Good day, everyone, and welcome to the EVERTEC First Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Luis Cabrera, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone. Welcome to EVERTEC First Quarter 2013 Earnings Call. I'm Luis Cabrera, Senior Vice President, Treasurer and Head of Investors Relations for EVERTEC. With me today is Peter Harrington, our President and Chief Executive Officer; and Juan Jose Román, Executive Vice President and Chief Financial Officer. A replay of this call will be available until Monday, May 13, 2013. Asset information for the replay is listed in today's financial press release, which is available on our website under the Investors Relations tab. As a reminder, this call may not be taped or otherwise reproduced without EVERTEC's prior consent. For those listening to the replay, this call was held and recorded on May 6, 2013. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. EVERTEC cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the final prospectus form of our initial public offering filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statement. During today's call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as adjusted EBITDA, adjusted net income and adjusted net income per share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings press release. With that, we'll begin by turning the call over to Peter Harrington, our President and Chief Executive Officer. Peter?

Thank you, Luis, and good afternoon, everyone. Thank you for joining us for our first quarter 2013 earnings conference call and our first release following our initial public offering. The first quarter of 2013 was a great start to the year with EVERTEC delivering another quarter of strong operating performance. As you are aware, we successfully completed our initial public offering on April 17, and I want to thank the entire EVERTEC team for their hard work and dedication throughout that process. I also want to thank and welcome our new shareholders. And now I am delighted to provide you with our business highlights for the first quarter and talk about some of recent events that we are particularly proud of. First, we reported adjusted net income of $27.5 million, reflecting growth of 37% as compared to our corresponding 2012 period. Second, we reported adjusted EBITDA growth of 8% and a 110 basis point improvement in our adjusted EBITDA margin, highlighting our significant operating leverage and effective cost control initiatives. And third, we continue to grow revenues in our Payment Processing businesses outside of Puerto Rico in the double digits. EVERTEC's total revenues increased 6% on a year-over-year basis, driven primarily by our Payment Processing and Business Solutions segments. Subsequent to the quarter end, we have had 2 important corporate developments that I'd like to talk about: First, the successful completion of our initial public offering; and as well, the closing of our debt financing transaction that extended our debt maturity profile, increased our liquidity and importantly reduced our annual interest expense by approximately $30 million per year. Juan Jose Román, our Chief Financial Officer, will review these results in greater detail later in the discussion. But before turning the call over to Juan, since this is our first quarterly…

[Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan.

I guess I'll start by asking if the Merchant Acquiring -- just maybe can you just remind us or discuss how you calculate the 8% growth adjusting for Durbin? What's the methodology there to arrive at that?

Sure, Tien-Tsin. Just a reminder, right, the comparison we're doing is from first quarter 2012 over -- 2013 over 2012. And as you probably remember, the Durbin went into effect in the fourth quarter of 2011. In connection with that, we benefited from an increase in our net margin or spread as a result of the reduction in the interchange fees. And this extraordinary benefit was reflected obviously in our Q1 2012 revenues. As we've talked about -- to the investors on the roadshow, over the course of 2012, we've made a strategic decision to pass some of that increased benefit onto our merchants in return for long-term contracts, and we did that. And certainly on top of that, there was some Durbin-related volume effects as well. And so when you normalize the extraordinary event that we had in 2012 and we subtract that from 2013, that's how we get to the 8% growth. On top of that, you got to remember that in 2013, we had one less day than we did in 2012 because of the leap year, and you can see that it's almost a 1% difference year-over-year.

Got it, got it. That makes sense. Good to know. It's consistent with what we had modeled as well. Just on the same -- stick with Merchant Acquiring. Oriental, BBVA conversion, can you update us on that, too? Where do we stand? Any surprises?

No, no. As we expect, we're making progress. They are going through the transition of BBVA into Oriental. They expect to finish that in the fourth quarter, but we -- I think if we will start to see some of the volume specifically from new merchants signed between now and then, but we don't expect the transition of the current business until probably the fourth quarter.

Understood, understood. Okay, last one just in Business Solutions, good growth there. Any sort of unusual projects to call out that may have influenced the first quarter result?

Yes, no problem. Yes, I mean, as we've said, there are parts of the Business Solution business that is not cyclical. It's kind of project-related or kind of one-time related. And yes, certainly, we were able to finish a project in the first quarter of 2012 that we had not expected until later in the year, and that's why you're seeing the growth in the first quarter. We expect the growth of the Business Solutions to be consistent with what we thought, which is somewhere in the low to mid-single digits on a yearly basis. So really just more timing.

Next we'll move to Roman Leal with Goldman Sachs.

I guess let me start with merchant services as well. Is it possible to give us a little more granularity on the drivers or at least how should we think about the -- even the pricing, right, as you're facing tougher comps? Was it mostly the fact that transaction growth was just not enough to offset the tougher pricing comps? Or was it the pricing maybe came down somewhat as you gave some pricing up for longer contracts?

Yes, I think it's more that. That we made the decision when we got this kind of extraordinary benefit in 2012, that we thought it was in our best interest to pass some of that along to our merchants in return for long-term contracts. And so that's probably the way you should look at it. Now to kind of get to the next question, we expect this to finish up in the second quarter of 2013, and then to go on to kind of normal, a normal growth scenario after that.

Okay, that's helpful. And as we think about the expansion outside of Puerto Rico, can you maybe give us a range of how pricing tends to look, and these are the countries that you're expanding to? I guess the opportunity in Colombia looks pretty clean as well. So how would pricing, for example, in Colombia and other parts of Latin America compare to what you get in Puerto Rico?

Very comparative. Certainly, I would say that the pricing that we see in Latin America kind of in general is much more favorable than you would see in the more mature markets. And so there's not -- I'll be honest, there's not a lot of difference between how we price in Puerto Rico and what we see in the other Latin American countries. So it's pretty -- there's a little variation but not much. For the most part, it's similar pricing across all the markets.

Got it. One last one for us. On Business Solutions, maybe it will be helpful for all of us if you tell us, maybe give us an example on how you think this fits well into your expansion strategy? How can you use the fact that you have all 3 segments, specifically Business Solutions because maybe that's a little bit less clear to us, how can that -- how can you use that as a competitive advantage to try to expand outside of Puerto Rico?

Well yes. As we've demonstrated for a number of years here in Puerto Rico, the customers that we deal with are predominantly kind of tier 2 and tier 3 financial institutions, and they're looking for a number of solutions. And where we differentiate ourselves from our competitors is our ability to bring to the table more than just the payment product, whether it be POS or ATM, but we will actually run the network for that. And what we've seen in a lot of the markets is that they're looking for this kind of value-added service that we can provide by bringing to them, say running the network as well as doing the processing or maybe we're getting -- there's a lot of interest today, for example, in cloud computing and how we can bring cloud computing and hosting to the table, as well as the payment-related businesses.

Next, we'll move to George Mihalos with Credit Suisse.

This is Allison in for George. I know you mentioned earlier that you were able to grow revenues outside of Puerto Rico by double digits. But can you give us a little more detail on the growth rate sourced from Puerto Rico compared to the other geographies you are in?

Well, I would just say we're not going to give you the specific numbers. I would just say that we are -- we're certainly growing in the double digits, and not just in one market like I said before. We're growing across all of the markets. We're seeing steady growth, driven primarily by the cash-to-card conversion. So as we see more electronic payments grow in these markets, we're benefiting from that. But I would just tell you that the growth in the double digits we're seeing in all of the core markets we operate in today.

Great. And then just maybe one more. You spoke about the pricing you're seeing in Colombia, but can you give us an update about the general progress you're making there and maybe when you think it'll be a meaningful contributor to overall revenues?

We signed our first customer there as we said. We expected to begin to see revenue by year end, so I would say 2014 is when it will make a significant contribution from a revenue perspective.

We'll move to Suzi Stein with Morgan Stanley.

I guess back to the question now of the business outside of Puerto Rico. Are you going to provide us with the percentage of revenue on a going-forward basis, I mean, just to keep us posted on the progress that you're making there? I think that's the last question, I think that double-digit is kind of a wide range. It would be helpful for us to be able to narrow that down somehow.

Yes. And to be honest with you, we're still looking at a number of things that we'll provide on an ongoing basis, that is certainly one of them. So I would say as we go through that process, that is certainly one of the ones we're looking at providing more specific information on an ongoing basis, but we're not prepared today to do that.

Okay. And then you mentioned looking at strategic acquisitions. I know this hasn't been a big push for you in the past. But what is it specifically that you think you'd be looking for? Is it product? Is it distribution or is there something else? And I guess on a going-forward basis, do you anticipate this will be a bigger part of your strategy?

It certainly will be a part of the strategy as we go forward. But again, what I want you to take away is what we're first and foremost looking at is how do we continue to grow organically in the markets that we're in. We think there's still plenty, more than enough opportunity for us to do that. So when we look at acquisitions, we look at it in kind of 3 ways. First and foremost, we're very focused on the Merchant Acquiring business and looking at both alliances and in joint ventures to get into the Merchant Acquiring businesses in the markets we're already in and being able to leverage those relationships that we've built over the years. So that's kind of first. Outside of that, we look for 2 things. If there was an acquisition that would help us gain a bigger footprint or a faster footprint in a brand-new market, then we certainly would look at that. And then finally, we look at it from a distribution channel perspective. Again because of the wide range of products and services that we offer, what would be most interesting to us is an opportunity that provided a considerable distribution channel that we could then leverage to sell our products and services through. That's kind of how we focus on.

Next, we'll move to Sara Gubins with Bank of America.

Your cost of revenue is up as a percent of revenue. And I know that you talked about that being related to Business Solutions. As that growth rate slows for the rest of the year, would you expect to see some leverage in that line item? Juan Jose Román-Jiménez: Yes, this is Juan Jose. Yes, this one is mostly related to the increase in the Business Solutions product sales. So going forward for this year, we do -- we're still seeing the benefit of the cost saving initiative we implemented there in 2012. The 2013 really reflect that benefit with the effectiveness of our costs. So going forward, it will be -- for this year, it will be kind of very low digits for this year.

Okay. I'm sorry, low digit improvement or... Juan Jose Román-Jiménez: The increase -- I'm sorry. The increase in the cost -- total cost is really low digit. Again, we'll see this year specifically basically to be flat our total cost because of the cost-saving initiative we implemented last year.

Got it, okay. And then could you give us any details on margin trends by segment? And will you plan to provide those going forward? Juan Jose Román-Jiménez: No, we don't report by segment. We do provide the information overall consolidated.

Okay. So anything worth highlighting then in margins by segment? Juan Jose Román-Jiménez: No. Well, our margins, we do expect them to continue to improve, to grow, as has been in the past. As we mentioned, partially the result of our continuing increase in our payment businesses and our growth outside Puerto Rico. As we mentioned, we have significant benefit from our infrastructure.

And next, we have Bryan Keane with Deutsche Bank.

This is Ashish Sabadra calling on behalf of Bryan Keane. Quick question on the operational metrics, volume and Merchant Acquiring and transactions. I was wondering if you're planning to provide those numbers and -- or if you could provide color on how did they come compared to your plans?

I'll take the second part. I mean, it was very much in line with our expectations for the first quarter. As I've said before, we are looking at a number of things for what we may report in the future. At this time, we're not providing those types of KPIs. But much like the growth rates outside of Puerto Rico in the payments business, that's one of the things we're certainly looking at to be able to report on in the future.

Okay. A quick question on the prospect pipeline. I was just wondering if you would provide some color on the prospect pipeline in terms of the sales initiatives that you're working on, how those are panning out and the demand?

Yes. I mean, we're very, very, very happy with the pipeline we have today. And that's why we're very comfortable with the guidance that Juan gave you for 2013. But again, you got to keep in mind that in a lot of these, especially in the payments businesses, we're basically selling at this point for next year because of the implementation timeframe that you're probably familiar with. So we're already -- we're very, very happy about where we are in that pipeline, more so probably for 2014 than 2013.

And a couple of quick modeling questions. Just share count by quarters going forward. And the tax rate, I understand your tax rate also, you have some NOLs that you can take benefit of on fiscal year '13. So the expected tax rate for fiscal year '13 and share count by quarter, if you can provide that. Juan Jose Román-Jiménez: Yes. Total shares as of May will be 79,000,716. Regarding our tax rate, as I mentioned, the effective tax rate will be around 10%, 10%, 11%. For 2013 specifically, as you mentioned, we do have NOLs, so you should expect that we will not pay taxes in Puerto Rico, only taxes outside Puerto Rico. That will be between $2 million to $3 million. So the NOL will cover any tax expense in Puerto Rico. So no cash tax in Puerto Rico, only $2 million to $3 million in Costa Rica.

And then next, we'll move to Bob Napoli with William Blair.

Peter, I was wondering if you could maybe lay out a target for, over the next few years, for the mix of revenue you'd like to have in Puerto Rico versus outside of Puerto Rico, if you have a target or to lay out just kind of generally where you would hope to get to over the next few years?

Well, as we said, the fastest-growing businesses we have are the payment businesses. And the fastest-growing of those is clearly the payment business outside of Puerto Rico. So I think you can expect that the mix of revenue will move to predominantly payment over the Business Solutions side of the house. And that will continue to accelerate as we grow outside of Puerto Rico. Long term, I mean, I'd love to get to something that looks more like 40% payment and 60% -- 40% outside of Puerto Rico and 60% inside of Puerto Rico. Kind of the 3- to 5-year goal would be in that range to move to that direction.

Okay. And I guess just a question on CapEx. What is your expectation for CapEx in 2013? I don't know if you can break it out between maintenance CapEx and growth CapEx, or I guess not sure how else you look at it, if you could.

Yes. We save about $25 million per year CapEx expenditure. And we see that again in those 2 areas. About $20 million of it is what we call maintenance, and that is to upgrade the technology on an ongoing basis, continue to invest in the infrastructure that we operate. And then the other $5 million a year would be growth. And that would be -- think of that as directly related to a new revenue stream, whether that's the development of a new product that will drive new revenue or whether that's implementation for customers that will drive revenue from that customer. But it's related specifically to revenue streams.

Okay. And the $20 million, is there -- are there any specific projects that you're working on of note [indiscernible]

No. Every year, we kind of -- we go through a process. Last year, we upgraded the mainframe technology and infrastructure. And there is usually one big project a year, but it's not that it takes up half of the CapEx. It's just larger than any other. So think of it more as that we just will continue to spend on an ongoing basis to upgrade, whether it's the POS devices, whether it's the server environment, whether it's the mainframe or the midrange environment. We'll continue to upgrade so that we are using the latest technology to provide our services.

Great. And then just on the -- Juan, on the T&A in the quarter, $8.9 million, is there anything in the first quarter? Is that a run rate or -- I mean, are there payroll taxes or anything unusual that, that number is in that number, that $8.9 million? Juan Jose Román-Jiménez: There are some costs related to the one-time transactions that occurred outside of this organization and going forward again, the refinance in Q1, so that actually we adjusted -- when you look at our adjusted EBITDA as we announced in today's press release, you will see that we're adjusting that. So yes, it includes some one-time costs for this quarter. On a going forward basis, it will be less. So just to give you a specific in this quarter, we're adjusting EBITDA close to $1.8 million related to those transaction fees, which is mostly professional fees.

Okay. And then last question. You had a very good signing year last year of new business, and I wondered how that flows into the 2013 numbers. Have we started to see that in the first quarter? I know you have a long -- the implementation takes a few quarters, and I was wondering if you could talk about how that's going to flow into '13.

Yes, it doesn't flow in evenly, Bob, right? So it all depends on not only the signing of it last year but, obviously, the implementation timeframe. And sometimes it takes a little longer and sometimes it takes a little shorter, so it won't be even. I would say that you're going to see more of that revenue in the later part of 2013 than the earlier part.

[Operator Instructions] We'll move to John Williams with UBS.

Just had a couple of quick questions. Just I wanted to confirm on the share count. That's the fully diluted number, right, the 80 million you mentioned, Juan? Juan Jose Román-Jiménez: Yes.

Okay. That's a little lower than the 85 million that includes everything, it sounds like. Juan Jose Román-Jiménez: Yes, we have lots -- fully diluted will be around 84 million shares.

84 million, okay. So that's the 5 million incremental that you talked about a couple of weeks back? Juan Jose Román-Jiménez: Yes.

Okay, that's helpful. So just in terms of your expectations, it seems like on the Business Solutions side, that's the business you have the highest expectations for near term just based on your commentary. What gets you more constructive on the other 2? It sounds like a little bit of easing on Durbin and the acquiring side. But what on the transaction processing side just philosophically makes you feel better about that business and the growth?

Well, on the transaction processing, I think because of the continued growth we're seeing outside of Puerto Rico, and with again, as mentioned earlier, with the signings we had last year, those were almost all in the payment-related businesses. So we -- based on what we got accomplished last year, we feel very comfortable that, that business will continue to outperform, say, the Business Solutions side of the business from a revenue perspective. So we're very comfortable with the guidance that Juan gave you because the payments businesses are, have and will continue to grow faster.

Okay. Just one other one if I can. On the transaction fees and refi costs, you guys had talked about a much bigger number, I think it was like $60 million to $65 million that you expect it to be in both the GAAP and the come back out of the adjusted numbers. Obviously, that seems to have slipped. Should we expect that number to have moved into 2Q, that roughly $60 million or $65 million number? Juan Jose Román-Jiménez: Yes. It will be in Q2 because of the inflection number, yes, in Q2. The make-whole premium was around $40 million, so it will be -- actually $42 million have to do with the make-whole premium that we pay outside of the refinancing. And yes, you will see that in Q2.

And so on a GAAP basis, as we think about where that'll hit, that'll hit the other income expense line amount and your adjusting it? Juan Jose Román-Jiménez: Yes.

$42 million, you said. Okay, that's helpful and I appreciate it. Juan Jose Román-Jiménez: $42 million and also the breakup of the contract with our sponsors also, the termination of the consulting agreement also will be in Q2. That was $16.7 million.

So that gets you pretty much back towards that $60 million number that you talked about? Juan Jose Román-Jiménez: Yes.

And everyone, that does conclude our question-and-answer session and our conference call for today. Thank you all for your participation.