EVERTEC Group, LLC Reports Fourth Quarter and Year 2012 Results

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EVERTEC Group, LLC Reports Fourth Quarter and Year 2012 Results

Fourth Quarter 2012 Highlights

  • Total revenues were $91.0 million, an increase of 6%, as compared to the fourth quarter of 2011.
  • Adjusted EBITDA was $51.8 million, an increase of 29%, as compared to the fourth quarter of 2011.
  • Received a 15-year tax grant from the Government of Puerto Rico providing for a reduced income tax rate of 4.0% on data processing activities (approximately 73% of FY 2012 taxable income) as well as a 90% and 60% exemption on property and municipal taxes, respectively.
  • Returned capital of approximately $50.3 million to stockholders through a special dividend.

Year ended December 31, 2012 Highlights

  • Total revenues were $341.7 million, an increase of 6%, as compared to the corresponding 2011 period.
  • Adjusted EBITDA was $169.6 million, an increase of 14%, as compared to the corresponding 2011 period.
  • Enhanced management team with addition of Chief Executive Officer Peter Harrington and Chief Operating Officer Philip Steurer.
  • Converted from a Puerto Rico corporation to a Puerto Rico limited liability company for the purpose of improving the consolidated tax efficiency of EVERTEC and its subsidiaries.
  • Returned total capital of approximately $317.5 million to stockholders through two special dividends.

SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- EVERTEC Group, LLC ("EVERTEC" or the "Company") today reported consolidated results for the fourth quarter and year ended December 31, 2012.

"We are pleased to report another strong quarter and year of double-digit Adjusted EBITDA growth and revenue increases across our business lines," said Peter Harrington, EVERTEC's President and Chief Executive Officer. "Our continued strong financial performance is a testament to the value of our diversified business model, which has enabled us to provide our customers with differentiated, value-add capabilities and successfully penetrate new markets and geographies. In addition to our commercial accomplishments during 2012, we also took a number of important steps in our corporate development including obtaining a 15-year tax grant from the Government of Puerto Rico. This grant has structurally enhanced our advantaged free cash flow profile and further positions us to compound our momentum in the Latin American payments market."

Fourth Quarter 2012 Financial Results

Total revenues for the quarter ended December 31, 2012 were $91.0 million, representing an increase of $5.4 million, or 6% as compared to the corresponding 2011 period. The aforementioned consolidated growth reflects an increase in Merchant Acquiring revenues of $0.1 million, Payment Processing revenues of $2.4 million or 11%, and Business Solutions revenues of $2.9 million or 6%. The increase in Payment Processing and Business Solutions segment revenues was primarily due to an increase in volume and higher demand for our services.

Total operating costs and expenses, excluding depreciation and amortization, for the quarter ended December 31, 2012 were $47.3 million, representing a decrease of $0.6 million or 1% as compared to the corresponding 2011 period. The decrease was primarily due to a reduction in personnel related costs.

Total non-operating expenses for the quarter ended December 31, 2012 remained flat when compared to the 2011 period.

Income tax benefit for the quarter ended December 31, 2012 amounted to $0.8 million as compared to an income tax expense of $1.6 million for the corresponding 2011 period. The income tax benefit for the 2012 period was primarily related to the impact of the tax grant received by EVERTEC during the fourth quarter of 2012.

Adjusted EBITDA for the quarter ended December 31, 2012 was $51.8 million, an increase of $11.5 million or 29% as compared to $40.2 million for the same period in 2011. The increase in Adjusted EBITDA was primarily driven by the aforementioned growth in revenues and significant operating leverage in our leading technology platform. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved to 56.9% from 47.0% in the corresponding 2011 period.

Year Ended December 31, 2012 Financial Results

Total revenues for the year ended December 31, 2012 were $341.7 million, representing an increase of $20.6 million or 6% as compared to the corresponding 2011 period. Merchant Acquiring revenues for the year ended December 31, 2012 were $69.6 million, representing an increase of $7.6 million or 12% as compared to the corresponding 2011 period. The increase in Merchant Acquiring revenues during 2012 was primarily attributable to volume growth in our core business of $5.0 million. Payment Processing revenues for the year ended December 31, 2012 were $94.8 million, representing an increase of $9.1 million or 11% as compared to the corresponding 2011 period. The increase in Payment Processing revenues during 2012 was primarily attributable to an increase in volume. Business Solutions revenues for the year ended December 31, 2012 were $177.3 million, representing an increase of $3.9 million or 2% as compared to the corresponding 2011 period. The increase in Business Solutions revenues during 2012 was primarily due to higher demand for our services.

Total operating costs and expenses, excluding depreciation and amortization, for the year ended December 31, 2012 were $190.2 million, representing an increase of $1.5 million or 1% as compared to the corresponding 2011 period. The increase was primarily attributable to the increase in revenues as described above, partially offset by a reduction in personnel costs.

Total non-operating expenses for the year ended December 31, 2012 were $61.9 million, representing a decrease of $5.6 million or 8% as compared to the 2011 period. The decrease in non-operating expenses in 2012 was primarily driven by lower other expenses of $9.7 million, partially offset by an increase in interest expense of $3.4 million from the issuance of additional debt in May 2012.

Income tax benefit for the year ended December 31, 2012 was $87.7 million as compared to $33.1 million for the corresponding 2011 period. The income tax benefit in 2012 was primarily attributable to a $90.9 million income tax benefit from the elimination of EVERTEC's deferred tax liability following the Conversion and the effect of the tax grant received during the fourth quarter of 2012. The income tax benefit in 2011 was primarily attributable to a $27.6 reduction in the Company's deferred tax liability following the enactment of certain tax reforms in Puerto Rico on January 31, 2011 which reduced in the marginal corporate income tax rate from 39% to 30%.

Adjusted EBITDA for the year ended December 31, 2012 was $169.6 million, an increase of $20.5 million or 14% as compared to the same period in 2011. This increase was primarily driven by revenue growth across all three business segments and lower incremental costs. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) improved to 49.6% from 46.4% in the corresponding 2011 period.

Cash and Liquidity

As of December 31, 2012, EVERTEC's unrestricted cash balance was $25.0 million. Also, as of December 31, 2012 EVERTEC had $35.3 million of net borrowing capacity available under its revolving credit facility after giving effect to $14.0 million of short-term borrowings and a $0.7 million letter of credit on behalf of EVERTEC Costa Rica, S.A.

Debt

As of December 31, 2012, the Company's unpaid principal balance was $759.5 million.

About EVERTEC

EVERTEC is the leading full-service transaction processing business in Latin America and the Caribbean. Based in Puerto Rico, EVERTEC provides a broad range of merchant acquiring, payment processing and business process management services across 19 countries in the region. EVERTEC processes over 1.8 billion transactions annually, and manages the electronic payment network for over 4,100 automated teller machines ("ATM") and over 104,000 point-of-sale payment terminals. EVERTEC is the largest merchant acquirer in the Caribbean and Central America and the sixth largest in Latin America. EVERTEC owns and operates the ATH network, one of the leading ATM and personal identification number debit networks in Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing, cash processing and technology outsourcing. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with 'mission critical' technology solutions and believes its business is well positioned to continue to expand across the fast growing Latin American region.

EVERTEC is 51% owned by an affiliate of Apollo Global Management, LLC, a leading private equity investor, and 49% owned by Popular, Inc., the largest financial institution in the Caribbean. For more information about EVERTEC, please visit www.evertecinc.com.

Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements" within themeaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," and "plans" and similar expressions of future or conditional verbs such as "will," "should," "would," "may," and "could" are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: our high level of indebtedness and restrictions contained in our debt agreements; our ability to generate sufficient cash to service our indebtedness and to generate future profits; our reliance on our relationship with Popular for a significant portion of our revenues; our ability to renew our client contracts on terms favorable to us; our dependence on our processing systems, technology infrastructure, security systems and fraudulent-payment-detection systems; our ability to develop, install and adopt new technology; a decreased client base due to consolidations in the banking and 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; our dependence on credit card associations; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of our business in Puerto Rico; operating an international business in multiple regions with potential political and economic instability; our ability to execute our expansion and acquisition strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; our ability to comply with federal, state, and local regulatory requirements; and evolving industry standards.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings "Forward-Looking Statements" and "Risk Factors" in the reports the Company files with the SEC from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

EVERTEC Group, LLC Consolidated Balance Sheets

   
December 31,
(Dollar amounts in thousands) 2012  2011 
 
Assets
Current Assets:
Cash$24,993$53,523
Restricted cash4,9395,288
Accounts receivable, net78,67260,930
Prepaid expenses and other assets 13,005  21,526 
Total current assets121,609141,267
Investment in equity investee11,08012,267
Property and equipment, net36,73736,685
Goodwill372,307371,712
Other intangible assets, net403,170448,914
Other long-term assets 24,478  22,894 
Total assets$969,381 $1,033,739 
Liabilities and member's equity
Current Liabilities:
Accrued liabilities$33,245$29,581
Accounts payable24,48221,786
Unearned income1,166900
Income tax payable2,9593,383
Current portion of long-term debt6,052-
Short-term borrowings26,995-
Deferred tax liability, net 632  9,321 
Total current liabilities95,53164,971
Long-term debt730,709523,833
Long-term deferred tax liability, net6,82791,431
Other long-term liabilities 3,072  449 
Total liabilities 836,139  680,684 
Member's equity
Member's units (100 units issued and outstanding)--
Contributed capital120,202326,367
Accumulated earnings13,88228,006
Accumulated other comprehensive loss, net of tax of $0 and $13 (842) (1,318)
Total member's equity 133,242  353,055 
  
Total liabilities and member's equity$969,381 $1,033,739 

EVERTEC Group, LLC Consolidated Statements of Income and Comprehensive Income

   
Quarters ended December 31,Years ended December 31, 
(Dollar amounts in thousands) 2012  2011  2012  2011 
Revenues
Merchant acquiring, net$18,092$17,954$69,591$61,997
Payment processing24,81522,45694,80185,691
Business solutions 48,078  45,161  177,292  173,434 
Total revenues 90,985  85,571  341,684  321,122 
 
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization shown below40,39140,545158,860155,377
Selling, general and administrative expenses6,9277,33431,31233,339
Depreciation and amortization 17,975  17,914  71,492  69,891 
Total operating costs and expenses 65,293  65,793  261,664  258,607 
 
Income from operations 25,692  19,778  80,020  62,515 
 
Non-operating (expenses) income
Interest income83123313760
Interest expense(15,117)(11,685)(54,331)(50,957)
Earnings of equity method investment461148564833
Other expenses (income):
Voluntary Retirement Program ("VRP") expense-(332)-(14,529)
Other income (expenses) 1,312  (1,581) (8,490) (3,672)
Total other income (expenses) 1,312  (1,913) (8,490) (18,201)
Total non-operating (expenses) income (13,261) (13,327) (61,944) (67,565)
Income (loss) before income taxes12,4316,45118,076(5,050)
Income tax (benefit) expense (786) 1,615  (87,746) (33,054)
Net income13,2174,836105,82228,004
Other comprehensive (loss) income, net of income tax expense of $0, $5, $13 and $13
Foreign currency translation adjustments (2,075) 414  476  (1,176)
Total comprehensive income$11,142 $

5,250

 $106,298 $26,828 

EVERTEC Group, LLC Consolidated Statements of Cash Flows

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Years ended December 31,
 2012  2011 
Cash flows from operating activities
Net income$105,822$28,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization71,49269,891
Amortization of debt issue costs and premium and accretion of discount5,0917,995
Provision for doubtful accounts and sundry losses1,6451,005
Deferred tax benefit(93,402)(25,910)
Share-based compensation1,204884
Realized loss on derivative-1,399
Unrealized (gain) loss of indemnification assets(966)292
Amortization of a contract liability(703)(7,440)
Loss on disposition of property and equipment and other intangibles1,671122
Earnings of equity method investment(564)(833)
Dividend received from equity investment1,6301,467
Prepayment penalty related to debt refinancing-(3,387)
Premium on issuance of long-term debt2,000-
(Increase) decrease in assets:
Accounts receivable, net(16,301)3,704
Prepaid expenses and other assets1,916(7,409)
Other long-term assets(3,567)-
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities5,846(1,977