Good afternoon everyone and welcome to the EVERTEC Third Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.

Welcome to the EVERTEC third quarter 2016 earnings call. With me today are Mac Schuessler, our President and Chief Executive Officer; and Peter Smith, our Chief Financial Officer. A replay of this call will be available until Wednesday, November 9. Access information for the replay is listed in today’s financial release, which is available on our website under the Investor Relations tab. As a reminder, this call may neither be recorded nor otherwise reproduced without EVERTEC’s prior written consent. For those listening to the replay this call was held on November 2. Please note, there is a presentation that accompanies this conference call, and it is accessible in the IR section of our website, as well as via the link provided in the earnings release earlier today. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as 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 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 on May 26th 2016 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 earnings per share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides. I’ll now turn the call over to Mac.

Thanks, Kay and good afternoon everyone. We are pleased to announce our third quarter results. I’ll cover some of the quarter’s highlights and provide you with an update on our recent developments. Beginning on slide four, we have a summary of the quarter. Total revenue was approximately $94.5 million, an increase of 2% compared to the third quarter of 2015. We delivered adjusted earnings per share of $0.41, an increase of 5%. We generated significant free cash flow and returned approximately $22 million to our shareholders through stock buybacks and dividends. On slide five is an update on Puerto Rico. Before I review the results of the quarter, I want to briefly comment on our pending acquisition for approximately $10 million. This acquisition will leverage our excess capacity in the Business Solutions segment, as well as provide some cost synergies. We are currently waiting for Federal Reserve Board approval and anticipate closing in the fourth quarter. This acquisition is yet another example of our ability to utilize our scale and financial flexibility to take advantage of additional opportunities in Puerto Rico. Moving onto our results in Puerto Rico. This quarter we experienced the strongest transaction growth in almost two years. Transactions grew 8% offset by average ticket declines as well as merchant mix shifts. Transaction growth was primarily driven by increased tax payment as well as continued increases in cash to card conversion. While the Zika virus has negatively impacted the Puerto Rican tourism industry, our diversified business has limited direct exposure and thus was not meaningful impacted this quarter. Unfortunately during the quarter, we were disappointed with a project that reduced our payment revenue growth. This revenue reduction combined with the Oriental contract change contributed to a 3% revenue decline in the quarter. Delivering this project is a high…

Thank you Mac and good afternoon everyone. I will now provide a review of our third quarter results and then review our financial outlook for 2016 and provide some comments on 2017. Turning to slide nine, you'll see the third quarter and nine months revenue for the total company in our segment revenue details. Total revenue for the third quarter of 2016 was $94.5 million, up 2% compared to $92.9 million in the prior year. We had a positive impact from the inclusion of the Q4 2015 expanded FirstBank relationship as well as the contribution from this year's Processa acquisition. This growth was offset by project delay in our payment segment that negatively impacted revenues approximately $2 million in the quarter. Total revenue for the nine months ended September 30th was $287.6 million, up 4% year-over-year. With respect to the segment mix, in the third quarter merchant acquiring net revenue increase 6% year-over-year to approximately $22 million, driven by the FirstBank merchant acquiring relationship. This growth was partially offset by a shift of revenue from the merchant acquiring segment to the payment processing segment reflecting a new contracting arrangement with Oriental Bank in Q2. This shift impacted the segment revenue's growth by approximately 6% to 7%. Also as a reminder the FirstBank transaction anniversaries this November. As we have experienced throughout this year revenue growth was impacted positively by ongoing transaction growth offset by lower average ticket, as well as other merchant mix shifts. For the nine-month period merchant acquiring grew 10% year-over-year to $68.1 million. Payment processing revenue in the third quarter was $27.6 million, approximately even with last year. Revenue growth was driven primarily by increases in ATH debit network and card processing volume, Processa revenue and the Oriental contract change, I reference. This revenue growth was offset…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first questioner today is Jim Schneider from Goldman Sachs. Please go ahead.

Good afternoon. Thanks for taking my question. Thanks for the early guidance and look around 2017. Can you provide a little bit of color on what's going on with the client migrations, you mentioned, is that a competitive take away from another card processor, can you give us a little bit of color on how many clients that is and the relative size of those?

Yeah, Jim. This is Mac. So we've been talking about this for about a year now that we have some clients that had notified that they were going to migrate based on the servicing that we provided in the past. We have thought many of those would roll off in 2016 and now we believe those will roll off in 2017. The -- most of these have gone to -- they brought in-house on the competitors, but there's no really competitive concentration on these departures. And as far as customers we're not naming any or citing individual customers, but it's multiple customers. It's not just one customer. So, again, it's something we talked about the past. It occurred because of the way they were serviced in the past. We thought they'd leave this year, but they're not going to be leaving until next year. I don’t know, Peter if you have anything?

I would just add that we didn't feel as appropriate earlier to quantify this as we are still in the process of trying to retain the clients. And we feel that we have diligently explore that before this time we just responsible to share the amount with publicly

Yeah, as we said earlier, we did say a minimal amount when we spend about $1 million of revenues over the past year and they're gone. So we're going to continue to try and see if there a way to keep these customers. But we've been working on it for a year now, and we think it is going to have an impact next year.

Thanks for clarifying that. I guess I had assumed they had already kind of -- always run off mode so that's helpful. And then maybe as a follow-up -- a follow onto that. May be just give us -- Mac made comment on PROMESA, it sounds like you have some hope that you might actually benefit for some of the IT infrastructure initiatives that might get initiated under that plan. Can you give some kind of color about, you know, understanding it's early days what form those kind of programs might taken of that impacted correct conclusion?

Yeah, it will be premature to tell you exactly what programs and plans are going to implement. What I would tell you is if you look at the dialogue with PROMESA people that we've talked to it's very clear that economic stimulus is as important as creating more efficiency in the government and given we're are employer on the island, the largest technology company, I believe there's an understanding that we're very well-positioned to assist that. We built -- building good relationships on the island, with the government to make sure that we're positioned. So we do think that's going to be an opportunity. Next year to some extent as you can remember once the programs are decided and put in place, it may have some impact 2016 but beyond -- 2016 in particular. 2017, sorry.

2017. And I think another very important aspect of it is getting the respective agencies on a common platform, so there will be a lot of consolidation we believe hopefully to get the agencies on this central platform, leverage infrastructure across the government, and we view that a good opportunity for the government and ourselves.

Yeah, we talked earlier too. If you look at the transaction growth in our payments business, 8% is pretty good and a lot of that was because of government accepting payments and government initiative.

We think our businesses have the opportunity to benefit from some of the changes and improvements to the island. And just we will learn more next quarter as the plan is taking shape. There was an initial document that was presented by the governor, but that is under review by the by the Board and it will be finalized after the new government takes shape, and that will get us clear picture which we will share next quarter with everyone.

That's helpful. Just last one for me. On the margin commentary you provided on 2017, are you saying that the roll off of those customer migrations is going to kind of flatten the margin profile heading into 2017 or you just going to get less margin expansion than you otherwise would given, you know, the incremental higher margins in the core business?

Yes, we have a high margins, you know, showing a typical payment processing business which -- this is in Latin America. It is a card issuing business where we switch transactions for ATM and card products. And so you lose that revenue we use the same leverage infrastructure, so it's going to be challenging for us to offset the entire amount of the margin loss that we expect. We will obviously work towards that. And then the other thing we highlighted in the script is that the acquisition -- pending acquisition that we expect to close in the quarter should partially offset that with this contribution, but won't fully offset as we anticipate right now. So there will be margin pressure as the consequences of those two things.

Thank you.

Thanks, Jim.

Our next questioner today is Bob Napoli with William Blair. Please go ahead.

Thank you. Just on the -- just to follow up on the migration. The $7 million to $10 million reset is coming off equally, is that the amount of revenue that lose last year next year, or is that -- and so the run rate going into 2018 is higher, or is that the total -- maybe just if you see -- I'd like to understand how much total revenue you're losing?

Yes, Bob. $7 million to $10 million would be the aggregate amount of revenue loss that we anticipate in 2017 as a consequence of the timing -- projected timing of those departures. The aggregate value of that is slightly higher, but then that range, but that is the amount that we anticipate to impact 2017.

So the aggregate amount is more like $15 million?

No. No. No. It is a couple million difference.

So the $7 to $10 million the view on what we think the next year. That is -- but that does not factor in any organic growth on the base.

Okay. Then the migration -- I mean are you through the -- the clients are going to migrate, have you been able to, -- are we going to see net additions of clients from here or -- I understand that those were longstanding issues and I know you've made a lot of organizational adjustments Mac since you've been there, but is -- would we expect this to be the end of the migrations of materiality?

Yeah, so, I mean, our view is -- again this is something we were facing going into 2016. Our goal in 2016 is to do two things. One is retain as much as we could and then focus on new business. This is what we believe today is what will depart based on, you know, historical decisions and we believe this is -- without anything today the limit of that and that we saved about $1 million. So it would have been greater but our efforts to take $1 million. And we think we have our arms around the issue at the past and that we're managing the business beyond that. So, we don't anticipate more beyond this

Yeah. And then Bob, just in terms of an annualized number, it would be -- $10 million to $14 million would be sort of the ballpark range of the aggregate volume.

Okay. And then as far as new business that you're adding and the acquisition I guess -- it have been nice to see an acquisition in payment processing and outside of Puerto Rico. But why the acquisition in business solutions and how much revenue and EBITDA does this add?

Let me answer -- so I will try to answer a couple pieces of that and then I'll hand it to Peter. One is we're still focused on new business because you asked about new business.

Yes.

We're still very focused on new business in LatAm. As we said at the beginning of the year, we want to continue to ensure that we're adding new accounts to the new territories. Right now, we don't have anything to announce, but that still significant focus of the team. And it's kind of -- we cannot talk about until we have one to talk about. But on the M&A side, what I would say the team is still focused on opportunities in Latin America. It's a priority for the company and we're continuing looking at opportunities. This deal specifically -- evaluation was very good and it really leverages existing capabilities and has great synergies. So we like the valuation. We like the leverage and we think financially it's a great deal or good deal. And I will hand to you.

Yeah, I would just add to that. This was -- we stated before publically we came across an opportunity here at Puerto Rico where we can leverage our scale to get real attractive returns on capital that we would take advantage of that and this is an example of that. Until we close the transaction, we're not going to get further detail out of that, the purchase price. But we expect to close that in Q4 and we'll update everybody in advance next year's guidance.

Bob, it doesn't change our focus on LatAm. We said three types of deals. Geographic expansion, product expansion and leveraging scale in Puerto Rico. And again this is that third, but we're still focused on those that provide the opportunities in the other two buckets.

Okay. Thank you.

Thanks, Bob.

[Operator Instructions] Our next questioner today is George Mihalos from Cowen. Please go ahead.

Great. Thanks, guys. Just wanted to ask as it relates to the 2016 guide and what it implies for fourth quarter revenue to pretty wide range, I think you said anywhere from sort of, you know, minus one to plus five. Can you talk a little bit about the puts and takes that you've built into that? And just to be clear, does that include any potential revenue from the business solutions acquisition?

First, we will not include now or ever any revenue from an acquisition until we announce it, so it does not include any revenue from the acquisition. Secondly, there really two key puts. One is uncertainty as we go through PROMESA here and just not knowing how that's all going to unfold here in the quarter. And the other is the project delays, just not knowing the exact resolution of that. We debated, you know, bringing up the bottom of the range, but then ultimately decided to leave, be it where it was just not knowing those two things. So that hopefully gives a little color to our thought process, and how we arrived at that number.

Okay. So it sounds like you're hopeful that you can resolve the $2 million delay this quarter, is that a fair characterization?

We're extremely focused on doing that, yes.

Okay.

It requires obviously us to deliver and the clients to accept what we deliver and so forth. So we're working on that diligently.

Okay. And I know you guys don't want to include any revenue obviously until the acquisition closes. But is the thinking right now that from a revenue perspective almost all of the lost contract headwind will be made up by the acquisition, but you're still going to have sort of a profitability delta or an EBITDA delta given the lower margins?

I think that's a reasonable way to consider it.

Okay. And just last question for me. The pipeline of new business in LatAm, anything new there, do you feel any differently that maybe you have over the last quarter or so? Thank you.

No. Nothing to announce at this time. You know, as we said beginning in the year, we will be disappointed if we don't announce it throughout the year, so every quarter that we don't, I am not happy. But we will continue to focus on it and we have deals, we will announce.

Thank you.

Thanks.

Our next question today is a follow-up from Bob Napoli with William Blair. Please go ahead.

Yeah, how is the business progressing in Colombia?

Yeah, so I would say we are very pleased with the performance of the business in Colombia. And as we told it -- business organically in LatAm, the historical business grew well. And then you have -- Processa grew exceptionally well. So we're very, very pleased for that acquisition is exceeding our expectations.

Yeah, I would just add with a little more specificity with a significant currency headwind is still mid-teen growth even after factoring that end. So it's exceeded our plan and it's doing very, very well.

Yeah, you know, the other thing, Bob, I would say we don't have a history of acquisitions until the last year and a half. Those that we've announced. We feel very good about how they performed post-acquisition which I think is a good time for the company.

I mean, is your pipeline -- I understand you're not going to announce anything. But do you feel like you're getting -- you're seeing enough opportunities now that fit that such that the likelihood of you closing attractive deals related to your goals are more likely today than they were a year ago, or--?

I don't think things have changed. I think the reason is complicated because every country the industry is different. As I have said Mexico has started selling merchant client businesses in Columbia and some of the other countries there's noise -- some of the processes may come on the market, in some countries there's nothing like that. So every country is different, is complicated, to me that should be our advantage. So I don't think our thesis on M&A has dramatically changed.

I mean, the mid-teens growth in Latin America, sounds good. How do we think about that though, I mean is it -- when you're looking at next year, essentially you have -- the migrations obviously -- I guess ex the migrations, the extra bad stuff is the good, you know is that type of growth rate sustainable or can accelerate?

I believe it is. I think we got the same clients there and have the same trends in place. I think we can aspire to do better by improving, you know, the solutions to the markets that's where we're working on and investing on that. And so that's our aim. And then obviously we have to close business here, and that would potentially improve that.

Last question, the tax rate for 2017, would you expect to be your--?

Yes, Bob. We expect that to approximate -- we're exiting 2016, so right in sort of the middle of nine to 10 or 9.5, 9.7 its range.

And then -- I'm sorry -- the revenue benefit from the CPI increase?

Yeah, that's about $0.5 million per quarter for three quarters.

$0.5 million per quarter for three quarters, start seeing…

Then we have anniversary.

Okay. All right. So you get in the fourth quarter -- okay. All right. Thank you.

Thanks Bob.

Our next questioner today is Tien-tsin Huang with JP Morgan. Please go ahead.

Thanks. Just a follow-up on Bob's question. Just on the acquisition and deal front, just any change in priority across three business lines, I know Puerto Rico it sounds like it's more of a business solutions opportunity. Has merchant versus payment processing changed and priority for you?

What I would say is outside of Puerto Rico we are still focused on the payments business. But again what we do today is not just merchant acquiring, we also do processing. So we're looking at different types of businesses as it relates to payment, is the main targets outside of Puerto Rico.

Yeah, I would just add that anything that could complement our business here in Puerto Rico on either payment side or the merchants, we, you know, obviously, look for that as well in terms of Puerto Rico and then otherwise. As we've always stated our focus outside Puerto Rico is payments.

Got it. Any change in sort of regulatory tone in some of the countries you're going after that that might change the pace of deals?

What we notice is from a regulatory perspective, you know, some of these countries have one or two processors or merchant suppliers and there's interest in more competition, and the banks are looking for more information. So it's hard to predict. I think the pace of the industry changing in some of the larger countries is going to increase, but the pace at which these assets turnover is hard to predict. Because of your selling it straight merchant acquirer like Banamex, that's an easier transaction and if you're trying to break up a processor that has in 10 or 12 banks participating. So, there's -- I think there's -- an acknowledgement that the industry needs to shift, but have some of these assets unfold or transform themselves maybe a little bit less clear.

Okay. That's helpful. Because it feels like the whole level playing field concept is getting louder, but hard to see, you know, what the real movements on the ground. Thank you.

Yeah, thanks.

[Operator Instructions] Our next questioner today is John Davis from Stifel Nicolaus. Please go ahead.

Hey, good afternoon, guys. Wondering maybe if we could talk a little about the 8% and why that didn't translate to better revenue growth acquiring and processing and maybe what's some other puts and takes are there?

Yeah. Hi, John. First, we're encouraged by the aggregate transaction volume obviously and that continues to be better than what we project. And so having that and then seeing that also continuing in October is great. In terms of conversion on merchant line, really we have the same trends in place. One is a continued lower average ticket price which we're experiencing and then the merchant mix shift which based on the pricings we have with respect merchant, large merchants and the government, that doesn't translate into the same revenue growth as transactions or [indiscernible].

Okay. But like on an apples-to-apples basis, you know, small merchants, large merchants, are there any changes in the pricing dynamic or those pretty stable?

No, it is the same.

Okay.

It’s really the mix.

Okay. And then final one for me would be, I appreciate the puts and takes for the EBITDA margins this quarter. But as I look out into 2017, I try and think about growth investments. When should be able to start to see those year-over-year changes be more flat and basically when do you think you're going to have the level of growth for investment spending kind of level out and stop weighing on the margin? Thanks, guys.

Well, I would say that in the investments that we have today we have really made -- in two areas one is with respect to having the Latin American management team in place and account function that we've added, so that will anniversary this year. And then separately, in terms of products, we continue to invest as we have to tailor products to suit the needs in particular market as we continue our strategy of building products to serve the market. So we have anticipated that to go on -- certainly through next year, and then we have to revisit that. So, we expect some sustained investment on products going into next year.

Okay. That's it for me. Thanks, guys.

Thank you.

This will conclude our question-and-answer session. I will now like to turn the conference back over to Mac Schuessler for any closing remarks.

Great. Thank you. I want to thank everyone once again for joining us on today's call and look forward to meeting and spending time with each of you at our analyst and our investors over the coming months. Hope you all have a great evening. Thank you. Please close the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.