Q2 2019 Earnings Call
Good afternoon, and welcome to the Evertec incorporated second quarter 2019 earnings Conference call.
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I would now let's turn the conference over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon.
With me today, I'm actually Whistler, our president and Chief Executive Officer, and Lucky I feel our Chief Financial Officer, a replay of this call will be available until Wednesday August seven access information for the replay is listed in today's press release, which is available on our website under Investor Relations section Evertec Inc.
For those listening to the replay this call was held July 31st.
Please note there is a presentation that accompanies this conference call is accessible on the Investor Relations section of our website.
Before we begin I'd like to remind everyone that this call may contain forward looking statements as defined by the private.
Sure. He's litigation Reform Act like 95. These forward looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties.
Evertec cautions that these statements are not guarantees of future performance.
All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statement.
To reflect the events that occur after this call.
Please refer to the company's most recent annual report on Form 10-K filed with the FCC for factors that could cause our actual results to differ materially from any forward looking statement.
During today's call management will provide certain information that will constitute non-GAAP financial measures Andre Agassi rules, such as adjusted EBITDA adjusted net income and adjusted earnings.
Reconciliation to GAAP measures and certain additional information are also included in today's earnings release and related stuff from outside.
I'll now hand, the call over to Matt.
Thanks, Kate and good afternoon, everyone.
We are pleased with our results for the second quarter of 2019, which exceeded our expectations and we are therefore, increasing our guidance for the full year.
We are executing well and we continue to benefit from Puerto Rico's economic recovery, our innovation strategies at our Latin America focus.
Beginning on slide four I'll cover some of the quarters financial highlights and provide you with an update on recent developments.
Total revenue was $123 million, an increase of 8% compared to 2018.
We are seeing growth across all segments, we're benefiting from some pricing actions our deployment of value added solutions.
You managed services hardware and software sales and the completion of some longer term projects this quarter.
Adjusted EBITDA was $58 million or 7% growth over the prior year and adjusted earnings per share was 51 cents, an increase of 11% compared to last year.
We generated significant operating cash flow and returned approximately $35 million year to date to our shareholders through dividends and share repurchases.
Moving onto our exciting progress in Latin America, beginning on slide five.
First were pleased to announce an agreement to acquire a place to pay a Colombian base gateway and payment service provider.
Their services are focused on enabling customers with a digital presence except different forms of payment and include customers in different industries.
We believe in a place to pay as the second largest local player and compete with other regional companies. We anticipate this gateway to become our primary digital offering for the region as well as strengthen our presence in Colombia.
We anticipate this transaction to close by the end of the year well, we're waiting for regulatory approval.
Next we're also pleased with the recent expansion of our original agreement with Citibank correct collection payment platform to include Mexico, Guatemala.
The platform is currently operational in Colombia.
And while the first clients under this expanded agreement will likely begin in Q4 this year.
We would anticipate this to provide a modest impact on 2020 growth.
Over the next several years, we would expect this to grow with Citibank introduction other one receivable from product to more of their clients across the region.
Lastly earlier this quarter, we announced our five year processing agreement with Santander, Chile, the largest bank in the country as they move to open the merchant acquiring market.
We expect this new agreement will contribute to our Latin America revenue and EBITDA growth in 2020 and beyond.
These new agreements as well as the acquisition are consistent with our Latin America growth strategy. We are focused on localizing our product. So that we can be agile when the markets.
We intend to pursue profitable business models as these markets evolve and we intend to provide multi product solutions to multiple clients in each country that we do business.
As we have indicated previously we intend to go deep in the markets that we are currently operating in.
Moving on to progress in Puerto Rico on slide six.
First revenue growth and Puerto Rico, and the Caribbean grew approximately 9%.
Driven by organic transaction growth of approximately 5% and pricing actions.
In addition, we had a positive impact from contract wins now producing revenue in our business solutions segment and revenue related to hardware and software sales as well as the completion of several projects.
Second regarding innovation, we are seeing the positive impact of our hgh mobile and IDH mobile business products, which are anticipated to contribute almost 1% of our revenue growth 2019.
Third on a more macro view the federal government approved an additional $1.4 billion in early funding in June that included approximately 600 million for ABTS support which will be available in August .
Also the Promesa Board certified a new fiscal plan on May nine with a slight increase in the projection for total disaster relief funding to $83 billion.
We continue to believe that the federal funds anticipated to flow into Puerto Rico will positively impact the economy as well as provide a window of opportunity for changes in the public sector.
Although there is currently some ambiguity and the administration of the Puerto Rican government changes to create more transparency and control well hopefully build confidence for investors and the federal government, which could increase the federal fund flow and private investment on the island over the long term.
In the short term the events that have transpired over the last few weeks could have an effect on the timing.
I've disaster relief fund as FEMA notified the government in Puerto Rico that they would have to receive approval to draw funds drawn funds related to the hurricane.
In summary, we are pleased with the strong financial results and I, particularly want to thank my colleagues for advancing our strategic initiatives this quarter and lifetime and Puerto Rico.
We look forward to sharing our further progress with you in the coming quarters with that I will now turn the call over to Lucky.
Thank you Mac and good afternoon, everyone.
I'll now provide a review of our second quarter 2019 results.
Turning to slide eight you will see the consolidated second quarter results for Arabic.
Total revenue for the second quarter was 122.5 million up 8% to 113.3 million for the prior year.
Our sales volume for the quarter was down slightly versus prior year, primarily due to prior years volume benefiting from GBP refunding that ended last quarter.
Additionally, we had a lower average ticket this quarter offset by higher net spread driven by pricing actions. We also benefited from new fees on a teach mobile and engage mobile business increased core banking transactions an increase in network services related to new managed services and lastly revenue increased new hardware and software sales cycles cleanup projects some of our somebody 2.5 million.
Total revenue for the six month year to date was 241.4 million, an 8% year over year.
Adjusted EBITDA for the quarter was 57.8 million an increase of 7% from 53.8 million in the prior year.
Adjusted EBITDA margin was 47.2% and this represents a 30 basis point decrease in our adjusted EBITDA margin compared to the prior year.
The year over year decreasing margin, primarily reflects the impact will be elevated average ticket last year that drove a higher than normal margin as well that the mix of revenue this year.
That was skewed to get the solutions segment.
This quarter, which has a lower margin contribution.
Additionally, we continue to have higher costs related to our investments in technology platforms on FX negatively impacted us approximately $1 million this quarter.
Year to date adjusted EBITDA.
It was 115.4 million an increase of 7% from 107.7 million in the prior year.
Adjusted net income in the quarter was 37.2 million, an increase of 8% as compared to the prior year, primarily reflecting the higher adjusted EBITDA offset by increased interest on operating depreciation and amortization.
Our adjusted net income effective tax rate in the quarter was 11% and we now anticipate our full year tax rate to be approximately 12%.
Adjusted EPS was 51 cents for the quarter and grew 11% compared to the prior year and benefited from our share repurchase it today.
Year to date adjusted net income was 74.3 million up 7% and adjusted earnings per common share was one dollar one up 9% from 93 cents in the prior year.
Moving on to slide nine I'll now cover our segment results starting with the merchant acquiring segment.
In the second quarter merchant acquiring net revenue increased 3% year over year to approximately 26.8 million.
The revenue increase was driven primarily by pricing actions impacting both our spread on our non transactional revenue offset by a 1% decline in volumes related to prior year, having the benefit of PBT really funny.
Average ticket decline approximately 8% versus the prior year was in line with our expectations of spend continues to move towards more normalized levels.
Adjusted EBITDA for the segment was 12.3 million down 3% adjusted EBITDA margin was 45.7% down approximately 300 basis points as compared to last year, reflecting the impact on margin of the lower average ticket. This quarter, we anticipate a similar margin over the next few quarters.
For the six month period merchant acquiring increased 7% to 52.8 million primarily due to the same reasons I referenced in the quarter.
Adjusted EBITDA year to date for the segment was 24.2 million.
Oh up 3% and adjusted EBITDA margin was 45.9% a 170 basis point decrease as compared to last year.
Well, it's like then you will see the results of the payments services, Puerto Rico and the Caribbean segment.
Revenue for the segment in the second quarter was 30.5 million.
Oh, approximately 9% as compared to last year.
Reflection on volumes grew approximately 5% and we continue to benefit from new transaction fees for services such on Eightys mobile any teach mold business that we implemented last year.
Adjusted EBITDA for the segment was 20.3 million, increasing 11% as compared to last year.
Adjusted EBITDA margin was 66.7% or approximately 120 basis points as compared to last year, primarily due to new transactional fees.
Year to date revenue for the segment was 62.5 million of approximately 13% as compared to last year year to date adjusted EBITDA was 41.6 medium.
On an adjusted EBITDA margin was 66.5% approximately a 190 basis points as compared to last year for the same reasons previously mentioned.
For the full year, we now anticipate this segment to be in the high single digits revenue growth and continued to deliver consistent margins.
On Slide 11, you will see the results for payments every thats, let 'em segments.
Revenue for the segment in the second quarter was 21.1 million approximately 10% as compared to last year.
This growth was driven by intercompany license and service revenue and organic revenue growth of approximately 5%, partially offset by the anticipated $300000 of client attrition.
Revenue will continue to be uneven neutralizing sell implementations on consulting service, that's certainly not occur in the same quarter last year.
We continue to focus on our strategy of shifting from a licensing model to a processing mall, which will eventually result in a more recurring and growing revenue base and it's under agreement we announced earlier. This quarter is an example of executing on this goal.
Adjusted EBITDA for the segment was 7.8 million and adjusted EBITDA margin was 36.8%.
Up significantly as compared to last year, driven by the intercompany services and license sales to Puerto Rico, partially offset by FX.
Year to date revenue for the segment was 41.9 million or approximately 6% as compared to last year.
Total revenue growth for the full year ended up on the segment is now anticipated to be mid single digits and considers lower client attrition of two to 3 million.
Year to date adjusted EBITDA for the segment was 16 million and adjusted EBITDA margin was 38.2% for the full year. We now anticipate the adjusted EBITDA margin to be in the mid Thirtys due to the impact from intercompany services and license revenue.
On Slide 12, you will find the results for the business solutions segment.
Business solutions revenue for the second quarter was up approximately 12% to 55.2 million.
Revenue growth in this segment was driven by new services for both bunker footwear on the government of Puerto Rico as was hardware and software sales and other projects completed in the quarter, representing revenue of approximately 2.5 million I'm, primarily resulting from the duration for bunker local ours reliable acquisition.
For the quarter adjusted EBITDA was 24.3 million and adjusted EBITDA margin was 44% down approximately 310 basis points as compared to last year.
The decrease in the adjusted EBITDA margin was primarily driven by lower margin hardware sales and increased expenses related to infrastructure that negatively impacted the quarter.
Youre doing business solutions revenue was 106.5 million up 10% and adjusted EBITDA for the segment was 47.3 million with a 44.4% margin. We continue to anticipate revenue growth of mid single digits and anticipate margins to remain at this level.
Moving on to Slide 13, you will see summary of corporate another.
Our second quarter, adjusted EBITDA was a negative $6.8 million, an increase of 32% over prior year.
Corporate and other includes the negative impact of approximately 1.3 million related to intercompany eliminations spending not take place in the prior year.
Excluding this impact corporate and other adjusted EBITDA would be 5.5 million, reflecting an increase of approximately $300000 that are largely due to lower spend in the prior year related to the lower post hurricane activity.
As a percentage of total revenue corporate and other was 5.6% and approximately 100 basis points above the prior year, primarily due to the negative impact of the intercompany eliminations.
We continue to anticipate corporate and other to be approximately 6% as a percentage of total revenue on a full year basis.
Year to date, our corporate and other expense was 13.7 million or 5.7% as a percentage of total revenue.
Moving on to our year to date cash flow overview on slide 14, our meaning gosh bottoms was approximately $87 million, including restricted cash of approximately 17 million.
Net cash provided by operating activities was approximately $76 million or a $1 million decrease as compared to prior year and this includes the impact of settlement timing and other working capital differences.
Capital expenditures year to date were approximately $36 million, an update of critical technology infrastructure and development related to some of the new contracts announced were the primary drivers in our year to date spending.
Given the recent new contracts on the year to date capital expenditures were increasing our capex expectations for the full year to be in a range of $50 million to $55 million.
Nick we made approximately 7 million is scheduled debt payments.
6 million in withholding taxes on share based compensation ill man of all the debt pay down resulting in a total net debt decreased approximately $40 million.
We also paid cash dividends of approximately 7 million and we repurchased approximately 28 million of common stock for a total of $35 million returned to our shareholders.
We have approximately 34 million available for future use under the company's your share repurchase program through December 31, 2020, and we recently announced another five cent dividend to be paid on September 720 19.
To shareholders of record as of August six.
Our ending cash balance as of June Thirtyth was 78 million and this included approximately $14 million over strict think gosh.
Moving to slide 15, you will find a summary of our debt as of June 32019.
Our quarter ending net debt position was approximately 474 million comprised of the 64 million of unrestricted cash and approximately $538 million of total short term borrowings on long term debt.
Our weighted average interest rate was approximately 5.2%.
Our net debt to trailing 12 month adjusted EBITDA was approximately 2.2 times, reflecting the credit agreement terms, which limit the cash applied to the net debt calculation to $60 million.
As of June Thirtyth total liquidity was $181 million. This balance excludes restricted gosh and includes the available borrowing capacity under our revolver.
Moving to slide 16, I will now provide an update on our 2019 guidance.
We are increasing our revenue range to 477 to 482 million representing growth of 5% to 6% over the last year.
The increasing the revenue range reflects our Q2 results and a modestly improved outlook for the remainder of the year and considers some uncertainty related to the recent developments in Puerto Rico and create political ambiguity.
As a reminder, several of our current Minnesota and contracts with the government required on all renewals.
Regarding overall margin, we anticipate that our adjusted EBITDA margin will be approximately 47% for the year.
This estimate includes the higher margin results to date on a more normal margin expectation in the back half of the year.
Moving on to our operating depreciation which came in slightly above our earlier forecast. It is now anticipated to be approximately $34 million, primarily due to the timing of completed projects.
Our adjusted earnings per common share outlook has been increased to $1.90 to 298, which represents a range of 4% to 8% as compared to $1.84 in 2018.
This change reflects the Q2 results as well as the benefit on share count, resulting from share repurchases made year to date and incorporates a lower effective tax rate now expected to be closer to 12% as a result of the revenue mix shift in Puerto Rico lower tax businesses.
Now turning to 2020, while we're not prepared to give guidance I would like to comment on the pending acquisition recent agreement on other considerations.
First nice debate, a small tuck in acquisition and we will provide further details. After we have regulatory approval. Nonetheless were excited about the prospects of this deal on the additional presidency gives us in some of our main markets.
Second the agreements with Citibank Citi Banamex Santander, Chile.
Our Olympic exhibited to contribute to our long term growth in 2020 and as we get further all on implementation on computer pilots, we will share further insight.
Third.
While we have benefited in 2019 from third further delays in China recently Letdown, we anticipate attrition in 2020 will be between $3 million to $5 million.
Fourth we will continue our transition from a licensing type processing molding 2020, which will provide some unevenness in our organic revenue growth and let them throughout the year.
Lastly, in Puerto Rico, we will continue to one or the flow federal funds under potential positive impact to the economy from rebuilding an investment.
In summary, really strong quarter for Evertec, we are executing well against our longer term initiatives and I look forward to updating you on our progress we'll now open the call for questions.
Operator, Please go ahead and open the line.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Bob Napoli with William Blair. Please go ahead.
Hi, Thank you I was hoping to get I think in your presentation and good afternoon, Mac Joaquin NK, but.
The Santander, Chile, I think it says you expect to be profitable with that in 2020 I. Just wanted I was hoping to get maybe just some tam or the you know what you think the opportunity is for that business and then I have a follow up question.
Sure. So let me just give a little bit color color on the market, Bob So that people understand what's going on in Chile, and sort of the deal that we shot so right now in Chile Trans Bank owns all of the merchant contracts. So when you look at a lot of people entering different countries like when.
Global payments are emo or element entered Spain actually bought a book of merchant contracts immediately had revenue because they own the contracts and they immediately had earnings chili's a bit differently different because all the merger contracts are owned by Trans Bank. So there are two types of deals you can do in Chile, you can do try to do a JV with the bank and what's going to happen with that type of JV is there is a significant investment of all but you're going to have to add revenue. One one dollar at a time as you board new merchants figured I actually buying a portfolio you're investing in a JV and it's going to be a slow ramp is that bank picks up their share and takes the merchants away from Trans bank.
Our deal is a bit different it's a processing deals. So our deal is that we are actually providing trans banquet switching an authorization services I'm, sorry, Santander sent and they're switching and authorization services fraud management merchant management. So we are the actually the processor and we actually have minimums in the contract because we know that it's going to take time for some of these banks to pick up market share and there maybe in some cases a price war. So our strategy in Chile is very much similar to what we have in Puerto Rico and that we have a good processing business. I mean, we have a nice processing segment here. That's the same thing so our intent in Chile is we have minimums on the contract was centered there.
And we plan over time to offer multiple products to these banks like we just ended there today and other clients and we also hope to have other processing arrangements other banks as and other.
Merchant acquirers in the market.
Can you I mean, it can you give any feel for like what kind of.
Revenue will you know with the ramp up and the.
The size of the revenue potential from Santander Aaron.
I can when we give guidance for 2020.
Okay.
But not hearing from where it was the right now just not to be coy, but we're very focused on getting those implemented we've been working on this for some time we started negotiations.
Well before you actually saw this contract side. So we are focused on piloting before the end of the year and actually being in the market. Early next year. So our focus right now is getting sent and they're up and running and making sure. We hit the dates make sure. We have the features so that they can grow their portfolio and then I think as we get more confidence on that timeline and we have those milestones then as we give you 2020 guidance, we'll have more clarity in that the impact.
Because we just don't want to get ahead of ourselves, but as you know we're incredibly excited it's a if you look at the GDP of Chili's three times with Puerto Rico is we already have a good business. There we have over 200 employees.
And there has been a customer for a while and now we are partnering with the biggest bank in the market to actually open up the market. So I think it's a great milestone reputationally, but it's also going to add up.
Revenue and EBITDA into that segment that will be helpful next year.
Thank you and just what can you tell us about.
Place to pay in the Columbia market, the gateway that you're acquiring and what you think the opportunity is sort of the Tam is for that business over time.
Yes, So Colombia has been and we've been in the Columbia market longer than we have Chile, and we're very pleased with our team there and what they are.
Have been working on but the market has not opened as quickly as we had hoped and we've talked about that a little bit I think in the past. What this acquisition does for US is twofold. One is it gives us an even stronger presence and rolodex in country. So as we do believe over time that market will open will be even more considered a partner of choice given our in country presence. The second thing. It does is it's very similar to pay group.
Four years ago, when we were trying to cross sell and win business in the region, we didnt have the product set.
That would really when the business as a big banks.
The paper of acquisition have you seen has helped us win Santander, Chile processing business help us expand our ocean with Citibank.
The place to pay acquisition that will give us a gateway product and ecommerce product that will strengthen our portfolio.
Of offerings throughout the region as well so its complimentary on both fronts. The in country presence in Colombia and also the suite of products that we can now offer to all of our customers.
Great. Thank you appreciate it.
Thank you Bob.
The next question comes from Vasily reveal with KBW. Please go ahead.
Hi, Thanks for taking my question and congratulations this is a good quarter for us I mean, making a lot of progress in Latin America.
Thank you.
So I guess the question I had for you Mike ways as you think about the pipeline of client across Latin America doesn't seem like there is an increasing base of decision, making they're pulling this data today and could we expect more deals to becoming in the relative near term or was this sort of more of a one off situation based on what was happening in Chile, and so well just have to wait and see as to how that region develops.
So I mean, we talked about a little bit on the car call of the year end call, where we set guidance for the year I am more optimistic on some of the opportunities in those markets more than I have been.
The previous three to four years that are served.
This company I mean, we saw early on the movement with Prima and now freeze mazon advent.
We knew that Santana, there was leaving it was public information.
And we know that other banks in Chile, or looking for opportunities. So I would say, we think the trend will continue to accelerate its country by country. Chile people are again continue to look for alternatives now that the market is moving.
But im hopeful over the coming years that this will be a trend throughout the region and again, it's not just one country that that we see this trend it's multiple countries where.
I would say for the past couple of years, there's been a lot of noise and desire and intent and speculation, but I would say within the last year. If you look at the present trade and now this transaction you are actually seeing the movement and the opportunities taking place. So I can't predict that I can't give you a timeline of when opportunities will open in each market, but the markets, where we have investments we're engaged in trying to uncover those opportunities.
That's great and then just two quick ones one I think Oriental Bank me an acquisition, what Scotia Bank in Puerto Rico, and I know Oriental was a client of yours or partner with yours.
So does that have any implications for you guys and the second quick one I had was that yeah. We've seen a press articles that there was a pullback in economic activity holding all the contacts that have been happening related to the political situation was that reflected in your July sales volumes at anyway was just a second quarter trend.
So what I'd say on scope and Oriental they're both actually customers. So I don't see in the immediate future any significant change, but both of those are customers of ours under both members of the aviation network and we do business with both so I don't see any immediate impact and that.
And that change on the.
You saw in the headlines and news that there definitely was some economic impact because in all 10, while the cruise ships didn't come in so there was some economic impact I'll, let working if you will speak a little bit more to that.
I mean directionally bus too.
We said on the call we were down year over year on sales volume.
That trend, we're seeing any delay us well, obviously, what Mike said is right. There is some economic embarked in the in the July numbers were still morning during as to how much of an impact, but really it's both but nothing that we would expect to continue forward the government's devices.
Great. Thank you very much.
Thank you.
The next question comes from George Mihalos with Cowen. Please go ahead.
Hey, good afternoon guys.
Just wanted to.
The the merchant acquiring business, where I think you said it was pricing that drove the positive growth can you just square for US again why the EBITDA.
The EBITDA margin declined given given the pricing benefit what are kind of the puts and takes that that impacted the quarter there.
Sure So I would say.
If you look at it different for the uptake from a volume perspective were down year over year and Thats, mainly ETP. So we definitely the t. funding not sure that we don't have this year.
We've also been seeing the declining average ticket, that's something that bucket spread and that's something that we've been expecting even in the prior year. We saw very elevated average ticket and we've now set a couple of quarters that we were seeing that come back to normal. So that has a direct impact to our spreads our pricing initiatives are offsetting some of that effect for cleaning up the volume on a on a declining average ticket and then there is no guarantee to overall margin and.
What our overall spread these positive.
Okay, and I would assume that you would expect some improvement throughout the course of the year.
In terms of our margin yes.
Well, we're still expecting our average ticket will do going down slightly it is still a level of pre hurricane levels and we're expecting similar EBITDA margins to what we saw in Q2 for the remainder of the year.
Okay. Okay. That's helpful and then the.
The accretion on on the last time side, which again continues to kind of be.
Pushed out.
Mac again do you feel that there are increased opportunities to maybe hold onto some of that.
Hold on to some of that business.
Yeah, So I mean, the longer it goes the less likely we were able couple of quarters ago to announced that we were able to retain a little bit of business. We will continue to try we're not hopeful about it we're up more helpful. On the new business, but I mean, we will continue to do the best job. We can to continue to improve our services see if we can sell them other services and keep them, but right. Now you know, it's we still believe that it's more likely that they will either or not.
Okay, great. Thank you.
Thanks Stuart.
The next question comes from James Friedman with Susquehanna. Please go ahead.
Hi, Thank you gene Mack and Kay.
It's Jamie to square Hannah.
Mac I just want to revisit a couple of the comments you made in your prepared remarks.
Let me start with the managed services, what's that about if you can give us some use cases about how that works and how significant that is to the the company's opportunity.
Hi, James So it's working so those managed services specifically really in this case to some some government contracts that we had announced in the previous year that we have won with the Puerto Rico government in some cases as they relate to either disaster recovery services, a management of infrastructure and obligations in communications et cetera, and some of those have gone through our specialty most of those contracts usually makes on time from signing through implementation a on it takes some time for us to begin to actually see revenue reflected and we're beginning to see that now. So this is related to some contracts that we announced a couple of quarters ago, Hey, Jamie This is Mac and thanks.
I do want to thank you for picking up the stock, but I would say is what after the hurricane we did have several.
Examples of how we were able to recover very very quickly and the government and some other customers took notice of these types of managed services contracts really our ability to sell those and close those picked up after we demonstrate our resiliency after the hurricane.
And Mac or what can you also said in your prepared remarks, you talked about long term project completions is that.
Is that something that's like FINA in over or will that be continuing through the second half and into next year.
Hey.
So it's somewhere in the middle East elegant say Jamie that these are projects that have two pieces to it. They havent implementation phase on then they have a more recurring phase what you're seeing and what we're calling out in this case, our freight that we've been working on for in some cases, a year or more and we ended the implementation phase on we recognize a portion of revenue related to the implementation, which will not recur what now we will be able to see some smaller recurring fees over time.
Im just wondering how does that work is that consumer.
Credit collections or business corrections or all the above.
If you give us some idea about how that processes.
Yes, so its managed how their cash management group and the Treasury group and if they've got a product called one receivable and we are sort of the engine of that and it allows some of their large customers to post their bills online to get those bills paid from their different vendors or partners and then for that for them to be able to concentrate that cash into accounts and and effectively manage.
You know their capital so we're pretty excited about it we originally rolled it out in Colombia and now we've got these two countries and we hope to rolled out throughout the region. So and it's really core to citibank's payment strategy and Treasury management strategy in Latin America.
Okay.
Great. Good numbers here guys. Thank you.
Thank you next time.
The next question is from John Davis with Raymond James. Please go ahead.
Hey, good afternoon, guys, Matt I wanted to maybe touch on the Chile opportunity beyond sand sand. There. So I think you mentioned potential opportunity to get some other processing relationships.
Is there an opportunity for some of the smaller banks for you to actually do the front end acquiring you're thinking maybe some of the smaller banks will have the resources to build out their front end capabilities. So you could.
Someone once you in Puerto Rico, where you process for some banks you all sort of the front end acquiring for other banks is that an option longer term until.
Yes, I mean, it's really interesting because I think the investment community is really historically, followed merchant acquiring businesses and falling in love with them because you do on the pricing you do get the organic growth and thats sort of where I've had a lot of mob.
Background.
Myself in global payments, if you look at Evertec as a company.
We have two segments in Puerto Rico around payments, one is the processing business I wanted the merchant acquiring in the processing business in Puerto Rico for Us and Puerto Rico actually had higher margins. So it can be a very good margin business and what our view in each of these markets as they are relatively small I mean, if you look at Shelly comparative Spain, it's a much smaller market. So the way that we think we build a profitable business is driving multiclient multi product.
And Thats, what Weve done in Puerto Rico, and that's what we plan to do in Chile and in Chile, We already have many of these financial institution retailers as customers on the collection product that we just discussed that we're rolling out with Citibank in Latin America. We've also rolled out our risk management product to some of these and cloud based format. So this is just an evolution of extending that relationship with Santander Chile.
So that we're now doing they're acquiring process, which is even a bigger piece.
Their technology spend.
And we plan to do that with other partners the contract like us that has minimums. It doesn't mean, we're very very focused on getting Santana row crop and getting it right, but it does allow us over the course of the contract to go after other.
Banks or financial institutions, or new entrants, who want to get into the processing or merchant acquiring business.
So thats our strategy again, we think that that makes more sense in a country like Chile.
Instead of just having an exclusive merchant acquiring.
Joint venture, which anyway, it's going to take time to actually make money be you are betting on one financial institution. So you battery right because you are not buying a book.
And and see again these may be the way they may wind businesses, a pricing war, which we won't be subjective. So so thats the way we chose to enter the market and Thats, what we plan to replicate and the other markets again, if there is another market different where there is a big merchant acquiring portfolio for sale that maybe that would be our entry strategy, but this is our strategy for Chile, and we're pretty excited about it.
Okay, and then maybe just touch on the Colombian market for a second.
I think obviously you guys did the acquisition a couple of years back it's kind of been very quiet I think everyone.
You mentioned earlier is frustratingly slow for that market to open is there anything behind the timing of this deal was just opportunistic or do you think we're actually getting closer to the Colombian market opening just kind of any color commentary there.
So I don't see it so we talked about again and when we launched the year that we saw when utility was over I mean.
And we knew freezing.
That was trading theres, not an indicative signal where someone has publicly stated theres going to be a change in the market. There is still a lot of speculation in the market. There is still a lot of interest by banks to see what alternatives there are.
So again there is nothing eminent what I would tell you is we are positioning ourselves in Colombia as much as we were positioned in Chile, and thats that have a good.
Solid business that has stable revenue, we're already making money we had an executive team that can interact with the banks and we could roll out products through that through that.
Through that business, we did say earlier that we are looking at localizing our products there.
But the.
Any big movements like sent and there is a little bit TBD and I do want to remind you on the place to pay we say this every time, but I'm placed the banks were not close we got to get the regulatory approval as always.
Okay, Thanks, and well came on I caught you off the hook here, so I changed.
Any change in the eight expectations in guidance or I know, you're not going to give me.
Quantify the.
Impact from the protest, but how the how the protests has an impact on the way you think about the pace of aid coming in and I think being able to raise guidance as much pretty much signal that there was very little at expectations in your numbers, but just maybe talk high level or qualitatively about how you think about the protests the impact on a not just this year, but kind of as we go forward into 2020.
Sure so.
As you look at we our guidance that we just put out on what that reflects for the second half.
We reflect that reflected a modest improvement in our original expectations more of course, everything that's having an effect not FEMA send I know we have to throw additional hurdle for eight is something that we need to consider in terms of the total eight coming to Puerto Rico and I don't think we Havent, we don't have a change in our in our expectation at this point, we what we're seeing on whats been reflecting our actuals is what we're expecting through the end of the year, but obviously, we're going to be cautious we continue to want either and the disbursements, which continued to be no I'm going to be really.
And what we're comfortable with the guidance that we have for the full year.
In terms of the alright.
In terms of the.
As Matt mentioned really theirs.
So so cruise ships have been coming to the island and obviously also the one was impacted because people were protesting there and they couldn't spend on some of the larger and strip Morgan.
Malls were closed for a couple of days and so it's very specific nothing that we think it's a trend AMA nothing that we we would.
I called out of something that's not going to have an long term impacting our numbers.
Okay, all right. Thanks, guys.
Thank you.
The next question is from Jim Schneider with Goldman Sachs. Please go ahead.
Good afternoon, Thanks for taking my question.
Now that we're a little bit closer to getting on some clarity on the relief really funds and their timing.
Can you, maybe just kind of walk through any more details around what your assumptions were as you entered the year and what they are now I'm kind of any quantification would be helpful. And then kind of directionally when they moved up or down.
Yes, I'll hand that to walking.
Sorry, you.
I guess.
In terms of really funding and the timing of it and the magnitude of it now that theres more clarity on that front can you maybe clarify what your assumption was.
With respect to guidance heading into the year, what it is now.
And then directionally, whether it's kind of better or worse.
I think I, just I guess I just said in a previous question Jim what we have always guided to a to a modest level of eight since the beginning even though we knew the complexity around the funding on the controls on the delays that we're seeing here in the island and I don't think Thats not hasn't changed in reality, a except for an additional funding for ETP that was approved.
A couple of months ago. There is an additional 600 million related to E. B T that will get disbursed.
Starting in August .
If you go back to the MVP funding refunding from the previous year, which was 1.2 billion. This is half of the amount is going to impact half of the year. So the impact to our merchant acquiring segment is not very significant but its something positive that will definitely flow through our numbers and that should offset any other potential delay that we may see name and all that is considered in the guidance.
Stan.
That's helpful. Thanks, and then maybe just as a follow up you referenced several pricing actions kind of benefiting the segments and you talked about them before but can you maybe comment further on whether there is additional pricing actions and room for that.
Kind of on a go forward basis that would either kind of the could potentially benefit you as we head into 2020.
I mean, we're always looking for different ways in which to the continued growing both our call and on our on our margin in this case given the impact to volume from having 18 the previous year aim we thought it was Oh, we haven't on pricing action is on time. It was a good moment for us to take advantage of not Levered and I don't think it's something that I would tell you right now we're going to do for 2020.
We will discuss that up as we get closer to giving guidance on 2020, but we're always looking at different aspects of the business both from a pricing perspective, new transactional fees or new services to complement.
The current services and what I would just say I would complement Joaquin I think he's done a very good job of.
Making sure we're analyzing the profitability of certain segments, making sure that we take a look at are we making the return we want based on the risk profile repricing them at where appropriate taking a look at some of the value added services like our PPI fees are they within market raising them, where if an opportunity. So again I'll give him a lot of credit for being much more disciplined about that which has benefited the year.
Great. Thank you very much.
Again, if you have a question. Please press Star then one.
The next question comes from James Faucette with Morgan Stanley . Please go ahead.
Hi, this is personal on for James.
Just a couple of quick questions. How do you think about developing your ecommerce offerings overall on its still growing rapidly in Latin America, but it's still quite small so how do you think that your prior guide endpoint accounts actually online.
Yes, Thats a great question. So what I would tell you is we are seeing not only shift to online, but even to mobile which is even a quick transition and Puerto Rico Weve done a very good job.
Capturing the mobile market with our hgh mobile product and making sure that we have the ability to use your mobile phone. It will continue to focus on that segment, but I think one of the openings are one of the opportunities. We had to make is to have a better gateway. So that we can provide better services to margins and give them a better alternative for processing online payments and that was part of the rationale for place today, we do see the shift we it's the hasn't incurred to the same rate that has as you see in the us.
But we do think with aviation our network, we have captured a significant amount of growth by using that as a digital product and the place to pay acquisition is.
Investment in trying to improve our gateway offerings.
Got it and then can you give us an update on any feedback that you Vicky for merchants adapter products so far.
And what do you think you are in terms of development, especially if you try to expand it to other markets.
Sure. So we don't have an update for this call specifically on pit at what I'll tell you is we do as we've said before we have a roadmap we have a restaurant application that will be piloting and a couple of months and that will be rolling out by the end of the year. So we are very focused on what is the development pipeline. So that we continue to add new features new segments and we continue to be pleased with the.
With the acceptance that were seeing in the market.
Great. Thank you.
Thank you.
The next question is a follow up from Bob Napoli with William Blair. Please go ahead.
Thank you.
Just want to get a little more color on the trends in 88 mobile and the mobile business as well.
The I think you said it adds 1% revenue growth for this year and.
Just trying to get a feel for the trends and what do you think that could add to revenue over the next few years.
Sure I'll take and then I'll hand, it to working as you know Bob as we spent time together, we have really focused on making sure that we are innovating, we're investing in new products, New services testing new technologies.
And we are pretty excited to be able to show now how thats impacted the business and Thats why we wanted to show you that hgh mobile.
Plus acreage mobile business so LDH.
Mobile both products is now contributing 1% of our growth. This year. So we expect it to continue to provide.
Growth opportunities in 2020.
And some of the other products were investing too as well I don't know what can if you want to add anything I know that the only thing I would just comment on volume just to remind everyone is so some of the monetization of these fees begun second half of last year. So we're seeing that grow over in the first half of the current year right get really reflected in in terms of growth.
Lapse in July a having said that we do continue to also look in terms of innovation for different uses of both btwoc mobile any to mobile business and different features that we can continue to to eventually either continue to generate a high number of transactions, which we continue to see today aim.
A new fees us will and thats something that will happen over time.
Thank you and then just last question the Cat you raised your Capex forecast.
Yes.
For this year and just.
Wondered what the addition was four.
So it's mainly we did some some big hardware refresh and that were due and we took advantage of good pricing too. So you got to do make those and some of these contracts, but we just mentioned like Thunder Citibank aim required development required infrastructure and obviously as we push to get this stay into production as soon as possible and we're having to invest in ourselves for that type of growth, which is actually part of our capital allocation strategy in terms of investing for growth both through M&A and through Capex.
Great.
Thank you appreciate it.
Thanks, Bob.
This concludes our question and answer session I would like to turn the conference back over to Matthew sort for any closing remarks.
So everyone I'd like to thank you for joining the call. Thank you for.
For listening to us today, I look forward to seeing you over the coming months at different conferences and different visits thank you and good night.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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