Q1 2025 Evertec Inc Earnings Call
Speaker Change: Good day, everybody, and welcome to the Evertec First Quarter 2025 earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, please press star then one on your touchstone phone. If your question has been answered and you wish to withdraw your question, please press star then two.
Please note that today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Beatriz Brown from Investor Relations. Please go ahead.
Beatriz Brown: Thank you and good afternoon. With me today are Max Schuessler, our President and Chief Executive Officer, and Joaquin Castrillo, our Chief Financial Officer.
Beatriz Brown: Before we begin, I would like to remind everyone that this call may contain four-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.
Beatriz Brown: During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as Adjusted David Dawg, Adjusted Net Income, and Adjusted Earnings for Common Share
Beatriz Brown: Re-continuations 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.evertecinc.com
Matt: Thanks Beatriz, and thanks to everyone for joining us today. I'm pleased to announce a strong start to 2025 for Evertec against what has become a backdrop of increased macro uncertainty.
Beatriz Brown: All of our business segments delivered strong growth over a prior year and exceeded our internal expectations as we continued to execute at a very high level across all regions.
Beatriz Brown: On today's call, I will provide a brief summary of our first quarter of financial results, a discussion of the Puerto Rico environment, and a Latin update.
Beatriz Brown: I will then turn the call over to Joaquin who will provide some additional details on our Cuban results and our improved outlook for 2025.
Beatriz Brown: Starting on Slide 4, I'll cover some highlights from our first quarter results. Revenue for the quarter was $228.8 million, and 11.4% increase over the prior year as we saw growth across all of our segments.
Beatriz Brown: Karnsey represented a headwind in the quarter of approximately 3.3 percent.
Beatriz Brown: Ijusted EBITDA was $89.4 million off approximately 14% year-over-year and adjusted EBITDA margin was 39.1% for the quarter. Approximately 100 basis points from a year ago.
Beatriz Brown: The margin increase reflects the strong revenue performance and our continued focus on efficiency and expense management across the company. Horsely offset by the revenue mix in the quarter that includes more hardware and software sales coming in at lower margins.
Beatriz Brown: Our liquidity remains strong at approximately $460 million as of March 31st.
Beatriz Brown: Let me now provide an update on Puerto Rico beginning on slide five.
Beatriz Brown: Merchant Acquiring grew 11% as we continue to benefit from an improved spread and increased sales volumes.
Beatriz Brown: Payments Puerto Rico grew 4% driven by continued strong performance from ATH Mobile and higher P.O.S. transaction volumes.
Beatriz Brown: Business Solutions, revenue grew, 13%, as we recognize revenue from key consultant projects completed during the second and third quarters of the prior year.
and also benefited from one time hardware itself or sales.
Beatriz Brown: Total employment continues to increase while the unemployment rate remains your multi-decade lows of around 5.5%.
Beatriz Brown: Tourism was a bit mixed in the first quarter, with passenger traffic in the San Juan Airport remaining strong up approximately 9% year over year through February . Though cruise line passengers were down approximately 7% in January after being up low double digits in 2024.
Beatriz Brown: Starting to last time on Slide 6, and let Tam revenue grew 13% year over year for 22% measured in constant currency.
Beatriz Brown: Organic growth across the region was double digits driven by the Gettner-Chilly relationship and the re-exceleration of our Brazil business, which benefited from initiatives put in place throughout last year such as repricing efforts and product monetization.
Beatriz Brown: Before I turn things over to Joaquin, I'll make a quick comment on the tear of discussions and the potential impact to Evertec. At this point, we've only identified a few areas where tear of can have a direct impact on our business.
Beatriz Brown: However, we remain cautious given the overall impact of customer confidence.
Beatriz Brown: Employment, and other factors that it could have an indirect impact on our business.
Beatriz Brown: A number of the countries we serve do rely heavily on exports, so there is potential for disruption to their economies as 2025 progresses, and this could impact the payment volumes that drive our business.
Beatriz Brown: At this point, we have not seen any material disruptions to any of our business segments or countries, but I assure you that we will be monitoring events closely and that we will be proactive in managing our businesses if conditions change in the future.
Joaquin: With that, I will now turn the call over to Joaquin.
Thank you.
Joaquin: Thank you, Max, and we're up to everyone. Turning to slide eight, I'll read you the first quarter results for Evertec.
Joaquin: Tom Revening for the quarter was 228.8 million, but approximately 11% compared to the prior year, reflecting strong organic growth across all of the company segments and a small contribution from the two token acquisitions completed in the fourth quarter.
Joaquin: constant currency revenue growth was 15% in the quarter with most of the headwind coming from the
Joaquin: Adjusted EBDA for the quarter rose to 89.4 million, but approximately 14% from last year with a margin of 39.1% an increase of 100 basis points.
Joaquin: This growth resulted from strong revenue and a continued focus on expense management, partially offset by mixed shift toward lower margin areas within business solutions, mainly hardware and software sales.
Adjusted net income was 56.3 million [inaudible]
Joaquin: Driven primarily by the growth in adjusted EBITDA and a lower cash interest expense which is a function of the lower sulfur rates in comparison to the prior year and the effect of the terminal will be repricing efforts executed last year.
Joaquin: The adjusted effective tax rate for the quarter was 5.3% and aligned with expectations.
Joaquin: Adjusted EPS was 87 cents, an increase of approximately 21% from the prior year, driven by the higher adjusted net income and the benefit from a reduced share count resulting from the
Joaquin: Moving to slide 9, I will now cover our first quarter results by segment, beginning with
Joaquin: Net revenue increased approximately 11% year over year to 47.6 million as we benefited from a higher spread and sales volume growth. The positive spread continues to benefit from pricing initiatives implemented last year that were left in the latter part of the quarter.
Joaquin: It's light shift in mix of cards, and the repricing of key relationships last year that will anniversary by the end of Q2.
Joaquin: We also benefited from mid-single-digit volume growth driven by high-volume merchants signed last year.
Joaquin: Adjusted EVDOT for the segment was 20.4 million with an adjusted EVDOT margin of 42.7%, an increase of approximately 510 basis points from the previous year.
Joaquin: The margin increase is attributed to the spread-driven top-line growth as well as cost optimization efforts.
Joaquin: Osley-10 are the results for the Bayman Services Puerto Rico and Caribbean segment.
Joaquin: Revenue in the quarter was 55.2 million, an increase of approximately 4% from the prior year.
Joaquin: There have been an increase was primarily driven by growth in ATH mobile business as well as 4% at P.O. Western Section Rose.
Joaquin: Partially offset by a decrease in services provided to the Latin segment mainly as a result of lawyer transactions being processed due to cost of arbitration discussed on previous calls.
Joaquin: Adjusted Evida was 31.4 million, up approximately 4% from the prior year, and Adjusted Evida margin was 57% down approximately 20 basis points from the prior year.
Joaquin: The flight decrease in margin is related to the loss of scale from the decrease in transactions process for the latin segment.
Joaquin: on slide 11 are the results for Latin America payments and solutions.
Revenue in the quarter was 83.8 million [inaudible]
Joaquin: Up approximately 13% year over year or 22% on a constant currency basis. We experience double-digit organic growth across the region due to the get-net-chiller relationship.
Joaquin: The positive impact from one-time revenues in the quarter and their reacceleration in Brazil driven by the initiatives put in place last year are on repricing of contracts, technology modernization, and getting closer to clients.
Joaquin: The segment also benefited from a full-quarter contribution of grand data and noivity that to our decisions completed in the fourth quarter last year, which are performing as expected or better. In terms of currency, this represented a 9% headwind in the quarter mainly driven by the evaluation of their Brazilian currency.
Adjusted EBDA was $24.9 million.
Joaquin: An increase of approximately 53% from the prior year with an adjusted EV Dammargin of 29.7% Up approximately 780 basis points.
Joaquin: The margin increase was due primarily to the higher revenues, the impact from the one-timers mentioned which were highly accretive, and the reversal of a contingency accrual from
Joaquin: Moving to slide 12, with its solutions segment revenue increased approximately 13% to 65.6 million.
Joaquin: The increase is due primarily to the tailwind from projects that went into production last year and that will lap in the second and third quarters and non-recurring hardware and software sales completed in the quarter.
Joaquin: Adjusted Evida was 22.2 million, down approximately 4% from a year ago, and Adjusted Evida margin was down approximately 580 basis points from the prior year to 33.9%
Joaquin: The lower margin was due primarily to the makeshifting revenues with more hardware and software sales which come in at lower margins and an increase in professional services related to key initiatives around our products and services.
Joaquin: Moving to Site 13, you will see a summary of our corporate and other expenses.
Joaquin: Corporate another was 9.5 million in the quarter, or 4.1% of total revenue, slightly below our expectations, but hard on the prior year mainly due to personal expenses.
Joaquin: Moving on to our Castrillo overview for the first quarter of 2025 on slide 14, Netcash from property activities was 37.6 million.
Joaquin: Capital expenditures were 22.3 million in a quarter, and in line with our plan for 85 million in Capix for the 2025 year.
Joaquin: We pay down approximately 11.6 million in debt, paid approximately 8.7 million in withholding taxes on share-based compensation, and returned approximately 3.2 million to shareholders through dividends.
Joaquin: Also, during the quarter, we exercised our option to acquire their remaining non-controlling interest in a thinking of theory that provides technological solutions primarily for managing the digital signatures for approximately 5.2 million.
Joaquin: We did not repurchase any shares during the first quarter and we had approximately 138 million available for future use under the company's Sherry Purchase program through December 31st, 2025.
Joaquin: Our ending cash balance was approximately $290.1 million, a decrease of approximately 8 million from year-end 2024.
Joaquin: Morning to slide 15, our net debt position at quarter end was 704 million, comprised of 969.8 million in total loan and short term debt, offset by 265.9 million of unrestricted
Joaquin: driven by the lower sulfur rates and the successful repricing of RTLB throughout 2024, which collectively reduced the spread on our term known by 75 basis points.
Joaquin: Our net debt to trailing 12 months adjusted vividly was approximately 2.04 times.
Joaquin: down from two and a half times a year ago, and at the lower end of our leverage target range of two to three times.
Joaquin: As of March 31st, our total liquidity, which includes restricted cash and includes barring capacity, was 459.7 million, up approximately 52 million from a year ago.
Joaquin: Now, I'll turn to slide 16 for commentary on our 2025 outlook. We now expect constant currency revenue to be between 903 to 911 million.
Joaquin: Representing growth of 6.8% to 7.7% year-over-year and above are prior constant currency range of 5.5% to 6.7%.
Joaquin: We are now assuming 160 basis points of currency headwinds based on Q1 rates, which would result in growth of 5.2% to 6.1% on a gap basis.
Joaquin: Constant currency adjusted EBS is now expected to grow between 4.9% and 7.6% from the $3.28 reported for 2024, and higher than a previous assumption of 2.6% to 6% growth.
Joaquin: We continue to assume an adjusted EBDA margin of 39.5% to 40.5% and an adjusted effective tax rate of 6% to 7%.
Joaquin: I will now walk you through some of the key underlying assumptions that we consider in arriving at the outlook, beginning with revenue expectations for business segments.
Joaquin: For merchant acquiring, we continue to expect mid-single digit growth in 2025, as we are coming up against tougher counts of the next few quarters, at the tailwind from some of the pricing
Joaquin: In payments Puerto Rico and the Caribbean, we continue to expect low single-digit growth and re-iterate our assumption that continued growth contribution.
Joaquin: From ATH Mobile, we'll be partially offset by lower processing services being offered to the LATAM segment, mainly due to the loss of regaoli related transactions, which will begin to take even more of an effect starting in Q2.
Joaquin: For payment to Latin America, we continue to expect constant currency growth to be low double digits. As a reminder, we are expecting some signed attrition in 2025, most notably, Vergaoli, that will begin to have more of an impact starting in Q2.
Joaquin: Finally, in bitter solutions, we continue to expect revenue growth of low single digits for the full year, with margins improving from the level reported in the first quarter.
Joaquin: No turning to overall margin. As a reminder, the 10% popular discount that we have previously discussed will begin to impact our revenue and adjusted EBDA in the fourth quarter of 2025 by approximately $4 million.
Joaquin: The cost initiatives put in place to offset this impact continue to progress as planned and we continue to expect a gradual improvement in the overall margin of the next two quarters and then a recent lower in the first quarter as the discount takes effect
Joaquin: netting out to $39.5 to $40.5% margin expected for the full year.
Joaquin: We continue to expect an adjusted tax rate of 6 to 7% and topics of approximately 85 million for 2025
Joaquin: We expect to return cash to shareholders via dividends and win appropriate share buybacks.
Joaquin: In summary, we are a strong start to the year and believe Evertec remains world position to deliver strong top-line growth in 2025.
Joaquin: Our guidance range does account for some variability given the uncertainty in the macro environment and the potential impact to our business. However, we are confident in our ability to navigate effectively through complex environments and different types of economic cycles as we have done in the past.
Joaquin: We will continue to closely monitor potential impacts to our business, either direct, or indirect, than I just accordingly.
Joaquin: We look forward to updating you on our progress in the coming year and hope to see some of your conferences over the next few months.
With that, operator, please open nine for questions.
Speaker Change: Thank you. We will now begin the question and answer session to ask a question you represent as star then one on your touch tone phone.
Speaker Change: If you're 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 our roster.
Speaker Change: Our first question today comes from Vasu Goldil from KPW. Please proceed with your question.
Vasu Goldil: Hi, thank you for taking my question. I guess first, just on the revenue and strong revenue performance in this quarter, you know, 15% constant currency goods is sort of one of the strongest I ever recall at the company given that most of it was organic.
Speaker Change: Sorry if I miss that but it sounded like you're not incorporating anything from a McLeod standpoint at this point in time in the guide is that correct [inaudible]
So, what I would say Vasundhara Govil is...
Speaker Change: We really outperformed in pretty much every segment to what was our original expectation. I think if we look at merchant acquiring, we continue to see strong consumer confidence and that that came through in both volume.
Speaker Change: And as we continue to see, I tell you in the spread, Latin America continues to perform very well, as we send in the report remarks, Brazil's reacceleration.
Speaker Change: is reflected now right in the performance that we're seeing in that segment and obviously as we move forward throughout the year as we said we do have some headwinds that we are expecting mainly as we have some some attrition that we mentioned in the past.
Speaker Change: and then in business solutions, we had some one-timers on hardware and software that really propped out that performance this past quarter.
Speaker Change: In terms of the second part of the question what I would say is
Speaker Change: Look, the low side does include, or have some space for a deradation in customer confidence as we move forward, but nothing drastic, really. At this point, the month of April continues
Speaker Change: Aligned to what were our expectations, but it's something that we will go to the monitor and that we've considered slightly within our guidance.
Speaker Change: Thank you very much. And then Mac, I have a more high level strategic question for you. A little tricky, but I'll still ask. So, you know, it seems like
Speaker Change: due to three weeks. So just curious how you think about Evertec positioning, both as an acquirer of more sizable assets, but perhaps also as a potential strategic target.
Speaker Change: Yeah, so what I would say is, look, we continue to focus on M&A. I mean, we just did grand data and nobody. The M&A pipeline continues to be robust and fun. We're very excited about some of the assets that we're looking at.
Speaker Change: So that will continue to be an important part of our strategy. I mean, I really don't know pion on how other people view us from a strategic acquisition perspective. I do think what we're focused on is running the best business we can for our current investors. But like I said, we're pretty optimistic about our M&A pipeline.
Appreciate the color. Thank you.
Thank you, Bishop.
Speaker Change: Our next question will come from Chris Kennedy from William Blair, please proceed with your question
Good afternoon. Thanks for taking the questions.
Speaker Change: It's good to hear about Brazil re-accelerating. Can you characterize kind of how the business is performing down there relative to prior when you acquired that asset?
Speaker Change: Yeah, so of course this is a message, you know, we won't break it out, I mean, because it's, we manages parts of that time segment. What I would tell you is at the beginning of last year, we were very focused on, a leadership change, very focused on some very specific initiatives, getting close to the customer, making sure that we were modernizing the platforms so that we could maintain their business, but also sort of change the contract, and reprise them so that we could get the benefit of their growth.
Speaker Change: and we're seeing the effect of all of that. So, the growth is back within our expectations. We won't compare it to previous numbers but we're very pleased with the performance of Brazil's quarter and our optimistic about the remainder of the year.
Great.
Speaker Change: Thank you for that. And then just, you gave a little bit of commentary on kind of the environment in Brazil and Chile.
Speaker Change: You gave great information on Puerto Rico, but when you think about your lapse in the American exposure, any countries from an economy standpoint kind of stand out that we should be monitoring?
Speaker Change: I mean, nothing specific. I mean, Brazil specifically, given that it's such a large piece of the business and given sort of the fluctuation we've seen in the currency under Louisville's administration, so that's the one that's the most significant where we've seen the biggest headwind from a currency perspective. And it relates to tariffs or any type of economic contraction. As Joaquin said, we haven't seen any type of meaningful impact today, and we're hopeful that that will remain. [inaudible]
Speaker Change: But will continue to monitor the situation around all the countries
Thanks, Chris.
Speaker Change: Our next question will come from Jamie Friedman with Suskihana International. Please proceed
Good night.
Jamie Freedman: Hi, nice results here. Mech, I wanted to ask you about the observations also about what I am on you.
called out in your press release, that you saw...
Speaker Change: that the double-digit growth was driven in part by the Gettnet-Chillie relationship and the re-exoration in Brazil. I was hoping you could unpack those a little bit, and at least in terms of Gettnet-Chillie, where are you in the journey of delivering on that partnership?
Speaker Change: Yeah, so like we said earlier, the segment grew double digit organically so we're very pleased with that. Grand data and nobody worked great at as well and we're very...
Speaker Change: Pleased with the performance of both those acquisitions that are performing at, if not above, our original expectations.
When you're thinking about getting that...
Speaker Change: It is fully rolled out so we rolled out the capability for a centened air and they are now using that to enroll the merchants throughout Gilles. So that is why you are seeing such a strong performance because they have been the most successful bank using our technology to move away from Trans Bank and that continues.
Speaker Change: So, my recollection would get in it, I would be being confused, but Chile was...
Speaker Change: If I'm telling the story run, tell me, but it was originally a national issuer.
Speaker Change: And then it got privatized, getting it took so long away, and you were participating in that. Do you have any data as to where that evolution is? How many?
Speaker Change: you know, cards are left, what the distribution in the market looks like, you know, anything that we can kind of drill into to come up with a size and opportunity for Evertec.
Speaker Change: Sure. So, originally, and it's a great question. So, for particularly those that are newer in the story. So,
Speaker Change: Transbank used to be the primary acquirer across all of Chile, so all of the banks owned a equity stake in Transbank and they referred all their leaves to Transbank and Transbank was the acquirer and processor for all of the merchants in the country.
Speaker Change: Santander was one of the first banks that decided to leave Transbank and create their own business. In addition, BCI did it with EVO, which is now part of global payments.
Speaker Change: In the marketplace, Gettin now has over 200,000 merchants that are active using our technology.
Speaker Change: So we believe we've been the most successful at helping them grow, as they've chosen to lead
Speaker Change: Across the country, I mean Transbank has been rumored to be for sale for many occasions so I think it's created a lot of disruption for the original incumbent and
Speaker Change: Other banks in the region continue to look at alternatives, other banks in the country. So, we're optimistic with our relationship we get and the performance that we've seen but we also, you know, believe that as there's more disruption there may be more opportunities to process for other banks.
Got it. Thanks for the call, MS.
Speaker Change: Our next question comes from John Davis with Raymond James. Please proceed with your question.
John Davis: Good afternoon guys. I just want to touch on merchant margins for a second. I think they're up about 510 basis points.
Speaker Change: Ear over ear. You know, I've seen the slide deck. You talk about this.
Speaker Change: Spread Driven Topline Growth and Cost Optimization, but hoping to dig in a little bit there and also maybe get some color on how we should think about those margins trending throughout the rest of the 25.
Speaker Change: Sure, so I mean, look as we've said, we have some, a couple of different moving pieces when it comes to the spread, number one we have some bright connections that we're starting to lap.
Speaker Change: We already laughed them, but for purposes of Q1, we did have a tailwind over the first couple of months.
Speaker Change: Let's say more cardinal press and transactions which are usually higher yielding transactions so that is also kind of driving a little bit this spread and I would say third one of them in
Speaker Change: the total cost per transaction, or let's say the amount of energy that we need to pay on those transactions, so those three factors are...
Speaker Change: Again, the main drivers of growth, let me go to its price driven, it's very accretive.
Speaker Change: and that's what's driven the marginal. The one thing I would say is given that we will have most of these throughout the year.
Speaker Change: The average ticket does continue to decline slightly, but it does continue to decline so our expectation would be that if that is the case when I go forward basis, that will start to put pressure again on the margin. So we're not expecting, let's imagine, expansion from where we are today in the merchant segment.
for their exit.
Speaker Change: It won't be a full quarter, but it will take on, I would say, let's say two-thirds of the quarter will be already impacted.
Speaker Change: Okay, so not much of a drop off from 2Q to 3Q then.
Yeah, that's a good thing about it.
Speaker Change: I guess some right years ago now. Obviously, you highlighted pretty healthy, just general economic stats in Puerto Rico. Are you starting to see benefits from the relief funds? Is it something that you think should continue? Just curious kind of any update there will be helpful.
Speaker Change: What I would say, John , is, yes, we continue to expect Svensson to come through. I think that they have been in fact flowing through, and if you listen to some of the banks in Puerto Rico, they also are seeing more movement. How much of that?
Speaker Change: Or what's the amount that's going to impact any given year? I think it's still very hard to tell. But I think a lot of what's already coming in is getting reflected.
Speaker Change: In segment this quarter that in addition to let's say the attrition starting to show up over the next few quarters will also write not recur a portion of the Dublin we have in Q1 because it's one time [inaudible]
Okay, very helpful, thanks guys.
No problem. Thanks, John.
Speaker Change: And that will conclude our question and answer session. I would now like to turn the conference back over to Max Schuessler for any closing remarks.