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8-K - FORM 8-K - EVERTEC Group, LLCd396383d8k.htm

Exhibit 99.1

EVERTEC, LLC REPORTS SECOND QUARTER 2012 RESULTS

Second Quarter Highlights

 

   

Total revenues were $84.4 million, an increase of 7%, as compared to the second quarter of 2011.

 

   

Adjusted EBITDA was $40.9 million, an increase of 9%, as compared to the second quarter of 2011.

 

   

Returned capital of approximately $270.0 million to equityholders through a special dividend. The special dividend was funded with a combination of cash on hand and net proceeds from the issuance of $210.0 million of additional debt.

 

   

Converted from a Puerto Rico corporation to a Puerto Rico limited liability company for the purpose of improving the consolidated tax efficiency of EVERTEC and its subsidiaries. Through this new structure EVERTEC will benefit from at least $30.0 million of net operating losses and certain other tax attributes.

SAN JUAN, PUERTO RICO – AUGUST 13, 2012 — EVERTEC, LLC (“EVERTEC” or the “Company,” formerly known as EVERTEC, Inc.) today reported consolidated results for the second quarter 2012.

“We are pleased to report another quarter of strong organic growth and free cash flow generation,” said Peter Harrington, EVERTEC’s President and Chief Executive Officer. “Supported by our leading technology platform, we continue to enjoy positive momentum as we expand our presence in Latin America and for the second quarter 2012 recorded a 16% year-over-year increase in revenues outside of Puerto Rico. Going forward, we remain focused on the strategic growth of our business, serving our clients and driving profitability and customer service enhancements through the ongoing optimization of our operations and organizational structure.”

Second Quarter 2012 Financial Results

For the quarter ended June 30, 2012, total revenues increased by $5.7 million, or 7%, to $84.4 million compared to $78.7 million in the corresponding 2011 period. Transaction Processing segment revenues increased by $3.0 million, or 15%; Merchant Acquiring segment net revenues increased by $2.3 million, or 16%; and Business Solutions segment revenues increased by $0.3 million, or 1%. Revenue growth in the Transaction Processing and Business Solutions segments was primarily attributable to an increase in transactions and further penetration of our products and services in the markets we serve. The increase in Merchant Acquiring segment net revenues was driven primarily by higher sales volumes and higher realized net margin.

Total operating costs and expenses, excluding depreciation and amortization, were $48.3 million for the quarter ended June 30, 2012, compared to $46.6 million for the same period in 2011. The increase in operating costs and expenses of $1.7 million was primarily due to higher equipment expenses and professional services fees to support business growth, partially offset by a decrease in personnel expenses from cost control measures implemented in late 2011. Total operating costs and expenses, excluding depreciation and amortization, as a percentage of total revenues decreased by approximately 195 basis points to 57.3% from 59.2% in the prior year period.

Non-operating expenses for the quarter ended June 30, 2012 were $21.1 million, an increase of $7.7 million from $13.4 million for the same period in 2011. The increase was mostly related to one-time expenses of $8.8 million associated with the issuance of additional debt, partially offset by an increase in other income of $0.4 million and a $0.5 million decrease in interest expense.

Income tax benefit for the quarter ended June 30, 2012 amounted to $88.5 million, compared to $0.4 million for the corresponding 2011 period. The income tax benefit for the quarter ended June 30, 2012 was driven by the elimination of EVERTEC’s deferred tax liability balance related to its operations in Puerto Rico following its conversion to a limited liability company on April 17, 2012.

Adjusted EBITDA for the quarter ended June 30, 2012 was $40.9 million, an increase of $3.4 million, or 9%, compared to $37.5 million for the same period in 2011. This increase was primarily due to higher revenues, partially offset by a slight increase in cash expenses. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved by approximately 87 basis points to 48.5% as a result of operating leverage and the successful implementation of cost savings initiatives.


Six months ended June 30, 2012 Results

Total revenues for the six months ended June 30, 2012 increased by $12.4 million, or 8%, to $166.9 million compared to $154.5 for the same period in 2011. Transaction Processing segment revenues increased by $5.7 million, or 14%; Merchant Acquiring segment net revenues increased by $5.2 million, or 18%; and Business Solutions segment revenues increased by $1.4 million, or 2%. Revenue increases across all three segments during the six months ended June 30, 2012 were primarily driven by the aforementioned factors impacting their performance during the three months ended June 30, 2012 as we continue to experience growth in transactions and sales volumes in our local and international markets.

Total operating costs and expenses, excluding depreciation and amortization, were $95.0 million for the six months ended June 30, 2012, compared to $92.6 million for the same period in 2011. The increase of $2.4 million was primarily due to higher equipment expenses and professional services fees to support business growth, partially offset by a decrease in personnel expenses from cost control measures implemented in late 2011. Total operating costs and expenses, excluding depreciation and amortization, as a percentage of total revenues decreased by approximately 298 basis points to 57.0% from 59.9% in the prior year period.

Non-operating expenses for the six months ended June 30, 2012 amounted to $34.3 million, compared to $31.1 million for the same period in 2011. The increase in non-operating expenses was driven by higher other expenses of $6.7 million, partially offset by a reduction in interest expense of $3.4 million. Other expenses for the six months ended June 30, 2012 were primarily comprised of one-time costs of $8.8 million associated with the issuance of additional debt and $2.2 million as a result of changes in personnel. For the corresponding 2011 period, other expenses were primarily comprised of one-time costs of $2.2 million related to the refinancing of our senior secured credit facilities and $1.2 million from the settlement of a derivative related to our acquisition of an equity interest in CONTADO. The positive year-over-year interest expense variance of $3.4 million was largely a result of one-time charges incurred during the six months ended June 30, 2011 of $2.9 million associated with a refinancing and prepayment, partially offset by higher outstanding debt balances.

The Company reported an income tax benefit of $87.5 million for the six months ended June 30, 2012, compared to $29.5 million for the corresponding 2011 period. The income tax benefit for the first half of 2012 was primarily driven by the elimination of EVERTEC’s deferred tax liability following its conversion to a limited liability company on April 17, 2012. The income tax benefit for the corresponding 2011 period was mainly due to a reduction in the marginal corporate income-tax rate from 39% to 30%, as a result of the tax reform enacted in Puerto Rico on January 31, 2011.

Adjusted EBITDA for the six months ended June 30, 2012 increased by $8.2 million, or 12%, to $79.4 million when compared to the same period in 2011. This increase was primarily driven by revenue growth across all three business segments, partially offset by an increase in cash expenses. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved by approximately 153 basis points to 47.6% from 46.1% in the prior year period.

Cash and Liquidity

As of June 30, 2012, EVERTEC’s unrestricted cash balance was $25.7 million, and the Company had $49.3 million of net borrowing capacity available under its revolving credit facility.

 

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Debt

As previously announced, the Company completed a number of significant transactions during the second quarter of 2012, including the following:

 

   

On May 4, 2012, the Company and EVERTEC Finance Corp. obtained the requisite consents from holders of at least a majority in aggregate principal amount of all outstanding senior notes on the record date of April 27, 2012, pursuant to their previously announced consent solicitation, to permit the Company to pay additional dividends of up to $270.0 million.

 

   

On May 7, 2012, the Company and EVERTEC Finance Corp. issued $40.0 million principal amount of additional senior notes.

 

   

On May 9, 2012, the Company entered into an amendment to the agreement governing its senior secured credit facilities to allow, among other things, a restricted payment in an amount not to exceed $270.0 million and certain adjustments to the financial covenant therein. The Company also incurred $170.0 million of secured incremental term loans.

 

   

On May 9, 2012, the Company used the net proceeds from the incremental term loan described above and the additional senior notes, together with cash on hand, to pay a cash distribution of approximately $267.2 million to its direct parent, Carib Holdings, LLC.

As of June 30, 2012, the Company’s unpaid principal balance was $745.5 million.

Conference-Call Information

EVERTEC will host an investor conference call to review the operating results for the second quarter of 2012 as follows:

Date:  August 13, 2012

Time:  11:00 a.m. (Eastern Time)

Telephone access:  (866) 711-8198 (U.S.) or (617) 597-5327 (outside U.S.) Passcode #27113513

Live webcast:  www.evertecinc.com, in the ‘Investor Relations’ section

The teleconference replay will be available two hours after completion through August 27, 2012, at (888) 286-8010 (U.S.) or (617) 801-6888. The conference ID for the replay is 26554295. The archived webcast will be on the EVERTEC website, www.evertecinc.com, in the ‘News and Market Information’ area of the ‘Investor Relations’ section, under ‘Event Calendar’.

About EVERTEC, LLC

EVERTEC, LLC and its subsidiaries are a diversified processing business, offering transaction and payment processing services, merchant acquiring services, and business process management solutions in Puerto Rico and certain countries throughout the Caribbean and Latin America. EVERTEC owns and operates the ATH network, the leading debit payment and automated teller machine (“ATM”) network in Puerto Rico. EVERTEC’s products and services include point-of-sale processing, network and switch services, ATM driving services, core bank processing, business process outsourcing solutions, technology infrastructure management, and merchant acquiring services. Headquartered in San Juan, Puerto Rico, EVERTEC has approximately 1,500 employees in seven countries throughout the Caribbean and Latin America. EVERTEC is 51% owned by an affiliate of Apollo Global Management, LLC, a leading private equity and capital markets investor, and 49% owned by Popular, Inc., the largest financial institution in Puerto Rico and the Caribbean. For more information about EVERTEC, please visit www.evertecinc.com.

Forward-Looking Statements

Certain statements in this press release constitute “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

 

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Statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” and “plans” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: our high level of indebtedness and restrictions contained in our debt agreements; our ability to generate sufficient cash to service our indebtedness and to generate future profits; our reliance on our relationship with Popular for a significant portion of our revenues; our ability to renew our client contracts on terms favorable to us; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems; our ability to develop, install and adopt new technology; a decreased client base due to consolidations in the banking and financial-services industry; the credit risk of our merchant clients, for which we may also be liable; the continuing market position of the ATH network; our dependence on credit card associations; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of our business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; our ability to execute our expansion and acquisition strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; our ability to comply with federal, state, and local regulatory requirements; and evolving industry standards.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (“SEC”) on March 27, 2012, and in the other reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

 

Investor Contacts:   
Juan J. Román, CPA    Luis M. Cabrera
Executive Vice President and    Senior Vice President
Chief Financial Officer    Treasurer – Head of Investor Relations & Corporate Development
(787) 759-9999, ext 4895    (787) 759-9999, ext 3897
jjroman@evertecinc.com    luiscabrera@evertecinc.com
Media Contact:   
Wanda Betancourt, APR   
Senior Vice President   
Communications and Marketing   

(787) 759-9999, ext 4805

wabetancourt@evertectinc.com

  

 

 

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EVERTEC, LLC (Unaudited) Consolidated Balance Sheets

 

(Dollar amounts in thousands)    June 30, 2012     December 31, 2011  

Assets

    

Current Assets:

    

Cash

   $ 25,735      $ 53,523   

Restricted cash

     5,521        5,288   

Accounts receivable, net

     58,289        60,930   

Prepaid expenses and other assets

     15,725        21,526   
  

 

 

   

 

 

 

Total current assets

     105,270        141,267   

Investments in equity investees

     10,604        12,267   

Property and equipment, net

     33,743        36,685   

Goodwill

     373,218        371,712   

Other intangible assets, net

     425,518        448,914   

Other long-term assets

     22,733        22,894   
  

 

 

   

 

 

 

Total assets

   $ 971,086      $ 1,033,739   
  

 

 

   

 

 

 

Liabilities and member’s equity

    

Current Liabilities:

    

Accrued liabilities

   $ 33,418      $ 29,581   

Accounts payable

     17,517        21,786   

Unearned income

     776        900   

Income tax payable

     2,091        3,383   

Deferred tax liability, net

     891        9,321   
  

 

 

   

 

 

 

Total current liabilities

     54,693        64,971   

Long-term debt

     735,638        523,833   

Long-term deferred tax liability, net

     7,100        91,431   

Other long-term liabilities

     449        449   
  

 

 

   

 

 

 

Total liabilities

     797,880        680,684   
  

 

 

   

 

 

 

Member’s equity

    

Member’s units (100 units issued and outstanding)

     —          —     

Contributed capital

     174,904        326,367   

Accumulated (losses) earnings

     (2,716     28,006   

Accumulated other comprehensive income (loss), net of tax of $0 and $13

     1,018        (1,318
  

 

 

   

 

 

 

Total member’s equity

     173,206        353,055   
  

 

 

   

 

 

 

Total liabilities and member’s equity

   $ 971,086      $ 1,033,739   
  

 

 

   

 

 

 

 

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EVERTEC, LLC (Unaudited) Consolidated Statements of Income and Comprehensive Income

 

                                                               
     Quarters ended June 30,     Six months ended June 30,  
(Dollar amounts in thousands)    2012     2011     2012     2011  

Revenues (1)

        

Transaction processing

   $ 23,803      $ 20,765      $ 46,702      $ 41,036   

Merchant acquiring, net

     17,028        14,719        34,689        29,467   

Business solutions

     43,541        43,253        85,469        84,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     84,372        78,737        166,860        154,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses

        

Cost of revenues, exclusive of depreciation and amortization shown below

     39,831        37,655        77,572        75,159   

Selling, general and administrative expenses

     8,477        8,962        17,464        17,457   

Depreciation and amortization

     17,830        17,092        35,752        34,464   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     66,138        63,709        130,788        127,080   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     18,234        15,028        36,072        27,447   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating (expenses) income

        

Interest income

     75        145        192        459   

Interest expense

     (13,254     (13,754     (24,430     (27,876

Earnings of equity method investments

     509        256        575        256   

Other expenses

     (8,397     (93     (10,657     (3,979
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (expenses) income

     (21,067     (13,446     (34,320     (31,140
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (2,833     1,582        1,752        (3,693

Income tax benefit

     (88,526     (391     (87,472     (29,537
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     85,693        1,973        89,224        25,844   

Other comprehensive income, net of income tax expense of $19, $0, $13 and $0

        

Foreign currency translation adjustments

     1,230        970        2,336        1,414   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 86,923      $ 2,943      $ 91,560      $ 27,258   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Certain prior period balances have been reclassified to conform to the current presentation format which did not have any impact on net income.

 

 

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EVERTEC, LLC (Unaudited) Consolidated Condensed Cash Flows

 

                               
     Six months ended June 30,  
     2012     2011  

Cash flows from operating activities

    

Net income

   $ 89,224      $ 25,844   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     35,752        34,464   

Amortization of debt issue costs and premium and accretion of discount

     2,427        5,340   

Provision for doubtful accounts and sundry losses

     1,173        511   

Deferred tax benefit

     (92,943     (30,928

Share-based compensation

     557        414   

Realized loss on derivative

     —          1,399   

Unrealized loss of indemnification assets

     216        761   

Amortization of a contract liability

     (703     (3,384

Loss on disposition of property and equipment

     47        35   

Earnings from equity investee

     (575     (256

Dividend received from equity investee

     728        738   

Prepayment penalty related to debt refinancing

     —          (3,387

Premium on issuance of long-term debt

     2,000        —     

(Increase) decrease in assets:

    

Accounts receivable, net

     4,247        9,704   

Prepaid expenses and other assets

     994        (5,220

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     151        (10,779

Income tax payable

     (1,292     210   

Unearned income

     (124     1,138   

Other long-term liabilities

     —          (225
  

 

 

   

 

 

 

Total adjustments

     (47,345     535   
  

 

 

   

 

 

 

Net cash provided by operating activities

     41,879        26,379   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Net (increase) decrease in restricted cash

     (233     545   

Intangible assets acquired

     (3,712     (8,943

Property and equipment acquired

     (5,166     (4,739

Proceeds from sales of property and equipment

     43        106   

Acquisition of an equity method investment

     —          (9,244
  

 

 

   

 

 

 

Net cash used in investing activities

     (9,068     (22,275
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of long-term debt

     208,725        —     

Debt issuance costs

     (2,174     —     

Distribution to member

     (267,150     —     

Repayment and repurchase of long-term debt and other liabilities

     —          (28,125
  

 

 

   

 

 

 

Net cash used in financing activities

     (60,599     (28,125
  

 

 

   

 

 

 

Net decrease in cash

     (27,788     (24,021

Cash at beginning of the period

     53,523        55,199   
  

 

 

   

 

 

 

Cash at end of the period

   $ 25,735      $ 31,178   
  

 

 

   

 

 

 

 

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Net Income Reconciliation to EBITDA and Adjusted EBITDA

We define “EBITDA” as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA as further adjusted to exclude unusual items and other adjustments described below. We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our presentation of Adjusted EBITDA is consistent with the equivalent measurements that are contained in our senior secured credit facilities and the indenture governing the notes in testing our compliance with covenants therein such as the senior secured leverage ratio and the fixed charge coverage ratio. In addition, in evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses such as those excluded in calculating them. Further, our presentation of these measures should not be construed as an inference that our future operating results will not be affected by unusual or nonrecurring items.

Some of the limitations of EBITDA and Adjusted EBITDA are as follows:

 

   

they do not reflect cash outlays for capital expenditures or future contractual commitments;

 

   

they do not reflect changes in, or cash requirements for, working capital;

 

   

they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness;

 

   

they do not reflect income tax expense or the cash necessary to pay income taxes;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and

 

   

other companies, including other companies in our industry, may not use EBITDA and Adjusted EBITDA or may calculate EBITDA and Adjusted EBITDA differently than as presented in this press release, limiting their usefulness as a comparative measure.

Adjusted EBITDA is not a measurement of liquidity or financial performance under GAAP. You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with GAAP, as an indicator of cash flows, as a measure of liquidity or as an alternative to operating or net income determined in accordance with GAAP.

A reconciliation of net income to EBITDA and Adjusted EBITDA is provided below:

 

                                                                                              
     Quarters ended June 30,     Six months ended June 30,     Twelve months ended
June 30, 2012
 
(Dollar amounts in thousands)    2012     2011     2012     2011    

Net income

   $ 85,693      $ 1,973      $ 89,224      $ 25,844      $ 91,384   

Income tax benefit

     (88,526     (391     (87,472     (29,537     (90,989

Interest expense, net

     13,179        13,609        24,238        27,417        47,018   

Depreciation and amortization

     17,830        17,092        35,752        34,464        71,179   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     28,176        32,283        61,742        58,188        118,592   

Software maintenance reimbursement and other costs (1)

     667        411        1,307        658        3,219   

Equity income (2)

     219        482        153        482        306   

Compensation and benefits (3)

     593        713        3,100        814        18,256   

Pro forma VRP benefits (4)

     —          1,584        —          3,167        1,584   

Transaction, refinancing and other non-recurring fees (5)

     10,477        1,670        11,734        5,854        13,895   

Management fees (6)

     746        636        1,491        1,260        2,763   

Purchase accounting (7)

     41        (277     (102     771        (1,266
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 40,919      $ 37,502      $ 79,425      $ 71,194      $ 157,349   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) 

Primarily represents reimbursements received for certain software maintenance expenses as part of the Merger.

(2) 

Represents CONTADO’s non-cash equity income and cash dividend received.

(3)

For the six months ended June 30, 2012, mainly represents a one-time payment of $2.2 million as a result of the former CEO’s employment modification agreement. For the last twelve months period and 2011 periods, also includes one-time costs related to the Voluntary Retirement Program (“VRP”). All periods include other adjustments related to non-cash equity based compensation.

(4)

Adjustment represents the pro forma effect of expected net savings in compensation and benefits related to employees that participate in the VRP offered by the Company during the third quarter of 2011.

(5)

For the quarter and six months ended June 30, 2012, primarily relates to non-recurring fees associated with the issuance of additional debt and the dividend payment to our direct parent company. Also, includes adjustments to support additional requirements of a stand-alone entity and to certain other adjustments permitted under the credit facility and indenture agreements.

(6)

Represents the management fee payable to the equity sponsors.

(7)

Primarily represents the elimination of the effects of purchase accounting in connection with (i) certain customer service and software related arrangements where EVERTEC receives reimbursements from Popular, and (ii) for 2011 EVERTEC’s rights and obligations to buy equity interest in CONTADO and Serfinsa.

 

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