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 June 30, ~~2019~~2020 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
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

Cupey Center Building,	Road 176, Kilometer 1.3,
San Juan,	Puerto Rico	00926
(Address of principal executive offices)		(Zip Code)

(787) 759-9999

(Registrant’s telephone number, including area code)

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	EVTC	New 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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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 July ~~26, 2019,~~23, 2020, there were ~~71,929,505~~71,862,860 outstanding shares of common stock of EVERTEC, Inc.

TABLE OF CONTENTS



		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated ~~Condensed~~ Balance Sheets atas of June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
	Unaudited Condensed Consolidated ~~Condensed~~ Statements of Income and Comprehensive Income for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	2
	Unaudited Condensed Consolidated ~~Condensed~~ Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	3
	Unaudited Condensed Consolidated ~~Condensed~~ Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019	45
	Notes to Unaudited Condensed Consolidated ~~Condensed~~ Financial Statements	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3638
Item 4.	Controls and Procedures	3638
Part II. OTHER INFORMATION		3840
Item 1.	Legal Proceedings	3840
Item 1A.	Risk Factors	3840
Item 2.	Unregistered Sales of Equity in Securities and Use of Proceeds	3841
Item 3.	Defaults Upon Senior Securities	3841
Item 4.	Mine Safety Disclosures	3841
Item 5.	Other Information	3841
Item 6.	Exhibits	3943
SIGNATURES		4044

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.com as soon as reasonably practicable after filing such material with the SEC.

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 agreement with them, and to grow our merchant acquiring business;

as a regulated institution, the likelihood we will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition, and our 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, 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;

a protracted federal government shutdown may affect our financial performance;

operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic 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 that the counterparty to our interest rate swap agreements fail to satisfy its obligations under the agreement;

uncertainty of the pending debt restructuring process under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), as well as actions taken by the government of Puerto Rico ~~government~~ or by the PROMESA Board to address the fiscal crisis in Puerto ~~Rico fiscal crisis;~~Rico;

~~uncertainty related to~~the aftermath of Hurricanes Irma and Maria and their ~~aftermaths’~~continued impact on the economies of Puerto Rico and the Caribbean;

the possibility of future catastrophic hurricanes affecting Puerto Rico and/or the Caribbean, as well as other potential natural disasters; ~~and~~

uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021;

the nature, timing and amount of any ~~restatement.~~restatement; and

the impact of a novel strain of coronavirus ("COVID-19"), and measures taken in response to the outbreak, on our revenues, net income and liquidity due to current and future disruptions in operations as well as the macroeconomic instability caused by the pandemic.

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. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Item 1A. Risk Factors,” in “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.

EVERTEC, Inc. Unaudited Condensed Consolidated ~~Condensed~~ Balance Sheets

(Dollar amounts in thousands, except for share information)


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets
Current Assets:
Cash and cash equivalents	$	64,025		$	69,973		$	146,920		$	111,030
Restricted cash	13,524			16,773			22,170			20,091
Accounts receivable, net	93,735			100,323			91,744			106,812
Prepaid expenses and other assets	34,955			29,124			42,177			38,085
Total current assets	206,239			216,193			303,011			276,018
Investment in equity investee	11,975			12,149			12,355			12,288
Property and equipment, net	44,544			36,763			41,199			43,791
Operating lease right-of-use asset	32,363			—			27,294			29,979
Goodwill	396,275			394,644			395,625			399,487
Other intangible assets, net	249,667			259,269			224,605			241,937
Deferred tax asset	1,779			1,917			2,910			2,131
Net investment in lease	900			1,060
Net investment in leases							457			722
Other long-term assets	6,751			5,297			4,281			5,323
Total assets	$	950,493		$	927,292		$	1,011,737		$	1,011,676
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities	$	45,883		$	57,006		$	54,756		$	58,160
Accounts payable	34,920			47,272			28,698			39,165
Unearned income	11,240			11,527			22,103			20,668
Income tax payable	1,937			6,650			10,874			6,298
Current portion of long-term debt	14,250			14,250			14,250			14,250
Short-term borrowings							15,000			—
Current portion of operating lease liability	6,294			—			5,806			5,773
Total current liabilities	114,524			136,705			151,487			144,314
Long-term debt	517,491			524,056			487,572			510,947
Deferred tax liability	7,396			9,950			2,569			4,261
Unearned income - long term	30,365			26,075			28,679			28,437
Operating lease liability - long-term	27,043			—			21,888			24,679
Other long-term liabilities	24,874			14,900			40,574			27,415
Total liabilities	721,693			711,686			732,769			740,053
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)
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; 71,937,516 shares issued and outstanding at June 30, 2019 (December 31, 2018 - 72,378,710)	719			723
Common stock, par value $0.01; 206,000,000 shares authorized; 71,862,860 shares issued and outstanding as of June 30, 2020 (December 31, 2019 - 72,000,261)							719			720
Additional paid-in capital	—			5,783			3,568			—
Accumulated earnings	253,361			228,742			320,382			296,476
Accumulated other comprehensive loss, net of tax	(29,596		)	(23,789		)	(49,784		)	(30,009		)
Total EVERTEC, Inc. stockholders’ equity	224,484			211,459			274,885			267,187
Non-controlling interest	4,316			4,147			4,083			4,436
Total equity	228,800			215,606			278,968			271,623
Total liabilities and equity	$	950,493		$	927,292		$	1,011,737		$	1,011,676

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

EVERTEC, Inc. Unaudited Condensed Consolidated ~~Condensed~~ Statements of Income and Comprehensive Income

(Dollar amounts in thousands, except per share information)


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

Revenues (affiliates Note 13)	$	122,548		$	113,347		$	241,384		$	223,621
Revenues (affiliates Note 14)													$	117,937		$	122,548		$	239,879		$	241,384

Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below	52,601			49,131			102,620			96,551
Cost of revenues, exclusive of depreciation and amortization													56,979			52,601			111,046			102,620
Selling, general and administrative expenses	15,064			17,848			30,203			31,280			17,529			15,064			34,846			30,203
Depreciation and amortization	17,195			15,728			33,468			31,595			17,839			17,195			35,634			33,468
Total operating costs and expenses	84,860			82,707			166,291			159,426			92,347			84,860			181,526			166,291
Income from operations	37,688			30,640			75,093			64,195			25,590			37,688			58,353			75,093
Non-operating income (expenses)
Non-operating (expenses) income
Interest income	257			164			516			321			373			257			736			516
Interest expense	(7,373		)	(7,665		)	(14,924		)	(15,344		)	(6,183		)	(7,373		)	(12,962		)	(14,924		)
Earnings of equity method investment	133			175			355			374			193			133			531			355
Other income (expenses)	(1,079		)	(69		)	(871		)	748
Other income (expense)													172			(1,079		)	280			(871		)
Total non-operating expenses	(8,062		)	(7,395		)	(14,924		)	(13,901		)	(5,445		)	(8,062		)	(11,415		)	(14,924		)
Income before income taxes	29,626			23,245			60,169			50,294			20,145			29,626			46,938			60,169
Income tax expense	2,489			3,112			6,298			7,047			4,520			2,489			9,038			6,298
Net income	27,137			20,133			53,871			43,247			15,625			27,137			37,900			53,871
Less: Net income attributable to non-controlling interest	79			81			169			173			141			79			205			169
Net income attributable to EVERTEC, Inc.’s common stockholders	27,058			20,052			53,702			43,074			15,484			27,058			37,695			53,702
Other comprehensive income (loss), net of tax of $(617), $28, $(1,001) and $168
Other comprehensive income (loss), net of tax of $(2), $(617), $(1,087) and $(1,001)
Foreign currency translation adjustments	2,325			(4,307		)	4,290			(1,900		)	1,067			2,325			(7,238		)	4,290
(Loss) gain on cash flow hedges	(6,042		)	387			(10,097		)	1,890
Loss on cash flow hedges													(678		)	(6,042		)	(12,537		)	(10,097		)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	23,341		$	16,132		$	47,895		$	43,064		$	15,873		$	23,341		$	17,920		$	47,895
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.38		$	0.28		$	0.74		$	0.59		$	0.22		$	0.38		$	0.52		$	0.74
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.37		$	0.27		$	0.73		$	0.58		$	0.21		$	0.37		$	0.52		$	0.73

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

EVERTEC, Inc. Unaudited Condensed Consolidated ~~Condensed~~ Statements of Changes in Stockholders’ Equity

(Dollar amounts in 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, 2019	72,000,261		$	720		$	—		$	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 delivered, net of cashless	201,066		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 for the implementation of ASU 2016-13	—		—			—			(74		)	—			—			(74		)
Balance at March 31, 2020	71,865,305		719			—			308,491			(50,173		)	3,647			262,684
Share-based compensation recognized	—		—			3,639			—			—			—			3,639
Repurchase of common stock	—		—			—			—			—			—			—
Restricted stock units delivered, net of cashless	(2,445	)	—			(71		)	—			—			—			(71		)
Net income	—		—			—			15,484			—			141			15,625
Cash dividends declared on common stock, $0.05 per share	—		—			—			(3,593		)	—			—			(3,593		)
Other comprehensive income	—		—			—			—			389			295			684
Balance at June 30, 2020	71,862,860		$	719		$	3,568		$	320,382		$	(49,784	)	$	4,083		$	278,968


	Number of Shares of Common Stock		Common Stock			Additional Paid-in Capital			Accumulated Earnings			Accumulated Other Comprehensive Loss			Non-Controlling Interest		Total Stockholders’ Equity			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, 2018	72,378,710		$	723		$	5,783		$	228,742		$	(23,789	)	$	4,147	$	215,606		72,378,710		$	723		$	5,783		$	228,742		$	(23,789	)	$	4,147	$	215,606
Share-based compensation recognized	—		—			3,279			—			—			—		3,279			—		—			3,279			—			—			—		3,279
Repurchase of common stock	(618,573	)	(6		)	(3,129		)	(14,351		)	—			—		(17,486		)	(618,573	)	(6		)	(3,129		)	(14,351		)	—			—		(17,486		)
Restricted stock units delivered, net of cashless	507,308		5			(5,933		)	—			—			—		(5,928		)
Restricted stock units delivered																				507,308		5			(5,933		)	—			—			—		(5,928		)
Net income	—		—			—			26,644			—			90		26,734			—		—			—			26,644			—			90		26,734
Cash dividends declared on common stock, $0.05 per share	—		—			—			(3,617		)	—			—		(3,617		)	—		—			—			(3,617		)	—			—		(3,617		)
Other comprehensive loss	—		—			—			—			(2,090		)	—		(2,090		)	—		—			—			—			(2,090		)	—		(2,090		)
Balance at March 31, 2019	72,267,445		722			—			237,418			(25,879		)	4,237		216,498			72,267,445		722			—			237,418			(25,879		)	4,237		216,498
Share-based compensation recognized	—		—			3,436			—			—			—		3,436			—		—			3,436			—			—			—		3,436
Repurchase of common stock	(368,293	)	(4		)	(3,201		)	(7,505		)	—			—		(10,710		)	(368,293	)	(4		)	(3,201		)	(7,505		)	—			—		(10,710		)
Restricted stock units delivered, net of cashless	38,364		1			(235		)	—			—			—		(234		)
Restricted stock units delivered																				38,364		1			(235		)	—			—			—		(234		)
Net income	—		—			—			27,058			—			79		27,137			—		—			—			27,058			—			79		27,137
Cash dividends declared on common stock, $0.05 per share	—		—			—			(3,610		)	—			—		(3,610		)	—		—			—			(3,610		)	—			—		(3,610		)
Other comprehensive loss	—		—			—			—			(3,717		)	—		(3,717		)	—		—			—			—			(3,717		)	—		(3,717		)
Balance at June 30, 2019	71,937,516		$	719		$	—		$	253,361		$	(29,596	)	$	4,316	$	228,800		71,937,516		719			—			253,361			(29,596		)	4,316		228,800

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, 2017 72,393,933
$ 723
$ 5,350
$ 148,887
$ (10,848 ) $ 3,864
$ 147,976
Cumulative adjustment from implementation of ASC 606 —
—
—
858
—
(16 ) 842
Share-based compensation recognized —
—
3,637
—
—
—
3,637
Restricted stock units delivered, net of cashless 35,208
1
(205 ) —
—
—
(204 )
Net income —
—
—
23,022
—
92
23,114
Other comprehensive income —
—
—
—
3,910
—
3,910
Balance at March 31, 2018 72,429,141
724
8,782
172,767
(6,938 ) 3,940
179,275
Share-based compensation recognized —
—
3,685
—
—
—
3,685
Restricted stock units delivered, net of cashless 287,997
3
(1,813 ) —
—
—
(1,810 )
Net income —
—
—
20,052
—
81
20,133
Other comprehensive loss —
—
—
—
(3,920 ) —
(3,920 )
Balance at June 30, 2018 72,717,138
$ 727
$ 10,654
$ 192,819
$ (10,858 ) $ 4,021
$ 197,363

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

EVERTEC, Inc. Unaudited Condensed Consolidated ~~Condensed~~ Statements of Cash Flows

(Dollar amounts in thousands)


	Six months ended June 30,						Six months ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities
Net income	$	53,871		$	43,247		$	37,900		$	53,871
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33,468			31,595			35,634			33,468
Amortization of debt issue costs and accretion of discount	835			2,361			1,074			835
Operating lease expense	3,579			—
Provision for doubtful accounts and sundry losses	2,884			369
Operating lease amortization							2,890			3,579
Provision for expected credit losses and sundry losses							922			2,884
Deferred tax benefit	(1,821		)	(1,113		)	(1,214		)	(1,821		)
Share-based compensation	6,715			7,322			7,122			6,715
Loss on disposition of property and equipment and other intangibles	645			11			193			645
Earnings of equity method investment	(355		)	(374		)	(531		)	(355		)
Dividend received from equity method investment	—			390
(Increase) decrease in assets:
Decrease (increase) in assets:
Accounts receivable, net	5,384			811			14,387			5,384
Prepaid expenses and other assets	(5,833		)	(4,236		)	(4,102		)	(5,833		)
Other long-term assets	(3,060		)	(333		)	1,141			(3,060		)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities	(17,955		)	(8,856		)
(Decrease) increase in liabilities:
Accrued liabilities and accounts payable							(13,653		)	(17,955		)
Income tax payable	(4,713		)	2,487			4,988			(4,713		)
Unearned income	4,004			3,102			2,817			4,004
Operating lease liabilities	(2,877		)	—			(3,281		)	(2,877		)
Other long-term liabilities	1,179			73			965			1,179
Total adjustments	22,079			33,609			49,352			22,079
Net cash provided by operating activities	75,950			76,856			87,252			75,950
Cash flows from investing activities
Additions to software	(20,023		)	(9,015		)	(11,833		)	(20,023		)
Property and equipment acquired	(15,625		)	(6,837		)	(6,614		)	(15,625		)
Proceeds from sales of property and equipment	29			14			—			29
Net cash used in investing activities	(35,619		)	(15,838		)	(18,447		)	(35,619		)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation	(6,162		)	(2,014		)	(2,777		)	(6,162		)
Net decrease in short-term borrowings	—			(12,000		)
Net borrowings under Revolving Facility							15,000			—
Repayment of short-term borrowings for purchase of equipment and software	(818		)	(700		)	(1,553		)	(818		)
Dividends paid	(7,227		)	—			(7,193		)	(7,227		)
Repurchase of common stock	(28,196		)	—			(7,300		)	(28,196		)
Repayment of long-term debt	(7,125		)	(36,262		)	(24,123		)	(7,125		)
Net cash used in financing activities	(49,528		)	(50,976		)	(27,946		)	(49,528		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(9,197		)	10,042
Effect of foreign exchange rate on cash, cash equivalents and restricted cash							(2,890		)	—
Net increase (decrease) in cash, cash equivalents and restricted cash							37,969			(9,197		)
Cash, cash equivalents and restricted cash at beginning of the period	86,746			60,367			131,121			86,746
Cash, cash equivalents and restricted cash at end of the period	$	77,549		$	70,409		$	169,090		$	77,549
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	64,025		$	59,333		$	146,920		$	64,025
Restricted cash	13,524			11,076			22,170			13,524
Cash, cash equivalents and restricted cash	$	77,549		$	70,409		$	169,090		$	77,549
Supplemental disclosure of cash flow information:
Cash paid for interest	$	14,646		$	13,649		$	12,352		$	14,646
Cash paid for income taxes	10,085			4,719			4,579			10,085
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	3,495			—
Operating cash flows from finance leases	15			—
Supplemental disclosure of non-cash activities:
Payable due to vendor related to equipment and software acquired	5,238			360			1,484			5,238

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

Notes to Unaudited Condensed Consolidated ~~Condensed~~ Financial Statements

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 processing business in Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing and business process ~~management.~~management 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") debit networks in the Caribbean and Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing and cash processing in Puerto Rico and 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. EVERTEC's common stock is listed under the ticker symbol "EVTC" on the New York Stock Exchange.

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 ~~SEC~~Securities 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, ~~2018,~~2019, included in the Company’s 2019 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.

Risks and Uncertainties due to COVID-19 Pandemic

COVID-19 presents material uncertainty and risk with respect to EVERTEC’s business, results of operations and cash flows, as well as with respect to changes in laws and regulations and government and regulatory policy. COVID-19’s impact on global economies could have a material adverse effect on (among other things) the profitability, capital and liquidity of the Company, particularly if consumer spending levels are depressed for a prolonged period of time. While the rapid development and fluidity of the situation prevents management from having clear visibility into the medium and long-term impacts, management believes possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s workforce, unavailability of products and supplies used in operations, and a decline in the value of assets held by the Company, including, among other things, tangible and intangible long-lived assets, and increased levels in the Company's current expected credit loss reserve.

Given the uncertain and rapidly evolving situation, management has taken certain precautionary measures intended to help minimize the risk of COVID-19 to the Company, its employees, and customers, including the following:

The Company deployed its business continuity plan for the entire organization a few days before the government of Puerto Rico enacted a shelter-in-place directive on March 16, 2020. Since then, every country in which the Company operates has implemented some type of social distancing measures. Management expects that most of our employees will remain working remotely for an undetermined period, until it is deemed safe by management to return to our offices and as permitted or advised by local authorities in each country where the Company operates;

In connection with the Company's business continuity plan, the Company transitioned most of its employees to a work from home environment. For certain critical employees who are required to remain working on-site in order to, among other things, maintain network operations oversight functions, cash handling and other critical operations for our customers, we have implemented safety measures including administering daily temperature checks upon entry into the work site, providing protective gear, developing safe social distancing workspaces and increasing overall sanitation at our offices;

As a precautionary measure, to increase the Company's cash position and preserve its financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak, the Company drew down $30 million on its Revolving Facility (see Note 6) in April. The Company fully repaid the Revolving Facility since then;

On May 1, 2020, the Company commenced deferral of payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act"); management anticipates a $2.7 million deferral of payroll taxes during the allowed time under the CARES Act. Through June 30, 2020, the Company has deferred payroll taxes amounting to $0.8 million;

Management identified additional expense reductions that are intended to be implemented as necessary; and

Management has suspended all non-essential travel for employees.

While the Company anticipates that the foregoing measures are temporary, management cannot predict their duration, and management may elect or need to take additional precautions as more information related to COVID-19 becomes available, as may be required by governmental authorities, or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. The extent to which the COVID-19 pandemic and EVERTEC’s precautionary measures in response to it, may impact the Company’s business, financial condition or results of operations will depend on the ongoing developments related to the pandemic and its direct and indirect consequences, all of which are highly uncertain and cannot be predicted at this time.

Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting ~~pronouncements issued prior to 2019 and not yet adopted~~Pronouncements

In June 2016, ~~November 2018, April 2019 and May 2019,~~ the Financial Accounting Standards Board ("FASB") issued updated guidance for the measurement of credit losses on financial instruments, which replaces the incurred loss impairment ~~methodology~~model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The main objective of ~~these updates~~this update and subsequent clarifications and corrections, including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-03, is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ~~To achieve this objective,~~The amendments affect the amendments in these updates replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updates affectCompany's trade ~~receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash.~~receivables. Additional disclosures about significant estimates and credit quality are also required. ~~In addition, the updated~~The Company adopted this new guidance also clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. The updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The standards will be effective ~~for the Company beginning~~ January 1, ~~2020. The Company will adopt the updated guidance~~2020, using a modified retrospective approach through a cumulative-effect adjustment to retained earnings, ~~as of the effective date~~considered immaterial to align the credit loss methodology with the new standard. Currently, the Company is evaluating the impact of this standard on its consolidated financial statements and related disclosures, including accounting policies, processes and internal controls. The Company does not expect this standard to have a material effect on the consolidated financial statements. Results for reporting periods beginning after January 1, 2020 are presented under the new guidance provided by Accounting Standards Codification ("ASC") Topic 326, while prior period amounts are not adjusted and continue to be reported under legacy GAAP.

Refer to Note 3, Current Expected Credit Losses, for discussions of the implementation of ASC Topic 326 with respect to the Company’s consolidated financial statements.

In August 2018, the FASB issued an updated disclosure framework for fair value measurements. The amendments in the issued update remove, modify and add disclosure requirements on fair value measurements in Topic 820 Fair Value Measurements. The amendments in this update are effective to all entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amendments in the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any

removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the adoption of this update on the notes to the consolidated financial statements.

~~In August 2018,~~ ~~the FASB~~ issued updated guidance for customer’s accounting for implementation, set-up and other upfront costs (collectively referred to as implementation costs) incurred in a cloud computing arrangement ~~that is~~constituting a service contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use ~~software.~~software (and hosting arrangements that include an internal-use software license). The ~~amendments in~~updated guidance does not impact the accounting for the service element of a hosting arrangement that is a service contract. The Company adopted this ~~update are~~guidance prospectively effective ~~for public business entities for fiscal years beginning after December 15, 2019,~~January 1, 2020 with ~~early adoption permitted, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively~~respect to all implementation costs incurred ~~after the date of adoption. The Company will adopt the update effective January 1, 2020 and will apply the guidance~~ in ~~this update to all implementation costs prospectively.~~a cloud computing arrangement constituting a service contract.

In October 2018, the FASB issued updated guidance to improve related party guidance for variable interest entities. The updated guidance requires entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making fee is a variable interest. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company will adopt this guidance effective January 1, 2020. The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.

In November 2018, the FASB issued updated guidance to clarify the interaction between the guidance for collaborative arrangements and the updated revenue recognition guidance. The amendments in this update, among other things, provide guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under ASC Topic ~~606.~~606, Revenue from Contracts with Customers. The Company adopted the amendments in this update effective January 1, 2020. All contracts after this date are being evaluated under the updated guidance.

Recently Issued Accounting Pronouncements

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 potential burden in accounting for (or recognizing the

effects of) reference rate reform on financial reporting. The amendments in this update are elective and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients 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 hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments to this update are effective for ~~public business~~all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating whether to elect the adoption of this guidance with respect to the consolidated financial statements.

Accounting Pronouncements Issued Prior to 2020 and Not Yet Adopted

In December 2019, the FASB issued updated guidance for ASC Topic 740, Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify 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 amendments to this update are effective for fiscal years, and interim periods within ~~those~~such fiscal years, beginning after December 15, ~~2019, with~~2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption ~~permitted.~~must adopt all the amendments in the same period. The Company ~~will adopt~~is currently evaluating the impact, if any, of the adoption of this guidance inon the ~~required period with no impact on its~~ consolidated financial statements. ~~Future contracts will be evaluated under the updated guidance once effective.~~

Note 3 – Current Expected Credit Losses

Allowance for Current Expected Credit Losses

The Company has only one type of financial asset that is subject to the expected credit loss model, which is trade receivables from contracts with customers. While contract assets and net investments in leases are also subject to the impairment requirements of ASC Topic 326, the impairment loss identified for these financial assets is immaterial to the consolidated financial statements.

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 by government agencies. The governmental customers possess different risk characteristics than private customers because although all invoices are due every 30 days, governmental customers usually pay within 60 to 90 days after issuance (i.e., between 30 to 60 more days than private customers). The Company provides to its customers a broad range of merchant acquiring, payment services and business process management services, which constitute mission-critical technology solutions enabling customers to issue, process and accept transactions securely.

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 historically low 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 activity in the allowance for expected current credit losses on trade receivables during the period from January 1, 2020 to June 30, 2020, was as follows:



(In thousands)	June 30, 2020
Balance at beginning of period	$	3,460
Current period provision for expected credit losses	713
Write-offs	(1,427		)
Recoveries of amounts previously written-off	3
Balance at end of period	$	2,749

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 statement of income and comprehensive income. Subsequent recoveries of amounts previously written-off are credited against the allowance for expected current credit losses within accounts receivable, net on the unaudited condensed consolidated balance sheet.

Note 34 – Property and Equipment, net

Property and equipment, net consists of the following:


(Dollar amounts in thousands)	Useful life in years	June 30, 2019			December 31, 2018			Useful life in years	June 30, 2020			December 31, 2019
Buildings	30	$	1,484		$	1,440		30	$	1,515		$	1,542
Data processing equipment	3 - 5	119,282			110,673			3 - 5	119,100			116,950
Furniture and equipment	3 - 20	7,023			7,761			3 - 20	7,138			6,936
Leasehold improvements	5 -10	2,741			2,625			5 -10	3,015			2,814
		130,530			122,499				130,768			128,242
Less - accumulated depreciation and amortization		(87,300		)	(86,990		)		(90,881		)	(85,780		)
Depreciable assets, net		43,230			35,509				39,887			42,462
Land		1,314			1,254				1,312			1,329
Property and equipment, net		$	44,544		$	36,763			$	41,199		$	43,791

Depreciation and amortization expense related to property and equipment for ~~the~~ three and six months ended June 30, ~~2019~~2020 amounted to $4.3 million and $8.5 million, respectively, compared to $4.3 million and $8.3 million ~~respectively, compared to $3.5 million and $7.2 million,~~ for the ~~same~~corresponding periods in ~~2018, respectively.~~2019.

Note 45 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows ~~(See~~(see Note ~~14)~~15):


(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total		Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America			Merchant Acquiring, net		Business Solutions		Total
Balance at December 31, 2018	$	160,972	$	49,728	$	138,121	$	45,823	$	394,644
Balance at December 31, 2019											$	160,972	$	54,571		$	138,121	$	45,823	$	399,487
Foreign currency translation adjustments	—		1,631		—		—		1,631		—		(3,862		)	—		—		(3,862		)
Balance at June 30, 2019	$	160,972	$	51,359	$	138,121	$	45,823	$	396,275
Balance at June 30, 2020											$	160,972	$	50,709		$	138,121	$	45,823	$	395,625

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. The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is

not considered impaired. If the fair value does not exceed the carrying value, an impairment loss ~~equaling~~is recorded for the excess ~~amount is recorded,~~of the carrying value over the fair value, limited to the recorded balance of goodwill. NoIn the first half of 2020, global equity markets conditions deteriorated in reaction to the COVID-19 pandemic resulting in a corresponding decrease in the Company's stock price and market capitalization. As a result, management performed assessments as to whether the fair value of reporting units was less than carrying value as of June 30, 2020 and concluded that it was more likely than not that the fair value continued to be in excess of the carrying value for all reporting units. NaN impairment losses were recognized ~~for the six months ended~~as of June 30, ~~2019 or 2018.~~2020.

The carrying amount of other intangible assets at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was as follows:


		June 30, 2019								June 30, 2020
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization			Net carrying amount		Useful life in years	Gross amount		Accumulated amortization			Net carrying amount
Customer relationships	8 - 14	$	343,186	$	(207,525	)	$	135,661	8 - 14	$	343,756	$	(233,324	)	$	110,432
Trademark	2 - 15	41,489		(30,674		)	10,815
Trademarks									10 - 15	41,919		(34,262		)	7,657
Software packages	3 - 10	239,819		(160,186		)	79,633		3 - 10	267,204		(180,477		)	86,727
Non-compete agreement	15	56,539		(32,981		)	23,558		15	56,539		(36,750		)	19,789
Other intangible assets, net		$	681,033	$	(431,366	)	$	249,667		$	709,418	$	(484,813	)	$	224,605


		December 31, 2018								December 31, 2019
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization			Net carrying amount		Useful life in years	Gross amount		Accumulated amortization			Net carrying amount
Customer relationships	8 - 14	$	342,738	$	(194,570	)	$	148,168	8 - 14	$	344,883	$	(220,434	)	$	124,449
Trademark	2 - 15	41,357		(28,888		)	12,469
Trademarks									2 - 15	42,025		(32,456		)	9,569
Software packages	3 - 10	224,855		(151,666		)	73,189		3 - 10	256,220		(169,974		)	86,246
Non-compete agreement	15	56,539		(31,096		)	25,443		15	56,539		(34,866		)	21,673
Other intangible assets, net		$	665,489	$	(406,220	)	$	259,269		$	699,667	$	(457,730	)	$	241,937

~~For~~Amortization expense related to other intangibles for the three and six months ended June 30, ~~2019, the Company recorded amortization expense related~~2020 amounted to ~~other intangibles of~~$13.5 million and $27.1 million, respectively, compared to $12.9 million and $25.1 million ~~respectively, compared to $12.2 million and $24.4 million~~ for the corresponding ~~2018 periods.~~periods in 2019.

The estimated amortization expense of the balances outstanding at June 30, ~~2019~~2020 for the next five years is as follows:

					(Dollar amounts in thousands)
Remaining 2019	$	23,911
2020	42,597
Remaining 2020			$	25,563
2021	37,405		47,008
2022	32,375		41,727
2023	30,480		36,783
2024			28,458

Note 56 – Debt and Short-Term Borrowings

Total debt at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 follows:

(In thousands) June 30, 2019 December 31, 2018
Secured Credit Facility (2023 Term A) due on November 27, 2023 paying interest at a variable interest rate (LIBOR plus applicable margin⁽¹⁾⁽²⁾)
212,524
217,791
Senior Secured Credit Facility (2024 Term B) due on November 27, 2024 paying interest at a variable interest rate (LIBOR plus applicable margin⁽²⁾⁽³⁾)
319,217
320,515
Senior Secured Revolving Credit Facility⁽¹⁾
—
—
Note Payable due on April 30, 2021⁽²⁾
238
300
Note Payable due on December 28, 2019 $ 5,000
$ —
Total debt $ 536,979
$ 538,606



(In thousands)	June 30, 2020		December 31, 2019
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin⁽¹⁾⁽²⁾)	$	194,058	$	207,261
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin⁽¹⁾⁽³⁾)	307,764		317,936
Senior Secured Revolving Credit Facility⁽²⁾	15,000		—
Note payable due April 30, 2021⁽¹⁾	111		175
Note payable due January 1, 2022⁽¹⁾	1,373		2,231
Total debt	$	518,306	$	527,603


(1)	~~Applicable margin of 2.00% at June 30, 2019 and 2.25% at December 31, 2018.~~


~~(2)~~	Net of unaccreted discount and unamortized debt issue costs, as applicable.


(2)	Applicable margin of 1.75% at June 30, 2020 and 2.00% at December 31, 2019.


(3)	Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~2018~~ Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group (“Borrower”) entered into a credit agreement ~~governing~~providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 ~~(“2023~~(the “2023 Term A”A Loan"), a $325.0 million term loan B facility that matures on November 27, 2024 ~~(“2024~~(the “2024 Term B”B Loan”), and a $125.0 million revolving credit facility (the “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”).

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 5, 2020, in connection with this mandatory repayment clause, the Company repaid $17.0 million as a result of excess cash flow calculation performed for the year ended December 31, 2019.

The unpaid principal balance at June 30, ~~2019~~2020 of the 2023 Term A Loan and the 2024 Term B Loan was ~~$214.5~~$195.5 million and ~~$323.4~~$311.1 million, respectively. The additional borrowing capacity ~~for the~~under our Revolving Facility at June 30, ~~2019~~2020 was ~~$116.9~~$86.7 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Notes ~~payable~~Payable

In ~~May 2016,~~December 2019, EVERTEC Group entered into a2 non-interest bearing financing ~~agreement~~agreements amounting to ~~$0.7~~$2.4 million to purchase ~~software.~~software and maintenance. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the outstanding principal balance of the ~~note~~notes payable was ~~$0.2~~$1.5 million and ~~$0.3~~$2.4 million, respectively. The current portion of ~~this note~~these notes is ~~recorded as part of~~included in accounts payable and the long-term portion is included in other long-term ~~liabilities.~~

~~In January 2019, EVERTEC Group entered into a non-interest bearing financing agreement amounting to $10.0 million to purchase data processing equipment and maintenance. As of June 30, 2019,~~liabilities in the ~~outstanding principal~~Company's unaudited condensed consolidated balance ~~of the note payable was $5.0 million, recorded as part of accounts payable.~~sheet.

Interest Rate Swaps

AtAs of June 30, ~~2019,~~2020, the Company has ~~two~~an interest rate swap ~~agreements,~~agreement, entered into in ~~December 2015 and~~ December 2018, which ~~convert~~converts a portion of the interest rate payments on the Company's 2024 Term B Loan from variable to fixed:



Swap Agreement	Effective date	Maturity Date	Notional Amount	Variable Rate	Fixed Rate
~~2015 Swap~~	~~January 2017~~	~~April 2020~~	~~$200 million~~	~~1-month LIBOR~~	~~1.9225%~~
2018 Swap	April 2020	November 2024	$250 million	1-month LIBOR	2.89%

The Company has accounted for ~~these transactions~~this agreement as a cash flow ~~hedges.~~hedge.

AtAdditionally, the Company had an interest rate swap agreement that matured in April 2020, with a notional amount of $200 million and a fixed rate of 1.9225%. The Company accounted for this swap as a cash flow hedge from inception to maturity.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying amount of ~~the~~ derivatives included in other long-term liabilities on the ~~Company’s~~Company's unaudited condensed consolidated balance sheets was $28.1 million and $14.5 million, respectively. The fair value of these derivatives 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.

(In thousands) June 30, 2019 December 31, 2018
Other long-term assets $ 94
$ 1,683
Other long-term liabilities $ 13,574
$ 4,059

During the three and six months ended June 30, ~~2019,~~2020, the Company reclassified ~~gains~~losses of ~~$0.3~~$1.4 million and ~~$0.5~~$1.6 million, respectively, from accumulated other comprehensive loss into ~~income through~~ interest expense. Based on current LIBOR rates, the Company expects to reclassify losses of ~~$0.2~~$6.8 million from accumulated other comprehensive loss into ~~income through~~ interest expense over the next 12 months. ~~Refer to Note 6 for tabular disclosure of the fair value of derivatives and to Note 7 for tabular disclosure of losses recorded on cash flow hedging activities.~~

The cash flow ~~hedges are~~hedge is considered highly effective.

Note 67 – 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 Company's interest rate swaps are 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:~~

~~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 theonly 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~~ instruments 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 time 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 summarizes the fair value measurement by level at June 30, 2019 and December 31, 2018 for assets and liabilities measured at fair value on a recurring ~~basis:~~

(In thousands) Level 1 Level 2 Level 3 Total
June 30, 2019
Financial asset:
Interest rate swap $ —
$ 94
$ —
$ 94
Financial liability:
Interest rate swap —
13,574
—
13,574
December 31, 2018
Financial asset:
Interest rate swap $ —
$ 1,683
$ —
$ 1,683
Financial liability:
Interest rate swap —
4,059
—
4,059

basis. The fair value is estimated using Level 2 inputs under the fair value hierarchy. These derivatives were in a liability position with balances of $28.1 million and $14.5 million as of June 30, 2020 and December 31, 2019, respectively.

The following table presents the carrying value, as applicable, and estimated fair values for financial instruments at June 30, ~~2019~~2020 and December 31, ~~2018:~~

2019:


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Interest rate swap	$	94	$	94	$	1,683	$	1,683
Financial liabilities:
Interest rate swap	13,574		13,574		4,059		4,059		$	28,123	$	28,123	$	14,452	$	14,452
2023 Term A	212,524		212,087		217,791		218,625
2024 Term B	319,217		324,183		320,515		319,517
2023 Term A Loan									194,058		187,439		207,261		206,388
2024 Term B Loan									307,764		300,105		317,936		324,163

The fair values of the term loans at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 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. Future estimates of fair value may be negatively impacted by market reactions to COVID-19. Also, the pricing may include the use of an algorithm that could take into account ~~movement~~movements in the general high yield market, among other variants.

~~The secured term loans, which are not measured at fair value in the balance sheets, would be categorized as Level 3 in the fair value hierarchy.~~

Note 78 – Equity

Accumulated Other Comprehensive Loss

The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the six months ~~period~~ ended June 30, ~~2019:~~2020:

(In thousands) Foreign Currency
Translation
Adjustments Cash Flow Hedges Total
Balance - December 31, 2018, net of tax $ (21,626 ) $ (2,163 ) $ (23,789 )
Other comprehensive income (loss) before reclassifications 4,290
(9,549 ) (5,259 )
Effective portion reclassified to Net Income —
(548 ) (548 )
Balance - June 30, 2019, net of tax $ (17,336 ) $ (12,260 ) $ (29,596 )



(In thousands)	Foreign Currency Translation Adjustments			Cash Flow Hedges			Total
Balance - December 31, 2019, net of tax	$	(16,872	)	$	(13,137	)	$	(30,009	)
Other comprehensive loss before reclassifications	(7,238		)	(14,110		)	(21,348		)
Effective portion reclassified to net income	—			1,573			1,573
Balance - June 30, 2020, net of tax	$	(24,110	)	$	(25,674	)	$	(49,784	)

Note 89 – Share-based Compensation

Long-term Incentive Plan ("LTIP")

InDuring the ~~first quarter of 2017,~~three months ended March 31, 2018, 2019 and ~~2019,~~2020, 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 ~~2017 LTIP,~~ 2018 LTIP, 2019 LTIP and ~~2019~~2020 LTIP, respectively, all under the terms of ~~our~~the Company's 2013 Equity Incentive Plan. Under the LTIPs, the Company granted restricted stock units 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 providing services to the Company on the vesting date. Time-based awards vest over a period of three years in substantially equal installments commencing on the grant date and ending on February ~~24 of each year for the 2017 LTIP, February~~ 28 of each year for the 2018 LTIP, ~~and~~ February 22 of each year for the 2019 LTIP, and February 27 of each year for the 2020 LTIP.

For the performance-based awards under the ~~2017 LTIP,~~ 2018 LTIP, 2019 LTIP, and ~~2019~~2020 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDA") as the primary performance measure while maintaining focus on total shareholder return through the use of a market-based total shareholder return ("TSR") performance modifier. 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-year performance period as compared to the companies in the Russell 2000 Index. The Adjusted EBITDA performance measure will be calculated for the one-year period commencing on January 1 of the year of the grant and ending on December 31 of the same year, relative to the goals set by the Compensation Committee for this same period. The shares earned will be subject to an additional two-year service vesting period.

Performance and market-based awards vest at the end of the performance period that commenced on February ~~24, 2017 for the 2017 LTIP, February~~ 28, 2018 for the 2018 LTIP, ~~and~~ February 22, 2019 for the 2019 LTIP, and February 27, 2020 for the 2020 LTIP. The periods end on ~~February 24, 2020 for the 2017 LTIP,~~ February 28, 2021 for the 2018 LTIP, ~~and~~ February 22, 2022 for the 2019 LTIP and February 27, 2023 for the 2020 LTIP. Unless otherwise specified in the award 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 nonvested restricted shares and RSUs activity for the six months ended June 30, ~~2019:~~

2020:


Nonvested restricted shares and RSUs	Shares		Weighted-average grant date fair value		Shares		Weighted-average grant date fair value
Nonvested at December 31, 2018	2,036,163		$	15.09
Nonvested at December 31, 2019					1,592,755		$	20.71
Forfeited	(5,727	)	19.38		(147,136	)	19.18
Vested	(664,962	)	12.48		(337,452	)	26.24
Granted	362,316		29.30		413,733		31.62
Nonvested at June 30, 2019	1,727,790		$	18.32
Nonvested at June 30, 2020					1,521,900		$	23.83

For the three and six months ended June 30, ~~2019,~~2020, the Company recognized $3.6 million and $7.1 million of share-based compensation expense, compared with $3.4 million and $6.7 million ~~of share based compensation expense, respectively compared with $3.7 million and $7.3 million, respectively~~ for the ~~same period~~corresponding periods in ~~2018.~~2019.

As of June 30, ~~2019,~~2020, the maximum unrecognized cost for restricted stock and RSUs was ~~$20.0~~$23.6 million. The cost is expected to be recognized over a weighted average period of ~~1.9~~2.1 years.

Note ~~9 -~~10 – Revenues

~~Summary of Revenue Recognition Accounting Policy~~

~~The Company's revenue recognition policy follows the guidance from Accounting Standards Codification ("ASC") 606~~ ~~Revenue from Contracts with Customers, which provides guidance on the recognition, presentation and disclosure of revenue in consolidated financial statements.~~

Revenue is measured on the consideration specified in a contract with a customer. Once the Company determines a contract's performance obligations and the transaction price, including an estimate of any variable consideration, the Company allocates the transaction price to each performance obligation in the contract using a stand-alone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service to a customer. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

At contract inception, the Company assesses the goods and service promised in the contract with a customer and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised in the contract regardless of whether they are explicitly stated or implied. Payment for the Company's contracts with customers are typically due in full within 30 days of invoice date.

Disaggregation of ~~revenue~~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 ~~14,~~15, Segment Information.

In the following tables, revenue for each segment is disaggregated by timing of revenue recognition for the periods indicated.



	Three months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition
Products and services transferred at a point in time	$	32	$	206	$	—	$	2,765	$	3,003
Products and services transferred over time	19,553		17,887		24,765		52,729		114,934
	$	19,585	$	18,093	$	24,765	$	55,494	$	117,937



	Three months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition
Products and services transferred at a point in time	$	115	$	121	$	—	$	2,774	$	3,010
Products and services transferred over time	20,585		19,751		26,793		52,409		119,538
	$	20,700	$	19,872	$	26,793	$	55,183	$	122,548


	Three months ended June 30, 2018										Six months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total		Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition
Products and services transferred at a point in time	$	67	$	37	$	—	$	1,236	$	1,340	$	37	$	637	$	—	$	3,062	$	3,736
Products and services transferred over time	18,847		19,199		25,964		47,997		112,007		40,186		37,696		49,886		108,375		236,143
	$	18,914	$	19,236	$	25,964	$	49,233	$	113,347	$	40,223	$	38,333	$	49,886	$	111,437	$	239,879

Six months ended June 30, 2019
(In thousands) Payment Services - Puerto Rico & Caribbean Payment Services - Latin America Merchant Acquiring, net Business Solutions Total
Timing of revenue recognition
Products and services transferred at a point in time $ 2,792
$ 191
$ —
$ 3,651
$ 6,634
Products and services transferred over time 40,658
38,429
52,767
102,896
234,750
43,450
38,620
52,767
106,547
241,384

Six months ended June 30, 2018
(In thousands) Payment Services - Puerto Rico & Caribbean
Payment Services - Latin America
Merchant Acquiring, net
Business Solutions
Total
Timing of revenue recognition

Products and services transferred at a point in time $ 193

$ 429

$ —

$ 2,209

$ 2,831
Products and services transferred over time 37,304

39,198

49,343

94,945

220,790

$ 37,497

$ 39,627

$ 49,343

$ 97,154

$ 223,621



	Six months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition
Products and services transferred at a point in time	$	2,792	$	191	$	—	$	3,651	$	6,634
Products and services transferred over time	40,658		38,429		52,767		102,896		234,750
	$	43,450	$	38,620	$	52,767	$	106,547	$	241,384

Contract ~~balances~~Balances

The following table provides information about contract assets from contracts with customers.


(In thousands)	June 30, 2019			June 30, 2020
December 31, 2018	$	996
December 31, 2019				$	1,191
Services transferred to customers	448			1,849
Transfers to accounts receivable	(246		)	(826		)
June 30, 2019	$	1,198
June 30, 2020				$	2,214

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.~~assets in the unaudited condensed consolidated balance sheets.

Accounts receivable, net at June 30, ~~2019~~2020 amounted to ~~$93.7~~$91.7 million. Unearned income and ~~Unearned~~unearned income - ~~Long~~long term, which refer to contract liabilities, at June 30, ~~2019~~2020 amounted to ~~$11.2~~$22.1 million and ~~$30.4~~$28.7 million, respectively, and ~~generally~~may arise when consideration is received or due in advance from customers prior to performance. Unearned income is mainly related to upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with hosting

or managed services. During the three and six months ended June 30, 2020, the Company recognized revenue of $4.0 million and $9.2 million, respectively, that was included in unearned income at December 31, 2019. During the three and six months ended June 30, 2019, the Company recognized revenue of $5.2 million and $11.3 million, respectively, that ~~were~~was included in unearned income at December 31, 2018. ~~During the three and six months ended June 30, 2018, the Company recognized revenue of $2.0 million and $5.7 million, respectively, that were included in unearned income at December 31, 2017.~~

The estimated aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at June 30, ~~2019~~2020 is ~~$262.9~~$322.5 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 ~~vary~~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 1011 – Income Tax

The components of income tax expense for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, consisted of the following:


	Three months ended June 30,					Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
(In thousands)	2019			2018		2019			2018			2020			2019			2020			2019
Current tax provision	$	3,428		$	3,073	$	8,119		$	8,160		$	4,654		$	3,428		$	10,252		$	8,119
Deferred tax (benefit) expense	(939		)	39		(1,821		)	(1,113		)
Deferred tax benefit												(134		)	(939		)	(1,214		)	(1,821		)
Income tax expense	$	2,489		$	3,112	$	6,298		$	7,047		$	4,520		$	2,489		$	9,038		$	6,298

The Company conducts operations in Puerto Rico 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 six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, and its segregation based on location of operations:


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
(In thousands)	2019			2018			2019			2018			2020			2019			2020			2019
Current tax provision (benefit)
Puerto Rico	$	1,503		$	1,456		$	3,316		$	3,855		$	1,528		$	1,503		$	3,207		$	3,316
United States	(97		)	93			15			173			139			(97		)	294			15
Foreign countries	2,022			1,524			4,788			4,132			2,987			2,022			6,751			4,788
Total current tax provision	$	3,428		$	3,073		$	8,119		$	8,160		$	4,654		$	3,428		$	10,252		$	8,119
Deferred tax (benefit) provision
Puerto Rico	$	(1,119	)	$	(194	)	$	(1,595	)	$	(1,033	)	$	(458	)	$	(1,119	)	$	(546	)	$	(1,595	)
United States	373			(11		)	1			(98		)	1,126			373			1,101			1
Foreign countries	(193		)	244			(227		)	18			(802		)	(193		)	(1,769		)	(227		)
Total deferred tax (benefit) provision	$	(939	)	$	39		$	(1,821	)	$	(1,113	)
Total deferred tax benefit													$	(134	)	$	(939	)	$	(1,214	)	$	(1,821	)

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 June 30, ~~2019,~~2020, the Company has ~~$54.0~~$70.2 million of unremitted earnings from foreign subsidiaries. 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.

As of June 30, ~~2019,~~2020, the gross deferred tax asset amounted to ~~$13.1~~$19.4 million and the gross deferred tax liability amounted to ~~$18.7~~$19.0 million, compared to ~~$10.8~~$13.1 million and ~~$18.8~~$18.7 million, respectively, as of December 31, ~~2018.~~2019.

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:



	Six months ended June 30,
(In thousands)	2020			2019
Computed income tax at statutory rates	$	17,602		$	22,563
Benefit of net tax-exempt interest income	(15		)	(36		)
Differences in tax rates due to multiple jurisdictions	1,149			3
Tax benefit due to a change in estimate	131			300
Effect of income subject to tax-exemption grant	(12,050		)	(16,322		)
Unrecognized tax expense	193			202
Other expense (benefit)	2,028			(412		)
Income tax expense	$	9,038		$	6,298

Note 1112 – Net Income Per Common Share

The reconciliation of the numerator and denominator of the income per common share is as follows:


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
(Dollar amounts in thousands, except per share information)	2019		2018		2019		2018		2020		2019		2020		2019
Net income attributable to EVERTEC, Inc.’s common stockholders	$	27,058	$	20,052	$	53,702	$	43,074	$	15,484	$	27,058	$	37,695	$	53,702
Net income available to EVERTEC, Inc.’s common shareholders	$	27,058	$	20,052	$	53,702	$	43,074
Weighted average common shares outstanding	72,128,795		72,637,733		72,252,974		72,524,228		71,864,499		72,128,795		71,938,574		72,252,974
Weighted average potential dilutive common shares ⁽¹⁾	1,171,758		1,751,393		1,396,959		1,381,462		909,866		1,171,758		1,080,645		1,396,959
Weighted average common shares outstanding - assuming dilution	73,300,553		74,389,126		73,649,933		73,905,690		72,774,365		73,300,553		73,019,219		73,649,933
Net income per common share - basic	$	0.38	$	0.28	$	0.74	$	0.59	$	0.22	$	0.38	$	0.52	$	0.74
Net income per common share - diluted	$	0.37	$	0.27	$	0.73	$	0.58	$	0.21	$	0.37	$	0.52	$	0.73


(1)	Potential common shares consist of common stock issuable under the assumed release of restricted stock awards using the treasury stock method.

On February ~~15, 2019,~~20, 2020 and April 21, 2020, the Company's Board declared a quarterly cash ~~dividend~~dividends of $0.05 per share of common stock, which ~~was~~were paid on ~~March 22, 2019~~April 3, 2020 and June 5, 2020, respectively, to stockholders of record as of the close of business on February 26, 2019. On April 25, 2019, the Board declared a regular quarterly cash dividend of $0.05 per share on the Company’s outstanding shares of common stock, which was paid on June 7, 2019 to stockholders of record as of the close of business onMarch 4, 2020 and May ~~6, 2019.~~4, 2020, respectively.

Note 1213 – Commitments and Contingencies

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, ~~Management~~management 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.

~~Leases~~

The Company’s leases accounting policy follows the guidance from Accounting Standards Codification (“ASC”) 842, Leases, which provides guidance on the recognition, presentation and disclosure of leases in consolidated condensed financial statements.

The Company determines if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease payable, and operating lease liabilities in the consolidated condensed balance sheet. Finance leases are included in property and equipment, accrued liabilities, and other long-term liabilities in the consolidated condensed balance sheet.

~~ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most~~For details of the Company’s leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments. The lease terms may include optionsCompany's commitments, refer to extend or terminate the lease when it is reasonably certain that the option will be exercised. We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. The lease payment terms may include fixed payment termsNote 22, Commitments and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index or “CPI”) or rate are considered in the determination of the operating lease liabilities. While lease liabilities are not remeasured because of changes to the CPI, changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Variable payments that do not depend on an index or rate are notContingencies included in the ~~lease liabilities determination. Rather, these payments are recognized as variable lease expense when incurred. Variable lease payments are included within operating costs and~~

~~expenses in~~Financial Statements of the ~~consolidated condensed statement of income and comprehensive income. For operating leases, lease expense for minimum lease payments is recognized~~Company's Annual Report on a straight-line basis over the lease term. For finance leases, lease expense is composed of interest expense and amortization expense. The lease liability of these leases is measured using the interest rate method. The ROU asset from financing leases are amortized on a straight-line basis, as part of Property and Equipment, net.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company elected the practical expedient of not separating lease and related non-lease components for all classes of underlying assets (i.e., building and equipment). The Company also elected as an accounting policy to not recognize lease liabilities and ROU assets for any future short-term leases (i.e., leases with a lease term of 12 months or less).

The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from 1 year to 10 years, some of which may include options to extend the leases for up to 5 years, and some which may include the option to terminate the lease within 1 year.

~~At June 30, 2019, equipment leases classified as finance leases, which are included within Property and Equipment, net, were $0.8 million, net of accumulated depreciation.~~

~~Total lease cost~~Form 10-K for the ~~three and six months~~year ended ~~June 30, 2019, was as follows:~~

Three months ended Six months ended
June 30, 2019 June 30, 2019
(in thousands)
Operating lease cost $ 2,003
$ 3,926
Finance lease cost

Amortization of right-of-use assets 65
132
Interest on lease liabilities 7
15
Variable lease cost 703
1,417

$ 2,778
$ 5,490

~~Other information related to leases, at June 30, 2019, was as follows:~~

(In thousands)
Right-of-use assets obtained in exchange for operating lease obligations: $ 273
Weighted average remaining lease term, in years
Operating leases 6.4
Finance leases 1.4
Weighted Average Discount Rate
Operating leases 4.5 %
Finance leases 4.3 %

~~Future minimum lease payments under leases at of June 30, 2019 were as follows:~~

(In thousands) Operating Leases Finance Leases
Remaining 2019 $ 3,481
$ 201
2020 6,574
331
2021 5,762
34
2022 5,503
—
2023 5,452
—
Thereafter 11,412
—
Total future minimum lease payments 38,184
566
Less: imputed interest (4,847 ) (7 )
$ 33,337
$ 559
Reported as of June 30, 2019
Accrued liabilities $ —
$ 407
Operating lease payable 6,294
—
Operating lease liabilities - long term 27,043
—
Other long-term liabilities —
152
$ 33,337
$ 559

December 31, 2019.

Note 1314 – Related Party Transactions

The following table presents the Company’s transactions with related parties for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
(Dollar amounts in thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Total revenues ⁽¹⁾⁽²⁾	$	52,290	$	47,203	$	101,320	$	92,738	$	53,788	$	52,290	$	108,360	$	101,320
Cost of revenues	$	1,338	$	968	$	1,861	$	1,352	$	1,782	$	1,338	$	2,400	$	1,861
Operating lease cost and other fees	$	2,090	$	2,005	$	4,218	$	3,968	$	2,060	$	2,090	$	4,041	$	4,218
Interest earned from affiliate
Interest income	$	27	$	32	$	55	$	64	$	108	$	27	$	197	$	55


(1)	Popular revenues as a percentage of total revenues were ~~42%, 41%~~45%, 42%, 45% and ~~41%~~42%, respectively, for each of the periods presented ~~above, respectively.~~above.


(2)	Includes revenues generated from investee accounted for under the equity method of $0.1 million, $0.2 million, $0.4 million, and $0.5 million, ~~and $0.7 million~~respectively, for each of the periods presented ~~above, respectively.~~above.

AtAs of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, EVERTEC had the following balances arising from transactions with related parties:


(Dollar amounts in thousands)	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Cash and restricted cash deposits in affiliated bank	$	16,725	$	29,136	$	96,113	$	64,724
Other due/to from affiliate
Other due to/from affiliate
Accounts receivable	$	30,961	$	25,714	$	30,894	$	39,095
Prepaid expenses and other assets	$	1,901	$	2,796	$	4,374	$	4,211
Operating lease right-of use assets	$	22,322	$	—	$	18,878	$	20,617
Other long-term assets	$	93	$	166	$	28	$	57
Accounts payable	$	2,350	$	6,344	$	3,763	$	7,250
Unearned income	$	31,033	$	25,401	$	35,846	$	35,489
Operating lease liabilities	$	23,055	$	—	$	19,252	$	20,905

Note 1415 – Segment Information

The Company operates in ~~four~~4 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) 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 ~~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.

The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value. EVERTEC also charges merchants for other services that are unrelated to the number of transactions or the transaction value.

The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network ~~managed services,~~hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally non-recurring.

In addition to the ~~four~~4 operating segments described above, ~~Management~~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 aswithin the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and ~~other~~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 the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted ~~Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA").~~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 ~~Accounting Standards Codification~~ASC Topic 280, ~~"Segment Reporting"~~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 performance.~~Adjusted EBITDA. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated ~~condensed~~ financial statements.

The following tables set forth information about the Company’s operations by its ~~four~~4 business segments for the periods indicated:

Three months ended June 30, 2019
(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions
Corporate and Other ⁽¹⁾
Total

Revenues $ 30,482
$ 21,106
$ 26,793
$ 55,183
$ (11,016 ) $ 122,548
Operating costs and expenses 13,630
17,654
15,230
35,959
2,387
84,860
Depreciation and amortization 2,740
2,547
423
4,479
7,006
17,195
Non-operating income (expenses) 470
1,601
10
34
(3,061 ) (946 )
EBITDA 20,062
7,600
11,996
23,737
(9,458 ) 53,937
Compensation and benefits ⁽²⁾
257
173
255
529
2,284
3,498
Transaction, refinancing and other fees ⁽³⁾
—
—
—
—
362
362
Adjusted EBITDA $ 20,319
$ 7,773
$ 12,251
$ 24,266
$ (6,812 ) $ 57,797



	Three months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean			Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	27,461		$	19,797	$	24,764	$	55,495	$	(9,580	)	$	117,937
Operating costs and expenses	17,453			17,947		12,230		37,008		7,709			92,347
Depreciation and amortization	3,193			2,815		455		4,381		6,995			17,839
Non-operating income (expenses)	(178		)	584		158		684		(883		)	365
EBITDA	13,023			5,249		13,147		23,552		(11,177		)	43,794
Compensation and benefits ⁽²⁾	253			835		235		472		1,956			3,751
Transaction, refinancing and other fees ⁽³⁾	—			—		—		—		2,656			2,656
Adjusted EBITDA	$	13,276		$	6,084	$	13,382	$	24,024	$	(6,565	)	$	50,201

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $7.3 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $2.3 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 $4.3 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.



	Three months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	30,482	$	21,106	$	26,793	$	55,183	$	(11,016	)	$	122,548
Operating costs and expenses	13,630		17,654		15,230		35,959		2,387			84,860
Depreciation and amortization	2,740		2,547		423		4,479		7,006			17,195
Non-operating income (expenses)	470		1,601		10		34		(3,061		)	(946		)
EBITDA	20,062		7,600		11,996		23,737		(9,458		)	53,937
Compensation and benefits ⁽²⁾	257		173		255		529		2,284			3,498
Transaction, refinancing and other fees ⁽³⁾	—		—		—		—		362			362
Adjusted EBITDA	$	20,319	$	7,773	$	12,251	$	24,266	$	(6,812	)	$	57,797

(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 ~~the~~ Payments Services - Puerto Rico & Caribbean ~~segment~~ to ~~the~~ Merchant Acquiring ~~segment~~ and intercompany software sale and developments of $1.3 million from ~~the~~ Payment Services - Latin America ~~segment charged~~ to ~~the~~ Payment Services - Puerto Rico & ~~Caribbean segment.~~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 $5.5 million.


(2)	Primarily represents share-based compensation, other compensation expense and severance payments.


(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., net of cash dividends received.


	Three months ended June 30, 2018													Six months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total		Payment Services - Puerto Rico & Caribbean			Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	28,043	$	19,236	$	25,964	$	49,233	$	(9,129	)	$	113,347	$	57,348		$	41,437	$	49,885	$	111,438	$	(20,229	)	$	239,879
Operating costs and expenses	13,130		18,407		14,112		30,351		6,707			82,707		34,859			35,598		26,936		70,625		13,508			181,526
Depreciation and amortization	2,409		2,249		421		3,520		7,129			15,728		6,442			5,572		954		8,677		13,989			35,634
Non-operating income (expenses)	551		1,401		4		66		(1,916		)	106		(65		)	1,338		312		1,071		(1,845		)	811
EBITDA	17,873		4,479		12,277		22,468		(10,623		)	46,474		28,866			12,749		24,215		50,561		(21,593		)	94,798
Compensation and benefits ⁽²⁾	485		317		360		684		2,627			4,473		484			1,577		451		908		3,831			7,251
Transaction, refinancing and other fees ⁽³⁾	—		—		1		—		2,820			2,821		—			—		—		—		4,442			4,442
Adjusted EBITDA	$	18,358	$	4,796	$	12,638	$	23,152	$	(5,176	)	$	53,768	$	29,350		$	14,326	$	24,666	$	51,469	$	(13,320	)	$	106,491

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the ~~$9.1~~$16.3 million processing fee from ~~the~~ Payments Services - Puerto Rico & Caribbean ~~segment~~ to ~~the~~ Merchant Acquiring ~~segment.~~and intercompany software developments and transaction processing of $3.9 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 $9.4 million.


(2)	Primarily represents share-based ~~compensation, other compensation expense and severance payments.~~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.~~, net of cash dividends received.~~



	Six months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	62,499	$	41,937	$	52,767	$	106,547	$	(22,366	)	$	241,384
Operating costs and expenses	27,845		35,227		29,948		68,869		4,402			166,291
Depreciation and amortization	5,383		4,743		891		8,333		14,118			33,468
Non-operating income (expenses)	1,051		4,235		31		220		(6,053		)	(516		)
EBITDA	41,088		15,688		23,741		46,231		(18,703		)	108,045
Compensation and benefits ⁽²⁾	494		339		475		1,083		4,546			6,937
Transaction, refinancing and other fees ⁽³⁾	—		2		—		—		409			411
Adjusted EBITDA	$	41,582	$	16,029	$	24,216	$	47,314	$	(13,748	)	$	115,393

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $18.9 million processing fee from ~~the~~ Payments Services - Puerto Rico & Caribbean ~~segment~~ to ~~the~~ Merchant Acquiring ~~segment,~~and intercompany software sale and developments of $3.4 million from ~~the~~ Payment Services - Latin America ~~segment charged~~ to the Payment Services - Puerto Rico & ~~Caribbean segment.~~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 $10.3 million.


(2)	Primarily represents share-based compensation, other compensation expense and severance payments.


(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the ~~Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.~~

Six months ended June 30, 2018
(In thousands) Payment
Services -
Puerto Rico & Caribbean
Payment
Services -
Latin America
Merchant
Acquiring, net
Business
Solutions
Corporate and Other ⁽¹⁾

Total

Revenues $ 55,211

$ 39,627

$ 49,343

$ 97,154

$ (17,714 )
$ 223,621
Operating costs and expenses 26,063

36,467

27,253

59,366

10,277

159,426
Depreciation and amortization 4,725

4,698

841

7,039

14,292

31,595
Non-operating income (expenses) 1,367

3,214

8

366

(3,833 )
1,122
EBITDA 35,240

11,072

22,939

45,193

(17,532 )
96,912
Compensation and benefits ⁽²⁾
678

717

550

1,124

5,233

8,302
Transaction, refinancing and other fees ⁽³⁾
(250 )
—

1

—

2,771

2,522
Adjusted EBITDA $ 35,668

$ 11,789

$ 23,490

$ 46,317

$ (9,528 )
$ 107,736


~~(1)~~	Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $17.7 million processing fee from the Payments Services - Puerto Rico & Caribbean segment to the Merchant Acquiring segment.


~~(2)~~	~~Primarily represents share-based compensation, other compensation expense and severance payments.~~


~~(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., net of cash dividends received.

The reconciliation of EBITDA to consolidated net income is as follows:


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Total EBITDA	$	53,937	$	46,474	$	108,045	$	96,912	$	43,794	$	53,937	$	94,798	$	108,045
Less:
Income tax expense	2,489		3,112		6,298		7,047		4,520		2,489		9,038		6,298
Interest expense, net	7,116		7,501		14,408		15,023		5,810		7,116		12,226		14,408
Depreciation and amortization	17,195		15,728		33,468		31,595		17,839		17,195		35,634		33,468
Net Income	$	27,137	$	20,133	$	53,871	$	43,247
Net income									$	15,625	$	27,137	$	37,900	$	53,871

Note 1516 – Subsequent Events

On July ~~25, 2019,~~24, 2020, 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 September ~~6, 2019~~4, 2020 to stockholders of record as of the close of business on August ~~5, 2019.~~3, 2020. The Board anticipates declaring this dividend in future quarters on a regular basis; however future declarations of dividends are subject to the Board’s approval and may be adjusted as business needs or market conditions change.

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 six months ended months ended June 30, ~~2019~~2020 and ~~2018~~2019 and (ii) the financial condition as of June 30, ~~2019.~~2020. 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, ~~2018,~~2019, included in the Company’s Annual Report on Form 10-K and with the unaudited condensed consolidated ~~condensed~~ financial statements (the “Unaudited Condensed Consolidated ~~Condensed~~ 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 S.A., Tecnopago España SL, Paytrue S.A., Caleidon, S.A., Evertec Brasil Solutions Informática Ltda. (formerly known as Paytrue Solutions Informática Ltda.), EVERTEC Panamá, S.A., EVERTEC Costa Rica, S.A. (“EVERTEC CR”), EVERTEC Guatemala, S.A., Evertec Colombia, SAS (formerly known as 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 processing business in Puerto Rico, the Caribbean and Latin America, ~~and the Caribbean,~~ providing a broad range of merchant acquiring, payment services and business process management services. According to the ~~August 2018~~September 2019 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. We serve 26 countries in the region ~~from~~out of 11 offices, including our ~~base~~headquarters in Puerto Rico. We manage a system of electronic payment networks that process more than two billion transactions annually, and offer a comprehensive suite of services for core bank processing and cash processing in Puerto Rico and technology outsourcing in all the regions we serve. In addition, we own and operate the ATH network, one of the leading personal identification number ("PIN") debit networks in Latin America. 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 capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services, win new customers, develop new sales channels and enter new markets. We believe these competitive advantages include:

Our ability to provide competitive products;

Our ability to provide in one package a range of services that traditionally had to be sourced from different vendors;

Our ability to serve customers with disparate operations in several geographies with technology solutions that enable them to manage their business as one enterprise; and

Our ability to capture and analyze data across the transaction 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 processing value chain (such as only merchant acquiring or payment services).

Our broad suite of services spans the entire transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale, as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable point of sales (“POS”) and e-commerce merchants to accept and process electronic

methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”) cards; (ii) payment processing

services, which enable financial institutions and other issuers to manage, support and facilitate the processing ~~for~~of 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 and that ~~generates~~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 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. We believe our business model should enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures.

Corporate Background

EVERTEC, Inc. ("EVERTEC", 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”), an affiliate of Apollo Global Management LLC, 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.”~~“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”), 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. The anticipated negotiation of the MSA extension may result in Popular obtaining significant concessions from us with respect to pricing and other key terms, both in respect of the current term and any extension of the MSA, particularly as we approach 2025. 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.

Factors and Trends Affecting the Results of Our Operations

The ongoing migration from cash and paper methods of payment to electronic payments continues to benefit the transaction-processing industry globally. We believe that the penetration of electronic payments in the markets in which we operate is significantly lower relative to the U.S. market, and that 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 and Caribbean regions is lower relative to the mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drive incremental penetration and growth of electronic payments in Puerto Rico and other Latin American regions. We also benefit from the trend ~~for~~of financial institutions and government agencies ~~to outsource~~outsourcing 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, which presents a business opportunity for us.

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.

On June 30, 2016, the U.S. President signed into law PROMESA. PROMESA establishes a fiscal oversight and the Oversight Board comprised of seven voting members appointed by the President. The Oversight Board has broad budgetary and financial powers over Puerto Rico’s budget, laws, financial plans and regulations, including the power to approve restructuring agreements with creditors, file petitions for restructuring and reform the electronic system for the tax collection. The Oversight Board will have ultimate authority in preparing the government of Puerto ~~Rico government’s~~Rico’s budget and any issuance of future debt by the government and its instrumentalities. In addition, PROMESA imposes an automatic stay on all litigation against Puerto Rico and its instrumentalities, as well as any other judicial or administrative actions or proceedings to enforce or collect claims against the government of Puerto ~~Rico government.~~Rico. On May 1, 2017, the automatic stay expired. Promptly after the expiration of the stay, creditors of the government of Puerto Rico ~~government~~ filed various lawsuits involving defaults on more than $70 billion of bonds issued by Puerto Rico, having failed to reach a negotiated settlement on such defaults with the government of Puerto Rico ~~government~~ during the period of the automatic stay. On May 3, 2017, the Oversight Board filed a voluntary petition of relief on behalf of the Commonwealth pursuant to Title III of PROMESA for the restructuring of the Commonwealth’s debt. Subsequently, the Oversight Board filed voluntary petitions of relief pursuant to Title III of PROMESA on behalf certain public corporations and instrumentalities. Title III is an in-court debt restructuring proceeding similar to protections afforded debtors under Chapter 11 of the United States Code (the “Bankruptcy Code”); the Bankruptcy Code is not available to the Commonwealth or its instrumentalities.

As the solution to the government of Puerto ~~Rican government’s~~Rico’s debt crisis remains unclear, we continue to carefully monitor our receivables with the government as well as monitor general economic trends to understand the impact the crisis has on the economy of Puerto Rico and our card payment volumes. To date our receivables with the government of Puerto ~~Rican government~~Rico and overall payment transaction volumes have not been significantly affected by the debt crisis, however we remain cautious.

~~In addition~~With respect to the macroeconomic trends described above, ~~Management~~management currently estimates that we will continue to experience a revenue attrition in Latin America of approximately $2 $3million to $3$4 million for previously disclosed migrations anticipated in ~~2019.~~2020. The clients' decisions, which were made prior to 2015, for these anticipated migrations were driven by a variety of historical factors, the most ~~importantly~~important of which was customer service experience. Management believes that these customer decisions are unlikely to ~~change,~~change; however, timing is subject to change based on ~~customer's~~customers’ conversion schedules.

Impact of COVID-19 Pandemic

In December 2019, the outbreak of a novel strain of coronavirus ("COVID-19") was reported to have surfaced in Wuhan, China. COVID-19 has since spread to nearly all regions of the world, including every state and territory of the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and shortly thereafter, foreign, federal, state and local governments and health officials in all markets where EVERTEC operates declared states of emergency and implemented numerous public health measures to try to contain the virus, including curtailment of movement and commerce such as mandatory school and business closures, curfews, travel restrictions, "social or physical distancing" guidelines and "shelter-in-place" mandates. COVID-19 presents material uncertainty and risk with respect to EVERTEC’s business, results of operations and cash flows, as well as with respect to changes in laws and regulations and government and regulatory policy. As the spread of the pandemic persists, entities are experiencing conditions often associated with a general economic downturn. The outbreak has disrupted global financial markets and negatively affected supply and demand across a broad range of industries. COVID-19’s impact on global economies could have a material adverse effect on (among other things) the profitability, capital and liquidity of the Company, particularly if consumer spending levels are depressed for a prolonged period of time. While the rapid development and fluidity of the situation prevents management from having clear visibility into the medium and long-term impact, management believes possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s workforce, unavailability of products and supplies used in operations, a decline in the value of assets held by the Company, including, among other things, tangible and intangible long-lived assets, and increased levels in the Company's current expected credit loss reserve.

will remain working remotely for an undetermined period, until it is deemed safe by management to return to our offices and as permitted or advised by local authorities in each country where the Company operates;

As a precautionary measure, to increase the Company's cash position and preserve its financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak, the Company drew down $30 million on Revolving Facility in April. The Company fully repaid the Revolving Facility since then;

Management identified additional expense reductions that are intended to be implemented as necessary; and

Management has suspended all non-essential travel for employees.

Consumer preference for digital payment solutions during the pandemic has continued to grow and the Company has benefited from an increase in transaction volumes as a result. The Company continues to focus on new innovative solutions, such as contactless payment solutions and our gateway product in Latin America to further accelerate the consumer preference for digital solutions.

Results of Operations

Comparison of the three months ended June 30, ~~2019~~2020 and ~~2018~~2019


	Three months ended June 30,									Three months ended June 30,
In thousands	2019		2018		Variance 2019 vs. 2018					2020		2019		Variance 2020 vs. 2019
��

Revenues	$	122,548	$	113,347	$	9,201		8	%	$	117,937	$	122,548	$	(4,611	)	(4	)%
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below	52,601		49,131		3,470			7	%
Cost of revenues, exclusive of depreciation and amortization										56,979		52,601		4,378			8	%
Selling, general and administrative expenses	15,064		17,848		(2,784		)	(16	)%	17,529		15,064		2,465			16	%
Depreciation and amortization	17,195		15,728		1,467			9	%	17,839		17,195		644			4	%
Total operating costs and expenses	84,860		82,707		2,153			3	%	92,347		84,860		7,487			9	%
Income from operations	$	37,688	$	30,640	$	7,048		23	%	$	25,590	$	37,688	$	(12,098	)	(32	)%

Revenues

Total revenues infor the ~~second quarter of 2019 increased~~three months ended June 30, 2020 decreased by ~~$9.2~~$4.6 million or 8%4% to ~~$122.5~~$117.9 million when compared ~~with~~to the same period in the prior ~~year period.~~year. Revenue ~~increase~~decline during the three months reflected a slowdown in the quarter was primarily driven by increased volumes from ATH debit network and benefits from value added solutions coupled with other pricing actions. In addition, there was an increase in core banking transactions and ~~an increase~~volumes resulting from COVID-19 with sequential monthly recovery as businesses reopened in ~~network services related to new managed services projects. The quarter also~~Puerto Rico. Revenue during the three months partially benefited from new services, mainly in Business Solutions. Prior year revenue included hardware and software sales and the completion of several projects for approximately $2.5 million ~~from completed special projects and hardware sales.~~that did not recur in the current year.

Cost of ~~revenues~~Revenues

Cost of revenues for the three months ended June 30, 2020 amounted to ~~$52.6~~$57.0 million, an increase of ~~$3.5~~$4.4 million or 7%8% when compared ~~with~~to the same period in the prior ~~year period.~~year. The increase during the three months is primarily related to ~~cost of sales associated~~an increase in salaries and compensation costs, driven by increased headcount and special incentives paid in connection with ~~the increased hardware sales,~~COVID-19, coupled with ~~higher~~increases in professional services related to programming fees and ~~increased provisions. These~~ increases ~~were~~in cloud services, partially offset by a decrease in ~~salaries and compensation mainly driven by deferred salaries in connection with software developments.~~provisions.

Selling, ~~general~~General and ~~administrative~~Administrative

Selling, general and administrative expenses infor the ~~second quarter of 2019 decreased~~three months ended June 30, 2020 increased by ~~$2.8~~$2.5 million or 16% when compared ~~with~~to the same ~~quarter~~period in ~~2018.~~the prior year. The ~~decrease~~increase is primarily related to ~~lower~~higher professional ~~fees as the prior year included fees in connection with due diligence for a potential transaction that the Company decided not to pursue.~~services.

Depreciation and ~~amortization~~Amortization

Depreciation and amortization expense for the three months ended June 30, 2020 amounted to ~~$17.2~~$17.8 million, an increase of ~~$1.5~~$0.6 million or 9%4% when compared ~~with~~to the same period in the prior year. Increased expense during the three months is driven by capital expenditures in the prior year ~~period. The increase is related to both higher depreciation and amortization and includes impact from development~~as well as, key projects ~~going~~that went into production ~~and purchases of data processing equipment.~~in the prior year.

~~Non-operating income (expenses)~~Non-Operating Income (Expenses)


	Three months ended June 30,											Three months ended June 30,
In thousands	2019			2018			Variance 2019 vs. 2018					2020			2019			Variance 2020 vs. 2019

Interest income	$	257		$	164		$	93		57	%	$	373		$	257		$	116	45	%
Interest expense	(7,373		)	(7,665		)	292			(4	)%	(6,183		)	(7,373		)	1,190		(16	)%
Earnings of equity method investment	133			175			(42		)	(24	)%	193			133			60		45	%
Other income (expenses)	(1,079		)	(69		)	(1,010		)	1,464	%
Other income (expense)												172			(1,079		)	1,251		(116	)%
Total non-operating expenses	$	(8,062	)	$	(7,395	)	(667		)	9	%	$	(5,445	)	$	(8,062	)	$	2,617	(32	)%

Non-operating expenses ~~increased~~for the three months ended June 30, 2020 decreased by ~~$0.7~~$2.6 million to ~~$8.1~~$5.4 million when compared ~~with~~to the same period in the prior ~~year period.~~year. The ~~increase~~decrease is mainly related to a ~~$1.0~~a $1.3 million increase in other income (expense) as a result of foreign currency gains, compared with foreign currency losses in the prior year, coupled with $1.2 million decrease in ~~Other income, net due to higher foreign exchange losses relative to~~interest expense, resulting from the ~~same quarter~~scheduled amortization of debt and a reduction in ~~2018.~~interest rates.

Income ~~tax expense~~Tax Expense


	Three months ended June 30,								Three months ended June 30,
In thousands	2019		2018		Variance 2019 vs. 2018				2020		2019		Variance 2020 vs. 2019
Income tax expense	$	2,489	$	3,112	(623	)	(20	)%	$	4,520	$	2,489	$	2,031	82	%

Income tax expense for the three months ended June 30, 2020 amounted to ~~$2.5~~$4.5 million, ~~a decrease~~an increase of ~~$0.6~~$2.0 million when compared ~~with~~to the same period in the prior ~~year quarterly period.~~year. The effective tax rate for the ~~quarter~~period was ~~8.4%~~22.4%, compared with ~~13.4%~~8.4% in the ~~2018~~2019 period. The ~~decrease~~increase in the effective tax rate is primarily reflects the impact of COVID-19 on the mix of business as well as a discrete tax item of approximately $1 million and other taxable items in foreign jurisdictions. Additionally, there may be some period-to-period volatility of our effective tax rate in future quarters as our mix of income from multiple tax jurisdictions and related income forecasts change due to the ~~tax benefit generated in connection with stock based compensation~~potential effects of ~~$1.0 million coupled with a shift in taxable income composition in Puerto Rico.~~COVID-19.

Comparison of the six months ended June 30, ~~2019~~2020 and ~~2018~~2019


	Six months ended June 30,									Six months ended June 30,
In thousands	2019		2018		Variance 2019 vs. 2018					2020		2019		Variance 2020 vs. 2019

Revenues	$	241,384	$	223,621	$	17,763		8	%	$	239,879	$	241,384	$	(1,505	)	(1	)%
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below	102,620		96,551		6,069			6	%
Cost of revenues, exclusive of depreciation and amortization										111,046		102,620		8,426			8	%
Selling, general and administrative expenses	30,203		31,280		(1,077		)	(3	)%	34,846		30,203		4,643			15	%
Depreciation and amortization	33,468		31,595		1,873			6	%	35,634		33,468		2,166			6	%
Total operating costs and expenses	166,291		159,426		6,865			4	%	181,526		166,291		15,235			9	%
Income from operations	$	75,093	$	64,195	$	10,898		17	%	$	58,353	$	75,093	$	(16,740	)	(22	)%

Revenues

Total revenues for the six months ended June 30, ~~2019 amounted to $241.4 million, an increase of $17.8~~2020 decreased by $1.5 million or ~~8%.~~1% to $239.9 million when compared to the same period in the prior year. Revenue ~~increase~~was impacted by a decrease in volumes and transactions resulting from COVID-19 and the prior year impact of revenue from a one-time project amounting to $2.7 million, partially offset by overall growth in the first ~~half~~two months of ~~2019 reflected growth from elevated sales volumes~~the year and monthly recovery as businesses reopened in Puerto Rico, higher core banking transactions and an increase in fees generated by network services related to new managed services projects. Additionally, revenue growth was impacted by one-time revenue related to an electronic benefits contract of approximately $2.7 million and revenue from hardware sales and the completion of several projects of approximately $2.5 million.June.

Cost of ~~revenues~~Revenues

Cost of revenues for the six months ended June 30, 2020 amounted to ~~$102.6~~$111.0 million, an increase of ~~$6.1~~$8.4 million or 6%8% when compared ~~with~~to the same period in the prior ~~year period.~~year. The increase is primarily related to an increase in ~~cost of sales associated~~salaries and compensation costs, driven by increased headcount and special incentives paid in connection with ~~the increased hardware sales~~COVID-19, coupled with ~~higher~~increases in professional services related to programming fees ~~increased provisions~~ and ~~higher equipment maintenance expenses.~~increases in cloud services.

Selling, ~~general~~General and ~~administrative~~Administrative

Selling, general and administrative expenses in the six months ended June 30, 2019 decreased by $1.1 million or 3% to $30.2 million when compared with the same period in 2018. The decrease is mainly driven by lower professional services as explained above for the quarter.

~~Depreciation and amortization~~

~~Depreciation and amortization expense amounted to $33.5 million, an increase of $1.9 million when compared with the prior year. The increase is due to the same reasons explained above for the quarter.~~

~~Non-operating income (expenses)~~

Six months ended June 30,
In thousands 2019 2018 Variance 2019 vs. 2018

Interest income $ 516
$ 321
$ 195
61 %
Interest expense (14,924 ) (15,344 ) $ 420
(3 )%
Earnings of equity method investment 355
374
$ (19 ) (5 )%
Other income (expenses) (871 ) 748
$ (1,619 ) (216 )%
Total non-operating expenses $ (14,924 ) $ (13,901 ) $ (1,023 ) 7 %

Non-operating expenses increased by $1.0 million to $14.9 million when compared with the prior year period. The increase is almost entirely related to a decrease in Other income, net of $1.6 million due to an increase in foreign exchange losses.

~~Income tax expense~~

Six months ended June 30,
In thousands 2019 2018 Variance 2019 vs. 2018
Income tax expense $ 6,298
$ 7,047
(749 ) (11 )%

~~Income tax expense amounted to $6.3 million~~ for the six months ended June 30, ~~2019,~~2020 increased by $4.6 million or 15% when compared to the same period in the prior year. The increase is primarily related to higher professional services.

Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2020 amounted to $35.6 million, an increase of ~~$0.7~~$2.2 million or 6% when compared to the same period in the prior year. The increase is driven by higher capital expenditures in the prior year and software assets that went into production in the prior year.

Non-Operating Income (Expenses)



	Six months ended June 30,
In thousands	2020			2019			Variance 2020 vs. 2019

Interest income	$	736		$	516		$	220	43	%
Interest expense	(12,962		)	(14,924		)	1,962		(13	)%
Earnings of equity method investment	531			355			176		50	%
Other income (expense)	280			(871		)	1,151		(132	)%
Total non-operating expenses	$	(11,415	)	$	(14,924	)	$	3,509	(24	)%

Non-operating expenses for the six months ended June 30, 2020 decreased by $3.5 million to $11.4 million when compared ~~with~~to the ~~prior year~~same period ~~and an effective tax rate of 10.5% compared with 14.0%~~ in the prior year. The decrease is mainly related to a $2.0 million decrease in interest expense, resulting from

the scheduled amortization of debt and a reduction in interest rates coupled with an increase in other income (expense) of $1.2 million for the same reason explained above for the three months.

Income Tax Expense



	Six months ended June 30,
In thousands	2020		2019		Variance 2020 vs. 2019
Income tax expense	$	9,038	$	6,298	$	2,740	44	%

Income tax expense for the six months ended June 30, 2020 amounted to $9.0 million, an increase of $2.7 million when compared to the same period in the prior year. The effective tax rate for the period was 19.3%, compared with 10.5% in the 2019 period. The increase in the effective tax rate ~~is driven by~~primarily reflects the impact from discrete tax items of approximately $1.5 million, as well as, the impact of COVID-19 on the mix of business and other taxable items in foreign jurisdictions. Additionally, there may be some period-to-period volatility of our effective tax ~~benefit generated~~rate in future periods as our mix of income from ~~stock based compensation~~multiple tax jurisdictions and related income forecasts change due to the potential effects of ~~$1.0 million and the shift in taxable income in Puerto Rico.~~COVID-19.

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 ~~POS~~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) and ~~electronic benefit transfer (“EBT”)~~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 Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are

generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally ~~one-time transactions.~~non-recurring.

In addition to the four operating segments described above, ~~Management~~management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These ~~units~~areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these ~~units~~areas are aggregated and presented as

~~“Corporate~~within the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and ~~other~~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 ~~CODM~~Chief Operating Decision Maker ("CODM") reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted EBITDA. 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 ~~Accounting Standards Codification~~ASC Topic 280, ~~"Segment Reporting"~~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 performance.~~EBITDA. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated ~~condensed~~ financial statements.

The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below.

Comparison of the three months ended June 30, ~~2019~~2020 and ~~2018~~2019

Payment Services - Puerto Rico & Caribbean


	Three months ended June 30,		Three months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$30,482	$28,043	$27,461		$30,482
Adjusted EBITDA	20,319	18,358	13,276		20,319
Adjusted EBITDA Margin			48.3	%	66.7	%

Payment Services - Puerto Rico & Caribbean segment ~~revenue increased~~revenues for the three months ended June 30, 2020 decreased by ~~$2.4~~$3.0 million to ~~$30.5~~$27.5 million when compared ~~with~~to the ~~2018 period.~~same period in the prior year. The ~~increase~~decrease in revenues was driven by ~~higher~~a decline in transaction volumes ~~for POS~~due to the impact of COVID-19, partially offset by incremental revenue recognized from ATH Movil and ~~ATM coupled with~~ATH Movil Business transactions and new ~~transaction fees.~~services. Adjusted EBITDA ~~increased~~decreased by ~~$2.0~~$7.0 million to ~~$20.3~~$13.3 million primarily due to ~~the increase in revenues, partially offset by~~lower revenue, higher operating expenses ~~mainly~~ related to ~~software maintenance expense.~~post-implementation costs from an electronic benefits project, and higher costs of sales directly related to new services.

Payment Services - Latin America


	Three months ended June 30,		Three months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$21,106	$19,236	$19,797		$21,106
Adjusted EBITDA	7,773	4,796	6,084		7,773
Adjusted EBITDA Margin			30.7	%	36.8	%

Payment Services - Latin America segment ~~revenue increased $1.9~~revenues for the three months ended June 30, 2020 decreased $1.3 million to ~~$21.1~~$19.8 million driven mainly by ~~higher intercompany software sale~~the negative impact from foreign exchange losses and ~~development~~a decrease in transactional revenues ~~from the Payment Services - Latin America segment~~due to ~~the Payment Services Puerto Rico & Caribbean segment,~~COVID-19, and client attrition, partially offset by ~~anticipated client attrition.~~revenues generated by the acquisition of PlacetoPay in December 2019. Adjusted EBITDA ~~increased $3.0~~decreased $1.7 million when compared to the same period in the prior year ~~period~~primarily due to ~~higher~~the decrease in revenue ~~associated to intercompany services and licenses sold to Payment Services - Puerto Rico & Caribbean segment,~~ coupled with ~~a decrease in operating expenses.~~increased personnel costs and increased operational costs from the PlacetoPay acquisition.

Merchant Acquiring


	Three months ended June 30,		Three months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$26,793	$25,964	$24,764		$26,793
Adjusted EBITDA	12,251	12,638	13,382		12,251
Adjusted EBITDA Margin			54.0	%	45.7	%

Merchant Acquiring segment revenues for the three months ended June 30, 2020 decreased $2.0 million to $24.8 million primarily driven by a decrease in sales volumes and non-transactional revenue ~~increased to $26.8 million driven primarily by spread increases related to pricing,~~as a result of COVID-19, partially offset by ~~a slight decline~~an increase in ~~volumes.~~our net spread as our average ticket increased in comparison to the prior year. Adjusted EBITDA ~~decreased $0.4~~increased $1.1 million reflecting the impact ~~on margin from~~of lower operating expenses driven by the decreased volumes and the higher average ~~ticket during the quarter.~~ticket.

Business Solutions


	Three months ended June 30,		Three months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$55,183	$49,233	$55,495		$55,183
Adjusted EBITDA	24,266	23,152	24,024		24,266
Adjusted EBITDA Margin			43.3	%	44.0	%

Business Solutions segment ~~revenue~~revenues for the three months ended June 30, 2020 increased ~~$6.0~~$0.3 million to $55.2 million. The increase was mainly related to higher hardware and software sales coupled with revenue from new services provided to Popular and the Government of Puerto Rico. Adjusted EBITDA increased $1.1$55.5 million ~~to $24.3 million when compared with the prior year~~ as a result of ~~the higher~~an increase in services for Popular and increased network revenues, partially offset by ~~higher cost~~$2.5 million recognized for completed projects and hardware sales in the prior year that did not recur. Adjusted EBITDA decreased $0.2 million to $24.0 million as a result of ~~sales and~~an increase in operating ~~expenses.~~costs that completely offset the increase in revenue.

Comparison of the six months ended June 30, ~~2019~~2020 and ~~2018~~2019

Payment Services - Puerto Rico & Caribbean


	Six months ended June 30,		Six months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$62,499	$55,211	$57,348		$62,499
Adjusted EBITDA	41,582	35,668	29,350		41,582
Adjusted EBITDA Margin			51.2	%	66.5	%

Payment Services - Puerto Rico & Caribbean segment revenues ~~increased~~for the six months ended June 30, 2020 decreased by ~~$7.3~~$5.2 million to ~~$62.5 million.~~$57.3 million when compared to the 2019 period. The ~~increase~~decrease in revenues was driven by the ~~same reasons explained above for~~absence of the ~~quarter coupled with~~revenue

from a one-time project in the prior year of $2.7 million and a decline in transaction volumes due to the impact of COVID-19, partially offset by incremental revenue recognized from ATH Movil and ATH Movil Business transactions and new services. Adjusted EBITDA decreased by $12.2 million to $29.4 million primarily due to lower revenue, higher operating expenses related to post-implementation costs from an electronic benefits ~~contract~~project, and higher costs of ~~approximately $2.7 million. Adjusted EBITDA increased by $5.9 million mainly as a result of the increase in revenues, partially offset by higher operating expenses.~~sales directly related to new services.

Payment Services - Latin America


	Six months ended June 30,		Six months ended June 30,
In thousands	2019	2018	2020		2019
Revenues	$41,937	$39,627	$41,437		$41,937
Adjusted EBITDA	16,029	11,789	14,326		16,029
Adjusted EBITDA Margin			34.6	%	38.2	%

~~Payment services - Latin America revenue increased $2.3 million to $41.9 million driven by higher intercompany software sale and development revenues from the~~ Payment Services - Latin America segment revenues for the six months ended June 30, 2020 decreased $0.5 million to $41.4 million driven by the ~~Payment Services Puerto Rico & Caribbean segment,~~negative impact of foreign currency losses and the decrease in transactional revenues due to COVID-19 coupled with client attrition, partially offset by ~~one-time~~revenues generated from the acquisition of PlacetoPay in December 2019. Adjusted EBITDA decreased $1.7 million when compared to the same period in the prior year primarily due to revenues generated by PlacetoPay at a lower margin, coupled with increased personnel costs due to increased headcount and equipment expenses.

Merchant Acquiring



	Six months ended June 30,
In thousands	2020		2019
Revenues	$49,885		$52,767
Adjusted EBITDA	24,666		24,216
Adjusted EBITDA Margin	49.4	%	45.9	%

Merchant Acquiring segment revenues for the six months ended June 30, 2020 decreased $2.9 million to $49.9 million primarily driven by a decrease in sales volumes and non-transactional revenue as a result of COVID-19, partially offset by a higher spread as the average ticket increased when compared with the prior year. Adjusted EBITDA increased $0.5 million reflecting the impact of lower operating expenses resulting from lower transactions with a higher average ticket.

Business Solutions



	Six months ended June 30,
In thousands	2020		2019
Revenues	$111,438		$106,547
Adjusted EBITDA	51,469		47,314
Adjusted EBITDA Margin	46.2	%	44.4	%

Business Solutions segment revenues for the six months ended June 30, 2020 increased $4.9 million to $111.4 million. Revenue growth in the segment was driven by increased services to Popular and an increase in network services revenue, partially offset by $2.5 million in revenue for completed ~~implementations~~projects and hardware sales recognized in the prior year that did not ~~recur and by the impact from client attrition.~~recur. Adjusted EBITDA increased $4.2 million ~~when~~to $51.5 million compared to ~~the prior year period as a result of the same reason explained above for the quarter ending June 30, 2019.~~

~~Merchant Acquiring~~

Six months ended June 30,
In thousands 2019 2018
Revenues $52,767 $49,343
Adjusted EBITDA 24,216 23,490

Merchant acquiring revenues increased $3.4 million to $52.8 million when compared with the prior year period, driven by the same reasons above explained for the quarter coupled with electronic benefit disaster relief recovery funding that ended in March 2019. Increases in transactional fees contributed to higher net spreads versus the same period in the previous year, while higher non-transactional fees also helped to drive the year-over-year revenue increase. Adjusted EBITDA increased $0.7 million reflecting the increased revenues, partially offset by higher transaction processing charges and a lower average ticket.

~~Business Solutions~~

Six months ended June 30,
In thousands 2019 2018
Revenues $106,547 $97,154
Adjusted EBITDA 47,314 46,317

~~Business solutions revenue increased by $9.4 million to $106.5 million when compared with the~~ prior year mainly driven by the same reasons as in the June ending quarter. These revenue increases were coupled with revenue from incremental managed services from the Government of Puerto Rico. Adjusted EBITDA increased $1.0 million as a result of ~~the increase in revenue, partially offset by~~ higher costs of sales and costs incurred related to support and maintenance hours for Business Solutions applications. Additionally, the Company incurred in higher maintenance expenses related to infrastructure supporting the Business Solutions segment as we continue to replace obsolete assets.revenues.

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 $125.0 million Revolving Facility, of which ~~$116.9~~ $86.7

million was available for borrowing as of June 30, ~~2019.~~2020. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn.

AtAs of June 30, ~~2019,~~2020, we had cash and cash equivalents of ~~$64.0~~$146.9 million, of which ~~$50.1~~$60.8 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. We intend to indefinitely reinvest these funds outside of Puerto Rico, and based on our liquidity forecast, we will not 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 secured Revolving ~~Credit~~ 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 may be affected by general economic, financial and other factors beyond our control.


	Six months ended June 30,						Six months ended June 30,
(In thousands)	2019			2018			2020			2019

Cash provided by operating activities	$	75,950		$	76,856		$	87,252		$	75,950
Cash used in investing activities	(35,619		)	(15,838		)	(18,447		)	(35,619		)
Cash used in financing activities	(49,528		)	(50,976		)	(27,946		)	(49,528		)
(Decrease) increase in cash, cash equivalents and restricted cash	$	(9,197	)	$	10,042
Effect of foreign exchange rate on cash, cash equivalents and restricted cash							$	(2,890	)	$	—
Increase in cash, cash equivalents and restricted cash							$	37,969		$	(9,197	)

Net cash provided by operating activities for the six months ended June 30, ~~2019~~2020 was ~~$76.0~~$87.3 million compared ~~with cash provided by operating activities of $76.9~~to $76.0 million for the ~~corresponding 2018 period.~~same period in the prior year. The ~~$0.9~~$11.3 million ~~decrease~~increase in cash provided by operating activities is primarily driven by ~~more~~higher collections from customers coupled with a slight decrease in cash used for income tax payments due to ~~pay down accounts payable, accrued liabilities,~~deferrals and ~~income taxes, partially offset by higher net income.~~waivers in some countries related to COVID-19.

Net cash used in investing activities for the six months ended June 30, ~~2019~~2020 was ~~$35.6~~$18.4 million compared ~~with $15.8~~to $35.6 million for the ~~corresponding~~same period in ~~2018.~~the prior year. The ~~$19.8~~$17.2 million ~~increase~~decrease is attributable to ~~increases in~~lower capital ~~expenditures.~~expenditures as the prior year included significant hardware purchases as the Company refreshed key infrastructure.

Net cash used in financing activities for the six months ended June 30, ~~2019~~2020 was ~~$49.5~~$27.9 million compared ~~with $51.0~~to $49.5 million for the ~~corresponding 2018 period.~~same period in the prior year. The ~~$1.4~~$21.6 million decrease was mainly ~~related~~attributed to a ~~$12.0~~net $15.0 million ~~paydown in the prior year~~draw on the Revolving Facility, coupled with a ~~$29.1~~$20.9 million decrease in cash used to ~~paydown long-term debt. This~~repurchase common stock and $3.4 million decrease ~~was~~in withholding taxes paid on share-based compensation. These decreases were partially offset by ~~cash dividends paid amounting to $7.2 million and cash used for repurchases of common stock of $28.2 million, while in the prior year no cash was used for these activities, and~~ a ~~$4.1~~$17.0 million increase in ~~cash used for payment~~repayments of ~~statutory withholding taxes for share-based compensation.~~long-term debt.

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 $18.4 million and $35.6 million, ~~and $15.9 million for~~respectively, during the six months ended June 30, ~~2019~~2020 and ~~2018, respectively. Capital~~2019. Generally, we fund capital expenditures ~~are expected to be funded by~~with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility. ~~We expect capital expenditures to be in a range of $50 million to $55 million in 2019.~~

Dividend Payments

On February ~~15, 2019~~20, 2020 and April ~~25, 2019,~~21, 2020, the Company's Board declared ~~a regular~~ quarterly cash ~~dividend~~dividends of $0.05 per share ~~on the Company’s outstanding shares~~ of common stock, which ~~was~~were paid on ~~March 22, 2019~~April 3, 2020 and June ~~7, 2019,~~5, 2020, respectively, to stockholders of record as of the close of business on ~~February 26, 2019~~March 4, 2020 and May ~~6, 2019,~~4, 2020, respectively.

On July ~~25, 2019, the~~24, 2020, our 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 September ~~6, 2019,~~4, 2020 to stockholders of record as of the close of business on August ~~5, 2019. Any declaration~~3, 2020. The Board anticipates declaring this dividend in future quarters on a regular basis; however future declarations of dividends are subject to the Board’s approval and ~~payment of future dividends to holders of our common stock will~~may be ~~at the discretion of our Board and will depend on many factors, including our financial condition, earnings, available cash,~~adjusted as business ~~opportunities, legal requirements, restrictions in our debt agreements and other contracts, capital requirements, level of indebtedness and other factors that our Board deems relevant.~~needs or market conditions change.

Financial Obligations

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group (“Borrower”) entered into a credit agreement ~~governing~~providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 ~~"2023~~(the “2023 Term A"A Loan”), a $325.0 million term loan B facility that matures on November 27, 2024 ~~("2024~~(the “2024 Term B"B Loan”), and a $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”).

The 2018 Credit Agreement require mandatory repayment of outstanding principal balances based on a percentage of 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 5, 2020, the Company repaid $17.0 million as a result of excess cash flows for the year ended December 31, 2019.

The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Notes ~~payable~~Payable

In ~~May 2016,~~December 2019, EVERTEC Group entered into atwo non-interest bearing financing ~~agreement~~agreements amounting to ~~$0.7~~$2.4 million to purchase ~~software.~~software and maintenance. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the outstanding principal balance of the ~~note~~notes payable was ~~$0.2~~$1.5 million and ~~$0.3~~$2.4 million, respectively. The current portion of ~~this note~~these notes is ~~recorded as part of~~included in accounts payable and the long-term portion is included in other long-term ~~liabilities.~~

Interest Rate Swaps

AtAs of June 30, ~~2019,~~2020, the Company has ~~the following~~an interest rate swap ~~agreements converting~~agreement, entered into in December 2018, which converts a portion of the interest rate ~~exposure~~payments on the Company's 2024 Term B Loan from variable to fixed:



Swap Agreement	Effective date	Maturity Date	Notional Amount	Variable Rate	Fixed Rate
~~2015 Swap~~	~~January 2017~~	~~April 2020~~	~~$200 million~~	~~1-month LIBOR~~	~~1.9225%~~
2018 Swap	April 2020	November 2024	$250 million	1-month LIBOR	2.89%

The Company has accounted for ~~these transactions~~this agreement as a cash flow ~~hedges.~~hedge.

Additionally, the Company had an interest rate swap agreement that matured in April 2020, with a notional amount of $200 million and a fixed rate of 1.9225%. The Company accounted for this swap as a cash flow hedge from inception to maturity.

(In thousands) June 30, 2019 December 31, 2018
Other long-term assets $ 94
$ 1,683
Other long-term liabilities $ 13,574
$ 4,059

During the three and six months ended June 30, ~~2019,~~2020, the Company reclassified ~~gains~~losses of ~~$0.5~~$1.4 million and $1.6 million, respectively, from accumulated other comprehensive loss into ~~income through~~ interest expense. Based on current LIBOR rates, the Company expects to reclassify ~~gains~~losses of ~~$0.2~~$6.8 million from accumulated other comprehensive loss into ~~income through~~ interest expense over the next 12 months. ~~Refer to Note 6 for tabular disclosure of the fair value of derivatives and to Note 7 for tabular disclosure of losses recorded on cash flow hedging activities.~~

The cash flow hedge is considered highly effective.

Covenant Compliance

As of June 30, ~~2019, the~~2020, our secured leverage ratio was ~~2.17~~2.12 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 ~~Accounting Standards Codification~~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:


	Three months ended June 30,						Six months ended June 30,						Twelve months ended			Three months ended June 30,						Six months ended June 30,						Twelve months ended
(Dollar amounts in thousands, except per share information)	2019			2018			2019			2018			June 30, 2019			2020			2019			2020			2019			June 30, 2020
Net income	$	27,137		$	20,133		$	53,871		$	43,247		$	97,193		$	15,625		$	27,137		$	37,900		$	53,871		$	87,729
Income tax expense	2,489			3,112			6,298			7,047			11,847			4,520			2,489			9,038			6,298			15,715
Interest expense, net	7,116			7,501			14,408			15,023			28,642			5,810			7,116			12,226			14,408			25,412
Depreciation and amortization	17,195			15,728			33,468			31,595			64,940			17,839			17,195			35,634			33,468			70,248
EBITDA	53,937			46,474			108,045			96,912			202,622			43,794			53,937			94,798			108,045			199,104
Equity income ⁽¹⁾	353			258			131			59			(187		)	(193		)	353			(531		)	131			(1,113		)
Compensation and benefits⁽²⁾	3,498			4,473			6,937			8,302			12,294			3,751			3,498			7,251			6,937			14,112
Transaction, refinancing and other fees ⁽³⁾	9			2,563			280			2,463			5,387			2,849			9			4,973			280			5,191
Adjusted EBITDA	57,797			53,768			115,393			107,736			220,116			50,201			57,797			106,491			115,393			217,294
Operating depreciation and amortization ⁽⁴⁾	(8,878		)	(7,223		)	(16,843		)	(14,544		)	(31,507		)	(9,578		)	(8,878		)	(19,055		)	(16,843		)	(37,092		)
Cash interest expense, net ⁽⁵⁾	(6,998		)	(6,555		)	(14,130		)	(12,923		)	(27,310		)	(5,606		)	(6,998		)	(11,616		)	(14,130		)	(24,502		)
Income tax expense ⁽⁶⁾	(4,645		)	(5,367		)	(9,945		)	(10,934		)	(18,525		)	(7,079		)	(4,645		)	(14,257		)	(9,945		)	(24,551		)
Non-controlling interest ⁽⁷⁾	(112		)	(126		)	(224		)	(264		)	(432		)	(165		)	(112		)	(257		)	(224		)	(380		)
Adjusted net income	$	37,164		$	34,497		$	74,251		$	69,071		$	142,342		$	27,773		$	37,164		$	61,306		$	74,251		$	130,769
Net income per common share (GAAP):
Diluted	$	0.37		$	0.27		$	0.73		$	0.58					$	0.21		$	0.37		$	0.52		$	0.73
Adjusted Earnings per common share (Non-GAAP):
Diluted	$	0.51		$	0.46		$	1.01		$	0.93					$	0.38		$	0.51		$	0.84		$	1.01
Shares used in computing adjusted earnings per common share:
Diluted	73,300,553			74,389,126			73,649,933			73,905,690						72,774,365			73,300,553			73,019,219			73,649,933


1)	Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Dominican Republic, Consorcio de Tarjetas Dominicanas S.A. ("CONTADO"), net of ~~cash~~ dividends received.

Primarily represents share-based compensation and other compensation expense of $3.4 million and $3.7 million for the quarters ended June 30, 2019 and 2018, respectively and severance payments of $0.8 million for the quarter ended June 30, 2018. Primarily represents share-based compensation and other compensation expense of $6.7 million and $7.3 million for the six months ended June 30, 2019 and 2018 and severance payments of $0.2 million and $1.0 million for the same periods, respectively.compensation.


3)	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.~~expenses.


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 ~~discreet~~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~~Off-Balance Sheet Arrangements

In the ordinary course of business, the Company may enter into commercial commitments. AsWith the exception of the letters of credit issued against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility, as of June 30, ~~2019,~~2020, the Company did not have any ~~off balance~~off-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.

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 risks~~Rate Risks

We issued floating-rate debt which is subject to fluctuations in interest rates. Our secured credit facilities accrue interest at variable rates and only the 2024 Term B Loan is subject to a floor or a minimum rate. A 100 basis point increase in interest rates over our floor(s) on our debt balances outstanding as of June 30, ~~2019,~~2020, under the secured credit facilities, would increase our annual interest expense by approximately ~~$3.4~~$3.1 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 and December 2018, we entered into interest rate swap agreements which convert a portion of our outstanding variable rate debt to fixed. The interest rate swap entered into in December 2015 matured in April 2020.

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 US 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 56 of the Unaudited Condensed Consolidated ~~Condensed~~ Financial Statements for additional information related to the senior secured credit facilities.

Foreign ~~exchange risk~~Exchange 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 statements~~sheets. As of ~~income and comprehensive income. At~~ June 30, ~~2019,~~2020, the Company had ~~$17.3~~$24.1 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive loss compared with an unfavorable foreign currency translation adjustment of ~~$21.6~~$16.9 million at December 31, ~~2018.~~2019. Unfavorable foreign currency translation adjustments at June 30, 2020 were impacted by the atypical volatility of foreign currencies brought on by the unstable macroeconomic conditions resulting from the COVID-19 pandemic.

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) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, ~~2019,~~2020, the Company’s disclosure controls and procedures are 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 June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a

result of COVID-19, the majority of our global workforce shifted to a primarily work from home environment beginning in March 2020. This change to remote working was rapid and included both our employees in Puerto Rico as well as our workforce across all regions in which we operate. While pre-existing controls were not specifically designed to operate in our current work from home operating environment, the Company has not identified any material changes in the Company’s internal control over financial reporting as a result from this new way of work. The Company is continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.

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

~~There have been no material changes from the~~We previously disclosed risk factors ~~previously disclosed~~ under ~~Item~~"Item 1A. ~~of the Company’s~~Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. In addition to those risk factors and the other information included elsewhere in this report, investors should carefully consider the risk factors discussed below.

The outbreak of COVID-19 has had, and may have continue to have, a negative impact on the global economy and on our business, operations and results

The novel strain of coronavirus (“COVID-19”) first identified in Wuhan, China has now spread to nearly all regions around the world (including the markets where we conduct business) and was declared a pandemic by the World Health Organization on March 11, 2020. The outbreak, and measures taken to contain or mitigate it, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns, have had dramatic adverse consequences for the economy, including on demand, operations, supply chains and financial markets.

The effects of COVID-19 on our business and our financial condition include but are not limited to the following:

Significant decline in sales volumes and sales volumes mix in our Merchant Acquiring business;

Decreased number of POS and ATM transactions, and other services (e.g. Lockbox, ACH) affecting our Payments Services - Puerto Rico & Caribbean segment;

Changes in consumer behavior resulting from COVID-19, such as decreased consumer confidence and negative trends in consumer purchase patterns due to consumers’ disposable income, credit available and debt levels;

Decreased productivity due to travel bans, remote working policies or shelter-in-place orders; and

A slowdown of global economic activity, which has significantly impacted our customers, due to the crisis and governmental responses to the crisis.

The effects of the COVID-19 crisis to our business could be aggravated if the crisis continues, and we could also see additional operational impacts that may include the following:

lower than normal sales volumes and sales volumes mix in our merchant acquiring business;

continued decreased number of POS and ATM transactions, and other services affecting our Payments Services - Puerto Rico & Caribbean segment;

payment processing risks associated with disruptions to merchant activity and business failures including chargeback risk. As an unprecedented number of merchants have been required to suspend their operations, there may be an increase in consumer chargebacks associated with processed transactions that merchant clients have submitted but have not fulfilled. Merchants may be unable to fund these chargebacks, potentially resulting in losses to us;

the revenue streams for certain lines of business in the Business Solutions segment may be adversely affected, including but not limited to core banking, network services, IT consulting, cash processing and item processing, among others;

reduced transactional revenue in our Payments Services - Latin America segment;

increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity;

additional regulatory requirements, including, for example, government initiatives or requests to reduce or eliminate payment fees or other costs;

changes to normal operations, including the possibility of one or more clusters of COVID-19 cases affecting our employees;

impairments in our ability to deliver key projects on time, which may have an impact on our revenue for all segments during 2020 and beyond;

negative effects of general macroeconomic conditions on consumer confidence, including the impacts of any recession and rises in unemployment resulting from the COVID-19 pandemic, as well as significant reductions in consumer spending, which would result in a loss of profits and other material adverse effects;

significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by the temporary inability of consumers to purchase or use our products due to illness or quarantine, which would result in a loss of profits and other material adverse effects; and

the impact of public concern regarding the risk of contracting COVID-19 on demand from consumers, including due to consumers not leaving their homes or otherwise shopping in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic, which would result in a loss of profits and other material adverse effects.

These factors may prevail for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided, including any economic downturn or recession that has occurred or may occur in the future. If these effects are sustained, they could have accounting consequences such as impairments of tangible and intangible long-lived assets. They could affect our ability to operate effective internal control over financial reporting. They could also affect our ability to execute our expansion plans or invest in product development.

The adverse effect on our business, operations, or financial results of any of the matters described above could be material.

The future impact of the COVID-19 crisis on our business, operations, or financial results is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to:

the duration, scope, and severity of the COVID-19 pandemic;

the effectiveness of government actions to contain the virus or treat its impact; the disruption or delay of production and delivery of materials and products in our supply chain;

the length and impact of work-from-home policies and government restrictions, including travel bans and shelter-in-place orders;

the temporary or prolonged shutdown of manufacturing facilities or retail stores and decreased retail traffic;

staffing shortages;

general economic, financial, and industry conditions, particularly conditions relating to liquidity, financial performance, and related credit issues in all sectors of the economy (including but not limited to the retail sector), which may be amplified by the effects of COVID-19; and

the short, medium and long-term effects of COVID-19 on the global economy, particularly in the countries where we operate, including on consumer confidence and spending, unemployment and bankruptcy rates, financial markets and the availability of credit to us, our suppliers and our customers in the event that the extension of additional credit becomes necessary due to the continuation of the current state of affairs for a prolonged and undetermined period of time.

Remote work increases our risk of experiencing a material cyber-attack or other security-related incidents

As the COVID-19 pandemic unfolded globally, we moved quickly to transition a significant subset of our employee population to a remote working environment, which may exacerbate various cybersecurity risks to our business, including an increased demand for information technology resources, an increased risk of phishing and other cybersecurity attacks, and an increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information. See the risk factor titled “We are subject to security breaches or other confidential data theft from our systems, which can adversely affect our reputation and business” in our 2019 Form 10-K for more details.

The risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 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 three months period ended June 30, 2019:~~

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
4/1/2019-4/30/2019 52,961
$ 30.002
52,961

5/1/2019-5/31/2019 178,466
28.444
178,466

6/1/2019-6/30/2019 136,866
29.556
136,866

Total 368,293
$ 29.081
368,293
$ 34,149,097

~~(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.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



10.1*+	Form of Restricted Stock Unit Award Agreement for grant of restricted stock units to directors under the EVERTEC, Inc. 2013 Equity Incentive Plan, dated as of ~~May 30, 2019,~~June 1, 2020, by and between EVERTEC, Inc. and the director (applicable to Frank G. D'Angelo, Olga Botero, Jorge A. Junquera, Iván Pagán, Aldo J. Polak, Alan H. Schumacher, Brian J Smith, and Thomas W. Swidarski.
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.

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: August ~~2, 2019~~5, 2020	By:	/s/ Morgan Schuessler
		Morgan Schuessler Chief Executive Officer

Date: August ~~2, 2019~~5, 2020	By:	/s/ Joaquin A. Castrillo-Salgado
		Joaquin A. Castrillo-Salgado Chief Financial Officer (Principal Financial and Accounting Officer)

4044



Note 1 –- The Company and Basis of Presentation	67
Note 2 - Recent Accounting Pronouncements	68
Note 3 - Current Expected Credit Losses	9
Note 4 - Property and Equipment, Net	710
Note 45 - Goodwill and Other Intangible Assets	710
Note 56 - Debt and Short-Term Borrowings	811
Note 67 - Financial Instruments and Fair Value Measurements	10
~~Note 7 - Equity~~	1112
Note 8 - ~~Share-based Compensation~~Equity	1113
Note 9 - ~~Revenues~~Share-based Compensation	1113
Note 10 - ~~Income Tax~~Revenues	14
Note 11 - ~~Net~~ Income ~~per Common Share~~	15
~~Note 12 - Commitments and Contingencies~~Tax	16
Note 12 - Net Income per Common Share	17
Note 13 - Commitments and Contingencies	17
Note 14 - Related Party Transactions	1817
Note 1415 - Segment Information	18
Note 1516 - Subsequent Events	22



(In thousands)	Level 1		Level 2		Level 3		Total
June 30, 2019
Financial asset:
Interest rate swap	$	—	$	94	$	—	$	94
Financial liability:
Interest rate swap	—		13,574		—		13,574
December 31, 2018
Financial asset:
Interest rate swap	$	—	$	1,683	$	—	$	1,683
Financial liability:
Interest rate swap	—		4,059		—		4,059



	Six months ended June 30, 2018
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition
Products and services transferred at a point in time	$	193	$	429	$	—	$	2,209	$	2,831
Products and services transferred over time	37,304		39,198		49,343		94,945		220,790
	$	37,497	$	39,627	$	49,343	$	97,154	$	223,621



	Three months ended		Six months ended
	June 30, 2019		June 30, 2019
(in thousands)
Operating lease cost	$	2,003	$	3,926
Finance lease cost
Amortization of right-of-use assets	65		132
Interest on lease liabilities	7		15
Variable lease cost	703		1,417
	$	2,778	$	5,490



(In thousands)
Right-of-use assets obtained in exchange for operating lease obligations:	$	273
Weighted average remaining lease term, in years
Operating leases	6.4
Finance leases	1.4
Weighted Average Discount Rate
Operating leases	4.5		%
Finance leases	4.3		%



	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
4/1/2019-4/30/2019	52,961	$	30.002	52,961
5/1/2019-5/31/2019	178,466	28.444		178,466
6/1/2019-6/30/2019	136,866	29.556		136,866
Total	368,293	$	29.081	368,293	$	34,149,097

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company