Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

EVERTEC, Inc. (NYSE:EVTC)

Q4 2013 Earnings Conference Call

February 12, 2014 5:00 PM ET

Executives

Luis Cabrera – SVP and Head, IR

Peter Harrington – President and CEO

Juan José Román – EVP and CFO

Analysts

George Mihalos – Credit Suisse

Tien-tsin Huang – JPMorgan

Bryan Keane – Deutsche Bank

Chris Brendler – Stifel

Bob Napoli – William Blair

David Weidner – Bank of America

Smitti Srethapramote – Morgan Stanley

Ramin Kamali – Credit Suisse

Operator

Good day everyone. And welcome to the EVERTEC Incorporated Fourth Quarter 2013 Earnings Conference Call. Today’s conference is being recorded.

At this time I would like to turn the conference over to Luis Cabrera, Senior Vice President and Head of Investors Relations. Please go ahead sir.

Luis Cabrera

Thank you, operator. Good afternoon everyone. Welcome to EVERTEC’s fourth quarter and full year 2013 earnings call. I’m Luis Cabrera, Senior Vice President and Head of Investor Relations for EVERTEC. With me today is Peter Harrington, our President and Chief Executive Officer, Juan José Román, Executive Vice President and Chief Financial Officer.

A replay of this call will be available until Wednesday, February 19. Access information for the replay is listed in today’s financial press release which is available on our website under the Investor Relations tab. As a reminder, this call may not be taped or otherwise reproduce without EVERTEC’s prior consent. For those listening to the replay, this call was held and recorded on February 12, 2014.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. 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 reflects our current expectations only and we undertake no obligations to update any statements to reflect our events that appear after this call.

Please refer to the company’s most recent prospectus on Form 424B4 filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements. During today’s call, management will provide certain information that constitutes non-GAAP financial measures under SEC rules such as adjusted EBITDA, adjusted net income and adjusted net income per share. Reconciliations to GAAP measures and certain additional information are also included in today’s earnings press release.

With that we’ll begin by turning the call over to Peter Harrington, our President and Chief Executive Officer. Peter?

Peter Harrington

Thank you, Luis. And thanks everyone for joining us today. Our fourth quarter results kept a great first year for EVERTEC as public company. The results demonstrate the strength of our diversified business model and solid execution by our entire team. In 2013 we continue to advance our position as the leading transaction processor in Latin America by successfully executing on the growth strategies we discussed with you during our IPO.

I’d like to briefly recap some examples of how we delivered on the growth plan in the past year. We continue to penetrate and gain shift in our core markets across all of our products and services. We signed 12 new payment customers in Mexico, Costa Rica, Belize, El Salvador, Honduras, the Dominican Republic, Panama, Puerto Rico and Jamaica. We signed deals to provide technology-related services to the government of the U.S. Virgin Islands and to the largest hospital management company in Puerto Rico.

And we partnered with one of our large existing bank clients to increase the scope of services we provide to them in several geographies. These are just a few examples of how we further penetrated and gained share in our core markets in 2013. We also continued to work with the major payment networks to bring more value-added services to our customers.

And we launched bringing new services like Dynamic Currency Conversion in Costa Rica and security solutions for financial institutions through our partnership with Tyco. And finally we continue to seek further expansion of our business through joint ventures and alliances. As I mentioned before we’re engaged in active discussions with several potential Merchant Acquiring partners in Latin America and we’re optimistic that we will execute one of these partnerships in the near term.

In addition to our commercial achievements, we reached several financial and corporate milestones in 2013. In April, we completed our IPO and successfully refinanced our debt which resulted in significant annual interest expense savings. In August we initiated a regular quarterly cash dividend of $0.10 per common share taking advantage of our strong free cash flow generation and financial flexibility to increase total value to our shareholders.

In the second half of 2013, we completed two secondary offerings and bought back $75 million worth of our common stock, further underscoring our confidence in our long-term growth prospects. In September we added industry veteran Frank D’Angelo to our board. As you saw our press release this afternoon the Board of Directors elected Frank as Chairman. We’re happy to have Frank as our Chairman and confident EVERTEC will benefit from his extensive experience in our industry. So 2013 as I said earlier was a busy and great year for EVERTEC.

Turning to our financial results. In the fourth quarter we again delivered strong revenue growth in our payments-related businesses with Merchant Acquiring revenue up 9% and payment processing up 6%. Revenue growth in our payment businesses outside of Puerto Rico continues to be strong, again increasing in the double-digits year-over-year. We’re seeing strong demand for our products and services in all of our non-Puerto Rico markets with countries like Panama and Costa Rica leading the way, demonstrating not only the strong secular growth trends in these markets but also the value we bring to our customers. We expect this solid momentum we built in our payments businesses to continue through 2014.

Our adjusted net income grew a strong 28% in the fourth quarter and adjusted earnings per diluted share increased 19% to $0.43. During the fourth quarter we completed a 15.2 million share secondary offering from Apollo and Popular which resulted in Apollo selling all of its remaining shares in EVERTEC. This offering included the repurchase of 3.7 million shares of our common stock. As you saw this afternoon our Board of Directors declared a regular quarterly dividend of $0.10 per common share. We remain committed to the prudent return of capital to our shareholders and continue to dynamically evaluate the best use of our excess cash in the context of our strategic objectives.

For the full year 2013 we delivered revenue of $357 million and adjusted EBITDA of $178 million, both up 5% from the prior year. Our adjusted net income of $121 million was up 44% and our 2013 fully diluted earnings per share were $1.49, which was at the high end of our expected range. Overall our solid results for 2013 reflect the successful execution of our growth strategy and the continued secular growth in the payment markets in which we operate.

In 2014 we will remain intensely focused on the execution of our growth initiatives. We will continue to leverage our scale and leadership, our best-in-class network and our broad set of differentiated value-added products and services to further penetrate and gain share in our core markets, expanding the new geographies, drive innovation and to new verticals and create merchant acquiring alliances across Latin America.

I’ll now turn the call over to Juan José who will take you through our financial results in more detail. Juan.

Juan José Román

Thank you, Peter, and good afternoon everyone. As Peter mentioned EVERTEC delivered solid financial performance in the quarter and year. I would spend some time going through our fourth quarter and full year financial results in more detail and then conclude by providing our financial outlook for 2014. Beginning with our fourth quarter on a consolidated basis, total revenues increased 3% to $93.3 million up from $91 million in the fourth quarter of last year.

In the Underlying segment, Merchant Acquiring net revenue increased 9% to $19.8 million driven mainly by increased transaction and sales volume. Payment Processing revenue for the fourth quarter increased 6% to $26.2 million up from $24.8 million in the prior year period. Revenue growth in the quarter was driven mainly by an increase in the ATH network and POS processing transactions, and accounts on file within our card product business.

Finally Business Solutions revenue decreased 2% to $47.3 million. As we mentioned in the early earnings release the year-over-year decrease in Business Solutions revenue was primarily due to the completion of certain projects in the fourth quarter of 2012 and to higher deferred revenue partially offset by higher product sales. For the year Business Solutions revenue was 4% which is in line with our previously discussed expectations.

Moving to expenses on a GAAP basis our fourth quarter total operating expenses were up approximately 2% compared with the prior experience. Cost of revenues excluding depreciation and amortization was $41.1 million, an increase of $0.7 million or 2% from the corresponding 2012 period. The increase in our cost of revenues was mainly due to higher cost of sales and compensation benefit partially offset by a reduction in other expenses and lower operating taxes.

Selling, general and administrative expenses for the quarter were $8.3 million, up $1.4 million or 20% from the corresponding 2012 period. The increase was primarily due to a $1.1 million of one-time expenses related to a secondary offering of common stock, we completed in December.

Income from operations for the fourth quarter was $26.6 million, an increase of 3% compared with the corresponding 2012 period. Excluding one-time expenses related to a secondary offering, our income from operations increased 7% compared to the prior year. Total non-operating expenses were $4.9 million, a decrease of $8.3 million from the corresponding 2012 period. The decrease was driven mainly by interest expense reduction of $8.7 million resulting from our debt refinancing.

We recorded an income tax expense of $1.6 million in the fourth quarter. On a cash basis our income tax expense was approximately $0.3 million. As of December 31, 2013 we had approximately $85 million of NOLs available to offset official tax payments related to our operations in Puerto Rico.

Adjusted EBITDA for the fourth quarter was $49.1 million, a decrease of $3 million or 6% from $52.1 million in the corresponding 2012 period. This decrease was partly due to increased cost of sales resulting from higher product sales and lower dividend from equity method investment. In addition as we mentioned in today’s earnings release the year-over-year adjusted EBITDA comparison for the quarter was affected by the inclusion of the pro forma adjustment in the prior year quarter related to the estimated net savings from the elimination of certain employees, temporary employees, and professional services.

Please note that these cost-savings adjustments will not have an impact on adjusted EBITDA comparisons in future periods. In the fourth quarter we again delivered industry leading EBITDA margins of 52.6%. Our adjusted net income in the fourth quarter was $35.4 million up 28% from $27.7 million in the prior year. This increase was mostly due to lower cash interest expense resulting from the debt refinancing we completed in April of last year. Adjusted net income per diluted share increased 19% to $0.43 from $0.36 in the prior year.

Turning to a summary of financial results for the full year 2013, total consolidated revenue was $357.2 million up 5% compared with 2012 revenue. Merchant Acquiring revenue was $73.6 million up 6% from the prior year driven primarily by an increase in transaction and sales volume partially offset by the impact in the first half of the year of certain effects of the Durbin Amendment. Payment Processing revenue was $99.3 million up 5% permanently driven by an increase in ATH network and POS processing transactions and accounts on file.

Finally Business Solutions revenue was $184.3 million up 4% driven mainly by increased demand on our network and core banking products and services. Adjusted EBITDA for the full year 2013 was $177.7 million, up 5% from 2012 driven by top-line growth. Adjusted net income was $121.3 million up 44% from 2012 and adjusted net income per diluted share was a $1.49 up 35%.

Moving to our balance sheet, as of December 31, we reported $22.5 million of our restricted cash and $735.8 million of total short term borrowings and long-term debt. During the fourth quarter we use approximately $25 million of cash in hand and borrow approximately $50 million under our existing revolver credit facility to fund a 75 million share buyback we completed in December comparing with the secondary offering. During the quarter we also made a mandatory repayment of approximately $4.8 million on borrowings outstanding under our Term A and Term B senior secured credit facility and paid dividends of $8.2 million.

As of December 31 total liquidity which includes on restricted cash and available borrowing capacity under our revolver was approximately $72 million. We continue to generate significant levels of free cash flow. For 2013 our free cash flow defined as adjusted EBITDA minus CapEx, cash interest expense and cash income taxes was approximately $124.6 million up 38% from $90.4 million in 2012.

Now I’ll review our financial outlook for 2014. We currently expect total consolidated revenue of between $375 million and $382 million for growth between 5% and 7% in 2014. This expectation is based on two factors. Our success last year increasing sales to both new and existing customer and the continued strong cash to card conversion trend were seen in Puerto Rico and Latin America. We expect our adjusted EBITDA growth rate would be at least 100 basis points higher than our revenue growth rate. Finally we expect our fully diluted earnings per share to come in between a $1.65 and a $1.71 in 2014 representing growth of 11% to 15%.

Our fully diluted earnings per share outlook assumes operating depreciation and amortization of approximately $32 million, cash interest expense of approximately $23 million, cash income tax of approximately $3 million and fully diluted shares of approximately $71.1 million. We expect our 2014 effective tax rate on a GAAP basis to be between 10% and 12%.

With that operator we will now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We will take our first question from George Mihalos of Credit Suisse.

George Mihalos – Credit Suisse

Hey thanks for taking my question. Just hoping to get an update if you could parse out revenue growth from non-Puerto Rico geographies in the quarter, how that trended and maybe your outlook for that going into 2014 if that accelerates further? Thank you.

Peter Harrington

We saw again double-digit growth in the payments revenue outside of Puerto Rico and we expect that to continue throughout 2014.

George Mihalos – Credit Suisse

Okay. And just in terms of getting to sort of mid-teens or high teens growth. Is that a 2014 event or more aspiration will be beyond that in 2015?

Peter Harrington

No, I think we will get – I think we will get closer to the mid-teens for a year-over-year basis, I would feel comfortable with that.

George Mihalos – Credit Suisse

Okay, great. And then just your commentary around signing a Merchant Acquiring agreement in Colombia I think you commented Peter that you’re looking to do something near term. Can you elaborate on that, is that first quarter, first half 2014 event or any (comments) about that?

Peter Harrington

We thought we would get it done by year end, we had said that before. It is taking obviously longer than we had initially anticipated. We’re still actively engaged. My hope is that we will get it done in the near term and that would probably be in the next few months.

George Mihalos – Credit Suisse

Okay, great. And just last question from me, capital allocation priority, acquisitions versus buybacks, debt repayments, any color you could provide there? Thank you.

Peter Harrington

Well I think first and foremost we’ll always – we will always focus on using it to help grow the company. And whether that’s through alliances, whether it’s through transactions, whether it’s through product development, that’s what we’ll always focus first. And then I think certainly as we have in the past we’ll discuss with the Board as to whether future buybacks or other mechanisms to return value to the shareholders will be contemplated. But I think as you saw in 2013 we are more than willing to find ways to return value to the shareholders.

Operator

Thank you. And we will take our next question from Tien-tsin Huang of JPMorgan.

Tien-tsin Huang – JPMorgan

Thank you so much. Good afternoon. Just maybe just – can we get a little bit of guidance on the three business lines and what you’re expecting for growth in 2014 especially curious about Business Solutions and the outlook there?

Peter Harrington

Yes, I think we expect the payment businesses to continue to grow as they have more in line with what you saw probably in the fourth quarter.

Tien-tsin Huang – JPMorgan

Okay.

Peter Harrington

Throughout 2014. And again as we’ve said in the past we would see Business Solutions probably below growing in give or take below single digits.

Tien-tsin Huang – JPMorgan

Okay. What’s the visibility look like there in Business Solutions, I know Banco Popular and their projects from a visibility standpoint. Is it better today than it was last year or is it worse, any flavor there?

Peter Harrington

No, I would say it’s about the same I mean we have a large number of projects in the queue, some of them will take much longer to just execute on because of the size of the project. But I would say we’re not expecting anything significantly different up or down from Popular in 2014.

Tien-tsin Huang – JPMorgan

Okay, great. Couple of more questions, just it sounds like same-store growth in terms of volumes and transactions. Have you seen anything unusual in the fourth quarter or even in January, Peter worth calling out I mean the numbers here look good in the payment side but just wanted to make sure?

Peter Harrington

As I’ve said in the last call we track kind of the growth of month-over-month POS transactions.

Tien-tsin Huang – JPMorgan

Yes.

Peter Harrington

And what we saw in the fourth quarter allowing obviously for Christmas, but I can tell you that even in January we’re seeing similar growth rate in the POS transactions year-over-year. So…

Tien-tsin Huang – JPMorgan

Yes. That’s good to know. You guys can’t blame the weather, like the weather we’re getting up here. So.

Peter Harrington

No, we’ve gotten from what I read the other day we’ve gotten more rain here than we’re used to but we didn’t complain about that too.

Tien-tsin Huang – JPMorgan

Yes, it rained in ice. I guess the (indiscernible) travel coming in. Just last one from me, just I guess for Juan José, just I wanted to make sure still for the dividend this year, the secondary cost about a $0.01. Is that not being added back in adjusted net income?

Juan José Román

No, it is – it is adjusted – it’s there in the operating income is part of the operating income number.

Tien-tsin Huang – JPMorgan

Okay.

Juan José Román

That’s why we’re just excluded the operating bodies included (indiscernible) or adjusted in the adjusted net income.

Tien-tsin Huang – JPMorgan

So you have adjusted it out?

Juan José Román

Yes, yes.

Tien-tsin Huang – JPMorgan

Just wanted to make sure.

Juan José Román

Let me clarify in 2014 just for a moment that our fully diluted shares will be $79.1 million.

Tien-tsin Huang – JPMorgan

Got it. $79.1 million.

Juan José Román

Yes.

Tien-tsin Huang – JPMorgan

Thank you guys. Thanks so much.

Operator

And we will take our next question from Bryan Keane of Deutsche Bank.

Bryan Keane – Deutsche Bank

Yes, hi guys. Just wanted to ask on how yields are turning in the acquiring business and any competition increasing from some of the U.S. acquirers that we hear noise about?

Peter Harrington

No, no we haven’t seen any real change in the competition landscape in Puerto Rico at all to be honest with you. We did have a fairly good win in the fourth quarter which was one of the larger supermarket chain there in Puerto Rico where we actually competed against those guys. So it’s pretty much – it’s been – it is – yes it’s really not been any different than what we’ve seen over the last couple of years. We don’t see any real increase in competition here than from what we have.

Bryan Keane – Deutsche Bank

Okay, that’s helpful. Then there was a downgrade on the Puerto Rico community, I was just curious did that has any impact on your business?

Peter Harrington

We’ve certainly been following that as you could imagine. As we said before we didn’t see as you could see in the fourth quarter, we saw no negative impact to our payment businesses. At this point certainly we will continue to keep a very close eye on the situation, but our 2014 guidance expect us to continue to operate as we have in the past. And we don’t have any real specific kind of exposure to for example the debt we have we’re not exposed to that. But we’ll have to see as to what it should excel but at this point we don’t see any real significant impact to EVERTEC’s business.

Bryan Keane – Deutsche Bank

Okay. And then just last question from me, the guidance for revenue for 2014 I think it was 5% to 7%, this quarter you did 3%. So should we start to see revenue be in the 5% to 7% range starting in the first quarter or will it take a little while before the Business Solutions grew (brands) back up to get to that 5% to 7% to this whole company?

Juan José Román

Yes, yes, we don’t provide quarterly guidance for – I think it’s your observation, we expect our payment businesses to be kind of stable throughout a year to keep growing every quarter. We might see Business Solutions was a little bumpy last year. We actually expect most probably that will be the way around in 2014. So just as a reminder in the first half of last year that significant higher space of hard work we’re not expecting that in the first half of 2014 on the contrary would most probably we’ll see some increase in the third and fourth quarter of this year. So again you should expect a little bit of bumpiness in the Business Solutions especially in the first half, merchant and payment together they should be stable throughout the year.

Bryan Keane – Deutsche Bank

Okay, helpful. Thanks guys.

Operator

And we will take our next question from Chris Brendler of Stifel.

Chris Brendler – Stifel

Hi, thanks. Good afternoon. Is there any impact or are you hearing anything from merchants with the target operation of the headlines. Is that having any impact or any fears and clearly any opportunities for you in Puerto Rico?

Peter Harrington

Yes I mean certainly that there have been a lot of questions from our merchants to us about it. I think we advise them that they should process with EVERTEC and not try to do it themselves.

Chris Brendler – Stifel

Okay. Yes, and everything is already E&B in your country so there is no – there is no upgrade cycle there this time?

Peter Harrington

Sorry I didn’t get the question.

Chris Brendler – Stifel

It’s already E&B there is no balancing upgrade coming here in Puerto Rico?

Peter Harrington

Yes, exactly. There is no technology upgrade and again just remember that we are predominantly I mean strongly predominantly a chip-based I mean a PIN-based debit market.

Juan José Román

E&B revenues declined (indiscernible).

Chris Brendler – Stifel

Okay. I’m going to ask one more time on a perfect economy just unclear, it sounds like from your earlier comments there wasn’t any deceleration that took place during the quarter like October, November, December are relatively stable all the way end of January, the results as we look at them it looks pretty solid. Just want to make sure there is no – the headlines we’re seeing don’t have an impact on your business?

Peter Harrington

They haven’t. I think from a consumption point of view we haven’t seen any change. So..

Chris Brendler – Stifel

Okay. Last question from me is the deal you’re trying to sign or expecting to sign in the near term. Can you give us a local – or is it still to be given thereafter the Colombia or any big deals there?

Peter Harrington

Yes, I can’t give you, local. I’ll tell you it’s been out of our existing markets.

Juan José Román

Outside of Puerto Rico.

Peter Harrington

Yes, outside of Puerto Rico obviously.

Chris Brendler – Stifel

And in terms of significance really meaningful?

Peter Harrington

It depends on your definition of significance, but for us it’s good.

Chris Brendler – Stifel

Great. Thanks guys.

Operator

We will take our next question from Bob Napoli of William Blair.

Bob Napoli – William Blair

Thank you. Good afternoon.

Peter Harrington

Good afternoon.

Bob Napoli – William Blair

Just a question on your guidance relative to what your long-term targets are I mean you’re somewhat below what I think you’ve discussed is long-term targets. Do you – what does it take to get up to those long-term targets and what timeframe do you think you can get I think 8% to 9% revenue growth, 10% to 12% of EBITDA growth is something that you’ve been targeting?

Juan José Román

Hi Bob, this is Juan José. Yes. As we discussed in our (deal) process it’s a combination of payment businesses growing much faster than Business Solutions. And as you saw in the quarter we’re just growing faster so that will accelerate the growth as our payment businesses are bigger than total revenues, we will see an acceleration in the top-line. Those two differences have the more significant EBITDA margins, so as we could grow in the payment side of the house we will see also our EBITDA margins or adjusted net income growing faster. We also consider in the long-term growth that we’d close 13 alliances throughout that mid-term. As we said for our mid-term is three to five years so we do still see the opportunities especially as we mention outside Puerto Rico again as a result of faster growing merchant and payment as well as adding alliances or acquisition in the process.

Bob Napoli – William Blair

Okay. Colombia is a market that I think the market you highlighted, has being probably the biggest opportunity in the near term. First of all did – the bank come on board that you had signed or the financial institution – the relatively large customer that, did that come on board before the end of the year and what are – what is the activity? What is your strategy right now? Is Colombia still the biggest target?

Peter Harrington

Yes, it is. And we are actively involved in the implementation process of the cost here. So, this is not that we’re trying to sign, if this is been signed, we’re trying to put it up on the platform. We expect that in early the late first quarter, second quarter is now what I would tell you our expectation is for to have it fully implemented.

Bob Napoli – William Blair

Okay. What is the strategy around Colombia, Peter? Are you – do you have more assets going at that market from a marketing perspective and maybe what the pipeline where do you targeting?

Peter Harrington

Yes, in the fourth quarter we had an event in Colombia where we – something of like 20 potential customers where we presented to them we are aggressively selling in the market presenting. And we have Mike Vizcarrondo, he kind of runs our Payment business, we’ll be back there, I think it’s next week. So, we are aggressively now talking to customers across the board. So, right now like we always have been in every market we operate in. First and foremost we focus on growing the company organically by signing new customers and by expanding our relationship with those customers. And that’s true about Colombia as it is about Costa Rica and Panama.

Bob Napoli – William Blair

And just broadly, you’re focusing on not the largest banks in the market correct? But you’re focusing more on I guess…

Peter Harrington

Yes, we – yes our bread and butter has been the Tier 2 and Tier 3 banks and yes that’s what we’re focused on.

Bob Napoli – William Blair

Are you seeing more competition there, are you seeing incremental or is it the same? Who are you competing against? I know it’s different by market.

Peter Harrington

There we’re competing against the local players that have been there for a long time, we don’t see a lot of external competition in Colombia to be honest with you. What we’re trying to do is take these customers away from the long term providers that have been there that have been bank going for many, many years.

Bob Napoli – William Blair

Great. Thank you.

Peter Harrington

Thanks.

Operator

And we will take our next question from Sara Gubens with Bank of America.

David Weidner – Bank of America

Hi, this is David Weidner, in for Sara. How should we think about the timing of revenue recognition for the $5.6 million of unearned income on the balance sheet? Does that come in mainly in the first half or?

Juan José Román

Yes, we will see some of it probably late in the year, but the most significant one will start really at the end of 2015. So, the most significant project actually we will still be working with it but we estimate right now that we will complete that by summer of 2015. So, as soon as we deliver on that we will start recognizing revenues. So, although there will be some of it in 2014, release more of it in 2016 where we will start really seeing that revenue getting into our P&L.

David Weidner – Bank of America

Got it. And then when you look at the merchant acquiring deals that are in your pipeline, are these – are you approaching prospects outside of an RFP situation? Or these or some of these more of a competitive bid situation?

Peter Harrington

I would say it’s probably 50-50, I would say about half of them are competitive bids and half of them are just cold calling on customers and bidding in a one on one kind of situation to win the business.

David Weidner – Bank of America

Got it. And then just a quick numbers question, how would you – would you expect to utilize the full amount of the NOLs in 2014 or would you still have some remaining for 2015 based on your guidance?

Juan José Román

Yes. We will use a significant amount, it’s our expectation in 2014. However right now, we think there will be some that will go over for a couple of years based on the recent bucket that you allocate in well. But we expect there is a meaningful amount really in 2014. So, by 2015, although we still have some benefit, it will be lower than it is expected for 2014.

David Weidner – Bank of America

Okay. Thank you very much.

Juan José Román

Welcome.

Operator

We will take our next question from Smitti Srethapramote of Morgan Stanley.

Smitti Srethapramote – Morgan Stanley

Hi, there. I was wondering if you could give us the percentage of revenues that you guys generated in Puerto Rico in 2013 and what that number is expected to be in 2014?

Juan José Román

It is about – for this year it will be around 86%, Puerto Rico and 2014 just keep in mind that we have a significant increase in hardware and software sales that were mostly in Puerto Rico. So, although in total although we grew double-digits outside Puerto Rico you will now see it is certainly the impact because of the fact that we actually grew Puerto Rico also very fast which is be a portion of their buy.

Smitti Srethapramote – Morgan Stanley

And how is that expected to change that percentage is expected to change in 2014?

Juan José Román

In fact it will go on probably around 84% 85% depend – obviously we close on alliance then that will change for sure, how much is Puerto Rico versus outside Puerto Rico. So, let’s say assuming with our alliance it probably will be 84% 16% give and take. But again it is been on the alliance and the timing. If we close the alliance really soon and start migrating those merchants to whoever that takes the same Q2 then you will see obviously that our revenue outside Puerto Rico will accelerate and it will be a bigger portion of the total revenue.

Smitti Srethapramote – Morgan Stanley

Got it. And just on the EBITDA margin growth guidance which was I think you said 100 basis points higher than revenue growth? Given that the payment businesses which have significantly higher EBITDA margins that you alluded to earlier will be the primary driver of revenue growth next year. Why shouldn’t the sort of the EBITDA margin growth be higher than just 100 basis points higher than revenue growth?

Juan José Román

Yes. There is some – in our growth for next year for 2014 we’re considering some of the cost putting together Colombia, our expansion into Colombia. So, there is some investments there we are making in 2014 that we will start seeing revenue later in the year in 2015. So, that’s some of the expenses are mitigating why would then grow faster and there must be EBITDA growth rate. So, that’s mostly really what it is in term of that’s growing faster in 2014.

Smitti Srethapramote – Morgan Stanley

That impact should fade away by 2015? Is that a right choice?

Peter Harrington

EBIT volume – yes you are totally right. As we start especially Colombia as we’ll start seeing revenue from Colombia, we’ll set up the customer, then you will see a different proportion, right because we will have the adequate revenue or the markets will be similar to those we have to wait Puerto Rico or in the other countries outside Puerto Rico.

Smitti Srethapramote – Morgan Stanley

Okay. Thank you.

Operator

(Operator instructions). We will go next to Ramin Kamali of Credit Suisse.

Ramin Kamali – Credit Suisse

Hi. Thanks for taking my questions. I guess lot of my questions have been asked. I guess you referenced a couple of times during the call that Panama and Costa Rica kind of love the growth with double-digit growth rates in payments. Can you comment what the actual growth rate was just in Puerto Rico during the quarter?

Peter Harrington

We don’t – we don’t actually – we don’t have that number in front of us to be honest with you. We track what we grow outside of Puerto Rico.

Ramin Kamali – Credit Suisse

And then…

Juan José Román

It’s around 5%, our growth in Puerto Rico, quarter probably was a little lower because we saw a reduction in Business Solutions as you know Business Solutions is mostly Puerto Rico revenue.

Ramin Kamali – Credit Suisse

Got it. And then focusing little more on Business Solutions, now it seems like a lot of the government – I know you have a very small percentage of revenue and that’s likely coming from the government, few comments on a year-over-year basis in Q4 into the full year what the government related revenue was?

Juan José Román

Yes. We have around 10% of our total revenues coming from the government of Puerto Rico. As a reminder, most of that revenue is mission critical services we provide to the government. And also close to 40% of the revenue we generate actually is funded by the U.S. government. So, like EBITDA there is some of the services that we provide are not necessarily 100% funded by the Puerto Rico government, so around 40% of the total revenues really funded by the U.S.

Ramin Kamali – Credit Suisse

Understood. But could you comment on what the year-over-year change was for Q4?

Peter Harrington

It was I would say year-over-year it was relatively flat.

Juan José Román

Yes. Last year was close to 10% also so normally it changes.

Ramin Kamali – Credit Suisse

And what are the expectations for 2014?

Peter Harrington

Same thing relatively flat. Again most of these are what (EBITDA) they’re relatively we charge them on a per case basis, we don’t expect the number of cases to change dramatically in 2014. Some of the network stuff that is in the mission-critical services that Juan alluded to, those contracts are relatively flat by nature because there we don’t expect them to dramatically grow the number of users on the network. So when you look at the government contracts overall they’re relatively flat.

Ramin Kamali – Credit Suisse

Are there any shifting to the repurchases for a second, are there any limitations in your credit agreements, any restricted payments limitations that limit your ability to continue to repurchase shares, I guess what the basket?

Peter Harrington

Yes, we do have some limit in the credit agreements, what a credit agreement also allow us to build capacity over the quarters. We have not disclosed what the capacity is but it’s – we’re very comfortable with the amount that we have left.

Ramin Kamali – Credit Suisse

Okay. Thank you.

Operator

And this concludes our question-and-answer session for the day. I will turn the call back to Peter Harrington for closing remarks.

Peter Harrington

Thank you. In summary I’m pleased with our many accomplishments over the past year and I’m proud of the entire EVERTEC team whose efforts made these achievements possible. EVERTEC is well positioned to continue to increase its share in Latin America and to deliver even stronger financial performance in 2014 and beyond. We remain focused on executing on our growth initiatives, serving our clients and driving profitability and shareholder value. Operator, you may now end the call.

Operator

Thank you. And this does conclude today’s conference call. Thank you once again for your participant. And have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: EVERTEC's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts