Good afternoon, everyone, and welcome to EVERTEC’s Third Quarter 2017 Earnings Conference Call. Today's conference 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.

Thank you, and good afternoon. 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 Tuesday, November 14. Access information for the replay is listed in today's financial release, which is available on our website under the Investor Relations section of evertecinc.com. For those listening to the replay, this call was held on November 7. Please note, there is a presentation that accompanies this conference call, and it's accessible in the Investor Relations section of our website as well. Before we begin, I'd 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 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 common share. Reconciliation to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides. I will now hand the call over to Mac.

Thanks, Kay, and good afternoon, everyone. Thank you for joining us on today's call. As many of you know, Puerto Rico has been manhandled for almost three years, and the pain that Hurricanes Irma and Maria have caused the Islands residents touches me very deeply. It has been heartwarming to witness the hard work and resiliency of my colleagues, our clients, and partners, and others on the Island and everyone has come together to address the many challenges we all face. I’ll review the impact of both Hurricane Irma and Maria and our team’s strong response on Slide 4. On September 7, Hurricane Irma directly hit the Virgin Islands and a Merchant Acquiring business there was significantly impacted. On September 20, Hurricane Maria further impacted the Virgin Islands and devastated Puerto Rico. Maria was the strongest hurricane to make landfall in 85 years and power and telecommunications in the Island was severely damaged. I am incredibly proud that through a sound planning and our team's diligent efforts EVERTEC service was uninterrupted during both of these hurricanes and in the aftermath. Although clients did lose telecommunications and power, our processing capabilities never cease to operate. Following the immediate impact of the storm, our first priority was caring for the needs of our clients and our employees. Due to the scarcity of life essentials, our employees need special help to enable them to work. There was a shortage of gas, so it was hard to get to work. Schools were closed so there was no place for their children and lines for food, water and cash were hours long. Through internal initiatives and with the help of our partners, we were able to provide daycare, water, food and expedite the provision of gas by taking care of our employees they were able…

Thank you, Mac, and good afternoon, everyone. Before I review our results, I’d like to provide some further insights on the impact of hurricanes Irma and Maria to EVERTEC. There are three infrastructure service elements necessary for a business to operate and ultimately process and electronic payment, power, telecommunications and water. The hurricanes impacted all three of these elements in the power infrastructure damage was catastrophic. While there has been some gradual progress approximately 60% of the Island remains about electrical power now. In the final 10 days of September, power generation was less than 10% in an October on average power generation was approximately 20%. In September and October majority of customers electrical power generation tended to be hospitals and other critical service providers are fortunate business is located nearby the institutions. In the absence of power from the electrical grid businesses must use generators to furnish power if they can afford it. Many businesses remain closed in Puerto Rico and we do not yet have clear visibility as to how many businesses will come back on line or when they will resume operation. Until this past weekend, EVERTEC was power without interruption by its diesel generators. To expeditiously get power of this past week end, we needed to make and made special arrangements with the power authority to directly pay the third party contractor to accelerate our connection to the grid. It costs us approximately one month's worth of diesel expense. Telecommunications, which requires power, is also necessary to process electronic payments and many businesses continue to struggle with connectivity access and service quality. Many operating merchants has also steered their customers to use cash as a consequence. Water too is needed to sustain healthy workplace conditions. Limited or no water access has been an issue for many…

We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Bob Napoli of William Blair. Please go ahead.

Thank you. First congratulations for holding up and doing all you've done through this. As we've been all then thinking about you guys. I know it's been very tough and so appreciate what you guys have done down there. Secondly, I just want to say, just getting into the business, I was a little bit unclear, the numbers came out actually a little bit better than what we were hoping for the trends, the rebound sounds a little bit stronger, but I'm not I was a little bit confused I think you had said transactions were down 40% at one point versus you had recovered to 70% of transaction levels. I wasn’t sure so are you down 40% or 30% currently in…?

Yes, Peter, you’ll take that.

Yes, hi, Bob. Thank you very much for the nice words. With respect to the trends, so we were off 55% in October. We bounced back in the final week of October to 40% and then as Mac had alluded in the last week, we’re up to 30%, so hopefully that clarifies your question.

So I mean do you think we've that that 30% is represents a trough and that you continue to gradually recover from there. I know it's difficult but them and if it seems to be on a decent trend.

Yes, Bob so the piece has been so unpredictable in Puerto Rico is primarily the energy problem and the pace which energy has come back to the Island. Their projections that some areas of the Island may not come back into the spring, and that’s one of the reasons we launched within it is for Puerto Rico, moving 2000 generators to small business is their. So that being unknown, but I would tell you the recovery in San Juan has improved, but even San Juan, their parts – San Juan that still don’t have power, building [indiscernible]. So it’s too unpredictable, it's too uncertain is what I would say, so we don't want to get ahead of ourselves. But there is progress, but the power situation is going to take some time.

And I'll just add to that Bob. We've seen this trend it varies from week-to-week, but on the whole the moving average is positive and so we've factored that kind of growing to 80% by the end of the quarter, and our logic is that as continued power restored on the Island that that will benefit more merchants. What we've seen up to this point is a lot of spending supermarkets, gas stations; emergency spending and we'd like to see a broader footprint across our merchant base as they come back on line.

Thank you. Then why you're trying to get Puerto Rico back and doing everything and obviously, a lot on your plate there. But outside of Puerto Rico, can you – I mean are you going to be investing over the next few quarters and trying to continue to grow outside of Puerto Rico and how is PayGroup performing versus your expectations?

Yes. So what I would say is I mean we’re still focused on Latin America. We closed on the deal and actually brought that business in during the quarter. We have good management in the region and that continues to be focus for the Company and the hurricane does not change that.

I agree with that everything Mac said clearly and as we look at capital and growth projects we're very diligent in normal course valuing them and we don't anticipate changing our view of that, but obviously we're monitoring the business and the recovery here in Puerto Rico as we ultimately make investments.

Can you say what PayGroup, what the growth rate is at PayGroup, the revenue growth rate and the EBITDA margins?

What we say is it’s in line with what we expected for the year, but we're not commenting on growth rates. We've really combined it with our Latin America business and really treating as one, as Mac said joined the teams and so forth and products across shifts in selling and initiatives like that. So we'll be looking at it holistically as Latin America business as we move forward.

Yes. The exciting part is there's some overlap between customers where we give the synergies to cross sell products and their Walmart, Claro and some of the customers at Panama, so we're building those plants now and we're looking at sort of product strategy whether the best products to sell between those customers and so that’s the work we're doing right now.

Great. Thank you. Appreciate it.

Thank you.

The next question will come from Tien-Tsin Huang of JPMorgan. Please go ahead.

Thank you. Obviously, wishing everyone has affected a speedy recovery here. I guess just understand maybe from you Mac just how everything that's happening, how that changes your strategic focus on the company is the high level question there in terms of how your prioritizing investments, the expense priorities you appetite to do deals et cetera, how are you approaching it now?

Yes. So really hasn't changed sort of our strategy and our approach. What I would say, we said we're very focused on Puerto Rico. This is our home market and it’s important to protect it. I would say the storm really positioned us well with our customers. They now completely understand why it's important to have a strong EVERTEC on the Island. They were able to utilize our facilities during the storm. They were able to – our staff actually went to some of the largest merchants and did multiple terminals to see which sell provider worked and on some of the grocery stores, and the bank branches we installed satellite, so they can actually operate. So what I would say is the Puerto Rico piece of our business continues to be important and I think it really strengthen our value proposition with our customers. Outside of Puerto Rico, we will continue to focus on Latin America as I addressed Bob’s question. On the M&A front, PayGroup is a big acquisition for us. It substantially increases our footprint. It substantially broadens our product portfolio, so that is sort of our immediate focus from an M&A perspective.

Got it. So given what you said there, I mean does this change you think the appetite for banks in the region I should say to outsource EVERTEC. Your uptime was there, obviously that’s impressive for all the reasons you just stated, but does this changed the appetite in you mind and maybe the time table for decisions?

In Puerto Rico or outside of Puerto Rico?

I would say outside – just in the region in the Lat Am region, Central America region.

Yes. I don’t think this is materially changed, our customers outside of Puerto Rico their view of company. What I would say in Puerto Rico, I think, again the local banks probably the government merchants this is an opportunity that they understand we're the most dependable, reliable and strongest on the Island. Outside of Puerto Rico, I don't think it really has a material impact on their perception.

Okay. It makes sense. Thank you so much.

Okay, thanks.

The next question will come from Jim Schneider of Goldman Sachs. Please go ahead.

Good afternoon and thanks for taking my question. First of all, let me say our thoughts are with everyone in the region. I guess maybe to start off, can you maybe just provide another way of asking out some more color on your best estimate of how many of your merchants perhaps are sort of damaged and you would expect to be the recover at some point verses cases where merchants are entirely destroyed and reconstruction is necessary and might take longer to get to recovery point in a merchant acquired business?

Yes. Let me give you my view and then I'll hand it to Peter for some numbers. The biggest issue has been unless the physical impact to the merchant has been more the outage of power and water and the things that are necessary to run a business, so that's been the biggest impact. The question for us is, how long can those businesses afford to be out of business before that individual of that small business owner decides to migrate? So that's something that we're going to have to track over the past since the hurricane it's been estimated maybe 100,000 people left the Island. It’s not unimaginable if some of those are small business owners. So that's what we've got to track over the coming months. But the biggest impact on the businesses has been left physical damage to their locations, but more the lack of infrastructure.

As we've seen, we've seen more and more merchants come back on line as power is restored, but ultimately we don't have a clear sight with respect to 2018 or beyond and how many will actually restore. They need power obviously, they need telecom and then some of them need insurance proceeds from damage relief with respect to their facilities and businesses, and so that's really important for us to measure as we go forward. What we really moderating is the transactions coming on where this impacts us as a business is in our net spread that we make with respect to merchant acquiring as the retailers that are in business right now tend to be the larger ones gas stations, supermarkets and that has a disadvantage impact or net revenue.

I would also say we also have 15,000 federal employees on the Island, spending money at hotels, at restaurants and grocery stores, so that's some of the temporary impact as well and it’s heard to know that temporary impact, how long will that last. And then what we're saying what is that versus what is the domestic.

So we’d look at the time when all the power is restored and then perhaps a month or two after that I think would be a good point to look at in terms what is actually staying in place.

That's very helpful color. Thank you. And then maybe as a follow-up for the solutions business, can you give us the color around the government contract was helpful, can you give us a little bit of a sense of the overall solutions business. How much of that business is kind of a fixed price outsourcing contract if you will that aren't necessarily volume dependent, just to get a sense of how much of that business is kind of very stable and unlikely to change as long as you're able to maintain up time across your service delivery?

Yes. Sure Jim. I think what I can do is give you a bigger picture answer with respect to all our business and transactions and business solutions as part of that. As you look at our business approximately 80% of it’s in Puerto Rico and approximately 40% of that is based on transactions with merchant acquiring almost all tenant fund transactions and payments largely dependent on that. Business solutions as less reliant on transactions where we do require transactions with respect to ancillary services that complement our core banking operations or service, but it's relatively minor compared to the other two component as I mentioned.

Helpful. Thank you. Thanks so much and good luck with recovery.

Thank you.

The next question will come from John Davis of Stifel. Please go ahead.

Hey. Good afternoon, guys. Also my thoughts down your way. Maybe Peter quickly, let’s just touch on liquidity, where do you stand today, what kind of free cash flow expectation kind of baked in your guidance for 4Q? Just trying to get a comfort level obviously I think suspending a dividend is something that's proven at this point, but just trying to kind of understand dynamics of where you guys stand from a liquidity standpoint?

Yes, thanks, John. So a this time we don't see a liquidity issue. We're being cautious as we explained under these extraordinary circumstances that we're operating under and the lack of immediate visibility. We feel confident that we have cash. We have a confident within our covenants as they stand today. We are also very mindful of the $28 million that we have to pay in April 18 to retire the DOA that's due them. And as we monitor our business, we're going to be prudent with our expense management and what we hope to see is a sound recovery is to we come back and then we'll revisit that the situation with the dividend with the board defer to their decision making.

Okay, that’s helpful. Maybe talk a little bit about the percentage of spend that’s in the metro areas, obviously I think you said back to 70% today, hopefully be back by to 80% by the end of the year as far as total transaction volume. But just more broadly what percentage of your spend on the Island is concentrated kind of in the metro areas versus some of the areas that may not get power until the spring?

John, I don't have that that statistic in front of me. But it's safe to say that lots of people were driving to the metro area and go shopping because it was – what was available and so the entire situation was skewed from that perspective. I think all residents would prefer to shop locally for convenience reasons and that would be our expectation as power restored across the Island and businesses are able to reopen. Supermarkets have been restored pretty effectively and so that that is regional and different now.

Yes, what I would add is a lot of the spending particularly the grocery spending and the weekly spending is done at oftentimes large locations and large grocers. Those often have a generator, so many of those have come back online even if they're in of an area that doesn't have power yet, and they're able – because it is the private industry distribution is back up and running. So people are getting groceries on the shelves. So now there are some that were hard hit and they haven't been out able to remember that tends to be exception. So John in this – lookout that aren't going to get power for some time, it's going to be the smaller establishment that haven’t afford it – don't have the ability to buy generators. And again that's one of the reasons some of the not-for-profits are trying to get generators in their hands.

All right, any idea on timing, I think it’s in the 2000 generators that you guys are trying to distribute on the Island. Is that something that’s ongoing now, planned for later this year, just anything there?

That was announced yesterday about latest Puerto Rico, which is one of the largest not for profits on the Island. We took delivery 250 yesterday doesn’t start distributing those on Wednesday. This is an EVERTEC I mean we're involved on the Board, but it is private industry, distributing those first to the small retailers that actually sell groceries and provide to extend benefits and other small businesses. But we're going to start delivering those generators this week, and then we'll have a 1,000 on the Island this week. And then next week or early the following week, we'll have another 1,000.

Okay, great. Thanks guys.

The next question will come from Vasu Govil of Morgan Stanley. Please go ahead.

Hi, thanks for taking my question and really appreciate your guys doing earnings on an – in such a timely fashion given the challenges you've got everything down there? Just quickly can you talk a little bit about your exposure to the stores and industry, I'm guessing that's probably one of the worst impacted? And then also if you could give us a sense of what your mix of business is when you think about small versus large merchant?

Yes, so as far as the tourism business is relatively small, I mean we have restaurants. We have a few hotels, but that's not the lion share of our business. We have a very large domestic business with the groceries, the gasoline so a domestic business. And then as far as the smaller merchants, we were of course the larger merchants are coming back faster, which does typically have a lower spread. And then Peter if you want to add anything?

Yes, our general concentration traditionally has been with small merchants and as Mac alluded what we seen is large merchants are the ones that are open now, so that mix is going to change and we'll have a better understanding after all the powers restored.

That’s helpful. And then just on the cost side, are there any offsets in the near-term until the situation gets restored to normal? Are there any cost offsets or efficiencies that you think you can drive in the business near-term to sort of help the profitability for the next few quarters?

Yes. So our business as you aware operates at a high margin. We leverage fixed cost, infrastructure and workforce here. We can do modest efficiency improvement over time, but large low hanging fruit is not in the cost structure. So we would be working on that normal course, but I just don't anticipate having a large available cost offset.

Got it. And just one last one going back to the Business Solutions segment, I know you guys – that wasn't impacted much from the hurricanes, but is there a potential that you could have issues connecting receivables not just from the government, but from the corporate as well over there given devastation across the economy?

Yes. Well I’ll touch just a bit more on the thoughts went into our guidance. So as we look at the hurricane impact, if you look at it by segment, it’s essentially 60% that we attributed to the Merchant segment which has been the most impacted 30% to the Payments segment and then 10% to Business Solutions. Business Solutions is really more of a timing issue where we have available consultants who are unable to work on the businesses because they're not opened where projects are delayed because of the infrastructure. With respect to your question and accounts receivable, we monitor that very carefully. We have done a good job as you can see with the government. That’s our largest client and we'll be monitoring that very careful. To date, we haven't seen any issues.

Great. Thank you very much.

Thanks Vasu.

The next question will come from George Mihalos of Cowen. Please go ahead.

Good afternoon, guys. And let me add my best wishes as well to a – for a speedy recovery. Mac, I just wanted to ask, obviously there are a lot of – it's a fluid situation, a lot of moving parts here, but when you look at some of the priorities prior to the hurricanes hitting again the integration of PayGroup kind of building out more of the sort of the international business outside of Puerto Rico and some of the traction over there? Does that now get sort of pushed out given the situation on the ground in Puerto Rico and the support you're looking to provide to your customers there?

This hurricane for a month was definitely took all of our focus from a management perspective. But I would say going forward, we are still equally as focused on Latin America. I think the PayGroup team they spent time just this past week with the folks in Costa Rica, which is our legacy business to work through the product set, to work through the marketing piece. So we're equally focused on that now that we're past stabilizing at least our business after the hurricane.

Okay. And then as mentioned again sort of the $5 million to $7 million of revenue that's going to be migrating off from those accounts that are still slated to deconvert? Are you thinking any differently around that both in terms of timing and maybe some more of the goodwill given your performance in such a challenging environment that maybe you're more at now to maybe keep some of those from migrating?

No, our view has not changed on the $5 million to $7 million on what was previously announced.

Okay. And the time line are still the same based on what you can see right?

Yes. In fact, we’ve had more meetings with those customers getting more precise timing in those conversations. So we think those gates and amounts as best reflected as we can?

Okay. Thanks guys. Best of luck.

Thanks George.

Thank you. End of Q&A

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

Yes. Again, I just want to say that I am incredibly proud of my colleagues during the last several weeks after the hurricane. I want to thank everybody on the call for their well whishes as we recovered our business. Thanks for joining the call. We look forward to see you at conferences in the coming months.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.