Good morning, everyone. And welcome to the EVERTEC Fourth Quarter 2020 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 on the call today are Mac Schuessler, our President and Chief Executive Officer, and Joaquin Castrillo, our Chief Financial Officer. A replay of this call will be available until Monday, March 8. 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 March 1. Please note there is a presentation that accompanies this conference call and it's accessible in the Investor Relations section of our website. Before I 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 released and related supplemental slides. I'll now hand the call over to Mac.

Thanks, Kay. And good morning, everyone. Our record fourth quarter and full-year 2020 results are a testament to the resiliency of our business and our team in a challenging environment. Also, we were able to continue executing our strategy, creating an even stronger business in early 2021. I'll first cover some of the quarter highlights as well as discuss a few recent developments and then update you on our strategies for growth in 2021 and beyond. Beginning on slide 4, we have a summary of our 2020 results. Total revenue for the year was approximately $511 million, up 5% compared to 2019, which exceeded the top end of our initial expectations for the year. We generated adjusted EBITDA of $240 million, an increase of 6%. We also delivered adjusted earnings per share of $2.07, an increase of 6% as well. Our company generated significant operating cash flow of $199 million. Our liquidity as of December 31 2020 was a strong $320 million, and we returned approximately $22 million to our shareholders with over $7 million in stock buybacks and $14 million in dividends. Truly impressive results. And my thanks go to all the EVERTEC team members on a job well done in the most unusual pandemic year. Now, I'd like to give you more updates on our businesses, beginning with Puerto Rico on slide 5. First, we anticipate to benefit from the recent consolidation in the banking industry in Puerto Rico, specifically the integration of FirstBank and Santander. We expect this will positively impact our 2021 merchant segment growth rates. We also believe we will continue to benefit from the current trends of digital transactions as we localize PlacetoPay and focus on ATH Movil product features. We made further progress throughout the fourth quarter implementing QR codes for contactless payments,…

Thank you, Mac. And good morning, everyone. I'll begin with a review of our consolidated fourth quarter and full-year 2020 results and then review each segment in greater detail. Turning to slide 11, total revenue for the fourth quarter of 2020 was $134.2 million, up 6% compared to $127.2 million in the prior year, driven by higher sales volume, positive impact from growth in ATH Movil and ATH Movil Business, new services and project implementation. Adjusted EBITDA for the quarter was $63.9 million, an increase of 16% from $55.3 million in the prior year. Adjusted EBITDA margin was 47.6%. This represents a 410 basis point increase in our adjusted EBITDA margin compared to the prior year. The increase in margin was primarily driven by revenue growth and the positive impact of foreign currency exchange related to balance sheet remeasurement. Adjusted net income in the quarter was $42.8 million, an increase of 23% as compared to the prior year, and $0.59 on a per share basis, an increase of 23%. The increase primarily reflects the increased adjusted EBITDA and includes the impact of higher operating depreciation, offset by lower interest expense and a lower effective tax rate in the quarter. For the full year, total Revenue was $510.6 million and was up 5% year-over-year. Revenue was favorably impacted by higher sales volume and higher spreads in our merchant acquiring business, higher ATH Movil and ATH Movil Business transactions, as well as the benefit of $4.4 million from the Puerto Rico Department of Education and increases related to COVID-19 specific services. Adjusted EBITDA was $240.5 million, an increase of 6%, with an adjusted EBITDA margin of 47.1%, up 70 basis points as compared to prior year. Adjusted net income was $151.4 million, up 5%, and adjusted earnings per common share was $2.07,…

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

This is Allison on for George. To start, I was curious if you can provide color on the pipeline for additional deals in Latin America and whether there is a preference for JVs or more processing partnerships like we saw in Chile?

If you look at what we announced over the last year, and this quarter specifically, we've announced more deals organically in Latin America than we have since I've been at the company. And if you look at how Joaquin guided for the year to get double-digit growth in LatAm, it's all organic. We feel pretty good about the pipeline that we've closed with and implemented. So, if you look at it, we implemented Citibanamex, we implemented Santander Chile, we also announced Mercado Libre. It's the first time we've talked about those guys as one of our partners now, which is one of the most valuable companies in Latin America, probably one of the best technology companies. So, I think we don't comment on deals before we sign them or close them. But we feel very good about the pipeline. And to demonstrate that, we'd look back what we've closed over the last year, year-and-a-half.

That's great color and great progress. Thank you for that update. And then, last one for me. I caught the total revenue performance of 8% in January. I was wondering if you can provide color specifically on the trends you saw in both the Merchant Acquiring and Payment Services businesses in Puerto Rico quarter-to-date versus the 8% and 5% we saw in 4Q?

If we think about January, there was an additional push of stimulus impacting the island, right? So, sales volume was up compared to what we saw coming off of Q4, which is positive. However, as I said before, or in the prepared remarks, the average ticket does continue to come down sequentially. And we have seen a kind of inbound travel starting to come back slowly but surely, and that will impact spreads. And that's something that we also saw in the month of January. As it relates to transactions, ATH Movil and ATH Movil Business, as we said also in the guidance, we are expecting that to be strong in the first half and we saw that in January just because of the tailwind of the shift to digital and transactions are coming back as well slowly. Still kind of flattish to the prior year, but positive.

Next question is from Bob Napoli with William Blair.

Congratulations on a good year in a tough environment. Really nice job. The balance sheet now, you have really strong positions. And I know you don't have any buybacks and your guidance. What is the capital strategy from here? And do you have a significant pipeline of M&A? And so, maybe a little bit of color around that strategy as opposed to returning capital. Obviously, you've done a nice job with the balance sheet.

What I would say is, look, 2020 was sort of a year where everyone was very conservative and cautious. We were very, very focused on continuing to invest in our products and our employees during a very difficult year, which is – we learned that from Hurricane Maria. We do feel like coming into 2021, we have a little bit more competence on what this year will look like. We are focused on being appropriate with capital allocation and making sure that we pull all the levers this year. On the pipeline from an M&A perspective, what I will tell you is, as you know, Bob, we never talked about deals until we have one, but we will continue to focus on those deals. If you look at the portfolio of companies we've acquired over the last five years, it's really created what we now have. It's created some good business in Puerto Rico, like the relationship we have with FirstBank, and it's also created great assets in Latin America, where we now for the first time in a long time are seeing double-digit organic growth in Latin America. So, we will continue to focus on now investing in that business organically. But also, we're continuing to look at M&A opportunities.

Would you likely do larger M&A transactions than you have in the past, given the expansion of the business and the strengthening of the balance sheet?

We would be opportunistic to look at any type of transaction available. There are a couple of different types we see in the region, Bob. Some are small tuck-ins, like we've done in the past, and we've been pleased that we've been able to purchase those at a reasonable valuation and then integrate those and really leverage those products to grow the company. There's also the monopolies and duopolies across the region, which sometimes are talked about. Will those sell like Prisma sold in Argentina? So, we will look at everything, but we'll make sure that the numbers make sense and that it makes sense strategically for the company. But we try and get visibility to as much flow as we can.

And then just last question, the chart that you show, and it's obvious that the cash in the markets that you serve is very high, which should give you secular growth for a very long time. But the organic growth rate of this business seems like it should be accelerating over the next few years, given the cash in the market. So, what are your thoughts around the acceleration of the top line revenue growth? And shouldn't earnings grow faster than revenue, A, given the cash flow, and B, given that this is a good scale business that usually leads to higher margins over the long term?

Bob, first, what I would say is, we really spent some time this year reaffirming our strategy by taking a deep dive on each of the markets we do business in, so that we could understand the opportunity and also sort of the competition and the product set. And part of that output is what you see on the industry tailwind. So, you're correct. We think the tailwinds in Latin America are great because there's still a lot of cash, because there's still an opportunity for new entrants as the markets continue to open and people look for alternatives and as more people move from unbanked to banked or some type of financial services and then move to more digital technology. So, we think the tailwinds for Latin America are fantastic. When you think about the growth of the company, if you dissect the revenue guidance for this year, we are seeing acceleration and growth organically, in Latin America specifically, to where we do have the double-digit growth. Even in [MAD] [ph], so our merchant business in Puerto Rico, we anticipate double-digit growth. So, we are seeing that, but we do – and then Payments LatAm is going to be high single. So, we are seeing an acceleration of our growth.

LatAm is teens.

Teens, sorry. Payments - Puerto Rico was high single. So, we are seeing the acceleration in our growth rate, particularly in LatAm, as you point to, and we are going to be very focused on managing our expenses. As Joaquin told you, our corporate expenses are actually going to be lower this year. But we are going to make sure we invest in the business, so that as the market opportunities arise, we're able to capture those with great products, great service and stability. So, we do have to balance those, but we do think to your point, Bob, the tailwinds are great and we are seeing that acceleration in our LatAm business that's starting to pay off.

The next question is from Vasu Govil with KBW.

Congratulations to both of you for a great year amidst adversity. So, I guess, my first question was just on any color that you could provide us on what percentage of merchants are still inactive as the recovery is taking shape, if you were seeing sort of the sales improvement be pretty broad based or being driven by certain verticals or industries?

Actually, the number of inactive merchants has pretty much come all the way back to pre-pandemic levels. And obviously, there's different puts and takes in terms of verticals, but when we see it on a general basis, [indiscernible] maybe a percent of where we were at the beginning of the pandemic. And that kind of moves up and down a kind of a moment in terms of the vertical. So, nothing really to comment, specifically.

My next question was on Business Solutions. Historically, this was seen as a low-single-digit grower. And now you've had three years of sort of mid to high-single-digit growth. So is there sort of a change in the way you're thinking about the sustainable growth of the segment long term, if you could just sort of give us some color there, Mac and Joaquin?

If we look back to the past two years, specifically, and even if we look at just 2020, we've had several very specific either projects or situations that have helped us drive that segment at a faster pace of growth. So, if you think this year, we have the Department of Education contract. We also, because of our relationship with the government and the relationship with Banco Popular, were there to support them in terms of COVID, either in helping them get to their workforce being completely remote or, in the case of the government, with printing and sending checks, processing checks related to all of the unemployment benefits and similar stuff that was coming through. So, I would say that that was a big driver of why that segment kind of outperformed what we expected at the beginning this year. And if we look at the prior year, we saw Popular kind of acquire Reliable. So, the banking consolidation also helped us when we look at 2019 in terms of kind of speeding up the growth in that segment. But looking forward, I think, again, our sales process is longer, the projects are longer, it takes time for us to put something in place and then implement and see our revenue come through. So, that's why we're going back to this kind of flattish to low-single-digit growth for 2021.

The last one, if I may, you've seen really strong growth in this ATH Movil product. Is there anything you can do to capitalize this and sort of take it outside of Puerto Rico? Just any thoughts there.

When I look outside of Puerto Rico, we've really expanded the products. We had the risk management product. We now have issuing capabilities that we've talked about most recently in Mexico. We have acquiring capabilities that we're launching in Chile. We also have the payment, the bill collection platform that we're doing in Mexico, and we're also renewing some contracts in Chile. So, we definitely have a much broader set of products than we've historically had, which has helped us grow the business. I think when you look ATH, it's not a product that we've sold outside of Puerto Rico to any substantial extent. It is something that we continue to present to customers, but to this point, we haven't found a lot of opportunity. But that may change in the future as people look for sort of digital apps, but it's not something that we've sold recently in the region.

Next question is from Jamie Friedman with Susquehanna.

Good numbers here. Congratulations. I just wanted to ask, first, is it possible, Joaquin, to help quantify the term to processing conversion impacts? Mac, you had discussed it in your prepared remarks and you did as well, Joaquin, so any qualification there?

Can you clarify, Jamie? Do you mean in LatAm when we move from licensing to processing? Is that what you are referring to?

From licensing to processing, Yes. And in LatAm. Right.

How do we quantify?

Look, licensing in our LatAm business, specifically around the product that we're selling now, was probably in the 15% to 20% of the business. So, that's why we're – as we have decided, right, to move all of those products to processing, we've pretty much stopped selling licenses in those regions where we're localizing the platform. So, we have that portion of our business that's kind of flatting growth, mainly because we've been so focused in bringing these platforms up and bringing clients like Santander into production. In the case of Santander, we've been localizing and talking about this now for over a year. So, it does take some time to localize and get all of the specific regulatory requirements within each country set. But if you think about what Mac kind of went through, we have Santander up and running in Chile, we have Mercado Libre in Mexico, we renewed Banco Popular in Costa Rica. So, even that's not on the platform, it just shows that we now have the platform up and running in these two regions and we continue to focus in Colombia and in Costa Rica to do the same.

I think the important piece is, that transition is sort of multi-year. Not only is there some incremental expense, but there's also a learning curve. And if you look at the new technology that we're deploying across the region, we have now moved to a processing model with many of the software solutions that we have. Maybe just one or two countries. So, we've now gained the expertise into localizing these platforms, gained the expertise of implementing in a processing mode. So, that's what we're pretty confident about, is that we now have that experience with a software in different countries. And that investment was made for the last year and going into this year. Now, when we continue to localize an existing platform in a new country, there will be some steps – there will be some additional incremental expense, but it should be less as we continue to deploy the software. And it should be more cost and time effective as we move forward. But what we can tell you is we believe the opportunities exist, and we're excited that financial institutions, retailers, and as we demonstrated this quarter, with Mercado Libre, technology companies are looking for partners.

About that, Mac – and that's a great horse to back. The Mercado Libre, is that a sole sourced relationship in Mexico? How's that going to work?

The relationship with Mercado Libre, just for everyone in that background, Mercado Libre is one of the largest e-commerce companies in Latin America. It's headquartered out of Argentina, large Mexican business, large businesses in Brazil and across the region. They are now partnering with us on issuing in Mexico for their debit card product, which is a new product for them in the market. And we have a direct relationship with Mercado Libre. The product is held under Mercado Pago, is their payments brand. But that is something we haven't talked about in the past. And we're pretty excited about the specific opportunity, but also the long-term potential relationship that we can have with Mercado Libre.

The next question is from James Faucette with Morgan Stanley.

I just want to build on Jamie's question on Mercado Libre. And with that specific partnership and issuance that you're doing, how do you think about the potential for expansion of other services with Mercado Libre? Like, where would you think there could be opportunity, et cetera? And what does it speak to in terms of similar type opportunity maybe with other partners throughout the region?

The Mercado Libre relationship today is debit processing in Mexico. So, we provide other services in Mexico that we would love to sell the Mercado Libre. They also are expanding across the region. So, if we do well on this product, and if we perform well, we do believe there'll be additional opportunities. And as we spoke about earlier, we're seeing this demand across Latin America, what's happened in the United States where you have so many different types of alternatives for online payments, online marketplaces, that's just now evolving in Latin America. And given that we have technology that's developed in the region, Spanish speaking programmers, this really puts us in a very good position to be a partner of choice. So, we do hope that these successful relationships not only will help us broaden the relationships with these existing clients, but they are calling cards to new clients.

When you look at the low to mid-teens growth in Latin America, that certainly seems promising. At the same time, we realize that there are still some attrition headwinds. Can you talk about the environment broadly in the market, both in terms of COVID, but maybe more generally your ability to enter into the market or expand footprint where you already have presence?

As we talked about earlier, we really, in 2020, focused on continuing to support our employees and support our customers and to try and accelerate development. And that was incredibly important to us. And we think that our partners noticed. So, if you look in Chile, we believe that Santander Chile is one of the first institutions to go out with an acquiring product because of our relationship. They received regulatory approval for the product. So, we think that we've demonstrated an ability to continue to invest, to continue to deliver even under difficult circumstances. So, we think the opportunities are – I do think Latin America – it's is a fact they're a little bit behind on vaccines. So, they may have some continued impact in 2021. But it has not slowed our implementation of clients significantly. Of course, we had some delays. But again, with Citibanamex, with Santander Chile, with Mercado Libre, we're in production, right? And we were able to do that after the pandemic.

And I would just add that even though, as Mac said, the vaccine rollout is behind where maybe the US is and the impact to some of the economies is expected to be a little more severe just because of the ability of the government to support the economy, we have seen other positives. So, in Colombia, for example, the way that the government is rolling out the benefits has also driven people to open bank accounts. So, the government and the way that they're pushing out stimulus is also helping some of these underlying factors that help in terms of driving growth in digital payment. So, bankerization in Colombia, I think they added more accounts in the last six months of 2020 than they did all of 2019. So that kind of thing is kind of a silver lining in-between all the COVID impact.

The next question is from Matt O'Neill with Goldman Sachs.

I was just wondering if we could get a little bit of an update on the MSA with Banco Popular and I was particularly curious about kind of the ongoing dialogue there. In other words, kind of the last third of the 15-year relationship as far as things like investments that you guys make on an ongoing basis in the core processing services. And any kind of requests or desires that you guys are collectively working on from there into the equation just as we start thinking about getting closer to the inevitable renegotiation phase on that contract? Thanks.

We've talked about this in the past. We're very focused on being a partner that people want to do business with, not have to do business with. We've been very focused on improving SLAs with the bank. We've been very focused on improving our products and making sure that we're closely aligned. We just had our employee town hall at the end of the year. And every year, I give employees the top five headlines that I want to see in the press about our company, so that every employee can relate to that. And this year, last year, one of those is that Banco Popular chooses us as a partner of choice. So, we're very, very focused on that. Very focused on making sure we continue to improve our services, our quality, and making sure that we're constantly engaging with the bank because we know long-term that contract is very, very important for EVERTEC.

I guess, just drilling into the core processing itself, from when that agreement was initially signed back in 2010, decade later, there has been a lot of innovation, moving from more of a license to outsource model and the industry more private cloud, open API-based solutions from larger kind of outsource core providing processors in the US, for example. And so, I was just kind of curious, what's the kind of state of that business today and where are they. Where is it in this kind of evolutionary path?

The state of core banking?

Yeah. Of EVERTEC's core processing services that are being provided to Banco Popular?

If you look at what we've done across our different products, if you look at ATH and the QR codes that we've delivered, we're also building APIs with our ATH product. So, it's easier for them to implement those types of products. So, we're continually trying to evaluate what's the best service we can provide and what are those investments we need to make long-term. We'll continue to evaluate this year, are there places we need to invest more, like MSP/MSSP providing a sort of a hosted service offering that, not only Popular, but other clients, is something that we're looking at this year. Is that a business that we should invest in? So, we'll continue this year to evaluate where we want to invest, just like we have done with our payments business.

I think just a last one to round out here. It looks like the original MSA was signed on September 30 of 2010. Is that like the 15-year sort of expiration would be September 30 of 2025 or point of renewal presumably?

That's correct.

The next question is from John Davis with Raymond James.

It's Matt Schwarz on for JD. Thank you for the detail on the full-year guidance. Two quick clarifications. Is the next round of stimulus that looks like will pass in near future in the full-year guide? And then any update on hurricane relief funding and how much is embedded in the guide? Thanks.

In terms of additional stimulus, we have included some incremental stimulus as part of the high side of our guidance. And what I would say is, right, waiting to see what actually gets passed in the senate. And then we also need to see how some of the factors have benefited us through 2020, like the average ticket, the shift between domestic cards and international cards, now that people are getting vaccinated and probably travel will start to pick up. Those are a couple of things that helped us in 2020 that we need to see if they continue into 2021 as it relates to the profitability of, for example, the Merchant Acquiring business. But we have included some incremental stimulus as part of the high side. I'd say that the range pretty much reflects kind of the opportunities and risks that we have some visibility to at this point. In terms of the hurricane funding, I think it's positive everything that we're seeing in the news, the new administration is being proactive in kind of releasing funding to Puerto Rico. Everything that had been previously approved under the previous administration based on the most recent reports had a lot of strings attached to it and that's why so little of that funding was actually used or disbursed by the Puerto Rico government. So, I think it's definitely encouraging. We need to now see how quickly this moves because there is still kind of a bureaucratic process, but definitely positive in light of what we're seeing in the past.

You mentioned 10% of merchants now have contactless enabled. Where do you see this trajectory going? Are there any major milestones you had in mind in increasing that percent to have contactless? Thanks.

We rolled that out fairly quickly and to get to 10% penetration was a focus of the company and also a focus to get a certain number of merchants out. So, we feel pretty good about the progress today.

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

Thank you. So, again, I want to thank all of my colleagues. In a challenging year, we continued to deliver and we feel like that we've not only made sure that our customers are taken care of, our employees and our communities, and we're incredibly proud of what we've accomplished. And we look forward to speaking with many of you over the coming year at different conferences. So, thank you.

This conference has now concluded. Thank you for listening to this presentation. You may now disconnect.