EVERTEC, Inc.
(Exact name of registrant as specified in its charter)
| Puerto Rico | 66-0783622 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) | ||||||||||
Cupey Center Building, | Road 176, Kilometer 1.3, | ||||||||||
| San Juan, | Puerto Rico | 00926 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(787) 759-9999
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 par value per share | EVTC | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☒ No ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of EVERTEC, Inc. was approximately $1,042,574,760$762,501,708 based on the closing price of $17.30$36.83 as of the close of business on June 30, 2017.2023.
As of February 21, 2018,19, 2024, there were 72,429,14165,450,799 outstanding shares of common stock of EVERTEC, Inc.
Documents Incorporated by Reference:
Specifically identified portions of the registrant’s definitive Proxy Statement for the 2018relating to its 2024 Annual Meeting of ShareholdersStockholders are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated. The Registrant's definitive proxy statement will be filed with the U.S. Securities and Exchange Commission (the "SEC") within 120 days after the end of the registrant's fiscal year ended December 31, 2023.
EVERTEC, Inc.
TABLE OF CONTENTS
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| Item 9C— Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | |||||
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Forward-Looking Statements and Risk Factor Summary
This Annual Report on Form 10-K or Report,(this “Report”) contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. SuchWe intend such forward-looking statements canto be identifiedcovered by the usesafe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Report, including, without limitation, statements regarding our position as a leader within our industry; our future results of operations and financial position; our business strategies; objectives of management for future operations, including, among others, statements regarding our expected growth, international expansion and future capital expenditures; the impact of market conditions and other macroeconomic factors on our business, financial condition and results of operations; the sufficiency of our cash and cash equivalents; our future capital expenditures and debt service obligations; and the expectations, anticipated benefits of and costs associated with acquisitions, are forward-looking terminologystatements.
Words such as “believes,” “expects,” “may,”"anticipates," "intends," "projects," “estimates,” “will,” “should,”and “plans” and similar expressions of future or “anticipates”conditional verbs such as "will," "should," "would," "may," and "could" or the negative thereofnegatives of these terms or other variations thereonof them or comparablesimilar terminology or by discussions of strategy.are generally forward-looking in nature and not historical facts. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. Among the factors that significantly impact our business and could impact our business in the future are:
•our reliance on our relationship with Popular, Inc. (“Popular”) for a significant portion of our revenues pursuant to our master services agreementsecond Amended and Restated Master Services Agreement (“A&R MSA”) with them, and as it may impact our reliance on Banco Popular de Puerto Rico (“Banco Popular”), Popular’s principal banking subsidiary,ability to grow our merchant acquiring business;
•our ability to renew our client contracts on terms favorable to us, including our contractbut not limited to the current term and any extension of the MSA with Popular;
•our dependence on our processing systems, technology infrastructure, security systems and fraudulent payment detection systems, as well as on our personnel and certain third parties with whom we do business, and the risks to our business if our systems are hacked or otherwise compromised;
•our ability to develop, install and adopt new software, technology and computing systems;
•a decreased client base due to consolidations andand/or failures in the 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;
•a reduction in consumer confidence, whether as a result of a global economic downturn or otherwise, which leads to a decrease in consumer spending;
•our dependence on credit card associations, including any adverse changes in credit card association or network rules or fees;
•changes in the regulatory environment and changes in macroeconomic, market, international, legal, tax, political, or administrative conditions, including inflation or economic conditions;the risk of recession;
•the geographical concentration of our business in Puerto Rico, including our business with the government of Puerto Rico and its instrumentalities, which are facing severe political and fiscal challenges;
•additional adverse changes in the general economic conditions in Puerto Rico, whether as a result of the government’s debt crisis or otherwise, including the continued migration of Puerto Ricans to the U.S. mainland, which could negatively affect our customer base, general consumer spending, our cost of operations and our ability to hire and retain qualified employees;
•operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;
•our ability to protect our intellectual property rights against infringement and to defend ourselves against claims of infringement brought by third parties;
•our ability to comply with U.S. federal, state, local and foreign regulatory requirements;
•evolving industry standards and adverse changes in global economic, political and other conditions;
•our high level of indebtedness and the impact of rising interest rates, restrictions contained in our debt agreements, including the senior secured credit facilities, as well as debt that could be incurred in the future;
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•our ability to prevent a cybersecurity attack or breach into our information security;
•the possibility that we could lose our preferential tax rate in Puerto Rico;
•our inability to integrate Sinqia S.A. ("Sinqia") successfully into the risk that the counterpartyCompany or to achieve expected accretion to our interest rate swap agreement failsearnings per common share;
•any loss of personnel or customers in connection with the Sinqia Transaction (as defined below in Note 3 to satisfy its obligations under the agreementAudited Consolidated Financial Statements);
•the nature, timing and amount of any restatement; and
other risks and uncertainties detailed in Partfactors set forth under "Part I, Item IA “Risk Factors”1A. Risk Factors" in this Report.
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The forward-looking statements in this Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements involveare subject to a number of risks and uncertaintiesimportant factors that could cause actual results to differ materially from those suggested byin the forward-looking statements. Forward-looking statements, and should, therefore, be considered in light of various factors, including those set forth under “Item“Part I, Item 1A. Risk Factors,” in “Item“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report. These forward-looking statements speak only as of the date of this Report, and, except as may be required by law, we do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.events.
WHERE YOU CAN FIND MORE INFORMATION
All reports we file with the SEC are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available for download through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC.
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INDUSTRY AND MARKET DATA
This Form 10-KReport includes industry data that we obtained from periodic industry publications, including the August 2017September 2022 Nilson Report and the 20172023 World Payments Report. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable. This Form 10-KReport also includes market share and industry data that were prepared primarily based on management’s knowledge of the industry and industry data. Unless otherwise noted, statements as to our market share and market position relative to our competitors are approximated and based on management estimates using the above-mentioned latest-available third-party data and our internal analysesanalysis and estimates. While we are not aware of any misstatements regarding any industry data presented herein, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.Report.
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Part I
Except as otherwise indicated or unless the context otherwise requires, (a) the terms “EVERTEC,” “we,” “us,” “our,” “our Company” and “the Company” refer to EVERTEC, Inc. and its subsidiaries on a consolidated basis, (b) the term “Holdings” refers to EVERTEC Intermediate Holdings, LLC, but not any of its subsidiaries and (c) the term “EVERTEC Group” refers to EVERTEC Group, LLC and its predecessor entities and their subsidiaries on a consolidated basis, including the operations of its predecessor entities prior to the Merger (as defined below).basis. EVERTEC Inc.’s subsidiaries include Holdings, EVERTEC Group,Group; EVERTEC Dominicana, SAS, Tecnopago SpA, EFT Group SpA, EFTSAS; Evertec Chile Holdings SpA; Evertec Chile SpA; Evertec Chile Global Services, SpA, EFT Group S.A.,SpA; Evertec Chile Servicios Profesionales SpA; Tecnopago España SL, EFT Servicos Profesionales SpA,SL; Paytrue S.A., Caleidon,; Caleidon; S.A., Paytrue; Evertec Brasil Solutions Informatica Ltda.,Informática S.A.; EVERTEC Panamá, S.A.,; EVERTEC Costa Rica, S.A. (“EVERTEC CR”),; EVERTEC Guatemala, S.A., Processa, SAS ("Processa"); Evertec Colombia, SA;, EVERTEC USA, LLCLLC; OPG Technology Corp.; Evertec Placetopay, SAS ("PlacetoPay"); BBR Chile, SpA and BBR Perú, S.A.C.,(collectively "BBR"); Paysmart Pagamentos Eletronicos Ltda, Issuer Holding Ltda. and Issuer Instituição de Pagamentos Ltda( collectively "paySmart"); EVERTEC México Servicios de Procesamiento, S.A. de C.V.; Sinqia S.A.,Torq. Inovação Digital Ltda, Sinqia Tecnologia Ltda., Homie do Brasil Informática S.A., Rosk Software S.A., Lote 45 Participações S.A., and Compliasset S.A. (collectively "Sinqia"). Neither EVERTEC nor Holdings conducts any operations other than with respect to its indirect or direct ownership of EVERTEC Group.
Company Overview
EVERTEC is a leading full-service transaction processing businesspayment transaction-processor and financial technology provider in Latin America, Puerto Rico and the Caribbean, providing a broad range of merchant acquiring, payment services and business process management services. According to the August 2017September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean and Central America.Caribbean. We serve 26 countries in the region fromout of 20 offices, including our baseheadquarters in Puerto Rico. We manage a system of electronic payment networks that process more than two billion transactions annually, and offer a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. In addition, we own and operate the ATH network, which we believe is one of the leading personal identification number (“PIN”) debit networks in Latin America. We process over six billion transactions annually through a system of electronic payment networks in Puerto Rico and Latin America and a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico. Additionally, we offer financial technology outsourcing and payment transactions fraud monitoring to all the regions we serve. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin AmericanAmerica region.
We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services, win new customers, develop new sales channels, and enter new markets. We believe these competitive advantages include:
•Our ability to provide best in classcompetitive products;
•Our ability to provide in one package a range of services that traditionally had to be sourced from different vendors;
•Our ability to serve customers with disparate operations in several geographies with integrated technology solutions that enable them to manage their business as one enterprise; and
•Our ability to capture and analyze data across the transaction processingtransaction-processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction processingtransaction-processing value chain (such as only merchant acquiring or payment services).
Our broad suite of services spans the entire transactionpayment processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale for both card present transactions and card-not-present transactions, as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable point of sales (“POS”) and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”) cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions primarily used by financial institutions to provide financial products in areas such as core bank processing,banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortiums, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection, as well as IT outsourcing and cash management services to financial institutions, corporations
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and governments. We provide these services through scalable, end-to-end technology platforms that we manage and operate in-house and that generatesgenerate significant operating efficiencies that enable us to maximize profitability.
We sell and distribute our services primarily through a proprietary direct sales force with established customer relationships. We are also building a variety of indirect sales channels that enable us to leverage the distribution capabilities of partners in adjacent markets, including value-added resellers. We continue to pursue joint ventures and merchant acquiring alliances.
We benefit from an attractive business model, the hallmarks of which are recurring revenue, scalability, significant operating margins and moderate capital expenditure requirements. Our revenue is predominantly recurring in nature because of the mission-critical and embedded nature of the services we provide. In addition, we generally negotiateenter into multi-year contracts with
our customers. We believe our business model should enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures.
See “Part II, Item 7. Management’s Discussion and Analysis of our largest merchant referral partnersFinancial Condition and sponsors usResults of Operations—Relationship with the card associations (such as Visa or MasterCard), enabling merchants to accept these card associations’ credit card transactions. Popular also provides merchant sponsorship as one of the participants of the ATH network, enabling merchants to connect to the ATH network and accept ATH debit card transactions. We provide a number of critical products and services to Popular, which are governed by a 15-year Amended and Restated Master Services Agreement (the “Master Services Agreement”) that runs through 2025.Popular.”
Recent Acquisitions
On April 17, 2013,November 1, 2023, the Company completed its initial public offeringthe acquisition of 28,789,943100% of the outstanding shares of common stock atSinqia, a price topublicly held company incorporated and existing in accordance with the public of $20.00 per share. On September 18, 2013 and December 13, 2013, the Company completed public offerings of 23,000,000 and 15,233,273 shares, respectively,laws of the Company’s common stock by Apollo, Popular,Federative Republic of Brazil. As a result, Sinqia became an indirect, wholly-owned subsidiary of Evertec. Sinqia is a company that provides providing financial software solutions to financial institutions in Brazil across four key verticals of banks, funds, pensions and currentconsortiums. Additionally, in February 2023, we closed on the acquisition of paySmart. PaySmart is a company that provides issuer processing services and former employees. After the completion of theseBIN Sponsorship services for prepaid programs under domestic and international schemes in Brazil. We believe both recent acquisitions will enhance our growth strategy, diversify our business, expand our addressable markets, increase our product offerings Popular owned approximately 11.7 million shares of EVERTEC’s common stock, or 16.1% as of December 31, 2017, and Apollo no longer owns any of the Company’s common stock.drive revenue synergies over time.
Industry Trends
Accelerated Shift to Electronic PaymentsDigital Payment Methods
In recent years, consumer preference has accelerated its shift away from cash and paper payment methods, noting increased demand for omni-channel payment services that facilitate cashless and contactless transactions. The ongoing migration from cash, check and other paperto digital payment methods of payment to electronic payments continues to benefit the transaction processingtransaction-processing industry globally. This migration is driven by factors including customer convenience, marketing efforts by financial institutions, card issuer rewardsTechnologies such as contactless payments, tap-on-phone, mobile commerce, “e-wallets” and advanced and smart POS devices continue to drive the developmentshift away from cash and other traditional payment methods. The Company has benefited from an increase in transaction volumes for these types of new formspayment solutions.As consumers and merchants increase demand for contactless and mobility-based solutions, the Company has continued to innovate and invest, expanding the footprint and functionality of payment.digital solutions such as Placetopay (e-commerce gateway), our wallet ATH Movil and ATH Business, and Paystudio our issuing and acquiring processing platform. We believe that the penetration of electronic payments in the markets where we principally operate is significantly lower relative to more mature U.S. and European markets and that this ongoing shift to digital payments will continue to generate importantsubstantial growth opportunities for our business. In addition, in an effort to better capture taxes over generated revenue, legislation in Puerto Rico has required most licensed professionals to provide an electronic payment option to their customers, and that all consumer businesses that generate revenues in excess of $50,000 provide an electronic payment option, with the exception of certain businesses, further expanding the need for an electronic payment network in Puerto Rico.
Fast Growing Latin American and Caribbean Financial Services and Payments Markets
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Ongoing Technology Outsourcing Trends
We benefit from the trend of financial institutions and government agencies outsourcing technology systems and processes. Financial institutions globally are facing significant challenges including the entrance of non-traditional competitors, the compression of margins on traditional products, significant channel proliferation and increasing regulation that could potentially curb profitability. Many of these institutions have traditionally fulfilled their IT needs through legacy computer systems, operated by the institution itself. Legacy systems are generally highly proprietary, inflexible, and costly to operate and maintainmaintain. Many medium and we believe the trend to outsource in-house technology systems and processes by financial institutions will continue. We believe our ability to provide integrated, open, flexible, customer-centric and efficient IT products and services cater to the evolving needs of our customers, particularly for small- and mid-sized financialsmall-size institutions in the Latin American markets in which we operate.operate have outdated computer systems and updating these legacy systems is financially and logistically challenging, which presents a business opportunity for the Company.
Our Competitive Strengths
Market Leadership in Latin America and the Caribbean
We believe we have an inherent competitive advantage relative to U.S. competitors based on our first-hand knowledge of the Latin American and Caribbean markets and technologicaltechnology needs, language, and culture. We have built leadership positions
across the transaction processingtransaction-processing value chain and the financial technology space in the key geographic markets that we serve, which we believe will enable us to continue to penetrate our core markets and provide advantages to enter new markets. According toones. As per the August 2017September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean and Central America.transactions. We own and operate the ATH network, which we believe is one of the leading ATM and PIN debit networks in Latin America. EVERTEC processed approximately two billion transactions in 2017, which accordingAccording to managementmanagement’s estimates, makes ATH branded products are the most frequently used electronic method of payment in Puerto Rico. We offer compelling value to our merchants, as noted in the most recent report published by the Federal Reserve Board regarding debit network fees, the ATH network ranked asown Sinqia, which we believe is one of the most economical networksleading providers of technology for merchants. Given ourfinancial institutions in Brazil. Our scale and customer base of top tier financial institutions and government entities we believeensures we are the leading card issuer and core bank processorprocessors in the Caribbean and the only non-bank provider of cash processing services to the U.S. Federal Reserve in the Caribbean. We believe our competitive position and brand recognition increases card acceptance, driving usage of our proprietary network, and presents opportunities for future strategic relationships.
Broad and Deep Customer Relationships and Recurring Revenue Business Model
We have built a strong and long-standing portfolio of financial institution, merchant, fintech, corporate and government customers across Latin America and the Caribbean, which provides us with a reliable, recurring revenue base and powerful references that have helped us expand into new businesses, new channels and geographic markets. Our Payment Services - Puerto Rico & Caribbean, Latin America Payments and Solutions and Merchant Acquiring segments, as well as certain business lines representing the majority of our business solutionsBusiness Solutions segment, generate revenue that is mostly recurring revenues that collectivelyin nature and accounted for approximately 94%the majority of our total revenuesthe revenue recognized in 2017.2023. We receive recurring revenues from services based on our customers’ on-going daily commercial activity such as processing loans, hosting accounts and information on our servers, processing financial products (credits, investments, foreign exchange, mutual funds, consortium) and processing everyday payments at grocery stores, gas stations and similar establishments. We generally provide these services under one to five yearsix-year contracts, often with automatic renewals. We also provide a few project-based services that generate non-recurring revenues in our business solutions segment and our Latin America Payments and Solutions segment, such as IT consulting for a specific project or integration.integration or one-time license sales. Additionally, we entered into a 15-year Master Services Agreement with Popular on September 30, 2010. We provide a number of critical payment services, core banking services and business solutions products and services to Popular as part of the A&R MSA through September 2028 and benefit from the bank’s distribution network and continued support. Through our long-standing and diverse customer relationships, we are able tocan gain valuable insight into trends in the marketplace that allows us to identify new market opportunities. In addition, we believe the recurring nature of our business model provides us with revenue and earnings stability.
Highly Scalable, End-to-End Technology Platform
Our diversified business model is supported by our scalable, end-to-end technology platforms that allow us to provide a broad range of transaction processingtransaction-processing services and develop and deploy technology solutions tofor our customers at low incremental costs and increasing operating efficiencies. We have spent over $170$333 million over the last five years on technology investments, including POS terminals, enhancements to continue to build the capacityfunctionality and functionalitycapacity of our platforms and we have been able to achieve attractive economies of scale with flexible product development capabilities. We believe that our platforms will allow us to provide differentiated services to our customers and facilitate further expansion into new sales channels and geographic markets.
Experienced Management Team with a Strong Track Record of Execution
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We have grown our revenue organically by introducing new products and services and expanding our geographic footprint throughout Latin America. We have a proven track record of creating value from operational and technology improvements and capitalizing on cross-selling opportunities. We have combined new leadership at EVERTEC, bringingEVERTEC’s management team brings many years of industry experience, with long-standing leadership at the operating business level. Collectively, our management teamlevel and collectively benefits from an average of over 20 years of industry experience and weexperience. We believe they areour leadership team is well positioned to continue to drive growth across business lines and regions.
Our Growth Strategy
We intend to grow our business by continuing to execute on the following business strategies:
Continue Cross-Sales to Existing Customers
We seek to grow revenue by continuing to sell additional products and services to our existing merchant, financial institution, corporate and government customers. We intend to broaden and deepen our customer relationships by leveraging our full suite of end-to-end technology solutions. For example,We have been successful exporting our regional products to the markets in which we operate, tailoring to the specific needs and regulatory environments of each. We continue to believe that there is significant opportunity to cross-sell our financial technology solutions and our payment products such as: gateway product; card issuing and acquiring platforms and services; network services,services; ATM and point-of-sale processing services, and card issuer processing servicespayment and collection platforms, and our risk management products to our over 180 existing financial institution
Leverage Our Franchise to Attract New Customers in the Markets We Currently Serve
We intend to attract new customers by leveraging our comprehensive product and services offering, the strength of our brand and our leading end-to-end technology platform. Furthermore, we believe we are well positioned to develop new products and services and to take advantage of our access to and position in markets we currently serve. For example, in markets we serve outside of Puerto Rico, we believe there is a significantgood opportunity to penetrate small to medium and some larger financial institutions, fintech companies and medium to large retailers with our products and services.
Expand in the Latin AmericanAmerica Region
We believe there is substantialan opportunity to expand our businesses in the Latin American region.America, both organically through new business wins and inorganically through mergers and acquisitions. We believe that we have a competitive advantage relative to U.S. competitorsour peers based on our first-hand knowledge of the Latin American and Caribbean markets and their technological needs, our physical presence in the region, language, and culture. We believe significant growth opportunities exist in a number ofseveral large markets such as Brazil, Colombia, México, and Chile, among others.as well as in smaller markets in Central America where expanding our presence could have a significant impact on our growth. We also believe that there is an opportunity to provide our services to existing fintech and financial institution customers in other regions where they operate. Additionally, weWe continually evaluate our strategic plans for geographic expansion, which can be achieved through joint ventures, partnerships, or alliances or strategicand the pursuit of business acquisitions. For a description of risks associated with obtaining regulatory approvals and other risks associated with strategic transactions, see “Item 1A. Risk Factors—Risks Related to Our Business—Our expansion and selective acquisition strategy exposes us to risks, including the risk that we may not be able to successfully integrate acquired businesses.”
Develop New Products and Services
At the core of EVERTEC’s value proposition is innovation.We must take advantage of the changing consumer and market dynamics and build innovative solutions for our clients. Our experienceclose relationship with customers and deep understanding of the markets where we operate, together with a proprietary intellectual property around our customers provides us with insight into their needsproducts and enables usofferings, allow EVERTEC to continuously explore and develop new transaction processing services. products and services that tend to our customer’s needs.
We plan to continue investing and growing our merchant, financial institution, fintech, corporate and government customer base by developinginvesting in core products, including (i) processing platforms, such as Paystudio, (ii) data and offering additionalfraud management solutions, such as Risk Center, Scudo and 3DS, (iii) merchant capture channels, such as ATH Movil for person-to-person, and person-to-merchant digital transactions, pvot for Smart POS and Placetopay for card-not-present and omni-channel experiences. We also invest in value-added productsservices such as API enablement, tokenization, loyalty, digital on-boarding, and services to cross-sell along with our core offerings.predictive models. We intend to continue to focus on these and othersome of the new product opportunities in orderproducts added to our portfolio thru acquisitions to take advantage of our leadership position in the transaction processingtransaction-processing and financial services industry in the Latin American and Caribbean region.
Our Business
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We offer our customers end-to-end products and solutions across the transaction processingtransaction-processing value chain from a single source across numerous channels and geographic markets, as further described below.
We provide financial institutions and fintechs with processing, network and financial technology solutions and we believe we are the largest card processor and card network service provider in the Caribbean. We provide a diversified suite of paymentOur main service offerings include authorization, switching, settlement, issuer credit and debit card processing, products and services to blue chip regional and global corporate customers, government agencies, and financial institutions across Latin America and the Caribbean. These services provide the infrastructure technology necessary to facilitate theacquiring processing, and routingmanagement and monitoring of payments across the transaction processing value chain.
ATMs and POS. At the point-of-sale, we sell transaction processingtransaction-processing technology solutions, similar to the services in our merchant acquiring business, to other merchant acquirers to enableenabling them to service their own merchant customers. Additionally, through our payment gateway, we allow merchants to capture and process digital transactions. We also offer terminal driving solutions to merchants, merchant acquirers (including our merchant acquiring business) and financial institutions, which provide the technology to securely operate, manage and monitor POS terminals and ATMs. We also rent POS devices to financial institution customers who seek to deploy them across their own businesses.
To enable financial institutions, governments and other businesses to issue and operate a range of payment products and services, we offer an array of card processing and other payment technology services, such as internet and mobile banking software services, bill payment systems and EBT solutions. Financial institutions and certain retailers outsource to us certain card processing services such as card issuance, processing card applications, cardholder account maintenance, transaction authorization and posting, high volume payment processing fraud and risk management services, and settlement. Our payment products include electronic check processing, automated clearing house (“ACH”), lockbox, online, interactive voice response and web-based payments through personalized websites, among others.
Our EBT application allows certain agencies to deliver government benefits to participants through a magnetic card system and serves approximately 800,000 active participants.in Puerto Rico.
Business Solutions
We provideserve our financial institutions, corporate and government customers with a wide suite of business process management solutions, including specificallysome of which used to provide financial products in areas such as core bank processing,banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortium, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection, as well as network hosting and management, IT consulting, services, business process outsourcing, item and cash processing, and fulfillment. In addition, we believe we are the only non-bank provider of cash processing services to the U.S. Federal Reserve in the Caribbean.
Competition
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Competitive factors impacting the success of our services include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services, and price. We believe that we compete well in each of these categories. In addition, we believe that our relationship with Popular, scale and expertise, and financial institution industry expertise, combined with our ability to offer multiple applications, services and integrated solutions to individual customers, enhances our competitiveness against companies with more limited offerings and helps us compete with large global competitors with similar assets to ours.
In merchant acquiring, we compete with several other service providers and financial institutions that are either in our markets or represented through Independent Sales Organizations (“ISO”), including Worldpay,Fidelity National Information Services, Inc., First Data Corporation,Fiserv, Inc., Global Payments, Inc., Elavon, Inc., Sage Payment Solutions, independent sales organizationsPayPal Holdings, Inc., Block, Inc., Zelle and some local banks. Also, the card associations and payment networks are increasingly offering products and services that compete with ours. The main competitive factors are price, reliability of service, brand awareness, strength of the relationship with financial institutions, system functionality, integration service capabilities and innovation. Our business is also impacted by the expansion of new payments methods and devices, card association business model expansion, and bank consolidation.
In payment services, we compete with several other third partythird-party card processors, and debit networks, and financial technology providers, including First Data Corporation, Tecnocom Telecomunicaciones y Energía, S.A., Galileo Financial Technologies, LLC, Marqeta, Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Total System Services, Inc., Vantiv,MasterCard, Inc., MasterCard, Visa, Inc., American Express, Discover, and Global Payments, Inc., dLocal Corp. LLP., Rappi Inc. and PayPal Holdings, Inc. Also, card associations and payment networks are increasingly offering products and services that compete with our products and services. The main competitive factors are price, system performance and reliability, system functionality, security, service capabilities and disaster recovery and business continuity capabilities.
In business solutions, our main competition includes internal technology departments within financial institutions, retailers, data processing or software development departments of large companies, and/or large technology and consulting companies. Maincompanies, and/or financial technology providers, such as Fidelity National Information Services, Inc., Jack Henry & Associates, Inc., CGI Inc. and Fiserv, Inc., Totvs S.A., and Stefanini S.A. The main competitive factors are organizational capabilities, portfolio comprehensiveness, price, system performance and reliability, system functionality, security, service capabilities, and disaster recovery and business continuity capabilities.
Intellectual Property
We own numerous registrations for several trademarks in different jurisdictions, pursue the registration of domain names for websites that we use and that we consider material to the marketing of our products, including the evertecinc.com domain, and own or have licenses to use certain software and technology, which are critical to our business and future success. For example, we own the ATH and EVERTEC trademarks in several jurisdictions, which are associated by the public, financial institutions and merchants with high quality and reliable electronic commerce, payments, and debit network solutions and services. Such goodwill allows us to be competitive, retain our customers and expand our business. Further, we also use a combination of (i) proprietary software, and (ii) duly licensed third partythird-party software to operate our business and deliver secure and reliable products and services to our customers. The licensed software is subject to terms and conditions that we consideredconsider within the industry standards. Most are perpetual licenses, and the rest are term licenses with renewable terms. In addition, we monitor these license agreements and maintain close contact with our suppliers to ensure their continuity of service.
We seek to protect our intellectual property rights by securing appropriate statutory intellectual property protection in the relevant jurisdictions. We also protect proprietary know-how and trade secrets through company confidentiality policies, licenses, programs, and contractual agreements. However, we cannot guarantee that all applicable parties have executed such agreements. Such agreements can also be breached, and we may not have adequate remedies for such breach.
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People and Culture
On December 31, 2017,2023, we had approximately 2,1005,000 employees, across 11 countries41% of which are located in Brazil, and 27% of which are located in Puerto Rico and the United States,States. Our remaining workforce is composed of employees working in our offices throughout Latin America and the Caribbean.Caribbean, which include the Dominican Republic, Mexico, Guatemala, Costa Rica, Panama, Colombia, Chile, Peru and Uruguay. In Brazil, we have oneapproximately 2,000 unionized employeeemployees covered by the terms of industry-specific collective agreements. agreements, which address both industry standards and Brazilian labor laws and regulations to establish a fair and transparent framework for employment. We believe that these collective agreements help in fostering a positive and collaborative work environment, contributing to the overall success and sustainability of our operations in Brazil.
None of our other employees are otherwise represented by any labor organization. We consider our relationships with our employees to be good. We haveOur company has maintained a track record of operational continuity, having not experienced any work stoppages in connection with employee matters. Through striving for open communication channels, proactive engagement, and adherence to fair employment practices, we believe we create an environment where employee concerns can be addressed in a timely and effective manner.
Diversity and Inclusion
Our culture is underpinned by our core values, including a commitment to diversity, equity and inclusion, an essential component of our formula for brilliant ideas and innovation. Employee diversity is a core element of our Company. We believe in integrating, leveraging, and promoting diversity in generations, cultures, abilities, and lifestyles to achieve creative solutions that will address our client's needs and positively impact our communities and business results. We promote an inclusive culture for our people, products, and services. Our regional model allows for a variety of viewpoints to ensure we are considering diverse mindsets in our business strategies and decisions.
We estimate our workforce is in a distribution of approximately 35% female and approximately 65% male. We believe that our female representation is above technology industry averages. Approximately 99% of our employees are Latinos and we believe that approximately 90% of our managers are Latinos.
In 2021, the Company implemented the Next Generation Talent Program which identifies emerging leaders in the organization and provides them with training and development focused on becoming the successors for senior management. The program composition is 66% male and 34% female.
Employee Engagement
Fostering a strong employee engagement is a key component of our high-performance culture. We employ a multifaceted approach to promote an environment where our workforce feels valued, heard, and motivated. Regular employee surveys serve as a cornerstone of our strategy, providing a structured platform for gathering feedback on various aspects of the workplace, including job satisfaction, communication, and opportunities for growth. Additionally, our internal newsletters on Evertec’s intranet are thoughtfully curated to feature relevant content, recognizing achievements, milestones, and spotlighting employee contributions. Continuous team meetings and town halls further facilitate open communication, allowing for transparent discussions about company goals, challenges, and future initiatives. By combining these initiatives, we aim to create a dynamic and inclusive environment that promotes employee engagement, fosters a sense of community, and empowers our team members to actively contribute to the success of the organization. We strive to continually refine and expand these efforts to promote the overall well-being of the organization.
Recruiting and Development Initiatives
Evertec pursues a diverse talent pool and is an equal opportunity employer that aims to hire the best-qualified candidates for available positions. We promote based on merit. Our diversity recruitment initiatives are tracked through the completion of an Annual Affirmative Action Plan. In addition, we periodically conduct gender gap pay analysis for our employee population. The Company currently offers a hybrid (on site/remote) work environment to provide flexibility for our employees.
Evertec aims to provide our employees with the tools needed for their career development. Our Evertec University platform features all the learning opportunities available to our workforce, providing a curriculum composed of both online classroom and external training. Within Evertec University, we have developed a leadership program that includes a 360-degree assessment, feed forward sessions, a leadership on-boarding program and a leadership academy. Aligned with our Wellness core value, we also provide health and safety educational virtual sessions in conjunction with on-site clinics and external health professionals as part of our health and wellness education programs.
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Our values for People and Culture are aligned with our commitment to environmental, social and governance (ESG). For further information, refer to our 2023 ESG Summary available on our website at https://ir.evertecinc.com/ESG as well as Vision, Mission and Values section in our most recent proxy statement. Nothing on our website shall be deemed incorporated by reference into this Report.
Government Regulation and Payment Network Rules
Examinations
As a technology service provider to financial institutions, we are also subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council (the “FFIEC”), an interagency body of federal financial regulators that includes the Board of Governors of the Federal Reserve Board.System (known as the Federal Reserve Board). The Federal Deposit Insurance Corporation and the office of the Commissioner of Financial Institutions of Puerto Rico also participatesparticipate in such examinations by the FFIEC. In addition, independent auditors annually review several of our operations to provide reports on internal controls for our clients’ auditors and regulators. We are also subject to examinations from regulatory bodies in all other regions in which we operate.
Regulatory Reform and Other Legislative Initiatives
The payment card industry has come under increasedis subject to scrutiny from lawmakers and regulators. The Dodd-Frank Wall Street Reform and Protection Act (the “Dodd-Frank Act”) set forth significant structural and other changes to the regulation of the financial services industry, including the establishment of the Consumer Financial Protection Bureau (the “CFPB”).The CFPB has broad supervisory, enforcement and rulemaking authority over consumer financial products and services (including many offered by us and by our clients) and certain bank and non-bank providers of such products and services. In addition, Section 1075 of the Dodd-Frank Act (commonly referred to as the “Durbin Amendment”) imposes new restrictions on card networks and debit card issuers. More specifically, the Durbin Amendment provides that the interchange transaction fees that a card issuer or payment network may receive or charge for an electronic debit transaction must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing, and settling the transaction.
The Board of Governors ofDurbin Amendment currently has capped debit interchange that an issuer may receive (unless such issuer is otherwise exempt).The Durbin Amendment is subject to revision by the Federal Reserve System (the “Federal Reserve”) adopted final regulations implementingand any future revisions may lower the Durbin Amendment on June 29, 2011 and added a fraud-prevention adjustment on July 27, 2012.
The CFPB is responsible for many of the regulatory functions previously performed by the federal banking and other agencies with respect to consumer financial products and services. In addition to rulemaking authority over several enumerated federal consumer financial protection laws, the CFPB is authorized to issue rules prohibiting unfair, deceptive, or abusive acts or practices in connection with the offering of a consumer financial product or service or any transaction with a consumer for such product or service. The CFPB also has authority to examine supervised entities for compliance with, and to enforce violations of, consumer financial protection laws.
and to larger participants in markets for consumer financial products and services, as determined by the CFPB, we are subject to the supervision, enforcement and rulemaking authority of the CFPB.services. CFPB rules, examinations and enforcement actions now and as they may be enacted in the future may require us to adjust our activities and may increase our compliance costs.
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Other Government Regulations
Our services are also subject to a broad range of complex federal, state, Puerto Rico and foreign regulation, including privacy laws, international trade regulations, the Bank Secrecy Act and other anti-money laundering laws, anti-trust and competition laws, the U.S. Internal Revenue Code, the PR Code, the Employee Retirement Income Security Act, the Health Insurance Portability and Accountability Act and other Puerto Rico laws and regulations. Failure of our services to comply with applicable laws and regulations could result in restrictions on our ability to provide such services, as well as the imposition of civil fines and/or criminal penalties. The principal areas of regulation (in addition to oversight by the Federal Reserve Board)ones described above) that impact our business are described below.
Privacy and Information Security Regulations
We and our financial institution clients are required to comply with various U.S. state, federal and foreign privacy laws and regulations, including those imposed under the Gramm-Leach-Bliley Act of 1999 which applies directly to a broad range of financial institutions and to companies that provide services to financial institutions. These laws and regulations place restrictions on the collection, processing, storage, use and disclosure of certain personal information, require disclosure to individuals of detailed privacy practices and provide them with certain rights to prevent the use and disclosure of protected information. The regulations, however, permit financial institutions to share information with non-affiliated parties who perform services for the financial institutions. These laws also impose requirements for safeguarding personal information through the issuance of data security standards or guidelines. Certain state laws impose similar privacy obligations, as well as, in certain circumstances, obligations to provide notification to affected individuals, states officers and consumer reporting agencies, as well as businesses and governmental agencies that own data, of security breaches of computer databases that contain personal information. In addition, U.S. state and federal government agencies have been contemplating or developing new initiatives to safeguard privacy and enhance data and information security. Some foreign privacy laws aremay be stricter than those applicable under U.S. federal, state, or Puerto Rican law. The Brazilian General Data Protection Law contains specific provisions and requirements related to the processing, collection, storage and use of personal data of individuals in Brazil. As a provider of services to financial institutions, we are required to comply with theapplicable privacy and cybersecurity regulations and are bound by the same limitations on disclosure of the information received from our customers as applyapplied to the financial institutions themselves. See “Item“Part I, Item 1A. Risk Factors-RisksFactors -Risks Related to Our Business-SecurityBusiness- We are subject to security breaches or other confidential data theft from our own failure to comply with privacy regulationssystems, which can adversely affect our reputation and industry security requirements imposed on providers of services to financial institutions and card processing services could harm our business by disrupting our delivery of services and damaging our reputation.business.”
Anti-Money Laundering and Office of Foreign Assets Control Regulation
Since we provide data processing services to both foreign and domestic financial institutions, we are required to comply with certain anti-money laundering and terrorist financing laws and economic sanctions imposed on designated foreign countries, nationals, and others. Specifically, weour services must adhere to the requirements of the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the “BSA”) regarding processing and facilitation of financial transactions, as well as other state, local and foreign laws relating to money laundering. Furthermore, as a data processing company that provides services to foreign parties and facilitates financial transactions between foreign parties, we are obligated to screen transactions for compliance with the sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). These regulations prohibit us from entering into or facilitating a transaction to or from or dealings with specified countries, their
governments and, in certain circumstances, their nationals and others, such as narcotics traffickers and terrorists or terrorist organizations designated by the U.S. Government under one or more sanctions regimes.
A major focus of governmental policy in recent years has been aimed at combating money laundering and terrorist financing. Preventing and detecting money laundering and other related suspicious activities at their earliest stages warrants careful monitoring. The BSA, along with a number of other anti-moneyAnti-money laundering laws imposesimpose various reporting and record-keeping requirements concerning currency and other types of monetary instruments. Similar anti-money laundering, counter-terrorist financing and proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with persons specified on lists maintained by organizations similar to OFAC in several other countries and which may impose specific data retention obligations or prohibitions on intermediaries in the payment process. These laws and regulations impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for us. We may also be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business.
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Federal Trade Commission Act and Other Laws Impacting our Customers'Customers’ Business
All persons engaged in commerce, including, but not limited to, us and our merchant and financial institution customers are subject to Section 5 of the Federal Trade Commission Act prohibiting Unfair or Deceptive Acts or Practices (“UDAP”). In addition, there are other laws, rules and/or regulations, including the Telemarketing Sales Act, that may directly impact the activities of our merchant customers and in some cases may subject us, as the merchant'smerchant’s payment processor, to investigations, fees, fines, and disgorgement of funds in the event we are deemed to have aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal activities of the merchant through our payment processing services. Federal and state regulatory enforcement agencies including the Federal Trade Commission, or FTC, and the states'states’ attorneys general have authority to take action against nonbanks that engage in UDAP or violate other laws, rules, and regulations. To the extent we process payments for a merchant that may be in violation of these laws, rules, and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business.
Anti-trust and Competition Laws
We are required to comply with various federal, local, and foreign competition and anti-trust laws, including the Sherman Act, Clayton Act, Hart-Scott-Rodino Antitrust Improvements Act, Robinson-Patman Act, Federal Trade Commission Act and Puerto Rico Anti-Monopoly Act. In general, competition laws are designed to protect businesses and consumers from anti-competitive behavior. Competition and anti-trust law investigations can be lengthy, and violations are subject to civil and/or criminal fines and other sanctions for both corporations and individuals that participate in the prohibited conduct. Class action civil anti-trust lawsuits can result in significant judgments, including in some cases, payment of treble damages and/or attorneys'attorneys’ fees to the successful plaintiff. See “Item“Part I, Item 1A. Risk Factors-RisksFactors—Risks Related to Our Business-FailureBusiness—We are subject to extensive government regulation and oversight. Failure to comply with U.S. stateexisting and federal antitrust requirements, orfuture rules and regulations in the Puerto Rico Anti-Monopoly Act, and government investigations into our compliance,jurisdiction in which we operate could materially adversely affect the operations of one or more of our business.businesses in those jurisdictions.”
Foreign Corrupt Practices Act (“FCPA”), Export Administration and Other
As a data processing company that services both foreign and domestic clients, our business activities in foreign countries, and in particular our transactions with foreign governmental entities, subject us to the anti-bribery provisions of the FCPA, as well as the laws and regulations of the foreign jurisdiction where we operate. Pursuant to applicable anti-bribery laws, our transactions with foreign government officials and political candidates are subject to certain limitations. Finally, in the course of business with foreign clients and subsidiaries, we export certain software and hardware that is regulated by the Export Administration Regulations from the United States to the foreign parties. Together, these regulations place restrictions on who we can transact with, what transactions may be facilitated, how we may operate in foreign jurisdictions and what we may export to foreign countries.
The preceding list of laws and regulations is not exhaustive, and the regulatory framework governing our operations changes continuously. The enactment of new laws and regulations may increasingly affect directly and indirectly the operation of our business, which could result in substantial regulatory compliance costs, litigation expense, loss of revenue, decreased profitability and/or adverse publicity.
Association and Network Rules
Several of our subsidiaries are registered with or certified by card associations and payment networks, including the ATH network, MasterCard, Visa, American Express, Discover and numerous debit and EBT networks as members or as service providers for
member institutions in connection with the services we provide to our customers. As such, we are subject to applicable card association and network rules, which could subject us to a variety of fines or penalties that may be levied by the card associations or networks for certain acts and/or omissions by us, our acquirer customers, processing customers and/or merchants. For example, “EMV”“Contactless” is a credit and debit card authentication methodology that the card associations are mandating to processors, issuers, and acquirers in the payment industry. Compliance deadlines for EMVContactless mandates vary by country and by payment network. We have invested significant resources and man-hours to develop and implement this methodology in all our payment related platforms. However, we are not certain if or when our financial institution customers will use or accept the methodology and the time it will take for this technology to be rolled-out to all customer ATM and POS devices connected to our platforms or adopted by our card issuing clients. Non-compliance with EMVContactless mandates could result in lost business or financial losses from fraud or fines from network operators. We are also subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions processed by us using the Automated Clearing House Network and to various government laws regarding such operations, including laws pertaining to EBT.
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Payment Card Industry Data Security Standard
Additionally, we are subject to the Payment Card Industry Data Security Standard (the "PCI DSS"), issued by the Payment Card Industry Security Standards Council. The PCI DSS contains compliance requirements regarding our security surrounding the physical and electronic storage, processing and transmission of cardholder data.Non-compliance with the security standards required by PCI DSS may subject us to fines, restrictions and expulsion from card acceptance programs, which could materially and adversely affect our business.
Geographic Concentration
Seasonality
Our payment businesses generally experience increased activity during the traditional holiday shopping periods and around other nationally recognized holidays.holidays, which follow consumer spending patterns.
Available Information
EVERTEC’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to such reports (if applicable) filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available free of charge, through our website, http://www.evertecinc.com, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, we make available on our website under the heading of “Corporate Information”“Governance Documents” our: (i) Code of Ethics; (ii) Code of Ethics for Service Providers; (iii) Corporate Governance Guidelines; (iv) the charters of the Audit, Compensation and Nominating and Corporate Governance committees, and also we intend to disclose any amendments to the Code of Ethics. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC. The aforementioned reports and materials can also be obtained free of charge upon written request or telephoning to the following address or telephone number:
EVERTEC, Inc.
Cupey Center Building
Road, 176, Kilometer 1.3
San Juan, Puerto Rico 00926
(787) 759-9999
Our Corporate Information
We were incorporated on April 13, 2012 in Puerto Rico under the name Evertec, Inc. Our principal executive offices are located at Cupey Center Building, Road 176, Kilometer 1.3, San Juan, Puerto Rico 00926, and our telephone number is (787) 759-9999.
Item 1A. Risk Factors
Readers should carefully consider, in connection with other information disclosed in this Annual Report on Form 10-K, the risks and uncertainties described below. The following discussion sets forth somerisks that we believe are material to our stockholders and prospective stockholders. The occurrence of any of the more important risk factors that could affectfollowing risks might cause our business, financial condition, operating resultsstockholders to lose all or cash flow. However, other factors, besides those discussed below or elsewherea part of their investment in our Company. Some statements contained in this Report, or other of our reports filed with or furnished toincluding statements in the Securities and Exchange Commission (“SEC”), also could adversely affect our business, financial condition, operating results or cash flow. We cannot assure you that thefollowing risk factors described below or elsewhere in this document are a complete set of all potential risks we may face; additional risks and uncertainties not presently known to us or not believed by us to be material may also negatively impact us. These risk factors also serve to describe factors which may cause our results to differ materially from those discussed in forward looking statements included herein or in other documents or statements that make reference to this Annual Report on Form 10-K.section, constitute forward-looking statements. Please also refer to the section titled “Forward“Forward- Looking Statements” inat the beginning of this Annual Report on Form 10-K.Report.
Risks Related to Our Business
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Our services to Banco Popular, our largest customer, account for a significant portion of our revenues, and we expect that our services to Popular will continue to represent a significant portion of our revenues for the foreseeable future. In 2017, products and services billed to Popular accounted for approximately 43%Additionally, the elimination of Popular’s ownership of our total revenues.common stock could continue to result in disruptions to relationships with customers and other business partners and adversely affect us.
For the year ended December 31, 2023, approximately 35% of our revenue was attributable to Banco Popular, a wholly-owned subsidiary of Popular. The majority of Popular’s businessA&R MSA by and among Popular, Banco Popular de Puerto Rico and EVERTEC Group, is presentedour most significant client contract, and was amended and restated to include a term ending in the Business Solutions segment.2028. If Popular were to terminate fail to perform under, or fail to renewmake required payments under the Master Services Agreement (“MSA”), which currently expires in 2025,A&R MSA, or our other material agreements with Popular, our revenues could be materially reduced and our profitability and cash flows could also be materially reduced, all of which would have a material adverse impact on our financial condition and results of operations.
There is no assurance that we will be able to realize the intended benefits of the Popular Transaction, as the term is defined in turn,the "Relationship with Popular" section. Specifically, the Popular Transaction has caused disruptions, and could potentiallycontinue to cause disruptions, in our remaining businesses and has and could continue to otherwise limit our ability to renegotiatecompete for or perform certain contracts or services. The elimination of Popular’s holdings of our debt.common stock and the corresponding termination of Popular’s right to nominate directors to our Board of Directors may negatively impact our business relationship with Popular and increase the likelihood of a change of control of our Company.
Growth in our merchant acquiring business is derived primarily from acquiring new merchant relationships, new and enhanced product and service offerings, cross selling products and services into existing relationships, the shift of consumer spending to increased usage of electronic forms of payment, and the strength of our existing commercial relationship with Banco Popular. A substantial portion of our business is generated from our Amended and Restated Independent Sales Organization Sponsorship and Services Agreement (the “ISO“A&R ISO Agreement”) with Banco Popular, which expireswas amended and restated on July 1, 2022, among other things, to extend its term to end in 2025.2035.
Banco Popular acts as a merchant referral source and provides sponsorship into the ATH, Visa, Discover and MasterCard networks for merchants, as well as card association sponsorship, clearing and settlement services. We provide transaction processingtransaction-processing and related functions. Both we and Popular, as alliance partners, may provide management, sales, marketing, and other administrative services.services to merchants. Although Banco Popular is not our sole distribution channel, it is the most significant. We rely on the continuing growth of our merchant relationships, which in turn is dependent upon our alliance with Banco Popular and other distribution channels. There can be no guarantee that this growth will continue and the loss or deterioration of these relationships, whether due to the termination of the A&R ISO Agreement or otherwise, could negatively impact our business and result in a material reduction of our revenue and profit.income.
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of some merchants if BPPRBanco Popular itself enters the merchant acquiring business or associates itself withagrees to sponsor another independent sales organization. Any of these events may negatively impact our financial condition and results of operations.
Our inability to renew otheror continue to maintain client contracts aton favorable terms we could lose clients andor at all may materially adversely affect our results of operations and financial condition may be adversely affected.condition.
We are highly leveraged. As of December 31, 2017, the total principal amount of our indebtedness was approximately $624.8 million. Our high degree of leverage could have important consequences for you, including:
We rely on our information technology systems, employees and certain suppliers and counterparties, and certain failures or disruptions in those systems or chains could materially adversely affect our operations.
We rely on computer systems, hardware, software, technology infrastructure, and online sites for both internal and external operations that are critical to our business (collectively, "IT Systems"). For example, we use our IT Systems to connect with our clients, people, and others. We own and manage some of these IT Systems, but also rely on third parties for a range of IT Systems and related products and services, including but not limited to cloud computing services. We and certain of our third-party providers also collect, store, transfer, process, and use business, personal, and financial data about our own business, clients, employees, business partners, and others, including information about individuals and proprietary information belonging to our business such as trade secrets.
We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity, and availability of our IT Systems and data. These cybersecurity risks may arise from diverse threat actors, such as state-sponsored organizations and opportunistic hackers and hacktivists, as well as through diverse attack vectors, such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a result of malicious code embedded in open-source software, or misconfigurations, "bugs" or other vulnerabilities in commercial software that is integrated into our (or our suppliers' or service providers') IT Systems, products or services. Additionally, hardware, applications, or services that we develop or procure from third parties may contain defects in design or manufacture or other problems that could compromise the confidentiality, integrity, or availability of our data or IT Systems.
Cybersecurity threats and attacks, including computer viruses, malware, hacking, ransomware or other destructive or disruptive software, are constantly evolving and pose a risk to our IT Systems and data. Cybersecurity attacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools - including artificial intelligence - that circumvent security controls, evade detection, and remove forensic evidence. As a result, we may be unable to detect, investigate, remediate, or recover from future attacks or incidents, or to avoid a material adverse impact to our IT Systems, data, or business.
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There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, complied with, or effective in protecting our IT Systems and data, and our systems and processes may be unable to prevent material security breaches. Security breaches, improper use of our systems, and unauthorized access to our data and information by employees and others may pose a risk that data may be exposed to unauthorized persons or to the public. Such occurrences could adversely affect our business, results of operations, financial position, and reputation, and could result in litigation (including class actions) or regulatory investigations or enforcement actions.
In addition, we make extensive use of third-party service providers, including providers that store, transmit and process data. These third-party service providers are also subject to malicious attacks and cybersecurity threats that could adversely affect our business, results of operations, financial condition, and reputation.
Many of our services are based on sophisticated software, technology, computing systems, and other IT Systems, and we may encounter delays when developing new technology solutions and services. We and our third-party providers regularly experience cyberattacks and other incidents, and we expect such attacks and incidents to continue in varying degrees. In particular, we have experienced actual and attempted cyber-attacks of our IT Systems, such as through phishing scams, ransomware, exploitation of vulnerabilities in our IT Systems, and other methods of attack. Even though some of these attacks have been successful; none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, and we cannot guarantee that any such incidents will not have such an impact in the future. The IT Systems underlying our services have occasionally contained, and may in the future contain, undetected errors or defects when first introduced or when new versions are released. We may experience difficulties in installing or integrating our IT Systems on platforms used by our customers.
Our businesses are dependent on our ability to reliably process, record and monitor a large number of transactions. We settle funds on behalf of financial institutions, other businesses and consumers and process funds transactions from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types. Transactions facilitated by us include debit card, credit card, electronic bill payment transactions, ACH payments, electronic benefits transfer (“EBT”) transactions and check clearing that supports consumers, financial institutions, and other businesses. These payment activities rely upon technology infrastructure that facilitates the verification of activity with counterparties, the facilitation of the payment and, in some cases, the detection or prevention of fraudulent payments. If any of our financial, accounting, or other data processing systems or applications or other IT Systems fail or haveexperience other significant shortcomings, or limitations, weour ability to serve our clients and accordingly our results of operations could be materially adversely affected. Such failures or shortcomings could be the result of events that are beyond our control, which may include, for example, computer viruses, fires, electrical or telecommunications outages, natural disasters, future disease pandemics or other public health crisis, terrorist acts, political instability, or other unanticipated damage to property or physical assets. Certain of these events may become more frequent or intense as a result of climate change. For more information, see our risk factor titled "Our operations, business, customers and partners could be adversely affected by climate change". Any such shortcoming could also damage our reputation, require us to expend significant resources to correct the defect, and may result in liability to third parties, especially since some of our contractual agreements with financial institutions require the crediting of certain fees if our systems do not meet certain specified service levels.
There is also a risk that we may lose critical data or experience IT System failures. We perform the vast majority of disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery. To the extent we outsource our disaster recovery, we are at risk of the vendor’s unresponsiveness in the event of breakdowns in our IT Systems. Our property, business interruption, and cybersecurity insurance may not be adequate to compensate us for all losses or failures that may occur.
We are similarly dependent on our employees. Weemployees to maintain our IT Systems. Our operations could be materially adversely affected if one of ouror more employees causescause a significant operational breakdown or failure, either intentionally or as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. Thirderror. Suppliers and third parties with which we do business could also be sources of operational risk to us, including relating to breakdowns or failures of such parties’ own systems or employees. Any of these occurrences could diminish our ability to operate one or more of our businesses, or result in potential liability to clients, reputational damage and regulatory intervention or fines, any of which could materially adversely affect us.our financial condition or results of operations.
We may beare subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses or electrical or telecommunications outages, natural disasters, disease
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As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive businesscustomer information of our customers. In addition, we collectand personal consumer data, such as names and addresses, social security numbers, driver’s license numbers, cardholder data and payment history records. The uninterrupted operation of ourrecords, as well as proprietary information systems and the confidentiality of the customer/consumer information that resides on such systems are critical to the successful operations of our business. Despite the safeguards we have in place, unauthorized accessbelonging to our computer systemsbusiness or databases could result in the theft or publication of confidential information, the deletion or modification of records or could otherwise cause interruptions in our operations. These risks are increased when we transmit information over the Internet. Our visibility in the global payments industry may attract hackers to conduct attacks on our systems that could compromise the security of our data or could cause interruptions in the operations of our businesses and subject us to increased costs, litigation and other liabilities. There is also a possibility of mishandling or misuse, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees acting contrary to our policies, or where such information is intercepted or otherwise improperly taken by third parties. An information breach in the systembusiness partners (collectively, "Confidential Information"). We also operate payment, cash access and loss of confidential information such as creditelectronic card numbers and related information could have a longer and more significant impact on the business operations than a hardware failure and could result in claims against us for misuse of personal information, such as identity theft.
Actual or perceived vulnerabilities or data breaches may lead to claims against us, which may require us to spend significant additional developmentresources to remediate by addressing problems caused by breaches and remediation costs; (4) diversion of technicalfurther protect against security or privacy breaches. Additionally, while we maintain insurance policies specifically for cyber-attacks, our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and other resources; (5)we may not be able to collect fully, if at all, under these insurance policies. A significant security breach, such as loss of customers; (6) negative publicity and loss of reputation;credit card numbers or (7) exposure to liability claims.
Our ability to recruit, retain and develop qualified personnel is critical to our success and growth.
All our businesses require a wide range of expertise and intellectual capital to adapt to the rapidly changing technological, social, economic and regulatory environments. In order to successfully compete and grow, we must recruit, retain and develop personnel who can provide the necessary expertise across a broad spectrum of intellectual capital needs. In addition, we must develop, maintain and, as necessary, implement appropriate succession plans to assure we have the necessary human resources capable of maintaining continuity in our business. The market for qualified personnel is competitive and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. In addition, from time to time, there may be changes in our management team that may be disruptive to our business. If our management team, including new hires that we make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability, and may not have the desired effect. We cannot assure that key personnel, including our executive officers, will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to recruit, retain or develop qualified personnel could adversely affect our business, financial condition or results of operations.
Failure to comply with federal, state and foreign laws and regulations relating to data privacy and security, or the expansion of current, or the enactment of new, laws or regulations relating to data privacy and security, could adversely affect our business, financial condition and operating results.
While we are not a direct-to-consumer business, we do collect, process, store, use and share personal data of our employees and business partners, which is governed by a variety of U.S. federal and state and foreign laws and regulations. Laws and regulations relating to data privacy and security are complex and rapidly evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As we seek to expand our business, we are, and may increasingly become, subject to various laws, regulations, standards, and contractual obligations relating to data privacy and security in the jurisdictions in which we operate.
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Certain states in the United States and most countries have adopted privacy and security laws that may apply to our business. These laws generally require companies to implement specific privacy and information security controls and legal protections to protect certain types of personal information and to collect or use it subject to disclosures. Additional compliance investment and potential business process changes may continue to be required as these laws and others go into effect. Further, in order to comply with the varying state laws around data breaches, we must maintain adequate security measures, which require significant investments in resources and ongoing attention. Additionally, our customers and business partners are imposing more stringent obligations on us in the form of contracts regarding privacy and information security. Even though we believe we and our vendors are generally in compliance with applicable laws, rules and regulations relating to privacy and data security, these laws are in some cases relatively new and the interpretation and application of these laws are uncertain.
Despite our efforts, our practices may not comply, now or in the future, with all such laws, regulations, requirements, and obligations. Any failure, or perceived failure, by us to comply with our posted privacy and security-related policies or with any current or future federal or state data privacy or security-related laws, regulations, regulatory guidance, orders, or other legal obligations relating to privacy or security could adversely affect our reputation, brand and business, and may result in claims, proceedings, or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets, and may otherwise adversely affect our financial condition and operating results. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations, or other legal obligations relating to privacy or security or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
Fraud by merchants or others could adversely affect our business, financial condition or results of operations.
We are subject to the credit risk that our merchants will be unable to satisfy obligations for which we may also be liable.
We are subject to the credit risk of our merchants being unable to satisfy obligations for which we also may be liable. For example, as the merchant acquirer, we are contingently liable for transactions originally acquired by us that are disputed by the cardholder and charged back to the merchants. For certain merchants, if we are unable to collect amounts paid to cardholders in the form of refunds or chargebacks from the merchant, we bear the loss for those amounts. A default on payment obligations by one or more of our merchants could have a material adverse effect on our business.
Our ability to adopt technology to changing industry and customer needs or trends may affect our competitiveness or demand for our products, which may adversely affect our operating results.results of operations.
Changes in technology may limit the competitiveness of and demand for our services. Our businesses operate in industries that are subject to technological advancements, developing industry standards and changing customer needs and preferences. Our business strategy may not effectively respond to these changes, and we may fail to recognize and position ourselves to capitalize upon market opportunities. Also, our customers continue to adopt new technology for business and personal uses. We must anticipate and respond to these industry and customer changes in order to remain competitive within our relative markets. Our inability to respond to new competitors and technological advancements could impact all of our businesses. For example, the abilityinability to adopt technological advancements surrounding POS technology available to merchants could have ana material and adverse impact on our merchant acquiring business.
Our use of artificial intelligence and machine learning tools may subject us to additional risks and may adversely impact our reputation and the performance of our products, service offerings and business.
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We use machine learning, artificial intelligence, and automated decision making technologies, including proprietary artificial intelligence and machine learning algorithms throughout our business, and are making significant investments to continuously improve our use of such technologies.
There are significant risks involved in developing, maintaining and deploying these technologies and there can be no assurance that the usage of such technologies will always enhance our products or services or be beneficial to our business, including our efficiency or profitability. Furthermore, our use of artificial intelligence and machine learning technologies may result in legal and regulatory risks and any resulting investigations or litigation could have an adverse impact on our business, financial condition, and results of our operations.
A number of aspects of intellectual property protection in the field of artificial intelligence and machine learning are currently under development, and there is uncertainty and ongoing litigation in different jurisdictions as to the degree and extent of protection warranted for artificial intelligence and machine learning systems and relevant system input and outputs. If we fail to obtain protection for the intellectual property rights concerning our artificial intelligence and machine learning technologies, or later have our intellectual property rights invalidated or otherwise diminished, our competitors may be able to take advantage of our research and development efforts to develop competing products.
Consolidations in the banking and financial services industry could adversely affect our revenues by eliminating existing or potential clients and making us more dependent on a more limited number of clients.
If the number of electronic and digital payment transactions of the type we process does not continue to grow, if there are other, more attractive emerging means of payments or if businesses or consumers discontinue adopting our services, it could have a material adverse effect on the profitability of our business, financial position, and results of operations. We believe future growth in the use of credit, risk that our merchantsdebit and other electronic and digital payments will be unable to satisfy obligations for which we may also be liable.
Changes in credit card association or other network rules or standards could adversely affect our business.
In order to provide our transaction processingtransaction-processing services, several of our subsidiaries are registered with or certified by Visa, Discover and MasterCard and other networks as members or as service providers for member institutions. As such, we and many of our customers are subject to card association and network rules that could subject us or our customers to a variety of fines or penalties that may be levied by the card associations or networks for certain acts or omissions by us, acquirer customers, processing customers and merchants. Visa, Discover, MasterCard and other networks, some of which are our competitors, set the standards with respect to which we must comply. The termination of Banco Popular’s or our subsidiaries’ member registration or our subsidiaries’ status as a certified service provider, or any changes in card association or other network rules or standards, including interpretation and implementation of the rules or standards, that increase the cost of doing business or limit our ability to provide transaction processingtransaction-processing services to or through our customers, could have an adverse effect on our business, operating results of operations and financial condition.
Additionally, we are subject to the PCI DSS, issued by the Payment Card Industry Security Standards Council. The PCI DSS contains compliance requirements regarding our security surrounding the physical and electronic storage, processing and
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transmission of cardholder data. If we or our service providers are unable to comply with the security standards required by PCI DSS, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which would materially and adversely affect our business. Additionally, costs and potential problems and interruptions associated with the implementation of new or upgraded IT Systems such as those necessary to maintain compliance with the PCI DSS or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment related systems could have a material adverse effect on our business, financial condition and results of operations.
Changes in interchange fees or other fees charged by credit card associations and debit networks could increase our costs or otherwise materially adversely affect our business.
From time to time, card associations and debit networks change interchange, processing, and other fees, which could impact our merchant acquiring and payment services businesses. It is possible that competitiveCompetitive pressures willcould result in our merchant acquiring and payment services businesses absorbing a portion of such increases in the future, which would increase our operating costs, reduce our profit margin, and adversely affect our business, operating results of operations and financial condition.
Our business is subject to the laws, rules, regulations, and policies in the countries in which we operate, as well as the legal interpretation of such regulations by administrative bodies and the judiciary of those countries. The expansion of our business may also result in increased regulatory oversight and examination. As a regulated institution,enforcement, as well as any claims by regulatory agencies and courts that we may beare required to obtain regulatory approval before engaginglicenses to engage in certain new activitiesbusiness activity.
Enforcement of, failure, or businesses, whether organically or by acquisition.
Privacy and Data Protection
Our business relies on the processing of data in multiple jurisdictions and the movement of data across national borders. Legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of personal data continues to evolve, and regulatory scrutiny in this area is increasing around the world. Significant uncertainty exists as privacy and data protection laws may differ from country to country and may create inconsistent or conflicting requirements. Our ongoing efforts to comply with privacy, cybersecurity, and data protection laws may entail expenses, may divert resources from other initiatives and projects, and could limit the service we are able to offer. Enforcement actions and investigations by regulatory authorities related to data security incidents and privacy actions or investigations could damage our reputation and impact us through increased costs or restrictions on our business, and noncompliance could result in regulatory penalties and significant legal liability.
Although we make reasonable efforts to comply with all applicable data protection laws and regulations, our interpretations and efforts may have been or may prove to be insufficient or incorrect. We also make public statements about our use and disclosure of personal information through our privacy policy, information provided on our website and other public statements. Although we endeavor to ensure that our public statements are complete, accurate and fully implemented, we may at times fail to do so or be alleged to have failed to do so. We may be subject to potential regulatory or other legal action if such policies or statements are found to be deceptive, unfair or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our products and services compromise the privacy of our customers and others. Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us to comply
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with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us, could cause our customers, riders and users to reduce their use of our products and services.
Banking
In general, financial institution regulators require their supervised institutions to cause their service providers to agree to certain terms and to agree to supervision and oversight by applicable financial regulators, primarily to protect the safety and soundness of the financial institution. We have agreed to such terms and provisions in many of our service agreements with financial institutions.
We and our customers are also generally subject to U.S. federal, Puerto Rico and other countries’ laws, rules and regulations that affect the electronic payments industry. Our customers are subjectindustry, including with respect to numerous laws, rules and regulations applicable to banks, financial institutions, processors and card issuers in the United States and abroad. We are subject to regulation because of our activities in the countries where we carry them outoperate and because ofdue to our relationship with Popular,customers that are subject to banking and at times we are also affected by the laws, rules and regulations to which our customers are subject. Failure to comply with any of these laws, rules and regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of service, and/or the imposition of civil and criminal penalties,financial regulation, including fines which could have an adverse effect on our financial condition. In addition, even an inadvertent failure by us to comply with laws, rules and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our reputation or brands.Popular.
Regulation of the electronic payment card industry including regulations applicable to us and our customers, has increased significantly in recent years. There is also continued scrutiny by the U.S. Congress of the manner in which payment card networks and card issuers set various fees, from which some of our customers derive significant revenue. For example, on
We are also subject to the Export Administration Regulations (“EAR”) administered by the U.S. Department of Commerce’s Bureau of Industry and Security, which regulates the export, re-export and re-transfer abroad of covered items made or originating in the United States as well as the transfer of covered U.S.-origin technology abroad. We have adopted an Export Management Compliance Policy, a comprehensive compliance program under which the goods and technologies that we export are identified and classified under the EAR to make sure they are being exported in compliance with the requirements of the EAR. However, thereThere can be no assurance that we have not violated the EAR in past transactions or that our new policies and procedures will prevent us from violating the EAR in every transaction in which we engage. Any such violations of the EAR could result in fines, penalties or other sanctions being imposed on us, which could negatively affect our business, operating results of operations and financial condition.
We and our subsidiaries conduct business with financial institutions and/or card payment networks operating in countries whose nationals, including some of our customers’ customers, engage in transactions in countries that are the targets of U.S. economic sanctions and embargoes. If we are found to have failed to comply with applicable U.S. sanctions laws and
Because we process transactions on behalf of the aforementioned financial institutions through the aforementioned payment networks, we have processed a limited number of transactions potentially involving sanctioned countries and there can be no assurances that, in the future, we will not inadvertently process such transactions. Due to a variety of factors, including technical failures and limitations of our transaction screening process, conflicts between U.S. and local laws, political or other concerns in certain countries in which we and our subsidiaries operate, and/or failures in our ability to effectively to control employees operating in certain non-U.S. subsidiaries, we have not rejected every transaction originating from or otherwise involving sanctioned countries, or persons and there can be no assurances that, in the future, we will not inadvertently fail to reject such transactions.
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Due to OFAC in 2010 (the "2010 Disclosures") regarding potential violationsour ownership of the Cuban Assets Control Regulations (“CACR”) by EVERTEC Group, its subsidiaryATH network and our merchant acquiring and payment services business in Costa Rica,Puerto Rico, we are involved in a significant percentage of the debit and a former subsidiary in Venezuela that involved processing Cuba-related credit and debit card transactions conducted in Puerto Rico each day. We have in the past been subject to regulatory investigations and shortcomings in sanctions screening processes. In addition, Popular filed a voluntary disclosure with OFAC in 2013 (the "2013 Disclosure") regarding potential violationsany future regulatory scrutiny of, the CACRor regulatory enforcement action in connection with, compliance with U.S. state and federal antitrust requirements could potentially have a material adverse effect on our reputation and business. In addition, we are subject to applicable antitrust requirements in each of the countries in which we operate. All of these laws and requirements may affect potential acquisitions in the relevant jurisdictions.
ESG Regulatory Developments
The recent emphasis on environmental, social and other sustainability matters has resulted and may continue to result in the adoption of new laws and regulations, including new reporting requirements. For example, various policymakers, including the SEC, have adopted (or are considering adopting) requirements for the disclosure of certain routed debit card transactionsclimate-related information or other environmental, social and governance ("ESG") disclosures. Compliance with environmental, social and other sustainability laws, regulations, expectations or reporting requirements may result in increased compliance costs, as well as additional scrutiny. It is possible that other types of environmental and social regulations, for example regulations regarding the use of energy or water or regulations regarding human capital management matters, may also result in increased costs. Moreover, if we fail to comply with new laws, regulations, expectations or reporting requirements, or if we are perceived as failing, our reputation and business could be adversely impacted. Any reputational damage associated with ESG factors may also adversely impact our ability to recruit and retain employees and customers.
We are subject to a series of risks associated with scrutiny of environmental, social, and sustainability matters.
Companies across industries are facing increasing scrutiny from a variety of stakeholders related to their ESG practices. For example, various groups produce ESG scores or ratings based at least in part on a company’s ESG disclosures, and certain market participants, including institutional investors and capital providers, use such ratings to assess companies’ ESG profiles. Unfavorable perceptions of our ESG performance could negatively impact our business, whether from a reputational perspective, through a reduction in interest in purchasing our stock or products, issues in attracting/retaining employees, customers and business partners, or otherwise. Simultaneously, there are efforts by Tranredsome stakeholders to reduce companies’ efforts on certain ESG-related matters. Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business.
While we have engaged in, and expect to continue to engage in, certain voluntary initiatives (such as voluntary disclosures, certifications, or goals) to improve the ESG profile of our company and/or products or respond to stakeholder concerns, such initiatives may be costly and may not have the desired effect. Expectations around companies’ management of ESG matters continue to evolve rapidly, in many instances due to factors that are out of our control.For example, our actions or statements that we may make based on expectations, assumptions, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous or not in keeping with best practice. If we fail to, or are perceived to fail to, comply with or advance certain ESG initiatives (including the manner in which we complete such initiatives), we may be subject to various adverse impacts, including reputational damage and potential stakeholder engagement and/or litigation, even if such initiatives are currently voluntary. There are also increasing regulatory expectations for ESG matters. This and other stakeholder expectations will likely lead to increased costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, many of our customers, business partners, and suppliers may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us.
Puerto Rico’s fiscal crisis could have been representativea material adverse effect on our business and the trading price of transactionsour common stock.
For the years ended December 31, 2023 and 2022, approximately 73% and 78%, respectively, of our total revenues were generated from our operations in Puerto Rico. Some revenues that occurred priorare generated from our operations outside Puerto Rico are dependent upon our operations in Puerto Rico. As a result, our financial condition and results of operations are highly dependent on the economic and political conditions in Puerto Rico, and could be significantly impacted by adverse economic or political developments in Puerto Rico, including adverse effects on the trading price of our common stock, our customer base, general consumer spending and the timeliness of the government’s payments, thus increasing our government accounts receivable, and potentially impairing the collectability of those accounts receivable. As of December 31, 2023, we had net receivables of $11.1 million from the Government and certain public corporations.
A protracted government shutdown could negatively affect our financial condition.
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During any protracted federal government shutdown, the federal government may reduce or cut funding for certain welfare and disaster relief programs. Beneficiaries of certain federal programs, such as the Supplemental Nutrition Assistance Program (SNAP), obtain their benefits through EBT accounts. A temporary or permanent reduction in federal welfare and relief programs could lead to October 2010, whena decrease in electronic benefit card volume. The effect of a protracted government shutdown may materially and adversely affect our revenues, profitability, and cash flows.
Puerto Rico’s economy, including the entity was underongoing financial crisis and the ownershipeffects of potential natural disasters, including weather events connected to climate change, or future disease pandemics or other public health crisis, could have a prolonged negative impact on the countries and controlmarkets in which we operate and, as a result, could have a material adverse effect on our business and results of EVERTEC.operations.
As a result of Puerto Rico’s high cost of electricity and governmental financial crisis, businesses may be reluctant to establish or expand their operations in Puerto Rico and the Caribbean, or might consider closing operations currently in such locations. If companies in the financial services and related industries decide not to commence new operations or not to expand their existing operations in Puerto Rico, or consider closing operations in Puerto Rico, the demand for our services could be negatively affected.
Our operations, business, customers and partners could be adversely affected by climate change.
There are increasing and rapidly evolving concerns over the risks of climate change and related environmental sustainability matters. Our operations, business, customers and partners could be adversely affected by climate change. The physical risks of climate change include rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters. Such events and disasters could disrupt our operations or the operations of customers or third parties on which we rely and could result in market volatility. Additionally, we may face risks related to the transition to a low-carbon economy. We could experience increased expenses resulting from strategic planning, litigation and changes to our technology, operations, products and services, access to energy and water, as well as reputational harm as a result of negative public sentiment, regulatory scrutiny and reduced stakeholder confidence, due to our response to climate change or real or perceived vulnerability to climate change-related risks. Changes in consumer preferences, travel patterns and legal requirements could increase expenses or otherwise adversely impact our business, customers and partners.
We are exposed to risks associated with our presence in international markets, including global political, social and economic instability.
Our financial performance and results of operations may be adversely affected by general economic, political, and social conditions and uncertainty in the international markets in which we operate. Many countries in Latin America have suffered significant political, social and economic crises in the past, including as a result of the COVID-19 pandemic and the related restrictions imposed to mitigate its impact, as well as the resulting macroeconomic slowdown, and these events may occur again in the future. Instability in Latin America has been caused by many different factors, including (i) exposure to foreign exchange
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variation, (ii) significant governmental influence over local economies; (iii) substantial fluctuations in economic growth; (iv) instability in the banking sector and high inflation levels or domestic interest rates; (v) wage, price or exchange controls, or restrictions on expatriation of earnings; (vi) changes in governmental economic or tax policies or unexpected changes in regulation which may restrict the movement of funds or results in the deprivation of contract or property rights; (vii) imposition of trade barriers; (viii) terrorist attacks and other acts of violence or war; (ix) high unemployment; and (x) overall political, social, and economic disruptions. Any of these events in the markets in which we operate could result in a material adverse impact on our customers and our business.
Failure to protect our intellectual property rights and defend ourselves from potential intellectual property infringement claims may diminish our competitive advantages or restrict us from delivering our services.services, which could result in a material and adverse impact on our business operations.
Our trademarks, proprietary software, and other intellectual property, including technology/software licenses, are important to our future success. For example, the ATH trademark and trade name is recognized in Latin America and the Caribbean. Therefore, such marks represent substantial intangible assets and are important to our business. Limitations or restrictions on our ability to use such marks or a diminution in the perceived quality associated therewith could have an adverse impact on the growth of our businesses. We also rely on proprietary software and technology, including third party software that is used under licenses. It is possible that others will independently develop the same or similar software or technology, which would permit them to compete with us more efficiently. Furthermore, if any of the third party software or technology licenses are terminated or otherwise determined to be unenforceable, then we would have to obtain a comparable license, which may involve increased license fees and other costs.
Assertions by third parties of infringement or other violations by us of their intellectual property rights, whether or not correct, could result in significant costs and harm our business and operating results.
Third parties may in the electronic commerce market will be driven byfuture assert claims of infringement, misappropriation or other violations of intellectual property rights against us. They may also assert such claims against our customers or reseller partners, whom we typically indemnify against claims that our products and services infringe, misappropriate, or otherwise violate the cost, ease-of-use,intellectual property rights of third parties. If we do infringe a third party’s rights and qualityare unable to provide a sufficient workaround, we may need to negotiate with holders of those rights to obtain a license to those rights or otherwise settle any infringement claim as a party that makes a claim of infringement against us may obtain an injunction preventing us from shipping products containing the allegedly infringing technology. As the number of products and competitors in our market increase and overlaps occur, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.
Future assertions of patent rights by third parties, and any resulting litigation, may involve patent holding companies or other adverse patent owners who have no relevant product revenues and against whom our own patents may therefore provide little or no deterrence or protection. There can be no assurance that we will not be found to infringe or otherwise violate any third-party intellectual property rights or to have done so in the past.
Any events of such nature could seriously harm our business, financial condition, and results of operations. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. We expect that the occurrence of infringement claims is likely to grow as the market for our products and
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solutions grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.
We incorporate technology and components from third parties into our products, and our inability to obtain or maintain rights to the technology could harm our business.
We incorporate technology and software from third parties into our products. We cannot be certain that our vendors and licensors are not infringing the intellectual property rights of third parties or that the vendors and licensors have sufficient rights to the software and technology in all jurisdictions in which it may sell our products. If we are unable to obtain or maintain rights to any of this software or technology because of intellectual property infringement claims brought by third parties against our vendors and licensors or against us, or if we are unable to continue to obtain such software and technology or enter into new agreements on commercially reasonable terms, our ability to develop and sell products, subscriptions and services offeredcontaining such software and technology could be severely limited, and our business could be harmed. Further, disputes with vendors and licensors over uses or terms could result in the payment of additional royalties or penalties by us, cancellation or non-renewal of the underlying license or litigation. Any such event could have a material and adverse impact on our business, financial condition, and results of operation. Additionally, if we are unable to consumersobtain necessary software or technology from third parties, we may be forced to acquire or develop alternative software and businesses.technology, which may require significant time, cost and effort and may be of lower quality or performance standards. This would limit or delay our ability to offer new or competitive products and increase our costs. If alternative software or technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our products, subscriptions and services. As a result, our margins, market share and results of operations could be significantly harmed.
Our use of "open source" software could subject our proprietary software to general release, negatively affect our ability to offer our products and subject us to possible litigation.
We have used “open source” software in connection with the development and deployment of some of our software products, and we expect to continue to use open source software in the future.
Companies that incorporate open-source software into their products have, from time to time, faced claims challenging the use of open source software and compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open-source software or claiming noncompliance with open source licensing terms. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, we cannot guarantee that we will be successful, that all open source software is reviewed prior to use in our products, that our developers have not incorporated open source software into our products that we are unaware of or that they will not do so in the future.
In addition to risks related to license requirements, use of certain open-source software carries greater technical and legal risks than does the use of third-party commercial software. To the extent that our products depend upon the successful operation of open-source software, any undetected errors or defects in open source software that we use could prevent the deployment or impair the functionality of our systems and injure our reputation. In addition, the public availability of such software may make it easier for others to compromise our products. Any of the foregoing risks could materially and adversely affect our business, financial condition, and results of operations.
Confidentiality arrangements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We have devoted substantial resources to the development of our technology, business operations and business plans. In order to consistently increaseprotect our trade secrets and maintainproprietary information, we rely in significant part on confidentiality arrangements with our profitability, consumersemployees, licensees, independent contractors, advisors, suppliers, reseller partners, and businesses must continuecustomers. Further, despite these efforts, these arrangements may not be effective to adoptprevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our services.technologies that we consider proprietary. In addition, if others independently develop equivalent knowledge, methods, and know-how, we would not be able to assert trade secret rights against such parties. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary information will be effective.
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If EVERTEC Group does not comply with the terms of theits preferential tax exemption grant, EVERTEC Groupit may be subject to reduction of the benefits of the grant, tax penalties, other payment obligations or full revocation of the grant, which could have a material adverse effect on our financial condition, results of operations and our stock price.
EVERTEC Group has a tax exemption grant under the Tax Incentive Act No. 73 of 2008 from the Government of Puerto Rico. Under this grant, EVERTEC Group will benefit from a preferential income tax rate of 4% on industrial development income, as well as from tax exemptions with respect to its municipal and property tax obligations for certain activities derived from its data processing operations in Puerto Rico. The grant has a term of 15 years effective as of January 1, 2012 with respect to income tax obligations and July 1, 2013 and January 1, 2013 with respect to municipal and property tax obligations, respectively.
The grant contains customary commitments, conditions, and representations that EVERTEC Group will beis required to comply with in order to maintain the grant. The more significant commitments include: (i) maintaining at least 750 employees in EVERTEC Group’s Puerto Rico data processing operations during 2012 and at least 700 employees for the remaining years of the grant, (ii) investing at least $200.0 million in building, machinery, equipment or computer programs to be used in Puerto Rico during the effective term of the grant (to be made over four year capital investment cycles in $50.0 million increments), (iii) an additional best efforts capital investments requirement of $75.0 million by December 31, 2026 (to be made over four year capital investment cycles in $20.0 million the first three increments and $15.0 million the last increment); and (iv) 80% of EVERTEC Group employees must be residents of Puerto Rico. Failure to meet the requirements could result, among other
things, in reductions in the benefits of the grant, tax penalties, other payment obligations or revocation of the grant in its entirety, which could have a material adverse effect on our financial condition and results of operations.
The enactment of legislation implementing changes in tax legislation or policies in different geographic jurisdictions including the United States could materially impact our business, financial condition and results of operations.
We conduct business and file income tax returns in several jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof (such as the recent United States Inflation Reduction Act which, among other changes, introduced a 15% corporate minimum tax on certain United States corporations and a 1% excise tax on certain stock redemptions by United States corporations, which the U.S. Treasury indicated may also apply to certain stock redemptions by a foreign corporation funded by certain United States affiliates); tax policy initiatives and reforms (such as those related to the Organization for Economic Co-Operation and Development’s (“OECD”) Base Erosion and Profit Shifting, or BEPS, project and other initiatives); the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends, royalties and interest paid.
We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our Consolidated Statement of Financial Position, and otherwise affect our future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our stock price.stockholders and increase the complexity, burden and cost of tax compliance.
We are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and results of operations.
The markets in which we operate have experienced historically high levels of inflation.As inflation rates continue to increase or if they persist for a holdingprolonged period of time, they may continue to affect our expenses, including, but not limited to, increased employee compensation expenses and benefits as well as increased general administrative costs. In addition, inflation has driven a rising interest rate environment, which has had an adverse effect on our cost of funding, as well as led to enhanced volatility on foreign currency exchange rates.
In the event inflation remains elevated or continues to increase, we may seek to increase the sales prices of our products and services in order to maintain satisfactory margins. Any attempts to offset cost increases with price increases may result in reduced sales, increase customer dissatisfaction or otherwise harm our reputation. Moreover, to the extent inflation has other adverse effects on the market, it may adversely affect our business, financial condition and results of operations.
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Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute shareholder value, and adversely affect our business, financial condition and results of operations.
We may in the future seek to acquire or invest in businesses, joint ventures, products and platform capabilities, or technologies that we believe could complement or expand our products and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. For example, in November 2023, we completed a the Sinqia Transaction, pursuant to which, among other things, Sinqia became a wholly-owned subsidiary of Evertec BR. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel, or operations of the acquired companies, particularly if we are unable to retain the key personnel of the acquired company, and rely on dividendstheir software is not easily adapted to work with our existing platforms, or we have difficulty retaining customer, vendors and other payments, advancesrelationships of any acquired business due to changes in ownership, management, or otherwise. These transactions may also disrupt our business, divert our resources, and transfersrequire significant management attention that would otherwise be available for development of fundsour existing businesses. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in substantial impairment charges.
In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into agreements with any particular strategic partner. We expect that certain of our competitors, many of which have greater resources than we do, will compete with us in acquiring complementary businesses or products. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are often subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we may not be able to consummate an acquisition that we believe is in our best interests and may incur significant costs. These transactions could also result in transaction fees, dilutive issuances of our equity securities, incurrence of debt or contingent liabilities, and fluctuations in quarterly results and expenses. Further, if the resulting business from our subsidiariessuch a transaction fails to meet our obligationsexpectations, our business, financial condition and pay any dividends.results of operations may be adversely affected, or we may be exposed to unknown risks or liabilities.
We have no directmay acquire businesses located primarily or entirely outside the United States which could increase our current exposure to international operations or significant assets other than the ownership of 100% of the membership interest of Holdings, which in turn has no significant assets other than ownership of 100% of the membership interest of EVERTEC Group. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, and to pay any dividends with respect to our common stock. Legal and contractual restrictionslocated in the senior secured credit facilitiesCaribbean and other agreementsLatin America including currency exchange fluctuations, regulatory and organizational complexity, and varying economic, climatic and geopolitical circumstances.
We may not realize the anticipated benefits of our merger with Sinqia, which may govern future indebtedness ofadversely affect our subsidiaries, as well as the financial condition and, operating requirements ofresults.
In November 2023, we completed a business combination with Sinqia. We believe this complementary acquisition will enhance our subsidiaries, may limitgrowth strategy, diversify our business, expand our addressable markets, increase our product offerings and drive synergies over time. Achieving these benefits will depend, in part, on our ability to obtain cashintegrate Sinqia's business successfully and efficiently. Moreover, the successful integration of the Sinqia business will require significant management attention, and may divert the attention of management from our subsidiaries. The earnings from, or other available assetsbusiness and operational issues.
If we are not able to successfully complete these integrations in an efficient and cost-effective manner, the anticipated benefits of our subsidiariesthis merger may not be sufficientrealized fully, or at all, or may take longer to pay dividends or make distributions or loans or enable us to pay any dividends on our common stock or other obligations.
Risks Related to restate our financial results. Our failure to file timelySecurities, Corporate Structure and file materially complete and accurate financial information in our reports with the SEC could lead to a number of adverse consequences, including a loss of confidence by our investors, a default under our credit facility, or a violation of NYSE’s listing rules that could lead to our delisting. Any of these results could have a material adverse effect on our business and results of operations and on the trading price of our common stock.Governance
Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of shares of our common stock.
We may sell additional shares of common stock in subsequent public offerings or otherwise, including financing acquisitions. Our amended and restated certificate of incorporation authorizes us to issue 206,000,000 shares of common stock, of which 72,394,04365,450,799 are outstanding as of JanuaryDecember 31, 2018.2023. All of these shares, other than the 11,654,803 shares held by Popular and the866,616 shares held by our officers and directors as of December 31, 2023 are freely transferable without restriction or further registration under the Securities Act.
We cannot predict the size of future issuances of our common stock or the effect, if any that future issuances and sales of our
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common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including any shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
We have no direct operations or reports aboutsignificant assets other than the ownership of 100% of the membership interest of Holdings, which in turn has no significant assets other than ownership of 100% of the membership interest of EVERTEC Group. Given that we conduct our company, or if they issue unfavorable commentary about us oroperations through our industry or downgradesubsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, and to pay any dividends with respect to our common stock. Legal and contractual restrictions in our existing secured credit facilities and other agreements which may govern future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. We are prohibited from paying any cash dividend on our common stock unless we satisfy certain conditions. The secured credit facilities also include limitations on the priceability of our common stock could decline.
subsidiaries to pay dividends to us. The trading market forearnings from, or other available assets of, our common stock will depend in partsubsidiaries may not be sufficient to pay dividends or make distributions or loans or enable us to pay any dividends on the research and reports that third party securities analysts publish about our company and our industry. One or more analysts could downgrade our common stock or issue other negative commentary about our company or our industry. In addition, we may be unable or slow to attract research coverage.obligations.
Our organizational documents and Stockholder Agreement may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
Provisions of our amended and restated certificate of incorporation, and amended and restated bylaws and the Stockholder Agreement may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our Board and/or Popular.Board. These provisions include:
•prohibiting cumulative voting in the election of directors;
•authorizing the issuance of “blank check” preferred stock without any need for action by stockholders other than Popular (as further described below);
•prohibiting stockholders from acting by written consent unless the action is taken by unanimous written consent; and
•establishing advance notice requirements for nominations for election to our Board or for proposing matters that can be acted on by stockholders at stockholder meetings, which advance notice requirements are not applicable to any directors nominated in accordance with the terms of the Stockholder Agreement.meetings.
Our issuance of shares of preferred stock could delay or prevent a change in control of us. Our Board has authority to issue shares of preferred stock, subject to the approval of at least one director nominated by Popular for so long as it, together with its respective affiliates, owns at least 10% of our outstanding common stock. Our Board may issue preferred stock in one or more series, designate the number of shares constituting any series, and fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of our preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares. In addition, Popular, under and subject to the Stockholder Agreement and our organizational documents, will retain significant influence over matters requiring board or stockholder approval, including the election of directors. See “Certain Relationships and Related Party Transactions-Related Party Transactions”. Together, our amended and restated certificate of incorporation, bylaws and Stockholder Agreement could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions as well as the significant common stock owned by Popular and its individual right to nominate a specified number of directors in certain circumstances, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
The market price of our common stock may be volatile.
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which may be beyond our control. These factors include the perceived prospects for or actual operating results of our business; changes in estimates of our operating results by analysts, investors or our management; our actual operating results relative to such estimates or expectations; actions or announcements by us, our agents, or our competitors; litigation and judicial decisions; legislative or regulatory actions; and changes in general economic or market conditions. In addition, the stock market in general has from time to time experienced extreme price and volume fluctuations. These market fluctuations could reduce the market price of our common stock for reasons unrelated to our operating performance.
From time to time we are subject to various legal proceedings which could adversely affect our business, financial condition or results of operations.
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We are involved in various litigation matters from time to time. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Our insurance or indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
We continue to incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange (The "NYSE") and other applicable securities laws and regulations. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs. Furthermore, if we are unable to satisfy our obligations as a public company or the specific timing of such costs, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
Short selling is the practice of selling securities that the seller does not own, but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. It is therefore in the short seller’s interest for the price of the stock to decline, and some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, often involving misrepresentations of the issuer’s business prospects and similar matters calculated to create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short.
As a public entity, we may be the subject of concerted efforts by short sellers to spread negative information in order to gain a market advantage. In addition, the publication of misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact our business, financial condition, and reputation. There are no assurances that we will not face short sellers’ efforts or similar tactics in the future, and the market price of our stock may decline as a result of their actions.
Risks Related to Our Indebtedness
As of December 31, 2023, the risks associatedtotal principal amount of our indebtedness was approximately $993.5 million. Our degree of leverage could have a significant impact on us, including (i) increasing our vulnerability to adverse economic, industry or competitive developments; (ii) requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, reducing our ability to use our cash flow for other purposes, including for our operations, capital expenditures and future business opportunities; (iii) exposing us to the risk of increased interest rates because our borrowings are predominantly at variable rates of interest; (iv) making it difficult for us to satisfy our indebtedness obligations generally, including complying with restrictive covenants and borrowing conditions, our substantial indebtedness.noncompliance with which could result in an event of default under the agreements setting forth the terms of such indebtedness; (v) restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; (vi) limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, business development, debt service requirements, acquisitions and general corporate or other purposes; and (vii) limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage to competitors who may be less highly leveraged.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future, some of which may be secured. Although the agreement governing our senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.
In addition to the $88.0$194.0 million which was available for borrowing under our revolving credit facility as of December 31, 2017,
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2023, the terms of the senior secured credit facilities enable us to increase the amount available under the term loan and/or revolving credit facilities if we are able to obtain loan commitments from banks and satisfy certain other conditions. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we face would increase.
Further, borrowings under our secured credit facilities are at variable rates of interest and are exposed to market risk due to the floating interest rates. Our results of operations, cash flows and financial position could be affected adversely by significant fluctuations in interest rates from current levels.
If we are unable to comply with covenants in our debt instruments that limit our flexibility in operating our business or obligate us to take action such as deliver financial reports, we may default under our debt instruments and our indebtedness may become due.
The agreement governingsetting forth the seniorterms of the secured credit facilities contain,contains, and any future indebtedness we incur may contain, various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability and our restricted subsidiaries’ ability to, among other things:
(i) incur or guarantee additional indebtedness or issue certain preferred shares;
indebtedness; (ii) pay dividends or other distributions on, or repurchase or make distributions in respect of (or agree not to pay dividends or other distributions on , or repurchase or make distributions in respect of) our capital stockstock; (iii) make investments; (iv) sell assets; (v) grant (or agree not to grant) liens on our assets; (vi) consummate a consolidation, merger or make other restricted payments;
similar transaction; (vii) enter into certain transactions with our affiliates; and(viii) make payments in respect of certain indebtedness or modify the documents governing such indebtedness; and/or; (ix) modify our organizational documents.
We are also required under the secured credit facilities to maintain compliance with a maximum total net leverage ratio at the end of each fiscal quarter.
As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. In addition, the covenants in the senior secured credit facilities require us to maintain a maximum senior secured leverage ratio and also limit our capital expenditures. In addition, we are required to comply with certain non-monetary covenants, including the timely delivery of financial statements that fairly present, in all material respects in accordance with GAAP, our financial condition and results of operations.
A breach of any of these covenants could result in a default under one or more of theseour secured credit facilities and other material agreements, including as a result of cross default provisions and, in the case of our revolving credit facility, permit the lenders to cease making loans to us.provisions. Upon the occurrence of an event of default under the senior secured credit facilities, the lenders can cease making revolving loans to us and could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. Such actions by those lenders could also cause cross defaults under our other indebtedness.
If any such debt is accelerated and we wereare unable to repay thosethe amounts outstanding thereunder, the lenders under our seniorany such secured credit facilities could proceed against the collateral granted to them to secure thatsecuring such indebtedness. We have pledged a significant portion of our assets as collateral under the senior secured credit facilities. If the lenders under the senior secured credit facilities accelerate the repayment of borrowings, the proceeds from the sale or foreclosure upon such assets will first be used to repay debt under our senior secured credit facilities and we may not have sufficient assets to repay our unsecured indebtedness thereafter. As a result, our common stock could become worthless.be negatively impacted.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
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Key elements of our cybersecurity risk management program include but are not limited to:
•risk assessments designed to help identify material cybersecurity risks to our critical systems, information, and digital assets;
•a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;
•the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security processes;
•cybersecurity awareness training of our employees, incident response personnel, senior management and our Board of Directors;
•a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
•a third-party risk management process for service providers, suppliers, and vendors, based on their critically and risk profile.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. We face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. See "Risk factors - We rely on our information technology systems, employees and certain suppliers and counterparties, and certain failures or disruptions in those systems or chains could materially adversely affect our operations."
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Information Technology Committee (the "IT Committee") oversight of cybersecurity and other information technology risks, which includes, among others things:
•oversight of IT and cybersecurity related risks with regard to the Company’s IT platforms and investments;
•advising and making recommendations to the Board regarding the state of the Company’s cybersecurity preparedness, including review of the threat landscape facing the Company; and
•monitoring and evaluating the effectiveness of IT security and cybersecurity protocols within the Company, including disaster recover capabilities.
The IT Committee receives periodic reports from management on our cybersecurity risks. In addition, management updates the IT Committee, as necessary, regarding any significant cybersecurity incidents.
Board members receive presentations on cybersecurity topics. For example, February 2024, the full Board held a cybersecurity tabletop exercise to help prepare to respond to a cyberattack or other security incident.
Our management team, including our Chief Information Security Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our Chief Information Security Officer experience includes approximately 17 years in different information security roles, including recent roles as Chief Information Security Officer of Unum and Deputy Chief Information Security Officer of MasterCard.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment.
Item 2. Properties
Our principal operations are conducted in Puerto Rico. Our principal executive offices are leased and located at Cupey Center Building, Road 176, Kilometer 1.3, San Juan, Puerto Rico 00926.
We own two properties, one property in Costa Rica, in the province of San Jose, which is used by our Costa Rican subsidiary for its payment services business, and one in Tupã, Brazil, which is used by Sinqia for their commercial business. We also lease space
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in 1220 other locations across Latin America and the Caribbean, including our headquarters in San Juan, Puerto Rico and various data centers and office facilities to meet our sales and operating needs. We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion.
Item 3. Legal Proceedings
We are defendants in various lawsuits or arbitration proceedings arising in the ordinary course of business. Management believes, based on the opinion of legal counsel and other factors, that the aggregated liabilities, if any, arising from such actions will not have a material adverse effect on the financial condition, results of operations and the cash flows of the Company. See Note 25 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for additional information.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock trades on the NYSE under the symbol “EVTC”. The following table sets forth the high and low sales prices
Holders of our common stock as reported by the NYSE, for each full quarterly period within the two most recent fiscal years. Record
As of January 31, 2018, the approximate number of recordFebruary 22, 2024, there were 328 registered holders of our common stock was 247. The closing price as reported on the NYSEstock. Given that many of our shares of common stock are held in “street name” by brokers and other institutions on such date was $15.65 per share.behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
| Price Range | ||||||||
| High | Low | |||||||
| 2017 | ||||||||
| First Quarter | $ | 18.15 | $ | 15.55 | ||||
| Second Quarter | 17.30 | 14.85 | ||||||
| Third Quarter | 19.10 | 14.95 | ||||||
| Fourth Quarter | 16.20 | 13.00 | ||||||
| 2016 | ||||||||
| First Quarter | 16.63 | 11.27 | ||||||
| Second Quarter | 16.32 | 12.98 | ||||||
| Third Quarter | 17.62 | 15.13 | ||||||
| Fourth Quarter | 18.60 | 14.15 | ||||||
Dividends
The Company has a regular quarterly dividend on our common stock, subject to the declaration thereof by our Board each quarter. The following table provides a detailhistory of dividend information for 2017 and 2016:
We are a holding company and have no direct operations. We will only be able to pay dividends from our available cash on hand and funds received from our subsidiaries, Holdings and EVERTEC Group, whose ability to make any payments to us will depend upon many factors, including their operating results and cash flows. In addition, the senior secured credit facilities limit EVERTEC Group’sInc.’s ability to pay distributions on its equity interests. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Obligations.”
Issuer Purchases of Equity Securities
The following table summarizes repurchases of shares of the Company's common stock in the three-month period ended December 31, 2023:
Total number of shares | Average price paid | Total number of shares purchased as part of a publicly | Approximate dollar value of shares that may yet be purchased | |||||||||||
| Period | purchased | per share | announced program (1) | under the program | ||||||||||
| 3/1/2017-3/31/2017 | 228,289 | $ | 16.480 | 228,289 | ||||||||||
| 5/1/2017-5/31/2017 | 77,257 | 16.592 | 77,257 | |||||||||||
| 6/1/2017-6/30/2017 | 159,694 | 16.423 | 159,694 | |||||||||||
| Total | 465,240 | $ | 16.479 | 465,240 | $ | 72,345,478 | ||||||||
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of a publicly announced program (1) | Approximate dollar value of shares that may yet be purchased under the program | ||||||||||||||||||||||
| 11/1/2023-11/30/2023 | 209,560 | 35.26 | 209,560 | |||||||||||||||||||||||
| 12/1/2023-12/31/2023 | 135,155 | 37.79 | 135,155 | |||||||||||||||||||||||
| 344,715 | 36.82 | 344,715 | 137,493,259 | |||||||||||||||||||||||
(1) On July 20, 2023, the Company announced that its Board approved an increase to the current stock
repurchase program, authorizing the purchase of up to an aggregate of $150 million shares of the Company’s common stock under the program which expires on December 31, 2024. Under the repurchase program, the Company may repurchase shares in the open market, through accelerated share repurchase programs, Rule 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.
Securities Authorized for Issuance under Equity Compensation Plans
On
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Date will again become available for grant, to the extent the shares underlying such awards are not issued thereunderbecause they are forfeited or subject thereto. As a result, each of the then outstanding stock options to purchase shares of Holdings’ Class B Non-Voting Common Stock became a stock option to purchase the same number and classsettled or terminated without distribution of shares of the Company’s Class B Non-Voting Common Stock, in each case on the same terms (including exercise price) as the original stock option. In connection with our initial public offering in April 2013, all of the outstanding shares of the Company’s Class B Non-Voting Common Stock and stock options to purchase shares of the Company’s Class B Non-Voting Common Stock were converted into and deemed exercisable for, respectively, shares of our common stock on a one-to-one basis. Similarly, each of the then outstanding shares of restricted stock of Holdings was converted into the same number of shares of restricted stock of the Company.
The following table summarizes equity compensation plans approved by security holders and equity compensation plans that were not approved by security holders as of December 31, 2017:2023:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) | Weighted average exercise price of outstanding options, warrants and rights (B) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C) | |||||||||||||||||
| Equity compensation plans approved by security holders | 1,799,012 | $0.00 | 3,117,365 | |||||||||||||||||
| Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||||||||||||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) | Weighted-average exercise price of outstanding options, warrants and rights (B) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C) | |||||
Equity compensation plans approved by security holders (1) | 2,340,892 | $15.08 | 6,372,420 | |||||
| Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||
Stock Performance Graph
The following Performance Graph shall not be deemed incorporated by reference and shall not constitute soliciting material or otherwise considered filed under the Securities Act of 1933 or the Exchange Act.
The following graph shows a comparison from April 12, 2013 (the date our common stock commenced trading on the NYSE) through December 31, 2017 of the cumulative total return for our common stock, the S&P 500Russell 2000 Index and the S&P Composite 1500 / Information Technology Index.Index for the five years ended December 31, 2023. The graph assumes that $100 was invested on April 12, 2013December 31, 2017 in our common stock and each index and that all dividends were reinvested.
Note that historical stock price performance is not necessarily indicative of future stock price performance.
Item 6. Selected Financial Data[Reserved]
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| Year ended December 31, | ||||||||||||||||||||
| (Dollar amounts in thousands, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Statements of Income Data: | ||||||||||||||||||||
| Revenues | $ | 407,144 | $ | 389,507 | $ | 373,528 | $ | 361,788 | $ | 358,402 | ||||||||||
| Operating costs and expenses | ||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | 200,650 | 175,809 | 167,916 | 157,537 | 162,980 | |||||||||||||||
| Selling, general and administrative expenses | 56,161 | 46,986 | 37,278 | 41,276 | 38,810 | |||||||||||||||
| Depreciation and amortization | 64,250 | 59,567 | 64,974 | 65,988 | 70,366 | |||||||||||||||
| Total operating costs and expenses | 321,061 | 282,362 | 270,168 | 264,801 | 272,156 | |||||||||||||||
| Income from operations | 86,083 | 107,145 | 103,360 | 96,987 | 86,246 | |||||||||||||||
| Interest income | 716 | 377 | 495 | 328 | 236 | |||||||||||||||
| Interest expense | (29,861 | ) | (24,617 | ) | (24,266 | ) | (25,772 | ) | (37,417 | ) | ||||||||||
| Earnings (losses) of equity method investment | 604 | (52 | ) | 147 | 1,140 | 935 | ||||||||||||||
| Other income (expenses), net | 2,657 | 544 | 2,306 | 2,375 | (75,682 | ) | ||||||||||||||
| Income (loss) before income taxes | 60,199 | 83,397 | 82,042 | 75,058 | (25,682 | ) | ||||||||||||||
| Income tax expense (benefit) | 4,780 | 8,271 | (3,335 | ) | 8,901 | 1,435 | ||||||||||||||
| Net income (loss) | 55,419 | 75,126 | 85,377 | 66,157 | (27,117 | ) | ||||||||||||||
| Less: Net income attributable to non-controlling interest | 365 | 90 | — | — | — | |||||||||||||||
| Net income (loss) attributable to EVERTEC, Inc.’s common stockholders | $ | 55,054 | $ | 75,036 | $ | 85,377 | $ | 66,157 | $ | (27,117 | ) | |||||||||
| Net income (loss) per common share—basic | $ | 0.76 | $ | 1.01 | $ | 1.11 | $ | 0.84 | $ | (0.34 | ) | |||||||||
| Net income (loss) per common share—diluted | $ | 0.76 | $ | 1.01 | $ | 1.11 | $ | 0.84 | $ | (0.34 | ) | |||||||||
Cash dividends declared per common share (1) | $ | 0.30 | $ | 0.40 | $ | 0.40 | $ | 0.40 | $ | 0.20 | ||||||||||
| December 31, | |||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
| Balance Sheet Data: | |||||||||||||||
| Cash and cash equivalents | $50,423 | $51,920 | $28,747 | $32,114 | $22,275 | ||||||||||
| Total assets | 902,788 | 885,662 | 863,654 | 885,321 | 918,863 | ||||||||||
| Total long-term liabilities | 607,596 | 648,324 | 662,939 | 691,085 | 705,872 | ||||||||||
| Total debt | 616,740 | 650,759 | 662,699 | 681,240 | 725,648 | ||||||||||
| Total equity | 147,976 | 108,175 | 98,214 | 94,840 | 87,972 | ||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers: (i) thefocuses on discussion of our 2023 results as compared to our 2022 results. For discussion of operationsour 2022 results as compared to our 2021 results, see “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the yearsyear ended December 31, 2017, 2016 and 2015; and (ii)2022 filed with the financial condition as of December 31, 2017 and 2016.SEC on February 24, 2023. See Note 1 ofto the Notes to Audited Consolidated Financial Statements for additional information about the Company and the basis of presentation of our financial statements. You should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking statements. See “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions associated with these statements.
Overview
EVERTEC is a leading full-service transaction processingtransaction-processing business in Latin America, Puerto Rico and the Caribbean, providing a broad range of merchant acquiring, payment services and business process management services.solutions. According to the August 2017September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean and Central America.Caribbean. We serve 26 countries in the region fromout of 20 offices, including our baseheadquarters in Puerto Rico. We manage a system of electronic payment networks that process more than two billion transactions annually, and offer a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. In addition, we own and operate the ATH network, which we believe is one of the leading personal identification number (“PIN”) debit networks in Latin America. We process over six billion transactions annually through a system of electronic payment networks in Puerto Rico and Latin America and a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico. Additionally, we offer technology outsourcing and payment transactions fraud monitoring to all the regions we serve. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin American region.
We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this single-source capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services, win new customers, develop new sales channels, and enter new markets. We believe these competitive advantages include:
•Our ability to provide competitive products;
•Our ability to provide in one package a range of services that traditionally had to be sourced from different vendors;
•Our ability to serve customers with disparate operations in several geographies with integrated technology solutions that enable them to manage their business as one enterprise; and
•Our ability to capture and analyze data across the transaction processingtransaction-processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction processingtransaction-processing value chain (such as only merchant acquiring or payment services).
Our broad suite of services spans the entire transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale for both card present transactions and card not present transactions, as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable point of sales (“POS”)POS and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”)EBT cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments. We provide these services through a highly scalable, end-to-end technology platformplatforms that we manage and operate in-house and that generatesgenerate significant operating efficiencies that enable us to maximize profitability.
We sell and distribute our services primarily through a proprietary direct sales force with established customer relationships. We are also building a variety of indirect sales channels that enable us to leverage the distribution capabilities of partners in adjacent markets, including value-added resellers. We continue to pursue joint ventures and merchant acquiring alliances.
We benefit from an attractive business model, the hallmarks of which are recurring revenue, scalability, significant operating margins and lowmoderate capital expenditure requirements. Our revenue is predominantly recurring in nature because of the mission-critical and embedded nature of the services we provide. In addition, we generally negotiateenter into multi-year contracts with our customers. OurWe believe our business model enablesshould enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures.
On November 1, 2023, the Company completed the acquisition of 100% of the share capitaloutstanding shares of EFT Group S.A.,Sinqia, a Chilean-based payment processingpublicly held company incorporated and existing in accordance with the laws of the Federative Republic of Brazil. As a result, Sinqia became an indirect, wholly-owned subsidiary of Evertec. Sinqia is a company that provides financial software solutions company known commercially as “PayGroup”, by entering into a share purchase agreement (Contrato de Compraventa de Acciones), byto financial institutions in Brazil across four key verticals of banks, funds, pensions and among EVERTEC Group, EVERTEC Panama, Fondo de Inversión Privado Mater, Inversiones San Bernardo SpA, Asesorías e Inversiones Supernova SpA, Inversiones y Asesorías Bayona Limitada, Inversiones Hagerdorn y Morales Limitada, Christian Hagedorn Hitschfeld and Inversiones Vaimaca Limitada. The PayGroup acquisition expandsconsortiums.
Thesestrategic acquisitions are expected to enhance the Company's presence in Latin America to eight new countries and increasesgrowth strategy, diversify the Company's payment solutions offerings. During the third quarter of 2017 Evertec Panama ceased being a shareholder in PayGroup and Evertec Group became the 100% owner of PayGroup.
Factors and Trends Affecting the Results of Our Operations
The ongoing migration from cash and paper methods of payment to electronic payments continues to benefit the transaction- processing industry globally. We believe that the penetration of electronic payments in the markets in which we operate is significantly lower relative to the U.S. market, and that thiswhich, together with the ongoing shift from cash and paper methods of payment to electronic payments will continue to generate substantial growth opportunities for our business. For example, currently the adoption of banking products, including electronic payments, in the Latin AmericanAmerica and Caribbean region is lower relative to the mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drive incremental penetration and growth of electronic payments in Puerto Rico and other Latin AmericanAmerica regions. We also benefit from the outsourcing of technology systems and processes trend for financial institutions and government agencies to outsource technology systems and processes.government. Many medium- and small-size institutions in the Latin American markets in which we operate have outdated computer systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.
In recent years, consumer preference has accelerated its shift away from cash and paper payment methods, noting increased demand for omni-channel payment services that facilitate cashless and contactless transactions. The markets in which we operate, particularly Latin America and the Caribbean, continue to grow and consumer preference is driving an increase for electronic payments usage. Latin America is one of the fastest-growing mobile markets globally, with a growing base of tech-savvy customers that demonstrate a preference for credit cards, digital wallets, contactless payments, and other value-added offerings. The region's fintech sector is driving change via new contactless payment technology, which is becoming a popular alternative to cash payments. We continue to believe that the attractive characteristics of our markets and our position across multiple services and sectors will continue to drive growth and profitability in our businesses.
Our payment businesses also generally experience moderate increased activity during the traditional holiday shopping periods and around other nationally recognized holidays, which follow consumer spending patterns.
Finally, our financial condition and results of operations are, in part, dependent on the economic and general conditions of the geographies in which we operate.
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Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period.
We base our assumptions, estimates, and judgments on historical experience, current events, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. However, because future events are inherently uncertain and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. A summary of significant accounting policies is included in Note 1 ofto the Notes to Audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.Report. We believe that the following accounting estimates are the most critical; require the most difficult, subjective, or complex judgments; and thus, resultresults in estimates that are inherently uncertain.
Revenue recognitionRecognition
The Company’s revenue recognition policy follows the guidance from Accounting Standards Codification (“ASC”) 605 606, Revenue Recognition; ASC 605-25, Revenue Recognition—Multiple Element Arrangements; and; ASC 985, Software,from Contracts with Customers, which provide guidance on the recognition, presentation, and disclosure of revenue in the consolidated financial statements. Application of this policy requires us to make certain judgements and estimates.
Complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. Specifically, when another party is involved in providing goods or services to a customer, the Company evaluates, for each performance obligation, whether it is providing the goods or services itself (i.e., as principal), or if it is only arranging on behalf of the other party. Changes in judgement with respect to assumptions and estimates in revenue recognition could impact the amount of revenue recognized.
Valuation of Goodwill
The Company recognizes revenue when the following four criteria are met: (i) persuasive evidencevaluation of an agreement exists, (ii) delivery and acceptance has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collection is reasonably assured. For multiple deliverable arrangements, EVERTEC evaluates each arrangement to determine if the elements or deliverables within the arrangement represent separate units of accounting pursuant to ASC 605-25. If the deliverables are determined to be separate units of accounting, revenues are recognized as units of accounting are delivered and the revenue recognition criteria are met. If the deliverables are not determined to be separate units of accounting, revenuesgoodwill for the delivered services are combined into one unit of accounting and recognized (i) over the life of the arrangement if all services are consistently delivered over such term, or if otherwise, (ii) at the time that all services and deliverables have been delivered. The selling price for each deliverable is based on vendor specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or management best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. EVERTEC establishes VSOE of selling price using the price charged when the same element is sold separately. EVERTEC bifurcates or allocates the arrangement consideration to each of the deliverables based on the relative selling price of each unit of accounting.
quantitative analysis. In network hosting and management, EVERTEC provides hosting services for network infrastructure at EVERTEC’s facilities; automated monitoring services; maintenance of call centers; interactive voice response solutions, among other related services. Revenues are primarily derived from monthly fees as services are delivered. Set-up fees are billed up-front to the customer when the set-up service is rendered; however, they are deferred and recognized as revenues over the term of the arrangement or the expected period of the customer relationship, whichever is longer, as set-up services rarely provide value to the customer on a stand-alone basis and are interrelated with the service under the contract. There are some arrangements under this line of service category that may contain undelivered elements. In such cases, the undelivered elements are evaluated and recognized when the services are delivered or at the time that all deliverables under the contract have been delivered.
Redeemable Non-controlling Interests
The Company records redeemable non-controlling interests ("RNCI") in consolidated subsidiaries that result from business acquisition transactions where the Company is granted the right to purchase ("Call Option") and the sellers are granted the right to sell to the Company ("Put Option") the remaining interest at the calculated redemption value and classifies them as mezzanine equity in the consolidated balance sheets as potential redemption is not solely within the Company's control. The acquired RNCI were initially measured at fair value at the acquisition date. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and for any dividends declared. Each reporting period, a measurement period adjustment, if any, is then recorded to adjust the non-controlling interest to the higher of either the redemption value, assuming it was redeemable at the reporting date, or its carrying value, but not if such adjustment would result in a redemption value less than the initial fair value of the Company’s stock atredeemable non-controlling interest. If and when applicable, these adjustments are recorded in equity and are not reflected in the grant date.accompanying consolidated statements of income and comprehensive income.
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Income Tax
Income taxes are accounted for under the asset and liability method. A temporary difference refers to a difference between the tax basis of an asset or liability, determined based on recognition and measurement requirements for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive income in the period that includes the enactment date. A deferred tax valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax asset will not be realized.
The Company recognizes the benefit of uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement or disposition of the underlying issue with the taxing authority. Accordingly, the amount of benefit recognized in the consolidated financial statements may differ from the amount taken or expected to be taken in the tax return resulting in unrecognized tax benefits (“UTBs”). The Company recognizes the interest and penalties associated with UTBs as part of the provision for income taxes on its consolidated statements of income and comprehensive income. Accrued interest and penalties are included onwithin the related tax liability line in the consolidated balance sheets. Judgment is required to determine whether or not some portion or all deferred tax assets will not be realized. To the extent that the Company will not realize the benefit of some or all of our deferred tax assets, these deferred tax assets are adjusted via a valuation allowance through our provision for income taxes in the period in which this determination is made.
All companies within EVERTEC are legal entities whichthat file separate income tax returns.
Recent Accounting Pronouncements
For a description of recent accounting standards, see Note 2 ofto the Notes to Audited Consolidated Financial Statements included in this Annual Report on Form 10-K.Report.
Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, as presented in this Annual Report, on Form 10-K, are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to total revenues, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities as measures of our liquidity. Adjusted EBITDA at the segment level is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards CodificationASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.
For more information regarding EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, including a quantitative reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share to the most directly comparable GAAP financial performance measure, which is net income, see “—Net Income Reconciliation to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share” and “—Covenant Compliance” below.
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Results of Operations
| Years ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | Variance | ||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 694,709 | $ | 618,409 | $ | 76,300 | 12 | % | |||||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | 336,756 | 292,621 | 44,135 | 15 | % | ||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 128,172 | 89,770 | 38,402 | 43 | % | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 93,621 | 78,618 | 15,003 | 19 | % | ||||||||||||||||||||||||||||||||||||
| Total operating costs and expenses | 558,549 | 461,009 | 97,540 | 21 | % | ||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 136,160 | $ | 157,400 | $ | (21,240) | (13) | % | |||||||||||||||||||||||||||||||||
| Year ended December 31, | |||||||||||||||||||||||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | Variance 2017 vs. 2016 | Variance 2016 vs. 2015 | ||||||||||||||||||||
| Revenues | $ | 407,144 | $ | 389,507 | $ | 373,528 | $ | 17,637 | 5 | % | $ | 15,979 | 4 | % | |||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | 200,650 | 175,809 | 167,916 | 24,841 | 14 | % | 7,893 | 5 | % | ||||||||||||||||
| Selling, general and administrative expenses | 56,161 | 46,986 | 37,278 | 9,175 | 20 | % | 9,708 | 26 | % | ||||||||||||||||
| Depreciation and amortization | 64,250 | 59,567 | 64,974 | 4,683 | 8 | % | (5,407 | ) | (8 | )% | |||||||||||||||
| Total operating costs and expenses | 321,061 | 282,362 | 270,168 | 38,699 | 14 | % | 12,194 | 5 | % | ||||||||||||||||
| Income from operations | $ | 86,083 | $ | 107,145 | $ | 103,360 | $ | (21,062 | ) | (20 | )% | $ | 3,785 | 4 | % | ||||||||||
Revenues
Total revenues in 2017 increased by $17.6for the year ended December 31, 2023 were $694.7 million, or 5% whenan increase of $76.3 million compared withto $618.4 million in the prior year. The revenue increase in revenues was primarily driven by increasesgrowth in ATH debit network transaction volumesthe LATAM Payments and cardSolutions, Payment Services - Puerto Rico & Caribbean and the Merchant Acquiring segments. LATAM Payments and Solutions revenue benefited from strong organic growth throughout the year including the $6.3 million impact related to the Company's processing volumes, revenue generatedcontract with Getnet Chile in the third quarter and the contribution from the PayGroup acquisition, increased revenue from our Accuprint acquisitionacquisitions completed over the past year. Payment processing revenues in the fourth quarter of 2016 andPuerto Rico continue to reflect an increase in core banking revenue. RevenuesPOS transaction volume as well as the continued growth in 2017 were negatively impacted by the two hurricanes that made landfall in Puerto RicoATH Movil revenues, primarily ATH Business. Merchant acquiring revenue reflected higher sales volumes and the Caribbean in September of 2017. We estimate the hurricanes reduced revenues by approximately $13 to $14 million.
Cost of revenues
Cost of revenues in 2017 increased $24.8for the year ended December 31, 2023 amounted to $336.8 million, an increase of $44.1 million or 14%15% when compared withto the same period in the prior year. The increase in cost of revenue is primarily related to $12.8 million in charges taken in connection with an exit activity for a third party software solution that is
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Selling, general and administrative
Selling, general and administrative expenses in 2017 increased $9.2for the year ended December 31, 2023 amounted to $128.2 million, an increase of $38.4 million or 43% when compared with 2016. Theto the same period in the prior year driven by an increase isin expenses incurred as part of the closing and integration of Sinqia, as well as an increase in personnel costs and professional fees primarily related to an increase in share based compensation, expenses related to the PayGroup acquisition and an increase in payroll and other taxes in our Latin America operations.corporate development initiatives.
Depreciation and amortization
Depreciation and amortization expense increased by $4.7for the year ended December 31, 2023 amounted to $93.6 million, in 2017an increase of $15.0 million or 19% when compared to 2016 mainly related tothe same period in the prior year. This increase was primarily driven by an increase in amortization expense related toof intangible assets acquiredcreated in connection with the Sinqia, paySmart and BBR acquisitions, as part of business combinations completedwell as an increase in software amortization for internally developed software.
Non-operating income (expenses)
| Years ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | Variance | ||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 8,512 | $ | 3,121 | $ | 5,391 | 173 | % | |||||||||||||||||||||||||||||||||
| Interest expense | (32,321) | (24,772) | (7,549) | 30 | % | ||||||||||||||||||||||||||||||||||||
| Gain on sale of a business | — | 135,642 | (135,642) | 100 | % | ||||||||||||||||||||||||||||||||||||
| (Loss) gain on foreign currency remeasurement | (8,276) | (7,645) | (631) | 8 | % | ||||||||||||||||||||||||||||||||||||
| Loss on foreign currency swap | (24,065) | — | (24,065) | — | % | ||||||||||||||||||||||||||||||||||||
| Earnings of equity method investment | 4,976 | 2,968 | 2,008 | 68 | % | ||||||||||||||||||||||||||||||||||||
| Other income | 367 | 1,138 | (771) | (68) | % | ||||||||||||||||||||||||||||||||||||
| Total non-operating income (expenses) | $ | (50,807) | $ | 110,452 | $ | (161,259) | (146) | % | |||||||||||||||||||||||||||||||||
Non-operating income (expenses) for the year ended December 31, 2023 decreased by $161.3 million when compared to the same period in the prior and current year.
| Year ended December 31, | |||||||||||||||||||||||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | Variance 2017 vs. 2016 | Variance 2016 vs. 2015 | ||||||||||||||||||||
| Interest income | $ | 716 | $ | 377 | $ | 495 | $ | 339 | 90 | % | $ | (118 | ) | (24 | )% | ||||||||||
| Interest expense | (29,861 | ) | (24,617 | ) | (24,266 | ) | (5,244 | ) | 21 | % | (351 | ) | 1 | % | |||||||||||
| Earnings (losses) of equity method investment | 604 | (52 | ) | 147 | 656 | (1,262 | )% | (199 | ) | (135 | )% | ||||||||||||||
| Other income, net | 2,657 | 544 | 2,306 | 2,113 | 388 | % | (1,762 | ) | (76 | )% | |||||||||||||||
| Total non-operating expenses | $ | (25,884 | ) | $ | (23,748 | ) | $ | (21,318 | ) | (2,136 | ) | 9 | % | (2,430 | ) | 11 | % | ||||||||
Income tax expense (benefit)
| Years ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | Variance | ||||||||||||||||||||||||||||||||||||||
| Income tax expense | $ | 5,477 | $ | 28,983 | $ | (23,506) | (81) | % | |||||||||||||||||||||||||||||||||
| Year ended December 31, | |||||||||||||||||||||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | Variance 2017 vs. 2016 | Variance 2016 vs. 2015 | ||||||||||||||||||
| Income tax expense (benefit) | $ | 4,780 | $ | 8,271 | $ | (3,335 | ) | (3,491 | ) | (42 | )% | 11,606 | (348 | )% | |||||||||
Income tax expense for the year ended December 31, 20162023 amounted to approximately $8.3$5.5 million, a decrease of $23.5 million when compared with an income tax benefit of $3.3 millionto the same period in 2015.the prior year. The effective tax rate for the period was 6.4%, compared with 10.8% in 2016the 2022 period. The decrease in the effective tax rate was approximately 10%. Theprimarily driven by the loss on foreign currency swap, as well as the higher interest expense resulting from the incremental debt raised as part of the Sinqia acquisition, partially offset by the impact of higher revenues in higher taxed jurisdictions, a shift in the mix of business in Puerto Rico and higher withholding taxes. Effective tax rate in the prior year was impacted by the gain recognized from closing the Popular Transaction, which was taxed at a preferential tax benefit reflectsrate and the reversal of taxa potential liability related to anfor uncertain tax position for whichpositions as a result of the expiration of the statute of limitations expired during the third quarter of 2015.limitation.
Segment Results of Operations
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The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), ATH Movil (person-to-person) and electronic benefit transfer (“EBT”)ATH Business (person-to-merchant) digital transactions and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants).For. For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.
The Payment Services - Latin America Payments and Solutions segment payment revenues consist of revenues related to providing access to the ATH debit network of ATMs and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), as well as licensed software solutions for risk and fraud management and card payment processing. For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching, and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services. Solution revenues consist of (a) licensing, support and maintenance (“subscription”), implementation and customization of software used to provide financial products in areas such as core banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortium, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection; and (b) outsourcing of mission critical IT services. Revenues are based on monthly fixed fees and, in several cases, variable fees based on usage.
The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value. EVERTEC also charges merchants for other services that are unrelated to the number of transactions or the transaction value.
The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived
in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e., savings or checking accounts, loans, etc.), server capacity usage or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally one-time transactions.non-recurring.
In addition to the four operating segments described above, Managementmanagement identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These unitsareas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these unitsareas are aggregated and presented aswithin the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and otherOther category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments. The overhead and leveraged costs relate to activities such as:
•marketing,
•corporate finance and accounting,
•human resources,
•legal,
•risk management functions,
•internal audit,
•corporate debt related costs,
•non-operating depreciation and amortization expenses generated as a result of the Merger,merger and acquisition activity,
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•intersegment revenues and expenses, and
•other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment levellevel.
The CODMChief Operating Decision Maker (“CODM”) reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted EBITDA. Effective as of the quarter ended March 31, 2023, the Company modified the manner in which it calculates and reports Adjusted EBITDA presented to the CODM for assessing segment performance to exclude the impact of non-cash unrealized gains and losses from foreign currency remeasurement. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash unrealized items and unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with Accounting Standards CodificationASC Topic 280, "Segment Reporting"Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and adjusted EBITDA performance.Adjusted EBITDA. As such, segment assets are not disclosed in the notes to the accompanying consolidated financial statements.
See Note 26 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for the reconciliation of EBITDA to consolidated net income.
The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below.
Payment Services - Puerto Rico & Caribbean
| Years ended December 31, | ||||||||||||||
| (In thousands) | 2023 | 2022 | ||||||||||||
| Revenues | $203,232 | $178,481 | ||||||||||||
| Adjusted EBITDA | 118,266 | 100,860 | ||||||||||||
| Adjusted EBITDA margin | 58.2 | % | 56.5 | % | ||||||||||
| Year ended December 31, | |||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | ||
| Revenues | $101,687 | $99,680 | $99,311 | ||
| Adjusted EBITDA | 58,534 | 63,086 | 62,297 | ||
Payment Services - Puerto Rico & Caribbean segment revenues in 2017for the year ended December 31, 2023 increased $2.0by $24.8 million when compared with 2016. Revenue growth reflected increases in ATH debit network transaction volumes and card processing volumes. Adjusted EBITDA decreased $4.6to $203.2 million mainly a result of the impairment charge taken related to a software asset under development and reduced revenues related to the hurricanes.
Latin America Payments and Solutions
| Years ended December 31, | |||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||
| Revenues | $186,503 | $128,221 | |||||||||||||||
| Adjusted EBITDA | 60,158 | 42,607 | |||||||||||||||
| Adjusted EBITDA margin | 32.3 | % | 33.2 | % | |||||||||||||
Latin America Payments and Solutions segment revenues for the shiftyear ended December 31, 2023 increased by $58.3 million to $186.5 million when compared to the same period in the prior year. The increase was driven by strong organic growth as well as revenue for a customer contract changegenerated from payment services to merchant acquiringthe Sinqia, paySmart and BBR acquisitions completed in the fourth quarter of 2015, a decrease in revenues due to a delayed project amounting to approximately $4.5 million2023, first quarter of 2023 and lower revenuesthird quarter of 2022, respectively. Revenues benefited from the government lottery tax$6.3 million impact related to the Company’s processing contract terminatedwith Getnet Chile in the fourth quarter of 2015. Adjusted EBITDA was impacted by the same factors described for revenues.
| Year ended December 31, | |||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | ||
| Revenues | $62,702 | $47,162 | $37,523 | ||
| Adjusted EBITDA | 17,558 | 15,354 | 11,800 | ||
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Merchant Acquiring
| Years ended December 31, | |||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||
| Revenues | $162,366 | $151,085 | |||||||||||||||
| Adjusted EBITDA | 60,992 | 63,607 | |||||||||||||||
| Adjusted EBITDA margin | 37.6 | % | 42.1 | % | |||||||||||||
Merchant Acquiring segment revenues in 2016for the year ended December 31, 2023 increased by $9.6$11.3 million to $162.4 million when compared to the same period in the prior year. The revenue increase was primarily driven primarily by revenuean increase in sales volume mainly due to new higher volume merchants and incremental sales volume in existing merchants, higher spread from the Processa acquisition, and transaction and terminal rental growth while Adjusted EBITDA increased approximately $3.5 million reflecting operating leverage on incremental revenues and the Processa contribution.
| Year ended December 31, | |||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | ||
| Revenues | $85,778 | $91,248 | $85,411 | ||
| Adjusted EBITDA | 37,497 | 41,629 | 45,447 | ||
Business Solutions
| Years ended December 31, | |||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||
| Revenues | $226,960 | $235,299 | |||||||||||||||
| Adjusted EBITDA | 86,880 | 100,568 | |||||||||||||||
| Adjusted EBITDA margin | 38.3 | % | 42.7 | % | |||||||||||||
Business Solutions segment revenues for revenues coupled with a less favorable merchant mix and a lower average ticket, boththe year ended December 31, 2023 decreased by $8.3 million to $227.0 million when compared to the same period in the prior year, primarily driven by the impact from the assets sold as part of the Popular Transaction completed in the third quarter of 2022, which reduced margins.
| Year ended December 31, | |||||
| Dollar amounts in thousands | 2017 | 2016 | 2015 | ||
| Revenues | $189,077 | $184,276 | $179,532 | ||
| Adjusted EBITDA | 86,790 | 89,239 | 83,192 | ||
Liquidity and Capital Resources
Liquidity
Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, acquisitions, dividend payments, share repurchases and working capital needs.debt service. We also have a $100.0$200.0 million revolving credit facility,Revolving Facility, of which $88.0$194.0 million was available for borrowing as of December 31, 2017.2023. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn. The Company also obtained additional financing commitments in the aggregate amount of $660 million, for the purpose of financing the Sinqia acquisition, repaying certain existing indebtedness in connection with the Sinqia Transaction, as well as paying related debt financing fees and expenses. The obligations of the lenders to provide debt financing under the related debt commitment letter are subject to customary terms and conditions.
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Our primary use of cash is for operating expenses, working capital requirements, capital expenditures, acquisitions, dividend payments, share repurchases, debt service, acquisitions and other transactions as opportunities present themselves.
Based on our current level of operations, we believe our existing cash flows from operations and the available senior secured Revolving Credit Facility will be adequate to meet our liquidity needs at least for the next twelve months.months from the date of this Report. However, our ability to fund future operating expenses, dividend payments, capital expenditures, mergers and acquisitions, and our ability to make scheduled payments of interest, to pay principal on or refinance our indebtedness and to satisfy any other of our present or future debt obligations will depend on our future operating performance, which willmay be affected by general economic, financial, and other factors beyond our control.
Comparison of the years ended December 31, 20172023 and 20162022
The following table presents our cash flows from operations for the years ended December 31, 20172023 and 2016:
| Years ended December 31, | ||||||||
| (Dollar amounts in thousands) | 2017 | 2016 | ||||||
| Cash provided by operating activities | $ | 145,786 | $ | 168,054 | ||||
| Cash used in investing activities | (78,100 | ) | (54,083 | ) | ||||
| Cash used in financing activities | (69,183 | ) | (90,798 | ) | ||||
| (Decrease) increase in cash | $ | (1,497 | ) | $ | 23,173 | |||
| Years ended December 31, | ||||||||||||||
| (In thousands) | 2023 | 2022 | ||||||||||||
| Cash provided by operating activities | $ | 224,290 | $ | 223,361 | ||||||||||
| Cash used in investing activities | (507,932) | (133,324) | ||||||||||||
| Cash provided by (used in) financing activities | 403,270 | (156,768) | ||||||||||||
| Effect of foreign exchange rate on cash, cash equivalents and restricted cash | 8,439 | (3,529) | ||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 128,067 | $ | (70,260) | ||||||||||
Net cash provided by operating activities for the year ended December 31, 20172023 was $145.8$224.3 million, a decreasean increase of $22.3$0.9 million compared with 2016.to 2022. The decrease in cash provided by operating activitiesincrease was primarily driven by a decrease in net income.less cash used to pay down accounts payable and accrued liabilities as the Company continues to effectively manage working capital.
Net cash used in investing activities increased by $24.0was $507.9 million compared to $78.1$133.3 million. The increase was mainlyis primarily attributable to the completion of the purchase of PayGroupacquisitions completed during the third quartercurrent year for $417.6 million compared to an acquisition of 2017.$44.4 million in the prior year, an increase in software additions of $18.7 million and capital contributions for investments in equity investee of $5.5 million.
Net cash used inprovided by financing activities for the year ended December 31, 2017 amounted to $69.22023 was $403.3 million, a decrease of $21.6 million when compared with thecash used of $156.8 million in prior year. The decrease is driven by less cash used for stock repurchases and dividend payments.
| Years ended December 31, | ||||||||
| (Dollar amounts in thousands) | 2016 | 2015 | ||||||
| Cash provided by operating activities | $ | 168,054 | $ | 162,419 | ||||
| Cash used in investing activities | (54,083 | ) | (53,068 | ) | ||||
| Cash used in financing activities | (90,798 | ) | (112,718 | ) | ||||
| Increase (decrease) in cash | $ | 23,173 | $ | (3,367 | ) | |||
Capital Resources
Our principal capital expenditures are for hardware and computer software (purchased and internally developed), and additions to property and equipment and acquisitions. We invested approximately $33.5 million, $42.3 million, and $47.0 million on capital expenditures for hardware and computer software and property and equipment forequipment. During the years ended December 31, 2017, 20162023 and 2015, respectively.2022, the Company invested approximately $85.0 million and $71.9 million, respectively in our capital resources. In termsaddition, the Company acquired two businesses for an aggregated amount of acquisitions,$417.6 million, net of cash acquired, and an investment in 2017, we completedequity investee of $5.5 million. During the purchaseprior year, the Company acquired a business for $44.4 million, net of PayGroup for $42.8cash, as well as $7.3 million whilein certificates of deposit in connection with this business acquisition in 2022. The Company also acquired customer relationships amounting to $10.6 million in the 2016,prior year. Generally, we completed the purchase of Processa for $5.9 million and Accuprint for $9.7 million. Capitalfund capital expenditures are expected to be funded bywith cash flow generated from operations and, if necessary, borrowings under our Revolving Facility.Facility and, as described above in connection with the Sinqia Transaction, using additional committed financing.
Dividend Payments
2022:
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| Declaration Date | Record Date | Payment Date | Dividend per share | |||||||||||||||||||||
| February | February 25, 2022 | March 25, 2022 | $0.05 | |||||||||||||||||||||
| April 21, 2022 | May 2, 2022 | June 3, 2022 | 0.05 | |||||||||||||||||||||
| July 28, 2022 | August 8, 2022 | September 2, 2022 | 0.05 | |||||||||||||||||||||
| October 21, 2022 | November 1, 2022 | December 2, 2022 | 0.05 | |||||||||||||||||||||
| February | February 28, 2023 | March 17, | 0.05 | |||||||||||||||||||||
| April 20, 2023 | May | June 2, 2023 | 0.05 | |||||||||||||||||||||
| July | July 31, 2023 | September 1, 2023 | 0.05 | |||||||||||||||||||||
| October | October 30, 2023 | December 1, 2023 | ||||||||||||||||||||||
0.05 | ||||||||||||||||||||||||
Stock Repurchase
During 2017,2023, the Company repurchased 465,2401,009,653 shares of the Company’s common stock at a cost of $7.7$36.1 million. The Company funded such repurchaserepurchases with cash on handhand. At December 31, 2023, the Company's share repurchase program has approximately $137.5 million remaining and borrowings under the existing revolving credit facility.
Financial Obligations
The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from 1 year to 6 years, some of which may include options to extend the leases for up to 5 years, and some which may include the option to terminate the lease within 1 year.
The following table presents the balance of operating lease obligations:
| December 31, | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Operating lease liability - current | 6,693 | 5,936 | |||||||||
| Operating lease liability - long-term | 9,033 | 10,788 | |||||||||
| Total operating lease liabilities | $ | 15,726 | $ | 16,724 | |||||||
See Note 25 to the Audited Consolidated Financial Statements for additional information regarding operating lease obligations.
2023 Secured Credit Facilities
On April 17, 2013,December 1, 2022, EVERTEC and EVERTEC Group, entered into a credit agreement (the “2013 Credit Agreement”) governing the senior secured credit facilities, consistingwith a syndicate of lenders and Truist Bank (“Truist”), as administrative agent and collateral agent, providing for (i) a $300.0$415.0 million term loan A facility (the “Term A Loan”),that matures on December 1, 2027, and a $400.0$200.0 million term loan Brevolving credit facility (the “Term B Loan”“Revolving Facility”, and together with the Term A Loan Facility, the “Senior Secured term loans”“2022 Credit Facilities”) and a $100.0 million revolving credit facilitythat matures on December 1, 2027 (the "Revolving Facility"“2022 Credit Facilities Maturity Date”).
Scheduled Amortization Payments
The Term Loan A Facility and Incremental TLA Facility amortizes in equal quarterly installments at an amount equal to the 2013 Credit Agreement. The Third Amendment extends the maturity(a)
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initially, $5,966,720.78 per quarter and (b) $65 million of EVERTEC Group’s existing $100 million of revolving credit facilityfor any installment payments to January 17, 2020. The remaining approximately $30 million of Term A loan (the “2018 Term A loan”) and the $35 million of revolving credit facility that were not extended will remain in place and mature as originally scheduled on April 17, 2018. The Term B loan facility will remain in place and mature as originally scheduled on April 17, 2020.
Voluntary Prepayments and Reduction and Termination of Commitments
Other than as set forth below with respect to the New TLB Facility, EVERTEC Group may prepay loans under the Term B Loan were not changedFacilities and permanently reduce the loan commitments under the Revolving Facility at any time without premium or penalty, subject to compensation for any break funding costs incurred by the Third Amendmenta lender and continuestimely submission of a notice of prepayment or commitment reduction, as applicable. EVERTEC Group is required to require payments on the last business day of each quarter equal to 0.250%make certain mandatory prepayments of the original principal amount2022 Credit Facilities in certain circumstances.
Interest
With respect to the 2022 Facilities and the remaining outstanding principal amount onIncremental TLA Facility, the maturity of the Term B Loan.
With respect to the New TLB Facility, the interest rates are based on, at EVERTEC Group’s option (a) the Adjusted Term SOFR, which means SOFR plus 10 basis points, for the Interest Period in effect for such borrowing plus an applicable margin of 3.50% per annum or (b) the ABR plus an applicable margin of 2.50% per annum.
Guarantees and Collateral
The Credit Facilities are secured by substantially all assets of EVERTEC and its existing and future material subsidiaries (including EVERTEC Group), subject to customary exceptions. EVERTEC and each of EVERTEC’s existing and future material wholly-owned subsidiaries (including EVERTEC Group with respect to the obligations of EVERTEC and its existing and future material wholly-owned subsidiaries (other than EVERTEC Group)), subject to certain customary exceptions, guarantee repayment of the Credit Facilities.
In connection with the Credit Agreement, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiary guarantors party thereto, entered into a Guarantee Agreement (the “Guarantee Agreement”), pursuant to which EVERTEC Group’s obligations under the Credit Facilities and under any 2018 Term A Loan, 2.50% per annumcash management, interest rate protection or other hedging arrangements entered into with a lender or any affiliate thereof are guaranteed by EVERTEC and each of EVERTEC’s existing wholly-owned subsidiaries (other than EVERTEC Group) and subsequently acquired or organized subsidiaries, subject to certain exceptions.
In addition, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiaries party thereto, entered into a Collateral Agreement (the “Collateral Agreement”), pursuant to which, subject to certain exceptions, the Credit Facilities are secured, to the extent legally permissible, by substantially all of the assets of (1) EVERTEC, including a perfected pledge of all of the limited liability company interests of EVERTEC Intermediate Holdings, LLC (“Holdings”), (2) Holdings, including a perfected pledge of all of the limited liability company interests of EVERTEC Group and (3) EVERTEC Group and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by EVERTEC Group or any guarantor and (b) a perfected security interest in substantially all tangible and intangible assets of EVERTEC Group and each guarantor.
Covenants
The Credit Facilities are subject to customary affirmative and negative covenants. The negative covenants in the caseCredit Facilities include, among other things, limitations (subject to exceptions) on the ability of EVERTEC and its restricted subsidiaries to:
•declare dividends and make other distributions;
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•redeem or repurchase capital stock;
•grant liens;
•make loans or investments (including acquisitions);
•merge or enter into acquisitions
•sell assets;
•enter into any LIBOR Loansale or lease-back transactions;
•incur additional indebtedness;
•prepay, redeem or repurchase certain indebtedness;
•modify the terms of certain debt;
•restrict dividends from subsidiaries;
•change the business of EVERTEC or its subsidiaries; and 1.50% per annum in
•enter into transactions with their affiliates.
In addition, the case2022 Credit Facilities require EVERTEC Group to maintain a maximum total net leverage ratio of any Alternate Base Rate (“ABR”), as4.50 to 1.00 (i) from March 31, 2023 to September 30, 2024, and 4.00 to 1.00 (ii) thereafter.
Events of Default
The events of default under the 2022 Credit Facilities include, without limitation, nonpayment, material misrepresentation, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined in the 2013 Credit Agreement, subject to reduction basedAgreement) and cross-events of default on achievement of specific first lien secured leverage ratios, (ii) with respect to any 2020 Term A Loan, 2.50% per annum in the case of any LIBOR Loan and 1.50% per annum in the case of any ABR Loan, (iii) with respect to any Term B Loan, 2.75% per annum in the case of any LIBOR Loan and 1.75% per annum in the case of any ABR Loan subject to reduction based on achievement of specific first lien secured leverage ratios, and (iv) with respect to any revolving credit facility, (A) 2.50% per annum in the case of any LIBOR Loan and (B) 1.50% per annum in the case of any ABR Loan.material indebtedness.
The unpaid principal balance at December 31, 20172023 of the 2018 Term A Loan the 2020 Term A Loan and the Term B LoanFacility was $26.9 million, $202.9 million and $382.0 million, respectively.$993.5 million. The additional borrowing capacity for the Revolving Facility loan at December 31, 20172023 was $88.0$194.0 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.
Notes payable
In December 2014, June 2015 and May 2016,September 2023, EVERTEC Group entered into a non-interest bearing financing agreementsagreement amounting to $4.6 million, $1.1 million, and $0.7 million, respectively, and in October 2016 entered into an interest bearing agreement of $1.1$10.1 million to purchase software.software and maintenance which the Company recorded on a discounted basis using an implied interest of 6.9%. As of December 31, 2017 and December 31, 2016,2023, the outstanding principal balance of the notesnote payable is $1.0 million and $3.4 million, respectively.on a discounted basis was $7.4 million. The current portion of these notesthe note is recorded as part ofincluded in accounts payable and the long-term portion is included in other long-term liabilities.liabilities on the Company's consolidated balance sheet.
Interest Rate SwapSwaps
As of December 31, 2017,2023, the Company has the followingtwo interest rate swap agreement convertingagreements, entered into in December 2018 and May 2023, which convert a portion of the interest rate exposurepayments on the Company'sCompany’s 2024 Term B Loan from variable to fixed:
| Swap Agreement | Effective date | Maturity Date | Notional Amount | Variable Rate | Fixed Rate | |||||||||||||||||||||||||||||
| 2018 Swap | April 2020 | November 2024 | $250 million | 1-month SOFR | 2.929% | |||||||||||||||||||||||||||||
| November 2024 | December 2027 | $250 million | 1-month SOFR | |||||||||||||||||||||||||||||||
As of December 31, 20172023, the carrying amount of the derivatives included on the Company’s consolidated balance sheets was an asset of $4.4 million and a liability of $0.9 million. As of December 31, 2016,2022, the carrying amount of the derivative asset included on the Company’sCompany's consolidated balance sheets was $7.4 million. The fair value of this derivative is as follows:estimated using Level 2 inputs in the fair value hierarchy on a recurring basis.
| (Dollar amounts in thousands) | December 31, 2017 | December 31, 2016 | ||||||
| Other long-term assets | $ | 214 | $ | — | ||||
| Other long-term liabilities | — | 1,964 | ||||||
During the yearyears ended December 31, 2017,2023, 2022 and 2021, the Company reclassified gains of $5.6 million, losses of $1.6$3.0 million and losses of $7.1 million, respectively, from accumulated other comprehensive lossincome (loss) into income through interest expense. Based on current LIBORSOFR rates, the Company expects to reclassify $0.9gains of $6.3 million from accumulated other comprehensive lossincome (loss) into income through interest expense over the next 12 months. Refer to Note 16 to the Consolidated Financial Statements in this Report for tabular disclosure of the fair value of derivatives and to Note 19 to the Consolidated Financial Statements in this Report for tabular disclosure of gains (losses) recorded on cash flow hedging activities.
Covenant Compliance
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In this Annual Report, on Form 10-K, we refer to the term “Adjusted EBITDA” to mean EBITDA as so defined and calculated in a substantially consistent manner for purposes of determining compliance with the seniortotal secured net leverage ratio based on the financial information for the last twelve months at the end of each quarter.
Net Income Reconciliation to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share (Non-GAAP Measures)
Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included at the end of this earnings release. These non-GAAP measures include EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, each as defined below. Effective for the quarter ended March 31, 2023, the Company modified the manner in which it calculates Adjusted EBITDA, Adjusted Net Income and Adjusted earnings per common share to exclude the impact of unrealized gains and losses from foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. These non-cash unrealized gains and losses are non-operational in nature and we believe that excluding these better presents the overall financial performance of our core business, and helps facilitate comparison with industry peers. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share.
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA”
Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusualcertain non-cash items and other adjustments described below. Adjusted EBITDA by segmentunusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to ourthe Company's segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K. We define “Adjusted Net Income” as net income adjusted to exclude unusual items and other adjustments described below. We define “Adjusted Earnings per common share” as Adjusted Net Income divided by diluted shares outstanding.
Adjusted Net Income is defined as Adjusted EBITDA less: operating depreciation and amortization expense, defined as GAAP Depreciation and amortization less amortization of intangibles related to acquisitions such as customer relationships, trademarks; cash interest expense defined as GAAP interest expense, less GAAP interest income adjusted to exclude non-cash amortization of debt issue costs, premium and accretion of discount; income tax expense which is calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for uncertain tax position releases, tax true-ups, windfall from share-based compensation, unrealized gains and losses from foreign currency remeasurement, among others; and non-controlling interests, net of amortization for intangibles created as part of the purchase.
Adjusted Earnings per common share is defined as Adjusted Net Income divided by diluted shares outstanding.
The Company uses Adjusted Net Income to measure ourthe Company’s overall profitability because we believethe Company believes it better reflects ourthe comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of the Merger.merger and acquisition activity. In addition, in evaluating EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future wethe Company may incur expenses such as those excluded in calculating them. Further, our presentation
49
A reconciliation of net income to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share is provided below:
| Year Ended December 31, 2017 | ||||
| (Dollar amounts in thousands) | ||||
| Net income | $ | 55,419 | ||
| Income tax expense | 4,780 | |||
| Interest expense, net | 29,145 | |||
| Depreciation and amortization | 64,250 | |||
| EBITDA | 153,594 | |||
Equity income (1) | (604 | ) | ||
Compensation and benefits (2) | 9,755 | |||
Transaction, refinancing and other fees (3) | 2,500 | |||
Exit activity (4) | 12,783 | |||
| Adjusted EBITDA | 178,028 | |||
Operating depreciation and amortization (5) | (30,585 | ) | ||
Cash interest expense, net (6) | (24,660 | ) | ||
Income tax expense (7) | (15,100 | ) | ||
Non-controlling interest (8) | (581 | ) | ||
| Adjusted net income | $ | 107,102 | ||
| Net income per common share (GAAP): | ||||
| Diluted | $ | 0.76 | ||
| Adjusted Earnings per common share (Non-GAAP): | ||||
| Diluted | $ | 1.47 | ||
| Shares used in computing adjusted earnings per common share: | ||||
| Diluted | 72,872,188 | |||
| Year Ended December 31, 2023 | ||||||||
| (Dollar amounts in thousands) | ||||||||
| Net income | $ | 79,876 | ||||||
| Income tax expense | 5,477 | |||||||
| Interest expense, net | 23,809 | |||||||
| Depreciation and amortization | 93,621 | |||||||
| EBITDA | 202,783 | |||||||
Equity income (1) | (1,945) | |||||||
Compensation and benefits (2) | 29,312 | |||||||
Transaction, refinancing and other fees (3) | 53,545 | |||||||
Loss on foreign currency remeasurement (4) | 8,276 | |||||||
| Adjusted EBITDA | 291,971 | |||||||
Operating depreciation and amortization (5) | (52,913) | |||||||
Cash interest expense, net (6) | (24,286) | |||||||
Income tax expense (7) | (29,038) | |||||||
Non-controlling interest (8) | (257) | |||||||
| Adjusted net income | $ | 185,477 | ||||||
| Net income per common share (GAAP): | ||||||||
| Diluted | $ | 1.21 | ||||||
| Adjusted Earnings per common share (Non-GAAP): | ||||||||
| Diluted | $ | 2.82 | ||||||
| Shares used in computing adjusted earnings per common share: | ||||||||
| Diluted | 65,814,317 | |||||||
1)Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Dominican Republic, Consorcio de Tarjetas Dominicanas, S.A. (“CONTADO”), net of cash dividends received. 2)Primarily represents share-based compensation and severance payments. 3)Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and the foreign currency swap loss. 4)Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. 5)Represents operating depreciation and amortization expense, which excludes amounts generated as a result of merger and acquisition activity. 6)Represents interest expense, less interest income, as they appear |
| Payment due by periods | ||||||||||||||||||||
| (Dollar amounts in thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||
Long-term debt (1) | $ | 662,480 | $ | 70,039 | $ | 592,441 | $ | — | $ | — | ||||||||||
Operating leases (2) | 17,872 | 7,482 | 10,390 | — | — | |||||||||||||||
Short-term borrowings (3) | 12,180 | 12,180 | — | — | — | |||||||||||||||
| Other long-term liabilities | 1,374 | 631 | 743 | — | — | |||||||||||||||
| Total | $ | 693,906 | $ | 90,332 | $ | 603,574 | $ | — | $ | — | ||||||||||
7)Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items.
8)Represents the non-controlling equity interests, net impact on our operating results duringof amortization for intangibles created as part of the last three years as overall inflation has been partially offset by increased margins on incremental revenue and cost reduction actions. We cannot assure you, however, that we will not be affected by general inflation in the future.purchase.
Item 7A. Quantitative and Qualitative Disclosures aboutAbout Market Risk
We are exposed to market risks arising from our normal business activities. These market risks principally involve the possibility of change in interest rates that will adversely affect the value of our financial assets and liabilities or future cash flows and earnings.earnings, foreign currency exchange risk that may result in unfavorable foreign currency translation adjustments and inflation. Market risk is the potential loss arising from adverse changes in market rates and prices. The following analysis provides quantitative and qualitative information regarding these risks.
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Interest rate risks
Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.
We issued floating-rate debt which is subject to fluctuations in interest rates. Our senior secured credit facilities accrue interest at variable rates and only the Term B Loan isare subject to floors or minimum rates. ABased upon a sensitivity analysis of our outstanding debt on December 31, 2023, a hypothetical 100 basis point increase in interest rates over our floor(s)floor on our debt balances outstanding as of December 31, 2017,2023, under the senior secured credit facilities would increase our annual interest expense by approximately $4.1$7.4 million. The impact on future interest expense as a result of future changes in interest rates will depend largely on the gross amount of our borrowings at that time.
The interest rate swap exposes us to credit risk in the event that the counterparty to the swap agreement does not or cannot meet its obligations. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap. The counterpartycounterparties to the swap is aswaps are major USU.S. based financial institution and we expect the counterpartyboth counterparties to be able to perform its obligations under the swap.swaps. We use derivative financial instruments for hedging purposes only and not for trading or speculative purposespurposes.
See Note 12 of15 to the Notes to Audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K for additional information related to the senior secured credit facilities.
Foreign currency exchange risk
We conduct business in certain countries in Latin America. Some of this business is conducted inAmerica and the countries’ local currencies. The resulting foreign currency translation adjustments, from operationsCaribbean for which we have determined that the functional currency is other than the U.S. dollar,dollar. Given this, our operating results are exposed to volatility due to fluctuations in exchange rates for the countries’ functional currencies. Non-functional currency transactions are remeasured into the functional currency which results in a foreign exchange gain or loss recorded through Other income (expenses). For the years ended December 31, 2023, 2022 and 2021, we recognized foreign currency remeasurement losses of $8.3 million, losses of $7.6 million and gains of $1.9 million, respectively. For subsidiaries whose local currency is their functional currency, their assets and liabilities are translated into U.S. dollars at exchange rates at the balance sheet date, and revenues and expenses are translated using average exchange rates in effect during the period. The resulting foreign currency translation adjustments are reported in accumulated other comprehensive lossincome (loss) in the audited consolidated balance sheet, except for highly inflationary environments in which the effects would be included in other operating income in the consolidated statementssheets. As of income and comprehensive income. At December 31, 2017,2023, the Company had $11.1$14.8 million in an unfavorablea favorable foreign currency translation adjustment as part of accumulated other comprehensive lossincome compared towith an unfavorable foreign currency translation adjustment of $10.4$23.5 million atas of December 31, 2016.2022.
Inflation risk
While it is difficult to accurately measure the impact of inflation on our results of operations and financial condition, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. General inflation in the geographies in which we operate has risen to levels that have not been experienced in recent years, however, inflation has historically had a minimal net effect on our operating results given that overall inflation has been offset by sales and cost reduction actions. Rising prices for input costs, including wages and benefits, occupancy and general administrative costs, could potentially have a negative impact on our results of operations and financial condition which may not be readily recoverable from our customers. In addition, inflation has driven a rising interest rate environment, which has had an adverse effect on our cost of funding, as well as led to enhanced volatility on foreign currency exchange rates. While we proactively try to mitigate these rising costs, we may not be able to fully offset these impacts, which could result in negative effect on our results of operation. Thus, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future.
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Item 8. Financial Statements and Supplementary Data
The Audited Consolidated Financial Statements, together with EVERTEC’s independent registered public accounting firmsfirm’s reports, are included herein beginning on page F-1 of this Annual Report on Form 10-K.Report.
| Quarters ended, | |||||||||||||||
| (Dollar amounts in thousands, except per share data) | March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 | |||||||||||
| Revenues | $ | 101,280 | $ | 103,511 | $ | 102,725 | $ | 99,628 | |||||||
| Operating costs and expenses | 70,688 | 73,517 | 93,917 | 82,939 | |||||||||||
| Income from operations | 30,592 | 29,994 | 8,808 | 16,689 | |||||||||||
| Non-operating expenses | (5,434 | ) | (5,712 | ) | (7,506 | ) | (7,232 | ) | |||||||
| Income before income taxes | 25,158 | 24,282 | 1,302 | 9,457 | |||||||||||
| Income tax expense (benefit) | 2,020 | 4,068 | (4,840 | ) | 3,532 | ||||||||||
| Net income | $ | 23,138 | $ | 20,214 | $ | 6,142 | $ | 5,925 | |||||||
| Net income attributable to EVERTEC, Inc.’s common stockholders | $ | 23,029 | $ | 20,089 | $ | 6,102 | $ | 5,834 | |||||||
| Net income per common share - basic | $ | 0.32 | $ | 0.28 | $ | 0.08 | $ | 0.08 | |||||||
| Net income per common share - diluted | $ | 0.31 | $ | 0.27 | $ | 0.08 | $ | 0.08 | |||||||
| Quarters ended, | |||||||||||||||
| (Dollar amounts in thousands, except per share data) | March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | |||||||||||
| Revenues | $ | 95,479 | $ | 97,672 | $ | 94,467 | $ | 101,889 | |||||||
| Operating costs and expenses | 68,913 | 69,480 | 67,460 | 76,509 | |||||||||||
| Income from operations | 26,566 | 28,192 | 27,007 | 25,380 | |||||||||||
| Non-operating expenses | (5,523 | ) | (5,157 | ) | (5,657 | ) | (7,411 | ) | |||||||
| Income before income taxes | 21,043 | 23,035 | 21,350 | 17,969 | |||||||||||
| Income tax expense | 1,876 | 2,801 | 1,639 | 1,955 | |||||||||||
| Net income | $ | 19,167 | $ | 20,234 | $ | 19,711 | $ | 16,014 | |||||||
| Net income attributable to EVERTEC, Inc.’s common stockholders | $ | 19,148 | $ | 20,235 | $ | 19,680 | $ | 15,972 | |||||||
| Net income per common share - basic | $ | 0.26 | $ | 0.27 | $ | 0.27 | $ | 0.22 | |||||||
| Net income per common share - diluted | $ | 0.26 | $ | 0.27 | $ | 0.26 | $ | 0.22 | |||||||
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Changes in Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as(as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or underAct).
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, and effected by the Company’s boardwe conducted an evaluation of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Based on this assessment,evaluation under the framework set forth in Internal Control – Integrated Framework (2013), our management has determinedconcluded that the Company’sCompany��s internal control over financial reporting as of December 31, 20172023 was effective.
Attestation Report of the SEC staff’s Frequently Asked Question 3 on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (revised September 24, 2007), our management excluded PayGroup, which was acquired on July 3, 2017, from our assessment of internal control over financial reporting effectiveness as of December 31, 2017. PayGroup represented approximately 6% of consolidated total assets and approximately 3% of consolidated total revenues, included in our Consolidated Financial Statements as of and for the year ended December 31, 2017.Registered Public Accounting Firm
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the year ended December 31, 2017,2023, included in this Form 10-KReport and, as part of the audit, has issued a report, included as part ofin Part II, Item 8 of8. Financial statements and Supplementary Data in this Form 10-K,Report, on the effectiveness of our internal control over financial reporting as of December 31, 2017.2023.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
Code of Ethics
Our Board of Directors has adopted a Code of Ethics applicable to all officers, directors, and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, and persons performing similar functions. A copy of our Code of Ethics is available at the Investor Relations section of our website, located at ir.evertecinc.com under “Governance Documents.” We intend to make all disclosures required by law or the NYSE regarding any amendments to, or waivers from, any provisions of the code at the same location of our website.Our website is not incorporated by reference into this Report, and you should not consider the information on our website to be part of this Report.
BIOGRAPHICAL INFORMATION OF OUR DIRECTORS
Certain information concerning our current Board of Directors as of February 22, 2024 follows.
Frank G. D’Angelo
Mr. D’Angelo has been Chairman of the Board since February 2014 and a director since September 2013. Since June 2015 he has served as Operating Partner in Hill Path, a private equity partnership, and as a partner in Bridgeport Partners, a private investment firm since June 2019. From May 2019 until October 2021, he served as Executive Vice President and President of NCR Banking. Mr. D’Angelo has over 40 years of experience in the financial services, digital banking and payments industries. He is a former chairman of the Electronic Funds Transfer Association, served on the Payments Advisory Council of the Federal Reserve Bank of Philadelphia, and served as a director for Walsh University (Ohio). Mr. D’Angelo’s experience in the financial services industry, as well as in operations and management, provides great value to our Board.
Morgan M. Schuessler, Jr.
Mr. Schuessler has been a director and the Company’s President and CEO since April 2015. Previously, he served as President of International for Global Payments, Inc., overseeing the company’s business outside of the Americas, spanning 23 countries throughout Europe and Asia. Mr. Schuessler currently serves on the board of directors of Endeavor Puerto Rico, the Wharton Executive Education Board, and the Smithsonian Institution National Board. Mr. Schuessler has over 20 years of experience in the payments industry; accordingly, he is well-versed in the intricacies of the Company’s core business and has developed management and oversight skills required to make significant contributions to the Board.
Kelly Barrett
Ms. Barrett has been a director since May 2021. From 2016 until her retirement in 2020, Ms. Barrett was the Senior Vice President of Home Services at The Home Depot. Ms. Barrett joined The Home Depot in 2003, where she held various senior management positions, including as Vice President of Internal Audit and Corporate Compliance, and Controller. Ms. Barrett currently serves as board member of Piedmont Office Realty Trust, Inc. (NYSE: PDM), The Aaron’s Company, Inc. (NYSE: AAN), and Americold Realty Trust (NYSE: COLD). Her leadership roles in the community currently include serving on the board of the Metro Atlanta YMCA (where she formerly served as chair); the National Association of Corporate Directors, Atlanta Chapter board; the Georgia Tech Foundation Board of Trustees; and as a member of the Advisory Board of Scheller College of Business at Georgia Tech (where she also formerly served as chair). She has previously served on the board of the Girl Scouts of Greater Atlanta and on the non-profit organization Partnership Against Domestic Violence and the Atlanta Rotary Club. She is also a Certified Public Accountant in the state of Georgia and NACD Directorship Certified. Ms. Barrett’s substantial experience in leadership roles, strategy and enterprise risk management, coupled with service on several boards, is of great service to the Company.
Olga Botero
Ms. Botero has been a director since September 2014. She is the founder and CEO of C&S Customer and Strategy, a boutique consulting firm focused on technology, digital and cybersecurity management for leading companies in Latin America, co-founder and Chair of Seccuri, Inc., and has been a Senior Advisor to the Boston Consulting Group from 2011 until 2024. She is the Co-Chair of the Women Corporate Directors Foundation Colombia Chapter and a fellow at the National Association of Corporate Directors (NACD) Board Leadership Fellow program. She serves as an independent director of the Altipal S.A.S. Board of Directors since April 2022, serving as chair of their Audit Committee and member of their Innovation Committee. She also serves as an independent member of the Audit Committee of Group Coppel in Mexico, a family owned group with businesses in retail, financial services and real state; and as an independent advisor of Grupo Montoya, a family owned group
54
with businesses in music, automobile and real estate in Colombia and Panama. Ms. Botero has over 25 years of experience in leadership roles in financial services, telecommunications and technology. She also has Climate Leadership and ESG certificates issued by the Diligent Institute. Her experience, expertise in cybersecurity and technology, and knowledge of Latin American markets are an asset to the Company.
Virginia Gambale
Ms. Gambale has been a director since May 2023. Ms. Gambale founded and has served since 2003 as Managing Partner of Azimuth Partners, Inc., a strategic advisory firm that develops growths, innovation and transformation strategies and planning for technology companies. Prior to founding Azimuth in 2003, she worked at Deutsche Bank, where she was a General Partner and Managing Director of ABS Ventures, responsible for the management of the Tech Venture group and Head of Deutsche Bank Strategic Ventures. Before Deutsche Bank, Ms. Gambale was the Chief Information Officer for Global Investment Banking at Merrill Lynch. Ms. Gambale currently serves as a director for JAMF Software, Nutanix, Virtu Financial, and First Derivatives. She’s also an Adjunct Faculty Member for Colombia University. Her substantial experience in leadership roles, information technology and fintech are of great value to the Company.
Jorge A. Junquera
Mr. Junquera has been a director since April 2012. Since July 2015, he has served as Managing Partner at Kohly Capital, LLC, a private investment company. He has over 40 years of experience in the banking and financial services industries. Until his retirement in 2015, Mr. Junquera was Vice Chairman of the board of directors of Popular. Prior to becoming Vice Chairman, he was the Chief Financial Officer of Popular and Supervisor of Popular’s Financial Management Group. He currently serves as a director for Sacred Heart University (PR) and Equalize Community Development Fund (NYSE: EQCDX). Mr. Junquera’s substantial experience managing financial institutions and serving on various boards of directors provides him with unique expertise and valuable perspective to assist the Board.
Iván Pagán
Mr. Pagán has been a director since May 2019. For twenty-two years until his retirement in February 2019, Mr. Pagán was the Head of Corporate Development at Popular, where he managed mergers and acquisitions, divestitures, corporate reorganization and strategic alliances for Popular, completing significant transactions in the United States, Latin American, Puerto Rico and the Caribbean. Mr. Pagán currently serves as a member of the board of directors of Centro Financiero BHD in the Dominican Republic. Mr. Pagán’s substantial expertise in financial and M&A matters, experience in the Caribbean and Latin American markets, and knowledge of the Company’s operations are an asset to the Company.
Aldo J. Polak
Mr. Polak has been a director since May 2019. From November 2021 until January 2024, he was Managing Director at Mizuho. From April 2021 until October 2021, he was the Managing Member of Ionos Capital Partners LLC, an investment vehicle company. From April 2019 to April 2021, Mr. Polak served as Chief Investment & Development Officer at Cisneros Group of Companies, a private conglomerate focused on digital advertising, media and entertainment, real estate and new technologies. Prior to Cisneros, he spent over 15 years as an investment banker in Wall Street, most recently heading the Latin America efforts at LionTree, a global investment and merchant banking firm, from 2013 to March 2019. He currently serves on the boards of two charitable organizations, LatinoU and Reaching U, and is chairman of the latter. He is also involved with Endeavor as a panelist and mentor to entrepreneurs. Mr. Polak’s significant experience in M&A, strategy and corporate development, and his network of corporate relationships in Latin America and in the payments sector provide great value to the Board.
Alan H. Schumacher
Mr. Schumacher has been a director since April 2013. For 23 years he worked at American National Can Corporation, a manufacturing company, as well as at American National Can Group Inc, a manufacturer of metal cans, where he served as Vice President, Controller and Chief Accounting Officer until 1997 and as Executive Vice President and Chief Financial Officer from 1997 until his retirement in 2000. He is a former member of the Federal Accounting Standards Advisory Board, and currently serves as a director of Warrior Met Coal, Inc. (NYSE: HCC), Albertsons Companies, Inc. (NYSE: ACI), and Pendrick Capital Partners LLC. Mr. Schumacher has substantial expertise in accounting, reporting, audit and financial matters and, as such, is able to provide valuable contributions to our Board in its oversight functions.
55
Brian J. Smith
Mr. Smith has been a director since February 2016. Mr. Smith served in various executive level positions in The Coca-Cola Company, including as President and Chief Operating Officer from January 2019 until September 2022, and as a senior executive from October 2022 until his retirement in February 2023. From 2016 until December 2018, he served as President of its Europe, Middle East and Africa (EMEA) Group and, prior to that, he also held other strategic and management roles since joining The Coca-Cola Company in 1997. Mr. Smith serves as a director for the Coca-Cola Europacific Partners PLB board (LSE: CCEP) and is a member of its Corporate Social Responsibility Committee. Like other members of the Board, Mr. Smith has substantial managerial experience in Latin America. His extensive expertise in management and corporate strategy makes him a valuable asset to the Company.
BIOGRAPHICAL INFORMATION OF OUR EXECUTIVE OFFICERS
Certain information concerning our current executive officers as of February 22, 2024 follows. There are no family relationships between any of our executive officers.
Morgan M. Schuessler, Jr. – Please refer to the Biographical Information of our Directors for Mr. Schuessler’s biographical information.
Joaquín A. Castrillo
Mr. Castrillo has served as our Executive Vice President, CFO and Treasurer since October 2018. From August 2018 until such appointment, he served as Interim CFO and Treasurer. He has worked at the Company since 2012 serving in roles of increasing responsibility, including as Vice President and Finance Manager from 2015 to 2018, and as Vice President and Finance Director in 2018 until his appointment as Executive Vice President, CFO and Treasurer. Prior to joining the Company, Mr. Castrillo was an Audit Manager in the Banking and Capital Markets group of PwC. Mr. Castrillo holds a B.B.A. with a double concentration in Finance and Accounting from Villanova University. He is also a Certified Public Accountant and a member of the Villanova University Finance Department Advisory Committee.
Daniel Brignardello
Mr. Brignardello has served as our Executive Vice President and Group Head of Latam since February 2024. Prior to that he was our Senior Vice President and Chief Delivery Officer from July 2021 to February 2024. Mr. Brignardello joined the Company in July 2017 as Vice President of Processing and Fraud Prevention Services. Prior to joining the Company, Mr. Brignardello served as Chief Operating Officer of PayTrue, a Uruguayan based payments solutions company, from 2003 through June 2017; and as a Senior Software Engineer for Trintech from 2000 through 2003. Mr. Brignardello has over 25 years of senior management experience in the payments sector. He has served as a teacher (Grade 1) in the cryptography university chair in the School of Engineering of the Universidad de la República in Uruguay from 2000 through 2003. Mr. Brignardello holds a Computer Analyst degree from the School of Engineering of the Universidad de la República in Uruguay (2000), and a Program for Management Development (PMD) degree from the ESADE Business School in Barcelona, Spain (2009). Mr. Brignardello has been a Board member of ICT4V, a technology and innovation organization in Montevideo, Uruguay, since 2015.
Paola Pérez
Ms. Pérez has served as our Executive Vice President since February 2018 and Group Head of Puerto Rico since August 2022. Prior to that she was our Chief Administrative Officer from March 2020 to August 2022, and Senior Vice President of People and Culture from August 2017 until her appointment as Executive Vice President. She joined the Company in 2011 as Director of Internal Audit. Before joining Evertec, Ms. Pérez worked at Chartis as an External Reporting Manager for the Latin America Region, and PwC where she worked as a senior auditor. She obtained her Bachelor of Science in Accounting from Fairfield University, is a Certified Public Accountant and a board member of Lectores para el Futuro, a non-profit organization.
Luis A. Rodríguez
Mr. Rodríguez has served as our Executive Vice President since February 2017 and as Chief Legal and Administrative Officer since August 2022. He joined the Company in 2015 as Senior Vice President for Corporate Development, and was appointed General Counsel and Secretary of the Board in September 2016. Prior to joining the Company, Mr. Rodríguez served as Executive Director at J.P. Morgan in New York. Mr. Rodríguez holds a bachelor’s degree from the Woodrow Wilson School of Public and International Affairs at Princeton University and holds a Juris Doctor from Stanford Law School.
56
Diego Viglianco
Mr. Viglianco has served as our Executive Vice President and COO since June 2021, and was a consultant to the Company from March 2021 until his appointment as COO. Before joining the Company, Mr. Viglianco served as the CEO of Interbanking, S.A., a digital financial ACH/real time payments company headquarters in Argentina, from July 2019 to February 2021. Prior to that, he was the CEO of the Processing Division of Prisma Medios de Pago S.A. in Argentina from March 2017 to June 2019. Previously, he held senior management positions with MasterCard in Argentina and Miami, USA, and Promoción y Operación S.A. de C.V. (PROSA) in Mexico. Mr. Viglianco holds an MBA in Economy and Business Administration from ESEADE University, Argentina, and a Bachelor of Science in Engineering from the University of Salvador, Argentina.
Miguel Vizcarrondo
Mr. Vizcarrondo has served as our Executive Vice President since 2012, and as Chief Product & Innovation Officer since August 2022. Prior to that he was our Chief Commercial Officer for Puerto Rico and the Caribbean from 2021 to August 2022, and Head of Merchant Acquiring and Payment Processing from February 2012 until 2021. Prior to joining the Company in 2010, Mr. Vizcarrondo worked in Banco Popular de Puerto Rico for 14 years in a variety of roles, lastly as Senior Vice President of the Merchant Acquiring Solutions group from 2006 until he joined the Company in 2010. Mr. Vizcarrondo serves as a member of the Banco Popular Foundation, and as president for the Puerto Rico American Football Alliance, a youth sports league. Mr. Vizcarrondo holds a Bachelor of Science in Management, with a concentration in Finance, from Tulane University.
Other Information
The remaining information required by Part III, Item 10 will be included under the headings “Corporate Governance” and “Delinquent Section 16(a) Reports” (if applicable) in EVERTEC'sEVERTEC’s proxy statement, to be filed pursuant to RegulationSchedule 14 A within 120 days after the end of the 20172023 fiscal year and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Part III, Item 11 will be included under the headings “Compensation Discussion and Analysis” and “CEO Pay Ratio” in EVERTEC'sEVERTEC’s proxy statement, to be filed pursuant to RegulationSchedule 14 A within 120 days after the end of the 20172023 fiscal year and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Part III, Item 12 will be included under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Director Compensation” in EVERTEC'sEVERTEC’s proxy statement, to be filed pursuant to RegulationSchedule 14 A within 120 days after the end of the 20172023 fiscal year and is incorporated herein by reference.
Item 13. Certain Relationships and Related Party Transactions and Director Independence
The information required by Part III, Item 13 will be included under the headings “Certain Relationships and Related Person Transactions” and “Corporate Governance” in EVERTEC'sEVERTEC’s proxy statement, to be filed pursuant to RegulationSchedule 14 A within 120 days after the end of the 20172023 fiscal year and is incorporated herein by reference.
Item 14. Principal AccountingAccountant Fees and Services
The information required by Part III, Item 14 will be included under the heading “Principal Accounting Fees and Services” in EVERTEC'sEVERTEC’s proxy statement, to be filed pursuant to RegulationSchedule 14 A within 120 days after the end of the 20172023 fiscal year and is incorporated herein by reference.reference
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Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
The following consolidated financial statements of EVERTEC, Inc. together with the Report of Independent Registered Public Accounting Firm, are included in Part II, Item 8, Financial Statements and Supplementary Data:
•Reports of Independent Registered Public Accounting FirmsFirm
•Consolidated Balance Sheets as of December 31, 20172023 and 2016
2022•Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2017, 20162023, 2022 and 2015
2021•Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 20162023, 2022 and 2015
2021•Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162023, 2022 and 2015
2021•Notes to Audited Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule I—Parent Company Only Financial Statements
(3) Exhibits
58
| Exhibit No. | Description | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 4.1 | |||||||||||
| 10.1 | ||||||
59
60
| 10.28+ | |||||||||||
| 10.29# | |||||||||||
| 21.1* | |||||||||||
| 23.1* | |||||||||||
| 31.1* | |||||||||||
| 31.2* | |||||||||||
| 32.1** | |||||||||||
| 32.2** |
| 97.1* | |||||||||||
| 101.INS XBRL* | Inline XBRL Instance document– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
| 101.SCH XBRL* | Inline XBRL Taxonomy Extension Schema | ||||||||||
| 101.CAL XBRL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.DEF XBRL* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB XBRL* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE XBRL* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||
* Filed herewith.
** Furnished herewith.
+ This exhibit is a management contract or a compensatory plan or arrangement.
# Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted
schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
| EVERTEC, Inc. | ||||||||||||
| Date: February | By: | /s/ Morgan M. Schuessler, Jr. | ||||||||||
| Morgan M. Schuessler, Jr. | ||||||||||||
| Chief Executive Officer | ||||||||||||
| (Principal Executive Officer) | ||||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
62
| Signature | Title | Date | ||||||||||||||
| /s/ Morgan M. Schuessler, Jr. | Chief Executive Officer (Principal Executive | February | ||||||||||||||
| Morgan M. Schuessler, Jr. | Officer) | |||||||||||||||
| /s/ | Chief Financial Officer (Principal Financial and | February | ||||||||||||||
| Accounting Officer) | ||||||||||||||||
| /s/ Frank G. D’Angelo | Chairman of the Board | February | ||||||||||||||
| Frank G. D’Angelo | ||||||||||||||||
| /s/ Iván Pagán | Director | February 29, 2024 | ||||||||||||||
| Iván Pagán | ||||||||||||||||
| /s/ Alan H. Schumacher | Director | February | ||||||||||||||
| Alan H. Schumacher | ||||||||||||||||
| /s/ Kelly Barrett | Director | February 29, 2024 | ||||||||||||||
| Kelly Barrett | ||||||||||||||||
| /s/ Jorge A. Junquera | Director | February | ||||||||||||||
| Jorge A. Junquera | ||||||||||||||||
| /s/ Aldo Polak | Director | February 29, 2024 | ||||||||||||||
| Aldo Polak | ||||||||||||||||
| /s/ Olga M. Botero | Director | February | ||||||||||||||
| Olga M. Botero | ||||||||||||||||
| /s/ Brian J. Smith | Director | February | ||||||||||||||
| Brian J. Smith | ||||||||||||||||
| /s/ Virginia Gambale | Director | February 29, 2024 | ||||||||||||||
| Virginia Gambale | ||||||||||||||||
63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholdersstockholders and the Board of Directors of EVERTEC, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of EVERTEC, Inc. and subsidiaries (the “Company”) as of December 31, 20172023, and 2016,2022, the related consolidated statements of income and comprehensive income, shareholders’changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017,2023, and the related notes and the schedulesschedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023, and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-IntegratedControl — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2018,29, 2024 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenues – Payment services and merchant acquiring- Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company’s revenues from payment services and merchant acquiring include activity-based fees made up of a significant volume of low-dollar transactions, sourced from multiple systems, platforms, and applications. The processing of transactions and recording of payments services and merchant acquiring revenue is highly automated and is based on contractual terms with financial institutions, government entities, merchants, and other issuers.
Accordingly, we identified the audit of payment services and merchant acquiring activity-based fees as a critical audit matter. This required an increased extent of effort, including the need for us to involve professionals with expertise in information technology (IT), to identify, test, and evaluate the Company’s systems, applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s systems to process and record payment services and merchant acquiring revenues included the following, among others:
F - 2
•With the assistance of our IT specialists, we:
•Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls.
•Tested system interface controls and automated controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenue.
•We tested internal controls within the relevant revenue business processes, including those in place to reconcile the various reports extracted from the IT systems to the Company’s general ledger.
•We developed expectations of revenue at a disaggregated level based on historical transaction prices and current year transactions and volumes. We compared those estimates to revenue recognized by the Company.
Redeemable Non-controlling Interests - Refer to Notes 1, 3 and 18 to the financial statements
Critical Audit Matter Description
On November 1, 2023, the Company acquired Sinqia, S.A. (“Sinqia”) and assumed Sinqia’s pre-existing non-controlling interests, which include embedded redemption features in the form of reciprocal call and put options redeemable in future periods. As potential redemption of the non-controlling interests is not solely within the Company’s control, the non-controlling interests and redemption features are presented as “temporary equity” within the Company’s consolidated balance sheet.
We identified the accounting for the redeemable non-controlling interest arrangements related to Sinqia’s pre-existing non-controlling interests as a critical audit matter given the complexities involved in auditing management’s accounting conclusions which required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve professionals in our firm with expertise in financial instruments when performing audit procedures to assess the unit of accounting for the redeemable non-controlling interests and call and put options; balance sheet classification of the interests, including whether embedded features of the interests meet the definition of a derivative and require bifurcation; how the redeemable non-controlling interests should be initially and subsequently measured; and the impacts of the interests on the determination of earnings per share given the redemption features of the interests.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for Sinqia’s pre-existing redeemable non-controlling interests included the following, among others:
•We tested the effectiveness of internal controls over the accounting for the redeemable non-controlling interests, including those over the identification and application of the relevant accounting guidance to account for the interests.
•We evaluated the key terms of the underlying non-controlling interest agreements, including reciprocal call and put options features.
•We evaluated, with the assistance of professionals in our firm with expertise in financial instruments, the appropriateness of the Company’s accounting for the redeemable non-controlling interests based on the underlying contractual arrangements and the relevant authoritative accounting guidance, including accounting conclusions regarding the appropriate unit of accounting for the redeemable non-controlling interests and call and put options; balance sheet classification of the interests, including whether embedded features of the interests meet the definition of a derivative and require bifurcation; how the redeemable non-controlling interests should be initially and subsequently measured; and the impacts of the interests on the determination of earnings per share given the redemption features of the interests.
/s/ Deloitte & Touche LLP
San Juan, Puerto Rico
February 28, 201829, 2024
Stamp No. E308482E559558
affixed to originaloriginal.
We have served as the Company’s auditor since 2015.
F - 3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors and Stockholders of EVERTEC, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of EVERTEC, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2023, based on criteria established in Internal Control-IntegratedControl — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-IntegratedControl — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2023, of the Company and our report dated February 28, 2018,29, 2024, expressed an unqualified opinion on those financial statements.
As described in Management’sManagement's Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at PayGroup,Sinqia S.A., which was acquired on July 3, 2017,November 1, 2023, and whose financial statements constitute 6%35% of consolidated total assets and 3% of net sales of the consolidated total revenuesfinancial statement amounts as of and for the year ended December 31, 2017.2023. Accordingly, our audit did not include the internal control over financial reporting at PayGroup.Sinqia S.A.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
San Juan, Puerto Rico
February 28, 201829, 2024
Stamp No. E308483E559557
affixed to originaloriginal.
F - 4
EVERTEC, Inc. Consolidated Balance Sheets
(Dollar amounts in thousands, except share data)
| December 31, 2023 | December 31, 2022 | |||||||||||||
| Assets | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | 295,600 | 185,274 | ||||||||||||
| Restricted cash | 23,073 | 18,428 | ||||||||||||
| Accounts receivable, net | 126,510 | 111,493 | ||||||||||||
| Settlement assets | 51,467 | 31,542 | ||||||||||||
| Prepaid expenses and other assets | 64,704 | 42,392 | ||||||||||||
| Total current assets | 561,354 | 389,129 | ||||||||||||
| Debt securities available-for-sale, at fair value | 2,095 | 2,203 | ||||||||||||
| Equity securities, at fair value | 9,413 | — | ||||||||||||
| Investment in equity investee | 21,145 | 14,661 | ||||||||||||
| Property and equipment, net | 62,453 | 56,387 | ||||||||||||
| Operating lease right-of-use asset | 14,796 | 15,918 | ||||||||||||
| Goodwill | 791,700 | 423,392 | ||||||||||||
| Other intangible assets, net | 518,070 | 200,320 | ||||||||||||
| Deferred tax asset | 47,847 | 5,701 | ||||||||||||
| Derivative asset | 4,385 | 7,440 | ||||||||||||
| Net investment in leases | — | 14 | ||||||||||||
| Other long-term assets | 27,005 | 16,578 | ||||||||||||
| Total assets | $ | 2,060,263 | $ | 1,131,743 | ||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||
| Current Liabilities: | ||||||||||||||
| Accrued liabilities | $ | 129,160 | $ | 80,666 | ||||||||||
| Accounts payable | 66,516 | 29,730 | ||||||||||||
| Contract liability | 21,055 | 15,226 | ||||||||||||
| Income tax payable | 3,402 | 9,406 | ||||||||||||
| Current portion of long-term debt | 23,867 | 20,750 | ||||||||||||
| Short-term borrowings | — | 20,000 | ||||||||||||
| Current portion of operating lease liability | 6,693 | 5,936 | ||||||||||||
| Settlement liabilities | 47,620 | 26,696 | ||||||||||||
| Total current liabilities | 298,313 | 208,410 | ||||||||||||
| Long-term debt | 946,816 | 389,498 | ||||||||||||
| Deferred tax liability | 87,916 | 10,111 | ||||||||||||
| Contract liability - long term | 41,825 | 34,068 | ||||||||||||
| Operating lease liability - long-term | 9,033 | 10,788 | ||||||||||||
F - 5
| December 31, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 50,423 | $ | 51,920 | ||||
| Restricted cash | 9,944 | 8,112 | ||||||
| Accounts receivable, net | 83,328 | 77,803 | ||||||
| Prepaid expenses and other assets | 25,011 | 20,430 | ||||||
| Total current assets | 168,706 | 158,265 | ||||||
| Investment in equity investee | 13,073 | 12,252 | ||||||
| Property and equipment, net | 37,924 | 38,930 | ||||||
| Goodwill | 398,575 | 370,986 | ||||||
| Other intangible assets, net | 279,961 | 299,119 | ||||||
| Other long-term assets | 4,549 | 6,110 | ||||||
| Total assets | $ | 902,788 | $ | 885,662 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current Liabilities: | ||||||||
| Accrued liabilities | $ | 38,451 | $ | 34,243 | ||||
| Accounts payable | 41,135 | 40,845 | ||||||
| Unearned income | 7,737 | 4,531 | ||||||
| Income tax payable | 1,406 | 1,755 | ||||||
| Current portion of long-term debt | 46,487 | 19,789 | ||||||
| Short-term borrowings | 12,000 | 28,000 | ||||||
| Total current liabilities | 147,216 | 129,163 | ||||||
| Long-term debt | 557,251 | 599,667 | ||||||
| Deferred tax liability | 13,820 | 14,978 | ||||||
| Unearned income—long-term | 23,486 | 17,303 | ||||||
| Other long-term liabilities | 13,039 | 16,376 | ||||||
| Total liabilities | 754,812 | 777,487 | ||||||
| Commitments and contingencies (Note 22) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued | — | — | ||||||
| Common stock, par value $0.01; 206,000,000 shares authorized; 72,393,933 shares issued and outstanding at December 31, 2017 (December 31, 2016 - 72,635,032) | 723 | 726 | ||||||
| Additional paid-in capital | 5,350 | — | ||||||
| Accumulated earnings | 148,887 | 116,341 | ||||||
| Accumulated other comprehensive loss, net of tax | (10,848 | ) | (12,391 | ) | ||||
| Total EVERTEC, Inc. stockholders’ equity | 144,112 | 104,676 | ||||||
| Non-controlling interest | 3,864 | 3,499 | ||||||
| Total equity | 147,976 | 108,175 | ||||||
| Total liabilities and equity | $ | 902,788 | $ | 885,662 | ||||
| Other long-term liabilities | 40,984 | 4,120 | ||||||||||||
| Total liabilities | 1,424,887 | 656,995 | ||||||||||||
| Commitments and contingencies (Note 25) | ||||||||||||||
| Redeemable non-controlling interests | 36,968 | — | ||||||||||||
| Stockholders’ equity | ||||||||||||||
| Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued | — | — | ||||||||||||
| Common stock, par value $0.01; 206,000,000 shares authorized; 65,450,799 shares issued and outstanding at December 31, 2023 (December 31, 2022 - 64,847,233) | 654 | 648 | ||||||||||||
| Additional paid-in capital | 36,527 | — | ||||||||||||
| Accumulated earnings | 538,903 | 487,349 | ||||||||||||
| Accumulated other comprehensive income (loss), net of tax | 18,209 | (16,486) | ||||||||||||
| Total EVERTEC, Inc. stockholders’ equity | 594,293 | 471,511 | ||||||||||||
| Non-controlling interest | 4,115 | 3,237 | ||||||||||||
| Total equity | 598,408 | 474,748 | ||||||||||||
| Total liabilities and equity | $ | 2,060,263 | $ | 1,131,743 | ||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F - 6
EVERTEC, Inc. Consolidated Statements of Income and Comprehensive Income
(Dollar amounts in thousands, except per share data)
| Years ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| Years ended December 31, | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||
| Revenues (affiliates Note 21) | $ | 407,144 | $ | 389,507 | $ | 373,528 | |||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenues, exclusive of depreciation and amortization shown below | 200,650 | 175,809 | 167,916 | ||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 56,161 | 46,986 | 37,278 | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 64,250 | 59,567 | 64,974 | ||||||||||||||||||||||||||||||||||||||
| Total operating costs and expenses | 321,061 | 282,362 | 270,168 | ||||||||||||||||||||||||||||||||||||||
| Income from operations | 86,083 | 107,145 | 103,360 | ||||||||||||||||||||||||||||||||||||||
| Non-operating income (expenses) | |||||||||||||||||||||||||||||||||||||||||
| Interest income | 716 | 377 | 495 | ||||||||||||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||||||||||||||
| Interest expense | (29,861 | ) | (24,617 | ) | (24,266 | ) | |||||||||||||||||||||||||||||||||||
| Earnings (losses) of equity method investment | 604 | (52 | ) | 147 | |||||||||||||||||||||||||||||||||||||
| Gain on sale of a business | |||||||||||||||||||||||||||||||||||||||||
| (Loss) gain on foreign currency remeasurement | |||||||||||||||||||||||||||||||||||||||||
| Loss on foreign currency swap | |||||||||||||||||||||||||||||||||||||||||
| Earnings of equity method investment | |||||||||||||||||||||||||||||||||||||||||
| Other income, net | 2,657 | 544 | 2,306 | ||||||||||||||||||||||||||||||||||||||
| Total non-operating expenses | (25,884 | ) | (23,748 | ) | (21,318 | ) | |||||||||||||||||||||||||||||||||||
| Total non-operating (expenses) income | |||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 60,199 | 83,397 | 82,042 | ||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 4,780 | 8,271 | (3,335 | ) | |||||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||||||||
| Net income | 55,419 | 75,126 | 85,377 | ||||||||||||||||||||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | 365 | 90 | — | ||||||||||||||||||||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interests | |||||||||||||||||||||||||||||||||||||||||
| Net income attributable to EVERTEC, Inc.’s common stockholders | 55,054 | 75,036 | 85,377 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax of $122, $176 and $8 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax of $598, $1,447 and $1,153 | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (635 | ) | (3,360 | ) | (545 | ) | |||||||||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedge | 2,178 | (1,449 | ) | (515 | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||||||||||||||||||||
| (Loss) gain on cash flow hedges | |||||||||||||||||||||||||||||||||||||||||
| Unrealized (loss) gain on change in fair value of debt securities available-for-sale | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders | $ | 56,597 | $ | 70,227 | $ | 84,317 | |||||||||||||||||||||||||||||||||||
| Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders | $ | 0.76 | $ | 1.01 | $ | 1.11 | |||||||||||||||||||||||||||||||||||
| Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders | $ | 0.76 | $ | 1.01 | $ | 1.11 | |||||||||||||||||||||||||||||||||||
| Cash dividends declared per share | $ | 0.30 | $ | 0.40 | $ | 0.40 | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F - 7
EVERTEC, Inc. Consolidated Statements of Changes in Stockholders’ Equity
(Dollar amounts in thousands, except share data)
| Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Accumulated Earnings | Accumulated Other Comprehensive Loss | Non-Controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||
| Balance at December 31, 2014 | 77,893,144 | $ | 779 | $ | 59,740 | $ | 40,843 | $ | (6,522 | ) | $ | — | $ | 94,840 | |||||||||||||
| Share-based compensation recognized | — | — | 5,204 | — | — | — | 5,204 | ||||||||||||||||||||
| Restricted stock grants and units delivered, net of cashless exercise | 107,892 | 1 | (307 | ) | — | — | — | (306 | ) | ||||||||||||||||||
| Repurchase of common stock | (3,012,826 | ) | (30 | ) | (54,919 | ) | — | — | — | (54,949 | ) | ||||||||||||||||
| Net income | — | — | — | 85,377 | — | — | 85,377 | ||||||||||||||||||||
| Cash dividends declared on common stock | — | — | — | (30,892 | ) | — | — | (30,892 | ) | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (1,060 | ) | (1,060 | ) | |||||||||||||||||||
| Balance at December 31, 2015 | 74,988,210 | 750 | 9,718 | 95,328 | (7,582 | ) | — | 98,214 | |||||||||||||||||||
| Share-based compensation recognized | — | — | 6,408 | — | — | — | 6,408 | ||||||||||||||||||||
| Repurchase of common stock | (2,504,427 | ) | (25 | ) | (15,594 | ) | (24,327 | ) | — | — | (39,946 | ) | |||||||||||||||
| Stock options exercised, net of cashless exercise | 8,393 | — | (79 | ) | — | — | — | (79 | ) | ||||||||||||||||||
| Restricted stock grants and units delivered, net of cashless exercise | 142,856 | 1 | (471 | ) | — | — | — | (470 | ) | ||||||||||||||||||
| Net income | — | — | — | 75,036 | — | 90 | 75,126 | ||||||||||||||||||||
| Non-controlling interest on acquisition | — | — | — | — | — | 3,409 | 3,409 | ||||||||||||||||||||
| Cash dividend declared on common stock | — | — | — | (29,696 | ) | — | — | (29,696 | ) | ||||||||||||||||||
| Dividend reversal for forfeited options | — | — | 18 | — | — | — | 18 | ||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (4,809 | ) | — | (4,809 | ) | ||||||||||||||||||
| Balance at December 31, 2016 | 72,635,032 | 726 | — | 116,341 | (12,391 | ) | 3,499 | 108,175 | |||||||||||||||||||
| Cumulative adjustment from implementation of ASU 2016-09 | — | — | 4,203 | — | — | 4,203 | |||||||||||||||||||||
| Share-based compensation recognized | — | — | 9,642 | — | — | — | 9,642 | ||||||||||||||||||||
| Repurchase of common stock | (465,240 | ) | (5 | ) | (2,702 | ) | (4,964 | ) | — | — | (7,671 | ) | |||||||||||||||
| Restricted stock grants and units delivered, net of cashless exercise | 215,343 | 2 | (1,499 | ) | — | — | — | (1,497 | ) | ||||||||||||||||||
| Stock options exercised, net of cashless exercise | 8,798 | — | (91 | ) | — | — | — | (91 | ) | ||||||||||||||||||
| Net income | — | — | — | 55,054 | — | 365 | 55,419 | ||||||||||||||||||||
| Cash dividends declared on common stock | — | — | — | (21,747 | ) | — | — | (21,747 | ) | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1,543 | — | 1,543 | ||||||||||||||||||||
| Balance at December 31, 2017 | 72,393,933 | $ | 723 | $ | 5,350 | $ | 148,887 | $ | (10,848 | ) | $ | 3,864 | $ | 147,976 | |||||||||||||
| Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Accumulated Earnings | Accumulated Other Comprehensive Income (Loss) | Non-Redeemable Non-Controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 72,137,678 | $ | 721 | $ | 5,340 | $ | 379,934 | $ | (48,254) | $ | 4,688 | $ | 342,429 | |||||||||||||||||||||||||||||||
| Share-based compensation recognized | — | — | 14,799 | — | — | — | 14,799 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (614,288) | (6) | (5,080) | (19,302) | — | — | (24,388) | |||||||||||||||||||||||||||||||||||||
| Restricted stock units delivered | 446,466 | 4 | (7,494) | (1,302) | — | — | (8,792) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 161,130 | — | 13 | 161,143 | |||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock, $0.20 per share | — | — | — | (14,409) | — | — | (14,409) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 131 | (645) | (514) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 71,969,856 | 719 | 7,565 | 506,051 | (48,123) | 4,056 | 470,268 | |||||||||||||||||||||||||||||||||||||
| Share-based compensation recognized | — | — | 19,956 | — | — | — | 19,956 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (2,810,182) | (28) | (21,833) | (74,735) | — | — | (96,596) | |||||||||||||||||||||||||||||||||||||
| Restricted stock units delivered | 276,719 | 3 | (5,688) | — | — | — | (5,685) | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 239,009 | — | (140) | 238,869 | |||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock, $0.20 per share | — | — | — | (13,773) | — | — | (13,773) | |||||||||||||||||||||||||||||||||||||
| Common stock received in exchange of the sale of a Business | (4,589,160) | (46) | — | (169,203) | — | — | (169,249) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 31,637 | (679) | 30,958 | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 64,847,233 | 648 | — | 487,349 | (16,486) | 3,237 | 474,748 | |||||||||||||||||||||||||||||||||||||
| Share-based compensation recognized | — | — | 25,732 | — | — | — | 25,732 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (1,009,653) | (10) | (20,943) | (15,143) | — | — | (36,096) | |||||||||||||||||||||||||||||||||||||
| Restricted stock units delivered | 448,627 | 4 | (5,960) | — | — | — | (5,956) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 79,722 | — | 154 | 79,876 | |||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock, $0.20 per share | — | — | — | (13,025) | — | (13,025) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 1,164,592 | 12 | 37,698 | — | — | — | 37,710 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 34,695 | 724 | 35,419 | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 65,450,799 | $ | 654 | $ | 36,527 | $ | 538,903 | $ | 18,209 | $ | 4,115 | $ | 598,408 | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F - 8
EVERTEC, Inc. Consolidated Statements of Cash Flows
(Dollar amounts inIn thousands)
| Years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||
| Net income | $ | 79,876 | $ | 238,869 | $ | 161,143 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 93,621 | 78,618 | 75,070 | |||||||||||||||||
| Amortization of debt issue costs and accretion of discount | 2,307 | 2,238 | 1,877 | |||||||||||||||||
| Operating lease amortization | 6,252 | 6,112 | 5,860 | |||||||||||||||||
| Unrealized loss on change in fair value of equity securities | 769 | — | — | |||||||||||||||||
| Loss on extinguishment of debt | 1,433 | 1,311 | — | |||||||||||||||||
| Provision for expected credit losses and sundry losses | 1,040 | 4,959 | 1,859 | |||||||||||||||||
| Deferred tax benefit | (16,144) | (435) | (2,826) | |||||||||||||||||
| Share-based compensation | 25,732 | 19,956 | 14,799 | |||||||||||||||||
| Gain on sale of a business | — | (135,642) | — | |||||||||||||||||
| Gain from sale of assets | — | — | (778) | |||||||||||||||||
| Loss on disposition of property and equipment and impairment of software | 969 | 4,943 | 1,694 | |||||||||||||||||
| Earnings of equity method investment | (4,976) | (2,968) | (1,713) | |||||||||||||||||
| Dividend received from equity method investment | 3,497 | 2,053 | 1,183 | |||||||||||||||||
| Loss (gain) on foreign currency remeasurement | 8,276 | 7,645 | (1,897) | |||||||||||||||||
| (Increase) decrease in assets: | ||||||||||||||||||||
| Accounts receivable, net | (6,850) | (15,571) | (18,521) | |||||||||||||||||
| Prepaid expenses and other assets | (16,862) | (4,636) | 4,322 | |||||||||||||||||
| Other long-term assets | (5,383) | (5,202) | (3,519) | |||||||||||||||||
| Increase (decrease) in liabilities: | ||||||||||||||||||||
| Accrued liabilities and accounts payable | 59,619 | 26,954 | 1,503 | |||||||||||||||||
| Income tax payable | (6,631) | 1,281 | (359) | |||||||||||||||||
| Contract liability | 8,074 | (1,773) | (1,738) | |||||||||||||||||
| Operating lease liabilities | (5,723) | (3,797) | (4,869) | |||||||||||||||||
| Other long-term liabilities | (4,606) | (1,554) | (4,670) | |||||||||||||||||
| Total adjustments | 144,414 | (15,508) | 67,277 | |||||||||||||||||
| Net cash provided by operating activities | 224,290 | 223,361 | 228,420 | |||||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Additions to software | (63,524) | (44,850) | (41,804) | |||||||||||||||||
| Acquisition of customer relationship | — | (10,607) | (14,750) | |||||||||||||||||
| Acquisitions, net of cash acquired | (417,566) | (44,369) | — | |||||||||||||||||
| Property and equipment acquired | (21,452) | (27,073) | (25,103) | |||||||||||||||||
| Proceeds from sales of property and equipment | 24 | 78 | 805 | |||||||||||||||||
| Purchase of certificates of deposit | — | (7,264) | — | |||||||||||||||||
| Proceeds from maturities of available-for-sale debt securities | 1,048 | 1,015 | — | |||||||||||||||||
| Acquisition of available-for-sale debt securities | (962) | (254) | (2,968) | |||||||||||||||||
| Investment in equity investee | (5,500) | — | — | |||||||||||||||||
| Net cash used in investing activities | (507,932) | (133,324) | (83,820) | |||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||
| Debt issuance costs | (10,481) | (7,355) | — | |||||||||||||||||
| Proceeds from issuance of long-term debt | 651,000 | 415,000 | — | |||||||||||||||||
| Net (decrease) increase in short-term borrowings | (20,000) | 20,000 | — | |||||||||||||||||
| Repayments of short-terms borrowings for purchase of equipment and software | (7,175) | (949) | (1,651) | |||||||||||||||||
| Dividends paid | (13,025) | (13,773) | (14,409) | |||||||||||||||||
| Withholding taxes paid on share-based compensation | (5,956) | (5,685) | (8,793) | |||||||||||||||||
| Repurchase of common stock | (36,096) | (96,596) | (24,388) | |||||||||||||||||
| Repayment of long-term debt | (154,280) | (467,410) | (32,044) | |||||||||||||||||
| Repayment of other financing agreement | (717) | — | — | |||||||||||||||||
F - 9
| Years ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income | $ | 55,419 | $ | 75,126 | $ | 85,377 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 64,250 | 59,567 | 64,974 | |||||||||
| Amortization of debt issue costs and accretion of discount | 5,128 | 4,334 | 3,329 | |||||||||
| Loss on extinguishment of debt | — | 1,476 | — | |||||||||
| Provision for doubtful accounts and sundry losses | 843 | 1,990 | 2,130 | |||||||||
| Deferred tax benefit | (4,306 | ) | (4,594 | ) | (3,090 | ) | ||||||
| Share-based compensation | 9,642 | 6,408 | 5,204 | |||||||||
| Loss on impairment of software | 11,441 | 2,277 | — | |||||||||
| Loss on disposition of property and equipment and other intangibles | 430 | 453 | 143 | |||||||||
| (Earnings) losses of equity method investment | (604 | ) | 52 | (147 | ) | |||||||
| (Increase) decrease in assets: | ||||||||||||
| Accounts receivable | (2,099 | ) | (2,583 | ) | (4,482 | ) | ||||||
| Prepaid expenses and other assets | (4,048 | ) | (1,426 | ) | (146 | ) | ||||||
| Other long-term assets | 1,654 | (1,790 | ) | (70 | ) | |||||||
| Increase (decrease) in liabilities: | ||||||||||||
| Accounts payable and accrued liabilities | (870 | ) | 14,594 | 15,947 | ||||||||
| Income tax payable | (349 | ) | 405 | (606 | ) | |||||||
| Unearned income | 8,444 | 8,018 | 2,207 | |||||||||
| Other long-term liabilities | 811 | 3,747 | (8,351 | ) | ||||||||
| Total adjustments | 90,367 | 92,928 | 77,042 | |||||||||
| Net cash provided by operating activities | 145,786 | 168,054 | 162,419 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Net (increase) decrease in restricted cash | (1,832 | ) | 3,705 | (6,100 | ) | |||||||
| Additions to software and purchase of customer relationship | (22,174 | ) | (23,819 | ) | (25,960 | ) | ||||||
| Acquisitions, net of cash acquired | (42,836 | ) | (15,600 | ) | — | |||||||
| Property and equipment acquired | (11,290 | ) | (18,450 | ) | (21,022 | ) | ||||||
| Proceeds from sales of property and equipment | 32 | 81 | 14 | |||||||||
| Net cash used in investing activities | (78,100 | ) | (54,083 | ) | (53,068 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from issuance of long-term debt | — | 75,763 | — | |||||||||
| Debt issuance costs | — | (4,830 | ) | — | ||||||||
| Net (decrease) increase in short-term borrowings | (16,000 | ) | 11,000 | (6,000 | ) | |||||||
| Repayments of borrowings for purchase of equipment and software | (2,373 | ) | (2,213 | ) | (1,542 | ) | ||||||
| Dividends paid | (21,762 | ) | (29,696 | ) | (30,921 | ) | ||||||
| Withholding taxes paid on share-based compensation | (1,588 | ) | (548 | ) | (306 | ) | ||||||
| Repurchase of common stock | (7,671 | ) | (39,946 | ) | (54,949 | ) | ||||||
| Repayment of long-term debt | (19,789 | ) | (96,741 | ) | (19,000 | ) | ||||||
| Credit amendment fees | — | (3,587 | ) | — | ||||||||
| Net cash used in financing activities | (69,183 | ) | (90,798 | ) | (112,718 | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | (1,497 | ) | 23,173 | (3,367 | ) | |||||||
| Cash and cash equivalents at beginning of the period | 51,920 | 28,747 | 32,114 | |||||||||
| Cash and cash equivalents at end of the period | $ | 50,423 | $ | 51,920 | $ | 28,747 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for interest | $ | 25,379 | $ | 22,535 | $ | 21,497 | ||||||
| Cash paid for income taxes | 9,930 | 8,697 | 5,682 | |||||||||
| Supplemental disclosure of non-cash activities: | ||||||||||||
| Payable due to vendor related to property and equipment and software acquired | 1,037 | 3,302 | 3,638 | |||||||||
| Net cash provided by (used in) financing activities | 403,270 | (156,768) | (81,285) | |||||||||||||||||
| Effect of foreign exchange rate on cash, cash equivalents and restricted cash | 8,439 | (3,529) | 1,497 | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 128,067 | (70,260) | 64,812 | |||||||||||||||||
| Cash, cash equivalents, restricted cash, and cash included in settlement assets at beginning of the period | 215,657 | 285,917 | 221,105 | |||||||||||||||||
| Cash, cash equivalents, restricted cash, and cash included in settlement assets at end of the period | $ | 343,724 | $ | 215,657 | $ | 285,917 | ||||||||||||||
| Reconciliation of cash, cash equivalents, restricted cash, and cash included in settlement assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 295,600 | $ | 185,274 | $ | 257,856 | ||||||||||||||
| Restricted cash | 23,073 | 18,428 | 19,566 | |||||||||||||||||
| Cash and cash equivalents included in settlement assets | $ | 25,051 | 11,955 | 8,495 | ||||||||||||||||
| Cash, cash equivalents and restricted cash, and cash included in settlement assets | $ | 343,724 | $ | 215,657 | $ | 285,917 | ||||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||||||
| Cash paid for interest | $ | 32,147 | $ | 24,132 | $ | 21,695 | ||||||||||||||
| Cash paid for income taxes | 36,247 | 32,826 | 25,724 | |||||||||||||||||
| Supplemental disclosure of non-cash activities: | ||||||||||||||||||||
| Payable due to vendor related to equipment and software acquired | $ | 1,964 | $ | 3,716 | $ | 757 | ||||||||||||||
| Non-cash investing activities | ||||||||||||||||||||
| Software exchanged for common stock | — | 18,761 | — | |||||||||||||||||
| Goodwill exchanged for common stock | — | 5,813 | — | |||||||||||||||||
| CDs transferred in the acquisition of a business | — | 7,169 | — | |||||||||||||||||
| Non-cash financing activities | ||||||||||||||||||||
| Payable due to vendor related to licenses acquired | 7,403 | — | — | |||||||||||||||||
| Non-cash financing and investing activities | ||||||||||||||||||||
| Common stock received and retired for sale of a business | — | 169,249 | — | |||||||||||||||||
| Common stock exchanged for the acquisition of a business | 37,710 | — | — | |||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F - 10
Notes to Audited Consolidated Financial Statements
| F-25 | |||||
F - 11