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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
COMMISSION FILE NUMBER 001-35872
EVERTEC, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico
66-0783622
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
San Juan,Puerto Rico00926
(Address of principal executive offices)(Zip Code)
(787) 759-9999
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEVTCNew York Stock Exchange
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  ☒    No  ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, (as definedor an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in ruleRule 12b-2 of the Exchange Act).
Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐(Do not check if a smaller reporting company)Smaller reporting company☐
Emerging growth company☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒


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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At November 3, 2017,April 22, 2021, there were 72,390,10372,163,357 outstanding shares of common stock of EVERTEC, Inc.



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Page
Part I. FINANCIAL INFORMATION
Item 1.Financial Statements
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2
3
4
5
Item 2.
2019
Item 3.
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Item 4.
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3530
Item 1.
3530
Item 1A.
3530
Item 2.
3530
Item 3.
3530
Item 4.
3530
Item 5.
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Item 6.
3731
3832


















All reports we file with the Securities and Exchange Commission ("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 through our website at www.evertecinc.comas soon as reasonably practicable after filing such material with the SEC.


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FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. 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 agreementMaster Services Agreement ("MSA") with them, and our reliance on Banco Popular de Puerto Rico (“Banco Popular”), Popular’s principal banking subsidiary, to grow our merchant acquiring business;
•as a regulated institution, the likelihood we most likely will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition, and may be unableour potential inability to obtain such approval on a timely basis or at all, which may make transactions more expensive or impossible to complete, or make us less attractive to potential sellers;
•our ability to renew our client contracts on terms favorable to us, including our contract with Popular;Popular, and any significant concessions we may have to grant to Popular with respect to pricing or other key terms in anticipation of the negotiation of the extension of the MSA, both in respect of the current term and any extension of the MSA;
•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 and 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 international, legal, tax, political, administrative or economic conditions;
•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 multiple regionsLatin America and the Caribbean, in jurisdictions with potential political and economic instability, including Latin America;instability;
our ability to execute our geographic expansion and acquisition strategies, including challenges in successfully acquiring new businesses and integrating and growing acquired businesses;
•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 recruit and retain the qualified personnel necessary to operate our business;
•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 restrictions contained in our debt agreements, including the senior secured credit facilities, as well as debt that could be incurred in the future;
•our ability to prevent a cybersecurity attack or breach in our information security;
our ability to generate sufficient cash to service our indebtedness and to generate future profits;
our ability to refinance our debt;
•the possibility that we could lose our preferential tax rate in Puerto Rico;
•the risk thatpossibility of future catastrophic hurricanes, earthquakes and other potential natural disasters affecting our main markets in Latin America and the counterpartyCaribbean;
•uncertainty related to our interest rate swap agreement fails to satisfy its obligations under the agreement
uncertaintyeffect of the pending debt restructuring process under Title IIIdiscontinuation of the Puerto Rico Oversight, ManagementLondon Interbank Offered Rate at the end of 2021;
•the continued impact of the COVID-19 pandemic and Economic Stability Act (“PROMESA”),measures taken in response to the outbreak, on our resources, net income and liquidity due to current and future disruptions in operations as well as actions takenthe macroeconomic instability caused by the Puerto Rico government or by the PROMESA Board to address the Puerto Rico fiscal crisis;pandemic; and

uncertainty related to Hurricanes Irma and Maria and their aftermaths’ impact on the economies of Puerto Rico and the Caribbean;
•the nature, timing and amount of any restatement; andrestatement.
other factors discussed in this Report.


These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. The Company does not undertake, and specifically disclaims any obligation, to update anyForward-looking statements should, therefore, be considered in light

Table of the “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date Contents
of such statements except as required by the federal securities laws. Investors should refer to the Company’s Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”), as updated in Item 1A, Part II of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and of this Report, for a discussion ofvarious factors, that could cause events to differ fromincluding those suggested by the forward-looking statements, including factors set forth under “Item 1A. Risk Factors,” in the sections entitled “Risk Factors” and “Management’s“Item 2. 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 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.








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EVERTEC, Inc. Unaudited Condensed Consolidated Condensed Balance Sheets
(Dollar amounts inIn thousands, except for share information)

 September 30, 2017 December 31, 2016March 31, 2021December 31, 2020
Assets    Assets
Current Assets:    Current Assets:
Cash and cash equivalents $48,440
 $51,920
Cash and cash equivalents$156,363 $202,649 
Restricted cash 10,352
 8,112
Restricted cash19,059 18,456 
Accounts receivable, net 75,959
 77,803
Accounts receivable, net99,737 95,727 
Prepaid expenses and other assets 24,778
 20,430
Prepaid expenses and other assets44,573 42,214 
Total current assets 159,529
 158,265
Total current assets319,732 359,046 
Debt securities available-for-sale, at fair valueDebt securities available-for-sale, at fair value2,968 0 
Investment in equity investee 12,832
 12,252
Investment in equity investee12,867 12,835 
Property and equipment, net 36,520
 38,930
Property and equipment, net42,146 43,538 
Operating lease right-of-use assetOperating lease right-of-use asset25,604 27,538 
Goodwill 402,103
 370,986
Goodwill396,298 397,670 
Other intangible assets, net 289,095
 299,119
Other intangible assets, net229,972 219,909 
Deferred tax asset 1,131
 805
Deferred tax asset5,671 5,730 
Net investment in leasesNet investment in leases255 301 
Other long-term assets 3,757
 5,305
Other long-term assets5,136 6,012 
Total assets $904,967
 $885,662
Total assets$1,040,649 $1,072,579 
Liabilities and stockholders’ equity    Liabilities and stockholders’ equity
Current Liabilities:    Current Liabilities:
Accrued liabilities $40,509
 $34,243
Accrued liabilities$56,600 $58,033 
Accounts payable 27,845
 40,845
Accounts payable26,998 43,348 
Unearned income 6,566
 4,531
Contract liabilityContract liability25,319 24,958 
Income tax payable 4,745
 1,755
Income tax payable6,547 6,573 
Current portion of long-term debt 46,415
 19,789
Current portion of long-term debt15,625 14,250 
Short-term borrowings 33,000
 28,000
Operating lease payableOperating lease payable5,491 5,830 
Total current liabilities 159,080
 129,163
Total current liabilities136,580 152,992 
Long-term debt 561,898
 599,667
Long-term debt458,738 481,041 
Deferred tax liability 14,156
 14,978
Deferred tax liability2,151 2,748 
Unearned income - long term 20,783
 17,303
Contract liability - long termContract liability - long term31,798 31,336 
Operating lease liability - long-termOperating lease liability - long-term20,884 22,402 
Derivative liabilityDerivative liability21,012 25,578 
Other long-term liabilities 11,369
 16,376
Other long-term liabilities13,479 14,053 
Total liabilities 767,286
 777,487
Total liabilities684,642 730,150 
Commitments and contingencies (Note 12) 
 
Commitments and contingencies (Note 14)Commitments and contingencies (Note 14)00
Stockholders’ equity    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; 72,390,103 shares issued and outstanding at September 30, 2017 (December 31, 2016 - 72,635,032) 723
 726
Preferred stock, par value $0.01; 2,000,000 shares authorized; NaN issuedPreferred stock, par value $0.01; 2,000,000 shares authorized; NaN issued0 0 
Common stock, par value $0.01; 206,000,000 shares authorized; 72,166,443 shares issued and outstanding as of March 31, 2021 (December 31, 2020 - 72,137,678)Common stock, par value $0.01; 206,000,000 shares authorized; 72,166,443 shares issued and outstanding as of March 31, 2021 (December 31, 2020 - 72,137,678)721 721 
Additional paid-in capital 2,299
 —
Additional paid-in capital0 5,340 
Accumulated earnings 143,038
 116,341
Accumulated earnings397,556 379,934 
Accumulated other comprehensive loss, net of tax (12,152) (12,391)Accumulated other comprehensive loss, net of tax(46,678)(48,254)
Total EVERTEC, Inc. stockholders’ equity 133,908
 104,676
Total EVERTEC, Inc. stockholders’ equity351,599 337,741 
Non-controlling interest 3,773
 3,499
Non-controlling interest4,408 4,688 
Total equity 137,681
 108,175
Total equity356,007 342,429 
Total liabilities and equity $904,967
 $885,662
Total liabilities and equity$1,040,649 $1,072,579 

The accompanying notes are an integral part of these unaudited condensed consolidated condensed financial statements.

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EVERTEC, Inc. Unaudited Condensed Consolidated Condensed Statements of Income and Comprehensive Income
(Dollar amounts inIn thousands, except per share information)
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Revenues        
Merchant acquiring, net $21,555
 $21,970
 $67,546
 $68,137
Payment processing (from affiliates: $8,004, $7,913, $24,653 and $23,718) 34,218
 27,584
 95,027
 82,716
Business solutions (from affiliates: $36,086, $35,109, $109,392 and $106,068) 46,952
 44,913
 144,943
 136,765
Total revenues 102,725
 94,467
 307,516
 287,618
Operating costs and expenses        
Cost of revenues, exclusive of depreciation and amortization shown below 62,699
 41,753
 149,902
 127,127
Selling, general and administrative expenses 14,612
 10,818
 40,031
 34,226
Depreciation and amortization 16,606
 14,889
 48,189
 44,500
Total operating costs and expenses 93,917
 67,460
 238,122
 205,853
Income from operations 8,808
 27,007
 69,394
 81,765
Non-operating income (expenses)        
Interest income 159
 87
 560
 266
Interest expense (8,012) (6,276) (22,454) (18,292)
Earnings (losses) of equity method investment 155
 43
 413
 (58)
Other income 192
 489
 2,829
 1,747
Total non-operating expenses (7,506) (5,657) (18,652) (16,337)
Income before income taxes 1,302
 21,350
 50,742
 65,428
Income tax (benefit) expense (4,840) 1,639
 1,248
 6,316
Net income 6,142
 19,711
 49,494
 59,112
Less: Net income attributable to non-controlling interest 40
 31
 274
 49
Net income attributable to EVERTEC, Inc.’s common stockholders 6,102
 19,680
 49,220
 59,063
Other comprehensive income (loss), net of tax of $2, $(6), $21 and $439        
Foreign currency translation adjustments 2,083
 (1,041) (518) (2,620)
Gain (loss) on cash flow hedge 381
 83
 757
 (4,464)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders $8,566
 $18,722
 $49,459
 $51,979
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders $0.08
 $0.27
 $0.68
 $0.79
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders $0.08
 $0.26
 $0.67
 $0.79
Cash dividends declared per share $0.10
 $0.10
 $0.30
 $0.30

 Three months ended March 31,
 20212020
  
Revenues (affiliates Note 15)$139,528 $121,942 
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization59,804 54,067 
Selling, general and administrative expenses16,102 17,317 
Depreciation and amortization18,623 17,795 
Total operating costs and expenses94,529 89,179 
Income from operations44,999 32,763 
Non-operating income (expenses)
Interest income389 363 
Interest expense(5,906)(6,779)
Earnings of equity method investment502 338 
Other income328 108 
Total non-operating expenses(4,687)(5,970)
Income before income taxes40,312 26,793 
Income tax expense4,708 4,518 
Net income35,604 22,275 
Less: Net income attributable to non-controlling interest101 64 
Net income attributable to EVERTEC, Inc.’s common stockholders35,503 22,211 
Other comprehensive (loss) income, net of tax of $423 and $1,085
Foreign currency translation adjustments(2,613)(8,305)
Gain (loss) on cash flow hedges4,189 (11,859)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders$37,079 $2,047 
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders$0.49 $0.31 
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders$0.49 $0.30 

The accompanying notes are an integral part of these unaudited condensed consolidated condensed financial statements.




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EVERTEC, Inc. Unaudited Condensed Consolidated Condensed StatementStatements of Changes in Stockholders’ Equity
(Dollar amounts inIn thousands, except share information)
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, 202072,137,678 $721 $5,340 $379,934 $(48,254)$4,688 $342,429 
Share-based compensation recognized— — 3,380 — — — 3,380 
Repurchase of common stock(382,974)(4)(1,290)(12,974)— — (14,268)
Restricted stock units delivered411,739 4 (7,430)(1,302)— — (8,728)
Net income— — — 35,503 — 101 35,604 
Cash dividends declared on common stock, $0.05 per share— — — (3,605)— — (3,605)
Other comprehensive income (loss)— — — — 1,576 (381)1,195 
Balance at March 31, 202172,166,443 $721 $0 $397,556 $(46,678)$4,408 $356,007 
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, 201972,000,261 $720 $0 $296,476 $(30,009)$4,436 $271,623 
Share-based compensation recognized— — 3,483 — — — 3,483 
Repurchase of common stock(336,022)(3)(775)(6,522)— — (7,300)
Restricted stock units delivered201,066 2 (2,708)— — — (2,706)
Net income— — — 22,211 — 64 22,275 
Cash dividends declared on common stock, $0.05 per share— — — (3,600)— — (3,600)
Other comprehensive loss— — — — (20,164)(853)(21,017)
Cumulative adjustment from the implementation of Current Expected Credit Loss model— — — (74)— — (74)
Balance at March 31, 202071,865,305 $719 $0 $308,491 $(50,173)$3,647 $262,684 
  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, 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 —
 —
 6,579
 —
 —
 —
 6,579
Repurchase of common stock (465,240) (5) (2,702) (4,964) —
 —
 (7,671)
Restricted stock units delivered, net of cashless 220,311
 2
 (1,578) —
 —
 —
 (1,576)
Net income —
 —
 —
 49,220
 —
 274
 49,494
Cash dividends declared on common stock —
 —
 —
 (21,762) —
 —
 (21,762)
Other comprehensive loss —
 —
 —
 —
 239
 —
 239
Balance at September 30, 2017 72,390,103
 $723
 $2,299
 $143,038
 $(12,152) $3,773
 $137,681

The accompanying notes are an integral part of these unaudited condensed consolidated condensed financial statements.




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EVERTEC, Inc. Unaudited Condensed Consolidated Condensed Statements of Cash Flows
(Dollar amounts inIn thousands)
Three months ended March 31,
 Nine months ended September 30, 20212020
 2017 2016
Cash flows from operating activities    Cash flows from operating activities
Net income $49,494
 $59,112
Net income$35,604 $22,275 
Adjustments to reconcile net income to net cash provided by operating activities:    Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 48,189
 44,500
Depreciation and amortization18,623 17,795 
Amortization of debt issue costs and accretion of discount 3,828
 2,965
Amortization of debt issue costs and accretion of discount569 621 
Provision for doubtful accounts and sundry losses 452
 1,525
Operating lease amortizationOperating lease amortization1,492 1,173 
(Release) provision for expected credit losses and sundry losses(Release) provision for expected credit losses and sundry losses(184)104 
Deferred tax benefit (6,338) (2,458)Deferred tax benefit(890)(1,080)
Share-based compensation 6,579
 4,569
Share-based compensation3,380 3,483 
Loss on impairment of software 6,473
 —
Loss on disposition of property and equipment and other intangibles 229
 112
(Earnings) losses of equity method investment (413) 58
Loss on disposition of property and equipment and impairment of intangibleLoss on disposition of property and equipment and impairment of intangible1,042 81 
Earnings of equity method investmentEarnings of equity method investment(502)(338)
Decrease (increase) in assets:    Decrease (increase) in assets:
Accounts receivable, net 5,446
 7,358
Accounts receivable, net(4,048)11,729 
Prepaid expenses and other assets (3,813) (3,623)Prepaid expenses and other assets(2,539)(1,836)
Other long-term assets 1,447
 (1,163)Other long-term assets833 (2,477)
(Decrease) increase in liabilities:    (Decrease) increase in liabilities:
Accounts payable and accrued liabilities (9,127) 3,686
Accrued liabilities and accounts payableAccrued liabilities and accounts payable(18,457)(20,662)
Income tax payable 2,990
 1,501
Income tax payable82 3,307 
Unearned income 4,570
 6,541
Contract liabilityContract liability1,185 1,075 
Operating lease liabilitiesOperating lease liabilities(1,611)(1,409)
Other long-term liabilities (1,571) (82)Other long-term liabilities167 84 
Total adjustments 58,941
 65,489
Total adjustments(858)11,650 
Net cash provided by operating activities 108,435
 124,601
Net cash provided by operating activities34,746 33,925 
Cash flows from investing activities    Cash flows from investing activities
Net (increase) decrease in restricted cash (2,240) 3,536
Additions to software (15,955) (17,469)Additions to software(11,971)(6,055)
Acquisitions, net of cash acquired (42,836) (5,947)
Acquisition of customer relationshipAcquisition of customer relationship(14,750)0 
Property and equipment acquired (8,285) (14,016)Property and equipment acquired(4,724)(3,357)
Proceeds from sales of property and equipment 30
 44
Acquisition of available-for-sale debt securitiesAcquisition of available-for-sale debt securities(2,968)0 
Net cash used in investing activities (69,286) (33,852)Net cash used in investing activities(34,413)(9,412)
Cash flows from financing activities    Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation (1,576) (522)Statutory withholding taxes paid on share-based compensation(8,728)(2,706)
Net increase (decrease) in short-term borrowings 5,000
 (1,000)
Repayment of short-term borrowing for purchase of equipment and software (1,872) (1,209)
Repayment of short-term borrowings for purchase of equipment and softwareRepayment of short-term borrowings for purchase of equipment and software(758)(792)
Dividends paid (21,762) (22,372)Dividends paid(3,605)0 
Credit amendment fees —
 (3,587)
Repurchase of common stock (7,671) (29,696)Repurchase of common stock(14,268)(7,300)
Repayment of long-term debt (14,748) (16,125)Repayment of long-term debt(21,357)(20,560)
Net cash used in financing activities (42,629) (74,511)Net cash used in financing activities(48,716)(31,358)
Net (decrease) increase in cash (3,480) 16,238
Cash at beginning of the period 51,920
 28,747
Cash at end of the period $48,440
 $44,985
Effect of foreign exchange rate on cash, cash equivalents and restricted cashEffect of foreign exchange rate on cash, cash equivalents and restricted cash2,700 828 
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(45,683)(6,017)
Cash, cash equivalents and restricted cash at beginning of the periodCash, cash equivalents and restricted cash at beginning of the period221,105 131,121 
Cash, cash equivalents and restricted cash at end of the periodCash, cash equivalents and restricted cash at end of the period$175,422 $125,104 
Reconciliation of cash, cash equivalents and restricted cashReconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalentsCash and cash equivalents$156,363 $103,521 
Restricted cashRestricted cash19,059 21,583 
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cash$175,422 $125,104 
Supplemental disclosure of cash flow information:    Supplemental disclosure of cash flow information:
Cash paid for interest $18,991
 $12,014
Cash paid for interest$5,982 $6,372 
Cash paid for income taxes 7,493
 4,855
Cash paid for income taxes5,621 2,083 
Supplemental disclosure of non-cash activities:    Supplemental disclosure of non-cash activities:
Foreign currency translation adjustments $(518) $(2,620)
Payable due to vendor related to software acquired 1,420
 2,800
Payable due to vendor related to equipment and software acquiredPayable due to vendor related to equipment and software acquired$1,260 $1,482 
The accompanying notes are an integral part of these unaudited condensed consolidated condensed financial statements.

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Notes to Unaudited Condensed Consolidated Condensed Financial Statements


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Note 1 – The Company and Basis of Presentation


The Company


EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) and its subsidiaries (collectively the “Company,” or “EVERTEC”) is a leading full-service transaction processingtransaction-processing business in Puerto Rico, the Caribbean and Latin America and the Caribbean.America. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processingservices and business process management. As of September 30, 2017, with the completion of the acquisition of 100% of the share capital of EFT Group S.A., a Chilean-based payment processing and software company known commercially as PayGroup (“PayGroup”) on July 3, 2017, themanagement services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, one of the leading automated teller machine (“ATM”) and personal identification number (“PIN”("PIN") debit networks in Latin America. In addition, EVERTEC providesmanages a system of electronic payment networks and offers a comprehensive suite of services for core bank, processing, cash processing and fulfillment in Puerto Rico. In addition, EVERTEC offers technology outsourcing in all the regions the Company serves. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with solutions that are essential to their operations, enabling them to issue, process and accept transactions securely.


Basis of Presentation


The unaudited condensed consolidated condensed financial statements of EVERTEC have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying unaudited condensed consolidated condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated condensed financial statements. Actual results could differ from these estimates.


Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the SECSecurities and Exchange Commission and, accordingly, these unaudited condensed consolidated condensed financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended December 31, 2016,2020, included in the Company’s 20162020 Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated condensed financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.


Note 2 – Recent Accounting Pronouncements


Recently issued accounting pronouncementsAdopted Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements and guidance relevant to the Company’s operations:


In August 2017, the FASB issued updated guidance to improve accounting for hedging activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this update require an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported and also include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). The Company is currently evaluating the impact the adoption of this guidance will have on its financial statements.

Accounting pronouncements issued prior to 2017 and not yet adopted

During 2014, the FASB issued new guidance for revenue from contracts with customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and also includes changes in the accounting for customer contract acquisition costs and fulfillment costs. During 2016, the FASB issued

several additional updates that amended the proposed guidance. These new standards will replace most existing revenue recognition guidance in GAAP, and are effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The standards permit two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective transition method). Management has determined to apply the new standards retrospectively with the cumulative effect recognized at the date of initial application, January 1, 2018.

Management is continuing to evaluate the potential impact this new guidance will have on the Company’s financial statements. Management is continuing its preliminary quantitative impact analysis and has completed detailed contract reviews in order to determine the new standards impact on the Company’s consolidated results of operations and financial condition. Based on work completed at this time, Management believes the new standard may have potential impacts in the following areas:

- Under current policies, upfront activities (such as setup activities) are not generally analyzed to determine whether they have standalone value because the contingent revenue cap under the existing revenue guidance would prohibit allocation of hosting revenue to that upfront activity. Under the new standards, the contingent revenue cap no longer exists, so certain upfront activities included in the implementation process will need to be evaluated to determine whether they qualify as separate units of accounting. If they are separate units of accounting, then revenue would be allocated to the upfront activity, recognized as those activities are performed, rather than over the hosting period.
- Where the Company charges upfront fees for implementation or set-up activities, including fees charged in preproduction periods, the period over which these fees will be recognized may in some cases be shorter than our current practice.
- Revenue for certain professional services that are recognized upon completion of the services are being evaluated under the new standards to determine where revenue should be recognized over time.
- Required enhancements to current disclosures around revenue recognition.

Given that the quantitative impact analysis is still preliminary and in process, Management is not yet able to estimate the impact that adoption is expected to have on the Company’s consolidated results of operations and financial condition at this time. The Company continues to implement appropriate changes to its business processes, systems and controls to support recognition and disclosures under the new standard. Significant activities that are in process are the calculation of the transition adjustment, drafting and approval of new accounting policies and the implementation of new processes, controls and systems to accommodate the new policies and to compile the information for the enhanced disclosures under the new standards. The implementation process is ongoing and Management expects to be in a position to report under the new accounting standard upon adoption in the first quarter of 2018.

During 2016,2019, the FASB issued updated guidance for financial reporting about leasing transactions.Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update requiresimplify the accounting for income taxes by removing certain exceptions to the general principles set out in ASC Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The adoption of these amendments did not have a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. In addition, the update requires that both financing and operating leases be recognizedmaterial impact on the balance sheet. The guidance also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The Company expects to adopt this guidance in the period required by the update and continues to evaluate the impact that this update will have on itsCompany’s unaudited condensed consolidated financial statements.


During 2016,Accounting Pronouncements Issued Prior to 2021 and Not Yet Adopted

In March 2020, the FASB issued updated guidance for ASC Topic 848, Reference Rate Reform, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met for a limited period of time in order to ease the measurement of credit lossespotential burden in accounting for (or recognizing the effects of) reference rate reform on financial instruments.reporting. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basisare elective and apply only to be presented at the net amountcontracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be collected.discontinued because of reference rate reform. The allowanceexpedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for credit losses is a valuation accounthedging relationships existing as of December 31, 2022, that is deducted froman entity has elected certain optional expedients for and that are retained through the amortized cost basisend of the financial asset or assetshedging relationship. The amendments to present the net carrying value at the amount expected to be collected on the financial asset.this update are effective for all entities as of March 12, 2020 through December 31, 2022. The measurementadoption of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The Company expects to adopt this guidance in the fiscal period required by this update and continues to evaluate if the adoption will not have an impact on the Company's unaudited condensed consolidated financial statements.


During 2016, the FASB issued updated guidance for the classification


6
Table of certain cash receipts and cash payments on the statement of cash flows. The amendments in this update provide specific guidance for the classification of eight issues: debt prepayment or extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of an insurance claim; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity methodContents

investees; beneficial interests in securitization transactions; and separately identifiable cash flows and applications of the predominance principle. The Company expects to adopt this guidance in the fiscal period required by this update and continues to evaluate if the adoption will have an impact on the consolidated financial statements.

During 2016, the FASB issued updated guidance for tax treatment of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The Company expects to adopt this guidance in the fiscal period required by this update and continues to evaluate if the adoption will have an impact on the consolidated financial statements.
Note 3 – Business CombinationDebt Securities


On July 3, 2017, EVERTEC’s main operating subsidiary, EVERTEC Group,Accounting policy

Debt securities available-for-sale are accounted for under the provisions of ASC 320 Investments – Debt and EVERTEC Panama, S.A. ("EVERTEC Panama") closedEquity Securities, which requires that debt securities available-for-sale be carried at fair value on the direct and indirect acquisition of 100%Company’s unaudited condensed consolidated balance sheets with unrealized gains (losses) recorded through other comprehensive income (“OCI”). Debt securities in an unrealized loss position which the Company intends to sell or for which it is more likely than not that the Company will be required to sell before recovery of the share capitalamortized cost basis, are written down to fair value through income.

Quarterly, for debt securities in an unrealized loss position that the Company does not intend or will, more likely than not, not be required to sell, the Company evaluates if the decline in fair value has resulted from credit losses or other factors. If it is determined that the decline in fair value is related to credit losses, the Company records an allowance for credit losses, limited to the amount by which the fair value is less than the amortized cost basis. If the Company determines that the decline in value is related to factors other than credit, the Company recognizes the impairment through OCI.

Debt securities were purchased close to the final trading day of PayGroup,the quarter ended March 31, 2021 and are held by entering into a share purchase agreement (Contrato de Compraventa de Acciones), by and among EVERTEC Group, EVERTEC Panama, Fondo de Inversión Privado Mater, Inversiones San Bernardo SpA, Asesorítrust in the Costa Rica National Bank as e Inversiones Supernova SpA, Inversiones y Asesoría collateral requirement for settlement activities. The Company may substitute securities as Bayona Limitada, Inversiones Hagerdorn y Morales Limitada, Christian Hagedorn Hitschfeld and Inversiones Vaimaca Limitada. The PayGroup acquisition expands the Company's presence in Latin America to eight new countries and increases the Company's payment solutions offerings. During the third quarterneeded but must maintain certain levels of 2017, EVERTEC Panama ceased being a shareholder in PayGroup and EVERTEC Group became 100% owner of PayGroup.collateral based on transaction volumes.


The Company accounted for this transaction as a business combination. The following table details the preliminaryamortized cost, gross unrealized gains and losses recorded in OCI, estimated fair value, of assets acquired and liabilities assumed from the PayGroup acquisition:

(In thousands) 
Assets/Liabilities
(at fair value)
Cash and cash equivalents $1,834
Accounts Receivable 3,778
Prepaid expenses and other assets 535
Property and equipment 1,082
Long-term deferred tax asset 3,903
Goodwill 29,486
Other intangible assets 18,260
Other long-term assets 499
Total assets acquired 59,377
Accrued liabilities 2,092
Accounts payable 1,965
Unearned income 946
Long-term debt 1,141
Long-term deferred tax liability 7,448
Other long-term liabilities 1,115
Total liabilities assumed $14,707

The following table details the major groups of intangible assets acquired and the weighted average amortizationyield of debt securities available-for-sale by contractual maturity as of March 31, 2021 were as follows:

 March 31, 2021
(In thousands)Gross unrealized
Amortized costGainsLossesFair Value
Costa Rica Government Obligations
After 1 to 5 years$2,968 0 0 $2,968 

No debt securities were sold during the quarter ended March 31, 2021. A provision for credit losses was not required for the period for these assets:


(Dollar amounts in thousands) Amount Weighted Average Life
Customer Relationships $8,380
 15
Trademark or tradenames 1,760
 14
Software packages 8,120
 10
Total $18,260
 15


presented above. Refer to Note 5 Goodwill and Other Intangible Assets7 for detail of goodwill allocated by reportable segments. The goodwill is primarily attributed to increased synergies. None of the goodwill is deductible for income tax purposes.

Revenues and earnings from the PayGroup acquisition were insignificant for both the three and nine months ended September 30, 2017. Pro forma results of operations have not been presented because the effect of this business combination is not materialdisclosure requirements related to the consolidated financial condition and results of operations.fair value hierarchy.

Note 4 – Property and Equipment, net

Property and equipment, net consists of the following:
(In thousands)Useful life
in years		March 31, 2021December 31, 2020
Buildings30$1,424 $1,437 
Data processing equipment3 - 5125,942 124,897 
Furniture and equipment3 - 206,840 6,691 
Leasehold improvements5 -103,116 3,098 
137,322 136,123 
Less - accumulated depreciation and amortization(96,417)(93,826)
Depreciable assets, net40,905 42,297 
Land1,241 1,241 
Property and equipment, net$42,146 $43,538 
(Dollar amounts in thousands) Useful life
in years		 September 30, 2017 December 31, 2016
Buildings 30 $1,526
 $1,559
Data processing equipment 3 - 5 110,646
 105,052
Furniture and equipment 3 - 20 6,114
 7,311
Leasehold improvements 5 -10 3,184
 3,057
    121,470
 116,979
Less - accumulated depreciation and amortization   (86,283) (79,431)
Depreciable assets, net   35,187
 37,548
Land   1,333
 1,382
Property and equipment, net   $36,520
 $38,930

Depreciation and amortization expense related to property and equipment for the three and nine months ended September 30, 2017March 31, 2021 amounted to $3.8 million and $11.2$4.4 million compared to $3.7 million and $10.5$4.2 million for the samecorresponding period in 2016.2020.


During the three months ended March 31, 2021, the Company recorded a loss on the disposition of damaged POS devices amounting to $0.4 million through cost of revenues.

Note 5 – Goodwill and Other Intangible Assets

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Table of Contents

The changes in the carrying amount of goodwill, allocated by reportableoperating segments, were as follows (See(see Note 13)16):
(In thousands)Payment
Services -
Puerto Rico & Caribbean		Payment
Services -
Latin America		Merchant
Acquiring, net		Business
Solutions		Total
Balance at December 31, 2020$160,972 $52,754 $138,121 $45,823 $397,670 
Foreign currency translation adjustments0 (1,372)0 0 (1,372)
Balance at March 31, 2021$160,972 $51,382 $138,121 $45,823 $396,298 
(Dollar amounts in thousands) Merchant
Acquiring, net		 Payment
Processing		 Business
Solutions		 Total
Balance at December 31, 2016 $138,121
 $186,688
 $46,177
 $370,986
Adjustment to goodwill from prior year acquisition —
 1,099
 —
 1,099
Goodwill attributable to acquisition —
 29,486
 —
 29,486
Foreign currency translation adjustments —
 922
 (390) 532
Balance at September 30, 2017 $138,121
 $218,195
 $45,787
 $402,103


Goodwill is tested for impairment on an annual basis as of August 31, or more often if events or changes in circumstances indicate there may be impairment. For 2017,The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In the quantitative analysis, the Company usedcompares the qualitative assessment option or step zero process. Using this process,estimated fair value of the Company first assessed whether it was “more likely than not” thatreporting units to their carrying values, including goodwill. If the fair value of athe reporting unit was less thanexceeds its carrying amount. The Company conducted a qualitative assessment of each reporting unit’s fair value, or step zero process, as of August 31, 2017. As partamount, goodwill of the Company’s qualitative assessment, Managementreporting unit is not considered the results of the Company’s 2015 impairment test as well as current market conditions and changes in the carrying amount of the Company’s reporting units that

occurred subsequent to the 2015 impairment test. Based on the results of this qualitative assessment, EVERTEC believesimpaired. If the fair value of goodwilldoes not exceed the carrying value, an impairment loss is recorded for eachthe excess of the Company’s reporting units continues to exceed their respective carrying amounts and concluded that it was not necessary to conduct the two-step goodwill impairment test. In September 2017, subsequent to the annual impairment test, Puerto Rico and the Caribbean were hit by hurricanes Irma and Maria, significantly damaging the islands’ infrastructure and communications networks, affecting the ability to transact electronically. As a result, revenues from the Company’s Merchant Acquiring segment and Payment Processing segment were impacted. Given the severity of the hurricanes, Management analyzed the effects of the event subsequent to its August 31, 2017 analysis and concluded that there were no changes as a result of the hurricanes that would more likely than not reducevalue over the fair value, limited to the recorded balance of a reporting unit below its carrying amount and that the fair value of goodwill for each of the Company’s reporting units continues to exceed their respective carrying amounts. Nogoodwill. NaN impairment losses were recognized for the nine months ended September 30, 2017as of March 31, 2021 or 2016.2020.


The carrying amount of other intangible assets at September 30, 2017March 31, 2021 and December 31, 20162020 was as follows:
  March 31, 2021
(In thousands)Useful life in yearsGross
amount		Accumulated
amortization		Net carrying
amount
Customer relationships8 - 14$358,413 $(252,583)$105,830 
Trademarks2 - 1542,003 (35,770)6,233 
Software packages3 - 10299,068 (198,121)100,947 
Non-compete agreement1556,539 (39,577)16,962 
Other intangible assets, net$756,023 $(526,051)$229,972 
  December 31, 2020
(Dollar amounts in thousands)Useful life in years Gross
amount		Accumulated
amortization		Net carrying
amount
Customer relationships8 - 14$343,981 $(246,088)$97,893 
Trademarks2 - 1542,036 (35,467)6,569 
Software packages3 - 10289,205 (191,662)97,543 
Non-compete agreement1556,539 (38,635)17,904 
Other intangible assets, net$731,761 $(511,852)$219,909 
    September 30, 2017
(Dollar amounts in thousands) Useful life in years Gross
amount		 Accumulated
amortization		 Net carrying
amount
Customer relationships 8 - 15 $343,228
 $(161,467) $181,761
Trademark 1 - 15 41,684
 (24,249) 17,435
Software packages 3 -10 192,711
 (132,966) 59,745
Non-compete agreement 15 56,539
 (26,385) 30,154
Other intangible assets, net   $634,162
 $(345,067) $289,095

    December 31, 2016
(Dollar amounts in thousands) Useful life in years  Gross
amount		 Accumulated
amortization		 Net carrying
amount
Customer relationships 8 - 14 $334,455
 $(141,829) $192,626
Trademark 10 - 15 39,950
 (21,650) 18,300
Software packages 3 - 10 176,267
 (121,055) 55,212
Non-compete agreement 15 56,539
 (23,558) 32,981
Other intangible assets, net   $607,211
 $(308,092) $299,119
ForDuring the three and nine months ended September 30, 2017,first quarter of 2021, the Company recorded amortizationacquired a customer relationship in Puerto Rico amounting to $14.8 million that will be amortized over ten years. Revenue and expenses in connection with this customer relationship are included as part of the Merchant Acquiring segment.

Amortization expense related to other intangibles of $12.7for the three months ended March 31, 2021 amounted to $14.2 million and $36.9 million, respectively, compared to $11.3 million and $34.0$13.6 million for the corresponding 2016 periods.
period in 2020. During the third quarter of 2017,three month period ended March 31, 2021, the Company recognizedrecorded an impairment charge of $6.5 million through cost of revenues amounting to $0.6 million for a third party software solution that iswill no longer commercially viable. In connection with this exit activity, the Company accrued $5.3 million for ongoing contractual fees, also through cost of revenues and recognized maintenance expense of $1.0 million. Both the liability and thebe used. The impairment charge affected the Company's Merchant Acquiring segment andCompany’s Payment ProcessingServices – Puerto Rico & Caribbean segment.

The estimated amortization expense of the balances outstanding at September 30, 2017March 31, 2021 for the next five years is as follows:
(Dollar amounts in thousands)
Remaining 2021$41,040 
202248,467 
202343,316 
202432,584 
202511,299 

8
(Dollar amounts in thousands)
Remaining 2017 $13,690
2018 45,463
2019 41,736
2020 36,606
2021 33,082
Table of Contents


Note 6 – Debt and Short-Term Borrowings


Total debt at September 30, 2017March 31, 2021 and December 31, 20162020 follows:
(In thousands)March 31, 2021December 31, 2020
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))
$178,804 $188,788 
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))
295,559 306,503 
Note payable due January 1, 2022(1)
703 1,443 
Total debt$475,066 $496,734 
(Dollar amounts in thousands) September 30, 2017 December 31, 2016
Senior Secured Credit Facility (2018 Term A) due on April 17, 2018 paying interest at a variable interest rate (London InterBank Offered Rate (“LIBOR”) plus applicable margin(1)(3))
 $27,293
 $28,721
Senior Secured Credit Facility (2020 Term A) due on January 17, 2020 paying interest at a variable interest rate (LIBOR plus applicable margin(3)(4))
 203,656
 212,661
Senior Secured Credit Facility (Term B) due on April 17, 2020 paying interest at a variable interest rate (LIBOR plus applicable margin(2)(3))
 376,804
 378,074
Senior Secured Revolving Credit Facility(6)
 33,000
 28,000
Note Payable due on October 1, 2017(3)
 389
 1,524
Note Payable due on July 31, 2017(3)
 —
 357
Note Payable due on August 31, 2019(5)
 584
 890
Note Payable due on April 30, 2021(3)
 447
 532
Total debt $642,173
 $650,759
(1)Applicable margin of 2.25% at September 30, 2017 and December 31, 2016.
(2)Subject to a minimum rate (“LIBOR floor”) of 0.75% plus applicable margin of 2.50% at September 30, 2017 and December 31, 2016.
(3)Net of unaccreted discount and unamortized debt issue costs, as applicable.
(4)Applicable margin of 2.50% at September 30, 2017 and December 31, 2016.
(5)Fixed interest rate of 7.50%.
(6)Applicable margin of 2.50% at September 30, 2017 and December 31, 2016.

(1)Net of unaccreted discount and unamortized debt issue costs, as applicable.
Senior (2)Applicable margin of 1.75% at March 31, 2021 and December 31, 2020.
(3)Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at March 31, 2021 and December 31, 2020.

Secured Credit Facilities


On April 17, 2013,November 27, 2018, EVERTEC and EVERTEC Group, LLC ("EVERTEC Group") (collectively, the “Borrower”) entered into a credit agreement (the “2013 Credit Agreement”) governingproviding for the senior secured credit facilities, consisting of a $300.0$220.0 million term loan A facility that matures on November 27, 2023 (the “Term“2023 Term A Loan”Loan"), a $400.0$325.0 million term loan B facility that matures on November 27, 2024 (the “Term“2024 Term B Loan”), together with the Term A Loan, the “Senior Secured term loans”) and a $100.0$125.0 million revolving credit facility (the "Revolving Facility"“Revolving Facility”) that matures on November 27, 2023, with a syndicate of lenders and Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent, swingline lender and line of credit issuer (collectively the “2018 Credit Agreement”). During 2016,

The 2018 Credit Agreement requires mandatory repayment of outstanding principal balances based on a percentage of excess cash flow, provided that no such payment shall be due if the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million. On March 8, 2021 and March 5, 2020, in connection with this mandatory repayment clause, the Company entered into two separate amendments torepaid $17.8 million and $17.0 million, respectively, as a result of excess cash flow calculation performed for the 2013 Credit Agreement. In the second quarter of 2016, EVERTEC Group, together with certain other directyears ended December 31, 2020 and indirect subsidiaries of the Company, entered into a second amendment and waiver to the outstanding 2013 Credit Agreement (the “Second Amendment”). In the fourth quarter of 2016, EVERTEC Group, together with certain other direct and indirect subsidiaries of the Company, entered into a third amendment (the “Third Amendment”) to the 2013 Credit Agreement. The Third Amendment extends the maturity of (a) approximately $219 million of EVERTEC Group’s existing approximately $250 million of Term A loan facility to January 17, 2020 (the “2020 Term A Loan”) and (b) $65 million of EVERTEC Group’s existing $100 million of Revolving Facility to January 17, 2020. The remaining approximately $30 million of Term A loan (the “2018 Term A Loan”) and the $35 million of Revolving Facility that were not extended will remain in place and mature as originally scheduled on April 17, 2018. The Term B Loan will remain in place and mature as originally scheduled on April 17, 2020.2019, respectively.


The unpaid principal balance at September 30, 2017March 31, 2021 of the 2018 Term A Loan, the 20202023 Term A Loan and the 2024 Term B Loan was $27.6 million, $206.2$179.9 million and $383.0$298.3 million, respectively. The additional borrowing capacity forunder our Revolving Facility at March 31, 2021 was $117.0 million. The Company issues letters of credit against the Revolving Facility at September 30, 2017 was $67.0 million.which reduce the additional borrowing capacity of the Revolving Facility.


Notes payablePayable


In December 2014, June 2015 and May 2016,2019, EVERTEC Group entered into 2 non-interest bearing financing agreements 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$2.4 million to purchase software.software and maintenance. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the outstanding principal balance of the notes payable iswas $0.8 million and $1.5 million, and $3.4 million, respectively. The current portion of theseThese notes is recorded as part ofare included in accounts payable andin the long-term portion is included in other long-term liabilities.Company's unaudited condensed consolidated balance sheets.



Interest Rate SwapSwaps


As of September 30, 2017,March 31, 2021, the Company has the followingan interest rate swap agreement, convertingentered into in December 2018, which converts a portion of the interest rate exposurepayments on the Company's 2024 Term B Loan from variable to fixed:
Swap AgreementEffective dateMaturity DateNotional AmountVariable RateFixed Rate
Effective dateMaturity DateNotional AmountVariable RateFixed Rate
January 20172018 SwapApril 2020$200 millionNovember 2024$250 million1-month LIBOR1.9225%2.89%

The Company has accounted for this transactionagreement as a cash flow hedge. The fair value of the Company’s derivative instrument is determined using a standard valuation model. The significant inputs used in this model are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2 within the fair value hierarchy. Inputs used in this standard valuation model for derivative instruments include the applicable forward rates and discount rates. The discount rates are based on the historical LIBOR Swap rates.

As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the carrying amount of the derivative included on the Company’sCompany's unaudited condensed consolidated balance sheets was $21.0 million and $25.6 million, respectively. The fair value of this derivative is as follows:estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 8 for disclosure of losses recorded on cash flow hedging activities.
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(Dollar amounts in thousands) September 30, 2017 December 31, 2016
Other long-term liabilities $1,207
 $1,964

During the three and nine months ended September 30, 2017,March 31, 2021 and 2020, the Company reclassified losses of $0.4$1.7 million and $1.3$0.2 million, respectively, from accumulated other comprehensive loss into income through interest expense. Based on current LIBOR rates, the Company expects to reclassify $1.4losses of $6.9 million from accumulated other comprehensive loss into income through interest expense over the next 12 months. Refer to Note 7 for tabular disclosure of the fair value of derivatives and to Note 8 for tabular disclosure of gains recorded on cash flow hedging activities.

The cash flow hedge is considered highly effective and no impact on earnings is expected due to hedge ineffectiveness.effective.


Note 7 – Financial Instruments and Fair Value Measurements


Recurring Fair Value Measurements


Fair value measurement provisions establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These provisions describe three levels of input that may be used to measure fair value:Debt Securities Available for Sale

Level 1: Inputs are unadjusted, quoted prices for identical assets or liabilities in an active market at the measurement date.
Level 2: Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3: Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company uses observable inputs when available. Fair value is based upon quoted market prices when available. If market prices are not available, the Company may employ models that mostly use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. The Company limits valuation adjustments to those deemed necessary to ensure that the financial instrument’s fair value adequately represents the price that would be received or paid in the marketplace. Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria. The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in estimating fair value could affect the results. The fair value measurement levels are not indicative of risk of investment.


The fair value of financial instrumentsdebt securities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value estimates are made at a specific point in timeestimated based on the type of financial instrument and relevant market information. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions. The following table summarizesobservable inputs, therefore classifying as a Level 2 asset within the fair value measurement by levelhierarchy. The fair value of debt securities at September 30, 2017March 31, 2021 was $3.0 million.

Derivatives Instruments

The fair value of the Company's interest rate swap is estimated using Level 2 inputs under the fair value hierarchy. This derivative was in a liability position with a balance of $21.0 million and $25.6 million as of March 31, 2021 and December 31, 2016 for the liability measured at fair value on a recurring basis:2020, respectively.

(Dollar amounts in thousands) Level 1 Level 2 Level 3 Total
September 30, 2017        
Financial liability:        
Interest rate swap $—
 $1,207
 $—
 $1,207
December 31, 2016        
Financial liability:        
Interest rate swap $—
 $1,964
 $—
 $1,964


The following table presents the carrying value, as applicable, and estimated fair valuesvalue for financial instruments at September 30, 2017March 31, 2021 and December 31, 2016:2020:
 March 31, 2021December 31, 2020
(In thousands)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Financial assets:
Costa Rica government obligations$2,968 $2,968 $0 $0 
Financial liabilities:
Interest rate swap21,012 21,012 25,578 25,578 
2023 Term A Loan178,804 177,840 188,788 186,678 
2024 Term B Loan295,559 297,163 306,503 308,339 
  September 30, 2017 December 31, 2016
(Dollar amounts in thousands) Carrying
Amount		 Fair
Value		 Carrying
Amount		 Fair
Value
Financial liabilities:        
Interest rate swap $1,207
 $1,207
 $1,964
 $1,964
Senior Secured Term B Loan 376,804
 355,233
 378,074
 383,491
2018 Term A Loan 27,293
 27,450
 28,721
 29,268
2020 Term A Loan 203,656
 204,747
 212,661
 213,872


The fair valuevalues of the term loans at September 30, 2017March 31, 2021 and December 31, 20162020 were obtained using the prices provided by third party service providers. Their pricing is based on various inputs such as:as market quotes, recent trading activity in a non-active market or imputed prices. These inputs are considered Level 3 inputs under the fair value hierarchy. Also, the pricing may include the use of an algorithm that could take into account movementmovements in the general high yield market, among other variants. The unpaid principal balance of the 2018 Term A Loan as of September 30, 2017 and December 31, 2016 was $27.6 million and $29.5 million, respectively, and the unpaid principal balance of the 2020 Term A Loan was $206.2 million and $216.0 million for the same periods, respectively. The unpaid principal balance of the Term B Loan was $383.0 million and $386.0 million as of September 30, 2017 and December 31, 2016, respectively.
The Senior Securedsecured term loans which are not measured at fair value in the balance sheets, would be categorized as Level 3 in the fair value hierarchy.sheets.


Note 8 – Equity


Accumulated Other Comprehensive Loss


The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the ninethree months period ended September 30, 2017:March 31, 2021: 
(In thousands)Foreign Currency
Translation
Adjustments		Cash Flow HedgesTotal
Balance - December 31, 2020, net of tax$(24,842)$(23,412)$(48,254)
Other comprehensive (loss) income before reclassifications(2,613)2,463 (150)
Effective portion reclassified to net income0 1,726 1,726 
Balance - March 31, 2021, net of tax$(27,455)$(19,223)$(46,678)

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(Dollar amounts in thousands) Foreign Currency
Translation
Adjustments		 Cash Flow Hedge Total
Balance - December 31, 2016 $(10,427) $(1,964) $(12,391)
Other comprehensive loss before reclassifications (518) (514) (1,032)
Effective portion reclassified to Net Income —
 1,271
 1,271
Balance - September 30, 2017, net of tax $(10,945) $(1,207) $(12,152)
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Note 9 – Share-based Compensation


Long-term Incentive Plan ("LTIP")



InDuring the first quarter of 2015, 2016three months ended March 31, 2019, 2020 and 2017,2021, the Compensation Committee of the Company's Board of Directors ("Board") approved grants of restricted stock units (“RSUs”) to executives and certain employees pursuant to the 20152019 LTIP, 20162020 LTIP and 20172021 LTIP, respectively, all under the terms of ourthe Company's 2013 Equity Incentive Plan. Under the LTIPs, the Company granted restricted stock unitsRSUs to eligible participants as time-based awards and/or performance-based awards.


The vesting of the RSUs is dependent upon service market, and/or performance conditions as defined in the grants. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee is providingprovides services to the Company onthrough the vesting date. Time-based awards vest over a period of three years in substantially equal installments commencing on the start of the fiscal year during which the RSUs were granted or on the grant date and ending on January 1February 22 of each year for the 20152019 LTIP, on February 1927 of each year for the 20162020 LTIP, and on February 24March 2 of each year for the 20172021 LTIP.


Employees that received awards with market conditions under the 2015 and 2016 LTIPs are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the Company’s total shareholder return (“TSR”) target relative to a specified group of industry peer companies is achieved. Employees that received awards with performance conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the Cumulative Annual Growth Rate (“CAGR”) of Diluted EPS target over three years is achieved for the 2015 LTIP. For the 2016 LTIP, the CAGR EPS RSUs was based on the Company’s actual one-year diluted EPS measured over the period commencing on January 1, 2016 and ending on December 31, 2016, relative to the goals set by the Compensation Committee. The shares earned according to the plan are further subject to a two-year service vesting period. For the performance-based awards under the 20172019 LTIP, 2020 LTIP, and 2021 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDAEBITDA") as the primary performance measure while maintaining focus on total shareholder return through the use of a market-based TSRtotal shareholder return ("TSR") performance modifier. The Adjusted EBITDA measure is based on annual targets and can produce a payout between 0% and 200%. The TSR modifier adjusts the shares earned based on the core Adjusted EBITDA performance upwards or downwards (+/- 25%) based on the Company’s relative TSR at the end of the three-yearthree-year performance period as compared to the companies in the Russell 2000 Index. The Adjusted EBITDA performance measure will be calculated for the one-yearone-year period commencing on January 1 2017of the year of the grant and ending on December 31 2017,of the same year, relative to the goals set by the Compensation Committee for this same period. The shares earned will be subject to a further two-yearan additional two-year service vesting period.

Performanceperiod and market-based awardswill vest at the end of the performance period that commenced on January 1, 2015February 22, 2022 for the 20152019 LTIP, February 19, 201627, 2023 for the 20162020 LTIP, and February 24, 2017March 2, 2024 for the 20172021 LTIP. The periods end respectively on January 1, 2018 forUnless otherwise specified in the 2015 LTIP, February 19, 2019 for the 2016 LTIP and February 24, 2020 for the 2017 LTIP. Awardsaward agreement, or in an employment agreement, awards are forfeited if the employee voluntarily ceases to be employed by the Company prior to vesting.

The following table summarizes the stock options activity for the nine months ended September 30, 2017:
  Shares Weighted-Average
exercise price
Outstanding December 31, 2016 20,000
 $6.04
Outstanding September 30, 2017 —
 $—
Exercisable at September 30, 2017 —
 $—

Management uses the fair value method of recording stock-based compensation as described in the guidance for stock compensation in ASC topic 718.


The following table summarizes nonvested restricted shares and RSUs activity for the ninethree months ended September 30, 2017:March 31, 2021:
Nonvested restricted shares and RSUsSharesWeighted-average
grant date fair value
Nonvested at December 31, 20201,093,515 $27.88 
Granted659,598 31.10 
Vested(647,491)20.49 
Forfeited(293)22.90 
Nonvested at March 31, 20211,105,329 $34.14 
Nonvested restricted shares and RSUs Shares Weighted-average
grant date fair value
Nonvested at December 31, 2016 1,212,364
 $14.88
Forfeited 139,017
 16.05
Vested 310,005
 15.26
Granted 699,266
 17.85
Nonvested at September 30, 2017 1,462,608
 $16.10



For the three and nine months ended September 30, 2017 and 2016,March 31, 2021, the Company recognized $2.4 million and $6.6 million, and $1.2 million and $3.7$3.4 million of share-based compensation expense, respectively.compared with $3.5 million for the corresponding period in 2020.


As of September 30, 2017,March 31, 2021, the maximum unrecognized cost for restricted stock and RSU’sRSUs was $14.3$29.4 million. The cost is expected to be recognized over a weighted average period of 1.882.3 years.



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Note 10 – Revenues

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into primary geographical markets, nature of the products and services, and timing of transfer of goods and services. The Company's operating segments are determined by the nature of the products and services the Company provides and the primary geographical markets in which the Company operates. Revenue disaggregated by segment is discussed in Note 16, Segment Information.

In the following tables, revenue for each segment, excluding intersegment revenues, is disaggregated by timing of revenue recognition for the periods indicated.
Three months ended March 31, 2021
(In thousands)Payment Services - Puerto Rico & CaribbeanPayment Services - Latin AmericaMerchant Acquiring, netBusiness SolutionsTotal
Timing of revenue recognition
Products and services transferred at a point in time$78 $676 $0 $2,498 $3,252 
Products and services transferred over time24,782 22,621 30,867 58,006 136,276 
$24,860 $23,297 $30,867 $60,504 $139,528 

Three months ended March 31, 2020
(In thousands)Payment Services - Puerto Rico & CaribbeanPayment Services - Latin AmericaMerchant Acquiring, netBusiness SolutionsTotal
Timing of revenue recognition
Products and services transferred at a point in time$5 $431 $0 $297 $733 
Products and services transferred over time20,633 19,809 25,121 55,646 121,209 
$20,638 $20,240 $25,121 $55,943 $121,942 

Contract Balances

The following table provides information about contract assets from contracts with customers.
(In thousands)March 31, 2021December 31, 2020
Balance at beginning of period$2,796 $1,191 
Services transferred to customers1,140 3,934 
Transfers to accounts receivable(1,318)(2,329)
Balance at end of period$2,618 $2,796 

The current portion of contract assets is recorded as part of prepaid expenses and other assets, and the long-term portion is included in other long-term assets in the unaudited condensed consolidated balance sheets.

Accounts receivable, net at March 31, 2021 amounted to $99.7 million. Contract liability and contract liability - long term at March 31, 2021 amounted to $25.3 million and $31.8 million, respectively, and may arise when consideration is received or due in advance from customers prior to performance. The contract liability is mainly comprised of upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with hosting services. Contract liabilities may also arise when consideration is received or due in advance from customers prior to performance. During the three months ended March 31, 2021, the Company recognized revenue of $8.2 million that was included in the contract liability at
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December 31, 2020. During the three months ended March 31, 2020, the Company recognized revenue of $5.2 million that was included in the contract liability at December 31, 2019.

Transaction price allocated to the remaining performance obligations

The estimated aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at March 31, 2021 is $317.1 million. This amount primarily consists of professional service fees for implementation or set up activities related to managed services and maintenance services, typically recognized over the life of the contract, which varies from 2 to 5 years. It also includes professional service fees for customizations or development of on-premise licensing agreements, which are recognized over time based on inputs relative to the total expected inputs to satisfy a performance obligation.

Note 11 – Current Expected Credit Losses

Allowance for Current Expected Credit Losses

Trade receivables from contracts with customers are financial assets analyzed by the Company under the expected credit loss model. To measure expected credit losses, trade receivables are grouped based on shared risk characteristics (i.e., the relevant industry sector and customer's geographical location) and days past due (i.e., delinquency status), while considering the following:

•Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their country.
•The Company has two main industry sectors: private and governmental. The private pool is comprised mainly of leading financial institutions, merchants and corporations, while the governmental pool is comprised of government agencies. The governmental customers possess different risk characteristics than private customers because although all invoices are due 30 days after issuance, governmental customers usually pay within 60 to 90 days after issuance (i.e., approximately 30 to 60 more days than private customers).
•The expected credit loss rate is likely to increase as receivables move to older aging buckets. The Company used the following aging categories to estimate the risk of delinquency status: (i) 0 days past due; (ii) 1-30 days past due; (iii) 31-60 days past due; (iv) 61-90 days past due; and (v) over 90 days past due.

The credit losses of the Company’s trade receivables have been low historically and most balances are collected within one year. Therefore, the Company determined that the expected loss rates should be calculated using the historical loss rates adjusted by macroeconomic factors. The historical rates are calculated for each of the aging categories used for pooling trade receivables. To determine the collected portion of each bucket, the collection time of each trade receivable is identified, to estimate the proportion of outstanding balances per aging bucket that ultimately will not be collected. This is used to determine the expectation of losses based on the history of uncollected trade receivables once the specific past due period is surpassed. The historical rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to settle the receivables by applying a country risk premium as the forward-looking macroeconomic factor. Specific reserves are established for certain customers for which collection is doubtful.

Rollforward of the Allowance for Expected Current Credit Losses

The following table provides information about the allowance for expected current credit losses on trade receivables.
(In thousands)March 31, 2021December 31, 2020
Balance at beginning of period$2,401 $3,460 
Current period (release) provision for expected credit losses(27)832 
Write-offs(74)(1,894)
Recoveries of amounts previously written-off0 3 
Balance at end of period$2,300 $2,401 

The Company does not have a delinquency threshold for writing-off trade receivables. The Company has a formal process for the review and approval of write-offs.

Impairment losses on trade receivables are presented as net impairment losses within cost of revenue, exclusive of depreciation and amortization in the unaudited condensed consolidated statements of income and comprehensive income. Subsequent
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recoveries of amounts previously written-off, when applicable are credited against the allowance for expected current credit losses within accounts receivable, net on the unaudited condensed consolidated balance sheets.

Note 12 – Income Tax


The components of income tax expense (benefit) for the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, respectively, consisted of the following:
 Three months ended March 31,
(In thousands)20212020
Current tax provision$5,598 $5,598 
Deferred tax benefit(890)(1,080)
Income tax expense$4,708 $4,518 
  Three months ended
September 30,		 Nine months ended
September 30,
(Dollar amounts in thousands) 2017 2016 2017 2016
Current tax (benefit) provision $(301) $2,560
 $7,586
 $8,774
Deferred tax benefit (4,539) (921) (6,338) (2,458)
Income tax (benefit) expense $(4,840) $1,639
 $1,248
 $6,316


The Company conducts operations in Puerto Rico, the United States, and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the government of Puerto Rico government as well as foreign jurisdictions. The following table presents the components of income tax expense for the three and nine months ended September 30, 2017March 31, 2021 and 2016, respectively,2020, and its segregation based on location of operations:
 Three months ended March 31,
(In thousands)20212020
Current tax provision
Puerto Rico$1,604 $1,679 
United States30 155 
Foreign countries3,964 3,764 
Total current tax provision$5,598 $5,598 
Deferred tax benefit
Puerto Rico$(294)$(88)
United States(429)(25)
Foreign countries(167)(967)
Total deferred tax benefit$(890)$(1,080)
  Three months ended September 30, Nine months ended September 30,
(Dollar amounts in thousands) 2017 2016 2017 2016
Current tax (benefit) provision        
Puerto Rico $(1,440) $1,150
 $3,420
 $4,711
United States (10) 86
 190
 322
Foreign countries 1,149
 1,324
 3,976
 3,741
Total current tax (benefit) provision $(301) $2,560
 $7,586
 $8,774
Deferred tax benefit        
Puerto Rico $(4,098) $(558) $(5,150) $(1,468)
United States (107) (93) (190) (144)
Foreign countries (334) (270) (998) (846)
Total deferred tax benefit $(4,539) $(921) $(6,338) $(2,458)


Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements.


As of September 30, 2017,March 31, 2021, the Company has $32.1$84.3 million of unremitted earnings from foreign subsidiaries.subsidiaries, compared to $80.2 million as of December 31, 2020. The Company has not recognized a deferred tax liability on undistributed earnings for the Company’s foreign subsidiaries because these earnings are intended to be indefinitely reinvested.

On June 27, 2017 the Company received a one-time repatriation of cash from a foreign subsidiary of $8.9 million to partially fund the acquisition of PayGroup. This distribution was subject to withholding at source of 15% in the country of origin and accordingly the Company recognized current income tax expense of $1.3 million. No income tax expense was recorded in the country that received the distribution because of the availability to credit foreign taxes paid both at the corporate level and the withholding at source on the distribution. The Company believes that this one time repatriation of existing funds from a foreign subsidiary does not prohibit applying the indefinite reinvestment exception to the remaining undistributed earnings because Management has sufficient evidence of specific plans to continue reinvesting the foreign subsidiary’s undistributed earnings.


As of September 30, 2017,March 31, 2021, the gross deferred tax asset amounted to $7.1$21.8 million and the gross deferred tax liability amounted to $20.1$17.3 million, compared to $5.0$22.0 million and $19.2$19.0 million, respectively, as of December 31, 2016.2020. As of March 31, 2021, there is a valuation allowance against the gross deferred tax asset of approximately $1.0 million.

During the third quarter of 2017, the Company decreased a previously recorded potential liability for uncertain tax positions by $4.5 million, as a result of the expiration of the statute of limitation.

Pursuant to the applicable provision of the PR Code, net operating losses (“NOL”) can be carried forward for a period of seven, ten or twelve taxable years, depending on the taxable year generated. Act 72 enacted on May 29, 2015, limited the amount of a NOL deduction to 80% for regular tax and 70% for alternative minimum tax. At September 30, 2017, the Company has $1.5 million in NOL carryforwards for tax purposes available to offset future taxable income.


Income tax expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following:

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  Nine months period ended September 30,
(Dollar amounts in thousands) 2017 2016
Computed income tax at statutory rates $19,790
 $25,517
Benefit of net tax-exempt interest income —
 (41)
Differences in tax rates due to multiple jurisdictions 2,237
 (111)
Tax (benefit) expense due to a change in estimate (334) 228
Effect of income subject to tax-exemption grant (16,421) (19,139)
Unrecognized tax benefit (4,271) (140)
Other 247
 2
Income tax expense $1,248
 $6,316
 Three months ended March 31,
(In thousands)20212020
Computed income tax at statutory rates$15,117 $10,047 
Differences in tax rates due to multiple jurisdictions560 256 
Effect of income subject to tax-exemption grant(10,332)(6,970)
Unrecognized tax (benefit) expense(123)101 
Excess tax benefits on share-based compensation(1,028)(213)
Other, net514 1,297 
Income tax expense$4,708 $4,518 




Note 1113 – Net Income Per Common Share


The reconciliation of the numerator and denominator of the income per common share is as follows:
 Three months ended March 31,
(In thousands, except per share information)20212020
Net income attributable to EVERTEC, Inc.’s common stockholders$35,503 $22,211 
Less: non-forfeitable dividends on restricted stock0 6 
Net income available to EVERTEC, Inc.’s common shareholders$35,503 $22,205 
Weighted average common shares outstanding72,150,529 72,012,648 
Weighted average potential dilutive common shares (1)
798,872 1,280,357 
Weighted average common shares outstanding - assuming dilution72,949,401 73,293,005 
Net income per common share - basic$0.49 $0.31 
Net income per common share - diluted$0.49 $0.30 
  Three months ended September 30, Nine months ended September 30,
(Dollar amounts in thousands, except per share information) 2017 2016 2017 2016
Net income attributable to EVERTEC, Inc. $6,102
 $19,680
 $49,220
 $59,063
Less: non-forfeitable dividends on restricted stock 4
 3
 7
 6
Net income available to EVERTEC, Inc.’s common shareholders $6,098
 $19,677
 $49,213
 $59,057
Weighted average common shares outstanding 72,386,947
 73,872,048
 72,509,742
 74,506,323
Weighted average potential dilutive common shares (1)
 706,771
 418,685
 580,270
 245,571
Weighted average common shares outstanding - assuming dilution 73,093,718
 74,290,733
 73,090,012
 74,751,894
Net income per common share - basic $0.08
 $0.27
 $0.68
 $0.79
Net income per common share - diluted $0.08
 $0.26
 $0.67
 $0.79
(1)Potential common shares consist of common stock issuable under RSUs awards using the treasury stock method.
(1)Potential common shares consist of common stock issuable under the assumed exercise of stock options and restricted stock awards using the treasury stock method.


On February 17, 2017,18, 2021, the Company's Board declared a quarterly cash dividenddividends of $0.10$0.05 per share of common stock, which was paid on March 20, 201726, 2021, to stockholders of record as of the close of business on March 1, 2017. On April 27, 2017, the Board declared a quarterly cash dividend of $0.10 per share of common stock, which was paid on June 9, 2017 to stockholders of record as of the close of business on May 8, 2017. On July 25, 2017, the Board declared a quarterly cash dividend of $0.10 per share of common stock, which was paid on September 8, 2017 to stockholders of record as of the close of business on August 7, 2017.2021.


Note 1214 – Commitments and Contingencies


Certain lease agreements contain provisions for future rent increases. The total amount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is recorded as a deferred rent obligation.

Rent expense of office facilities and real estate for the three and nine months ended September 30, 2017 and 2016 amounted $2.1 million and $6.1 million, and $2.2 million and $6.2 million, respectively. Rent expense for telecommunications and other equipment for the three and nine months ended September 30, 2017 and 2016 amounted to $1.5 million and $4.5 million, and $1.5 million and $4.6 million, respectively.


EVERTEC is a defendant in a number of legal proceedings arising in the ordinary course of business. Based on the opinion of legal counsel and other factors, Managementmanagement believes that the final disposition of these matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss would be insignificant. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material.


Note 1315 – Related Party Transactions


The following table presents the Company’s transactions with related parties for the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020:
  Three months ended September 30, Nine months ended September 30,
(Dollar amounts in thousands) 2017 2016 2017 2016
Total revenues (1)(2)
 $44,090
 $43,022
 $134,045
 $129,786
Cost of revenues $1,775
 $381
 $2,610
 $1,179
Rent and other fees $1,962
 $2,088
 $5,810
 $6,051
Interest earned from affiliate        
Interest income $41
 $51
 $119
 $165
 Three months ended March 31,
(In thousands)20212020
Total revenues (1)(2)
$60,369 $54,572 
Cost of revenues$1,049 $618 
Operating lease cost and other fees$1,915 $1,981 
Interest earned from affiliate
Interest income$108 $89 
(1)Total revenues from Popular as a percentage of revenues were 42%, 45%, 43% and 45% for the periods presented above, respectively.
(2)Includes revenues generated from investee accounted for under the equity method of $0.4 million and $1.5 million, and $0.5 million and $1.6 million for the three and nine months ended September 30, 2017, and 2016, respectively.

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At September 30, 2017(1)Popular revenues as a percentage of total revenues were 44% and 45%, respectively, for each of the periods presented above.
(2)Includes revenues generated from investee accounted for under the equity method of $0.1 million and $0.3 million, respectively, for each of the periods presented above.

As of March 31, 2021 and December 31, 2016,2020, EVERTEC had the following balances arising from transactions with related parties:
(In thousands)March 31, 2021December 31, 2020
Cash and restricted cash deposits in affiliated bank$78,712 $126,189 
Other due to/from affiliate
Accounts receivable$35,324 $28,419 
Prepaid expenses and other assets$4,125 $4,678 
Operating lease right-of-use assets$16,196 $17,099 
Accounts payable$2,427 $4,607 
Contract liabilities$36,802 $35,807 
Operating lease liabilities$16,633 $17,781 


(Dollar amounts in thousands) September 30, 2017 December 31, 2016
Cash and restricted cash deposits in affiliated bank $21,810
 $15,918
Other due/to from affiliate    
Accounts receivable $18,540
 $21,461
Prepaid expenses and other assets $647
 $699
Other long-term assets $343
 $554
Accounts payable $4,551
 $6,300
Unearned income $17,657
 $14,383


Note 1416 – Segment Information

During the periods presented, the Company operated its business in the segments described below. As a result of the acquisition of PayGroup discussed in Note 3, the Chief Operating Decision Maker (“CODM”) continues to evaluate the current structure of the Company and the information that he regularly reviews for purposes of allocating resources and assessing performance. The Company’s reportable segments will be re-evaluated for any changes that occur as a result of the CODM's evaluation.


The Company operates in three4 business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America (collectively "Payment Services segments"), Merchant Acquiring, Payment Processing and Business Solutions.

The Company’sPayment 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 point of sale ("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 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 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 segment revenues consist of revenues related to providing access to the ATH 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 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.

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.

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The Business Solutions segment consists of revenues from a full suite of business segmentsprocess 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 organizedderived in part from a recurrent fixed fee and from fees based on the naturenumber of accounts on file (i.e. savings or checking accounts, loans, etc.) 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 services.these resale transactions are generally non-recurring.

In addition to the 4 operating segments described above, management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented within the “Corporate and Other” category in the financial statements alongside the operating segments. The CODMCorporate and Other 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 merger and acquisition activity,
•intersegment revenues and expenses, and
•other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level

The Chief Operating Decision Maker ("CODM") reviews their individualthe 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. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. 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. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated financial statements.


The following tables set forth information about the Company’s operations by its three4 business segments for the periods indicated:


(Dollar amounts in thousands) Merchant
Acquiring, net		 Payment
Processing		 Business
Solutions		 Other Total
Three months ended September 30, 2017          
Revenues $21,555
 $41,980
 $46,952
 $(7,762)
(1) 
$102,725
(Loss) income from operations (656) 8,094
 8,506
 (7,136)
(2) 
8,808
Three months ended September 30, 2016          
Revenues $21,970
 $35,969
 $44,913
 $(8,385)
(1) 
$94,467
Income from operations 6,728
 12,803
 14,930
 (7,454)
(2) 
27,007

(Dollar amounts in thousands) Merchant
Acquiring, net		 Payment
Processing		 Business
Solutions		 Other Total
Nine months ended September 30, 2017          
Revenues $67,546
 $120,189
 $144,943
 $(25,162)(1) $307,516
Income from operations 13,444
 41,893
 35,678
 (21,621)(2) 69,394
Nine months ended September 30, 2016          
Revenues $68,137
 $106,797
 $136,765
 $(24,081)(1) $287,618
Income from operations 23,940
 39,493
 43,299
 (24,967)(2) 81,765

Three months ended March 31, 2021
(In thousands)Payment
Services -
Puerto Rico & Caribbean		Payment
Services -
Latin America		Merchant
Acquiring, net		Business
Solutions
Corporate and Other (1)
Total
Revenues$36,264 $25,014 $30,867 $60,611 $(13,228)$139,528 
Operating costs and expenses20,489 19,846 16,466 36,689 1,039 94,529 
Depreciation and amortization3,942 2,934 654 4,794 6,299 18,623 
Non-operating income (expenses)185 1,108 231 553 (1,247)830 
EBITDA19,902 9,210 15,286 29,269 (9,215)64,452 
Compensation and benefits (2)
241 809 231 363 1,860 3,504 
Transaction, refinancing and other fees (3)
660 0 0 0 273 933 
Adjusted EBITDA$20,803 $10,019 $15,517 $29,632 $(7,082)$68,889 
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(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $9.7 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of $2.3 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean, and transaction processing and monitoring fees of $1.2 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $3.5 million.
(2)Primarily represents share-based compensation.
(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A and a software impairment charge.

Three months ended March 31, 2020
(In thousands)Payment
Services -
Puerto Rico & Caribbean		Payment
Services -
Latin America		Merchant
Acquiring, net		Business
Solutions
Corporate and Other (1)
Total
Revenues$29,887 $21,640 $25,121 $55,943 $(10,649)$121,942 
Operating costs and expenses17,406 17,651 14,706 33,617 5,799 89,179 
Depreciation and amortization3,249 2,757 499 4,296 6,994 17,795 
Non-operating income (expenses)113 754 154 387 (962)446 
EBITDA15,843 7,500 11,068 27,009 (10,416)51,004 
Compensation and benefits (2)
231 742 216 436 1,875 3,500 
Transaction, refinancing and other fees (3)
0 0 0 0 1,786 1,786 
Adjusted EBITDA$16,074 $8,242 $11,284 $27,445 $(6,755)$56,290 
(1)Represents the elimination of intersegment revenues for services provided by the Payment Processing segment to the Merchant Acquiring segment for the cost of transaction processing on merchant acquiring transactions, and other miscellaneous intersegment revenues.
(2)Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.


(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $9.0 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $1.6 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $5.1 million.
(2)Primarily represents share-based compensation.
(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.


The reconciliation of income from operationsEBITDA to consolidated net income for the three and nine months ended September 30, 2017 and 2016 is as follows:
 Three months ended March 31,
(In thousands)20212020
Total EBITDA$64,452 $51,004 
Less:
Income tax expense4,708 4,518 
Interest expense, net5,517 6,416 
Depreciation and amortization18,623 17,795 
Net income$35,604 $22,275 


  Three months ended
September 30,		 Nine months ended
September 30,
(Dollar amounts in thousands) 2017 2016 2017 2016
Segment income from operations        
Merchant Acquiring $(656) $6,728
 $13,444
 $23,940
Payment Processing 8,094
 12,803
 41,893
 39,493
Business Solutions 8,506
 14,930
 35,678
 43,299
Total segment income from operations 15,944
 34,461
 91,015
 106,732
Merger related depreciation and amortization and other unallocated expenses (1)
 (7,136) (7,454) (21,621) (24,967)
Income from operations 8,808
 27,007
 69,394
 81,765
Interest expense, net (7,853) (6,189) (21,894) (18,026)
Earnings (losses) of equity method investment 155
 43
 413
 (58)
Other income 192
 489
 2,829
 1,747
Income tax expense 4,840
 (1,639) (1,248) (6,316)
Net income $6,142
 $19,711
 $49,494
 $59,112
(1)Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

Note 1517 – Subsequent Events


On November 2, 2017,April 22, 2021, the Board declared a regular quarterly cash dividend of $0.05 per share on the Company’s outstanding shares of common stock. The dividend will be paid on June 4, 2021 to stockholders of record as of the close of business on May 3, 2021. The Board anticipates declaring this dividend in future quarters on a regular basis; however future declarations of Directors agreeddividends are subject to extend the Company's current stock repurchase program to December 31, 2020.Board’s approval and may be adjusted as business needs or market conditions change.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (“MD&A”) covers: (i) the results of operations for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 and (ii) the financial condition as of September 30, 2017.March 31, 2021. You should read the following discussion and analysis in conjunction with the audited consolidated financial statements (the “Audited Consolidated Financial Statements”) and related notes for the fiscal year ended December 31, 2016,2020, included in the Company’s Annual Report on Form 10-K and with the unaudited condensed consolidated condensed financial statements (the “Unaudited Condensed Consolidated 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.


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). EVERTEC Inc.’s subsidiaries include Holdings, EVERTEC Group, EVERTEC Dominicana, SAS, Evertec Chile Holdings SpA (formerly known as Tecnopago SpA), Evertec Chile SpA (formerly known as EFT Group SpA), Evertec Chile Global SpA (formerly known as EFT Global Services SpA), Evertec Chile Servicios Profesionales SpA (formerly known as EFT Servicios Profesionales SpA), EFT Group Panama S.A., Tecnopago España Ltd., EFT Servicos Profesionales SpA,SL, Paytrue S.A., Caleidon, S.A., Evertec Brasil Solutions Informática Ltda. (formerly known as Paytrue Solutions InformaticaInformática Ltda.), EVERTEC Panamá, S.A., EVERTEC Costa Rica, S.A. (“EVERTEC CR”), EVERTEC Guatemala, S.A., Evertec Colombia, SAS (formerly known as Processa, SAS ("Processa")SAS), EVERTEC USA, LLC, EGM Ingeniería sin Fronteras, S.A.S. ("Place to Pay") and EVERTEC México Servicios de Procesamiento, S.A. de C.V. Neither EVERTEC nor Holdings conducts any operations other than with respect to its indirect or direct ownership of EVERTEC Group.
Executive Summary


EVERTEC is a leading full-service transaction processingtransaction-processing business in Latin America (which includes Central America andPuerto Rico, the Caribbean unless otherwise specified),and Latin America, providing a broad range of merchant acquiring, payment processingservices and business process management services. According to the September 2016August 2020 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. As of September 30, 2017, with the completion of the acquisition of PayGroup on July 3, 2017, the Company provides services acrossWe serve 26 countries out of 11 offices, including our headquarters in the region.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, wePuerto Rico. We own and operate the ATH network, one of the leading personal identification number (“PIN”("PIN") debit networks in Latin America. We manage a system of electronic payment networks and offer a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico, that process approximately three billion transactions annually. Additionally we offer technology outsourcing in 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 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 inacross several geographies with a single integrated technology solutionsolutions that enablesenable 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 processing)services).

Our broad suite of services spans the transaction processingentire 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, 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
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services, which enable financial institutions and other issuers to manage, support and facilitate the processing forof 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 scalable, end-to-end technology platforms that we manage and operate in-house which generatesand that generate 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 negotiate 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.


Corporate BackgroundRelationship with Popular


EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) is a Puerto Rico corporation organized in April 2012. Our main operating subsidiary, EVERTEC Group, LLC (formerly known as EVERTEC, LLC and EVERTEC, Inc., hereinafter “EVERTEC Group”), was organized in Puerto Rico in 1988. EVERTEC Group was formerly a wholly-owned subsidiary of Popular. On September 30, 2010, pursuant to an Agreement and Plan of Merger (as amended, the “Merger Agreement”), AP Carib Holdings, Ltd. (“Apollo”) acquired a 51% indirect ownership interest in EVERTEC Group as part of a merger (the “Merger”) and EVERTEC Group became a wholly-owned subsidiary of Holdings.

On April 17, 2012, EVERTEC Group was converted from a Puerto Rico corporation to a Puerto Rico limited liability company (the “Conversion”) for the purpose of improving its consolidated tax efficiency by taking advantage of changes to the Puerto Rico Internal Revenue Code, as amended (the “PR Code”), that permit limited liability companies to be treated as partnerships that are pass-through entities for Puerto Rico tax purposes. Concurrent with the Conversion, Holdings, which is our direct subsidiary, was also converted from a Puerto Rico corporation to a Puerto Rico limited liability company. Prior to these conversions, EVERTEC, Inc. was formed in order to act as the new parent company of Holdings and its subsidiaries, including EVERTEC Group. The transactions described above in this paragraph are collectively referred to as the “Reorganization.”

Separation from and Key Relationship with Popular

Prior to the Merger on September 30, 2010, EVERTEC Group was 100% owned by Popular, the largest financial institution in the Caribbean, and operated substantially as an independent entity within Popular. After the consummation of the Merger, Popular retained an indirect ownership interest in EVERTEC Group and is our largest customer. In connection with, and upon consummation of the Merger, EVERTEC Group entered into a 15-year Master Services Agreement (the “MSA”),MSA, and several related agreements with Popular. Under the terms of the MSA, Popular agreed to continue to use EVERTEC services on an ongoing and exclusive basis for the duration of the agreement, on commercial terms consistent with those of our historical relationship.agreement. Additionally, Popular granted us a right of first refusal on the development of certain new financial technology products and services for the duration of the MSA.Master Services Agreement.


Factors and Trends Affecting the Results of Our Operations


The ongoing migration from cash check and other paper 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 rewards and the development of new forms of payment. 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 this ongoing shift will continue to generate substantial growth opportunities for our business. For example, currently the adoption of banking products, including electronic payments, in the Latin American regionand Caribbean regions is lower relative to the more mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drivingdrive incremental penetration and growth of electronic payments in Puerto Rico and other Latin American regions. We also benefit from the trend forof financial institutions and government agencies to outsourceoutsourcing technology systems and processes. 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. We believe that our technology andchallenging, which presents a business outsourcing solutions cater to the evolving needs of the financial institution customer base we target, providing integrated, open, flexible, customer-centric and efficient IT products and services.opportunity for us.


Our results of operations may be affected by regulatory changes that will occur as the payments industry has come under increased scrutiny from lawmakers and regulators.
As described in the risk factors in our 2016 Form 10-K,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. The

Results of Operations

Comparison of the three months ended March 31, 2021 and 2020
Three months ended March 31,
In thousands20212020Variance
Revenues$139,528 $121,942 $17,586 14 %
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization59,804 54,067 5,737 11 %
Selling, general and administrative expenses16,102 17,317 (1,215)(7)%
Depreciation and amortization18,623 17,795 828 5 %
Total operating costs and expenses94,529 89,179 5,350 6 %
Income from operations$44,999 $32,763 $12,236 37 %


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Revenues

Total revenues for the three months ended March 31, 2021 increased by $17.6 million or 14% to $139.5 million when compared to the same period in the prior year, as revenue in the prior year period was impacted by the beginning of the pandemic. Revenue increased across all of the Company's segments, reflecting sales volume growth with a high average ticket, as well as continued growth in the Company's digital solutions, such as ATH Movil, in Puerto Rico, fiscal crisis continuescoupled with the impact of revenues generated from new client contracts in Latin America, as well as, hardware and software sales in the quarter amounting to negatively impact$1 million.

Cost of Revenues

Cost of revenues for the economy, while austerity measures pursuantthree months ended March 31, 2021 amounted to $59.8 million, an increase of $5.7 million or 11% when compared to the fiscal plan aresame period in the early stagesprior year. The increase during the three months is primarily driven by an increase in salaries and benefits, mainly due to increased headcount, coupled with an increase in cloud services. Additionally, cost of implementation. However,sales increased primarily due to date, our operationshardware and oursoftware sales completed in the quarter.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended March 31, 2021 decreased by $1.2 million or 7% when compared to the same period in the prior year. The decrease is almost entirely related to a decrease in professional services, as prior year includes expenses incurred for corporate transactions.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2021 amounted to $18.6 million, an increase of $0.8 million or 5% when compared to the same period in the prior year. Increased expense during the three months is driven by an increase in software amortization driven by key projects that went into production in the prior year as well as increased capital expenditures.

Non-Operating Expenses
Three months ended March 31,
In thousands20212020Variance
Interest income$389 $363 $26 7 %
Interest expense(5,906)(6,779)873 13 %
Earnings of equity method investment502 338 164 49 %
Other income328 108 220 204 %
Total non-operating expenses$(4,687)$(5,970)$1,283 21 %

Non-operating expenses for the three months ended March 31, 2021 decreased by $1.3 million to $4.7 million when compared to the same period in the prior year. The decrease is mainly related to a $0.9 million decrease in interest expense, resulting from a reduction in interest rates and a lower outstanding balance in connection with debt repayments made during the prior year, coupled with a $0.2 million increase in other income driven by the favorable impact of foreign currency exchange.

Income Tax Expense
Three months ended March 31,
In thousands20212020Variance
Income tax expense$4,708 $4,518 $190 4 %

Income tax expense for the three months ended March 31, 2021 amounted to $4.7 million, an increase of $0.2 million when compared to the same period in the prior year. The effective tax rate for the period was 11.7%, compared with 16.9% in the 2020 period. The decrease in the effective tax rate primarily reflects the impact of COVID-19 on the mix of business within the prior year and the impact of additional net discrete tax items recorded in the current year quarter.
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Segment Results of Operations

The Company operates in four business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America (collectively "Payment Services segments"), Merchant Acquiring, and Business Solutions.

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 point of sale ("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 person-to-merchant digital transactions) and EBT (which principally consist of services to the government of Puerto Rico have not been significantly impacted. We continuefor the delivery of benefits to closely monitorparticipants). For ATH debit network and processing services, revenues are primarily driven by the Puerto Rico fiscal situationnumber of transactions processed. Revenues are derived primarily from network fees, transaction switching and its impactprocessing 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 economynumber of cards embossed and our business.other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.


In additionThe Payment Services - Latin America segment revenues consist of revenues related to providing access to the macroeconomic trends described above, Management currently estimates that we will experience a revenue attrition in Latin AmericaATH network of approximately $1 millionATMs and other card networks to $3 million in 2017financial 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 client migrations anticipated to occur throughout 2017debit or credit issuers), payment processing services (such as payment and approximately $5 million to $7 millionbilling products for migrations anticipated in 2018. The client decisionsmerchants, businesses and financial institutions), as well as licensed software solutions for these anticipated migrations wererisk and fraud management and card payment processing. For network and processing services, revenues are primarily driven by a varietythe number of historical factors, most importantly customer service experience. Management believes that these customer decisionstransactions processed. Revenues are unlikely to change, however timing is subject to change based on customer's conversion schedules.

In September 2017, Puerto Ricoderived primarily from network fees, transaction switching and processing fees, and the Caribbean, twoleasing of our principal markets, were severely impacted by Hurricane IrmaPOS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and Hurricane Maria. As a resultauthorizations processed, the number of these hurricanes the islands' economies have been affected. The destruction brought on by these hurricanes affected infrastructurecards embossed, and telecommunication services, necessary elements for electronic transacting. Electronic transacting primarily affects ourother processing services.

The Merchant Acquiring segment and Payments Processing Segment, including our ATH network in Puerto Rico. While our ATH network remained operational continuously, the lack of power, water and telecommunications limited merchants' ability to either open for business or transact electronically and, as a result, our revenue has decreased. Since the hurricanes, the merchants that have opened for business are generally large merchants, supermarkets and gas stations and consumer spending patterns have been erratic. We earn less revenue per transaction from these merchants and this mix of merchants has negatively impacted our net revenue yield and margins. Businesses have gradually reopened and accepted payments and we have experienced a gradual increase in transaction and sales volume, but there is uncertainty as to the timing and rate at which such volumes will return to pre-hurricanes levels.  Cash use has also risen significantly due to the lack of ability to accept electronic payments and merchant steering. Additionally, it has been reported that a large number of residents have left Puerto Rico for the US and that more residents may leave in the continuing aftermath of the hurricanes. Considering all these factors, we currently estimate that our transactions will continue to modestly and gradually recover from our October average during the remainder of fourth quarter of 2017. Our total decrease in revenue for 2017 related to the huricane’s impact is estimated between $20 million and $30 million. The pace and success of Puerto Rico’s recovery of power, water, and telecommunication services could affect our estimate 2017 range of impact from the hurricanes.

Overview of Results of Operations

The following briefly describes the components of revenues and expenses as presented in the unaudited consolidated condensed statements of income and comprehensive income. Descriptions of the revenue recognition policies are detailed in Note 1 of the Notes to Audited Consolidated Financial Statements included in our 2016 Form 10-K.

Merchant Acquiring, net. Merchant Acquiring revenue consists of revenues from services that allow merchants to accept electronic methods of payment. Our standard merchant contract has an initial term of one or three years, with automatic one-year renewal periods. In the Merchant Acquiring segment, sources of revenues include a discount fee (generally a percentage of the sales amount of a credit or debit card transaction value) and membership fees charged to merchants, debit network fees and rental incomefees 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.

Merchant Acquiring accounted The discount fee is generally a percentage of the transaction value. EVERTEC also charges merchants for $21.6 million, or 21% of total revenues, and $(0.7) million or (4)% of total segment income from operations for the three months ended September 30, 2017, compared with $22.0 million, or 23%, of total revenues and $6.7 million, or 20% of total segment income from operations for the comparable period in 2016. For the nine months ended September 30, 2017, our Merchant Acquiring business accounted for $67.5 million, or 22% of total revenues and $13.4 million or 15% of total segment income from operations compared with $68.1 million, or 24%, of total revenues and $23.9 million, or 22%, of total segment income from operations for the nine months ended September 30, 2016.

Payment Processing. Payment Processing revenue primarily reflects ATH network and payment transaction processing, including relatedother services such as authorization, management and recording of ATM and POS transactions, and ATM management and monitoring. Payment Processing revenue also includes income from card processing servicesthat are unrelated to debit or credit card issuers, such as credit and debit card processing, authorization and settlement and fraud monitoring and control services; payment processing services such as payment and billing products for merchants, businesses and financial institutions; and EBT, which principally consist of services to the Puerto Rico government for the delivery of government benefits to

participants. Payment products include electronic check processing, automated clearing house (“ACH”), lockbox, interactive voice response and web-based payments through personalized websites, among others.

We generally enter into one to five year contracts with our private payment processing clients and one year contracts with our government payment processing clients. For ATH network and processing services, revenue is driven mainly by the number of transactions processed. Revenue is derived mainly from network fees,or the transaction switching and processing fees, and leasing of POS devices. For card issuer processing, revenue is dependent mostly upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenue is derived mainly from the number of beneficiaries on file.value.


Payment Processing accounted for $34.2 million, or 33%, of total revenues and $8.1 million, or 51%, of total segment income from operations for the three months ended September 30, 2017, compared with $27.6 million, or 29%, of total revenues and $12.8 million, or 37%, of total segment income from operations for the three months ended September 30, 2016. For the nine months ended September 30, 2017, our Payment Processing business accounted for $95.0 million, or 31%, of total revenues and $41.9 million, or 46% of total segment income from operations compared with $82.7 million, or 29%, of total revenues and $39.5 million, or 37%, of total segment income from operations for the nine months ended September 30, 2016.

Business Solutions.The Business Solutions revenuesegment consists of revenues from a full suite of business process management solutions includingin various product areas such as core bank processing, network hosting and management, IT consultingprofessional services, business process outsourcing, item andprocessing, cash processing, and fulfillment. We generally enter into one to five year contracts with our privateCore 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.) or computer resources utilized. Revenues from other processing services within the Business Solutions clientssegment are generally volume-based and one year or multi-year contracts, with annual fiscal funding clauses, for our government Business Solutions clients.

depend on factors such as the number of accounts processed. In addition, we areEVERTEC is a reseller of hardware and software products;products and these resale transactions are generally one-time transactions. Revenue from salesnon-recurring.

In addition to the four operating segments described above, management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented within the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and Other category consists of hardware or software products is recognized once the following four criteria are met: (i) evidence 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 of the selling price is reasonably assured or probable, as applicable.

Business Solutions accounted for $47.0 million, or 46%, of total revenues and $8.5 million, or 53%, of total segment income from operations for the three months ended September 30, 2017, compared with $44.9 million, or 48%, of total revenues and $14.9 million, or 43%, of total segment income from operations for the three months ended September 30, 2016. For the nine months ended September 30, 2017, Business Solutions accounted for $144.9 million, or 47%, of total revenues and $35.7 million, or 39%, of total segment income from operations compared with $136.8 million, or 48%, of total revenues and $43.3 million, or 41%, of total segment income from operations for the nine months ended September 30, 2016.

Cost of revenues. This caption includes the costs directly associated with providing services to customers, as well as product and software sales, including software licensing and maintenance costs; telecommunications costs; personnel and infrastructure costs to develop and maintain applications, operate computer networks and provide associated customer support,corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating expenses.segments. The overhead and leveraged costs relate to activities such as:


Selling, general•marketing,
•corporate finance and administrative. This caption consists mainlyaccounting,
•human resources,
•legal,
•risk management functions,
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•internal audit,
•corporate debt related expenses paid to sales personnel, administrative employees and management, advertising and promotional costs, audit and legal fees, and other selling expenses.

Depreciation and amortization. This caption consists of our•non-operating depreciation and amortization expense. Following the completion of the Merger, our depreciation and amortization expense increasedexpenses generated as a result of merger and acquisition activity,
•intersegment revenues and expenses, and
•other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level

The Chief Operating Decision Maker ("CODM") reviews the purchase price allocation adjustmentsoperating segments separate financial information to reflectassess performance and to allocate resources. Management evaluates the fair market valueoperating results of each of its operating segments based upon revenues and revised useful life assignedAdjusted EBITDA. Adjusted EBITDA is defined as EBITDA further adjusted to propertyexclude unusual items and equipmentother adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and intangibleadjusted EBITDA. As such, segment assets are not disclosed in connection with the Merger.notes to the accompanying unaudited condensed consolidated financial statements.

Results of Operations


The following tables set forth certain consolidated financial information about the Company’s operations by its four business segments for the three and nine months ended September 30, 2017 and 2016. The following tables and discussion should be read in conjunction with the information contained in our Unaudited Consolidated Condensed Financial Statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.periods indicated below.


Comparison of the three months ended September 30, 2017March 31, 2021 and 20162020



Payment Services - Puerto Rico & Caribbean
The following tables present the components of our unaudited consolidated condensed statements of income and comprehensive income by business
Three months ended March 31,
In thousands20212020
Revenues$36,264$29,887
Adjusted EBITDA20,80316,074
Adjusted EBITDA Margin57.4 %53.8 %

Payment Services - Puerto Rico & Caribbean segment and the change in those amounts for the three months ended September 30, 2017 and 2016.

Revenues
  Three months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Merchant Acquiring, net $21,555
 $21,970
 $(415) (2)%
Payment Processing 34,218
 27,584
 6,634
 24 %
Business Solutions 46,952
 44,913
 2,039
 5 %
Total revenues $102,725
 $94,467
 $8,258
 9 %

Total revenues for the three months ended September 30, 2017March 31, 2021 increased by $8.3$6.4 million or 9% asto $36.3 million when compared to the corresponding 2016 period.

Merchant Acquiring, net revenue decreased 2% to $21.6 million. Merchant sales volume and revenue were negatively impacted by Hurricanes Irma and Maria in the last month of the quarter, while EVERTEC continued to be available to process ATM and POS transactions, transacting depends on power and telecommunications, which were affected by these events. This decline was partially offset by volume increases in the first two months of the quarter.

Payment Processing revenue in the quarter amounted to $34.2 million, an increase of $6.6 million or 24%. Revenue growth in the quarter reflected the acquisition of PayGroup and increases in ATH® debit network transaction volumes and card processing volumes in the first two months of the quarter, partially offset by the impact of the hurricanes as described above.

Business Solutions revenue amounted to $47.0 million, compared with $44.9 millionsame period in the prior year, quarter, an increase of 5%. Business Solutions revenue growthwhich was impacted by a decline in the quarter primarily reflects increased revenue form our printing business and increased core banking revenue, partially offset by decreases in network services relatedtransaction volumes due to the impact of COVID-19. The increase in revenues was primarily driven by an incremental $2.5 million in revenue recognized from ATH Movil and ATH Movil Business as consumer preference continues to shift to digital payment products, as well as an increase in transaction processing and monitoring revenue recognized for services provided from the hurricanes.Payment Services - Puerto Rico & Caribbean segment to the Payment Services - Latin America Segment. Adjusted EBITDA increased by $4.7 million to $20.8 million driven by the increase in revenues, as well as a decrease in cost of sales, partially offset by higher operating expenses driven by higher equipment expenses.

Operating costs and expenses
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  Three months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Cost of revenues, exclusive of depreciation and amortization shown below $62,699
 $41,753
 $20,946
 50%
Selling, general and administrative expenses 14,612
 10,818
 3,794
 35%
Depreciation and amortization 16,606
 14,889
 1,717
 12%
Total operating costs and expenses $93,917
 $67,460
 $26,457
 39%
Payment Services - Latin America

Three months ended March 31,
In thousands20212020
Revenues$25,014$21,640
Adjusted EBITDA10,0198,242
Adjusted EBITDA Margin40.1 %38.1 %
Total operating costs and expenses
Payment Services - Latin America segment revenues for the three months ended September 30, 2017March 31, 2021 increased $26.5by $3.4 million or 39% asto $25.0 million driven mainly by revenues generated by new client contracts, increased revenue for services related to card products and increased volume from PlacetoPay, partially offset by a decrease in ATM volumes coupled with client attrition. Adjusted EBITDA increased by $1.8 million when compared to the corresponding 2016 period.

Cost of revenues increased by $20.9 million or 50% when compared withsame period in the 2016 quarterly period. The increase isprior year primarily related to charges taken in connection with an exit activity for a third party software solution that is no longer commercially viable. The remaining increase was primarily attributabledue to the PayGroup acquisition.

Selling, general and administrative expenses increased $3.8 million or 35% to $14.6 million when compared with the corresponding 2016 period. The increase is primarily related toin revenues, partially offset by an increase in salariesfees for transaction processing and other benefitsmonitoring services from the Payment Services - Puerto Rico & Caribbean segment to the Payment Services - Latin America Segment.

Merchant Acquiring
Three months ended March 31,
In thousands20212020
Revenues$30,867$25,121
Adjusted EBITDA15,51711,284
Adjusted EBITDA Margin50.3 %44.9 %

Merchant Acquiring segment revenues for the three months ended March 31, 2021 increased by $5.7 million to $30.9 million as the prior year quarter was impacted by lower sales volume and a decline in spread as a result of the beginning of the COVID-19 pandemic. The current year quarter reflected an increase in sales volume and an increase in professional fees associatedspread partially due to the higher average ticket which continues to benefit from federal stimulus packages. Additionally, the current year quarter benefited slightly from the expanded relationship with FirstBank of Puerto Rico in connection with the PayGroup acquisition.

Depreciation and amortization expenseacquisition of the customer relationship in the current year quarter. Adjusted EBITDA increased by $1.7$4.2 million or 12%,driven by the increase in revenues, partially offset by an increase in operating expenses driven by the increased transaction volume.

Business Solutions
Three months ended March 31,
In thousands20212020
Revenues$60,611$55,943
Adjusted EBITDA29,63227,445
Adjusted EBITDA Margin48.9 %49.1 %

Business Solutions segment revenues for the three months ended March 31, 2021 increased by $4.7 million to $60.6 million as a result of an increase in IT consulting services revenue coupled with revenue recognized in the quarter for hardware and software and other intangibles amortization driven by software and intangiblessales. In addition, the current year quarter benefited from the PayGroup acquisition.

Income from operations


The following table presents income from operations by reportable segments.
  Three months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Segment income from operations        
Merchant Acquiring, net $(656) $6,728
 $(7,384) (110)%
Payment Processing 8,094
 12,803
 (4,709) (37)%
Business Solutions 8,506
 14,930
 (6,424) (43)%
Total segment income from operations 15,944
 34,461
 (18,517) (54)%
         
Merger related depreciation and amortization and other unallocated expenses (1)
 (7,136) (7,454) 318
 (4)%
Income from operations $8,808
 $27,007
 $(18,199) (67)%
(1)Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

Income from operations for the three months ended September 30, 2017 decreased $18.2 million or 67% compared with the corresponding 2016 period. The decreaseshift to digital as mobile banking usage increases, resulting in income from operations primarily reflects charges taken in connection with the previously mentioned exit activity and a disadvantageous revenue mix compared to the one in the prior year.

See Note 14 of the Notes to Unaudited Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for additional information on the Company’s reportable segments and for a reconciliation of income from operations to net income.

Non-operating income (expenses)
  Three months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Non-operating income (expenses)        
Interest income $159
 $87
 $72
 83 %
Interest expense (8,012) (6,276) (1,736) 28 %
Earnings of equity method investment 155
 43
 112
 260 %
Other income 192
 489
 (297) (61)%
Total non-operating expenses $(7,506) $(5,657) $(1,849) 33 %

Total non-operating expenses for the three months ended September 30, 2017 increased by $1.8 million when compared with the third quarter of 2016. The increase is driven by an increase in interest expense of $1.7core banking revenue. Adjusted EBITDA increased by $2.2 million primarily as a result of an increased LIBOR and increased interest expense from the commencement of the fixed interest rate swap in January 2017.

Income tax (benefit) expense

Income tax benefit for the three months ended September 30, 2017 amounted to $4.8$29.6 million compared with an income tax expense of $1.6 million in the prior year period. The income tax benefit in the third quarter of 2017 is driven by the reversal of a previously recorded potential liability for uncertain tax positions of $4.5 million, related to the net operating loss created by previously deducted transaction costs, as a result of the expiration of the statute of limitation.

See Note 10 of the Notes to Unaudited Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding income taxes.

Comparison of the nine months ended September 30, 2017 and 2016

The following tables present the components of our unaudited consolidated condensed statements of income and comprehensive income by business segment and the change in those amounts for the nine months ended September 30, 2017 and 2016.

Revenues
  Nine months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Merchant Acquiring, net $67,546
 $68,137
 $(591) (1)%
Payment Processing 95,027
 82,716
 12,311
 15 %
Business Solutions 144,943
 136,765
 8,178
 6 %
Total revenues $307,516
 $287,618
 $19,898
 7 %

Total revenues for the nine months ended September 30, 2017 increased by $19.9 million or 7% as compared to the corresponding 2016 period.

Merchant Acquiring, net revenue decreased by $0.6 million to $67.5 million. The decrease was primarily driven by the shift of revenue from the Merchant Acquiring segment to the Payment Processing segment, related to a client contract change in the second quarter of 2016.

Payment Processing revenue for the nine months ended September 30, 2017 amounted to $95.0 million, an increase of $12.3 million or 15%. Revenue results in the period were affected by the same factors as those above explained for the quarter.

Business Solutions revenue amounted to $144.9 million, compared with $136.8 million in the prior year period, an increase of 6%. Business Solutions revenue growth in the nine month period primarily reflects increased revenue from our printing business and an increase in core banking revenue.

Operating costs and expenses
  Nine months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Cost of revenues, exclusive of depreciation and amortization shown below $149,902
 $127,127
 $22,775
 18%
Selling, general and administrative expenses 40,031
 34,226
 5,805
 17%
Depreciation and amortization 48,189
 44,500
 3,689
 8%
Total operating costs and expenses $238,122
 $205,853
 $32,269
 16%

Total operating costs and expenses for the nine months ended September 30, 2017 increased $32.3 million or 16% as compared to the corresponding 2016 period.

Cost of revenues increased by $22.8 million or 18% when compared with the 2016 period. The increase was driven by the above discussed exit activity, coupled with an increase in expenses related to the PayGroup acquisition.

Selling, general and administrative expenses for the nine months ended September 30, 2017 amounted to $40.0 million, an increase of $5.8 million or 17%. The increase is primarily related to an increase in share based compensation, expenses related to the PayGroup acquisition and an increase in withholding taxes in our Latin America operations.

Depreciation and amortization expense increased by $3.7 million or 8% mainly related to an increase in amortization expense related to intangible assets acquired as part of business combinations completed in the prior and current year.

Income from operations

The following table presents income from operations by reportable segments.
  Nine months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Segment income from operations        
Merchant Acquiring, net $13,444
 $23,940
 $(10,496) (44)%
Payment Processing 41,893
 39,493
 2,400
 6 %
Business Solutions 35,678
 43,299
 (7,621) (18)%
Total segment income from operations 91,015
 106,732
 (15,717) (15)%
         
Merger related depreciation and amortization and other unallocated expenses (1)
 (21,621) (24,967) 3,346
 (13)%
Income from operations $69,394
 $81,765
 $(12,371) (15)%
(1)Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

Income from operations for the nine months ended September 30, 2017 decreased $12.4 million or 15% compared with the corresponding 2016 period. The decrease in income from operations was the result of a decrease in income from our Merchant Acquiring segment and our Business Solutions segment,revenue, partially offset by an increase in income from our Payment Processing segment. The decrease was primarilycosts of sales directly related to the factors above discussed for the quarter partially offset by an increase in income from our Payment Processing segment driven by an increase in income from operations from our Latin American operations, PayGrouphardware and Processa, partially offset by a decrease an income from operations in Puerto Rico.software sales.


See Note 14 of the Notes to Unaudited Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for additional information on the Company’s reportable segments and for a reconciliation of income from operations to net income.

Non-operating income (expenses)
  Nine months ended September 30,    
(Dollar amounts in thousands) 2017 2016 Variance
         
Non-operating income (expenses)        
Interest income $560
 $266
 $294
 111 %
Interest expense (22,454) (18,292) (4,162) 23 %
Earnings (losses) of equity method investment 413
 (58) 471
 (812)%
Other income 2,829
 1,747
 1,082
 62 %
Total non-operating expenses $(18,652) $(16,337) $(2,315) 14 %

Total non-operating expenses for the nine months ended September 30, 2017 increased $2.3 million or 14% when compared with the corresponding 2016 period. Interest expense increased by $4.2 million primarily as a result of the Third Amendment completed in the fourth quarter of 2016 coupled with an increased LIBOR and increased interest expense from the commencement of the fixed interest rate swap. This increase was partially offset by an increase in foreign exchange gains and an increase in earnings from our equity method investment.

Income tax expense

Income tax expense for the nine months ended September 30, 2017 amounted to $1.2 million compared with an income tax expense of $6.3 million in the prior year period. The decrease is due to the same reasons explained above for the quarter.


See Note 10 of the Notes to Unaudited Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding income taxes.



Liquidity and Capital Resources


Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of capital expenditures, working capital needs, capital expenditures, and acquisitions. We also have a $100.0$125.0 million Revolving Facility, of which $67.0$117.0 million was available for borrowing as of September 30, 2017.March 31, 2021. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn.


At September 30, 2017,
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As of March 31, 2021, we had cash and cash equivalents of $48.4$156.4 million, of which $25.8$80.0 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico. During the second quarterWe intend to indefinitely reinvest these funds outside of 2017, the Company repatriated capital and earnings from foreign subsidiaries in order to partially fund the previously announced acquisition of PayGroup. This acquisition expands our Latin American operations and increases the Company's foreign operations. This transaction resulted in a one-time tax on dividends from foreign operations of approximately $1.3 million. This repatriation of earnings and capital is considered a one-time transaction specifically for the acquisition,Puerto Rico, and based on our liquidity forecast, we dowill not believe we will need to repatriate this cash to fund the Puerto Rico operations or to meet debt-service obligations. However, if in the future we determine that we no longer need to maintain cash balances within our foreign subsidiaries, we may elect to distribute such cash to the Company in Puerto Rico. Distributions from the foreign subsidiaries to Puerto Rico may be subject to tax withholding and other tax consequences. Additionally, our credit agreement imposes certain restrictions on the distribution of dividends from subsidiaries.


Our primary use of cash is for operating expenses, working capital requirements, capital expenditures, dividend payments, share repurchases, debt service, acquisitions and other transactions as opportunities present themselves.


Based on our current level of operations, we believe our cash flows from operations and the available senior secured Revolving Facility will be adequate to meet our liquidity needs for the next twelve months. 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.
 Three months ended March 31,
(In thousands)20212020
  
Cash provided by operating activities$34,746 $33,925 
Cash used in investing activities(34,413)(9,412)
Cash used in financing activities(48,716)(31,358)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash2,700 828 
Increase in cash, cash equivalents and restricted cash$(45,683)$(6,017)
  Nine months ended September 30,
(Dollar amounts in thousands) 2017 2016
     
Cash provided by operating activities $108,435
 $124,601
Cash used in investing activities (69,286) (33,852)
Cash used in financing activities (42,629) (74,511)
(Decrease) increase in cash $(3,480) $16,238


Net cash provided by operating activities for the ninethree months ended September 30, 2017March 31, 2021 was $108.4$34.7 million compared with cash provided by operating activities of $124.6to $33.9 million for the corresponding 2016 period.same period in the prior year. The $16.2$0.8 million decreaseincrease in cash provided by operating activities is primarily driven by the increase in net income, partially offset by a decrease in net income coupled with more cash used to pay downcollections for accounts payable and accrued liabilities.receivable.


Net cash used in investing activities for the ninethree months ended September 30, 2017March 31, 2021 was $69.3$34.4 million compared with $33.9to $9.4 million for the correspondingsame period in 2016.the prior year. The $35.4$25.0 million increase was mainlyis primarily attributable to the completionacquisition of a $14.8 million customer relationship, an increase in additions to software of $5.9 million and the purchase of PayGroup$3.0 million in available-for-sale debt securities during the third quarter of 2017.quarter.


Net cash used in financing activities for the ninethree months ended September 30, 2017March 31, 2021 was $42.6$48.7 million as compared with $74.5to $31.4 million for the corresponding 2016 period. Cash usedsame period in financing activitiesthe prior year. The $17.4 million increase was primarily relatedmainly attributed to stock repurchases, cash dividends on common stock and cash used for principal repayments on long-term debt. The decreasean increase in cash used to repurchase common stock of $7.0 million, $6.0 million increase in financing activities is due to a decrease in stock repurchases coupled with an increase short-term borrowingswithholding taxes paid on share-based compensation and cash used individends paid during the prior yearquarter amounting to pay for the credit amendment fees.$3.6 million.


Capital Resources


Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. We invested approximately $24.2$16.7 million and $31.5$9.4 million, forrespectively, during the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively. During2020. In addition, during the third quarter of 2017,three month period ended March 31, 2021, the Company acquired a $14.8 million customer relationship as well as $3.0 million in available-for-sale debt securities. Generally, we completed the purchase of PayGroup for $42.8 million, while in the 2016 period, we completed the purchase of Processa for $5.9 million. Capitalfund capital expenditures are expected to be funded bywith cash flow generated from operations and, if necessary, borrowings under our Revolving Facility. We expect capital expenditures to be in a range of $30 million to $35 million in 2017.


Dividend Payments


Historically, we have paid a regular quarterly dividend on our common stock, subject to the declaration thereof by our Board each quarter. On February 17, 2017, our18, 2021, the Board declared a quarterly cash dividenddividends of $0.10$0.05 per share of common stock, which waswere paid on March 20, 2017 to stockholders of record as of March 1, 2017. On April 27, 2017, the Board declared a quarterly cash dividend of $0.10 per share of common stock, which was paid on June 9, 201726, 2021, to stockholders of record as of the close of business on May 8, 2017. March 1, 2021.

On July 25, 2017, theApril 22, 2021, our Board declared a regular quarterly cash dividend of $0.10$0.05 per share on the Company’s outstanding shares of common stock, which wasstock. The dividend will be paid on September 8, 2017June 4, 2021 to stockholders of record as of the close of business on August 7, 2017. On November 2, 2017, the Board voted to temporarily suspend the quarterly dividend on the Company's common stock due to the difficult operating environment in Puerto Rico.
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May 3, 2021. The Board anticipates reviewing thedeclaring this dividend policy as conditions stabilize in Puerto Rico. Future dividendfuture quarters on a regular basis; however future declarations of dividends are subject to Board of Directors'the Board’s approval and may be adjusted based onas business needs or as market conditions change.


Financial Obligations


Senior Secured Credit Facilities


On April 17, 2013,November 27, 2018, EVERTEC and EVERTEC Group (“Borrower”) entered into a credit agreement (the “2013 Credit Agreement”) governingproviding for the senior secured credit facilities, consisting of a $300.0$220.0 million term loan A facility that matures on November 27, 2023 (the “Term“2023 Term A Loan”), a $400.0$325.0 million term loan B facility that matures on November 27, 2024 (the “Term“2024 Term B Loan”), and a $100.0$125.0 million revolving credit facility (the "Revolving Facility"“Revolving Facility”).

During 2016, the Company entered into two separate amendments to the 2013 Credit Agreement. In the second quarter that matures on November 27, 2023, with a syndicate of 2016, EVERTEC Group, together with certain other directlenders and indirect subsidiariesBank of the Company, entered into a second amendment and waiver to the outstanding 2013 Credit Agreement (the “Second Amendment”). The Company paid each lender that consented to the amendment a fee equal to 0.50%America, N.A. (“Bank of the aggregate principal amount of outstanding term loans and revolving commitments held by such lender. The credit amendment fees paid during the second quarter of 2016 amounted to $3.6 million. In the fourth quarter of 2016, EVERTEC Group, together with certain other direct and indirect subsidiaries of the Company, entered into a third amendment (the “Third Amendment”) to the 2013 Credit Agreement. The Third Amendment extends the maturity of (a) approximately $219 million of EVERTEC Group’s existing approximately $250 million of Term A loan facility to January 17, 2020 (the “2020 Term A loan”) and (b) $65 million of EVERTEC Group’s existing $100 million of Revolving Facility to January 17, 2020. The remaining approximately $30 million of Term A loan (the “2018 Term A loan”) and the $35 million of Revolving Facility that were not extended will remain in place and mature as originally scheduled on April 17, 2018. The Term B Loan will remain in place and mature as originally scheduled on April 17, 2020 (collectively, the “Senior Secured term loans”).

Under the terms of the Third Amendment, the 2018 Term A Loan amortizes on a basis of 1.875% of the original principal amount beginning in the third quarter of 2016 and during each of the next three quarters, and 2.50% of the original principal amount during each of the final three quarters, with the balance payable on the final maturity date. The 2020 Term A Loan amortizes on a basis of 1.50% of the original principal amount beginning in the fourth quarter of 2016 and during each of the next five quarters, 1.875% of the original principal amount during each of the four subsequent quarters, and 2.50% of the original principal amount during each of the final three quarters, with the balance payable on the final maturity date. Principal payments for the Term B Loan were not changed by the Third Amendment and continues to require payments on the last business day of each quarter equal to 0.250% of the original principal amount and the remaining outstanding principal amount on the maturity of the Term B Loan.

The applicable margin under the 2013 Credit Agreement is based on, at EVERTEC Group’s option, (i) with respect to any 2018 Term A Loan, 2.50% per annum in the case of any LIBOR Loan and 1.50% per annum in the case of any Alternate Base Rate (“ABR”America”), as defined inadministrative agent, collateral agent, swingline lender and line of credit issuer (collectively the 2013“2018 Credit Agreement”).

The 2018 Credit Agreement subject to reductionrequire mandatory repayment of outstanding principal balances based on achievementa percentage of specific first lien secured leverage ratios, (ii)excess cash flows provided that no such payment shall be due if the resulting amount of the excess cash flows multiplied by the applicable percentage is less than $10 million. On March 8, 2021 and March 5, 2020, in connection with respect to any 2020 Term A Loan, 2.50% per annum inthis mandatory repayment clause, the caseCompany repaid $17.8 million and $17.0 million, respectively, as a result 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 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.

The Revolving Facility interest rate is calculated the same as the 2020 Term A Loan rate and has a “commitment fee” payable one business day after the last business day of each quarter calculated based on the daily unused commitment during the preceding quarter. The commitment feeexcess cash flows for the unused portion of this facility ranges from 0.125% to 0.375%years ended December 31, 2020 and is based on EVERTEC Group’s first lien secured net leverage ratio.2019.

All loans may be prepaid without premium or penalty.


The unpaid principal balance at September 30, 2017March 31, 2021 of the 2018 Term A Loan, the 20202023 Term A Loan and the 2024 Term B Loan was $27.6 million, $206.2$179.9 million and $383.0$298.3 million, respectively. The additional borrowing capacity forunder our Revolving Facility at March 31, 2021 was $117.0 million. The Company issues letters of credit against the Revolving Facility at September 30, 2017 was $67.0 million.which reduce the additional borrowing capacity of the Revolving Facility.


Notes payablePayable


In December 2014, June 2015 and May 2016,2019, EVERTEC Group entered into two non-interest bearing financing agreements 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$2.4 million to purchase software.software and maintenance. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the outstanding principal balance of the notes payable iswas $0.8 million and $1.5 million, and $3.4 million, respectively. The current portion of theseThese notes is recorded as part ofare included in accounts payable andin the long-term portion is included in other long-term liabilities.Company's unaudited condensed consolidated balance sheets.


Interest Rate SwapSwaps


As of September 30, 2017,March 31, 2021, the Company has the followingan interest rate swap agreement, convertingentered into in December 2018, which converts a portion of the interest rate exposurepayments on the Company's 2024 Term B Loan from variable to fixed:
Swap AgreementEffective dateMaturity DateNotional AmountVariable RateFixed Rate
Effective dateMaturity DateNotional AmountVariable RateFixed Rate
January 20172018 SwapApril 2020$200 millionNovember 2024$250 million1-month LIBOR1.9225%2.89%

The Company has accounted for this transactionagreement as a cash flow hedge. The fair value of the Company’s derivative instrument is determined using a standard valuation model. The significant inputs used in this model are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2 in the fair value hierarchy. Inputs used in this standard valuation model for derivative instruments include the applicable forward rates and discount rates. The discount rates are based on the historical LIBOR Swap rates.

As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the carrying amount of the derivative included on the Company’sCompany's unaudited condensed consolidated balance sheets was $21.0 million and $25.6 million, respectively. The fair value of this derivative is as follows:estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 7 for disclosure of losses recorded on cash flow hedging activities.
(Dollar amounts in thousands) September 30, 2017 December 31, 2016
Other long-term liabilities $1,207
 $1,964

During the three and nine months ended September 30, 2017,March 31, 2021 and 2020, the Company reclassified losses of $0.4$1.7 million and $1.3gains of $0.2 million, respectively, from accumulated other comprehensive loss into income through interest expense. Based on current LIBOR rates, the Company expects to reclassify $1.4losses of $6.9 million from accumulated other comprehensive loss into income through interest expense over the next 12 months.

The cash flow hedge is considered highly effective and no impact on earnings is expected due to hedge ineffectiveness.effective.


Covenant Compliance


The credit facilities contain various restrictive covenants. The Term A Loan and the Revolving Facility (subject to certain exceptions) require EVERTEC Group to maintain on a quarterly basis a specified maximum senior secured leverage ratio
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Table of up to 4.75 to 1.00 as defined in the Third Amendment (total first lien senior secured debt to Adjusted EBITDA per the 2013 Credit Agreement) until September 30, 2018 and 4.25 to 1.00 for any fiscal quarter ending thereafter. In addition, the 2013 Credit Agreement, among other things: (a) limits EVERTEC Group’s ability and the ability of its subsidiaries to incur additionalContents

indebtedness, incur liens, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates; (b) restricts EVERTEC Group’s ability to enter into agreements that would restrict the ability of its subsidiaries to pay dividends or make certain payments to its parent company; and (c) places restrictions on EVERTEC Group’s ability and the ability of its subsidiaries to merge or consolidate with any other person or sell, assign, transfer, convey or otherwise dispose of all or substantially all of their assets. However, all of the covenants in these agreements are subject to significant exceptions. As of September 30, 2017, the seniorMarch 31, 2021, our secured leverage ratio was 3.301.68 to 1.00.1.00, as determined in accordance with the 2018 Credit Agreement. As of the date of filing of this Form 10-Q, no event has occurred that constitutes an Event of Default or Default.Default under our 2018 Credit Agreement.


Net Income Reconciliation to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share (Non-GAAP Measures)


We define “EBITDA” as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted to exclude unusual items and other adjustments described below. Adjusted EBITDA by segment 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 ASC Topic 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.


We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of ourselves and other companies in our industry. In addition, our presentation of Adjusted EBITDA is substantially consistent with the equivalent measurements that are contained in the senior secured credit facilities in testing EVERTEC Group’s compliance with covenants therein such as the senior secured leverage ratio. We use Adjusted Net Income to measure our overall profitability because we believe better reflects our comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of the Merger. In addition, in evaluating EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future we may incur expenses such as those excluded in calculating them. Further, our presentation of these measures should not be construed as an inference that our future operating results will not be affected by unusual or nonrecurring items.


Some of the limitations of EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted earnings per common share are as follows:

•they do not reflect cash outlays for capital expenditures or future contractual commitments;
•they do not reflect changes in, or cash requirements for, working capital;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements;
•in the case of EBITDA and Adjusted EBITDA, they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness;
•in the case of EBITDA and Adjusted EBITDA, they do not reflect income tax expense or the cash necessary to pay income taxes; and
•other companies, including other companies in our industry, may not use EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings per common share or may calculate EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share differently than as presented in this Report, limiting their usefulness as a comparative measure.


EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share are not measurements of liquidity or financial performance under GAAP. You should not consider EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share as alternatives to cash flows from operating activities or any other performance measures determined in accordance with GAAP, as an indicator of cash flows, as a measure of liquidity or as an alternative to operating or net income determined in accordance with GAAP.


A reconciliation of net income to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share is provided below:

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  Three months ended Nine months ended Twelve months ended Three months ended Nine months ended
(Dollar amounts in thousands) September 30, 2017 September 30, 2017 September 30, 2017 September 30, 2016 September 30, 2016
Net income $6,142
 $49,494
 $65,508
 $19,711
 $59,112
Income tax (benefit) expense (4,840) 1,248
 3,203
 1,639
 6,316
Interest expense, net 7,853
 21,894
 28,108
 6,189
 18,026
Depreciation and amortization 16,606
 48,189
 63,256
 14,889
 44,500
EBITDA 25,761
 120,825
 160,075
 42,428
 127,954
Software maintenance reimbursement and other costs (1)
 —
 —
 —
 60
 521
Equity income (2)
 (155) (413) (419) (114) (13)
Compensation and benefits (3)
 2,348
 6,551
 9,000
 2,003
 8,033
Transaction, refinancing and other fees (4)
 974
 1,254
 7,136
 727
 1,697
Exit activity (5)
 12,783
 12,783
 12,783
 —
 —
Restatement related expenses (6)
 —
 —
 —
 41
 1,837
Adjusted EBITDA 41,711
 141,000
 188,575
 45,145
 140,029
Operating depreciation and amortization(7)
 (7,969) (23,126) (30,428) (7,079) (21,166)
Cash interest expense, net (8)
 (6,500) (18,238) (23,375) (5,030) (15,331)
Income tax expense (9)
 (2,867) (9,836) (13,584) (2,534) (10,004)
Non-controlling interest (10)
 (106) (431) (520) (81) (169)
Adjusted net income $24,269
 $89,369
 $120,668
 $30,421
 $93,359
Net income per common share (GAAP):          
Diluted $0.08
 $0.67
   $0.26
 $0.79
Adjusted Earnings per common share (Non-GAAP):          
Diluted $0.33
 $1.22
   $0.41
 $1.25
Shares used in computing adjusted earnings per common share:          
Diluted 73,093,718
 73,090,012
   74,290,733
 74,751,894
Three months ended March 31,Twelve months ended
(In thousands, except per share information)20212020March 31, 2021
Net income$35,604 $22,275 $118,180 
Income tax expense4,708 4,518 19,192 
Interest expense, net5,517 6,416 22,673 
Depreciation and amortization18,623 17,795 72,346 
EBITDA64,452 51,004 232,391 
Equity income (1)
(502)(338)(1,300)
Compensation and benefits (2)
3,504 3,500 14,387 
Transaction, refinancing and other fees (3)
1,435 2,124 7,588 
Adjusted EBITDA68,889 56,290 253,066 
Operating depreciation and amortization (4)
(10,882)(9,477)(40,489)
Cash interest expense, net (5)
(5,076)(6,010)(21,351)
Income tax expense (6)
(7,756)(7,178)(27,770)
Non-controlling interest (7)
(143)(92)(597)
Adjusted net income$45,032 $33,533 $162,859 
Net income per common share (GAAP):
Diluted$0.49 $0.30 
Adjusted Earnings per common share (Non-GAAP):
Diluted$0.62 $0.46 
Shares used in computing adjusted earnings per common share:
Diluted72,949,401 73,293,005 
1)Predominantly represents reimbursements received for certain software maintenance expenses as part of the Merger, recorded as part of cost of revenues.
2)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. 
3)Primarily represents share-based compensation and other compensation expense of $2.4 million and $1.2 million for the quarters ended September 30, 2017 and 2016 and severance payments $0.8 million for the quarter ended September 30, 2016. For September 30, 2017 share-based compensation expense of $0.7 million was recorded as part of cost of revenues, while share-based compensation of $1.7 million was recorded as part of selling, general and administrative expenses. For September 30, 2016, share-based compensation expense of $0.2 million and severance payments of $0.1 million were recorded as part of cost of revenues, while share-based compensation of $1.0 million and severance payments of $0.7 million were recorded as part of selling, general and administrative expenses. For the nine months ended September 30, 2017 and 2016 primarily represents share-based compensation and other compensation expense of $6.6 million and $4.6 million, respectively, and severance payments of $3.3 million for the nine months ended September 30, 2016. For September 30, 2017 share-based compensation expense of $1.8 million and severance payments of $0.7 million were recorded as part of cost of revenues, while share-based compensation of $4.8 million was recorded as part of selling, general and administrative expenses. For September 30, 2016, share-based compensation expense of $0.9 million and severance payments of $2.3 million were recorded as part of cost of revenues, while share-based compensation of $3.8 million and severance payments of $1.0 million were recorded as part of selling, general and administrative expenses.
4)Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, recorded as part of selling, general and administrative expenses and cost of revenues.

5)Impairment charge and contractual fee accrual for a third party software solution that was determined to be commercially unviable.
6)Represents consulting, audit and legal expenses incurred as part of the restatement, recorded as part of selling, general and administrative expenses.
7)Represents operating depreciation and amortization expense, which excludes amounts generated as a result of the Merger and other from purchase accounting intangibles generated from acquisitions.
8)Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.
9)Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate.
10)Represents the 35% non-controlling equity interest in Processa, net of amortization for intangibles created as part of the purchase.
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"). 

2)Primarily represents share-based compensation.
Off Balance3)Represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, recorded as part of selling, general and administrative expenses and a software impairment charge.
4)Represents operating depreciation and amortization expense, which excludes amounts generated as a result of merger and acquisition activity.
5)Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.
6)Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items.
7)Represents the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase.

Off-Balance Sheet Arrangements


In the ordinary course of business, the Company may enter into commercial commitments. AsWith the exception of September 30, 2017the letters of credit issued against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility, as of March 31, 2021, the Company did not have any off balanceoff-balance sheet items.


Seasonality


Our payment businesses generally experience moderate increased activity during the traditional holiday shopping periods and around other nationally recognized holidays, which follow consumer spending patterns.


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Effect of Inflation


While inflationary increases in certain input costs, such as occupancy, labor and benefits, and general administrative costs, have an impact on our operating results, inflation has had minimal net effect on our operating results during the last three years as overall inflation has been offset by increased selling process and cost reduction actions. We cannot assure you, however, that we will not be affected by general inflation in the future.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk


We are exposed to market risks arising from our normal business activities. These market risks principally involve the possibility of changes in interest rates that will adversely affect the value of our financial assets and liabilities or future cash flows and earnings. Market risk is the potential loss arising from adverse changes in market rates and prices.


Interest rate risksRate Risks


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 2024 Term B Loan is subject to floorsa floor or a minimum rates.rate. A 100 basis point increase in interest rates over our floor(s) on our debt balances outstanding as of September 30, 2017, after considering our interest rate swap,March 31, 2021, under the senior secured credit facilities, would increase our annual interest expense by approximately $4.2$2.8 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.


In December 2015, we entered intoAs of March 31, 2021, the Company has an interest rate swap agreement, withentered into December 2018, which converts a notional amount of $200 million, which represents approximately 30%portion of our outstanding debt. Under this agreement, commencing January 1, 2017, we will receive avariable rate equaldebt to the LIBOR applicable to our Term B loan, and pay a fixed rate equal to 1.9225%. The net effect of the swap agreement is to fix the interest rate on $200 million of our Term B loan at 4.4225%, beginning January 1, 2017 and ending when the Term B Loan matures, in April 2020.fixed.


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 counterparty to the swap is a major United StatesUS based financial institution and we expect the counterparty to be able to perform its obligations under the swap. We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes



See Note 6 of the Unaudited Condensed Consolidated Condensed Financial Statements for additional information related to the senior secured credit facilities.


Foreign exchange riskExchange Risk


We conduct business in certain countries in Latin America. Some of this business is conducted in the countries’ local currencies. The resulting foreign currency translation adjustments, from operations for which the functional currency is other than the U.S. dollar, are reported in accumulated other comprehensive loss in the unaudited condensed consolidated condensed balance sheets, except for highly inflationary environments in which the effects would be included in other operating income in the consolidated condensed statementssheets. As of income and comprehensive income. At September 30, 2017,March 31, 2021, the Company had $10.9$27.5 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive loss compared with an unfavorable foreign currency translation adjustment of $10.4$24.8 million at December 31, 2016.2020.


Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


The Company, under the direction of the Chief Executive Officer and the Chief Financial Officer, has established disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act.. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2017,March 31, 2021, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.effective.


Changes in Internal Control Over Financial Reporting


There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a -15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2017March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1. 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.


Item 1A. Risk Factors


In addition to theWe previously disclosed risk factors previously disclosed under Item"Item 1A. of the Company’s 2016Risk Factors" in our Annual Report on Form 10-K and as disclosed in Part II, Item 1A, of our quarterly report on Form 10-Q for the quarteryear ended MarchDecember 31, 2017, investors should consider the following risk:2020.

Hurricanes Irma and Maria and their aftermaths could have a prolonged negative impact on the Puerto Rican and Caribbean economies and a material adverse effect on our business and results of operations

Hurricanes Irma and Maria and their aftermaths, including the widespread power outage in Puerto Rico, the damage to infrastructure and communications networks, and the temporary cessation and slow pace of reestablishment of regular day-to-day commerce, have severely impacted the economies of Puerto Rico and the Caribbean, and our business.  It is unknown at this time when the electricity and telecommunication services throughout Puerto Rico and the Caribbean will be restored and how long it will take for the business communities, resident populations and the economies to recover. Puerto Rico’s current situation following Hurricane Maria could further accelerate the ongoing emigration trend of Puerto Rico residents to the United States. A prolonged delay in the repairs to the islands’ infrastructures, decline in business volume and any other economic declines due to Hurricanes Irma and Maria and their aftermaths will impact demand for our services and could have a material adverse effect on our business and results of operations.


The risks referenced abovedescribed in our Annual Report on Form 10-K for the year ended December 31, 2020 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


The following table summarizes repurchases of the Company’s common stock in the ninethree months period ended September 30, 2017:March 31, 2021:

PeriodTotal number of shares purchasedAverage 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
1/1/2021-1/31/20218,700 35.7778,700 
2/1/2021-2/28/202126,820 36.51926,820 
3/1/2021-3/31/2021347,454 37.349347,454 
382,974 37.255382,974 85,732,181 

(1) On December 17, 2020, the Company announced that its Board approved an increase and extension to the current stock
repurchase program, authorizing the purchase of up to $100 million of the Company’s common stock and extended the
expiration to 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
(1)On February 17, 2016, the Company announced that its Board of Directors approved an increase and extension to the current stock repurchase program, authorizing the purchase of up to $120 million of the Company’s common stock and extended the expiration to December 31, 2017. On November 2, 2017 the Company's Board of Directors approved an extension to the expiration date of the current stock repurchase program to December 31, 2020.

Item 3. Defaults Upon Senior Securities


None.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information


None.

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Item 6. Exhibits
 
10.1
10.1*+
Share PurchaseForm of Restricted Stock Unit Award Agreement (Contrato de Compraventa de Acciones),for grant of restricted stock units to executive officers under the EVERTEC, Inc. 2013 Equity Incentive Plan, dated as of July 3, 2017,March 2, 2021, by and amongbetween EVERTEC, Group, LLC, EVERTEC Panamá, S.A., Fondo de InversióInc. and the executive (applicable to Morgan M. Schuessler, Joaquín Privado Mater, Inversiones San Bernardo SpA, Asesorías e Inversiones Supernova SpA, Inversiones y Asesorías Bayona Limitada, Inversiones Hagerdorn y Morales Limitada, Christian Hagedown HitschfeldA. Castrillo, Rodrigo Del Castillo, Paola Pérez, Carlos J. Ramírez, Luis A. Rodríguez, Guillermo Rospigliosi, Philip E. Steurer, and Inversiones Vaimaca Limitada [English Translation] (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on July 3, 2017, File No. 001-35872).Miguel Vizcarrondo.
31.1*
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS 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**Taxonomy Extension Schema
101.CAL XBRL**Taxonomy Extension Calculation Linkbase
101.DEF XBRL**Taxonomy Extension Definition Linkbase
101.LAB XBRL**Taxonomy Extension Label Linkbase
101.PRE XBRL**Taxonomy Extension Presentation Linkbase
*    Filed herewith.
**    Furnished herewith.

+     This exhibit is a management contract or a compensatory plan or arrangement.

 





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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
EVERTEC, Inc.
(Registrant)
Date: April 30, 2021
EVERTEC, Inc.
(Registrant)
By:
Date: November 9, 2017By:/s/ Morgan Schuessler
Morgan Schuessler

Chief Executive Officer
Date: November 9, 2017April 30, 2021By:/s/ Peter J.S. SmithJoaquin A. Castrillo-Salgado
Peter J.S. Smith
Joaquin A. Castrillo-Salgado
Chief Financial Officer (Principal Financial and Accounting Officer)



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