UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022 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 ☐

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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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At ~~October 20, 2021,~~July 29, 2022, there were ~~71,969,856~~66,778,164 outstanding shares of common stock of EVERTEC, Inc.

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		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~Ju ne 3 0 , 2022 and December 31, ~~2020~~2021	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and ~~nine~~six months ended ~~September 30,~~Ju ne 3 0 , 2022 and 2021 ~~and 2020~~	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~nine~~six months ended ~~September 30,~~ Ju ne 3 0 , 2022 and 2021 ~~and 2020~~	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 30,~~Ju ne 3 0 , 2022 and 2021 ~~and 2020~~	5
	Notes to Unaudited Condensed Consolidated Financial Statements	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2225
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3538
Item 4.	Controls and Procedures	3539
Part II. OTHER INFORMATION		3640
Item 1.	Legal Proceedings	3640
Item 1A.	Risk Factors	3640
Item 2.	Unregistered Sales of Equity in Securities and Use of Proceeds	3640
Item 3.	Defaults Upon Senior Securities	3640
Item 4.	Mine Safety Disclosures	3640
Item 5.	Other Information	3641
Item 6.	Exhibits	3742
SIGNATURES		3843

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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~~differ materially from those in the forward-looking statements as a result of various ~~important~~ factors. Among the ~~important~~ 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 second amended and restated Master Services Agreement ~~("MSA"~~(“MSA”) 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 grant to Popular with respect to pricing or other key terms arising out of any disputes or 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 macroeconomic, market, international, legal, tax, political, or administrative conditions, including inflation or ~~economic conditions;~~the risk of recession;

•the geographical concentration of our business in Puerto Rico, including our business with the government of Puerto Rico and its instrumentalities, which are facing severe political and fiscal challenges;

•additional adverse changes in the general economic conditions in Puerto Rico, whether as a result of the government’s debt crisis or otherwise, including the continued migration of Puerto Ricans to the U.S. mainland, which could negatively affect our customer base, general consumer spending, our cost of operations and our ability to hire and retain qualified employees;

•operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;

•our ability to protect our intellectual property rights against infringement and to defend ourselves against claims of infringement brought by third parties;

•our ability to comply with U.S. federal, state, local and foreign regulatory requirements;

•evolving industry standards and adverse changes in global economic, political and other conditions;

•our level of indebtedness and the impact of rising interest rates, restrictions contained in our debt agreements, including the secured credit facilities, as well as debt that could be incurred in the future;

•our ability to prevent a cybersecurity attack or breach into our information security;

•the possibility that we could lose our preferential tax rate in Puerto Rico;

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•the possibility of future catastrophic hurricanes, earthquakes and other potential natural disasters affecting our main markets in Latin America and the Caribbean; and

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

•the continued impact of the COVID-19 pandemic and measures taken in response to the outbreak, on our resources, net income and liquidity due to current and future disruptions in operations as well as the macroeconomic instability caused by the pandemic; and

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

2021

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 ~~important~~ factors, including those set forth under ~~“Item~~“Part 1, Item 1A. Risk Factors,” ofin our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) on ~~March 1, 2021,~~February 25, 2022, as updated by Part II, Item 1A. “Risk Factors” in this Report, and as updated in our subsequent filings with the SEC, and 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 ~~except as required by applicable law,~~ we do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

~~Where You Can Find More Information~~WHERE YOU CAN FIND MORE INFORMATION

All reports we file with the SEC are available ~~for download~~ free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at ~~www.sec.gov~~.www.sec.gov. We also provide copies of our SEC filings ~~free of~~at no charge upon request and make electronic copies of our reports available for download ~~free of charge,~~ through our website at www.evertecinc.comas soon as reasonably practicable after filing such material with the SEC. ~~Information contained on our website is not part of this Report.~~

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EVERTEC, Inc. Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for share information)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	244,129	$	202,649	Cash and cash equivalents	$	288,064	$	266,351
Restricted cash	Restricted cash	18,664		18,456		Restricted cash	22,576		19,566
Accounts receivable, net	Accounts receivable, net	95,548		95,727		Accounts receivable, net	107,685		113,285
Prepaid expenses and other assets	Prepaid expenses and other assets	44,733		42,214		Prepaid expenses and other assets	46,307		37,148
Assets held-for-sale						Assets held-for-sale	25,161		—
Total current assets	Total current assets	403,074		359,046		Total current assets	489,793		436,350
Debt securities available-for-sale, at fair value	Debt securities available-for-sale, at fair value	3,060		—		Debt securities available-for-sale, at fair value	2,397		3,041
Investment in equity investee	Investment in equity investee	11,248		12,835		Investment in equity investee	15,120		12,054
Property and equipment, net	Property and equipment, net	42,780		43,538		Property and equipment, net	48,122		48,533

Operating lease right-of-use asset	Operating lease right-of-use asset	22,625		27,538		Operating lease right-of-use asset	19,330		21,229
Goodwill	Goodwill	394,536		397,670		Goodwill	385,536		393,318
Other intangible assets, net	Other intangible assets, net	219,615		219,909		Other intangible assets, net	189,604		213,288
Deferred tax asset	Deferred tax asset	4,993		5,730		Deferred tax asset	7,057		6,910
Net investment in leases	Net investment in leases	178		301		Net investment in leases	—		107
Other long-term assets	Other long-term assets	6,384		6,012		Other long-term assets	12,382		9,926
Total assets	Total assets	$	1,108,493	$	1,072,579	Total assets	$	1,169,341	$	1,144,756
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accrued liabilities	Accrued liabilities	$	68,555	$	58,033	Accrued liabilities	$	79,039	$	74,540
Accounts payable	Accounts payable	34,069		43,348		Accounts payable	34,439		28,484
Contract liability	Contract liability	21,304		24,958		Contract liability	21,403		17,398
Income tax payable	Income tax payable	4,597		6,573		Income tax payable	3,011		7,132
Current portion of long-term debt	Current portion of long-term debt	18,375		14,250		Current portion of long-term debt	22,500		19,750

Operating lease payable		5,900		5,830
Current portion of operating lease liability						Current portion of operating lease liability	5,921		5,580
Total current liabilities	Total current liabilities	152,800		152,992		Total current liabilities	166,313		152,884
Long-term debt	Long-term debt	449,435		481,041		Long-term debt	432,723		444,785
Deferred tax liability	Deferred tax liability	1,819		2,748		Deferred tax liability	2,142		2,369
Contract liability - long term	Contract liability - long term	31,109		31,336		Contract liability - long term	32,743		36,258
Operating lease liability - long-term	Operating lease liability - long-term	17,511		22,402		Operating lease liability - long-term	14,940		16,456
Derivative liability	Derivative liability	18,104		25,578		Derivative liability	—		13,392
Other long-term liabilities	Other long-term liabilities	9,785		14,053		Other long-term liabilities	7,879		8,344
Total liabilities	Total liabilities	680,563		730,150		Total liabilities	656,740		674,488
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)	0		0
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued	Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued	—		—		Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued	—		—
Common stock, par value $0.01; 206,000,000 shares authorized; 71,969,856 shares issued and outstanding as of September 30, 2021 (December 31, 2020 - 72,137,678)		719		721
Common stock, par value $0.01; 206,000,000 shares authorized; 71,367,324 shares issued and outstanding as of June 30, 2022 (December 31, 2021 - 71,969,856)						Common stock, par value $0.01; 206,000,000 shares authorized; 71,367,324 shares issued and outstanding as of June 30, 2022 (December 31, 2021 - 71,969,856)	713		719
Additional paid-in capital	Additional paid-in capital	3,708		5,340		Additional paid-in capital	1,671		7,565
Accumulated earnings	Accumulated earnings	468,533		379,934		Accumulated earnings	545,814		506,051
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(49,166)		(48,254)		Accumulated other comprehensive loss, net of tax	(39,452)		(48,123)
Total EVERTEC, Inc. stockholders’ equity	Total EVERTEC, Inc. stockholders’ equity	423,794		337,741		Total EVERTEC, Inc. stockholders’ equity	508,746		466,212
Non-controlling interest	Non-controlling interest	4,136		4,688		Non-controlling interest	3,855		4,056
Total equity	Total equity	427,930		342,429		Total equity	512,601		470,268
Total liabilities and equity	Total liabilities and equity	$	1,108,493	$	1,072,579	Total liabilities and equity	$	1,169,341	$	1,144,756

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

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

(In thousands, except per share information)


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021

Revenues (affiliates Note 15)	Revenues (affiliates Note 15)	$	145,883	$	136,507	$	434,559	$	376,386	Revenues (affiliates Note 15)	$	160,571	$	149,148	$	310,819	$	288,676

Operating costs and expenses	Operating costs and expenses									Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	Cost of revenues, exclusive of depreciation and amortization	62,995		57,854		182,180		168,900		Cost of revenues, exclusive of depreciation and amortization	74,313		59,381		138,972		119,185
Selling, general and administrative expenses	Selling, general and administrative expenses	17,126		16,682		49,980		51,528		Selling, general and administrative expenses	20,051		16,752		40,435		32,854
Depreciation and amortization	Depreciation and amortization	18,745		18,127		56,091		53,761		Depreciation and amortization	19,560		18,723		38,720		37,346
Total operating costs and expenses	Total operating costs and expenses	98,866		92,663		288,251		274,189		Total operating costs and expenses	113,924		94,856		218,127		189,385
Income from operations	Income from operations	47,017		43,844		146,308		102,197		Income from operations	46,647		54,292		92,692		99,291
Non-operating income (expenses)	Non-operating income (expenses)									Non-operating income (expenses)
Interest income	Interest income	504		429		1,343		1,165		Interest income	805		450		1,472		839
Interest expense	Interest expense	(5,684)		(5,867)		(17,248)		(18,829)		Interest expense	(5,932)		(5,658)		(11,479)		(11,564)
Earnings of equity method investment	Earnings of equity method investment	411		202		1,307		733		Earnings of equity method investment	862		394		1,432		896
Other income, net		146		2,486		2,719		2,766
Other (expenses) income										Other (expenses) income	(1,138)		2,245		2,168		2,573
Total non-operating expenses	Total non-operating expenses	(4,623)		(2,750)		(11,879)		(14,165)		Total non-operating expenses	(5,403)		(2,569)		(6,407)		(7,256)
Income before income taxes	Income before income taxes	42,394		41,094		134,429		88,032		Income before income taxes	41,244		51,723		86,285		92,035
Income tax expense	Income tax expense	7,134		6,513		14,474		15,551		Income tax expense	7,688		2,632		13,863		7,340
Net income	Net income	35,260		34,581		119,955		72,481		Net income	33,556		49,091		72,422		84,695
Less: Net (loss) income attributable to non-controlling interest		(54)		118		(59)		323
Less: Net loss attributable to non-controlling interest										Less: Net loss attributable to non-controlling interest	(33)		(106)		(65)		(5)
Net income attributable to EVERTEC, Inc.’s common stockholders	Net income attributable to EVERTEC, Inc.’s common stockholders	35,314		34,463		120,014		72,158		Net income attributable to EVERTEC, Inc.’s common stockholders	33,589		49,197		72,487		84,700
Other comprehensive income (loss), net of tax of $382, $(2), $817 and $(1,087)
Other comprehensive income (loss), net of tax of $(18), $11, $405 and $435										Other comprehensive income (loss), net of tax of $(18), $11, $405 and $435
Foreign currency translation adjustments	Foreign currency translation adjustments	(6,942)		(3,245)		(7,823)		(10,483)		Foreign currency translation adjustments	(6,549)		1,732		(4,335)		(881)
Gain (loss) on cash flow hedge		1,537		643		6,814		(11,894)
Unrealized gain on change in fair value of debt securities available-for-sale		8		—		97		—
Gain on cash flow hedges										Gain on cash flow hedges	3,337		1,088		13,062		5,277
Unrealized (loss) gain on change in fair value of debt securities available-for-sale										Unrealized (loss) gain on change in fair value of debt securities available-for-sale	$	(29)	$	89	$	(56)	$	89
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	29,917	$	31,861	$	119,102	$	49,781	Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	30,348	$	52,106	$	81,158	$	89,185
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.49	$	0.48	$	1.66	$	1.00	Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.47	$	0.68	$	1.01	$	1.17
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.48	$	0.47	$	1.65	$	0.99	Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.47	$	0.68	$	1.00	$	1.16

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

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

(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			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, 2020		72,137,678	$	721	$	5,340	$	379,934	$	(48,254)	$	4,688	$	342,429
Balance at December 31, 2021															Balance at December 31, 2021	71,969,856	$	719	$	7,565	$	506,051	$	(48,123)	$	4,056	$	470,268
Share-based compensation recognized	Share-based compensation recognized	—	—		3,380		—		—		—		3,380		Share-based compensation recognized	—	—		4,279		—		—		—		4,279
Repurchase of common stock	Repurchase of common stock	(382,974)	(4)		(1,290)		(12,974)		—		—		(14,268)		Repurchase of common stock	(521,643)	(5)		(6,193)		(14,981)		—		—		(21,179)
Restricted stock units delivered	Restricted stock units delivered	411,739	4		(7,430)		(1,302)		—		—		(8,728)		Restricted stock units delivered	251,085	3		(5,651)		—		—		—		(5,648)
Net income	Net income	—	—		—		35,503		—		101		35,604		Net income	—	—		—		38,898		—		(32)		38,866
Cash dividends declared on common stock, $0.05 per share	Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,605)		—		—		(3,605)		Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,598)		—		—		(3,598)
Other comprehensive income (loss)		—	—		—		—		1,576		(381)		1,195
Balance at March 31, 2021		72,166,443	$	721	$	—	$	397,556	$	(46,678)	$	4,408	$	356,007
Other comprehensive income															Other comprehensive income	—	—		—		—		11,912		248		12,160

Balance at March 31, 2022															Balance at March 31, 2022	71,699,298	$	717	$	—	$	526,370	$	(36,211)	$	4,272	$	495,148
Share-based compensation recognized	Share-based compensation recognized	—	—		3,855		—		—		—		3,855		Share-based compensation recognized	—	—		5,165		—		—		—		5,165
Repurchase of common stock	Repurchase of common stock	(231,314)	(2)		(3,790)		(6,328)		—		—		(10,120)		Repurchase of common stock	(357,114)	(4)		(3,466)		(10,566)		—		—		(14,036)
Restricted stock units delivered	Restricted stock units delivered	34,727	—		(65)		—		—		—		(65)		Restricted stock units delivered	25,149	—		(28)		—		—		—		(28)
Net income		—	—		—		49,197		—		(106)		49,091
Net income (loss)															Net income (loss)	—	—		—		33,589		—		(33)		33,556
Cash dividends declared on common stock, $0.05 per share	Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,608)		—		—		(3,608)		Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,579)		—		—		(3,579)
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—		—		2,909		(25)		2,884		Other comprehensive income (loss)	—	—		—		—		(3,241)		(384)		(3,625)
Balance at June 30, 2021		71,969,856	$	719	$	—	$	436,817	$	(43,769)	$	4,277	$	398,044
Share-based compensation recognized		—	—		3,708		—		—		—		3,708

Balance at June 30, 2022															Balance at June 30, 2022	71,367,333	713		1,671		545,814		(39,452)		3,855		512,601

Net income		—	—		—		35,314		—		(54)		35,260
Cash dividends declared on common stock, $0.05 per share		—	—		—		(3,598)		—		—		(3,598)
Other comprehensive loss		—	—		—		—		(5,397)		(87)		(5,484)

Balance at September 30, 2021		71,969,856	$	719	$	3,708	$	468,533	$	(49,166)	$	4,136	$	427,930

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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 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 from the implementation of Current Expected Credit Loss model — — — (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
Restricted stock units delivered (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 loss — — — — 389 295 684
Balance at June 30, 2020 71,862,860 $ 719 $ 3,568 $ 320,382 $ (49,784) $ 4,083 $ 278,968
Share-based compensation recognized — — 3,663 — — — 3,663
Repurchase of common stock — — (679) — — — (679)
Restricted stock units delivered 43,385 — — — — — —
Net income — — — 34,463 — 118 34,581
Cash dividends declared on common stock, $0.05 per share — — — (3,593) — — (3,593)
Other comprehensive loss — — — — (2,602) (130) (2,732)
Balance at September 30, 2020 71,906,245 $ 719 $ 6,552 $ 351,252 $ (52,386) $ 4,071 $ 310,208


	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, 2020	72,137,678	$	721	$	5,340	$	379,934	$	(48,254)	$	4,688	$	342,429
Share-based compensation recognized	—	—		3,380		—		—		—		3,380
Repurchase of common stock	(382,974)	(4)		(1,290)		(12,974)		—		—		(14,268)
Restricted stock units delivered	411,739	4		(7,430)		(1,302)		—		—		(8,728)
Net income	—	—		—		35,503		—		101		35,604
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,605)		—		—		(3,605)
Other comprehensive income (loss)	—	—		—		—		1,576		(381)		1,195

Balance at March 31, 2021	72,166,443	$	721	$	—	$	397,556	$	(46,678)	$	4,408	$	356,007
Share-based compensation recognized	—	—		3,855		—		—		—		3,855
Repurchase of common stock	(231,314)	(2)		(3,790)		(6,328)		—		—		(10,120)
Restricted stock units delivered	34,727	—		(65)		—		—		—		(65)
Net income	—	—		—		49,197		—		(106)		49,091
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,608)		—		—		(3,608)
Other comprehensive income (loss)	—	—		—		—		2,909		(25)		2,884
Balance at June 30, 2021	71,969,856	$	719	$	—	$	436,817	$	(43,769)	$	4,277	$	398,044

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

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EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

Nine months ended September 30,
2021 2020
Cash flows from operating activities
Net income $ 119,955 $ 72,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 56,091 53,761
Amortization of debt issue costs and accretion of discount 1,423 1,530
Operating lease amortization 4,443 4,377
Provision for expected credit losses and sundry losses 1,428 1,732
Deferred tax benefit (1,119) (2,082)
Share-based compensation 10,943 10,785
Gain from sale of assets (778) —
Loss on disposition of property and equipment and impairment of intangible 1,168 753
Earnings of equity method investment (1,307) (733)
Dividend received from equity method investment 1,183 —
(Increase) decrease in assets:
Accounts receivable, net (593) (7,096)
Prepaid expenses and other assets (3,070) (7,138)
Other long-term assets (339) 284
(Decrease) increase in liabilities:
Accrued liabilities and accounts payable (1,425) (7,969)
Income tax payable (2,685) 1,548
Contract liability (2,654) 2,350
Operating lease liabilities (4,107) (5,720)
Other long-term liabilities (2,702) 2,296
Total adjustments 55,900 48,678
Net cash provided by operating activities 175,855 121,159
Cash flows from investing activities
Additions to software (31,004) (23,521)
Acquisition of customer relationship (14,750) —
Property and equipment acquired (12,388) (13,402)
Proceeds from sales of property and equipment 805 3
Acquisition of available-for-sale debt securities (2,968) —
Net cash used in investing activities (60,305) (36,920)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation (8,793) (3,456)
Repayment of short-term borrowings for purchase of equipment and software (1,603) (1,553)
Dividends paid (10,811) (10,786)
Repurchase of common stock (24,388) (7,300)
Repayment of long-term debt (28,482) (27,685)
Net cash used in financing activities (74,077) (50,780)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash 215 (2,384)
Net increase in cash, cash equivalents and restricted cash 41,688 31,075
Cash, cash equivalents and restricted cash at beginning of the period 221,105 131,121
Cash, cash equivalents and restricted cash at end of the period $ 262,793 $ 162,196
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 244,129 $ 144,147
Restricted cash 18,664 18,049
Cash, cash equivalents and restricted cash $ 262,793 $ 162,196
Supplemental disclosure of cash flow information:
Cash paid for interest $ 16,289 $ 18,081
Cash paid for income taxes 19,468 15,257
Supplemental disclosure of non-cash activities:
Payable due to vendor related to equipment and software acquired $ 739 $ 1,486

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	Six months ended June 30,
	2022		2021
Cash flows from operating activities
Net income	$	72,422	$	84,695
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,720		37,346
Amortization of debt issue costs and accretion of discount	805		991
Operating lease amortization	3,056		2,938
Provision for expected credit losses and sundry losses	1,795		85
Deferred tax benefit	(1,210)		(947)
Share-based compensation	9,444		7,235

Gain from sale of assets	—		(778)
Loss on disposition of property and equipment and impairment of software	4,370		1,106
Earnings of equity method investment	(1,432)		(896)
Dividend received from equity method investment	—		1,183
Loss on valuation of foreign currency	1,046		—
(Increase) decrease in assets:
Accounts receivable, net	2,759		(48)
Prepaid expenses and other assets	(1,972)		1,407
Other long-term assets	(3,965)		(14)
Increase (decrease) in liabilities:
Accrued liabilities and accounts payable	7,397		(10,899)
Income tax payable	(3,862)		(3,398)

Unearned income	1,025		(1,664)
Operating lease liabilities	(1,605)		(3,438)
Other long-term liabilities	1,109		(2,875)
Total adjustments	57,480		27,334
Net cash provided by operating activities	129,902		112,029
Cash flows from investing activities


Additions to software	(18,918)		(21,317)
Acquisition of customer relationships	(10,607)		(14,750)

Property and equipment acquired	(10,051)		(8,803)
Proceeds from sales of property and equipment	76		802
Purchase of certificates of deposit	(7,264)		—
Proceeds from maturities of available-for-sale debt securities	572		—
Acquisition of available-for-sale debt securities	—		(2,968)
Net cash used in investing activities	(46,192)		(47,036)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation	(5,676)		(8,793)


Repayment of short-term borrowings for purchase of equipment and software	(853)		(1,556)
Dividends paid	(7,177)		(7,213)

Repurchase of common stock	(35,215)		(24,388)
Repayment of long-term debt	(9,875)		(24,919)
Net cash used in financing activities	(58,796)		(66,869)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	(191)		73
Net increase (decrease) in cash, cash equivalents and restricted cash	24,723		(1,803)
Cash, cash equivalents and restricted cash at beginning of the period	285,917		221,105
Cash, cash equivalents and restricted cash at end of the period	$	310,640	$	219,302
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	288,064	$	199,891
Restricted cash	22,576		19,411
Cash, cash equivalents and restricted cash	$	310,640	$	219,302
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,034	$	10,940
Cash paid for income taxes	12,868		7,835




Supplemental disclosure of non-cash activities:

Payable due to vendor related to equipment and software acquired	$	—	$	721

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

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Notes to Unaudited Condensed Consolidated Financial Statements

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Note 1 – The Company and Basis of Presentation

The Company

EVERTEC, Inc. and its subsidiaries (collectively the ~~“Company,”~~“Company” or “EVERTEC”) is a leading full-service ~~transaction-processing~~transaction processing business in ~~Puerto Rico,~~Latin America and the ~~Caribbean and Latin America.~~Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment ~~services~~processing and business process management services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, one of the leading personal identification number ("PIN") debit and automated teller machine ("ATM") networks in the Caribbean and Latin America. In addition, EVERTEC ~~manages a system of electronic payment networks and offers~~provides a comprehensive suite of services for core bank processing and cash processing ~~and fulfillment~~ in Puerto ~~Rico. In addition, EVERTEC offers~~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.~~operations.

Basis of Presentation

The unaudited condensed consolidated 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 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 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 Securities and Exchange Commission and, accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended December 31, ~~2020,~~2021, included in the Company’s ~~2020~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021. In the opinion of management, the accompanying unaudited condensed consolidated financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.

Note 2 – ~~Recent Accounting Pronouncements~~Held-for-Sale

On February 24, 2022, the Company entered into a definitive agreement with Banco Popular de Puerto Rico and its parent, Popular, to sell software and prepaid assets and transfer certain employees in connection with those assets (the "Disposal group"). As consideration for the sale of the Disposal Group, Popular will deliver 4.6 million shares of Evertec stock held by Popular (the "Popular Transaction"). The Popular Transaction closed on July 1, 2022, refer to Note 17, Subsequent Events of the unaudited condensed consolidated financial statements for further details.

Accounting ~~Pronouncements Issued Prior~~Policy

An asset or a disposal group is classified as held for sale in the period in which the following criteria are met: (a) management commits to ~~2021~~a plan to sell; (b) the asset or disposal group is available for sale in its present condition; (c) an active program to locate a buyer and ~~Not Yet Adopted~~other actions to complete the plan to sell have been initiated; (d) the sale of the asset or disposal group is probable within one year; (e) the asset or disposal group is being be actively marketed; and (f) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated, or if it is an operation within such a cash-generating unit.

Assets and disposal groups classified as held for sale are measured at the lower of carrying amount or fair value less costs to sell. Any excess of the carrying amount over the fair value less costs to sell is recognized as an impairment loss. Depreciation of assets that have been classified as held for sale is discontinued upon classification.

Given that the Disposal Group pertains to the Business Solutions segment and that the Company concluded that it constitutes a business, goodwill from this segment was allocated to the Popular Transaction and is reflected as part of the Held-for-Sale balance.

~~In March 2020,~~

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The following table details 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 periodcarrying amount 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 becausemajor classes 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 existingassets classified as held-for-sale 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 all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance will not have an impact on the Company's unaudited condensed consolidated financial statements.June 30, 2022:


	June 30, 2022
(In thousands)

Prepaid expenses and other assets	$	513
Other intangible assets, net	18,835
Goodwill	5,813
Assets held-for-sale	$	25,161

Note 3 – Debt Securities

~~Accounting policy~~The amortized cost, gross unrealized gains and losses recorded in OCI and estimated fair value of debt securities available-for-sale by contractual maturity as of June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022
(In thousands)			Gross unrealized
	Amortized cost		Gains	Losses	Fair Value
Costa Rica Government Obligations
After 1 to 5 years	$	2,426	—	(29)	$	2,397


	December 31, 2021
(In thousands)			Gross unrealized
	Amortized cost		Gains		Losses		Fair Value
Costa Rica Government Obligations
After 1 to 5 years	$	2,963	$	78	$	—	$	3,041

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

Quarterly, for debt securities in an unrealized loss position that the Company does not intend or will, more likely than not, not be required to sell, the Company evaluates if the decline in fair value has resulted from credit losses or other factors. If it is determined that the decline in fair value is related to credit losses, the Company records an allowance for credit losses, limited

to the amount by which the fair value is less than the amortized cost basis. If the Company determines that the decline in value is related to factors other than credit, the Company recognizes the impairment through OCI.

~~Debt securities were purchased close to the final trading day of the quarter ended March 31, 2021 and~~ are held by a trust in the Costa Rica National Bank as a collateral requirement for settlement activities. The Company may substitute securities as needed but must maintain certain levels of collateral based on transaction volumes.

~~The amortized cost, gross unrealized gains and losses recorded in OCI, and estimated fair value as of September 30, 2021 were as follows:~~

September 30, 2021
(In thousands) Gross unrealized
Amortized cost Gains Losses Fair Value
Costa Rica Government Obligations
After 1 to 5 years $ 2,963 97 — $ 3,060

No debt securities were sold during the ~~quarter~~six months ended ~~September~~June 30, ~~2021.~~2022. Debt securities amounting to $0.6 million matured during the six months ended June 30, 2022. A provision for credit losses was not required for the ~~period~~periods presented above. Refer to Note 7 for disclosure requirements related to the fair value hierarchy.

Note 4 – Property and Equipment, net

Property and equipment, net consists of the following:


(In thousands)	(In thousands)	Useful life in years	September 30, 2021		December 31, 2020		(In thousands)	Useful life in years	June 30, 2022		December 31, 2021
Buildings	Buildings	30	$	1,394	$	1,437	Buildings	30	$	1,269	$	1,359
Data processing equipment	Data processing equipment	3 - 5	132,832		124,897		Data processing equipment	3 - 5	146,811		141,359
Furniture and equipment	Furniture and equipment	3 - 20	7,372		6,691		Furniture and equipment	3 - 20	8,234		7,718
Leasehold improvements	Leasehold improvements	5 -10	3,126		3,098		Leasehold improvements	5 -10	3,259		3,277
			144,724		136,123				159,573		153,713
Less - accumulated depreciation and amortization	Less - accumulated depreciation and amortization		(103,160)		(93,826)		Less - accumulated depreciation and amortization		(112,558)		(106,365)
Depreciable assets, net	Depreciable assets, net		41,564		42,297		Depreciable assets, net		47,015		47,348
Land	Land		1,216		1,241		Land		1,107		1,185
Property and equipment, net	Property and equipment, net		$	42,780	$	43,538	Property and equipment, net		$	48,122	$	48,533

Depreciation and amortization expense related to property and equipment for ~~the~~ three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 amounted to ~~$4.2~~$4.6 million and ~~$13.0~~$9.3 million, respectively, compared to $4.4 million and ~~$12.9~~$8.8 million for the corresponding periods in ~~2020.~~2021.

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During the ~~nine~~six months ended ~~September~~June 30, 2021, the Company recorded a loss on the disposition of damaged POS devices amounting to $0.5 million through cost of revenues.

Note 5 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (see Note 16):


(In thousands)	(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total		(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Balance at December 31, 2020		$	160,972	$	52,754	$	138,121	$	45,823	$	397,670
Balance at December 31, 2021												Balance at December 31, 2021	$	160,972	$	48,402	$	138,121	$	45,823	$	393,318

Foreign currency translation adjustments	Foreign currency translation adjustments	—		(3,134)		—		—		(3,134)		Foreign currency translation adjustments	—		(1,969)		—		—		(1,969)
Balance at September 30, 2021		$	160,972	$	49,620	$	138,121	$	45,823	$	394,536
Goodwill reclassified to held-for-sale												Goodwill reclassified to held-for-sale	—		—		—		(5,813)		(5,813)
Balance at June 30, 2022												Balance at June 30, 2022	$	160,972	$	46,433	$	138,121	$	40,010	$	385,536

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 a qualitative analysis, the Company assesses whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount. 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 is recorded for the excess of the carrying value over the fair value, limited to the recorded balance of goodwill. No impairment losses were recognized for the periods ended ~~September~~June 30, ~~2021~~2022 or ~~2020.~~2021.

As of June 30, 2022, Goodwill of $5.8 million is classified as held-for-sale as the Company entered into a commitment to sell certain assets and transfer certain employees under the Popular Transaction, this commitment constitutes the sale of a business under ASC 805, refer to Note 2 – Held-for-Sale for further details.

The carrying amount of other intangible assets at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was as follows:

September 30, 2021
(In thousands) Useful life in years Gross
amount Accumulated
amortization Net carrying
amount
Customer relationships 8 - 14 $ 358,191 $ (266,047) $ 92,144
Trademarks 2 - 15 41,926 (36,385) 5,541
Software packages 3 - 10 317,799 (210,946) 106,853
Non-compete agreement 15 56,539 (41,462) 15,077
Other intangible assets, net $ 774,455 $ (554,840) $ 219,615


			December 31, 2020								June 30, 2022
(Dollar amounts in thousands)		Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
(In thousands)									(In thousands)	Useful life in years	Gross amount		Accumulated amortization		Assets reclassified to Held-for-Sale		Net carrying amount
Customer relationships	Customer relationships	8 - 14	$	343,981	$	(246,088)	$	97,893	Customer relationships	5 - 14	$	368,223	$	(286,562)	$	—	$	81,661
Trademarks	Trademarks	2 - 15	42,036		(35,467)		6,569		Trademarks	2 - 15	41,834		(37,281)		—		$	4,553
Software packages	Software packages	3 - 10	289,205		(191,662)		97,543		Software packages	3 - 10	340,651		(230,677)		(18,835)		$	91,139
Non-compete agreement	Non-compete agreement	15	56,539		(38,635)		17,904		Non-compete agreement	15	56,539		(44,288)		—		$	12,251
Other intangible assets, net	Other intangible assets, net		$	731,761	$	(511,852)	$	219,909	Other intangible assets, net		$	807,247	$	(598,808)	$	(18,835)	$	189,604


		December 31, 2021
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
Customer relationships	5 - 14	$	357,991	$	(272,732)	$	85,259
Trademarks	2 - 15	41,901		(36,684)		5,217
Software packages	3 - 10	326,320		(217,643)		108,677
Non-compete agreement	15	56,539		(42,404)		14,135
Other intangible assets, net		$	782,751	$	(569,463)	$	213,288

During the ~~first~~ quarter ~~of 2021,~~ended June 30, 2022, the Company acquired a customer relationship in Puerto Rico amounting to ~~$14.8~~$10.6 million that will be amortized over ~~ten~~five years. ~~Revenue~~Revenues and expenses in connection with this customer relationship are included as part of the ~~Merchant Acquiring~~Payment Services - Puerto Rico & Caribbean segment.

Amortization expense related to other intangibles for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 amounted to ~~$14.5~~$14.8 million and ~~$43.0~~$29.3 million, respectively, compared to ~~$13.7~~$14.3 million and ~~$40.8~~$28.5 million for the corresponding periods in ~~2020.~~2021, respectively. During the ~~nine~~six months ~~period~~ ended ~~September~~June 30, 2022, the Company recorded an impairment loss through cost of revenues of $4.1 million for a multi-year software development for which cash flows used in the internal model will be impacted due to a

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decrease in the forecasted revenues to be generated by the software. During the six months ended June 30, 2021, the Company recorded an impairment charge through cost of revenues amounting to $0.6 million for a software solution that will no longer be used. ~~The~~Both impairment ~~charge~~charges affected the Company’s Payment Services – Puerto Rico & Caribbean segment.

At June 30, 2022, Software amounting to $18.8 million is classified as to held-for-sale as part of the Popular Transaction, refer to Note 2 – Held-for-Sale for further details.

The estimated amortization expense of the other intangible balances outstanding at ~~September~~June 30, ~~2021~~2022 for the next five years is as follows:


(Dollar amounts in thousands)	(Dollar amounts in thousands)			(Dollar amounts in thousands)
Remaining 2021		$	14,146
2022		51,237
Remaining 2022				Remaining 2022	$	28,868
2023	2023	45,918		2023	53,340
2024	2024	34,154		2024	42,181
2025	2025	11,731		2025	15,494
2026				2026	8,467

Note 6 – Debt and Short-Term Borrowings

Total debt at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 follows:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))	2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))	$	173,519	$	188,788	2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))	$	162,830	$	170,875
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))	2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))	294,291		306,503		2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))	292,393		293,660

Notes payable due January 1, 2022(1)		739		1,443
Note payable due January 1, 2022(1)						Note payable due January 1, 2022(1)	—		758
Total debt	Total debt	$	468,549	$	496,734	Total debt	$	455,223	$	465,293

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

(2)Applicable margin of 1.75% at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

(3)Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group, LLC ("EVERTEC Group") (collectively, the “Borrower”) entered into a credit agreement providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 (the “2023 Term A Loan"), a $325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term 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 leverage ratio is below 1.75x or the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million. On March 8, 2021, ~~and March 5, 2020,~~ in connection with this mandatory repayment clause, the Company repaid $17.8 million, ~~and $17.0 million, respectively,~~ as a result of excess cash flow calculation performed for the ~~years~~year ended December 31, ~~2020 and 2019, respectively.~~2020. No mandatory repayment was required in 2022 in connection with the excess cash flow calculation performed for the year ended December 31, 2021 as the leverage ratio was below 1.75x.

The unpaid principal balance at ~~September~~June 30, ~~2021~~2022 of the 2023 Term A Loan and the 2024 Term B Loan was ~~$174.4~~$163.4 million and ~~$296.7~~$294.2 million, respectively. The additional borrowing capacity under our Revolving Facility at ~~September~~June 30, ~~2021~~2022 was $119.1 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

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Notes Payable

In December 2019, EVERTEC Group entered into 2 non-interest bearing financing agreements amounting to $2.4 million to purchase software and ~~maintenance.~~maintenance, which were fully repaid in January 2022. As of ~~September 30, 2021 and~~ December 31, ~~2020,~~2021, the outstanding principal balance of the notes payable was $0.8 ~~million and $1.5 million, respectively.~~million. These notes ~~are~~were included in accounts payable in the Company's unaudited condensed consolidated balance sheets.

Interest Rate ~~Swaps~~Swap

As of ~~September~~June 30, ~~2021,~~2022, the Company has an interest rate swap agreement, entered into in December 2018, which 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

2018 Swap

April 2020

November 2024

$250 million

1-month LIBOR

2.89%

The Company has accounted for this agreement as a cash flow hedge.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was ~~$18.1~~an asset of $0.8 million, recorded in other long term assets and ~~$25.6~~$13.4 million in liabilities, respectively. The fair value of this derivative is 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.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company reclassified losses of ~~$1.8~~$1.4 million and ~~$5.3~~$3.1 million, respectively, from accumulated other comprehensive loss into interest expense compared to ~~$1.7~~$1.8 million and ~~$3.3~~$3.5 million for the corresponding periods in ~~2020.~~2021. Based on current LIBOR rates, the Company expects to reclassify ~~losses~~gains of ~~$7.0~~$0.8 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

Note 7 – Financial Instruments and Fair Value Measurements

Recurring Fair Value Measurements

Debt Securities Available for Sale

The fair value of debt securities is estimated based on observable inputs, therefore classified as a Level 2 asset within the fair value hierarchy. The fair value of debt securities ~~at September~~was $2.4 million and $3.0 million as of June 30, 2022 and December 31, 2021 ~~was $3.1 million.~~respectively.

~~Derivatives~~Derivative Instruments

The fair value of the Company's interest rate swap is estimated using Level 2 inputs under the fair value hierarchy. This derivative was in an asset position with a balance of $0.8 million as of June 30, 2022 and in a liability position with a balance of ~~$18.1 million and $25.6~~$13.4 million as of ~~September 30, 2021 and~~ December 31, ~~2020, respectively.~~2021.

The following table presents the carrying value, as applicable, and estimated fair value for financial instruments at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

September 30, 2021 December 31, 2020
(In thousands) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial assets:
Costa Rica government obligations $ 3,060 $ 3,060 $ — $ —
Financial liabilities:
Interest rate swap 18,104 18,104 25,578 25,578
2023 Term A Loan 173,519 172,402 188,788 186,678
2024 Term B Loan 294,291 296,657 306,503 308,339

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	June 30, 2022		December 31, 2021
(In thousands)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Financial assets:
Costa Rica government obligations	2,397	2,397	3,041	3,041
Interest rate swap	766	766	—	—
Certificates of deposits	7,264	7,264	—	—
Financial liabilities:
2023 Term A Loan	162,830	162,139	170,875	168,610
2024 Term B Loan	292,393	288,612	293,660	294,735
Interest rate swap	—	—	13,392	13,392

The fair values of the term loans at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were obtained using prices provided by third party service providers. Their pricing is based on various inputs such as market quotes, recent trading activity in a non-active market or imputed prices. These inputs are considered Level 3 inputs under the fair value hierarchy. Also, the pricing may include the use of an algorithm that could take into account movements in the general high yield market, among other variants. The secured term loans are not ~~measured~~accounted for at fair value onin the balance sheets. The certificates of deposits were purchased on the last day of the quarter.

Note 8 – Equity

Accumulated Other Comprehensive Loss

The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:

(In thousands) Foreign Currency
Translation
Adjustments Cash Flow Hedges Unrealized Gains on Debt Securities AFS Total
Balance - December 31, 2020, net of tax $ (24,842) $ (23,412) — $ (48,254)
Other comprehensive (loss) income before reclassifications (7,823) 1,540 97 (6,186)
Effective portion reclassified to net income — 5,274 — 5,274
Balance - September 30, 2021, net of tax $ (32,665) $ (16,598) $ 97 $ (49,166)


(In thousands)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Unrealized Gains (losses) on Debt Securities AFS		Total
Balance - December 31, 2021, net of tax	$	(35,971)	$	(12,261)	109		(48,123)
Other comprehensive income (loss) before reclassifications	(4,335)		10,000		(56)		5,609
Effective portion reclassified to net income	—		3,062		—		3,062
Balance - June 30, 2022, net of tax	$	(40,306)	$	801	$	53	$	(39,452)

Note 9 – Share-based Compensation

Long-term Incentive Plan ("LTIP")

InDuring the ~~first quarter of 2019,~~three months ended March 31, 2020, 2021 and ~~2021,~~2022, the Compensation Committee ~~(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 ~~2019 LTIP,~~ 2020 LTIP, 2021 LTIP and ~~2021~~2022 LTIP, respectively, all under the terms of the Company's 2013 Equity Incentive Plan. On May 20, 2022, the Company's shareholders approved the 2022 Equity Incentive Plan which replaces the 2013 Equity Incentive Plan, all RSUs outstanding on this date and any unissued shares under the 2013 Equity Incentive Plan were transferred to the 2022 Equity Incentive Plan. Under the LTIPs, the Company granted RSUs to eligible participants as time-based awards and/or performance-based awards.

On May 20, 2022 (the “Effective Date”), the Company's shareholders approved the 2022 Equity Incentive Plan which replaced the 2013 Equity Incentive Plan. All shares remaining available for grant under the 2013 Plan as of the Effective Date plus any shares covered by outstanding awards under the 2013 Plan as of the Effective Date that again become available for grant pursuant to the terms of the 2022 Plan as of the Effective Date, to the extent the shares underlying such awards are not issued because they are forfeited or settled or terminate without distribution of shares of common stock of the Company became available for issuance under the 2022 Plan on the Effective Date pursuant to the terms of the 2022 Plan.

The vesting of the RSUs is dependent upon service 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

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common stock on the vesting date if the employee provides services to the Company through 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 ~~22 of each year for the 2019 LTIP, February~~ 27 of each year for the 2020 LTIP, ~~and~~ March 2 of each year for the 2021 LTIP, and February 25 of each year for the 2022 LTIP. In 2022, the Company also granted time-based awards with a three year service vesting period which will vest on February 25, 2025.

For the performance-based awards under the ~~2019 LTIP,~~ 2020 LTIP, 2021 LTIP, and ~~2021~~2022 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 Adjusted EBITDA measure is based on annual targets and can produce a payout between 0% and 200%. The TSR modifier adjusts the shares earned based on the core Adjusted EBITDA performance upwards or downwards (+/- 25%) based on the Company’s relative TSR at the end of the three-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 and will vest on February ~~22, 2022 for the 2019 LTIP, February~~ 27, 2023 for the 2020 LTIP, ~~and~~ March 2, 2024 for the 2021 LTIP, and February 25, 2025 for the 2022 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 RSUs activity for the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


Nonvested RSUs	Nonvested RSUs	Shares	Weighted-average grant date fair value		Nonvested RSUs	Shares	Weighted-average grant date fair value
Nonvested at December 31, 2020		1,093,515	$	27.88
Nonvested at December 31, 2021					Nonvested at December 31, 2021	1,086,329	$	34.73
Granted	Granted	705,970	31.93		Granted	686,927	42.06
Vested	Vested	(683,706)	20.95		Vested	(421,015)	33.02
Forfeited	Forfeited	(27,845)	33.37		Forfeited	(3,986)	36.31
Nonvested at September 30, 2021		1,087,934	$	34.71
Nonvested at June 30, 2022					Nonvested at June 30, 2022	1,348,255	$	38.99

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized ~~$3.7~~$5.1 million and ~~$10.9~~$9.4 million of share-based compensation expense, respectively, compared with ~~$3.7~~$3.9 million and ~~$10.8~~$7.2 million for the corresponding ~~period~~periods in ~~2020.~~2021.

As of ~~September~~June 30, ~~2021,~~2022, the maximum unrecognized cost for RSUs was ~~$23.1~~$36.5 million. The cost is expected to be recognized over a weighted average period of ~~1.9~~2.2 years.

Note 10 – Revenues

Disaggregation of Revenue

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

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


	Three months ended June 30, 2022
(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	$	101	$	418	$	—	$	2,281	$	2,800
Products and services transferred over time	30,159		26,664		38,540		62,408		157,771
	$	30,260	$	27,082	$	38,540	$	64,689	$	160,571

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Three months ended September 30, 2021
(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 $ 30 $ 449 $ — $ 446 $ 925
Products and services transferred over time 25,712 23,807 37,606 57,833 144,958
$ 25,742 $ 24,256 $ 37,606 $ 58,279 $ 145,883

Three months ended September 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 $ 43 $ 357 $ — $ 4,824 $ 5,224
Products and services transferred over time 23,652 18,791 30,646 58,194 131,283
$ 23,695 $ 19,148 $ 30,646 $ 63,018 $ 136,507


		Nine months ended September 30, 2021											Three months ended June 30, 2021
(In thousands)	(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total		(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition	Timing of revenue recognition											Timing of revenue recognition
Products and services transferred at a point in time	Products and services transferred at a point in time	$	119	$	1,633	$	—	$	4,048	$	5,800	Products and services transferred at a point in time	$	11	$	508	$	—	$	1,104	$	1,623
Products and services transferred over time	Products and services transferred over time	76,642		69,919		106,808		175,390		428,759		Products and services transferred over time	26,148		23,491		38,335		59,551		147,525
		$	76,761	$	71,552	$	106,808	$	179,438	$	434,559		$	26,159	$	23,999	$	38,335	$	60,655	$	149,148


		Nine months ended September 30, 2020											Six months ended June 30, 2022
(In thousands)	(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total		(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Timing of revenue recognition	Timing of revenue recognition											Timing of revenue recognition
Products and services transferred at a point in time	Products and services transferred at a point in time	$	80	$	994	$	—	$	7,886	$	8,960	Products and services transferred at a point in time	$	155	$	432	$	—	$	4,166	$	4,753
Products and services transferred over time	Products and services transferred over time	63,838		56,487		80,532		166,569		367,426		Products and services transferred over time	56,589		52,161		74,168		123,148		306,066
		$	63,918	$	57,481	$	80,532	$	174,455	$	376,386		$	56,744	$	52,593	$	74,168	$	127,314	$	310,819



	Six months ended June 30, 2021
(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	$	89	$	1,184	$	—	$	3,602	$	4,875
Products and services transferred over time	50,930		46,112		69,202		117,557		283,801
	$	51,019	$	47,296	$	69,202	$	121,159	$	288,676

Contract Balances

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


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Balance at beginning of period	Balance at beginning of period	$	2,796	$	1,191	Balance at beginning of period	$	1,715	$	2,796
Services transferred to customers	Services transferred to customers	4,053		3,934		Services transferred to customers	5,077		5,374
Transfers to accounts receivable	Transfers to accounts receivable	(4,246)		(2,329)		Transfers to accounts receivable	(2,161)		(6,455)
Balance at end of period	Balance at end of period	$	2,603	$	2,796	Balance at end of period	$	4,631	$	1,715

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

Accounts receivable, net ~~at September~~as of June 30, ~~2021~~2022 amounted to ~~$95.5~~$107.7 million. Contract liability and contract liability - long term at ~~September~~June 30, ~~2021~~2022 amounted to ~~$21.3~~$21.4 million and ~~$31.1~~$32.7 million, respectively, and may arise when consideration is received or due in advance from customers prior to performance. The contract liability is mainly comprised of upfront fees for implementation

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or set up activities, including fees charged in pre-production periods in connection with hosting services. Contract liabilities may also arise when consideration is received or due in advance from customers prior to performance. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized revenue of ~~$5.3~~$5.0 million and ~~$20.7~~$12.1 million respectively that was included in the contract liability at December 31, ~~2020.~~2021. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized revenue of ~~$3.9~~$7.1 million and ~~$13.1~~$15.4 million ~~respectively~~ that was included in the contract liability at December 31, ~~2019.~~2020.

Transaction price allocated to the remaining performance obligations

The estimated aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at ~~September~~June 30, ~~2021~~2022 is ~~$310.4~~$233.1 million. This amount primarily consists of professional service fees for implementation or set up activities related to managed services and maintenance services, typically recognized over the life of the contract, which varies from 2 to 5 years. It also includes professional service fees for customizations or development of on-premise licensing agreements, which are recognized over time based on inputs relative to the total expected inputs to satisfy a performance obligation.

Note 11 – Current Expected Credit Losses

Allowance for Current Expected Credit Losses

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

•Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their country.

•The Company has two main industry sectors: private and governmental. The private pool is comprised mainly of leading financial institutions, merchants and corporations, while the governmental pool is comprised of government agencies. The governmental customers possess different risk characteristics than private customers because although all invoices are due 30 days after issuance, governmental customers usually pay within 60 to 90 days after issuance (i.e., approximately 30 to 60 more days than private customers).

•The expected credit loss rate is likely to increase as receivables move to older aging buckets. The Company used the following aging categories to estimate the risk of delinquency status: (i) 0 days past due; (ii) 1-30 days past due; (iii) 31-60 days past due; (iv) 61-90 days past due; and (v) over 90 days past due.

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

Rollforward of the Allowance for Expected Current Credit Losses

The following table provides information about the allowance for expected current credit losses on trade receivables.


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Balance at beginning of period	Balance at beginning of period	$	2,401	$	3,460	Balance at beginning of period	$	2,523	$	2,401
Current period provision for expected credit losses	Current period provision for expected credit losses	534		832		Current period provision for expected credit losses	316		819
Write-offs	Write-offs	(177)		(1,894)		Write-offs	(135)		(698)
Recoveries of amounts previously written-off	Recoveries of amounts previously written-off	1		3		Recoveries of amounts previously written-off	1		1
Balance at end of period	Balance at end of period	$	2,759	$	2,401	Balance at end of period	$	2,705	$	2,523

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.

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

Note 12 – Income Tax

The components of income tax expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, consisted of the following:


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021

Current tax provision	Current tax provision	$	7,306	$	7,381	$	15,593	$	17,633	Current tax provision	$	8,196	$	2,689	$	15,073	$	8,287
Deferred tax benefit	Deferred tax benefit	(172)		(868)		(1,119)		(2,082)		Deferred tax benefit	(508)		(57)		(1,210)		(947)
Income tax expense	Income tax expense	$	7,134	$	6,513	$	14,474	$	15,551	Income tax expense	$	7,688	$	2,632	$	13,863	$	7,340

The Company conducts operations in Puerto Rico, the United States, and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the government of Puerto Rico as well as foreign jurisdictions. The following table presents the components of income tax expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and its segregation based on location of operations:


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021

Current tax provision
Current tax provision (benefit)										Current tax provision (benefit)
Puerto Rico	Puerto Rico	$	2,328	$	3,280	$	3,363	$	6,487	Puerto Rico	$	3,176	$	(569)	$	5,491	$	1,035
United States	United States	57		214		132		508		United States	33		45		63		75
Foreign countries	Foreign countries	4,921		3,887		12,098		10,638		Foreign countries	4,987		3,213		9,519		7,177
Total current tax provision	Total current tax provision	$	7,306	$	7,381	$	15,593	$	17,633	Total current tax provision	$	8,196	$	2,689	$	15,073	$	8,287
Deferred tax (benefit) provision	Deferred tax (benefit) provision									Deferred tax (benefit) provision
Puerto Rico	Puerto Rico	$	(258)	$	(989)	$	(778)	$	(1,535)	Puerto Rico	$	(647)	$	(226)	$	(1,040)	$	(520)
United States	United States	116		(68)		(71)		1,033		United States	26		242		(45)		(187)
Foreign countries	Foreign countries	(30)		189		(270)		(1,580)		Foreign countries	113		(73)		(125)		(240)
Total deferred tax benefit	Total deferred tax benefit	$	(172)	$	(868)	$	(1,119)	$	(2,082)	Total deferred tax benefit	$	(508)	$	(57)	$	(1,210)	$	(947)

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

As of ~~September~~June 30, ~~2021,~~2022, the Company has ~~$92.9~~$113.5 million of unremitted earnings from foreign subsidiaries, compared to ~~$80.2~~$99.1 million as of December 31, ~~2020.~~2021. 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 ~~September~~June 30, ~~2021,~~2022, the gross deferred tax asset amounted to ~~$20.1~~$19.8 million and the gross deferred tax liability amounted to ~~$15.6~~$13.5 million, compared to ~~$22.0~~$22.3 million and ~~$19.0~~$16.3 million, respectively, as of December 31, ~~2020.~~2021. As of ~~September~~June 30, 2022, and December 31, 2021, there is a valuation allowance against the gross deferred tax asset of approximately $1.3 ~~million.~~million and $1.4 million, respectively.

The Company estimates that it is reasonably possible that the Puerto Rico liability for uncertain tax positions relating to the net operating loss created by transaction costs from mergers and acquisitions will decrease by approximately $3.6 million during 2022 as a result of the statute of limitations.

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:

Nine months ended September 30,
(In thousands) 2021 2020
Computed income tax at statutory rates $ 50,411 $ 33,012
Differences in tax rates due to multiple jurisdictions 1,789 831
Effect of income subject to tax-exemption grant (35,121) (21,662)
Unrecognized tax (benefit) expense (3,475) 1,173
Excess tax benefits on share-based compensation (1,027) (262)
Other, net 1,897 2,459
Income tax expense $ 14,474 $ 15,551

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	Six months ended June 30,
(In thousands)	2022		2021
Computed income tax at statutory rates	$	32,357	$	34,513
Differences in tax rates due to multiple jurisdictions	1,155		960
Effect of income subject to tax-exemption grant	(20,440)		(23,863)
Unrecognized tax (benefit) expense	122		(3,580)
Excess tax benefits on share-based compensation	(21)		(976)
Other, net	690		286
Income tax expense	$	13,863	$	7,340

Note 13 – Net Income Per Common Share

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
(In thousands, except per share information)	(In thousands, except per share information)	2021		2020		2021		2020		(In thousands, except per share information)	2022		2021		2022		2021

Net income available to EVERTEC, Inc.’s common shareholders	Net income available to EVERTEC, Inc.’s common shareholders	$	35,314	$	34,463	$	120,014	$	72,158	Net income available to EVERTEC, Inc.’s common shareholders	$	33,589	$	49,197	$	72,487	$	84,700
Weighted average common shares outstanding	Weighted average common shares outstanding	71,969,856		71,886,439		72,082,082		71,921,069		Weighted average common shares outstanding	71,476,850		72,127,847		71,714,876		72,139,125
Weighted average potential dilutive common shares (1)	Weighted average potential dilutive common shares (1)	906,397		1,115,341		735,625		1,128,748		Weighted average potential dilutive common shares (1)	673,099		703,519		843,689		577,825
Weighted average common shares outstanding - assuming dilution	Weighted average common shares outstanding - assuming dilution	72,876,253		73,001,780		72,817,707		73,049,817		Weighted average common shares outstanding - assuming dilution	72,149,949		72,831,366		72,558,565		72,716,950
Net income per common share - basic	Net income per common share - basic	$	0.49	$	0.48	$	1.66	$	1.00	Net income per common share - basic	$	0.47	$	0.68	$	1.01	$	1.17
Net income per common share - diluted	Net income per common share - diluted	$	0.48	$	0.47	$	1.65	$	0.99	Net income per common share - diluted	$	0.47	$	0.68	$	1.00	$	1.16

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

On February ~~18, 2021,~~15, 2022 and April ~~22, 2021 and July 22, 2021, respectively~~21, 2022, the Company's Board declared quarterly cash dividends of $0.05 per share of common stock, which ~~were~~was paid on March ~~26, 2021,~~25, 2022 and June ~~4, 2021 and September~~ 3, ~~2021, respectively~~2022, to ~~stockholders~~stockholders' of record ~~as of the close of business~~ on ~~March 1, 2021,~~February 25, 2022 and May ~~3, 2021 and August~~ 2, ~~2021 , respectively.~~2022.

Note 14 – 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 believes that the final disposition of these matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss would be insignificant. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material.

Note 15 – Related Party Transactions

The following table presents the Company’s transactions with related parties for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:

1619

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		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Total revenues (1)(2)	Total revenues (1)(2)	$	60,091	$	57,343	$	182,344	$	165,703	Total revenues (1)(2)	$	65,825	$	61,884	$	130,553	$	122,253
Cost of revenues	Cost of revenues	$	624	$	700	$	2,242	$	3,100	Cost of revenues	$	418	$	569	$	1,733	$	1,618
Operating lease cost and other fees	Operating lease cost and other fees	$	1,958	$	2,053	$	5,482	$	6,094	Operating lease cost and other fees	$	1,765	$	1,609	$	3,626	$	3,524
Interest earned from affiliate	Interest earned from affiliate									Interest earned from affiliate
Interest income	Interest income	$	184	$	93	$	422	$	290	Interest income	$	440	$	130	$	780	$	238

(1)Popular revenues as a percentage of total revenues were 41%, 42%, 42% and ~~44%~~42%, respectively, for each of the periods presented above.

(2)Includes revenues generated from investee accounted for under the equity method of ~~$0.2~~$0.1 million, $0.1 million, ~~$0.3~~$0.2 million, and ~~$0.5~~$0.1 million, respectively, for each of the periods presented above.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, EVERTEC had the following balances arising from transactions with related parties:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Cash and restricted cash deposits in affiliated bank	Cash and restricted cash deposits in affiliated bank	$	146,025	$	126,189	Cash and restricted cash deposits in affiliated bank	$	107,977	$	187,602
Other due to/from affiliate	Other due to/from affiliate					Other due to/from affiliate
Accounts receivable	Accounts receivable	$	30,179	$	28,419	Accounts receivable	$	35,985	$	38,120
Prepaid expenses and other assets	Prepaid expenses and other assets	$	4,089	$	4,678	Prepaid expenses and other assets	$	1,790	$	1,763
Operating lease right-of-use assets	Operating lease right-of-use assets	$	14,359	$	17,099	Operating lease right-of-use assets	$	11,856	$	13,533

Other long-term assets						Other long-term assets	$	3,054	$	2,853
Accounts payable	Accounts payable	$	7,836	$	4,607	Accounts payable	$	2,664	$	5,601
Contract liabilities	Contract liabilities	$	35,504	$	35,807	Contract liabilities	$	41,709	$	40,982
Operating lease liabilities	Operating lease liabilities	$	14,836	$	17,781	Operating lease liabilities	$	12,359	$	14,019

Note 16 – Segment Information

The Company operates in 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)~~institutions and digital payment services to the government of Puerto Rico), ATH Movil ~~(person-to-person~~(person-to-person) and ~~person-to-merchant~~ATH Business (person-to-merchant) digital ~~transactions)~~transactions and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants). For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.

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The Payment Services - Latin America segment revenues consist of revenues related to providing access to the ATH network of ATMs and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), as well as licensed software solutions for risk and fraud management and card payment processing. For network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services.

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

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

In addition to the 4 operating segments described above, management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented within the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and Other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments. The overhead and leveraged costs relate to activities such as:

•marketing,

•corporate finance and accounting,

•human resources,

•legal,

•risk management functions,

•internal audit,

•corporate debt related costs,

•non-operating depreciation and amortization expenses generated as a result of merger and acquisition activity,

•intersegment revenues and expenses, and

•other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level

The Chief Operating Decision Maker ("CODM") reviews 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 ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and Adjusted EBITDA. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated financial statements.

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

Three months ended September 30, 2021
(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions
Corporate and Other (1)
Total
Revenues $ 38,773 $ 26,792 $ 37,606 $ 58,134 $ (15,422) $ 145,883
Operating costs and expenses 21,420 22,209 19,922 37,412 (2,097) 98,866
Depreciation and amortization 3,989 2,809 1,010 4,691 6,246 18,745
Non-operating income (expenses) 203 1,844 281 551 (2,322) 557
EBITDA 21,545 9,236 18,975 25,964 (9,401) 66,319
Compensation and benefits (2)
260 755 255 70 2,153 3,493
Transaction, refinancing and other fees (3)
— — — — (42) (42)
Adjusted EBITDA $ 21,805 $ 9,991 $ 19,230 $ 26,034 $ (7,290) $ 69,770

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	Three months ended June 30, 2022
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total

Revenues	$	46,078	$	30,784	$	38,539	$	64,690	$	(19,520)	$	160,571
Operating costs and expenses	$	28,680	$	25,032	$	22,823	$	40,297	$	(2,908)	$	113,924
Depreciation and amortization	$	5,466	$	2,712	$	1,040	$	4,279	$	6,063	$	19,560
Non-operating income (expenses)	$	309	$	123	$	332	$	624	$	(1,664)	$	(276)
EBITDA	23,173		8,587		17,088		29,296		(12,213)		65,931
Compensation and benefits (2)	675		973		446		555		2,756		$	5,405
Transaction, refinancing and other fees (3)	—		—		—		(16)		2,055		$	2,039
Adjusted EBITDA	$	23,848	$	9,560	$	17,534	$	29,835	$	(7,402)	$	73,375

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the ~~$10.8~~$13.3 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of ~~$2.4~~$3.7 million from Payment ~~Services -~~Services- Latin America to both Payment ~~Services -~~Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of ~~$2.2~~$2.5 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

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

(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, ~~the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A, net of dividends received.~~

Three months ended September 30, 2020
(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions Corporate and Other (1) Total
Revenues $ 33,284 $ 21,241 $ 30,646 $ 63,018 $ (11,682) $ 136,507
Operating costs and expenses 19,045 18,284 15,643 35,276 4,415 92,663
Depreciation and amortization 3,349 2,936 477 4,372 6,993 18,127
Non-operating income (expenses) 127 2,959 161 411 (970) 2,688
EBITDA 17,715 8,852 15,641 32,525 (10,074) 64,659
Compensation and benefits (2) 258 686 244 466 2,015 3,669
Transaction, refinancing and other fees (3) 500 — — — 1,205 1,705
Adjusted EBITDA $ 18,473 $ 9,538 $ 15,885 $ 32,991 $ (6,854) $ 70,033

~~(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 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $2.6 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean.

~~(2)Primarily represents share-based compensation.~~

~~(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, a software impairment charge~~ and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.


		Nine months ended September 30, 2021													Three months ended June 30, 2021
(In thousands)	(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total		(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total

Revenues	Revenues	$	113,626	$	77,641	$	106,808	$	179,438	$	(42,954)	$	434,559	Revenues	$	38,589	$	25,835	$	38,335	$	60,693	$	(14,304)	$	149,148
Operating costs and expenses	Operating costs and expenses	61,270		63,020		55,762		110,276		(2,077)		288,251		Operating costs and expenses	19,361		20,965		19,374		36,175		(1,019)		94,856
Depreciation and amortization	Depreciation and amortization	11,813		8,695		2,631		14,085		18,867		56,091		Depreciation and amortization	3,882		2,952		967		4,600		6,322		18,723
Non-operating income (expenses)	Non-operating income (expenses)	618		5,348		835		2,494		(5,269)		4,026		Non-operating income (expenses)	230		2,396		323		1,390		(1,700)		2,639
EBITDA	EBITDA	64,787		28,664		54,512		85,741		(27,279)		206,425		EBITDA	23,340		10,218		20,251		30,508		(8,663)		75,654
Compensation and benefits (2)	Compensation and benefits (2)	781		2,321		781		1,193		6,204		11,280		Compensation and benefits (2)	280		757		295		760		2,191		4,283
Transaction, refinancing and other fees (3)	Transaction, refinancing and other fees (3)	660		—		—		(647)		1,202		1,215		Transaction, refinancing and other fees (3)	—		—		—		(647)		971		324
Adjusted EBITDA	Adjusted EBITDA	$	66,228	$	30,985	$	55,293	$	86,287	$	(19,873)	$	218,920	Adjusted EBITDA	$	23,620	$	10,975	$	20,546	$	30,621	$	(5,501)	$	80,261

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the ~~$31.2~~$10.7 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of ~~$6.6~~$1.9 million from Payment Services- Latin America to both Payment Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $1.7 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

(2)Primarily represents share-based compensation 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 dividends received, a software impairment charge and a gain from sale of assets.

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	Six months ended June 30, 2022
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total

Revenues	$	86,086	$	59,567	$	74,168	$	127,314	$	(36,316)	$	310,819
Operating costs and expenses	49,960		48,619		43,027		79,225		(2,704)		218,127
Depreciation and amortization	9,946		5,524		2,059		9,042		12,149		38,720
Non-operating income (expenses)	544		3,729		632		1,324		(2,629)		3,600
EBITDA	46,616		20,201		33,832		58,455		(24,092)		135,012
Compensation and benefits (2)	1,012		1,786		786		1,000		5,100		9,684
Transaction, refinancing and other fees (3)	—		—		—		(16)		4,080		4,064
Adjusted EBITDA	$	47,628	$	21,987	$	34,618	$	59,439	$	(14,912)	$	148,760

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $24.2 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $7.0 million from Payment Services - Latin America to both Payment Services - Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $5.1 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

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

(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.~~, net of dividends received, a software impairment charge and a gain from sale of assets.~~


		Nine months ended September 30, 2020													Six months ended June 30, 2021
(In thousands)	(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total		(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total

Revenues	Revenues	$	90,632	$	62,678	$	80,531	$	174,455	$	(31,910)	$	376,386	Revenues	$	74,853	$	50,849	$	69,202	$	121,304	$	(27,532)	$	288,676
Operating costs and expenses	Operating costs and expenses	53,904		53,882		42,579		105,901		17,923		274,189		Operating costs and expenses	39,850		40,811		35,840		72,864		20		$	189,385
Depreciation and amortization	Depreciation and amortization	9,791		8,508		1,431		13,049		20,982		53,761		Depreciation and amortization	7,824		5,886		1,621		9,394		12,621		$	37,346
Non-operating income (expenses)	Non-operating income (expenses)	62		4,297		473		1,482		(2,815)		3,499		Non-operating income (expenses)	415		3,504		554		1,943		(2,947)		$	3,469
EBITDA	EBITDA	46,581		21,601		39,856		83,085		(31,666)		159,457		EBITDA	43,242		19,428		35,537		59,777		(17,878)		140,106
Compensation and benefits (2)	Compensation and benefits (2)	742		2,263		695		1,374		5,846		10,920		Compensation and benefits (2)	521		1,566		526		1,123		4,051		$	7,787
Transaction, refinancing and other fees (3)	Transaction, refinancing and other fees (3)	500		—		—		—		5,647		6,147		Transaction, refinancing and other fees (3)	660		—		—		(647)		1,244		$	1,257
Adjusted EBITDA	Adjusted EBITDA	$	47,823	$	23,864	$	40,551	$	84,459	$	(20,173)	$	176,524	Adjusted EBITDA	$	44,423	$	20,994	$	36,063	$	60,253	$	(12,583)	$	149,150

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the ~~$25.4~~$20.4 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of ~~$6.5~~$4.2 million from Payment Services - Latin America to both Payment Services - Puerto Rico & ~~Caribbean.~~Caribbean and Business Solutions, and transaction processing and monitoring fees of $2.9 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

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

(3)Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement ~~a software impairment charge~~ and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A. net dividends received, a software impairment charge and a gain from the sale of the asset.

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Total EBITDA	Total EBITDA	$	66,319	$	64,659	$	206,425	$	159,457	Total EBITDA	$	65,931	$	75,654	$	135,012	$	140,106
Less:	Less:									Less:
Income tax expense	Income tax expense	7,134		6,513		14,474		15,551		Income tax expense	7,688		2,632		13,863		7,340
Interest expense, net	Interest expense, net	5,180		5,438		15,905		17,664		Interest expense, net	5,127		5,208		10,007		10,725
Depreciation and amortization	Depreciation and amortization	18,745		18,127		56,091		53,761		Depreciation and amortization	19,560		18,723		38,720		37,346
Net income	Net income	$	35,260	$	34,581	$	119,955	$	72,481	Net income	$	33,556	$	49,091	$	72,422	$	84,695

Note 17 – Subsequent Events

On ~~October 21, 2021,~~July 1, 2022, the Company closed the previously announced Popular Transaction. On this date, the Company received approximately 4.6 million shares of its own common stock as consideration for the transaction. Additionally, on the same date, the previously agreed upon modification and extension of the main commercial agreements with Popular, including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement, a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA, went into effect.

On July 1, 2022, EVERTEC Group also completed the acquisition of 100% of the outstanding shares of BBR, SpA for an aggregate purchase price of CLP 48,600 million, approximately USD$53 million. Based in Santiago, Chile, BBR SpA is a payment solutions and business technology company with operations in Chile and Peru. The completion of this acquisition expands the Company's geographic footprint in Chile and opens a new market for the Company in Peru.

On July 28, 2022, 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 ~~December 3, 2021~~September 2, 2022 to stockholders of record as of the close of business on ~~November 1, 2021.~~August 8, 2022. 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers: (i) the results of operations for the three and ~~nine~~six months ended ~~September~~months ended June 30, ~~2021~~2022 and ~~2020~~2021 and (ii) the financial condition as of ~~September~~June 30, ~~2021.~~2022. 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, ~~2020,~~2021, included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 25, 2022 and with the unaudited condensed consolidated financial statements (the “Unaudited Condensed Consolidated Financial Statements”) and related notes appearing elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking statements. See “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Except as otherwise indicated or unless the context otherwise requires, (a) the terms “EVERTEC,” “we,” “us,” “our,” “our Company” and “the Company” refer to EVERTEC, Inc. and its subsidiaries on a consolidated basis, (b) the term “Holdings” refers to EVERTEC Intermediate Holdings, LLC, but not any of its subsidiaries and (c) the term “EVERTEC Group” refers to EVERTEC Group, LLC and its predecessor entities and their subsidiaries on a consolidated basis. 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, Evertec Placetopay, ~~S.A.S.~~SAS (formerly known as EGM Ingeniería sin Fronteras, S.A.S. ("PlacetoPay") ~~("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, providing a broad range of merchant acquiring, payment services and business process management services. ~~According to the August 2020 Nilson Report,~~We believe that we are one of the largest merchant acquirers in Latin America based on total number of transactions and ~~we believe we are~~ the largest merchant acquirer in the ~~Caribbean and Central America.~~Caribbean. We serve 26 countries out of 11 offices, including our headquarters in Puerto Rico. We own and operate the ATH network, one of the leading personal identification number ("PIN") debit and automated teller machine ("ATM") networks in the Caribbean and Latin America. We manage a system of electronic payment networks and offer a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico, that process ~~approximately~~over three billion transactions annually. Additionally, we offer technology outsourcing in all the regions we serve. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin American region.

We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this 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 leverage proprietary IP that enables us to be nimble and flexible when it comes to client requirements;

•Our ability to put forth Spanish speaking developers in front of our Spanish speaking customers making communication much more effective and integrations more efficient;

•Our ability to serve customers with disparate operations across 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).

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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 offor 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 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.

Relationship with Popular

On September 30, 2010, EVERTEC Group entered into a 15-year ~~Master Services Agreement ("MSA"),~~MSA, and several related agreements with Popular. Under the terms of the MSA, Popular agreed to use EVERTEC services on an ongoing exclusive basis for the duration of the agreement. Additionally, Popular granted us a right of first refusal on the development of certain new financial technology products and services for the duration of the MSA. On February 24, 2022, we entered into an agreement to modify and extend the main commercial agreements with Popular, including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement (the “ISO Agreement”), a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA. The ISO Agreement, which sets our merchant acquiring relationship with Popular, will now include revenue sharing provisions with Popular. The MSA modifications include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through 2028, a 10% discount on certain MSA services in October 2025 and adjustments to the existing CPI pricing escalator clause. We also entered into an agreement to sell Popular certain assets in exchange for Popular owned Evertec stock ("Popular Transaction"). As part of this transaction, Popular has agreed to take certain actions after closing to ensure that Evertec is no longer deemed a “subsidiary” of Popular for purposes of the Bank Holding Company Act, including reducing Popular's voting interest in Evertec to 4.5% over a period of three months after the close of the transaction through either the sale of shares or conversion to non-voting preferred shares. The Popular Transaction closed on July 1, 2022, on which date the Company received approximately 4.6 million shares of its own common stock as consideration and the contract extensions and modifications became effective.

Results of Operations

Comparison of the three months ended June 30, 2022 and 2021


	Three months ended June 30,
In thousands	2022		2021		Variance

Revenues	$	160,571	$	149,148	$	11,423	8	%
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	74,313		59,381		14,932		25	%
Selling, general and administrative expenses	20,051		16,752		3,299		20	%
Depreciation and amortization	19,560		18,723		837		4	%
Total operating costs and expenses	113,924		94,856		19,068		20	%
Income from operations	$	46,647	$	54,292	$	(7,645)	(14)	%

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Revenues

Total revenues for the quarter ended June 30, 2022 were $160.6 million, an increase of 8% compared with $149.1 million in the prior year. Revenue in Puerto Rico benefited from increased payment transaction volumes in addition to continued growth in the Company's digital solutions, ATH Movil and ATH Business, as well as revenue generated from an acquisition completed at the beginning of the quarter. Revenue in the quarter also benefited from the printing contract entered into in June 2021, one-time software sales and the year over year CPI escalator on the MSA with Popular. Latin America revenue reflected organic growth.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2022 amounted to $74.3 million, an increase of $14.9 million or 25% when compared to the same period in the prior year. The increase in cost of revenues includes a $4.1 million impairment loss related to a multi-year software development recorded during the quarter, as well as an increase in personnel costs, mainly due to increased headcount in Latin America, an increase in professional fees, higher equipment expenses for cloud services as utilization continues to grow and an increase in provisions for expected losses.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended June 30, 2022 amounted to $20.1 million, an increase of $3.3 million or 20% when compared to the same period in the prior year driven by an increase in professional fees related to corporate transactions and increased personnel costs.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended June 30, 2022 amounted to $19.6 million, an increase of $0.8 million or 4% when compared to the same period in the prior year. Increased expense during the three months is driven by the amortization of customer relationships mainly resulting from the acquisition completed in the quarter.

Non-Operating Expenses


	Three months ended June 30,
In thousands	2022		2021		Variance

Interest income	$	805	$	450	$	355	79	%
Interest expense	(5,932)		(5,658)		(274)		(5)	%
Earnings of equity method investment	862		394		468		119	%
Other (expenses) income	(1,138)		2,245		(3,383)		(151)	%
Total non-operating expenses	$	(5,403)	$	(2,569)	$	(2,834)	(110)	%

Non-operating expenses for the three months ended June 30, 2022 amounted to $5.4 million, an increase of $2.8 million when compared to the same period in the prior year. Other (expenses) income amounted to an expense of $1.1 million compared with income of $2.2 million in the prior year comparable quarter as the current year includes a loss from the remeasurement of assets and liabilities denominated in US dollars while the prior year includes a gain. This negative impact was partially offset by a $0.5 million increase in earnings from equity method investments.

Income Tax Expense


	Three months ended June 30,
In thousands	2022		2021		Variance
Income tax expense	$	7,688	$	2,632	$	5,056	192	%

Income tax expense for the three months ended June 30, 2022 amounted to $7.7 million, an increase of $5.1 million when compared to the same period in the prior year. The effective tax rate for the period was 18.6%, compared with 5.1% in the 2021 period. The increase in the effective tax rate primarily reflects the impact of higher revenues in higher taxed jurisdictions, shift in the mix of business in Puerto Rico and higher withholding taxes, while the prior year reflected the impact from the reversal of a potential liability for uncertain tax positions as a result of the expiration of the statute of limitation.

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Comparison of the six months ended June 30, 2022 and 2021


	Six months ended June 30,
In thousands	2022		2021		Variance

Revenues	$	310,819	$	288,676	$	22,143	8	%
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	138,972		119,185		19,787		17	%
Selling, general and administrative expenses	40,435		32,854		7,581		23	%
Depreciation and amortization	38,720		37,346		1,374		4	%
Total operating costs and expenses	218,127		189,385		28,742		15	%
Income from operations	$	92,692	$	99,291	$	(6,599)	(7)	%

Revenues

Total revenues for the six months ended June 30, 2022 were $310.8 million, an increase of 8% compared with $288.7 million in the prior year reflecting increases across all of the Company's segments. The increase is primarily driven by the same factors explained above for the quarter.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2022 amounted to $139.0 million, an increase of $19.8 million or 17% when compared to the same period in the prior year. The increase is primarily driven by the same factors explained above for the quarter.

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended June 30, 2022 amounted to $40.4 million, an increase by $7.6 million or 23% when compared to the same period in the prior year. The increase is driven by the same factors explained above for the quarter.

Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2022 amounted to $38.7 million, an increase of $1.4 million or 4% when compared to the same period in the prior year. Increased expense during the period is driven by an increase in the amortization of customer relationships, primarily due to the aforementioned acquisition in the second quarter of 2022 and the expansion of the FirstBank relationship in the prior year, as well as increased software amortization as a result of key projects that went into production in the prior years.

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Non-Operating Expenses


	Six months ended June 30,
In thousands	2022		2021		Variance

Interest income	$	1,472	$	839	$	633	75	%
Interest expense	(11,479)		(11,564)		85		1	%
Earnings of equity method investment	1,432		896		536		60	%
Other income (expenses)	2,168		2,573		(405)		(16)	%
Total non-operating expenses	$	(6,407)	$	(7,256)	$	849	12	%

Non-operating expenses for the six months ended June 30, 2022 decreased by $0.8 million to $6.4 million when compared to the same period in the prior year. The decrease is mainly related to a $0.6 million increase in interest income coupled with a $0.5 million increase in earnings from the Company's equity method investment.

Income Tax Expense


	Six months ended June 30,
In thousands	2022		2021		Variance
Income tax expense	$	13,863	$	7,340	$	6,523	89	%

Income tax expense for the six months ended June 30, 2022 amounted to $13.9 million, an increase of $6.5 million when compared to the same period in the prior year. The effective tax rate for the period was 16.1%, compared with 8.0% in the 2021 period. The increase in the effective tax rate is driven by the same factors explained above for the quarter.

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~~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~~which, together with the ongoing shift from cash and paper methods of payment to electronic payments will continue to generate ~~substantial~~ growth opportunities for our business. For example, currently the adoption of banking products, including electronic payments, in the Latin ~~American~~America and Caribbean ~~regions~~region is lower relative to the mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drive incremental penetration and growth of electronic payments in Puerto Rico and other Latin ~~American~~America regions. We also benefit from the outsourcing of technology systems and processes trend offor financial institutions and ~~government agencies outsourcing technology systems and processes.~~government. Many medium- and small-size institutions in the Latin American markets in which we operate have outdated computer systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.

As a result of the COVID-19 pandemic, consumer preference has accelerated its shift away from cash and paper payment methods, noting increased demand for omni-channel payment services that facilitate cashless and contactless transactions. The markets in which we operate, particularly Latin America and the Caribbean continue to grow and consumer preference is driving an increase for electronic payments usage. Latin America is one of the fastest-growing mobile markets globally, with a growing base of tech-savvy customers that demonstrate a preference for credit cards, digital wallets, contactless payments, and other value-added offerings. The region's FinTech sector is driving change via new contactless payment technology that are becoming popular alternatives to cash payments. We continue to believe that the attractive characteristics of our markets and our position across multiple services and sectors will continue to drive growth and profitability in our businesses.

On July 1, 2022, we closed the previously announced Popular Transaction, which includes extensions and amendments to the main commercial agreements with Banco Popular. The extension of the ISO Agreement includes a revenue sharing provision which will be treated as an expense and will result in a decline to the Merchant Acquiring Segment results. The extension of the MSA includes a reduction in the CPI cap from 5% to 1.5%, as well as a retroactive credit for the 5% CPI price increase applied to certain services since October 1, 2021 through closing, both of which will negatively impact the revenue and consequently margin of our Business Solutions Segment and, to a lesser extent, the Payment Services – Puerto Rico Segment. Additionally, as part of the amendments to the MSA, there will be contractual revenue minimums through 2028. As part of the Popular

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Transaction, we also sold certain assets from our Business Solutions Segment to Banco Popular, which will result in a reduction in revenue and margin for this segment.

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.

~~Results of Operations~~

~~Comparison of the three months ended September 30, 2021~~ Rising interest rates, inflationary pressure and ~~2020~~

Three months ended September 30,
In thousands 2021 2020 Variance
Revenues $ 145,883 $ 136,507 $ 9,376 7 %
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization 62,995 57,854 5,141 9 %
Selling, general and administrative expenses 17,126 16,682 444 3 %
Depreciation and amortization 18,745 18,127 618 3 %
Total operating costs and expenses 98,866 92,663 6,203 7 %
Income from operations $ 47,017 $ 43,844 $ 3,173 7 %

~~Revenues~~

Total revenues for the three months ended September 30, 2021 increased by $9.4 million or 7% to $145.9 million when compared to the prior year quarter, primarily driven by transactional revenue growth in Puerto Rico as we continue to benefit from federal stimulus, and increased revenue from ATH Movil and ATH Movil Business. Revenue growth in Latin America is driven mainly by client implementationseconomic uncertainty in the beginning of the current year, organic growth from existing customers and the continued expansion of Place to Pay. Prior year revenue includes $4.4 million recognized in connection with one-time services provided to the Puerto Rico Department of Education.

~~Cost of Revenues~~

Cost of revenues for the three months ended September 30, 2021 amounted to $63.0 million, an increase of $5.1 million or 9% when compared to the same period in the prior year. The increase during the three months was primarily driven by an increase in personnel costs, higher professional fees, and an increase in technology services.

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the three months ended September 30, 2021 increased by $0.4 million or 3% when compared to the same period in the prior year. The increase is primarily driven by an increase in personnel costs, partially offset by a decrease on professional services.

~~Depreciation and Amortization~~

Depreciation and amortization expense for the three months ended September 30, 2021 amounted to $18.7 million, an increase of $0.6 million or 3% when compared to the same period in the prior year. Increased expense during the three months is driven by software amortization due to key projects that went into production as well as increased capital expenditures.

~~Non-Operating Expenses~~

Three months ended September 30,
In thousands 2021 2020 Variance
Interest income $ 504 $ 429 $ 75 17 %
Interest expense (5,684) (5,867) 183 3 %
Earnings of equity method investment 411 202 209 103 %
Other income, net 146 2,486 (2,340) (94) %
Total non-operating expenses $ (4,623) $ (2,750) $ (1,873) (68) %

Non-operating expenses for the three months ended September 30, 2021 increased by $1.9 million to $4.6 million when compared to the same period in the prior year. The increase is related to a $2.3 million decrease in other income as the prior year includes the favorable impact of foreign currency exchange on remeasurement of assets and liabilities denominated in US dollars.

~~Income Tax Expense~~

Three months ended September 30,
In thousands 2021 2020 Variance
Income tax expense $ 7,134 $ 6,513 $ 621 10 %

Income tax expense for the three months ended September 30, 2021 amounted to $7.1 million, an increase of $0.6 million when compared to the same period in the prior year. The effective tax rate for the period was 16.8%, compared with 15.8% in the 2020 period. The increase in the effective tax rate primarily reflects the impact of certain discrete items in the Company's Latin America operations.

~~Comparison of the nine months ended September 30, 2021 and 2020~~

Nine months ended September 30,
In thousands 2021 2020 Variance
Revenues $ 434,559 $ 376,386 $ 58,173 15 %
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization 182,180 168,900 13,280 8 %
Selling, general and administrative expenses 49,980 51,528 (1,548) (3) %
Depreciation and amortization 56,091 53,761 2,330 4 %
Total operating costs and expenses 288,251 274,189 14,062 5 %
Income from operations $ 146,308 $ 102,197 $ 44,111 43 %

~~Revenues~~

Total revenues for the nine months ended September 30, 2021 increased by $58.2 million or 15% to $434.6 million when compared to the same period in the prior year. Revenue increased across all of the Company's segments. The increase in Puerto Rico was primarily driven by transactional revenue growth which was positively impacted by incremental federal stimulus, increased consumer demand and the continuous adoption of the Company's digital solutions, mainly ATH Movil and ATH Movil Business. Latin America revenue growth was mainly driven from new business and projects that went into production, and organic growth from existing clients and the expansion of our payment gateway Place to Pay. Revenue in the prior year period was impacted by COVID-19 stay-at-home orders in all of the regionsmarkets in which ~~the Company operates.~~

~~Cost of Revenues~~

~~Cost of revenues for the nine months ended September 30, 2021 amounted to $182.2 million, an increase of $13.3 million or 8% when compared to the same period~~we operate may affect consumer confidence which could result in ~~the prior year. The increase is primarily driven by an increase in personnel costs, increases in technology services, higher professional services and an increase in costs of sales.~~

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the nine months ended September 30, 2021 decreased by $1.5 million or 3% when compared to the same period in the prior year. The decrease is almost entirely related to a decrease in ~~professional services as prior year includes expenses for corporate transactions, partially offset by an increase in personnel costs.~~

~~Depreciation~~consumer spending and ~~Amortization~~

Depreciation and amortization expense for the nine months ended September 30, 2021 amounted to $56.1 million, an increase of $2.3 million or 4% when compared to the same period in the prior year. Increased expense during the period is driven by the same factors explained above for the quarter.

~~Non-Operating Expenses~~

Nine months ended September 30,
In thousands 2021 2020 Variance
Interest income $ 1,343 $ 1,165 $ 178 15 %
Interest expense (17,248) (18,829) 1,581 8 %
Earnings of equity method investment 1,307 733 574 78 %
Other income, net 2,719 2,766 (47) (2) %
Total non-operating expenses $ (11,879) $ (14,165) $ 2,286 16 %

Non-operating expenses for the nine months ended September 30, 2021 decreased by $2.3 million to $11.9 million when compared to the same period in the prior year, primarily due to a $1.6 million decrease in interest expense as a result of lower interest rates and a lower outstanding balance as a result of debt repayments completed in the prior year and in the first half of 2021.

~~Income Tax Expense~~

Nine months ended September 30,
In thousands 2021 2020 Variance
Income tax expense 14,474 15,551 $ (1,077) (7) %

Income tax expense for the nine months ended September 30, 2021 amounted to $14.5 million, a decrease of $1.1 million when compared to the same period in the prior year. The effective tax rate for the period was 10.8% compared with 17.7% in the 2020 period. The decrease in the effective tax rate primarily reflects the impact from the reversal of a liability for uncertain tax positions as a result of the expiration of the statute of limitation in the current year, while the prior year was impacted by the revenue mix towards higher taxed businesses.

our financial results.

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.

payment processing. For network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services.

In addition to the four operating segments described above, management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented within the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and Other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and

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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~~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 EBITDA. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and ~~Adjusted~~adjusted EBITDA. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated financial statements.

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

Comparison of the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Payment Services - Puerto Rico & Caribbean


		Three months ended September 30,				Three months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$38,773		$33,284			Revenues	$	46,078		$	38,589
Adjusted EBITDA	Adjusted EBITDA	21,805		18,473			Adjusted EBITDA	$	23,848		$	23,620
Adjusted EBITDA Margin	Adjusted EBITDA Margin	56.2	%	55.5	%		Adjusted EBITDA Margin	51.8		%	61.2		%

Payment Services - Puerto Rico & Caribbean segment revenues for the three months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$5.5~~$7.5 million to ~~$38.8~~$46.1 million when compared to the same period in the prior ~~year,~~year. The increase in revenues was primarily driven by ~~increased transactional revenue from~~an increase in transaction volumes for POS ~~transactions, an incremental $0.9 million in revenue~~processing, the ongoing growth from ATH Movil and ATH ~~Movil~~ Business ~~as consumer preference~~and an increase in issuing services. The revenue increase also includes the impact of the acquisition completed in the quarter. The segment also continues to ~~shift towards digital payment products and an increase~~benefit from increases in transaction processing and monitoring revenue recognized for services provided to the Payment Services - Latin America Segment. Adjusted EBITDA increased by ~~$3.3~~$0.2 million to ~~$21.8~~$23.8 million driven by the increase in revenues partially offset by the impairment charge recognized in the quarter and higher operating expenses, ~~mainly~~including higher ~~technology services.~~equipment expenses and personnel costs.

Payment Services - Latin America


		Three months ended September 30,				Three months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$26,792		$21,241			Revenues	$	30,784		$	25,835
Adjusted EBITDA	Adjusted EBITDA	9,991		9,538			Adjusted EBITDA	$	9,560		$	10,975
Adjusted EBITDA Margin	Adjusted EBITDA Margin	37.3	%	44.9	%		Adjusted EBITDA Margin	31.1		%	42.5		%

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Payment Services - Latin America segment revenues for the three months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$5.6~~$4.9 million to ~~$26.8~~$30.8 million driven mainly by ~~revenues~~organic growth including revenue generated by new client ~~implementations that went into production~~contracts signed in ~~early 2021, expansion of~~prior years as well as an increase in intercompany software developments and transaction processing revenue recognized for services ~~with existing clients and~~provided to the ~~continued expansion of Place to Pay, partially offset by anticipated client attrition.~~Payment Services - Puerto Rico & Caribbean segment. Adjusted EBITDA ~~increased~~decreased by ~~$0.5~~$1.4 million ~~when compared to the same period in the~~as prior year ~~primarily due to the increase in revenues, partially offset by lower non-operating income as the prior year~~comparable quarter included ~~the~~a $1.4 million favorable impact offrom the remeasurement of assets and liabilities denominated in US ~~dollar and~~dollars, while the current year quarter is reflecting a $0.1 million unfavorable impact. Additionally, operating expenses in the segment increased primarily due to an increase in ~~other operating taxes.~~personnel costs driven by merit increases and increased headcount, an increase in provisions for expected losses as well as increases in fees for transaction processing and monitoring services from the Payment Services - Puerto Rico & Caribbean segment.

Merchant Acquiring


		Three months ended September 30,				Three months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$37,606		$30,646			Revenues	$	38,539		$	38,335
Adjusted EBITDA	Adjusted EBITDA	19,230		15,885			Adjusted EBITDA	$	17,534		$	20,546
Adjusted EBITDA Margin	Adjusted EBITDA Margin	51.1	%	51.8	%		Adjusted EBITDA Margin	45.5		%	53.6		%

Merchant Acquiring segment revenues for the three months ended ~~September~~June 30, ~~2021~~2022 increased slightly by ~~$7.0~~$0.2 million ~~to $37.6 million primarily driven~~mainly as a result of lower sales volumes and a lower transaction spread offset by ~~an increase in transactional revenue due to higher sales volume,~~pricing initiatives implemented during the quarter. Volumes were impacted on a year over year basis as ~~we continue to benefit from the impact of~~prior year period was positively impacted by incremental COVID related federal ~~stimulus, and revenue generated from the expanded relationship with FirstBank.~~stimulus. Adjusted EBITDA ~~increased~~decreased by ~~$3.3~~$3.0 million driven by ~~the increase in revenues, partially offset by an increase in~~higher operating expenses, ~~driven by the increased~~mainly transaction ~~volume~~processing costs and ~~higher personnel costs.~~supplies.

Business Solutions


		Three months ended September 30,				Three months ended June 30
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$58,134		$63,018			Revenues	$	64,690		$	60,693
Adjusted EBITDA	Adjusted EBITDA	26,034		32,991			Adjusted EBITDA	$	29,835		$	30,621
Adjusted EBITDA Margin	Adjusted EBITDA Margin	44.8	%	52.4	%		Adjusted EBITDA Margin	46.1		%	50.5		%

Business Solutions segment revenues for the three months ended ~~September~~June 30, ~~2021 decreased~~2022 increased by ~~$4.9~~$4.0 million to $58.1 million mainly as a result of the favorable impact in the prior year of a one-time contract with the Puerto Rico Department of Education that amounted to $4.4 million. Adjusted EBITDA decreased by $7.0 million to $26.0$64.7 million as a result of higher transactions and account volumes, the ~~impact~~benefit from the CPI escalator on the MSA with Popular, another strong quarter of contribution from the printing contract that began generating revenue in June of the ~~aforementioned contract recorded net of~~prior year, and one-time software sales in the Dominican Republic. Adjusted EBITDA decreased by $0.8 million to $29.8 million as the increase in revenue was offset by an increase in provisions for expected losses, increased printing related expenses and ~~higher operating expenses.~~an increase in cost of sales directly related to the software sale.

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Payment Services - Puerto Rico & Caribbean


		Nine months ended September 30,				Six months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$113,626		$90,632			Revenues	$	86,086		$	74,853
Adjusted EBITDA	Adjusted EBITDA	66,228		47,823			Adjusted EBITDA	$	47,628		$	44,423
Adjusted EBITDA Margin	Adjusted EBITDA Margin	58.3	%	52.8	%		Adjusted EBITDA Margin	55.3		%	59.3		%

Payment Services - Puerto Rico & Caribbean segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$23.0~~$11.2 million to ~~$113.6~~$86.1 million ~~due to an increase in transactions~~ when compared to the same period in the prior ~~year which~~year. The increase in revenues was ~~impacted~~primarily driven by ~~a decline~~an increase in transaction volumes, ~~due to~~mainly POS processing, the impact of COVID-19, while the current year is benefiting from incremental federal stimulus and increased consumer demand. Revenue during the year has also benefited from an incremental $5.1 million recognizedcontinued strong digital payments growth from ATH Movil and ATH ~~Movil~~ Business, higher issuing services, and revenue contribution from the acquisition completed in the current year quarter, as

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well as an increase in transaction processing and monitoring revenue recognized for services provided to the Payment Services - Latin America Segment. Adjusted EBITDA increased by ~~$18.4~~$3.2 million to ~~$66.2~~$47.6 million driven by the increase in revenues partially offset by the impairment loss discussed above, higher ~~operating~~personnel costs and an increase in equipment expenses, ~~driven by higher~~including POS equipment ~~expenses.~~maintenance costs.

Payment Services - Latin America


		Nine months ended September 30,				Six months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$77,641		$62,678			Revenues	$	59,567		$	50,849
Adjusted EBITDA	Adjusted EBITDA	30,985		23,864			Adjusted EBITDA	$	21,987		$	20,994
Adjusted EBITDA Margin	Adjusted EBITDA Margin	39.9	%	38.1	%		Adjusted EBITDA Margin	36.9		%	41.3		%

Payment Services - Latin America segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$15.0~~$8.7 million to ~~$77.6~~$59.6 million driven mainly by ~~revenues~~organic growth including revenue generated by new client ~~implementations as well as expanded existing relationships~~contracts signed in prior years, and ~~increased volume from Place~~higher revenues recognized for services provided to ~~Pay, partially offset by client attrition.~~the Payment Services - Puerto Rico & Caribbean and Business Solutions segments. Adjusted EBITDA increased by ~~$7.1~~$1.0 million when compared to the same period in the prior year ~~primarily due to~~reflecting the increase in revenues as well as the year over year favorable impact from the remeasurement of assets and liabilities denominated in US dollars, partially offset by higher operating expenses, including an increase in personnel costs, and in provisions for expected losses as well as increases in fees for transaction processing and monitoring services from the Payment Services - Puerto Rico & Caribbean segment.

Merchant Acquiring


		Nine months ended September 30,				Six months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$106,808		$80,531			Revenues	$	74,168		$	69,202
Adjusted EBITDA	Adjusted EBITDA	$55,293		40,551			Adjusted EBITDA	$	34,618		$	36,063
Adjusted EBITDA Margin	Adjusted EBITDA Margin	51.8	%	50.4	%		Adjusted EBITDA Margin	46.7		%	52.1		%

Merchant Acquiring segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$26.3~~$5.0 million to ~~$106.8~~$74.2 million mainly as a result of an increase in sales volume with a higher average ticket and a slightly higher spread per transaction ~~volumes that benefited~~as well as the benefit of pricing initiatives implemented. The higher volume was driven mainly by six months of contribution from the ~~impact of federal stimulus, while~~FirstBank expanded relationship, compared with four months in the prior ~~year period was impacted by lower sales volume as a result of the beginning of the COVID-19 pandemic.~~year. Adjusted EBITDA ~~increased~~decreased by ~~$14.7~~$1.4 million ~~driven by~~as the increase in revenues ~~partially~~was entirely offset by ~~an increase in operating expenses driven by the increased~~higher transaction ~~volume.~~processing costs.

Business Solutions


		Nine months ended September 30,				Six months ended June 30,
In thousands	In thousands	2021		2020			In thousands	2022			2021
Revenues	Revenues	$179,438		$174,455			Revenues	$	127,314		$	121,304
Adjusted EBITDA	Adjusted EBITDA	86,287		84,459			Adjusted EBITDA	$	59,439		$	60,253
Adjusted EBITDA Margin	Adjusted EBITDA Margin	48.1	%	48.4	%		Adjusted EBITDA Margin	46.7		%	49.7		%

Business Solutions segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$5.0~~$6.0 million to ~~$179.4~~$127.3 million as a result of ~~an increase in core banking revenues~~higher transactions and ~~an increase in IT consulting services revenue, as~~account volumes and the ~~Company continues to~~ benefit of the CPI escalator on the Popular MSA. In addition, the segment benefited from incremental printing volume resulting from the ~~shift to digital,~~contract entered into in June of the prior year. These increases were partially offset by services provided to the ~~impact~~Puerto Rico Department of Education in the prior year ~~of the aforementioned one-time Department of Education contract.~~quarter that did not recur. Adjusted EBITDA ~~increased~~decreased by ~~$1.8~~$0.8 million to ~~$86.3~~$59.4 million as ~~a result of~~ the increase in revenue ~~partially~~was offset by ~~an increase in~~increased expenses, mainly software and hardware maintenance costs ~~of sales.~~and printing related expenses.

Liquidity and Capital Resources

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Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, acquisitions, debt service, dividend payments and ~~acquisitions.~~share repurchases. We also have a $125.0 million Revolving Facility, of which $119.1 million was available for borrowing as of ~~September~~June 30, ~~2021.~~2022. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn.

As of ~~September~~June 30, ~~2021,~~2022, we had cash and cash equivalents of ~~$244.1~~$288.1 million, of which ~~$87.8~~$103.3 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, debt service, acquisitions, dividend payments, share repurchases, 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 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.


		Nine months ended September 30,					Six months ended June 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021

Cash provided by operating activities	Cash provided by operating activities	$	175,855	$	121,159	Cash provided by operating activities	$	129,902	$	112,029
Cash used in investing activities	Cash used in investing activities	(60,305)		(36,920)		Cash used in investing activities	(46,192)		(47,036)
Cash used in financing activities	Cash used in financing activities	(74,077)		(50,780)		Cash used in financing activities	(58,796)		(66,869)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	Effect of foreign exchange rate on cash, cash equivalents and restricted cash	215		(2,384)		Effect of foreign exchange rate on cash, cash equivalents and restricted cash	(191)		73
Increase in cash, cash equivalents and restricted cash		$	41,688	$	31,075
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	$	24,723	$	(1,803)

Net cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$175.9~~$129.9 million compared to ~~$121.2~~$112.0 million for the same period in the prior year. The ~~$54.7~~$17.9 million increase in cash provided by operating activities is primarily driven by ~~the increase in net income, an increase in collections for accounts receivable and a decrease in~~less cash used to pay down accounts payable and accrued ~~liabilities.~~liabilities as the Company continues to effectively manage working capital.

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$60.3~~$46.2 million compared to ~~$36.9~~$47.0 million for the same period in the prior year. The ~~$23.4~~$0.8 million ~~increase~~decrease is ~~primarily attributable~~driven by lower capital expenditures of $1.2 million as well as a decrease in acquisitions of customer relationships given that the prior year acquisition amounted to $14.8 million while the acquisition ofin the current year amounted to $10.6 million. Partially offsetting these decreases was a ~~$14.8~~$7.3 million ~~customer relationship, an increase in additions to software of $7.5 million, and the~~ purchase of certificates of deposit while the prior year included a $3.0 million inpurchase of available-for-sale debt ~~securities during the period.~~securities.

Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$74.1~~$58.8 million compared to ~~$50.8~~$66.9 million for the same period in the prior year. The ~~$23.3~~$8.1 million ~~increase~~decrease was mainly attributed to a decrease of $15.0 million in cash used to pay down long-term debt as in the prior year, in connection with the mandatory repayment clause, the Company repaid $17.8 million, as a result of excess cash flow calculation performed, while no mandatory repayment was required in the current year, and a $3.1 million decrease in withholding taxes paid on share-based compensation partially offset by an increase in cash used to repurchase common stock of ~~$17.1 million and a $5.3 million increase in withholding taxes paid on share-based compensation.~~$10.8 million.

Capital Resources

Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. WeDuring the six months ended June 30, 2022 and 2021, the Company invested approximately ~~$43.4~~$29.0 million and ~~$36.9~~$30.1 million, respectively, the Company acquired customer relationships amounting to $10.6 million and $14.8 million during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, respectively. In addition, in 2021, the Company acquired a $14.8 million customer relationship~~respectively, as well as $7.3 million in certificates of deposit in 2022 and $3.0 million in available-for-sale debt ~~securities.~~securities in 2021. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility.

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Dividend Payments

On February ~~18, 2021,~~15, 2022 and April ~~22, 2021 and July 22, 2021, respectively~~21, 2022, the Board declared quarterly cash dividends of $0.05 per share of common stock, which were paid on March ~~26, 2021,~~25, 2022 and June ~~4, 2021 and September~~ 3, ~~2021,~~2022, respectively, to stockholders of record as of the close of business on ~~March 1, 2021,~~February 25, 2022 and May ~~3, 2021 and August~~ 2, ~~2021,~~2022, respectively.

On ~~October 21, 2021,~~July 28, 2022, 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 ~~December 3, 2021~~September 2, 2022 to stockholders of record as of the close of business on ~~November 1, 2021.~~August 8, 2022. 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.

Financial Obligations

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group ~~LLC ("EVERTEC Group") (collectively, the “Borrower”~~(“Borrower”) entered into a credit agreement providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 (the “2023 Term A ~~Loan"~~Loan”), a $325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term 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.~~million or if the leverage ratio is below 1.75x. On March 8, 2021, ~~and March 5, 2020,~~ in connection with this mandatory repayment clause, the Company repaid $17.8 million, ~~and $17.0 million, respectively,~~ as a result of excess cash flow calculation performed for the ~~years~~year ended December 31, ~~2020 and 2019, respectively.~~2020. No mandatory repayment was required in the first quarter of 2022 in connection with the excess cash flow calculation performed for the year ended December 31, 2021 as the leverage ratio was below 1.75x.

Notes Payable

In December 2019, EVERTEC Group entered into two non-interest bearing financing agreements amounting to $2.4 million to purchase software and ~~maintenance.~~maintenance, which were fully repaid in January 2022. As of ~~September 30, 2021 and~~ December 31, ~~2020,~~2021, the outstanding principal balance of the notes payable was $0.8 ~~million and $1.5 million, respectively.~~million. These notes ~~are~~were included in accounts payable in the Company's unaudited condensed consolidated balance sheets.

Interest Rate Swaps

Swap Agreement

Effective date

Maturity Date

Notional Amount

Variable Rate

Fixed Rate

2018 Swap

April 2020

November 2024

$250 million

1-month LIBOR

2.89%

The Company has accounted for this agreement as a cash flow hedge.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was ~~$18.1~~an asset of $0.8 million, recorded in other long term assets and ~~$25.6~~$13.4 million liabilities, respectively. The fair value of this derivative is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 87 of the unaudited condensed consolidated financial statements for disclosure of losses recorded on cash flow hedging activities.

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During the three and ~~nine~~six months ended ~~September~~months ended June 30, 2022 and 2021, the Company reclassified losses of ~~$1.8~~$1.4 million and ~~$5.3~~$3.1 million respectively, from accumulated other comprehensive loss into interest expense compared to ~~$1.7~~$3.5 million and ~~$3.3~~$5.3 million for the corresponding ~~period~~periods in ~~2020.~~2021. Based on current LIBOR rates, the Company expects to reclassify ~~losses~~gains of ~~$7.0~~$0.8 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

Covenant Compliance

As of ~~September~~June 30, ~~2021,~~2022, our secured leverage ratio was ~~1.47~~1.37 to 1.00, as determined in accordance with the 2018 Credit Agreement. As of the date of filing of this ~~Form 10-Q,~~Report, no event has occurred that constitutes an Event of Default or Default under our 2018 Credit Agreement.

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

We define “EBITDA” as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted to exclude unusual items and other adjustments described below. Adjusted EBITDA by segment is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with ASC Topic 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K. We define “Adjusted Net Income” as net income adjusted to exclude unusual items and other adjustments described below. We define “Adjusted Earnings per common share” as Adjusted Net Income divided by diluted shares outstanding.

We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of ourselves and other companies in our industry. In addition, our presentation of Adjusted EBITDA is substantially consistent with the equivalent measurements that are contained in the senior secured credit facilities in testing EVERTEC Group’s compliance with covenants therein such as the 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.~~merger and acquisition activity. In addition, in evaluating EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future 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.

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


		Three months ended September 30,				Nine months ended September 30,				Twelve months ended			Three months ended June 30,					Six months ended June 30,			Twelve months ended
(In thousands, except per share information)	(In thousands, except per share information)	2021		2020		2021		2020		September 30, 2021		(In thousands, except per share information)	2022		2021				2022		2021		June 30, 2022
Net income	Net income	$	35,260	$	34,581	$	119,955	$	72,481	$	152,325	Net income	$	33,556	$	49,091			$	72,422	$	84,695	$	148,870
Income tax expense	Income tax expense	7,134		6,513		14,474		15,551		17,925		Income tax expense	7,688		2,632				13,863		7,340		27,085
Interest expense, net	Interest expense, net	5,180		5,438		15,905		17,664		21,813		Interest expense, net	5,127		5,208				10,007		10,725		20,203
Depreciation and amortization	Depreciation and amortization	18,745		18,127		56,091		53,761		73,848		Depreciation and amortization	19,560		18,723				38,720		37,346		76,444
EBITDA	EBITDA	66,319		64,659		206,425		159,457		265,911		EBITDA	65,931		75,654		—		135,012		140,106		272,602

Equity income (1)	Equity income (1)	(411)		(202)		10		(733)		(393)		Equity income (1)	(862)		923				(1,432)		421		(2,248)
Compensation and benefits (2)	Compensation and benefits (2)	3,493		3,669		11,280		10,920		14,743		Compensation and benefits (2)	5,405		4,283				9,684		7,787		17,041
Transaction, refinancing and other fees (3)	Transaction, refinancing and other fees (3)	369		1,907		1,205		6,880		2,602		Transaction, refinancing and other fees (3)	2,901		(599)				5,496		836		7,033

Adjusted EBITDA	Adjusted EBITDA	69,770		70,033		218,920		176,524		282,863		Adjusted EBITDA	73,375		80,261		—		148,760		149,150		294,428
Operating depreciation and amortization (4)	Operating depreciation and amortization (4)	(10,779)		(9,888)		(32,385)		(28,943)		(42,526)		Operating depreciation and amortization (4)	(11,156)		(10,724)				(22,408)		(21,606)		(44,240)
Cash interest expense, net (5)	Cash interest expense, net (5)	(4,926)		(5,301)		(14,946)		(16,917)		(20,314)		Cash interest expense, net (5)	(4,858)		(4,944)				(9,487)		(10,020)		(19,271)
Income tax expense (6)	Income tax expense (6)	(9,125)		(7,472)		(24,416)		(21,729)		(29,879)		Income tax expense (6)	(10,325)		(7,535)				(19,002)		(15,291)		(35,395)
Non-controlling interest (7)	Non-controlling interest (7)	17		(155)		(55)		(412)		(189)		Non-controlling interest (7)	1		71				11		(72)		(78)
Adjusted net income	Adjusted net income	$	44,957	$	47,217	$	147,118	$	108,523	$	189,955	Adjusted net income	$	47,037	$	57,129			$	97,874	$	102,161	$	195,444
Net income per common share (GAAP):	Net income per common share (GAAP):											Net income per common share (GAAP):
Diluted	Diluted	$	0.48	$	0.47	$	1.65	$	0.99			Diluted	$	0.47	$	0.68			$	1.00	$	1.16
Adjusted Earnings per common share (Non-GAAP):	Adjusted Earnings per common share (Non-GAAP):											Adjusted Earnings per common share (Non-GAAP):
Diluted	Diluted	$	0.62	$	0.65	$	2.02	$	1.49			Diluted	$	0.65	$	0.78			$	1.35	$	1.40
Shares used in computing adjusted earnings per common share:	Shares used in computing adjusted earnings per common share:											Shares used in computing adjusted earnings per common share:
Diluted	Diluted	72,876,253		73,001,780		72,817,707		73,049,817				Diluted	72,149,949		72,831,366				72,558,565		72,716,950

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

2)Primarily represents share-based compensation and severance payments.

3)Represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, ~~recorded as part of selling, general and administrative expenses,~~ a software impairment charge and a gain from sale of assets.

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~~the condensed consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount.

6)Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items.

7)Represents the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase.

~~Off-Balance Sheet Arrangements~~

In the ordinary course of business, the Company may enter into commercial commitments. With the exception of the letters of credit issued against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility, as of September 30, 2021, the Company did not have any 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 asgiven that overall inflation has been offset by ~~increased selling process~~sales and cost reduction ~~actions. We cannot assure you, however, that we will~~actions, the rate of inflation can impact certain input costs, such as occupancy, labor and benefits, and general administrative costs, which may not be ~~affected by general~~readily recoverable from our customers and could affect our results

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of operations and financial condition. In addition, if inflation were to result in ~~the future.~~rising interest rates, it could result in an adverse effect on our cost of funding due to increased interest expense on our outstanding debt.

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Item 3. Quantitative and Qualitative Disclosures About Market 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

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 ~~September~~June 30, ~~2021,~~2022, under the secured credit facilities, would increase our annual interest expense by approximately ~~$2.7~~$2.1 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.

As of ~~September~~June 30, ~~2021,~~2022, the Company has an interest rate swap agreement, entered into in December 2018, which converts a portion of our outstanding variable rate debt to fixed.

The interest rate swap exposes us to credit risk in the event that the counterparty to the swap agreement does not or cannot meet its obligations. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap. The counterparty to the swap is a major 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 6 of the Unaudited Condensed Consolidated Financial Statements for additional information related to the secured credit facilities.

Foreign 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.~~US dollar, are reported in accumulated other comprehensive loss in the unaudited condensed consolidated balance sheets. As of ~~September~~June 30, ~~2021,~~2022, the Company had ~~$32.7~~$40.3 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive loss compared with an unfavorable foreign currency translation adjustment of ~~$24.8~~$36.0 million atas of December 31, ~~2020.~~2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~The Company,~~Management, under the direction of the Chief Executive Officer and the Chief Financial Officer, has ~~established~~evaluated, as of the end of the period covered by this Report on Form 10-Q, disclosure controls and procedures as(as defined in ~~Rule~~Rules 13a-15(e) and 15d-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 ~~September~~June 30, ~~2021,~~2022, the Company’s disclosure controls and procedures ~~are~~were effective.

Changes in Internal Control Over Financial Reporting

There ~~have not been any~~were no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a -15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are defendants in various lawsuits or arbitration proceedings arising in the ordinary course of business. Management believes, based on the opinion of legal counsel and other factors, that the aggregated liabilities, if any, arising from such actions will not have a material adverse effect on the financial condition, results of operations and the cash flows of the Company.

Item 1A. Risk Factors

~~Investing in our common shares involves a high degree of risk. In addition~~Other than the risk factor set forth below, there have been no material changes to the ~~other information set forth in this Report, you should carefully consider the~~risk factors described in our Annual Report on Form 10-K for the ~~section titled~~year ended December 31, 2021 filed with the SEC on February 25, 2022. For a discussion of the potential risks and uncertainties related to us, see "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2020 (the "2020 Annual Report").~~There have been no material changes to the risk factors described in the 2020 Annual Report. If any of the risk factors described in our 2020 Annual Report actually materializes, our business, financial condition and results of operations could be materially adversely affected. In such an event, the market price of our common shares could decline and you may lose all or part of your investment.2021.

The risks described in our ~~2020~~ Annual Report on Form 10-K for the year ended December 31, 2021 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.

Banco Popular, our largest customer, is controlled by Popular, which owned 16.2% of our outstanding common stock as of June 30, 2022. The anticipated reduction in or elimination of Popular’s ownership of our common stock could adversely affect us.

For the year ended December 31, 2021, approximately 42% of our revenue was attributable to Banco Popular, a wholly owned subsidiary of Popular, Inc. which was our largest stockholder as of June 30, 2022. As a result, Popular has historically had substantial influence over our policies and management. In connection with the sale of certain of our assets to, and renegotiation of certain agreements with, Popular and Banco Popular on July 1, 2022, Popular is contractually required to reduce its holding in our voting equity to 4.5% or less of our common stock, either through the sale of shares or by converting shares of common stock into non-voting stock. The anticipated reduction or elimination of Popular’s holdings of our common stock may change or negatively impact our business relationship with Banco Popular and could have a material adverse effect on our business, financial condition, results of operations and cash flows, and could materially adversely affect the trading price of our common stock.

Effective as of July 1, 2022, the stockholders agreement dated April 17, 2012 with Popular was terminated and, thus, Popular

no longer has a right to, among other things, designate nominees for election to the Board or representation to each committee

of the Board.

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

~~None.~~The following table summarizes repurchases of shares of the Company’s common stock in the three month period ended June 30, 2022:


Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of a publicly announced program (1)	Approximate dollar value of shares that may yet be purchased under the program

4/1/2022-4/30/2022	153,596	41.07	153,596
5/1/2022-5/31/2022	203,518	37.97	203,518
	357,114	39.30	357,114	114,785,749

(1) On February 24, 2022, the Company announced that its Board approved an increase to the current stock

repurchase program, authorizing the purchase of up to an aggregate of $150 million shares of the Company’s common stock under the program which expires on December 31, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

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Not applicable.

Item 5. Other Information

None.

3641

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Item 6. Exhibits
















10.1*+			Form of Restricted Stock Unit Award Agreement for grant of restricted stock units to directors under the EVERTEC, Inc. 2022 Equity Incentive Plan, dated June 1, 2022, by and between EVERTEC, Inc. and the director (applicable to Frank G. D’Angelo, Kelly Barrett, Olga Botero, Jorge A. Junquera, Iván Pagán, Aldo J. Polak, Alan H. Schumacher, and Brian J Smith).
10.2+			EVERTEC, Inc. 2022 Incentive Award Plan.
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**			Inline Instance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL**			Inline Taxonomy Extension Schema
101.CAL XBRL**			Inline Taxonomy Extension Calculation Linkbase
101.DEF XBRL**			Inline Taxonomy Extension Definition Linkbase
101.LAB XBRL**			Inline Taxonomy Extension Label Linkbase
101.PRE XBRL**			Inline Taxonomy Extension Presentation Linkbase
~~104~~104**			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	EVERTEC, Inc. (Registrant)

Date: ~~October 28, 2021~~August 5, 2022	By:	/s/ Morgan Schuessler
		Morgan Schuessler Chief Executive Officer

Date: ~~October 28, 2021~~August 5, 2022	By:	/s/ Joaquin A. Castrillo-Salgado
		Joaquin A. Castrillo-Salgado Chief Financial Officer (Principal Financial and Accounting Officer)

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Note 1 - The Company and Basis of Presentation			79
Note 2 - ~~Recent Accounting Pronouncements~~Held-for-Sale			79
Note 3 - Debt Securities			810
Note 4 - Property and Equipment, net			810
Note 5 - Goodwill and Other Intangible Assets			811
Note 6 - Debt and Short-Term Borrowings			912
Note 7 - Financial Instruments and Fair Value Measurements			1113
Note 8 - Equity			1114
Note 9 - Share-based Compensation			1214
Note 10 - Revenues			1215
Note 11 - Current Expected Credit Losses			1417
Note 12 - Income Tax			1518
Note 13 - Net Income per Common Share			1619
Note 14 - Commitments and Contingencies			1619
Note 15 - Related Party Transactions			1619
Note 16 - Segment Information			1720
Note 17 - Subsequent Events			2124


	Three months ended September 30, 2021
(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	$	30	$	449	$	—	$	446	$	925
Products and services transferred over time	25,712		23,807		37,606		57,833		144,958
	$	25,742	$	24,256	$	37,606	$	58,279	$	145,883


	Three months ended September 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	$	43	$	357	$	—	$	4,824	$	5,224
Products and services transferred over time	23,652		18,791		30,646		58,194		131,283
	$	23,695	$	19,148	$	30,646	$	63,018	$	136,507