negative $7 3 million, 6% higher than the prior year.
Adjusted EBITDA as a percentage of total revenue was 5% the same as prior year.
Moving onto our cash flow overview on slide 14 are beginning gosh bottoms was approximately 221 million, including restricted cash of approximately 18 million.
For the nine months period net cash provided by operating activities was approximately $176 million.
And nearly $55 million increased compared to prior year.
Capital expenditures were approximately $43 million.
Driven by higher hardware obsolescence spend above is our continuous focus on innovation through internally developed software we.
We continue to expect approximately $60 million of Capex for the full year.
We also recorded approximately $15 million for the extension and expansion of our relationship with first bank and purchased approximately 3 million in debt securities. Both during the first quarter.
We paid approximately $28 million in long term debt payments 9 million in withholding taxes on share based compensation and 2 million of other debt Paydowns, which resulted in a total net debt decrease of approximately 39 a M.
Year to date, we have paid cash dividends of approximately $11 million and repurchased approximately $24 million of common stock for a total of approximately $35 million returned to our shareholders.
We have approximately 76 million available for future use under the company's share repurchase program.
Our ending cash balance as of September 30 was $263 million and this included approximately $19 million of restricted cash.
Recently, we recently announced another five cent dividend to be paid on December 3rd.
<unk> 21 to shareholders of record as of November one 2021.
Moving to slide 15, you'll find a summary of our debt as of September 30th 2021.
Our quarter ending net debt position was approximately $228 million, reflecting approximately $472 million of total short term borrowings and long term debt and approximately 244 million of unrestricted cash.
Our weighted average interest rate was four 5%.
Our net debt to trailing 12 month adjusted EBITDA was approximately 1.46 times.
September 30th total liquidity was approximately 363 million.
This balance excludes restricted cash and includes the available borrowing capacity under our revolver.
Moving to slide 16, I will now provide an update on our 2020 one guidance adjusted primarily due to our Q3 results.
We now expect revenue to be in a range of 574 million to 583 million representing growth of 12% to 14% over last year and compared to 570 million to $579 million previously estimated.
Regarding the overall margin we continue to anticipate that our adjusted EBITDA margin will be between 49% and 50% for the full year.
We expect incremental expenses through the remainder of the year as we continue executing on specific initiatives, our own product and operational improvements as well as other investments around innovation.
Our adjusted earnings per common share outlook has been increased on the lower end to $2 61 to $2.66 or a growth range of 26% to 28% as compared to the adjusted earnings per share of $2 seven in 2020.
Now turning to 2022, while we're not prepared to give guidance I would like to comment on a few items that are notable.
First the level of federal funds inflow into Puerto Rico. During 2021 as a result of the pandemic was significant and provided an important accelerator for our merchant acquiring and payment processing, Puerto Rico segments, which will then be a headwind going into 2022.
And we expect a limited benefit from the remaining funds.
Although we are optimistic about the progress being made on the just a recovery funds from Hurricane Maria we do not expect to see the same level of environment.
Second in the merchant acquiring segment, our expanded relationship with first bank contributed to the growth of this year, we will anniversary the stress section during the first quarter of next year.
In Latam, we benefited from significant wins are multi year projects that went into production in the beginning of the year some of which had important on minimums that contributed to this year's growth and these project minimums will not have the same impact going into 2022.
That said, we are continuing to announce important wins that will contribute more and more overtime as volume growth.
Lastly, the CPI index for September was announced earlier this month and was five 2%.
As a reminder, our MSA with buckle up with our cops are annual increased two 5%.
This will be the highest increase we have applied since becoming a public company.
Previously disclosed the MSA with popular includes a provision that allows for the review of fees to ensure these arent market, which boiler has challenged in the past I'm a challenge in the future. However, we have generally been able to effectively resolve these situations with the bank.
In summary, we generated strong third quarter results I remain positive about the future, which led us to again raise our full year 2021 guidance and we look forward to give you more detail on our 2022 expectations on our next call.
With that operator, please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one telephone keypad, if you're using a speakerphone. 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 our roster.
Our first question comes from Vasu, <unk> with K B W.
Hi, Thank you taking my question I'm, sorry, one moment.
Let's see.
You May go ahead.
Hi, Thank you for my taking my question Bakken looking just a high level question for you guys. I know you don't provide long term.
Revenue our earnings growth targets, because the macro situation in Puerto Rico has usually been by I'm sorry.
And it seems the macro environment is now more stable you may have some tail winds from the federal stimulus funds coming in the face of Digitization has accelerated globally, including in most of your end markets with that backdrop, how should be think about sort of the growth algorithm for it for.
Over the next say three to five years, if you could provide any color in terms of how you think about that internally and then as a follow up looking if you could just talk about the fourth quarter revenue guide.
How are you expecting some of the trends across the segments because obviously in the third quarter you saw some pretty strong both in the merchant acquiring segment and that Stephen services Latam Zachman should some of those trends continue into the fourth quarter. Thank you.
Hey, listen thanks, and thanks for the question.
So on the first question I'll take a stab at it and then I'll hand, it over to Joaquin.
To give his comments and then to answer the second question on the first question as you pointed out we don't give long term guidance and we will get we do give annual guidance and we'll give guidance for 2022 and on our next call, but I do want to point out as you pointed out the <unk>.
Some of the dynamics of the company and the markets that we operate have improved over that.
The past years number one in Puerto Rico, we have seen stabilization in the economy, both from the federal funds coming through from Maria and also because of the pandemic.
And in that environment, we've been able to capture additional market share as the larger banks International banks has left the island.
And both are popular and Oriental have benefited from that I mean, I'm, sorry, first bank and Oriental have benefited from that recently those are all our customers. The local bank. So we do feel like that in the short term in the next few years, we do have a great environment in Puerto Rico in which we can operate continue to increase our market share and.
Hopefully you have a stable more stable economy than we've seen here in the past secondly, if you look at Latin America.
When I arrived at the company seven years ago. These markets were closed primarily they were operated by monopolies and Duopolies for payments and we've been fortunate that the markets have opened and we now have a great set of products, where we own the intellectual property. We have a rolodex of customers that continues to increase when we added centered their Chilean Mercado Libre and Milo.
And now with kind of popular in Mexico, We believe that our Latam business.
Should grow at a at a good pace compared to the past as well. So we won't give you numbers and we won't give long term guidance for sue.
We will give you 2022 guidance on our next call, but to your point the markets have stabilized and in the case of Latin America. It has now opened and I believe we've executed well to take care of those up to take advantage of those opportunities Joaquin in terms of the second piece of the question Vasu, What I would say is when we.
Look at the different segments for Q4.
Although the trends that we saw in Q3.
In terms of all housing segments will sustain in general I would say that it may be on the merchant acquiring segment, we still expect to see kind of high teens to low twenties in terms of growth in the fourth quarter.
In Latin America, we're also expecting kind of high teens low twenty's in terms of growth and business solutions as we've kind of communicated in the past.
When there's a lack of any specific projects that goes into production and we are expecting that to show the in the low to mid single digits, so that kind of breaks down.
Obviously thinking about the range that we just provided in the script and kind of where we expect those segments to be.
Great. Thank you very much that was about them.
Thanks Vincent.
Our next question comes from Korey, Marcello with Deutsche Bank You May go ahead.
Hey, guys. Thanks for taking my questions.
Just wanted to talk a little bit about the volume and transaction growth. Obviously, you guys spoke a little bit about the spike you saw in October can you give us a sense of kind of how the volumes of transactions trended into kind of the September October timeframe.
I think he meant August Cory with the back to school. So we did see in August.
We did see that kind of gone back and always being Puerto Rico with the vaccination rates on their own and kind of going back to normal and kids going back to schools, it's something that we sort of expect to see that actually get reflected again, what's something positive I would say that October we continue to see.
A strong volume when we compared against the prior year I would say that that similar to what we saw coming off all the most of September.
So I think as I, just mentioned almost whose question I mean, we're expecting merchant acquiring to be in the high teens low 20 overall, so that's based on strong volume still in Q4.
Got it that's helpful and then a.
Ath mobile I think kind of slowed to 24% you mentioned in the quarter I believe growth was 60% last quarter and I know theres tougher comps there, but can you give us a sense of what you think kind of the right normalized growth rate is for that business coming out of the pandemic.
But let me just add whether we won't sort of again, we'll get into 2000 2020.
When you went to a guidance next call what I would say is.
During the pandemic as we've said we saw significant increase as people move to digital payments.
And we're encouraged that we now continue to see that trend continuing and then now that people have adopted to the technology, they're using it more frequently we are seeing a good velocity of adoption. So we do expect it to grow.
Meaningfully in the future, but to your point.
The comps of the pastor part.
No I appreciate that guys and just maybe if I could sneak one more in on center in there I think you mentioned that the guidance to 50000 merchants in Chile and at what point do we kind of move past the minimums and start to see incremental benefit from that thanks guys.
What I would say Corey if at this point, we are still within their minimums.
And we have some some way to go but.
Overall for Ross on OSB for sometime there, it's encouraging to see the types of opportunities that exist out there when we penetrate some of these markets that weren't necessarily open in Nevada, So and we're going to be continue to be excited about the progress that they're making in terms of continuing to put clients on the platform.
For us as a company I mean, not only naming these marquee brands as our customers, but now performing and exceeding their expectations. When they talk about that publicly is good for our pipeline in the future. So it's not only the impact of the financial results on that specific contract, but it's also building a reputation that not only do we win business, but we exceed our customers expect.
Patients.
Thanks, guys.
Our next question comes from Bob Napoli with William Blair You May go ahead.
Alright, Thank you and good afternoon, Max and Joaquin.
Uh huh.
So the C. P M when the issuer processing.
In Mexico can you give a little color on just that business the issuer processing business.
And that the size of the business.
Kind of geographically, I mean, and and maybe a pipeline that you have in that business.
Yeah, so without our issuing business and Bob we issue both we assessed our customers issuing both debit and credit cards, we had announced previously that in Mexico. We were doing Mercado Libre debit cards. This is for Asia. This is a credit cards for a kind of popular mexicano, which we're excited about because they have 3 million customers almost 500 branches. They are the largest.
Of their kind in the country. So they are already in the market with the product working and were moving slowly to make sure that we can work out any kinks, but they've already announced it publicly that this is operating the products in the market and this is a significant win for us in Mexico.
Okay.
And maybe I mean do you have do you have more pipeline in Mexico or is that maybe just some color on the momentum in that business.
Yeah, So what I would say generally I mean, where we see them.
Our pipeline from an organic perspective is around issuing around acquiring processing services, we have because of the two biggest lines and we are seeing demand throughout the region and interest and like I said on the previous comment with Santander, Chile. The good news is not only are we announcing wins, but I think people are impressed by the fact that we are.
Seeding, our customers' expectation based on their own announcements I mean, the Santander, Chile numbers, we're giving you our numbers that they've announced publicly but yeah I would say Bob our organic pipeline is healthy at that healthier than it's ever been.
Great and then so you have liquidity are getting close to $400 million of liquidity.
You certainly broadened out our the markets that you're serving in Latin America, there seems to be a lot of opportunity in Latin America.
From an M&A perspective, what are you focused on do you have a pipeline in and what are where do you see the biggest opportunities to to add to your business Inorganically.
Yeah. So our thesis on M&A has not changed significantly.
We are working our pipeline in Latin America, and we're still focused solely on Latin America, and we're looking at opportunities every month. So we're still actively looking at M&A and like I said, well that's something when we have it.
But there are still opportunities in Latin America.
That we're evaluating.
And then I guess lastly, just on your.
Product development or your product roadmap, what where are you investing internally what.
With what what product expansions could we expect to see over the next year or two.
Yeah. So we I think we talked a little bit about this in 2019 that and that we at the end of 2019 and early 2019, we talked about we were going to invest and creating a processing model for our business. Because we had just bought paper we wanted to localize it and turn it to a processing business or the acquiring and issuing and we named the car.
<unk>, Chile, Colombia, Mexico, Costa Rica, and so those are the investments that we've made in the past and we continue to make investments.
And that platform in those countries and looking at new countries as well. We've also invested heavily in place today. So we've recently.
Right before the pandemic, we closed on a place to pay which is our ecommerce gateway. So we have localized that now in Costa Rica, and Puerto Rico now it was already operating in Colombia, and so and we've localized in Chile as well. So we focused on our e-commerce gateway, because we believe that as everyone else ecommerce and digital transactions are.
Now that that gateway is our primary and our lead product and then we've also made investments and Bob as you know around Ath mobile and that has paid off very very well and it's become a significant part of our P&L.
Only thing I would add is phase II, which is actually about form that that you referred to with CPM, which is which is most issuing and acquiring them and that goes to I'm not mentioned in terms of taking product from becoming a processor.
We've localized to that platform and now as we put clients on it we continue to get feedback in terms of functionality products that that we're really taking advantage of them in China.
Kind of putting into a platform across the different countries that we're in so I would say that those are the three main areas, where we're investing the pace and when we announce these wins Mercado Libre, when we announced that at our Chile C. P. M. All of these are from the Patriot acquisition, which is now the PE studio product and the investments we've made and now that we're getting a payback.
<unk> yeah.
I would add Bob as I said in my remarks, right as we continue to to enhance these products. We're also making some investments that are going to hit our opex around just efficiencies in the operation.
On efficiencies around just product development and that that's part of what I mentioned in the in the remarks around guidance for the fourth quarter.
Great. Thank you appreciate it thanks Bob.
Our next question comes from George <unk> with Cowen You May go ahead.
Hey, good afternoon, guys. Thanks for taking my question I just wanted to ask one.
As it relates to.
So the merchant acquiring business I know you talked about some unemployment benefits and I'm. Just curious have you seen any sort of change in trade in volumes as you sort of exited September and and and moved into October but just just just curious what you're seeing on the ground there.
What I would say George Yes, I mean, when we look at it year over year.
This will be strong outgrowth, I would say pretty much all verticals aim and I when we see.
Again Q3 still had on an enhanced unemployment that really started to end in the second half of September so that the third quarter still saw some of that kind of push off funds coming through I would say sequentially. As we've said in the past there is somewhat of a slowdown that we are tracking that applies to someone else.
Thinks we've been merchant acquiring in terms of the average ticket also.
Starting to come down to a more normal level, it's still high when we look at what it was pre pandemic AME, but but as we move away from some of the significant funding that we saw early Q2 on a sequential basis. There is there is a slight slowdown.
Okay. Thank you.
Thanks George.
Our next question comes from John Davis with Raymond James You May go ahead.
Hey, good afternoon, guys, maybe just to start wanted to hone in a little bit on Latam.
Seeing really strong growth there.
Thank you guys have highlighted that as kind of a growth area for whats going right. I think you guys can continue to kind of exceed our estimates for growth in that.
Geography, but just want understand what's going on you know a lot of your I guess larger.
<unk> called out Latam as an area for growth just wanted to say and kind of what's going right and what's driving that growth.
What's driving our growth correct.
Correct, Yeah, because you mentioned our competitors so yeah.
So what I would say is.
You know over the last three or four years as I mentioned, a little bit earlier in my comments previously these markets were closed and.
<unk> was in a position again five six years ago, when we really needed to improve our products or services.
And you know again and once we did that the markets would need to open so what I would say what is going well forever attack is one is we're the beneficiary. If these markets now opening I mean, it started with Prisma are getting sold the advent. The Santander deal that we did in Chile. So these markets are now opening so it's a great opportunity for anybody who's willing to invest in that.
In America, and so that thesis is now playing out from a market opportunity perspective, what's going well now is our ability to sell and win business. Because if you remember seven years ago. When we get on these calls and talk about you know hows. The pipeline how are the sales opportunities. It was it was.
It's much more difficult now that we have climb.
Clients that are already using our products.
Seeing that we're winning business, saying that we're implementing business I would say the sales pipeline and the execution on winning business is going well and then the implementation I mean I can tell you to move into a company a country like center and to Chile and to build that.
From scratch and be the first one to do it I was incredibly proud of how we executed the same with Mercado libre the ability to implement in Mexico with the largest e-commerce player in all of Latin America, and now with kind of a popular mexicana. So what I would say is again back to interest from <unk>.
Current players in the market around a technology partner that can help them with issuing products and a technology partner that can help them with processing as you've noticed in Chile. Some of the banks don't want to own their own book of business that they want to own the merchant contracts. Some don't and so we've been able to partner with both types. So I would say across the issuing and acquiring and acquiring surge.
<unk> is our ability to win business and people seeing our dedication to the region and our ability to implement that business is what has allowed us to get to double digit growth. This year in Latin America, and that's all organic.
I also believe that with place to pay we've done a good job of integrating that acquisition as we've learned with other acquisitions and we've been able to localize that product more quickly and additional markets given our experience that we have with our pay group.
But that's that's what I think is going well it's.
It's very symbiotic timing that the markets are now opening theres real interest, where the interim syntax with regulators wanting.
More options in the market and our ability to execute on those opportunities.
Okay.
Very helpful color and then maybe just switching to the balance sheet obviously.
Leverages under one and a half times now.
You know just you guys have generated a lot of free cash flow year to date, and I think all I returned to <unk>.
$35 million or so to shareholders. So just just.
Maybe first kind of remind us of what your comfort level is.
From a leverage perspective.
Also are there any opportunities with leverage where it is to refinance the balance sheet to bring down the cost of love your debt, which I think is still about four 5%.
And then finally, just a little bit surprised to see kind of no buybacks should we read into that there's good potential M&A on the horizon.
Price sensitivity. It's just just curious there because I think if you look at your free cash flow year to date.
You were trying to shareholders and there's kind of a big discrepancy in so one five times leverage is.
Just pretty well so just curious your thoughts from here or potential to us to do anything on the balance sheet and maybe refi that debt at a lower rate.
Yes.
Hey, John plug in here so.
We've said before our our kind of target range on leverage is two to three times. We were now as you said order that we've been on there that now for a couple of quarters in part because of the good performance. We've had from a from an EBITDA perspective, and what I would say is that we're always looking at our capital structure.
Sure on trying to make that more efficient and having said that when we look at the strategy for capital deployment and as Mark said before that that hasn't really changed I mean, all of our key focus here is M&A and as Mark said, we have a pipeline we're looking at targets every quarter.
I'm I'm from a buyback perspective, consistent also with the strategy.
We really look at those from an opportunistic perspective, and we don't have a formal repurchase program or target that we're trying to hit and we did buy back some shares in Q1 and Q2, we need to have a slower quarter. This time around but our main priority continues to be a deploying capital for growth we have.
Also increased our capex. So we continue to invest in our old products, which has given.
Given us results in Latin America.
And that's kind of where we are at this point, even though we have a strong balance sheet.
Okay, Alright, that's great. Thanks, guys.
Okay.
Our next question comes from James Faucette with Morgan Stanley You May now go ahead.
Thank you very much and thanks for taking time. This afternoon with US wanted to ask you kind of outlined some of the things that have benefited you. This year like stimulus et cetera, and obviously that abates in and that kind of thing.
I'm wondering though on the flip side is you. You also highlighted is that we have tourism starting to pick back up and and the like how should we think about what your planning assumptions are or when we can kind of get back to 2019 levels and just trying to think through like the different components of the puts and takes.
Going into next year.
Okay.
You you hit on you hit on one of them, which is obviously getting back a normalized economy in terms of the different factors that move these Puerto Rico tourism being one of them, but I'll just remind you I mean tourism in it of itself. It is less than 10% in terms of Puerto Rico GDP, it's actually closer to five.
Pay per cent.
Jim.
Right now, we still see and restarting everybody microphone.
Tailwind from lithium and that's why they still left out there, but not to the extent that we saw this previous year. We continue to track all of their recovery funding, which at this point even though.
We are optimistic that we'll see that come through next year, we'll definitely provide more detail that is definitely an important part of our of our model or not assumptions as we go into 2022.
And then just how Puerto Rico continues to to recover economically we are in a better backdrop than we've been in some time from a macro environment, but we need to see how this all starts to normalize once the Max isn't there.
And as far as some of the packages youre looking at to.
To be clear those are still being contemplated or they've already been signed off on and Youre just kind of waiting for distribution in details there.
In most cases, a lot of money has already been allocated but he hasn't been distributed actually recently than you.
<unk> company that is managing out of their transformation here in Puerto Rico for the public Electric Authority announced goes to 600 million in projects that are being awarded so we're starting to see some movement in the right direction, not 90, factually, you're getting announced but in the context of the amount that we.
We saw that we're seeing in the fiscal board plan.
We're trying to billions there is still some way to go.
Again, some of the right things have been selling them a few quarters both from the federal administration under local government a slew of process with some of these funds.
And what else what we've as we've also said we expect that to be more in 2022, so as we get closer to our next call and actually discuss the details of our 2022 guidance. We hope that we can go into a bit more detail as to what our expectations are great.
Great and.
Sorry, just lastly back on the acquisitions front as you know clearly you guys are seeing a good flow of potential deals.
Are there a few things that you can categorize for us as to what had been inhibitors to date are or kind of what your what you would expect or would like to see happen to get more of those across the finish line.
I mean I can just described generally sometimes.
Assets don't trade because there may be multiple shareholders that are.
And the country and it's very difficult for them to get their shareholders aligned if there.
Financial institutions, it could be valuation expectations I mean, we actually felt when the pandemic originally started that it could be an opportunity that never really happened in valuations have gotten fairly frothy. Since then if you look at our historical acquisitions, we've been able to pay a multiple.
That has allowed us to realize benefit very quickly.
And so those have been two of the bigger barriers.
But we still are looking at acquisitions around the region and as Joaquin said look our first investment is investing in ourselves, we love to invest in our products and we're incredibly excited that seven years later, we have great products that are winning great business.
And as buying companies, which we've done.
<unk> integrated those fairly well and then you know the other levers of deploying our capital, but M&A is still something we're focused on and we want a deal as much as anyone else but.
But we will only do the right deals and we will announce when we have it.
That's great. Thanks for the detail everybody.
Thank you.
Okay.
Again, if you have a question. Please press Star then one our next question comes from Tim James Friedman with Susquehanna You May now go ahead.
Good results here you guys, it's Jamie at Susquehanna.
Working with regard to your comments about the <unk>.
<unk> contract structure.
I'm just trying to figure out is is it a good or bad thing that the CPI is rising.
And is there risk to the margin structure of the contract because you're capped at five and we're hearing a lot about inflation globally.
I mean, so I don't think it's it's neither positive nor do they have to be so I think we're being factual in terms of what the contract says.
The contract does cap CPI up 5% I would say that.
We are very margin conscious we have great margins, we are always looking for ways to be efficient, obviously inflation is a real thing.
Cost of labor has been going up and it's something that we'll continue to manage through.
And then.
Maybe over to you.
In terms of.
Yeah.
He has some good questions on this but in terms of your increased.
Proliferation in.
Latin America payments infrastructure.
I realize that you're at minimums, and you're calling out that those minimums may not persist next year, though you will probably win new contracts, but I mean.
You go presumably with these is to get off of the minimums right.
Are you talking about Santander, Chile, specifically.
Right Yeah, Okay. Yeah. So I mean look the reason we loved the deal and just for people that are sort of new to the story, when we announced Santander, Chile. It was a processing deal right, where they actually on the merchant contracts, but what we loved about the deal is that we make money. The first year, because we have minimums throughout the duration of the contract.
So.
We weren't bound by how quickly they can ramp new merchants.
Now as they surpassed those minimums right and as the volumes increase above.
What the minimums paid for then we will get incremental revenue, which will add to our margin. So the fact that they're exceeding their expectations means that at some point they will exceed the minimums and will generate even more revenue off the contract.
We haven't given any guidance on what those minimums are what we think that timing will be it's a five year contract, but we do.
We are significantly exceeding their expectations and our own expectations.
So that should be beneficial to us.
You know.
During the five year period, but we haven't given any sort of dimension around how big are the minimums when would they flow through and how will this impact that five year period.
Got it alright, thanks for the perspective okay.
Okay, great. Thank you Jamie.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mac schuessler for any closing remarks.
I just want to thank everyone for joining us this afternoon, and we look forward to seeing you are from time to time in conferences over the next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.