Good afternoon, everyone, and welcome to the EVERTEC's First Quarter 2014 Earnings Conference Call. Today's conference is being recorded. And at this time, I would 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 2014 Earnings Call. I'm Luis Cabrera, Senior Vice President, Head of Investors Relations for EVERTEC. With me today is Peter Harrington, our President and CEO; and Juan Jose Román, Executive Vice President and CFO. A replay of this call will be available until Wednesday, May 14. Access 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 7, 2014. 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 for future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur after this call. Please refer to the company’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements. During today's call, management will provide certain information that will constitute non-GAAP financial measures under 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 CEO. Peter?

Thank you, Luis, and good afternoon, everyone. Thanks for joining us on today's call. Our first quarter results were in line with our plan and we're pleased with the start of the year, particularly in our Payment businesses. Overall, we're on course to achieve results within our full year guidance range. Total revenue in the quarter was flat, with our payment businesses showing solid growth. Merchant Acquiring revenue was up 10%, and Payment Processing up 4%, while Business Solutions was down 6%. Adjusted EBITDA increased 8% and adjusted net income grew a strong 16% to $0.40 per share. In our Merchant and Payment Processing segments, we had a solid start to the year. Our payments business continued to benefit from the ongoing cash to card conversion trend in the markets we serve. We are executing on our growth plan and taking share by leveraging our scale, reputation, best-in-class network and services. Revenue growth in our Payments businesses outside of Puerto Rico continue to be strong as well, increasing 15% compared with the first quarter of last year. And we continue to see stable and solid transaction growth within Puerto Rico, with POS processing transactions up 8% year-over-year. Demand for our payment services across our entire Latin American footprint remains solid, and our new business pipeline continues to build. I would like to take a minute to discuss a few new business highlights in Payments. First, I'm excited to announce that we recently signed a financial institution customer in Colombia, to whom we'll be providing card product processing services. This quarter, we also launched ATH mobile, our new B2B product for ATH customers, with 6 financial institutions in Puerto Rico. And finally, I am happy to report that the government of Puerto Rico has informed us of its intent to award…

[Operator Instructions] We'll take our first question from George Mihalos with Crédit Suisse.

I think if I heard correctly, Peter, you mentioned that growth outside of Puerto Rico was 15%. I think that accelerated a little bit from the back half of '13. I just want to confirm that. And can you give us the percentage of revenue that was sourced from outside Puerto Rico in the quarter?

Yes. It did slightly accelerate from what we saw in the fourth quarter. And yes, it's give or take for around number 15%.

Okay, okay. And then, Juan Jose, you reiterated the guidance of 5% to 7% on the topline. Is your sense given where the first quarter sort of came in with a bit of slower growth in the Business Solutions side, is your sense that you're tracking more towards the lower end for the year? Or maybe another way to ask, what would have to happen for you guys to be able to hit the upper end of the range at 7%?

So I think that a lot of it will depend on hardware and software. And as we'd said before, it's hard to predict exactly when it will fall into the P&L. Last year, we saw a very strong hardware and software in the first quarter. This year it was very soft. And I think that though based on the commitment that we have already, for some of the sales in the Q2 and Q3, we still feel comfortable that we're going to get to where we expected for the full year, on the hardware and software side. So it will be more driven -- to your point, it will be driven more by the Payment businesses. It won't be driven by Business Solutions. To get to the higher end of the range, will come from -- through the Payment businesses, outperform what we originally thought they would do.

Okay, great. And just last question for me on the contract renewal, on the EBT side, was pricing relatively stable on that deal?

Yes, relatively. I mean, through -- for us, it would be net neutral because we picked up a couple of small services that offset it at a small discount that we gave them from their original pricing. So net-net, it's neutral.

We'll take our next question from Smitti Srethapramote with Morgan Stanley.

The government of Puerto Rico recently submitted a proposal for a balanced budget. What kind of impact, if any, do you anticipate from -- seen from that proposal? And then, if you could just give us a -- just an update regarding what you're seeing in -- what kind of payment trends have you seen in Puerto Rico so far in April?

Okay. So on the first one, as we've said before, we really didn't see any real -- no negative impact at all, compared to what the budget's doing now. Again, to be up front, that was the governor's proposal. We haven't seen anything on a piece of paper. So there are some high-level numbers out there. But from what I've seen, there's nothing that they're talking about that has any real -- has any impact on EVERTEC. And I think, as we've said before and as we stated earlier on the call, we actually think there may be some potential positives in that. As we said, we were able to add on to our IVU Loto product and what we do for them around sales tax to be able to provide this portal service to them on the VAT tax. So I think, if anything, I think it's neutral, worse case and at best, I'd pick up some of this to help them kind of cut cost and become more efficient. Juan Jose Román-Jiménez: And the second part of the question, April isn't basically similar to what we saw in Q1. So we are very happy, very comfortable that the trends continue, at least, so far up to April.

And then, maybe can you give us an update on the Visa Merchant Acquiring license situation at Colombia?

So we're, yes, we're fine with that. We're at this point, as I said before, I'm we're waiting for Visa to get the low value license. But I want to make sure that you guys understand is the license in and of itself doesn't generate revenue. As I've said, we will not go into the market under the EVERTEC name, so it will be leveraging that license with a partner, and that's when we'll start generating revenue. So it's there, we're working on trying to find a partner. And Visa's trying to get their low value network license. So that continues.

Our next question will come from Bryan Keane with Deutsche Bank.

I just want to clarify. The Colombian signing with the financial institution, is that relates to the Merchant Acquiring agreement that we talked about last quarter, or is that something separate?

No, it's just -- it is a separate processing customer. So it's our, really, our second Colombian customer. So we have the customer today that we're still in the implementation process for. This is a second customer. As I said, I thought we were starting to make progress on sales, we've signed our second customer. That won't generate revenue, obviously, until 2015. But it has nothing to do with Acquiring, it's purely for card processing.

And so any update on not only Colombia, but just internationally for other kind of bank alliances?

No, no. No real update. We're still working on the one we've been working on. We're taking baby steps forward, but we're moving forward. And like I said, with the first Colombian customer, we're still in the implementation phase. And there's really nothing different from what we've said before. We will generate revenue when we finish the implementation level.

Okay. And just looking at the segment and operating margins. I might have missed this but, obviously, the Merchant Acquiring margins were down quite a bit and then Payment Processing was up quite a bit. I just -- I'm not sure if I understood why the big swing's there and I assume that evens out going forward or how do we think about that going forward? Juan Jose Román-Jiménez: Yes. No, the operating -- yes, you're right. Most it's the result of some changes that we made in terms of how we allocate expenses between segments. So as you very well know this, payment actually increased significantly higher, right? As in relation to the revenue. It's just moving some expenses out of MAB from that Acquiring -- from Payments to the Acquiring. So you see internal allocations. So it started second quarter of last year, really. It was noticed more in this quarter because it also include lower, non-transactional revenue in the quarter. But it will be more stable. But if you take both together, the payment and the merchant, the margin, you will see as a percentage of the growth in revenue, a solid 41% increase in operating income.

And so overall, just the EBITDA margins were up quite a bit year-over-year, but you still kind of reiterated the 100 basis point tight margin expansion for the year. So does that mean there'll be further investments that crank up, that lower kind of that first quarter kind of, ahead of plan B? Juan Jose Román-Jiménez: Not necessarily. Keep in mind, hardware and software usually have much lower, significantly lower, margins. Since we didn't have in this quarter, those hardware and software sales, our margins in total are much better, right? So as we start adding more hardware in the next quarter, then that reduce a little bit, right? Or the margins increase, it's a little lower or not that significant, as what you saw in Q1.

We'll take our next question from Tien-tsin Huang with JPMorgan.

I wanted to just ask a silly question. What exactly are you selling on the hardware and software front, and how discretionary is it?

The range is huge, Tien-tsin. I mean, it comes from servers to -- it comes from cloud, it comes from our hardware solutions business. It is made up of a number of different components. So there's not -- it's network equipment, routers, software related to it. So it all depends -- and some of the projects that we do on the IT management, on the network side and on the core banking side with Popular, there is hardware related and software related to the project. And in some cases, we actually sell that hardware because we have the partnerships with the major providers like Avaya and IBM and Cisco and Dell and Microsoft, et cetera. And so as part of the deal, we sell them hardware and software as part of the deal. We, in most -- almost all cases, we host that in our data center. But they actually own the hardware and software because it is specific for them.

Understood. So to the extent that it's tied, I guess, to an IT budget -- or I guess, in this -- maybe, in this case a contract. I'm just trying to get a sense of how much visibility you have. I understand the timing of when it might come through, but could it fall off completely, is what I'm trying to understand.

No, and that's why we tried to give you some flavor that we've already got $3 million of it committed for delivery in the second and third quarter. It comes with the projects, but we don't see anything at this point that's telling us that there won't be these projects that will deliver this hardware and software right now. Some of it -- the nice thing about hardware and software is the timeframe from contract to revenue generation is very quick, right? Not like the processing businesses where you have to implement the customer, right? But you know, it is -- so there are projects that we expect that we've got in the pipeline that we're working on, that we've already got $3 million committed from. There are projects that just, historically, we do on a year-over-year basis that we still expect to get between now and the end of the year.

Okay, good. And that it's helpful to hear, I just wanted to get that education. So just I heard the comments on the Acquiring stuff, but just how about in general movement in the pipeline, how does it feel tone-wise? And then same thing with project ramps, are things ramping on time in general here in terms of the stuff you're implementing?

Yes, I would say, as we'd pointed out, I mean Colombia has been slower than we had expected. Outside of that, we don't see any negative impact in both the pipeline, the new sales pipeline, from the processing business or the delivery of customers. As Juan said, some of the growth we're seeing is because we're bringing on customers that we sold last year or at the very end of 2013, right? That we'd signed, that we're now bringing that revenue on. So we don't see anything based on what we sold last year, we'll bring that on with -- the only thing that's been delayed has been Colombia beyond what we thought, outside of that -- and that we've talked about before. But no, we don't see any other issues.

We'll take our next question from Sara Gubins with Bank of America Merrill Lynch.

How big of a benefit could the new value-added contract with the government be?

There will be -- it will be a project that we'll do between now and June. And then, because it adds on to what we do in IVU Loto, it is probably about, give or take, I don't know, $1 million to $2 million maybe of benefit, that we'll see over a full-year basis probably next year.

Okay. And should we think about it as a $1 million run rate, is that about, right or?

Yes, probably more than that. Somewhere between $1 million and $2 million. We haven't -- this just landed on the door. We just signed it. So we think it -- somewhere between maybe $1.5 million and $2 million probably is more realistic.

Okay, great. And then within the Payment Processing segment, the revenue growth decelerated in spite of the easier comparison, I know that you mentioned some of it was the government contract. But given the comparison was significantly easier, I just wanted to understand if there are any other factors that are driving the deceleration?

No, no. I think what you're going to see is we expected it to be at around 6%. And I think what you're going to see in the second quarter is it will accelerate because the revenue we expect in the first quarter will be in the second quarter, right? So I think you'll see that in the second quarter and then it will flatten out to where we expected it to be in the third and the fourth quarter.

[Operator Instructions] We'll hear next from Bob Napoli with William Blair.

First of all, just on the hardware, software sales, just, I mean -- and the margins on that must be extremely low, because you beat our EBITDA number, even while you missed the revenue number by a fair amount. I mean, are we talking about 5% gross profit margin? Juan Jose Román-Jiménez: 5% to 10%.

Yes, 5% to 10% is probably not a bad -- we tried to get as much as 10% but, yes, they're very low-margin deals.

I mean does it make sense to break out that separately, just to -- I mean, how much -- like in last year's revenue, $184 million, how much of they're -- the Business Solutions -- I could guess it's all in Business Solutions and is that -- how much was it -- what was it for the full year last year?

I don't -- we don't have the number in front of us, Bob, but we can look into it for you.

Yes, it just might be worthwhile to break that out all separately because it's so -- I mean it's a big number and it moves and everybody looks at revenue, but it's like 0 and very, very little in profit, so it just kind of -- distortion, an immaterial distortion.

Exactly. And As Juan said, it distorts the margin too, because when it's not there, the margin goes way up and when it's -- when we get a big quarter like we did last year, it drags the margin down, so yes. But you're right, I mean, at the end of the day, it doesn't have a real impact on our ability to grow earnings.

And just a question on the growth of the payment revenue, the 15% growth. What market -- I mean, is that primarily the Caribbean? Are you seeing that out of Panama? What markets are you getting the growth in?

It -- we get it quarter-by-quarter, it changes market-by-market. We get -- it's probably more so right now in Central America than it is in the Caribbean.

Okay. In which countries, in particular? Just curious.

Well, it would be -- our fundamental countries are Panama, Costa Rica, El Salvador.

Okay. And then what is going on in Colombia? What is causing the delay? I know the first customer you had, I think you were pretty excited it might be $5 million, maybe even much as $10 million of revenue, once that customer got ramped up, and it's just taken so much. What is causing the delay? Is it regulatory issues in Colombia? I mean, are you still really comfortable with that market? What's causing that kind of delay, and do you still think that type of revenue is likely from that customer?

Yes, and I think -- and maybe we -- something got lost in translation. The first customer will not generate $5 million annually for that customer. What I think we're talking about is that the total contract value was $5 million. And so I may have misled you there with my comments. But the delay is around 2 things: It's, one, it is -- the customer is -- it's a scope issue to some extent, exactly what we're doing for them and how we're doing it for them. And some of it is just fundamental in the first customer in a new market. It is always the most painful, the most difficult because we have to put all of the connections in place with the local networks to operate the customer. And as you can imagine, they are not necessarily in a rush to have a new competitor in the market. So it's not -- they don't say no. They just -- it just takes longer than -- once we build the connection, Bob, to that network, then I don't have to do that for the second, the third and the fourth customer. But the first time around, it's more painful and takes longer.

I mean do you think you're going to be able to build -- I mean Colombia is a bigger market than all of the other markets put together, pretty much. I mean do you have -- are you getting the momentum? Is that going to be a kind of a game-changer market for you over the next 3 to 5 years?

Without a doubt. And that's why I mean I was happy that we signed a second customer. That was, to me, a very good sign that we're starting to pick up momentum on the sales side. Because, obviously, I can't do it with one customer alone. The goal now is to start building on the -- we've got the sales people on the ground, start building the pipeline which we have been doing. And now, we're starting to see the benefits of that as we start to sign additional customers on the market. I'm still very comfortable though that, that will be a very good market for us over the next 3 to 5 years.

[Operator Instructions] And we'll take a question from John Davis with Stifel.

Quickly, I think Peter, you referenced Processing growth up 8% year-over-year in the first quarter and that's a slight acceleration from, I think, 2013. In 4Q, specifically. Can you talk about what's driving that there? Is the Puerto Rican economy getting any better? Any color there would be appreciated.

Yes, it's been in the 7%, 8% range, I think. The numbers we've been giving out for last year were in 7% and 8%. So it's in around the same time. We don't see any real acceleration. More of -- I guess, what's more positive to us is we see no negative impact on that, with all of the noise and everything that's going on in Puerto Rico over the last year, the consumption remains very strong and we're seeing that in just the year-over-year, quarter-over-quarter, month-over-month, POS processing. So we expect that based on what we've seen for the last now what, probably 1 year? We expect that, that number will probably stay in the 7% to 8% range for the rest of 2014.

Okay, that's helpful. And one, quickly, D&A ticked down a little bit this quarter. I think it was a little bit lower than we are expecting. Anything going on there? And kind of how should we think about that going forward? Juan Jose Román-Jiménez: No, it's moving natural. There were some software and hardware that just are fully depreciated. But with -- I think, it's just timing as we keep adding CapEx, we get more to the average that you have seen in the last year. That's why for the full year, we should be around the $31 million to $32 million in D&A. But it was just mostly hardware and software, fully depreciated. That's the reason.

And that will conclude today's question-and-answer session. Mr. Harrington, I'll turn the call back to you for any additional or closing remarks.

Thank you, operator. In summary, I'm pleased with the start of the year. EVERTEC is well positioned to continue to increase its share in Latin American Payment Processing's markets. We will remain focused on executing our strategic growth initiatives, serving our clients and driving profitability and shareholder value. We thank you for your support, and we look forward to discussing our second quarter results with you in our next earnings call. Operator, you may now end the call.

Thank you. That will conclude today's conference, thank you all for your participation.