UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2022~~March 31, 2023 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 27, 2022,~~April 21, 2023, there were ~~65,202,196~~65,078,462 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, 2022~~March 31, 2023 and December 31, ~~2021~~2022	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	54
	Notes to Unaudited Condensed Consolidated Financial Statements	85
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2720
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4030
Item 4.	Controls and Procedures	4131
Part II. OTHER INFORMATION		4233
Item 1.	Legal Proceedings	4233
Item 1A.	Risk Factors	4233
Item 2.	Unregistered Sales of Equity in Securities and Use of Proceeds	4233
Item 3.	Defaults Upon Senior Securities	4233
Item 4.	Mine Safety Disclosures	4333
Item 5.	Other Information	4333
Item 6.	Exhibits	4434
SIGNATURES		4535

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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~~

Words such as “believes,” “expects,” ~~“may,”~~"anticipates," "intends," "projects," “estimates,” ~~“will,” “should,”~~and “plans” and similar expressions of future or ~~“anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.~~conditional verbs such as "will,""should,""would," "may," and "could" are generally forward-looking in nature and not historical facts. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may ~~differ~~vary materially from those in the forward-looking statements as a result of various factors. Among the factors that significantly impact our business and could impact our business in the future are:

•our reliance on our relationship with Popular, Inc. (“Popular”) for a significant portion of our revenues pursuant to our second amended and restated Master Services Agreement (“MSA”) with them, and as it may impact our ability to grow our merchant acquiring business;

•our ability to renew our client contracts on terms favorable to us, including but not limited to the current term and any extension of the MSA with Popular;

•our dependence on our processing systems, technology infrastructure, security systems and fraudulent payment detection systems, as well as on our personnel and certain third parties with whom we do business, and the risks to our business if our systems are hacked or otherwise compromised;

•our ability to develop, install and adopt new software, technology and computing systems;

•a decreased client base due to consolidations ~~and~~and/or failures in the financial services industry;

•the credit risk of our merchant clients, for which we may also be liable;

•the continuing market position of the ATH network;

•a reduction in consumer confidence, whether as a result of a global economic downturn or otherwise, which leads to a decrease in consumer spending;

•our dependence on credit card associations, including any adverse changes in credit card association or network rules or fees;

•changes in the regulatory environment and changes in macroeconomic, market, international, legal, tax, political, or administrative conditions, including inflation or 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;

•the impact of foreign exchange rates on operations;

•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 to our information security;

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

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

•~~uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate;~~ and

•the ~~elimination of Popular's ownership~~impact on our relationship with Popular after their exit of our common ~~stock; and~~stock.

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•the other factors set forth under "Part 1, Item 1A. Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC") on February 25, 2022, as updated by Part II, Item 1A. “Risk Factors” in this Report.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Part 1, Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the ~~SEC~~Securities and Exchange Commission (the “SEC”) on February ~~25, 2022, as updated by Part II, Item 1A. “Risk Factors” in this Report, and~~24, 2023, 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 we do not undertake any~~The Company undertakes no obligation to release publicly ~~release~~ any revisions to ~~these~~any forward-looking statements, to ~~reflect~~report events or ~~circumstances after the date of this Report or~~ to ~~reflect~~report the occurrence of unanticipated ~~events.~~events unless it is required to do so by law.

WHERE YOU CAN FIND MORE INFORMATION

All reports we file with the ~~SEC~~Securities and Exchange Commission ("SEC") are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available for download through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC.

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EVERTEC, Inc. Unaudited Condensed Consolidated Balance Sheets

(In thousands, except ~~for~~ share information)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	224,971	$	266,351	Cash and cash equivalents	$	173,662	$	197,229
Restricted cash	Restricted cash	18,705		19,566		Restricted cash	19,015		18,428
Accounts receivable, net	Accounts receivable, net	112,293		113,285		Accounts receivable, net	127,876		131,080
Prepaid expenses and other assets	Prepaid expenses and other assets	40,992		37,148		Prepaid expenses and other assets	47,944		42,392

Total current assets	Total current assets	396,961		436,350		Total current assets	368,497		389,129
Debt securities available-for-sale, at fair value	Debt securities available-for-sale, at fair value	2,198		3,041		Debt securities available-for-sale, at fair value	2,179		2,203
Investment in equity investee	Investment in equity investee	14,071		12,054		Investment in equity investee	15,703		14,661
Property and equipment, net	Property and equipment, net	49,928		48,533		Property and equipment, net	56,858		56,387

Operating lease right-of-use asset	Operating lease right-of-use asset	17,799		21,229		Operating lease right-of-use asset	15,627		15,918
Goodwill	Goodwill	417,819		393,318		Goodwill	434,340		423,392
Other intangible assets, net	Other intangible assets, net	196,316		213,288		Other intangible assets, net	213,706		200,320
Deferred tax asset	Deferred tax asset	5,414		6,910		Deferred tax asset	7,926		5,701
Derivative asset						Derivative asset	5,768		7,440
Net investment in leases	Net investment in leases	14		107		Net investment in leases	—		14
Derivative asset		7,070		—
Other long-term assets	Other long-term assets	13,378		9,926		Other long-term assets	16,589		16,578
Total assets	Total assets	$	1,120,968	$	1,144,756	Total assets	$	1,137,193	$	1,131,743
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accrued liabilities	Accrued liabilities	$	82,798	$	74,540	Accrued liabilities	$	80,064	$	90,341
Accounts payable	Accounts payable	33,489		28,484		Accounts payable	47,647		46,751
Contract liability	Contract liability	17,051		17,398		Contract liability	19,737		15,226
Income tax payable	Income tax payable	10,757		7,132		Income tax payable	9,239		9,406
Current portion of long-term debt	Current portion of long-term debt	28,813		19,750		Current portion of long-term debt	20,750		20,750

Short-term borrowings						Short-term borrowings	—		20,000

Current portion of operating lease liability	Current portion of operating lease liability	6,007		5,580		Current portion of operating lease liability	5,796		5,936
Total current liabilities	Total current liabilities	178,915		152,884		Total current liabilities	183,233		208,410
Long-term debt	Long-term debt	426,691		444,785		Long-term debt	384,550		389,498
Deferred tax liability	Deferred tax liability	7,998		2,369		Deferred tax liability	10,162		10,111
Contract liability - long term	Contract liability - long term	34,726		36,258		Contract liability - long term	33,284		34,068
Operating lease liability - long-term	Operating lease liability - long-term	13,320		16,456		Operating lease liability - long-term	10,592		10,788
Derivative liability		—		13,392

Other long-term liabilities	Other long-term liabilities	4,063		8,344		Other long-term liabilities	4,231		4,120
Total liabilities	Total liabilities	665,713		674,488		Total liabilities	626,052		656,995
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)					Commitments and contingencies (Note 14)
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; 65,588,270 shares issued and outstanding as of September 30, 2022 (December 31, 2021 - 71,969,856)		655		719
Common stock, par value $0.01; 206,000,000 shares authorized; 65,078,462 shares issued and outstanding as of March 31, 2023 (December 31, 2022 - 64,847,233)						Common stock, par value $0.01; 206,000,000 shares authorized; 65,078,462 shares issued and outstanding as of March 31, 2023 (December 31, 2022 - 64,847,233)	651		648
Additional paid-in capital	Additional paid-in capital	—		7,565		Additional paid-in capital	—		—
Accumulated earnings	Accumulated earnings	480,740		506,051		Accumulated earnings	507,563		487,349
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(29,586)		(48,123)		Accumulated other comprehensive loss, net of tax	(446)		(16,486)
Total EVERTEC, Inc. stockholders’ equity	Total EVERTEC, Inc. stockholders’ equity	451,809		466,212		Total EVERTEC, Inc. stockholders’ equity	507,768		471,511
Non-controlling interest	Non-controlling interest	3,446		4,056		Non-controlling interest	3,373		3,237
Total equity	Total equity	455,255		470,268		Total equity	511,141		474,748
Total liabilities and equity	Total liabilities and equity	$	1,120,968	$	1,144,756	Total liabilities and equity	$	1,137,193	$	1,131,743

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,
2022 2021 2022 2021

Revenues (affiliates Note 16) $ 145,803 $ 145,883 $ 456,622 $ 434,559
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization 76,272 62,995 215,244 182,180
Selling, general and administrative expenses 26,001 17,126 66,436 49,980
Depreciation and amortization 19,712 18,745 58,432 56,091
Total operating costs and expenses 121,985 98,866 340,112 288,251
Income from operations 23,818 47,017 116,510 146,308
Non-operating income (expenses)
Interest income 807 504 2,279 1,343
Interest expense (6,763) (5,684) (18,242) (17,248)
Earnings of equity method investment 688 411 2,120 1,307
(Loss) gain on foreign currency remeasurement (7,779) (304) (6,858) 652
Gain on sale of a business 135,642 — 135,642 —
Other income (expenses) 374 450 1,621 2,067
Total non-operating income (expenses) 122,969 (4,623) 116,562 (11,879)
Income before income taxes 146,787 42,394 233,072 134,429
Income tax expense 9,048 7,134 22,911 14,474
Net income 137,739 35,260 210,161 119,955
Less: Net loss attributable to non-controlling interest (75) (54) (140) (59)
Net income attributable to EVERTEC, Inc.’s common stockholders 137,814 35,314 210,301 120,014
Other comprehensive income (loss), net of tax of $716, $382, $1,442 and $817
Foreign currency translation adjustments 4,125 (6,942) (210) (7,823)
Gain on cash flow hedges 5,762 1,537 18,824 6,814
Unrealized (loss) gain on change in fair value of debt securities available-for-sale $ (21) $ 8 $ (77) $ 97
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders $ 147,680 $ 29,917 $ 228,838 $ 119,102
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders $ 2.08 $ 0.49 $ 3.01 $ 1.66
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders $ 2.06 $ 0.48 $ 2.98 $ 1.65


	Three months ended March 31,
	2023		2022

Revenues (affiliates Note 15)	$	159,814	$	150,248





Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	76,417		64,659
Selling, general and administrative expenses	23,875		20,384
Depreciation and amortization	19,432		19,160
Total operating costs and expenses	119,724		104,203
Income from operations	40,090		46,045
Non-operating income (expenses)
Interest income	1,133		667
Interest expense	(5,643)		(5,547)
(Loss) gain on foreign currency remeasurement	(4,864)		2,669
Earnings of equity method investment	1,155		570
Other income, net	1,010		637
Total non-operating expenses	(7,209)		(1,004)
Income before income taxes	32,881		45,041
Income tax expense	2,818		6,175
Net income	30,063		38,866
Less: Net income (loss) attributable to non-controlling interest	11		(32)
Net income attributable to EVERTEC, Inc.’s common stockholders	30,052		38,898
Other comprehensive (loss) income, net of tax of $(116) and $423
Foreign currency translation adjustments	17,605		2,214
(Loss) gain on cash flow hedges	(1,545)		9,725
Unrealized loss on change in fair value of debt securities available-for-sale	(20)		(27)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders	$	46,092	$	50,810
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders	$	0.46	$	0.54
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders	$	0.46	$	0.53

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
Balance at December 31, 2022	64,847,233	$	648	$	—	$	487,349	$	(16,486)	$	3,237	$	474,748
Share-based compensation recognized	—	—		5,557		—		—		—		5,557
Repurchase of common stock	(187,976)	(1)		—		(6,268)		—		—		(6,269)
Restricted stock units delivered	419,205	4		(5,557)		(321)		—		—		(5,874)
Net income	—	—		—		30,052		—		11		30,063
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,249)		—		—		(3,249)
Other comprehensive income	—	—		—		—		16,040		125		16,165

Balance at March 31, 2023	65,078,462	$	651	$	—	$	507,563	$	(446)	$	3,373	$	511,141


	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, 2021	71,969,856	$	719	$	7,565	$	506,051	$	(48,123)	$	4,056	$	470,268
Share-based compensation recognized	—	—		4,279		—		—		—		4,279
Repurchase of common stock	(521,643)	(5)		(6,193)		(14,981)		—		—		(21,179)
Restricted stock units delivered	251,085	3		(5,651)		—		—		—		(5,648)
Net income (loss)	—	—		—		38,898		—		(32)		38,866
Cash dividends declared on common stock, $0.05 per share	—	—		—		(3,598)		—		—		(3,598)
Other comprehensive income	—	—		—		—		11,912		248		12,160

Balance at March 31, 2022	71,699,298	$	717	$	—	$	526,370	$	(36,211)	$	4,272	$	495,148

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, 2021 71,969,856 $ 719 $ 7,565 $ 506,051 $ (48,123) $ 4,056 $ 470,268
Share-based compensation recognized — — 4,279 — — — 4,279
Repurchase of common stock (521,643) (5) (6,193) (14,981) — — (21,179)
Restricted stock units delivered 251,085 3 (5,651) — — — (5,648)
Net income (loss) — — — 38,898 — (32) 38,866
Cash dividends declared on common stock, $0.05 per share — — — (3,598) — — (3,598)
Other comprehensive income — — — — 11,912 248 12,160
Balance at March 31, 2022 71,699,298 $ 717 $ — $ 526,370 $ (36,211) $ 4,272 $ 495,148
Share-based compensation recognized — — 5,165 — — — 5,165
Repurchase of common stock
(357,114) (4) (3,466) (10,566) — — (14,036)
Restricted stock units delivered 25,149 — (28) — — — (28)
Net income (loss) — — — 33,589 — (33) 33,556
Cash dividends declared on common stock, $0.05 per share — — — (3,579) — — (3,579)
Other comprehensive income (loss) — — — — (3,241) (384) (3,625)
Balance at June 30, 2022 71,367,333 $ 713 $ 1,671 $ 545,814 $ (39,452) $ 3,855 $ 512,601
Share-based compensation recognized — — 5,296 — — — 5,296
Repurchase of common stock
(1,190,388) (12) (6,958) (30,347) — — (37,317)
Restricted stock units delivered 485 — (9) — — — (9)
Net income (loss) — — — 137,814 — (75) 137,739
Cash dividends declared on common stock, $0.05 per share — — — (3,338) — — (3,338)
Other comprehensive income (loss) — — — — 9,866 (334) 9,532
Common stock received in exchange of the sale of a Business (4,589,160) (46) — (169,203) — — (169,249)
Balance at September 30, 2022 65,588,270 $ 655 $ — $ 480,740 $ (29,586) $ 3,446 $ 455,255

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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, 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 (loss) — — — 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
Share-based compensation recognized — — 3,708 — — — 3,708
Net income (loss) — — — 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

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)

~~Table of Contents~~

Nine months ended September 30,
2022 2021
Cash flows from operating activities
Net income $ 210,161 $ 119,955
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 58,432 56,091
Amortization of debt issue costs and accretion of discount 1,187 1,423
Operating lease amortization 4,576 4,443
Provision for expected credit losses and sundry losses 3,363 1,428
Deferred tax benefit (1,699) (1,119)
Share-based compensation 14,740 10,943
Gain on sale of a business (135,642) —
Gain from sale of assets — (778)
Loss on disposition of property and equipment and impairment of software 4,691 1,168
Earnings of equity method investment (2,120) (1,307)
Dividend received from equity method investment 2,053 1,183
Loss (gain) on valuation of foreign currency 6,858 (652)
(Increase) decrease in assets:
Accounts receivable, net 3,503 (593)
Prepaid expenses and other assets (3,417) (3,070)
Other long-term assets (4,389) (339)
Increase (decrease) in liabilities:
Accrued liabilities and accounts payable 468 (773)
Income tax payable 2,921 (2,685)
Contract liability 1,344 (2,654)
Operating lease liabilities (4,450) (4,107)
Other long-term liabilities (3,571) (2,702)
Total adjustments (51,152) 55,900
Net cash provided by operating activities 159,009 175,855
Cash flows from investing activities
Additions to software (28,287) (31,004)
Acquisition of customer relationships (10,607) (14,750)
Acquisitions, net of cash acquired (44,369) —
Property and equipment acquired (16,313) (12,388)
Proceeds from sales of property and equipment 77 805
Purchase of certificates of deposit (7,264) —
Proceeds from maturities of available-for-sale debt securities 1,015 —
Acquisition of available-for-sale debt securities (254) (2,968)
Net cash used in investing activities (106,002) (60,305)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation (5,685) (8,793)
Repayment of short-term borrowings for purchase of equipment and software (901) (1,603)
Dividends paid (10,515) (10,811)
Repurchase of common stock (72,532) (24,388)
Repayment of long-term debt (9,875) (28,482)
Net cash used in financing activities (99,508) (74,077)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash 4,260 215
Net (decrease) increase in cash, cash equivalents and restricted cash (42,241) 41,688
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 $ 243,676 $ 262,793
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 224,971 $ 244,129
Restricted cash 18,705 18,664
Cash, cash equivalents and restricted cash $ 243,676 $ 262,793
Supplemental disclosure of cash flow information:
Cash paid for interest $ 18,523 $ 16,289
Cash paid for income taxes 24,386 19,468

~~Table of Contents~~

~~Supplemental disclosure of non-cash activities:~~

~~Payable due to vendor related to equipment and software acquired~~

—

~~739~~

~~Non-cash investing activities~~

~~Software exchanged for common stock~~

~~18,761~~

—

~~Goodwill exchanged for common stock~~

~~5,813~~

—

~~CDs transferred in the acquisition of a business~~

~~7,169~~

—

~~Non-cash financing and investing activities~~

~~Common stock received and retired for sale of a business~~

~~169,249~~

—


	Three months ended March 31,
	2023		2022
Cash flows from operating activities
Net income	$	30,063	$	38,866
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,432		19,160
Amortization of debt issue costs and accretion of discount	396		404
Operating lease amortization	1,626		1,450
Provision for expected credit losses and sundry losses	2,371		59
Deferred tax benefit	(2,208)		(702)
Share-based compensation	5,557		4,279

Loss on disposition of property and equipment	159		91
Earnings of equity method investment	(1,155)		(570)

Loss (gain) on foreign currency remeasurement	4,864		(2,669)
Decrease (increase) in assets:
Accounts receivable, net	10,044		7,060
Prepaid expenses and other assets	(5,388)		(5,573)
Other long-term assets	(261)		(3,319)
(Decrease) increase in liabilities:
Accrued liabilities and accounts payable	(13,417)		1,773
Income tax payable	(639)		2,248
Contract liability	3,089		4,387
Operating lease liabilities	310		23
Other long-term liabilities	(332)		714
Total adjustments	24,448		28,815
Net cash provided by operating activities	54,511		67,681
Cash flows from investing activities

Additions to software	(9,257)		(8,669)

Property and equipment acquired	(4,063)		(5,621)


Acquisitions, net of cash acquired	(23,317)		—
Net cash used in investing activities	(36,637)		(14,290)
Cash flows from financing activities
Withholding taxes paid on share-based compensation	(5,874)		(5,648)


Net decrease in short-term borrowings	(20,000)		—
Repayment of short-term borrowings for purchase of equipment and software	—		(806)
Dividends paid	(3,249)		(3,598)

Repurchase of common stock	(6,269)		(21,179)
Repayment of long-term debt	(5,187)		(4,938)
Net cash used in financing activities	(40,579)		(36,169)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	(275)		766
Net (decrease) increase in cash, cash equivalents and restricted cash	(22,980)		17,988
Cash, cash equivalents and restricted cash at beginning of the period	215,657		285,917
Cash, cash equivalents and restricted cash at end of the period	$	192,677	$	303,905
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	173,662	$	283,610
Restricted cash	19,015		20,295
Cash, cash equivalents and restricted cash	$	192,677	$	303,905
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,874	$	5,666
Cash paid for income taxes	6,119		4,287




Supplemental disclosure of non-cash activities:

Payable due to vendor related to equipment and software acquired	$	5,282	$	1,260
Accounts payable related to business acquisition	$	881	$	—

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

Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements


Note 1 - The Company and Basis of Presentation			86
Note 2 - ~~Recent~~ A ~~ccounting~~ P ~~ronouncements~~Business Acquisition			96
Note 3 - ~~Business Acquisitions and Dispositions~~Debt Securities			96
Note 4 ~~- Debt Securities~~			12
~~Note 5~~ - Property and Equipment, net			127
Note 5 - Goodwill and Other Intangible Assets			7
Note 6 - ~~Goodwill~~Debt and ~~Other Intangible Assets~~Short-Term Borrowings			8
Note 7 - Financial Instruments and Fair Value Measurements			10
Note 8 - Equity			11
Note 9 - Share-based Compensation			11
Note 10 - Revenues			12
Note 711 - ~~Debt and Short-Term Borrowings~~Current Expected Credit Losses			13
Note 12 - Income Tax			14
Note 813 - ~~Financial Instruments and Fair Value Measurements~~Net Income per Common Share			15
Note 914 - ~~Equity~~Commitments and Contingencies			15
Note 15 - Related Party Transactions			15
Note 16 - Segment Information			16
Note 1017 - ~~Share-based Compensation~~			16
~~Note 11 - Revenues~~			17
~~Note 12 - Current Expected Credit Losses~~Subsequent Events			19
~~Note 13 - Income Tax~~			20
~~Note 14 - Net Income per Common Share~~			21
~~Note 15 - Commitments and Contingencies~~			21
~~Note 16 - Related Party Transactions~~			21
~~Note 17 - Segment Information~~			22
~~Note 18 - Subsequent Events~~			26

Table of Contents

Note 1 – The Company and Basis of Presentation

The Company

EVERTEC, Inc. and its subsidiaries (collectively the “Company” or “EVERTEC”) is a leading full-service transaction processing business in Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing and business process management services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, which we believe is one of the leading personal identification number ~~("PIN"~~(“PIN”) debit ~~and automated teller machine ("ATM")~~ networks in ~~the Caribbean and~~ Latin America. In addition, EVERTEC provides a comprehensive suite of services for core ~~bank~~banking, cash processing and ~~cash processing~~fulfillment in Puerto Rico and technology outsourcing and payment transactions fraud monitoring 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.~~operations, enabling them to issue, process and accept transactions securely.

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, ~~2021,~~2022, included in the Company’s 2022 Annual Report on Form ~~10-K for the year ended December 31, 2021.~~10-K. 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. Certain amounts from prior periods have been reclassified to conform to the current period presentation.

Note 2 – ~~Recent Accounting Pronouncements~~

~~Recently adopted accounting pronouncements~~

~~In October 2021, the FASB issued ASU 2021-08 to update ASC 805,~~Business ~~Combinations,~~ to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company selected to early adopt this guidance for its most recent business combination.

~~Note 3 – Business Acquisitions and Dispositions~~Acquisition

Acquisition of a Business

On ~~July 1, 2022, EVERTEC's main operating subsidiary, EVERTEC Group~~February 16, 2023, the Company closed on the acquisition of 100% of ~~the share capital of BBR SpA ("BBR"~~Paysmart Pagamentos Eletronicos Ltda (“paySmart”)~~, a payment solutions~~. Headquartered in Porto Alegre, Brazil, paySmart provides issuer processing services and ~~business technology company with operations~~BIN Sponsorship services for prepaid programs under domestic and international schemes in ~~Chile and Peru, by entering into a share~~Brazil. The aggregate purchase agreement (Contrato de Compraventa de Acciones), between EVERTEC Group and IG Capital, Cuatro R, Rivers and Brela ( collectively, the "Sellers"). As consideration for the purchase, the Company transferred to the sellers upon closing cash that amounted to $45.9price was $130 million ~~and certificates of deposits that amounted to $7.3~~Brazilian reals, approximately USD$25 million. The ~~BBR~~ acquisition ~~increases the Company's payment solution offerings, provides access to larger merchants in Chile and~~ expands the Company's ~~physical presence into Peru.~~footprint in Brazil and compliments the current product offering in the country.

The Company accounted for this transaction as a business ~~combination. The following table details~~combination, the purchase price allocation summary is preliminary ~~fair~~and subject to change. As part of the transaction, the Company received net assets with a book value of approximately $6.5 million, including settlement assets and settlement liabilities which result from timing differences in paySmart's settlement process with merchants. The Company's analysis of the acquired settlement assets and settlement liabilities ~~assumed from~~is not complete, and the ~~BBR acquisition:~~

~~Table of Contents~~


	~~Assets/Liabilities (at fair value)~~
~~( In thousands)~~
~~Cash and cash equivalents~~	$	~~1,551~~
~~Accounts receivable, net~~	~~2,969~~

~~Property and equipment, net~~	3
~~Operating lease right-of-use asset~~	76
~~Goodwill~~	~~33,247~~
~~Other intangible assets, net~~	~~24,850~~
~~Deferred tax asset~~	~~267~~
~~Total assets acquired~~	~~62,963~~
~~Accounts payable~~	~~1,039~~
~~Contract liability~~	~~1,136~~
~~Operating lease liability~~	85
~~Deferred tax liability~~	~~7,614~~
~~Total liabilities assumed~~	$	~~9,874~~

~~Table of Contents~~

Company will record the settlement assets and settlement liabilities, which are expected to be substantially equivalent amounts within current assets and current liabilities, once such analysis is completed during the purchase accounting period. The ~~following table details the major groups of~~Company has also identified intangible assets ~~acquired~~other than goodwill for which a portion of the purchase price must be allocated and preliminarily allocated the ~~weighted average amortization period for these~~purchase price to the following identified intangible assets:

Amount Weighted-average life
(Dollar amounts in thousands)
Customer relationships $ 22,500 15
Trademark 1,250 5
Software packages 1,100 5
Total $ 24,850 14
$9.4 million to customer relationships, $1.9 million to software, $1.5 million to tradenames and trademarks and $0.6 million to non-compete agreements. Goodwill in connection with this transaction is currently estimated at approximately $5.1 million. These values are preliminary and subject to change. The Company expects to complete the purchase price allocation during the second quarter of 2023.

Refer to Note 65- Goodwill and Other Intangible Assets for detail of goodwill allocated by reportable segments. The goodwill is primarily attributed to anticipated synergies. None of the goodwill is deductible for income tax purposes.

Revenues and earnings from the BBR acquisition were not material for either the three or nine months ended September 30, 2022. Pro forma results of operations have not been presented because the effect of this business combination is not material to the consolidated financial condition and results of operations.

~~Sale of a Business~~

On July 1, 2022, the Company closed on 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 "Business"). As consideration for the sale of the Business, Popular delivered 4.6 million shares of Evertec common stock held by Popular with a value of $169.2 million at close (the "Popular Transaction"). Additionally, management concluded that $15.4 million included in the Company's contract liability should be treated as consideration for the sale therefore, total consideration for the sale of the Business amounted to $184.7 million. The Company also modified and extended 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. The MSA modifications, among other things, includes the elimination of the exclusivity requirement which was the basis for a non-compete intangible asset recorded in 2010 as part of the original MSA that was amortized over a 15 year period. The Company also entered into new contracts and transition services agreements concurrently with the close of the Popular Transaction with terms betweenNote 3 ~~months and 36 months.~~

Given the elimination of the exclusivity clause discussed above, the Company determined that the balance of the non-compete intangible asset on July 1, 2022 of $12.3 million, should be written off as a component of the gain on sale of a business. The Company also concluded that certain provisions in the new contracts and transition services agreements with Popular were not at fair value, therefore requiring that a portion of the gain be allocated to these contracts. The Company recorded a contract liability based on relative fair value of $11.7 million in connection with this conclusion.

~~The following table details the consideration for the sale of the business, major classes of assets and liabilities included in the business sale and the gain on sale of a business:~~

~~July 1, 2022~~

~~(In thousands)~~

~~Common stock received in exchange for the sale of a business~~

~~169,249~~

~~Contract liability representing consideration for the sale of a business~~

~~15,426~~

~~Total consideration for the sale of a business~~

~~184,675~~

~~Goodwill~~

~~(5,813)~~

~~Other intangible assets, net~~

~~(31,011)~~

~~Prepaid expenses and other assets~~

~~(497)~~

~~Contract liability~~

~~(11,712)~~

~~Gain on sale of a business~~

~~135,642~~

– Debt Securities

116

Table of Contents

~~Note 4 – Debt Securities~~

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

September 30, 2022

March 31, 2023

(In thousands)

Gross unrealized

(In thousands)

Gross unrealized

Amortized cost

Gains

Losses

Fair Value

Amortized cost

Gains

Losses

Fair Value

Costa Rica Government Obligations

After 1 to 5 years

2,219

—

(21)

2,198

After 1 to 5 years

2,199

—

(20)

2,179


		December 31, 2021								December 31, 2022
(In thousands)	(In thousands)			Gross unrealized							(In thousands)			Gross unrealized
		Amortized cost		Gains		Losses		Fair Value				Amortized cost		Gains		Losses		Fair Value
Costa Rica Government Obligations	Costa Rica Government Obligations										Costa Rica Government Obligations
After 1 to 5 years	After 1 to 5 years	$	2,963	$	78	$	—	$	3,041		After 1 to 5 years	$	2,194	$	9	$	—	$	2,203

~~Debt securities~~Costa Rica Government Obligations 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.

~~For both the three and nine months period ended September 30, 2022, the Company purchased $0.3 million in debt securities that were classified as available-for-sale.~~ No debt securities were purchased, matured or sold during the ~~nine months~~quarters ended ~~September 30, 2022, while $1.0 million matured during the same period.~~ March 31, 2023 and March 31, 2022.

A provision for credit losses was not required for the periods presented above. Refer to Note 87 for disclosure requirements related to the fair value hierarchy.

Note 54 – Property and Equipment, net

Property and equipment, net consists of the following:


(In thousands)	(In thousands)	Useful life in years	September 30, 2022		December 31, 2021		(In thousands)	Useful life in years	March 31, 2023		December 31, 2022
Buildings	Buildings	30	$	1,387	$	1,359	Buildings	30	$	1,600	$	1,456
Data processing equipment	Data processing equipment	3 - 5	151,545		141,359		Data processing equipment	3 - 5	169,517		162,761
Furniture and equipment	Furniture and equipment	3 - 20	8,742		7,718		Furniture and equipment	3 - 20	9,603		9,154
Leasehold improvements	Leasehold improvements	5 -10	3,572		3,277		Leasehold improvements	5 -10	3,906		3,660
			165,246		153,713				184,626		177,031
Less - accumulated depreciation and amortization	Less - accumulated depreciation and amortization		(116,531)		(106,365)		Less - accumulated depreciation and amortization		(129,170)		(121,919)
Depreciable assets, net	Depreciable assets, net		48,715		47,348		Depreciable assets, net		55,456		55,112
Land	Land		1,213		1,185		Land		1,402		1,275
Property and equipment, net	Property and equipment, net		$	49,928	$	48,533	Property and equipment, net		$	56,858	$	56,387

Depreciation and amortization expense related to property and equipment for three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 amounted to ~~$4.6~~$5.0 million ~~and $13.9 million, respectively,~~ compared to ~~$4.2 million and $13.0~~$4.6 million for the corresponding ~~periods~~period in ~~2021.~~2022.

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

~~Table of Contents~~

Note 65 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (see Note ~~17)~~16):

(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions Total
Balance at December 31, 2021 $ 160,972 $ 48,402 $ 138,121 $ 45,823 $ 393,318
Goodwill attributable to acquisition — 33,247 — — 33,247
Goodwill attributable to the sale of a business — — — (5,813) (5,813)
Foreign currency translation adjustments — (2,933) — — (2,933)
Balance at September 30, 2022 $ 160,972 $ 78,716 $ 138,121 $ 40,010 $ 417,819

Table of Contents


(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Total
Balance at December 31, 2022	$	160,972	$	84,289	$	138,121	$	40,010	$	423,392


Foreign currency translation adjustments	—		5,824		—		—		5,824
Preliminary goodwill attributable to acquisition	—		5,124		—		—		5,124
Balance at March 31, 2023	$	160,972	$	95,237	$	138,121	$	40,010	$	434,340

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. No impairment losses were recognized for the periods ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~2022. Refer to Note 2 - Business Acquisition, for further details of goodwill acquired in the first quarter of 2023.

The carrying amount of other intangible assets at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was as follows:

September 30, 2022
(In thousands) Useful life in years Gross
amount Accumulated
amortization Net carrying
amount
Customer relationships 8 - 15 $ 390,221 $ (295,170) $ 95,051
Trademarks 1 - 15 43,025 (37,638) $ 5,387
Software packages 3 - 10 332,767 (236,889) $ 95,878
Other intangible assets, net $ 766,013 $ (569,697) $ 196,316


			December 31, 2021								March 31, 2023
(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		Net carrying amount
Customer relationships	Customer relationships	8 - 14	$	357,991	$	(272,732)	$	85,259	Customer relationships	8 - 15	$	404,311	$	(310,427)	$	93,884
Trademarks	Trademarks	2 - 15	41,901		(36,684)		5,217		Trademarks	1 - 15	44,858		(38,367)		$	6,491
Software packages	Software packages	3 - 10	326,320		(217,643)		108,677		Software packages	3 - 10	363,269		(250,574)		$	112,695
Non-compete agreement	Non-compete agreement	15	56,539		(42,404)		14,135		Non-compete agreement	5	636		—		$	636
Other intangible assets, net	Other intangible assets, net		$	782,751	$	(569,463)	$	213,288	Other intangible assets, net		$	813,074	$	(599,368)	$	213,706

In the second quarter of 2022, the Company acquired a customer relationship in Puerto Rico for $10.6 million that is being amortized over five years. Revenues and expenses in connection with this customer relationship are included as part of the Payment Services - Puerto Rico & Caribbean segment. As part of the BBR acquisition, the Company added a customer relationship amounting to $22.5 million, a trademark of $1.3 million, and software of $1.1 million, refer to Note 3- Business Acquisitions and Dispositions for further details. On July 1, 2022, in connection with the closing of the Popular Transaction, the remaining balance of the Non-compete agreement of $12.3 million was written off against the transaction gain. The Company no longer has non-compete intangibles on its Balance Sheets as of September 30, 2022. Refer to Note 3- Business Acquisitions and Dispositions for further details.


		December 31, 2022
(Dollar amounts in thousands)	Useful life in years	Gross amount		Accumulated amortization		Net carrying amount
Customer relationships	8 - 15	$	392,737	$	(303,733)	$	89,004
Trademarks	1 - 15	43,195		(37,998)		5,197
Software packages	3 - 10	349,474		(243,355)		106,119

Other intangible assets, net		$	785,406	$	(585,086)	$	200,320

Amortization expense related to other intangibles for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 amounted to ~~$15.2~~$16.3 million ~~and $44.5 million, respectively,~~ compared to $14.5 million ~~and $43.0 million~~ for the corresponding ~~periods~~period in 2021, respectively. During the nine months ended September 30, 2022, the Company recorded an impairment loss through cost of revenues of $4.1 million for a multi-year software development for which a reduction in future cash flows was projected. During the nine months ended September 30, 2021, the Company recorded an impairment charge through cost of revenues

~~Table of Contents~~

~~amounting to $0.6 million for a software solution that will no longer be used. Both impairment charges affected the Company’s Payment Services – Puerto Rico & Caribbean segment.~~2022.

The estimated amortization expense of the other intangible balances outstanding at ~~September 30, 2022~~March 31, 2023, excluding assets acquired as part of the paySmart acquisition as the Company is yet to finalize the purchase price allocation, for the next five years is as follows:


(Dollar amounts in thousands)	(Dollar amounts in thousands)			(Dollar amounts in thousands)
Remaining 2022		$	14,156
2023		53,108
Remaining 2023				Remaining 2023	$	44,561
2024	2024	41,611		2024	48,174
2025	2025	16,218		2025	22,194
2026	2026	11,300		2026	13,896
2027				2027	10,091

Note 76 – Debt and Short-Term Borrowings

Total debt at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was as follows:

(In thousands) September 30, 2022 December 31, 2021
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))
$ 162,930 $ 170,875
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))
292,574 293,660
Note payable due January 1, 2022(1)
— 758
Total debt $ 455,504 $ 465,293

Table of Contents


(In thousands)	March 31, 2023		December 31, 2022
2027 Term A Loan bearing interest at a variable interest rate (SOFR plus applicable margin(1)(2))	$	405,300	$	410,248

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

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

~~(3)~~Subject to a minimum rate ("~~LIBOR~~SOFR floor") of 0% plus applicable margin of ~~3.50%~~1.50% at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Table of Contents

Secured Credit Facilities

On ~~November 27, 2018,~~December 1, 2022, EVERTEC and EVERTEC Group, ~~LLC ("EVERTEC Group") (collectively, the “Borrower”)~~ entered into a credit agreement with a syndicate of lenders and Truist Bank, as administrative agent and collateral agent, providing for ~~the secured credit facilities, consisting of~~(i) a ~~$220.0~~$415.0 million term loan A facility ~~that matures on November 27, 2023~~ (the ~~“2023 Term A Loan"~~“Term Loan Facility”), and (ii) a ~~$325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term B Loan”), and a $125.0~~$200.0 million revolving credit facility (the “Revolving Facility”, and together with the Term Loan Facility, the “2022 Credit Facilities”) ~~that matures~~. The 2022 Credit Facilities mature 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”).December 1, 2027.

~~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~~At March 31, 2023, 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, in connection with this mandatory repayment clause, the Company repaid $17.8 million, as a result of excess cash flow calculation performed for the year ended December 31, 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 30, 2022~~ of the ~~2023~~ Term A Loan ~~and the 2024 Term B Loan~~Facility was ~~$163.4 million and $294.2 million, respectively.~~$409.8 million. The additional borrowing capacity ~~under our~~for the Revolving Facility at ~~September 30, 2022~~March 31, 2023 was ~~$119.1~~$194.0 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

~~Notes Payable~~

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

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Interest Rate ~~Swap~~Swaps

As of ~~September 30, 2022,~~March 31, 2023, 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 Facility 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~~SOFR

~~2.89%~~2.929%

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

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was ~~an asset of $7.1~~$5.8 million and ~~a liability $13.4~~$7.4 million, 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~~ months ended ~~September 30,~~March 31, 2023 and 2022, the Company reclassified gains of $1.0 million and losses of ~~$0.4 million and $3.5~~$1.7 million, respectively, from accumulated other comprehensive loss into interest ~~expense compared to $1.8 million and $5.3 million for the corresponding periods in 2021.~~expense. Based on current ~~LIBOR~~SOFR rates, the Company expects to reclassify gains of ~~$3.4~~$4.5 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

Note 87 – 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 was $2.2 million ~~and $3.0 million~~ as of ~~September 30, 2022~~each March 31, 2023 and December 31, ~~2021 respectively.~~2022.

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 ~~$7.1~~$5.8 million and $7.4 million as of ~~September 30, 2022~~March 31, 2023 and ~~in a liability position with a balance of $13.4 million as of~~ December 31, ~~2021.~~2022, respectively.

~~Debt~~The following table presents the carrying value, as applicable, and ~~Short-Term Borrowings~~estimated fair value for financial instruments at March 31, 2023 and December 31, 2022:


	March 31, 2023				December 31, 2022
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Costa Rica government obligations	$	2,179	$	2,179	$	2,203	$	2,203
Interest rate swap	5,768		5,768		7,440		7,440
Financial liabilities:


Term Loan Facility	405,300		408,378		410,248		413,494

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The fair ~~values~~value of the term ~~loans~~loan at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021 were~~2022 was 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~~loan is not accounted for at fair value in the balance ~~sheets.~~sheet.

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

September 30, 2022 December 31, 2021
(In thousands) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial assets:
Costa Rica government obligations 2,198 2,198 3,041 3,041
Interest rate swap 7,070 7,070 — —
Financial liabilities:
2023 Term A Loan 162,930 161,730 170,875 168,610
2024 Term B Loan 292,574 291,400 293,660 294,735
Interest rate swap — — 13,392 13,392

Note 98 – 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~~three months ended ~~September 30, 2022:~~March 31, 2023:

(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 (loss) income before reclassifications (210) 15,320 (77) 15,033
Effective portion reclassified to net income — 3,504 — 3,504
Balance - September 30, 2022, net of tax $ (36,181) $ 6,563 $ 32 $ (29,586)


(In thousands)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Unrealized Gains (losses) on Debt Securities AFS		Total
Balance - December 31, 2022, net of tax	$	(23,481)	$	6,954	$	41	(16,486)
Other comprehensive income (loss) before reclassifications	17,605		(501)		(20)		17,084
Effective portion reclassified to net income	—		(1,044)		—		(1,044)
Balance - March 31, 2023, net of tax	$	(5,876)	$	5,409	$	21	$	(446)

Note 109 – Share-based Compensation

Long-term Incentive Plan ("LTIP")

During the three months ended March 31, ~~2020,~~ 2021, 2022 and ~~2022,~~2023, 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 ~~2020 LTIP,~~ 2021 LTIP, 2022 LTIP and ~~2022~~2023 LTIP, respectively, all under the terms of the Company's ~~2013~~2022 Equity Incentive Plan.

~~On May 20, 2022 (the “Effective Date”),~~ Under the Company's shareholders approved the Company's 2022 Equity Incentive Plan (the "2022 Plan") which replaced the Company's 2013 Equity Incentive Plan. All shares remaining available for grant under the 2013 Plan as of the Effective Date plus any shares of common stock ofLTIPs, the Company ~~covered by outstanding~~granted RSUs to eligible participants as time-based 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 and/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.~~performance-based awards.

The vesting of the RSUs is dependent upon service and/or performance conditions as defined in the award agreements. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee 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 27 of each year for the 2020 LTIP,~~ March 2 of each year for the 2021 LTIP, ~~and~~ February 25 of each year for the 2022 LTIP and February 24 of each year for the 2023 LTIP. In 2022 and 2023, the Company also granted time-based awards with a three year service vesting period which will cliff vest on February 25, ~~2025.~~2025 and February 24, 2026, respectively.

For the performance-based awards under the ~~2020 LTIP,~~ 2021 LTIP, 2022 LTIP, and ~~2022~~2023 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDA") as the primary performance

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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~~result in a payout between 0% and 200%., depending on the performance level. 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 27, 2023 for the 2020 LTIP,~~ March 2, 2024 for the 2021 LTIP, ~~and~~ February 25, 2025 for the 2022 LTIP, and February 24, 2026 for the 2023 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~~three months ended ~~September 30, 2022:~~March 31, 2023:

Nonvested RSUs Shares Weighted-average
grant date fair value
Nonvested at December 31, 2021 1,086,329 $ 34.73
Granted 709,302 41.90
Vested (421,764) 33.02
Forfeited (8,546) 37.10
Nonvested at September 30, 2022 1,365,321 $ 38.97

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Nonvested RSUs	Shares	Weighted-average grant date fair value
Nonvested at December 31, 2022	1,363,780	$	38.96
Granted	740,846	38.39
Vested	(576,995)	34.03
Forfeited	(2,592)	40.19
Nonvested at March 31, 2023	1,525,039	$	40.22

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company recognized ~~$5.3 million and $14.7~~$5.6 million of share-based compensation expense, ~~respectively,~~ compared with ~~$3.7 million and $10.9~~$4.3 million for the corresponding ~~periods~~period in ~~2021.~~2022.

As of ~~September 30, 2022,~~March 31, 2023, the maximum unrecognized ~~expense~~cost for RSUs was ~~$32.0~~$49.0 million. The cost is expected to be recognized over a weighted average period of ~~2.0~~2.2 years.

Note 1110 – 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 ~~17,~~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 September 30, 2022											Three months ended March 31, 2023
(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	$	89	$	973	$	—	$	3,790	$	4,852	Products and services transferred at a point in time	$	113	$	614	$	—	$	1,727	$	2,454
Products and services transferred over time	Products and services transferred over time	29,456		29,068		36,911		45,516		140,951		Products and services transferred over time	32,366		30,679		40,347		53,968		157,360
		$	29,545	$	30,041	$	36,911	$	49,306	$	145,803		$	32,479	$	31,293	$	40,347	$	55,695	$	159,814



	Three months ended March 31, 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	$	55	$	13	$	—	$	1,885	$	1,953
Products and services transferred over time	26,430		25,497		35,629		60,739		148,295
	$	26,485	$	25,510	$	35,629	$	62,624	$	150,248

Revenue concentration with a single customer, Popular, as a percentage of total revenues for the quarters ended March 31, 2023 and March 31, 2022 was approximately 37% and 43% , respectively.

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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

Nine months ended September 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 $ 244 $ 1,405 $ — $ 7,956 $ 9,605
Products and services transferred over time 86,045 81,229 111,079 168,664 447,017
$ 86,289 $ 82,634 $ 111,079 $ 176,620 $ 456,622

Nine 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 $ 119 $ 1,633 $ — $ 4,048 $ 5,800
Products and services transferred over time 76,642 69,919 106,808 175,390 428,759
$ 76,761 $ 71,552 $ 106,808 $ 179,438 $ 434,559

Contract Balances

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


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Balance at beginning of period	Balance at beginning of period	$	1,715	$	2,796	Balance at beginning of period	$	4,749	$	1,715
Services transferred to customers	Services transferred to customers	7,246		5,374		Services transferred to customers	3,124		9,313
Transfers to accounts receivable	Transfers to accounts receivable	(3,861)		(6,455)		Transfers to accounts receivable	(2,621)		(6,279)
Balance at end of period	Balance at end of period	$	5,100	$	1,715	Balance at end of period	$	5,252	$	4,749

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 ~~as of September 30, 2022~~at March 31, 2023 amounted to ~~$112.3~~$127.9 million. Contract liability and contract liability - long term at ~~September 30, 2022~~March 31, 2023 amounted to ~~$17.1~~$19.7 million and ~~$34.7~~$33.3 million, respectively, and may arise when consideration is received or due in advance from customers prior to performance. The contract liability is mainly comprised of upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with hosting ~~services, as~~

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~~well as amounts related to contracts entered into concurrently with the close of the Popular Transaction as described in Note 3- Business Acquisitions and Dispositions.~~services. Contract liabilities may also arise when consideration is received or due in advance from customers prior to performance. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company recognized revenue of $17.0 million and $29.0 million respectively that was included in the contract liability at December 31, 2021. During the three and nine months ended September 30, 2021, the Company recognized revenue of $5.3 million and $20.7$4.4 million that was included in the contract liability at December 31, ~~2020.~~2022. During the three months ended March 31, 2022, the Company recognized revenue of $7.1 million that was included in the contract liability at December 31, 2021.

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 30, 2022~~March 31, 2023 is ~~$1,061.8~~$993.7 million, which is expected to be recognized over the next 1 to 6 years. This amount consists of minimums on certain master services agreements, professional service fees for implementation or set up activities related to managed services and maintenance services typically recognized over the life of the contract, and 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 1211 – 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.

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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, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Balance at beginning of period	Balance at beginning of period	$	2,523	$	2,401	Balance at beginning of period	$	2,159	$	2,523
Current period provision for expected credit losses		649		819
Current period (release) provision for expected credit losses						Current period (release) provision for expected credit losses	566		754
Write-offs	Write-offs	(135)		(698)		Write-offs	(24)		(1,268)
Recoveries of amounts previously written-off	Recoveries of amounts previously written-off	150		1		Recoveries of amounts previously written-off	1		150
Balance at end of period	Balance at end of period	$	3,187	$	2,523	Balance at end of period	$	2,702	$	2,159

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

Impairment losses on trade receivables are presented as net impairment losses within cost of revenue, exclusive of depreciation and amortization in the unaudited condensed consolidated statements of income and comprehensive income. Subsequent 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 1312 – Income Tax

The components of income tax expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, consisted of the following:


		Three months ended September,				Nine months ended September 30,					Three months ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022

Current tax provision	Current tax provision	$	9,537	$	7,306	$	24,610	$	15,593	Current tax provision	$	5,026	$	6,877
Deferred tax benefit	Deferred tax benefit	(489)		(172)		(1,699)		(1,119)		Deferred tax benefit	(2,208)		(702)
Income tax expense	Income tax expense	$	9,048	$	7,134	$	22,911	$	14,474	Income tax expense	$	2,818	$	6,175

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~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and its segregation based on location of operations:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022

Current tax provision (benefit)
Current tax provision										Current tax provision
Puerto Rico	Puerto Rico	$	6,318	$	2,328	$	11,809	$	3,363	Puerto Rico	$	1,180	$	2,315
United States	United States	44		57		107		132		United States	11		30
Foreign countries	Foreign countries	3,175		4,921		12,694		12,098		Foreign countries	3,835		4,532
Total current tax provision	Total current tax provision	$	9,537	$	7,306	$	24,610	$	15,593	Total current tax provision	$	5,026	$	6,877
Deferred tax (benefit) provision
Deferred tax benefit										Deferred tax benefit
Puerto Rico	Puerto Rico	$	719	$	(258)	$	(321)	$	(778)	Puerto Rico	$	(235)	$	(393)
United States	United States	54		116		9		(71)		United States	(26)		(71)
Foreign countries	Foreign countries	(1,262)		(30)		(1,387)		(270)		Foreign countries	(1,947)		(238)
Total deferred tax benefit	Total deferred tax benefit	$	(489)	$	(172)	$	(1,699)	$	(1,119)	Total deferred tax benefit	$	(2,208)	$	(702)

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.

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As of ~~September 30, 2022,~~March 31, 2023, the Company ~~has $113.3~~had $117.0 million of unremitted earnings from foreign subsidiaries, compared to ~~$99.1~~$115.5 million as of December 31, ~~2021.~~2022. 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 30, 2022,~~March 31, 2023, the gross deferred tax asset amounted to $18.6 million and the gross deferred tax liability amounted to ~~$19.4~~$19.5 million, compared to ~~$22.3~~$17.9 million and ~~$16.3~~$20.7 million, respectively, as of December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, there is a valuation allowance against the gross deferred tax asset of approximately ~~$1.8~~$1.3 million and ~~$1.4~~$1.6 million, respectively.

During the quarter ended September 30, 2022, the Company released $3.6 million of the previously recorded Puerto Rico liability for uncertain tax positions related to the net operating loss created by transaction costs from mergers and acquisitions as a result of the expiration 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:

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		Nine months ended September 30,					Three months ended March 31,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
Computed income tax at statutory rates	Computed income tax at statutory rates	$	87,402	$	50,411	Computed income tax at statutory rates	$	12,330	$	16,890
Differences in tax rates due to multiple jurisdictions	Differences in tax rates due to multiple jurisdictions	2,612		1,789		Differences in tax rates due to multiple jurisdictions	1,029		447
Effect of income subject to tax-exemption grant	Effect of income subject to tax-exemption grant	(26,262)		(35,121)		Effect of income subject to tax-exemption grant	(8,849)		(10,809)
Effect of the gain on sale of a business		(39,645)		—
Unrecognized tax (benefit) expense		(3,472)		(3,475)
Unrecognized tax expense						Unrecognized tax expense	34		80
Excess tax benefits on share-based compensation	Excess tax benefits on share-based compensation	169		(1,027)		Excess tax benefits on share-based compensation	(91)		(260)
Tax credits for research and development activities						Tax credits for research and development activities	(884)		—
Other, net	Other, net	2,107		1,897		Other, net	(751)		(173)
Income tax expense	Income tax expense	$	22,911	$	14,474	Income tax expense	$	2,818	$	6,175

Note 1413 – 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 March 31,
(In thousands, except per share information)	(In thousands, except per share information)	2022		2021		2022		2021		(In thousands, except per share information)	2023		2022
Net income available to EVERTEC, Inc.’s common shareholders	Net income available to EVERTEC, Inc.’s common shareholders	$	137,814	$	35,314	$	210,301	$	120,014	Net income available to EVERTEC, Inc.’s common shareholders	$	30,052	$	38,898
Weighted average common shares outstanding	Weighted average common shares outstanding	66,398,547		71,969,856		69,906,483		72,082,082		Weighted average common shares outstanding	64,968,298		71,965,664
Weighted average potential dilutive common shares (1)	Weighted average potential dilutive common shares (1)	647,262		906,397		682,432		735,625		Weighted average potential dilutive common shares (1)	640,320		887,552
Weighted average common shares outstanding - assuming dilution	Weighted average common shares outstanding - assuming dilution	67,045,809		72,876,253		70,588,915		72,817,707		Weighted average common shares outstanding - assuming dilution	65,608,618		72,853,216
Net income per common share - basic	Net income per common share - basic	$	2.08	$	0.49	$	3.01	$	1.66	Net income per common share - basic	$	0.46	$	0.54
Net income per common share - diluted	Net income per common share - diluted	$	2.06	$	0.48	$	2.98	$	1.65	Net income per common share - diluted	$	0.46	$	0.53

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

On February ~~15, 2022, April 21, 2022 and July 28, 2022, respectively~~16, 2023, the Company's Board declared quarterly cash dividends of $0.05 per share of common stock, which was paid on March ~~25, 2022, June 3, 2022 and September 2, 2022, respectively~~17, 2023, to stockholders' of record on February ~~25, 2022, May 2, 2022 and August 8, 2022, respectively.~~28, 2023.

Note 1514 – 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.

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Note 1615 – Related Party Transactions

In connection with closing of the Popular Transaction on July 1, 2022, the Company terminated the existing stockholder agreement with Popular, which granted Popular certain benefits as a shareholder of the Company. In addition, on August 15, 2022, through a secondary offering, Popular sold its remaining shares of common stock of Evertec and as of that date no longer holds any shares of ~~Evertec~~EVERTEC common stock. ~~Evertec~~EVERTEC is no longer considered a subsidiary of Popular under the Bank Holding Company Act of 1956, as amended (the ~~"Bank~~“Bank Holding Company ~~Act"~~Act”). Given both the termination of the stockholder agreement and that Popular is no longer a shareholder of EVERTEC, management concluded that Popular is no longer a related party as of August 15, 2022.

The following table presents the Company’s transactions with Popular for the three months ended March 31, 2022 while they were deemed a related ~~party during 2022 and for the three and nine months ended September 30, 2021:~~

~~Table of Contents~~

Three months ended September 30, Nine months ended September 30,
(In thousands)
2022 (1)
2021
2022 (1)
2021
Total revenues $ 22,782 $ 60,091 $ 153,335 $ 182,344
Cost of revenues $ 653 $ 624 $ 2,386 $ 2,242
Operating lease cost and other fees $ 807 $ 1,958 $ 4,433 $ 5,482
Interest earned from affiliate
Interest income $ 231 $ 184 $ 1,011 $ 422

~~(1)Amounts presented through August 15, 2022.~~party:

The Company continues to have revenue concentration with Popular, revenues as a percentage of total revenues were 35% and 40% for the three and nine months ended September 30, 2022, respectively and 41% and 42%, for the comparable periods in 2021, respectively. Accounts receivable from Popular as of September 30, 2022 amounted to $36.4 million.

~~As of the December 31, 2021, EVERTEC had the following balances arising from transactions with related parties:~~


	Three months ended March 31,
(In thousands)	~~December 31, 2021~~2022
~~Cash and restricted cash deposits in affiliated bank~~Total revenues	$	~~187,602~~64,729
~~Other due to/~~Cost of revenues	$	1,315
Operating lease cost and other fees	$	1,859
Interest earned from affiliate
~~Accounts receivable~~Interest income	$	~~38,120~~340
~~Prepaid expenses and other assets~~	$	~~1,763~~
~~Operating lease right-of-use assets~~	$	~~13,533~~
~~Other long-term assets~~	$	~~2,853~~
~~Accounts payable~~	$	~~5,601~~
~~Contract liabilities~~	$	~~40,982~~
~~Operating lease liabilities~~	$	~~14,019~~

Note 1716 – Segment Information

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

The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and point of sale ("POS") transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial ~~institutions and digital payment services to the government of Puerto Rico)~~institutions), ATH Movil (person-to-person) and ATH Business (person-to-merchant) digital transactions and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants). For 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.

~~Table of Contents~~

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 and network fees.~~devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services.

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

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The Business Solutions segment consists of revenues from a full suite of business 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 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 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. Effective for the quarter ended March 31, 2023, the Company modified the manner in which it calculates and reports Adjusted EBITDA presented to the CODM for assessing segment performance to exclude the impact of non-cash unrealized gains and losses from foreign currency remeasurement. Adjusted EBITDA is defined as EBITDA further adjusted to exclude ~~unusual~~certain non-cash unrealized items and ~~other adjustments.~~unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting,, given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and Adjusted EBITDA. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated financial statements.

~~Table of Contents~~

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

Three months ended September 30, 2022
(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions
Corporate and Other (1)
Total
Revenues $ 44,592 $ 33,741 $ 36,911 $ 49,306 $ (18,747) $ 145,803
Operating costs and expenses $ 26,960 $ 28,513 $ 25,261 $ 38,522 $ 2,729 $ 121,985
Depreciation and amortization $ 5,116 $ 4,104 $ 1,045 $ 3,745 $ 5,702 $ 19,712
Non-operating income (expenses) $ 385 $ (7,094) $ 348 $ 136,218 $ (932) $ 128,925
EBITDA 23,133 2,238 13,043 150,747 (16,706) 172,455
Compensation and benefits (2)
1,557 972 498 503 2,141 $ 5,671
Transaction, refinancing and other fees (3)
330 — 325 (134,974) 8,567 $ (125,752)
Adjusted EBITDA $ 25,020 $ 3,210 $ 13,866 $ 16,276 $ (5,998) $ 52,374

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	Three months ended March 31, 2023
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total

Revenues	$	48,429	$	35,317	$	40,347	$	55,695	$	(19,974)	$	159,814
Operating costs and expenses	27,722		29,312		26,689		38,913		(2,912)		119,724
Depreciation and amortization	5,888		2,711		1,129		4,488		5,216		19,432
Non-operating income (expenses)	365		(3,785)		307		532		(118)		(2,699)
EBITDA	26,960		4,931		15,094		21,802		(11,964)		56,823
Compensation and benefits (2)	528		652		532		565		3,568		5,845
Transaction, refinancing and other fees (3)	292		—		—		—		(689)		(397)
Loss (gain) on foreign currency remeasurement (4)	95		4,772		—		—		(3)		4,864
Adjusted EBITDA	$	27,875	$	10,355	$	15,626	$	22,367	$	(9,088)	$	67,135

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the ~~$12.3~~$13.0 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of ~~$3.7~~$4.0 million from Payment Services- Latin America to both Payment Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of ~~$2.8~~$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, ~~the gain from the Popular transaction~~ and the elimination of ~~non-cash~~unrealized equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.~~, net of dividends received.~~

(4)Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies.


		Three months ended September 30, 2021													Three months ended March 31, 2022
(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	$	38,773	$	26,792	$	37,606	$	58,134	$	(15,422)	$	145,883	Revenues	$	40,008	$	28,783	$	35,629	$	62,624	$	(16,796)	$	150,248
Operating costs and expenses	Operating costs and expenses	21,420		22,209		19,922		37,412		(2,097)		98,866		Operating costs and expenses	21,280		23,587		20,204		38,928		204		104,203
Depreciation and amortization	Depreciation and amortization	3,989		2,809		1,010		4,691		6,246		18,745		Depreciation and amortization	4,480		2,812		1,019		4,763		6,086		19,160
Non-operating income (expenses)	Non-operating income (expenses)	203		1,844		281		551		(2,322)		557		Non-operating income (expenses)	236		3,606		300		700		(966)		3,876
EBITDA	EBITDA	21,545		9,236		18,975		25,964		(9,401)		66,319		EBITDA	23,444		11,614		16,744		29,159		(11,880)		69,081
Compensation and benefits (2)	Compensation and benefits (2)	260		755		255		70		2,153		3,493		Compensation and benefits (2)	337		813		340		445		2,344		4,279
Transaction, refinancing and other fees (3)	Transaction, refinancing and other fees (3)	—		—		—		—		(42)		(42)		Transaction, refinancing and other fees (3)	—		—		—		—		2,025		2,025
Loss (gain) on foreign currency remeasurement (4)														Loss (gain) on foreign currency remeasurement (4)	126		(2,795)		—		—		—		(2,669)
Adjusted EBITDA	Adjusted EBITDA	$	21,805	$	9,991	$	19,230	$	26,034	$	(7,290)	$	69,770	Adjusted EBITDA	$	23,907	$	9,632	$	17,084	$	29,604	$	(7,511)	$	72,716

(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~~$10.9 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, ~~and~~ intercompany software developments and transaction processing of ~~$2.4~~$3.3 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~~$2.6 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

(2)Primarily represents share-based compensation.

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

(4)Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies.

~~Table of Contents~~

Nine months ended September 30, 2022
(In thousands) Payment
Services -
Puerto Rico & Caribbean Payment
Services -
Latin America Merchant
Acquiring, net Business
Solutions
Corporate and Other (1)
Total
Revenues $ 130,678 $ 93,308 $ 111,079 $ 176,620 $ (55,063) $ 456,622
Operating costs and expenses 76,920 77,132 68,288 117,747 25 340,112
Depreciation and amortization 15,062 9,628 3,104 12,787 17,851 58,432
Non-operating income (expenses) 928 (3,365) 980 137,542 (3,560) 132,525
EBITDA 69,748 22,439 46,875 209,202 (40,797) 307,467
Compensation and benefits (2)
2,569 2,758 1,284 1,503 7,241 15,355
Transaction, refinancing and other fees (3)
330 — 325 (134,990) 12,647 (121,688)
Adjusted EBITDA $ 72,647 $ 25,197 $ 48,484 $ 75,715 $ (20,909) $ 201,134

~~(1)~~Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect the $36.5 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $10.7 million from Payment Services - Latin America to both Payment Services - Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $7.9 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, the gain from the Popular transaction and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of dividends received.

Nine 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 $ 113,626 $ 77,641 $ 106,808 $ 179,438 $ (42,954)

$ 434,559
Operating costs and expenses 61,270 63,020 55,762 110,276 (2,077)

$ 288,251
Depreciation and amortization 11,813 8,695 2,631 14,085 18,867 $ 56,091
Non-operating income (expenses) 618 5,348 835 2,494 (5,269) $ 4,026
EBITDA 64,787 28,664 54,512 85,741 (27,279) 206,425
Compensation and benefits (2)
781 2,321 781 1,193 6,204 $ 11,280
Transaction, refinancing and other fees (3)
660 — — (647) 1,202 $ 1,215
Adjusted EBITDA $ 66,228 $ 30,985 $ 55,293 $ 86,287 $ (19,873) $ 218,920

~~(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 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $6.6 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 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 to EBITDA is as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
Total EBITDA		$	172,455	$	66,319	$	307,467	$	206,425
Less:
Net Income										Net Income	$	30,063	$	38,866
Add:										Add:
Income tax expense	Income tax expense	9,048		7,134		22,911		14,474		Income tax expense	2,818		6,175
Interest expense, net	Interest expense, net	5,956		5,180		15,963		15,905		Interest expense, net	4,510		4,880
Depreciation and amortization	Depreciation and amortization	19,712		18,745		58,432		56,091		Depreciation and amortization	19,432		19,160
Net income		$	137,739	$	35,260	$	210,161	$	119,955
Total EBITDA										Total EBITDA	$	56,823	$	69,081

Note 1817 – Subsequent Events

On ~~October~~April 20, ~~2022,~~2023, 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~~June 2, ~~2022~~2023 to stockholders of record as of the close of business on ~~November~~May 1, ~~2022.~~2023. 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~~ months ended ~~months ended September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and (ii) the financial condition as of ~~September 30, 2022.~~March 31, 2023. 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, ~~2021,~~2022, included in the Company’s Annual Report on Form 10-K ~~("2021 Form 10-K")~~ as filed with the SEC on February ~~25, 2022~~24, 2023 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 ~~based upon current expectations~~ that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking ~~statements as a result of various factors, including those set forth in the section titled "Risk Factors" in our 2021 Form 10-K, as may be updated from time to time in our other filings with the SEC.~~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 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, SAS (formerly known as EGM Ingeniería sin Fronteras, S.A.S. ("PlacetoPay")), BBR, SpA, BBR Perú, S.A.C., Paysmart Pagamentos Eletronicos Ltda 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. ~~We believe that~~According to the September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean. We serve 26 countries out of 12 offices, including our headquarters in Puerto Rico. We own and operate the ATH network, which we believe is one of the leading personal identification number ~~("PIN"~~(“PIN”) debit ~~and automated teller machine ("ATM")~~ networks in ~~the Caribbean and~~ Latin America. We ~~manage~~process over six billion transactions annually through a system of electronic payment networks in Puerto Rico and ~~offer~~Latin America and a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto ~~Rico, that process over three billion transactions annually.~~Rico. Additionally, we offer technology outsourcing inand payment transactions fraud monitoring to all the regions we serve. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin American region.

We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this 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 and country 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~~in several geographies with technology solutions that enable them to manage their business as one enterprise; and

•Our ability to capture and analyze data across the transaction-processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction-processing value chain (such as only merchant acquiring or payment services).

~~Table of Contents~~

Our broad suite of services spans the entire ~~transaction-processing~~transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale for both card present transactions and card not present transactions, as well as back-end support services such as the clearing and settlement of

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transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable point of sales (“POS”) and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”) cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions 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 ~~both organic and inorganic opportunities such as acquisitions,~~ 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~~enter into multi-year contracts with our customers. We believe our business model should enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures.

Relationship with Popular

On September 30, 2010, EVERTEC Group entered into a 15-year 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.~~ On July 1, 2022, we modified and extended the main commercial agreements with Popular, ~~which had initial terms ending in 2025,~~ including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement (as amended, the “A"A&R ISO ~~Agreement”~~Agreement"), a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA (the "A&R ~~MSA~~ISO Agreement"). The A&R ISO Agreement, which ~~sets~~defines our merchant acquiring relationship with Popular, now includes revenue sharing provisions with Popular. The MSA modifications also include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through September 30, 2028, a 10% ~~fee~~ discount on certain MSA services beginning in October of 2025 and adjustments to the ~~existing~~ CPI pricing escalator clause. On the same date, we also sold to Popular certain assets in exchange for 4.6 million shares of ~~Evertec~~EVERTEC common stock owned by ~~Popular. As part of this transaction,~~ Popular ~~agreed to take certain actions after closing to ensure that Evertec was no longer deemed a “subsidiary” of Popular for purposes of~~(collectively with the ~~Bank Holding Company Act by 90 days following~~contract amendments, the ~~closing, including selling its shares of Evertec common stock in the open market and, if necessary, converting certain Evertec common stock into non-voting stock to reduce its voting interest to 4.5%~~"Popular Transaction"). On August 15, 2022, through a secondary offering, Popular sold its remaining shares of ~~Evertec common stock and as of this date no longer holds any shares of Evertec~~EVERTEC common stock. ~~Evertec~~EVERTEC is no longer ~~considered~~deemed a subsidiary of Popular under the Bank Holding Company Act.

~~Results of Operations~~

~~Comparison of~~ Popular continues to be the ~~three months ended September 30, 2022~~Company's largest customer and ~~2021~~

Three months ended September 30,
In thousands 2022 2021 Variance
Revenues $ 145,803 $ 145,883 $ (80) — %
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization 76,272 62,995 13,277 21 %
Selling, general and administrative expenses 26,001 17,126 8,875 52 %
Depreciation and amortization 19,712 18,745 967 5 %
Total operating costs and expenses 121,985 98,866 23,119 23 %
Income from operations $ 23,818 $ 47,017 $ (23,199) (49) %

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~~Revenues~~

~~Total revenues~~ for the quarter ended ~~September 30, 2022~~March 31, 2023 approximately 37% of our revenues were $145.8 million, relatively flat when compared with the prior year quarter. Revenue in Puerto Rico was negatively impacted by the close of the Popular Transaction, including the $6.9 million one-time credit granted upon closing. Revenues in the quarter were also negatively impacted by Hurricane Fiona, primarily the Company's Merchant Acquiring segment. These negative impacts were partially offset by the continued growth of the Company's digital solutions, specifically, ATH Movil Business, increased transaction volumes and one-time hardware and software sales. Additionally, the quarter benefited from revenue generated from ~~the small acquisition completed in the second quarter. Latin America revenue reflected organic growth and revenue contribution from the BBR acquisition completed at the beginning of the quarter.~~

~~Cost of Revenues~~

Cost of revenues for the three months ended September 30, 2022 amounted to $76.3 million, an increase of $13.3 million or 21% when compared to the same period in the prior year. The increase in cost of revenues was primarily driven by an increase in cost of sales mainly due to the new revenue sharing agreement with Popular resulting from the Popular Transaction and costs incurred for hardware sales, an increase in personnel costs, mainly due to increased headcount in Latin America including the added headcount from the BBR acquisition, and an increase in printing supplies which have been impacted by the inflationary environment.

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the three months ended September 30, 2022 amounted to $26.0 million, an increase of $8.9 million or 52% when compared to the same period in the prior year driven by an increase in professional fees related to corporate transactions, including the Popular Transaction related costs.

~~Depreciation and Amortization~~

Depreciation and amortization expense for the three months ended September 30, 2022 amounted to $19.7 million, an increase of $1.0 million or 5% when compared to the same period in the prior year. Increased expense during the three months is driven by the amortization of intangible assets created in connection with acquisitions completed in 2022.

~~Non-Operating Expenses~~

Three months ended September 30,
In thousands 2022 2021 Variance
Interest income $ 807 $ 504 $ 303 60 %
Interest expense (6,763) (5,684) (1,079) (19) %
Earnings of equity method investment 688 411 277 67 %
Loss on foreign currency remeasurement (7,779) (304) (7,475) 2,459 %
Gain on sale of a business 135,642 — 135,642 — %
Other income (expenses) 374 450 (76) (17) %
Total non-operating income (expenses) $ 122,969 $ (4,623) $ 127,592 2,760 %

Non-operating income for the three months ended September 30, 2022 amounted to $123.0 million, an increase of $127.6 million when compared to the same period in the prior year, as it includes the gain from the Popular Transaction of $135.6 million. Non-operating expenses in the quarter also reflect a $7.8 million loss from the remeasurement of assets and liabilities denominated in US dollars, as well as a $1.1 million increase in interest expense due to rising interest rates.

~~Income Tax Expense~~

Three months ended September 30,
In thousands 2022 2021 Variance
Income tax expense $ 9,048 $ 7,134 $ 1,914 27 %

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Income tax expense for the three months ended September 30, 2022 amounted to $9.0 million, an increase of $1.9 million when compared to the same period in the prior year. The effective tax rate for the period was 6.2%, compared with 16.8% in the 2021 period. The decrease in the effective tax rate was primarily driven by the impact of the Popular Transaction which was taxed at a preferential tax rate and the impact from the reversal of a potential liability for uncertain tax positions as a result of the expiration of the statute of limitation, partially offset by the impact of higher revenues in higher taxed jurisdictions, a shift in the mix of business in Puerto Rico and higher withholding taxes.

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

Nine months ended September 30,
In thousands 2022 2021 Variance
Revenues $ 456,622 $ 434,559 $ 22,063 5 %
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization 215,244 182,180 33,064 18 %
Selling, general and administrative expenses 66,436 49,980 16,456 33 %
Depreciation and amortization 58,432 56,091 2,341 4 %
Total operating costs and expenses 340,112 288,251 51,861 18 %
Income from operations $ 116,510 $ 146,308 $ (29,798) (20) %

~~Revenues~~

Total revenues for the nine months ended September 30, 2022 were $456.6 million, an increase of $22.1 million compared to $434.6 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 Business, as well as revenue generated from an acquisition completed in the second quarter. Revenue also benefited from the printing contract entered into in June 2021, one-time software sales, partially offset by the impacts from the Popular Transaction, including the $6.9 million one-time credit granted upon closing of the Popular Transaction. Latin America revenue reflected organic growth and the revenue contribution from the BBR acquisition.

~~Cost of Revenues~~

Cost of revenues for the nine months ended September 30, 2022 amounted to $215.2 million, an increase of $33.1 million or 18% 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 second quarter, as well as an increase in personnel costs, mainly due to increased headcount in Latin America including the added headcount from the BBR acquisition, higher equipment expenses for cloud services as utilization continues to grow, an increase in printing supply expense and an increase in cost of sales due to the same factors explained above for the quarter.

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the nine months ended September 30, 2022 amounted to $66.4 million, an increase by $16.5 million or 33% 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 nine months ended September 30, 2022 amounted to $58.4 million, an increase of $2.3 million or 5% when compared to the same period in the prior year, mainly due to the same factors explained above for the quarter.

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~~Non-Operating Expenses~~

Nine months ended September 30,
In thousands 2022 2021 Variance
Interest income $ 2,279 $ 1,343 $ 936 70 %
Interest expense (18,242) (17,248) (994) (6) %
Earnings of equity method investment 2,120 1,307 813 62 %
(Loss) gain on foreign currency remeasurement (6,858) 652 (7,510) (1,152) %
Gain on sale of a business 135,642 — 135,642 — %
Other income (expenses) 1,621 2,067 (446) (22) %
Total non-operating income (expenses) $ 116,562 $ (11,879) $ 128,441 1,081 %

Non-operating income for the nine months ended September 30, 2022 increased by $128.4 million to $116.6 million when compared to the same period in the prior year, primarily driven by the same factors explained above for the quarter, partially offset by a $0.9 million increase in interest income coupled with a $0.8 million increase in earnings from the Company's equity method investment.

~~Income Tax Expense~~

Nine months ended September 30,
In thousands 2022 2021 Variance
Income tax expense $ 22,911 $ 14,474 $ 8,437 58 %

Income tax expense for the nine months ended September 30, 2022 amounted to $22.9 million, an increase of $8.4 million when compared to the same period in the prior year. The effective tax rate for the period was 9.8%, compared with 10.8% in the 2021 period. The decrease in the effective tax rate was driven by the same factors explained above for the quarter.

this relationship.

Factors and Trends Affecting the Results of Our Operations

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

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

~~On July 1, 2022, we closed~~Our payment businesses also generally experience moderate increased activity during the ~~previously announced Popular Transaction,~~traditional holiday shopping periods and around other nationally recognized holidays, which includes extensions and amendments to the main commercial agreements with Banco Popular. The extension of the A&R ISO Agreement includes a revenue sharing provision which will be treated as an expense and has resulted, and we expect will continue to result in a decline to the Merchant Acquiring Segment Adjusted EBITDA and margin. The extension of the MSA includes a reduction in the CPI cap from 5% to 1.5%, as well as a retroactive one-time credit for the 5% CPI price increase applied to certain services since October

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1, 2021 through closing, both of which negatively impacted our results of operations, and we expect will continue to negatively impact 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 Transaction, we also sold certain assets from our Business Solutions Segment to Banco Popular, which has resulted, and we expect will continue to result in a reduction in revenue and margin for this segment.follow consumer spending patterns.

Finally, our financial condition and results of operations are, in part, dependent on the economic and general conditions of the geographies in which we operate. Rising interest rates, inflationary ~~pressure~~pressures and economic uncertainty in the markets in which

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we operate may affect consumer confidence, which could result in a decrease in consumer spending and an impact to our financial results.

Results of Operations

Comparison of the three months ended March 31, 2023 and 2022


	Three months ended March 31,
In thousands	2023		2022		Variance

Revenues	$	159,814	$	150,248	$	9,566	6	%
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization	76,417		64,659		11,758		18	%
Selling, general and administrative expenses	23,875		20,384		3,491		17	%
Depreciation and amortization	19,432		19,160		272		1	%
Total operating costs and expenses	119,724		104,203		15,521		15	%
Income from operations	$	40,090	$	46,045	$	(5,955)	(13)	%

Revenues

Total revenues for the quarter ended March 31, 2023 was $159.8 million, an increase of 6% compared with $150.2 million in the same period in the prior year. The revenue increase was primarily driven by Merchant Acquiring and Payment Services Puerto Rico, which both benefited from increased transactions. Merchant Acquiring revenue also reflected a higher spread per transaction and the benefit from pricing initiatives. Payment Services Puerto Rico continues to benefit from growth in ATH Movil revenues, primarily from the ATH Business, as the Company continues to experience higher transaction volumes as well as higher sales volume. Revenues also reflect the contribution from organic growth in Payment Services Latin America, the positive impact from the small acquisition in Puerto Rico completed in the second quarter of 2022 and the revenue contribution from the BBR and paySmart acquisitions in Latin America, completed in the third quarter of 2022 and first quarter of 2023, respectively. These increases were partially offset by the impact from the assets sold as part of the Popular Transaction in the third quarter of 2022.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2023 amounted to $76.4 million, an increase of $11.8 million or 18% when compared to the same period in the prior year. The increase during the three month period was primarily driven by the new revenue sharing agreement with Banco Popular as well as an increase in personnel costs, mainly due to increased headcount in Latin America, including the additional headcount from the BBR and paySmart acquisitions and an increase in provisions for operational losses, printing supplies and cloud services as utilization continues to grow.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2023 amounted to $23.9 million, an increase of $3.5 million or 17% when compared to the same period in the prior year. This increase was primarily driven by an increase in personnel costs.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2023 amounted to $19.4 million, an increase of $0.3 million or 1% when compared to the same period in the prior year. This increase was primarily driven by an increase in amortization of intangible assets created in connection with the aforementioned acquisitions, an increase in software amortization for internally developed software, as well as increased depreciation expense for hardware upgrades completed in the prior year.

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Non-Operating Expenses


	Three months ended March 31,
In thousands	2023		2022		Variance

Interest income	$	1,133	$	667	$	466	70	%
Interest expense	(5,643)		(5,547)		(96)		(2)	%
(Loss) gain on foreign currency remeasurement	(4,864)		2,669		$	(7,533)	(282)	%
Earnings of equity method investment	1,155		570		585		103	%
Other income	1,010		637		373		59	%
Total non-operating expenses	$	(7,209)	$	(1,004)	$	(6,205)	(618)	%

Non-operating expenses for the three months ended March 31, 2023 increased by $6.2 million to $7.2 million when compared to the same period in the prior year. The increase was mainly related to a loss on foreign currency remeasurement of $4.9 million in the current quarter compared to a gain of $2.7 million in the prior period, partially offset by an increase of $0.6 million in earnings from the Company's equity method investment in Contado and an increase of $0.5 million in interest income.

Income Tax Expense


	Three months ended March 31,
In thousands	2023		2022		Variance
Income tax expense	$	2,818	$	6,175	$	(3,357)	(54)	%

Income tax expense for the three months ended March 31, 2023 amounted to $2.8 million, a decrease of $3.4 million when compared to the same period in the prior year. The effective tax rate for the period was 8.6%, compared with 13.7% in the comparable 2022 period. The decrease in the effective tax rate is driven by certain jurisdictions in Latin America, and the benefit of a discrete tax item in Puerto Rico recorded during the quarter ended March 31, 2023.

Segment Results of Operations

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POS ~~devices and network fees.~~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.

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~~“Corporate~~ “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.~~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. Effective for the quarter ended March 31, 2023, the Company modified the manner in which it calculates and reports Adjusted EBITDA presented to the CODM for assessing segment performance to exclude the impact of non-cash unrealized gains and losses from foreign currency remeasurement. Adjusted EBITDA is defined as EBITDA further adjusted to exclude ~~unusual~~certain non-cash unrealized items and ~~other adjustments.~~unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and ~~adjusted~~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.

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Comparison of the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Payment Services - Puerto Rico & Caribbean


		Three months ended September 30,						Three months ended March 31,
In thousands	In thousands	2022			2021				In thousands	2023		2022
Revenues	Revenues	$	44,592		$	38,773			Revenues	$48,429		$40,008
Adjusted EBITDA	Adjusted EBITDA	$	25,020		$	21,805			Adjusted EBITDA	27,875		23,907
Adjusted EBITDA Margin	Adjusted EBITDA Margin	56.1		%	56.2		%		Adjusted EBITDA Margin	57.6	%	59.8	%

Payment Services - Puerto Rico & Caribbean segment revenues for the three months ended ~~September 30, 2022~~March 31, 2023 increased by ~~$5.8~~$8.4 million to ~~$44.6~~$48.4 million when compared to the same period in the prior year. The increase in revenues was primarily driven by an increase in ~~transaction volumes for~~ POS processing ~~the ongoing~~and continued strong digital payments growth from ATH Movil, ~~and~~primarily the ATH Business, ~~and an increase in issuing services. The~~as well as revenue ~~increase also includes the impact of~~contribution from the small acquisition completed in the second quarter. The segment continues to benefit from increases in transaction processing and monitoring revenue recognized for services provided to the Payment Services - Latin America Segment. These positive impacts were partially offset by the one-time credit granted to Popular.quarter of 2022. Adjusted EBITDA increased by ~~$3.2~~$4.0 million to ~~$25.0 million~~$27.9 million. The increase was primarily driven by the increase in revenues partially offset by higher operating ~~expenses.~~expenses, including an increase in provisions for operational losses and higher professional fees.

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Payment Services - Latin America

Three months ended September 30,
In thousands 2022 2021
Revenues $ 33,741 $ 26,792
Adjusted EBITDA $ 3,210 $ 9,991
Adjusted EBITDA Margin 9.5 % 37.3 %


	Three months ended March 31,
In thousands	2023		2022
Revenues	$35,317		$28,783
Adjusted EBITDA	10,355		9,632
Adjusted EBITDA Margin	29.3	%	33.5	%

Payment Services - Latin America segment revenues for the three months ended ~~September 30, 2022~~March 31, 2023 increased by ~~$6.9~~$6.5 million to ~~$33.7~~$35.3 million when compared to the same period in the prior year. This increase was driven mainly by organic growth ~~in all regions~~ as well as revenue generated from the BBR acquisition completed atin the ~~beginning~~third quarter of and the ~~quarter. Furthermore,~~paySmart acquisition completed in the first quarter of 2023. Adjusted EBITDA increased by $0.7 million when compared to the same period in the prior year driven by the increase in revenues ~~benefited~~offset by higher operating expenses primarily due to higher personnel costs as a result of an increase in ~~intercompany software developments and transaction processing revenue recognized for services provided to~~headcount, including the ~~Payment Services - Puerto Rico & Caribbean segment. Adjusted EBITDA decreased by $6.8 million primarily due to a $7.8 million loss~~added employees from the acquisitions, the impact from foreign currency remeasurement, ~~of assets and liabilities denominated~~as well as an increase in ~~US dollars~~professional fees and an increase in ~~personnel costs, mainly due to higher headcount, as well as increases in fees~~provisions for ~~transaction processing and monitoring services from the Payment Services - Puerto Rico & Caribbean segment as more transactions are processed in our centralized platforms.~~operational losses.

Merchant Acquiring


		Three months ended September 30,						Three months ended March 31,
In thousands	In thousands	2022			2021				In thousands	2023		2022
Revenues	Revenues	$	36,911		$	37,606			Revenues	$40,347		$35,629
Adjusted EBITDA	Adjusted EBITDA	$	13,866		$	19,230			Adjusted EBITDA	15,626		17,084
Adjusted EBITDA Margin	Adjusted EBITDA Margin	37.6		%	51.1		%		Adjusted EBITDA Margin	38.7	%	47.9	%

Merchant Acquiring segment revenues for the three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased by ~~$0.7~~$4.7 million asto $40.3 million when compared to the same period in the prior ~~year quarter benefited from COVID related federal stimulus and the current year quarter reflects a shift~~year. The revenue increase was primarily driven by an increase in ~~the mix of~~ sales volume ~~impacting our spread per transaction~~mainly due to new higher volume merchants and incremental sales volume in existing merchants, as well as a higher spread and the ~~negative impact~~continued benefit from ~~Hurricane Fiona estimated to be approximately $1.0 million, partially offset by certain~~ pricing ~~initiatives implemented in the second quarter.~~initiatives. Adjusted EBITDA decreased by ~~$5.4~~$1.5 million as compared to the prior year period. This decrease was mainly driven by ~~lower revenues, in addition to~~ higher operating expenses, ~~driven by~~including the revenue sharing agreement with Popular as well as ~~increased transaction~~higher processing costs ~~resulting~~ from ~~lower average ticket per transaction.~~the Payment Services Puerto Rico segment.

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Business Solutions


		Three months ended September 30,						Three months ended March 31,
In thousands	In thousands	2022			2021				In thousands	2023		2022
Revenues	Revenues	$	49,306		$	58,134			Revenues	$55,695		$62,624
Adjusted EBITDA	Adjusted EBITDA	$	16,276		$	26,034			Adjusted EBITDA	22,367		29,604
Adjusted EBITDA Margin	Adjusted EBITDA Margin	33.0		%	44.8		%		Adjusted EBITDA Margin	40.2	%	47.3	%

Business Solutions segment revenues for the three months ended ~~September 30, 2022~~March 31, 2023 decreased by ~~$8.8~~$6.9 million to ~~$49.3~~$55.7 million as compared to the prior year period. This decrease was primarily driven by the impact from the ~~Popular Transaction, specifically, the one-time credit granted to Popular upon closing amounting to $6.3 million and the impact from the sale of~~ assets ~~to Popular which the Company estimates at $30 million annually. These negative impacts were partially offset by revenue generated from projects completed in connection with closing~~sold as part of the Popular Transaction. Adjusted EBITDA decreased by $9.8 million to $16.3 million driven by the decrease in revenues as well as an increase in cost of sales and operating expenses, mainly cloud services and printing supplies, the latter of which has been impacted by the inflationary environment.

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

~~Payment Services - Puerto Rico & Caribbean~~

Nine months ended September 30,
In thousands 2022 2021
Revenues $ 130,678 $ 113,626
Adjusted EBITDA $ 72,647 $ 66,228
Adjusted EBITDA Margin 55.6 % 58.3 %

Payment Services - Puerto Rico & Caribbean segment revenues for the nine months ended September 30, 2022 increased by $17.1 million to $130.7 million when compared to the same period in the prior year. The increase in revenues was primarily driven by an increase in transaction volumes, mainly POS processing, the continued strong digital payments growth from ATH Movil Business, higher issuing services and revenue contribution from the acquisitionTransaction completed in the current year. Segment revenue also benefited from an increase in transaction processing and monitoring revenue recognized for services provided to the Payment Services - Latin America Segment. Adjusted EBITDA increased by $6.4 million to $72.6 million driven by the increase in revenues partially offset bythird quarter of 2022, which were of higher operating expenses, including the $4.1 million impairment charge discussed in Cost of Revenues above, an increase in cloud services, higher personnel costs and the impact from the one-time credit granted upon closing of the Popular Transaction.

~~Payment Services - Latin America~~

Nine months ended September 30,
In thousands 2022 2021
Revenues $ 93,308 $ 77,641
Adjusted EBITDA $ 25,197 $ 30,985
Adjusted EBITDA Margin 27.0 % 39.9 %

Payment Services - Latin America segment revenues for the nine months ended September 30, 2022 increased by $15.7 million to $93.3 million driven mainly by organic growth including revenue generated by new client contracts signed in prior years, the contribution from the BBR acquisition and higher revenues recognized for services provided to the Payment Services - Puerto Rico & Caribbean and Business Solutions segments. Adjusted EBITDA decreased by $5.8 million when compared to the same period in the prior year primarily due to the same factors explained above for the quarter.

~~Merchant Acquiring~~

Nine months ended September 30,
In thousands 2022 2021
Revenues $ 111,079 $ 106,808
Adjusted EBITDA $ 48,484 $ 55,293
Adjusted EBITDA Margin 43.6 % 51.8 %

Merchant Acquiring segment revenues for the nine months ended September 30, 2022 increased by $4.3 million to $111.1 million mainly as a result of an increase in sales volume driven by nine months of contribution from the FirstBank expanded relationship compared to 7 months in the prior year, as well as the benefit of pricing initiatives implemented throughout the year partially offset by the benefits to prior year from COVID related federal stimulus, the impact from Hurricane Fiona as well as changes in the mix of volume towards lower margin merchants.margins. Adjusted EBITDA decreased by $6.8 million to $22.4 million as compared to the ~~increase~~prior year period. This decrease was almost entirely related to the decrease in our Business Solutions' revenues ~~was entirely offset by an increase in operating expenses~~as well as higher operational costs driven by ~~the impact of the revenue sharing agreement with Popular that began on July 1, 2022 and higher transaction processing costs as a result of a lower average ticket.~~supplies for our printing business.

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~~Business Solutions~~
Nine months ended September 30,
In thousands 2022 2021
Revenues $ 176,620 $ 179,438
Adjusted EBITDA $ 75,715 $ 86,287
Adjusted EBITDA Margin 42.9 % 48.1 %

Business Solutions segment revenues for the nine months ended September 30, 2022 decreased by $2.8 million to $176.6 million primarily due to the same factors explained above for the quarter. Partially offsetting these negative impacts was the benefit from higher transactions and account volumes, contribution from the printing contract that began generating revenue in June of 2021, and one-time software and hardware sales. Adjusted EBITDA decreased by $10.6 million to $75.7 million as a result of the decrease in revenue, the impact from the sale of higher margin assets included in the Popular Transaction and an increase in cost of sales in connection with hardware sales completed during the year and operating expenses, mainly printing supplies expense that has been impacted by the inflationary environment.

Liquidity and Capital Resources

As of March 31, 2023, there are no material changes to our primary short-term and long-term requirements for liquidity and capital as disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our 2021 10-K.Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, ~~acquisitions,~~dividend payments, share repurchases, debt service, ~~dividend payments~~ and ~~share repurchases.~~acquisitions. We also have a ~~$125.0~~$200.0 million Revolving Facility, of which ~~$119.1~~$194.0 million was available for borrowing as of ~~September 30, 2022.~~March 31, 2023. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn.

As of ~~September 30, 2022,~~March 31, 2023, we had cash and cash equivalents of ~~$225.0~~$173.7 million, of which ~~$111.5~~$128.0 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico. 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.

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,					Three months ended March 31,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022

Cash provided by operating activities	Cash provided by operating activities	$	159,009	$	175,855	Cash provided by operating activities	$	54,511	$	67,681
Cash used in investing activities	Cash used in investing activities	(106,002)		(60,305)		Cash used in investing activities	(36,637)		(14,290)
Cash used in financing activities	Cash used in financing activities	(99,508)		(74,077)		Cash used in financing activities	(40,579)		(36,169)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash	Effect of foreign exchange rate on cash, cash equivalents and restricted cash	4,260		215		Effect of foreign exchange rate on cash, cash equivalents and restricted cash	(275)		766
(Decrease) increase in cash, cash equivalents and restricted cash		$	(42,241)	$	41,688
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	$	(22,980)	$	17,988

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$159.0~~$54.5 million compared to ~~$175.9~~$67.7 million for the same period in the prior year. The ~~$16.8~~$13.2 million decrease in cash provided by operating activities iswas primarily driven by ~~the effects from the sale of~~ a ~~business to Popular and the one-time credit granted to them upon closing, partially offset by~~decrease in net income as well as an increase in ~~collections from accounts receivable and less~~ cash used to pay down ~~accounts payable and~~ accrued ~~liabilities as the Company continues to effectively manage working capital .~~liabilities.

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$106.0~~$36.6 million compared to ~~$60.3~~$14.3 million for the same period in the prior year. The ~~$45.7~~$22.3 million increase ~~is driven by~~was primarily attributable to the ~~BBR~~paySmart acquisition, which closed on ~~July 1, 2022~~February 16, 2023 for ~~$44.4~~$23.3 million and an increase in software additions of $0.6 million, partially offset by a ~~$7.3~~decrease of $1.6 million ~~purchase of certificates of deposit, which were transferred upon closing of the BBR~~in property and equipment acquired.

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acquisition, partially offset by lower capital expenditures of $1.2 million, proceeds from the maturity of available-for-sale debt securities of $1.0 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 in the current year amounted to $10.6 million.

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$99.5~~$40.6 million compared to ~~$74.1~~$36.2 million for the same period in the prior year. The ~~$25.4~~$4.4 million increase was mainly attributed to ~~an increase in~~ cash used to ~~repurchase shares of our common stock of $48.1~~pay down the Revolving Facility for $20.0 million, partially offset by a decrease ~~of $18.6 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~~for repurchases 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.~~common stock of $14.9 million.

Capital Resources

Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to our property and equipment. During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, the Company~~we invested approximately ~~$44.6~~$13.3 million and ~~$43.4~~$14.3 million in our capital resources, respectively. ~~Additionally~~In addition, during the three month period ended March 31, 2023, the Company acquired a business for ~~$44.4~~$23.3 million, net of cash acquired, as well as $7.3 million in certificates of deposit in connection with this business acquisition in 2022. The Company acquired customer relationships amounting to $10.6 million and $14.8 million during the nine months ended September 30, 2022 and 2021, respectively. In 2021 acquired $3.0 million in available-for-sale debt securities.acquired. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility.

Dividend Payments

On February ~~15, 2022, April 21, 2022 and July 28, 2022, respectively~~16, 2023, the Board declared quarterly cash dividends of $0.05 per share of common stock, which were paid on March ~~25, 2022, June 3, 2022 and September 2, 2022, respectively,~~17, 2023, to stockholders of record as of the close of business on February ~~25, 2022, May 2, 2022 and August 8, 2022, respectively.~~28, 2023.

On ~~October~~April 20, ~~2022,~~2023, 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~~June 2, ~~2022~~2023 to stockholders of record as of the close of business on ~~November~~May 1, ~~2022.~~2023. 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,~~December 1, 2022, EVERTEC and EVERTEC Group, ~~(“Borrower”)~~ entered into a credit agreement with a syndicate of lenders and Truist Bank, as administrative agent and collateral agent, providing for ~~the secured credit facilities, consisting of~~(i) a ~~$220.0~~$415.0 million term loan A facility ~~that matures on November 27, 2023~~ (the ~~“2023 Term A Loan”~~“Term Loan Facility”), and (ii) a ~~$325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term B Loan”), and a $125.0~~$200.0 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 or if the leverage ratio is below 1.75x. On March 8, 2021, in connection with this mandatory repayment clause, the Company repaid $17.8 million, as a result of excess cash flow calculation performed for the year ended December 31, 2020. No mandatory repayment was required in the first quarter of 2022 in connectiontogether with the ~~excess cash flow calculation performed for~~Term Loan Facility, the ~~year ended~~“2022 Credit Facilities”). The 2022 Credit Facilities mature on December ~~31, 2021 as the leverage ratio was below 1.75x.~~1, 2027.

The unpaid principal balance at ~~September 30, 2022~~March 31, 2023 of the ~~2023~~ Term A Loan ~~and the 2024 Term B Loan~~Facility was ~~$163.4 million and $294.2 million, respectively.~~$409.8 million. The additional borrowing capacity ~~under our~~for the Revolving Facility at ~~September 30, 2022~~March 31, 2023 was ~~$119.1~~$194.0 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~~

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~~SOFR

~~2.89%~~2.929%

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

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was ~~an asset of $7.1~~$5.8 million and ~~a liability of $13.4~~$7.4 million, 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 78 of the unaudited condensed consolidated financial statements for disclosure of losses recorded on cash flow hedging activities.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company reclassified gains of $1.0 million and losses of ~~$0.4 and $3.5~~$1.7 million, respectively, from accumulated other comprehensive loss into interest ~~expense compared to $1.8 million and $5.3 million for the corresponding periods in 2021.~~expense. Based on current ~~LIBOR~~SOFR rates, the Company expects to reclassify gains of ~~$3.4~~$4.5 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

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Covenant Compliance

As of ~~September 30, 2022,~~March 31, 2023, our secured leverage ratio was ~~1.41~~0.97 to 1.00, as determined in accordance with the ~~2018~~ Credit Agreement. As of the date of filing of this ~~Report,~~Form 10-Q, 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~~certain non-cash unrealized items and ~~other adjustments described below.~~unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA 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~~Adjusted EBITDA less: operating depreciation and amortization expense, defined as GAAP Depreciation and amortization less amortization of intangibles related to acquisitions such as customer relationships, trademarks; cash interest expense defined as GAAP interest expense, less GAAP interest income adjusted to exclude ~~unusual items~~non-cash amortization of debt issue costs, premium and ~~other adjustments described below.~~accretion of discount; income tax expense which is calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for uncertain tax position releases, tax true-ups, windfall from share-based compensation, non-cash unrealized gains and losses from foreign currency remeasurement, among others; and non-controlling interest which is the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase. 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 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.

~~Table~~ These measures have certain limitations in that they do not include the impact of ~~Contents~~

certain expenses that are reflected in our condensed consolidated statements of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented herein, limiting their usefulness as comparative measures.

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.

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

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


		Three months ended September 30,				Nine months ended September 30,			Twelve months ended				Three months ended March 31,						Twelve months ended
(In thousands, except per share information)	(In thousands, except per share information)	2022		2021			2022		2021		September 30, 2022			(In thousands, except per share information)	2023		2022			March 31, 2023
Net income	Net income	$	137,739	$	35,260		$	210,161	$	119,955	$	251,349		Net income	$	30,063	$	38,866		$	230,066
Income tax expense	Income tax expense	9,048		7,134			22,911		14,474		28,999			Income tax expense	2,818		6,175			25,626
Interest expense, net	Interest expense, net	5,956		5,180			15,963		15,905		20,979			Interest expense, net	4,510		4,880			21,281
Depreciation and amortization	Depreciation and amortization	19,712		18,745			58,432		56,091		77,411			Depreciation and amortization	19,432		19,160			78,890
EBITDA	EBITDA	172,455		66,319			307,467		206,425		378,738			EBITDA	56,823		69,081			355,863

Equity income (loss) (1)		1,159		(411)			(273)		10		(678)
Equity income (1)														Equity income (1)	(1,155)		(570)			(1,706)
Compensation and benefits (2)	Compensation and benefits (2)	5,671		3,493			15,355		11,280		19,219			Compensation and benefits (2)	5,845		4,279			21,901
Transaction, refinancing and other fees (3)	Transaction, refinancing and other fees (3)	(126,911)		369			(121,415)		1,205		(120,247)			Transaction, refinancing and other fees (3)	758		2,595			(120,711)

Loss (gain) on foreign currency remeasurement (4)														Loss (gain) on foreign currency remeasurement (4)	4,864		(2,669)			15,178
Adjusted EBITDA	Adjusted EBITDA	52,374		69,770			201,134		218,920		277,032			Adjusted EBITDA	67,135		72,716			270,525
Operating depreciation and amortization (4)		(10,748)		(10,779)			(33,156)		(32,385)		(44,209)
Cash interest expense, net (5)		(5,645)		(4,926)			(15,132)		(14,946)		(19,990)
Income tax expense (6)		(8,908)		(9,125)			(27,910)		(24,416)		(35,178)
Non-controlling interest (7)		47		17			58		(55)		(48)
Operating depreciation and amortization (5)														Operating depreciation and amortization (5)	(12,369)		(11,252)			(45,535)
Cash interest expense, net (6)														Cash interest expense, net (6)	(4,363)		(4,629)			(20,742)
Income tax expense (7)														Income tax expense (7)	(4,782)		(8,809)			(31,601)
Non-controlling interest (8)														Non-controlling interest (8)	(34)		10			(10)
Adjusted net income	Adjusted net income	$	27,120	$	44,957		$	124,994	$	147,118	$	177,607		Adjusted net income	$	45,587	$	48,036		$	172,637
Net income per common share (GAAP):	Net income per common share (GAAP):													Net income per common share (GAAP):
Diluted	Diluted	$	2.06	$	0.48		$	2.98	$	1.65				Diluted	$	0.46	$	0.53
Adjusted Earnings per common share (Non-GAAP):	Adjusted Earnings per common share (Non-GAAP):													Adjusted Earnings per common share (Non-GAAP):
Diluted	Diluted	$	0.40	$	0.62		$	1.77	$	2.02				Diluted	$	0.69	$	0.66
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	67,045,809		72,876,253			70,588,915		72,817,707					Diluted	65,608,618		72,853,216

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

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

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

4)Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies.

5)Represents operating depreciation and amortization expense, which excludes amounts generated as a result of merger and acquisition activity.

5)6)Represents interest expense, less interest income, as they appear on 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)7)Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items.

7)8)Represents the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase.

~~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 it is difficult to accurately measure the impact of inflation on our results of operations and financial condition, we believe the effects of inflation, on our historical results of operations and financial condition have been immaterial. General inflation in

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the geographies in which we operate has risen to levels that have not been experienced in recent years, however, inflation has historically had a minimal net effect on our operating results given that overall inflation has been offset by sales and cost reduction actions.

Rising prices for input costs, including wages and benefits, occupancy and general administrative costs, could potentially have a negative impact on our results of operations and financial condition which may not be readily recoverable from our customers.

In addition, inflation has driven a rising interest rate environment, which has had an adverse effect on our cost of funding, as well as led to enhanced volatility on foreign currency exchange rates. While we proactively try to mitigate these rising costs, we may not be able to fully offset these impacts and these could result in negative effect on our results of ~~operations.~~

operation. Thus, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period. We base our assumptions, estimates, and judgments on historical experience, current events, and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. However, because future events are inherently uncertain and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of the Company’s critical accounting estimates, refer to “Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 24, 2023.

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.~~earnings, foreign exchange risk that may result in unfavorable foreign currency translation adjustments and inflation. Market risk is the potential loss arising from adverse changes in market rates and prices. The following analysis provides quantitative information regarding these risks.

Interest Rate Risks

Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.

We issued floating-rate debt which is subject to fluctuations in interest rates. Our secured credit facilities accrue interest at variable rates and ~~only the 2024 Term B Loan is~~are subject to a floor or a minimum rate. A 100 basis point increase in interest rates over our ~~floor(s)~~floor on our debt balances outstanding as of ~~September 30, 2022,~~March 31, 2023, under the secured credit facilities, would increase our annual interest expense by approximately ~~$2.1~~$2.6 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 30, 2022,~~March 31, 2023, 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~~purposes.

See Note 76 of the Unaudited Condensed Consolidated Financial Statements for additional information related to the secured credit facilities.

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Foreign Exchange Risk

We conduct business in certain countries in Latin America for which we have determined that the functional currency is other than the US dollar. Given this, our operating results are exposed to volatility due to fluctuations in exchange rates for the countries' functional currencies. Non-functional currency transactions are remeasured into the functional currency which results in a foreign exchange gain or loss recorded through Other income (expenses). For the ~~nine month periods~~quarters ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and 202,~~ the Company recognized non-cash unrealized foreign currency remeasurement losses of ~~$6.9~~$4.9 million and ~~gains~~$2.7 million of ~~$0.7 million,~~gains, respectively. For subsidiaries whose ~~local~~functional currency is ~~their functional currency,~~other than the U.S. dollar, their assets and liabilities are translated into U.S. dollars at exchange rates at the balance sheet date, and revenues and expenses are translated using average exchange rates in effect during the period. The resulting foreign currency translation adjustments are reported in accumulated other comprehensive loss in the ~~unaudited~~ condensed consolidated balance sheets. As of ~~September 30, 2022,~~March 31, 2023, the Company had ~~$36.2~~$5.9 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive loss compared with an unfavorable foreign currency translation adjustment of ~~$36.0~~$23.5 million as of December 31, ~~2021.~~2022.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, ~~under~~with the ~~direction~~participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated, as of the end of the period covered by this Report on Form 10-Q, disclosure controls and procedures (as such term is defined in 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 30, 2022,~~March 31, 2023, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There 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 30, 2022~~March 31, 2023 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

~~Other than the risk factor set forth below, there~~There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the SEC on February ~~25, 2022.~~24, 2023. 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, ~~2021.~~2022.

The risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2021 filed with the SEC on February 25,~~ 2022 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, and the 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. Prior to closing the Popular Transaction on July 1, 2022, Popular owned approximately 17.5% of our common stock and historically had substantial influence over our policies and management. In connection with the closing of the Popular Transaction, Popular delivered 4.6 million shares of Evertec common stock that were owned by Popular in exchange for certain assets of EVERTEC Group, and the Company also modified and extended its main commercial agreements with Banco Popular. Furthermore, effective as of July 1, 2022, the stockholders agreement dated April 17, 2012 with Popular, which had granted them certain benefits as a shareholder of the Company, was terminated. On August 15, 2022, through a secondary offering, Popular sold its remaining shares of Evertec common stock and as of this date no longer holds any shares of our common stock. Evertec is no longer deemed a subsidiary of Popular under the Bank Holding Company Act.

The elimination of Popular's holdings of our common stock and the modification to commercial arrangements with Banco Popular may 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.

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

The following table summarizes repurchases of ~~shares of~~ the Company’s common stock in the three month period ended ~~September 30, 2022:~~March 31, 2023:

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
8/1/2022-8/31/2022 803,341 31.12
9/1/2022-9/30/2022 387,038 31.83 387,038
1,190,379 31.35 387,038 102,467,677


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


3/1/2023-3/31/2023	187,976	33.35	187,976
	187,976	33.35	187,976	72,091,547

(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.

~~Table of Contents~~

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits















10.1*+			~~Amendment No.1~~Form of Restricted Stock Unit Award Agreement for grant of restricted stock units to ~~Asset Purchase Agreement~~executive officers under the EVERTEC, Inc. 2022 Incentive Award Plan, dated February 24, 2023, by and ~~among~~between EVERTEC, Inc. and the executive officer (applicable to Morgan M. Schuessler, Jr., ~~Evertec Group, LLC, Popular, Inc.~~Joaquín A. Castrillo, Paola Pérez, Luis A. Rodríguez, Guillermo Rospigliosi, Diego G. Viglianco, and ~~Banco Popular de Puerto Rico, dated as of July 1, 2022.~~
~~10.2~~			Second Amended and Restated Master Service Agreement, dated as of July 1, 2022, among Popular, Inc., Banco Popular de Puerto Rico and Evertec Group, LLC and its subsidiaries (incorporated by reference to Exhibit 10.1 of EVERTEC, Inc.’s Current Report on Form 8-K filed on July 1, 2022, File No. 001-35872).
~~10.3~~			Second Amended and Restated Independent Sales Organization Sponsorship and Services Agreement, dated as of July 1, 2022, between Evertec Group, LLC and Banco Popular de Puerto Rico (incorporated by reference to Exhibit 10.2 of EVERTEC, Inc.’s Current Report on Form 8-K filed on July 1, 2022, File No. 001-35872)Miguel Vizcarrondo).
31.1*			CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL**			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**			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: ~~November 4, 2022~~April 28, 2023	By:	/s/ Morgan Schuessler
		Morgan Schuessler Chief Executive Officer (Principal Executive Officer)

Date: ~~November 4, 2022~~April 28, 2023	By:	/s/ Joaquin A. Castrillo-Salgado
		Joaquin A. Castrillo-Salgado Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

4535


	Amount		Weighted-average life
(Dollar amounts in thousands)

Customer relationships	$	22,500	15
Trademark	1,250		5
Software packages	1,100		5
Total	$	24,850	14



	Nine months ended September 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	$	244	$	1,405	$	—	$	7,956	$	9,605
Products and services transferred over time	86,045		81,229		111,079		168,664		447,017
	$	86,289	$	82,634	$	111,079	$	176,620	$	456,622



	Nine 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	$	119	$	1,633	$	—	$	4,048	$	5,800
Products and services transferred over time	76,642		69,919		106,808		175,390		428,759
	$	76,761	$	71,552	$	106,808	$	179,438	$	434,559