Good afternoon and welcome to the EVERTEC Incorporated Fourth Quarter and Full Year 2016 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] Please note this event 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.

Thanks. Welcome to the EVERTEC fourth 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, March 1. 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 February 22. Please note, there is a presentation that accompanies this conference call, and it is accessible in the IR section of the 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 26, 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. Thanks for joining us on today's call. We are pleased with our results for 2016 as we delivered on our financial goals and made solid progress on our strategic growth plans. I’ll cover some of the year’s highlights, provide you with an update on recent developments, and briefly comment on 2017. Beginning on Slide4, we have a summary of our 2016 results. Total revenue was almost $390 million, an increase of 4% compared to 2015, which was slightly above our most recent guidance. We generated adjusted diluted earnings per share of $1.67, an increase of 5%, and also at the top of our guidance range. We generated significant cash flow and returned approximately $70 million to our shareholders this year, drew almost $40 million in stock buybacks and $30 million in dividends. Now I'd like to give you some more specific updates on Q4 as well as on Puerto Rico. On Slide 5 is an update on our results for the quarter. First, we were pleased with the strong revenue in the quarter surpassing $100 million of quarterly revenue for the first time in the company's history. Peter will give more specifics on the quarter in a moment but we benefitted from transaction growth and the completion of certain of our key projects. In Puerto Rico, overall revenue grew approximately 3% and we continued to experience resilient transaction growth. Transactions grew 8% but this growth was partially offset by average ticket declines as well as merchant mix shifts. The transaction growth was primarily driven by increased government payments and general payments growth from the continued cash to card conversion on the island. Even with these solid results, we continued to be negatively impacted by the project delay that we discussed last quarter. However, I…

Thank you, Mac, and good afternoon everyone. I’ll now provide a review of our fourth quarter and full year results and then review our financial outlook for 2017. Turning to Slide 10, you will see the fourth quarter and the full year 2016 revenue for the total company and our segment revenue details. Total revenue for the fourth quarter of 2016 was $101.9 million, up 6% compared to $95.7 million in the prior year. We had strong growth in our Business Solutions segment driven by the completion of IT consulting project in the quarter, the benefit of the CPI increase on the Banco Popular master service agreement as well as a minor increase from a recent Accuprint acquisition which closed in the December. We also continued to benefit from the year-over-year impact of our Processa acquisition. Total revenue for the full year 2016 was $389.5 million, up 4% year over year. With respect to our segment mix, in the fourth quarter merchant acquiring net revenue decreased 1% year over year to approximately $23 million, driven primarily by the Q2 contract change with Oriental bank from the merchant acquiring segment to the payment processing segment and it also reflects the anniversary of the FirstBank transaction in November. As we've experienced throughout this year, revenue growth was impacted positively by the ongoing transaction growth offset by a lower average ticket as well as other merchant mix shifts driven by the continuation of higher volumes at merchants with lower net revenue contribution, such as large retailers and the government. For the full year, merchant acquiring grew 7% year over year to $91.2 million. Payment processing revenue in the fourth quarter was $28.8 million, up approximately 4% as compared to last year. Revenue growth was driven primarily by increases in our ATH debit network…

[Operator Instructions] The first question comes from George Mihalos with Cowen.

Great, thanks guys. I guess first question, just on the guidance and the outlook for the year. Should we assume that the first half results will be somewhat -- somewhat stronger than the back half on an organic basis based on your guide and I guess some of the austerity measures and the roll-off of some of the payment processing contracts?

Hi George, this is Peter. I'll provide, I think, a bit of guidance on our segments which will help you with your question. First, with respect to the merchant segment we expect to have a bit of headwind as we have about 6% that is applicable to Oriental in terms of a headwind for the first half of the year and then after that that anniversaries and we are projecting volumes to tail off in the second half of the year as you thought. With respect to the payment segment, we have continued growth for first couple of months from Processa which is expected to anniversary after the first couple of months and then we will benefit for the first half from the Oriental contract change that I mentioned and we expect the attrition in Latin America to occur gradually throughout the year. So the impact will be more significant in the second half of the year as again you have pointed to, and that will be partially offset by organic growth and new business. And then finally with the business solutions segment, we’re going to benefit for the full year from the Accuprint and the CPI impact, together that’s around 5% and as I indicated we have the government contracts that will be renewing around mid-year and we anticipate a slight decline in discretionary government work throughout the year and the normal decline that we have in our paper based business. So overall the general profile is going to closely resemble actually last year there were ‘16 [ph] but those are the puts and takes, so hopefully that helps address your question.

And just as a follow-up question. You guys talked about retaining some of the business that was slated to roll off on the payment processing side. Can you talk a little bit about your efforts front -- on the new sales front and maybe some of the challenges you're seeing and how you’re addressing those?

Hey George, this is Mac. So we talked a little bit on the last call that we've been able to retain a few of the accounts that were leaving. That said, it hasn’t changed. We still have a few that were able to retain. We won some additional small accounts in the quarter. We continue to pursue opportunities across the region. We do believe that the Chile acquisition by expanding our roll-out of a breath of products will help in that effort as well, and that will continue to be a focus for ‘17.

The next question comes from John Davis with Stifel.

Hey good afternoon guys. Maybe just want to drill down on the merchant acquiring growth in the quarter for a second. With my math, FirstBank and Oriental kind of should have offset for the fourth quarter. So maybe just talk about the core trends in the acquiring business and kind of what the outlook is on a core basis going into 2017?

In the quarter, fourth quarter, the puts and takes are as follows. So the Oriental impact again is 6% growth, that was offset by approximately 3% for FirstBank and then we incurred other growth in the quarter of approximately 2%, so that’s how we get to the negative one for the quarter. What we're seeing just in terms of the volume, the transaction volume has been strong, or resilient I should say at 8%. We are continuing to see a low average ticket impact and that shaves off approximately 3% and then with the other merchant mix shifts that’s how we arrived at sort of that 2% for the quarter. In terms of what our outlook is we expect that to continue for the first half of the year and then have some drop-off in the volume as we anticipate the impacts of the austerity will affect the volume.

And then maybe just briefly the puts and takes on the margin outlook next year, I know you said down on 100 to 200 basis points. Just maybe walk through some of the puts and takes there for 2017.

Sure. As we indicated in the script there, the mix is going to impact us as the volume that we anticipate losing in Latin America in particular is very high margin card processing volume, and the volume that we're bringing on for Accuprint won't be able to -- we don't project will be able to offset that. In terms of our expenses, we've highlighted that we’re going to be investing more in Latin America, in particular in our product set and that will impact the expenses. We have other unavoidable expenses that we have for compliance and information security, that we have to commit to and then we're partially offsetting that with cost actions and predict -- productivity plans that we have in place for the year but unfortunately we can’t offset the majority of that expense.

That’s helpful. And then last one from me, Mac, any color on PayGroup, are you willing to give us any type of revenue, EBITDA run rate, is it reasonable to assume a ten times multiple, so you’re looking at 3 million to 4 million, maybe any color there would be helpful.

We’re not giving any color on sort of those attributes of the business right now, though. The one thing we will say is we’re incredibly excited about the opportunity. Like I said it's going to increase our role [ph] throughout the region, they've got some marquee banks throughout South America. It will continue to expand our product portfolio so that we have more to offer to our customers and really strengthen our LatAm management team. It’s a team that's been in place for quite some time. But we'll give more details after we close the transaction. As you know we have to go through the regulatory process with our bank partner but we will give more details after we close.

And last one, or maybe just a quick follow up on that. Any reason why the quick turnaround, obviously the bank approval wasn't as easy maybe as you had thought for Processa, and it seems like January -- or sorry June 12 is coming up shortly. Any reason why that date or do you think you’re going to have any issues hitting that?

No, look, we’ve submitted a couple of deals to the Feds now and we were able to get both of those approved, if you looked at Processa, took a little longer than we had hoped, but the Accuprint deal was a little bit faster. So we hope we can get it done within that timeframe and that's a date that we felt was reasonable. But again we’ve still got to go through the hurdles, go through the process but we anticipate that it will close.

The next question comes from David Ridley-Lane with Bank of America.

Sure. So can you update us on the total LatAm revenue losses that you expect in 2017? I believe you're talking about 7 million to 10 million spread evenly through the years, is that still a good number?

Hi David, yes. That hasn't materially changed since we informed you guys last quarter.

And does the Accuprint acquisition have higher or lower margins versus the Business Solutions segment?

It approximates the Business Solutions segment, so I think it's a good proxy for the margins on that business.

And then I know the guidance excludes any future share purchase but more theoretically, does the size of the PayGroup acquisition and the potential cash outflow there change your pace of share repurchases or how you're thinking about that?

Well, we don't comment on the specifics of our share repurchase activity but with respect to the acquisition we plan to fund that approximately 50% from cash on hand, leveraging off short cash that we have as well as our revolving facility. And just with respect to our overall capital allocation methodology it remains the same where we're investing for growth, we're committed to returning balanced returns -- with respect to our dividend and we also are our deleveraging a normal course and comfortable with our leverage and to the extent we have excess cash we’re committed to returning that through our share repurchase program. Obviously the funding is significant for the Chile acquisition as you pointed out and we are also mindful that we have to pay down our term loan A in April 18 of $30 million. And so that's also factored into our planning. And we're generally just a bit cautious in this year as we look into the Puerto Rico macro situation. So all of those are taken into consideration and that's how we're going to follow through the year.

And last one for me, and sort of the guidance, are you assuming the Puerto Rican transaction are slightly negative in the second half? Did I hear that right?

We’ve not planned for negative, we expect it to go down anywhere from 3% to 6%.

[Operator Instructions] The next question is from Chris Kennedy with William Blair.

Hey guys thanks for taking the question. Mac, you alluded to your new sales activity in 2016 didn't meet your goals. Can you give a little bit more color on that, how far below your goals was it, and what you're doing to change that?

Yeah we didn't get financial goals. What we said at the beginning of the year is that we had hoped to announce some significant wins and throughout the year we found that we had more to do to improve the account servicing. So this year we've really, as we talked about on previous calls, improved account servicing and management, we made some investments in products. So we did -- towards the end of the year we were beginning to win some small accounts again. But ‘17, we'll continue to focus on continuing to build the pipeline, to continue to try and grow the business faster organically.

And then PayGroup, can you talk a little bit more of kind of where you sourced that deal?

Sure. So PayGroup, we sourced that ourselves and it was an inclusive process. We've been working on it for about a year now. And like I said I think it's a testament to our corporate development function that we've built.

And then one last one on the government renewals, can you just talk about historically when the renewal happens, is there a pricing cut or just how that process goes?

Yeah, so annually a lot of these contracts renew, so this is a normal process. And with respect to pricing there it depends, I think some of the contracts have sort of an annual renewal feature but the pricing is in place for a longer period. And each one has an individual negotiation, the way we look at our overall business as we've indicated is that we're providing essential services to the government, we think we compete in public processes for these contracts. And as we've indicated before we believe as an essential service that those will continue and that has been articulated by the government with respect to essential services generally, right, not necessarily specific to ours but just as a general priority about us.

And then government is -- did you say 7% of revenue or 9%?

7%, it used to be 9%, it's come down a bit via even logo [ph] contracts that we had and just through the overall growth of our total revenue. End of Q&A

This concludes our question and answer session. I would like to turn the conference back over to Mac Schuessler for any closing remarks.

As always we want to thank you for joining today's call. We look forward to updating you throughout the year. Thanks again.