Good day, and welcome to the EVERTEC Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note that this event is being recorded. Now, I would like to turn the call over to Mr. Kevin Hunt of Investor Relations. Please go ahead, sir.

Thank you, and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquin Castrillo, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. 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. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides which are available in the Investor Relations section of our company website at www.evertecinc.com. I'll now hand over the call to Mac.

Thanks, Kevin, and good afternoon, everyone. Our business performed well in the quarter despite the headwinds we faced. Some of which we knew about coming into the quarter and others that were unanticipated. Our payments in Puerto Rico and LatAm revenues continue to grow very well driven by organic growth and also benefiting in part from the acquisitions that we completed during the year. In payments Puerto Rico, the year-over-year growth was driven by a combination of strong POS transactions. In DTH mobile business growth and the contribution from the small acquisition completed in the second quarter. In Latin America, we continue to see very strong results driven by organic growth across the region, as well as the initial contribution from the BBR acquisition that closed on July 1st. In terms of expected headwinds, the input add from the popular transaction that closed on July 1st was in line with our expectations as it affected year-over-year revenue growth and margins primarily in the Business Solutions and MAB segments. We also experienced a modest revenue and margin impacts from Hurricane Fiona over the final two weeks of the quarter, primarily in our Merchant Acquiring segment. Margin and EPS were also negatively impacted by $7.8 million non-cash foreign currency remeasurement loss during the quarter and Joaquin will provide more details on that in a few minutes. On today's call, I will start with the additional highlights from the quarter and I'll then turn it over to Joaquin who will provide further details on our third quarter results as well as an update to our 2022 outlook and high-level commentary on 2023. Beginning on slide four, total revenue was $146 million for the third quarter, flat when compared to the third quarter of 2021. Adjusted EBITDA was $52 million, a decrease of approximately…

Thank you, Mac, and good afternoon, everyone. Turning to slide nine. I think it's important to briefly explain how EVERTEC is impacted by fluctuations in foreign currency, given that as Mac mentioned we have a $7.8 million non-cash remeasurement loss impacting our results this quarter. What are the effects is foreign currency translation? Which involves the process of bringing the financial information of our subsidiaries outside of Puerto Rico from foreign currencies to the reporting currency, which for us is the U.S. dollar. Translation is very common and most companies we [indiscernible] are subject to this process, which doesn't result in gains or losses on results, but can have an impact on year-over-year growth because of currency fluctuations. Translation is impacting our year-over-year growth negatively this quarter by about $900,000 or approximately 3% of growth for our LatAm segment. The second type of impact, it's foreign currency remeasurement and this is a result of EVERTEC's French subsidiaries having U.S. dollar balances which need to be converted to the local currencies. This process does result in non-cash gains or losses that impacted our results. In our case, remeasurement is driven primarily by our Costa Rica entity where most of our customer contracts, our cash balances, and intercompany transactions are in U.S. dollars. This quarter the Costa Rica currency had a drastic shift, which led to the $7.8 million non-cash remeasurement loss that is impacting our results, even though we still have the same cash and receivable balance in U.S. dollars. With this brief overview in mind, I will now turn to slide 10, where you will see the consolidated third-quarter results for EVERTEC. Total revenue for the third quarter was $145.8 million, relatively flat when compared with $145.9 million in the prior year and generally in line with our expectations. This…

Thank you. I'll now begin the question-and-answer session. [Operator Instructions] First question comes from Jamie Friedman of Susquehanna. Please go ahead.

Hi, lot of hard work here and appreciate the detail in the slides. I wanted to ask, so did you say you were going kind of quick there what the contribution was for BBR, for the BBR acquisition? I think you said that FX-neutral was 29% growth. But did you call out the acquired contribution?

Hey, this is Mac, Jamie. We did not. What we said it was 26% growth, we lost 3% of growth because of FX, but we didn't call out BBR, right?

Okay, thanks for that, Mac. And then so if I'm doing the math right, if you're seeing $30 million impact from beef up on an annual basis. If I were to say $7.5 million per quarter rounding, my calculation is that Business Solutions would have been roughly flat, absent, and transaction is, is that in the ballpark?

We had two impacts. One is you had sold revenue and so your calculation, I mean, not necessarily even from quarter to quarter but that's a good estimation, but you also had the reversal of the CPI, which was a pretty significant reversal that we called out as well.

Yeah. Okay.

That's an additional $6.4 million or $6.3 million to the Business Solutions segment, Jamie, so you have to Mac's point the $30 million annual run rate which your calculation is right based on that, and then incrementally for this quarter, specifically that $6.3 million impact from the one-time credit.

Got it. Okay, all right. Thanks for the details, guys. I'll drop back in the queue.

No problem.

Thanks, Jamie.

Thank you. Next question will be from Mr. John Davis from Raymond James. Please go ahead.

Hey, good afternoon, guys. A lot of moving pieces here, Mac, but if I look at third-quarter earnings, I think if you exclude FX, you said $0.53, are you going quickly working, but did you say a $1 million revenue impact from the hurricane? Just want to make sure I understood that correctly or any other color you can give on the third quarter impact from the hurricane?

That's correct, John. The impact was mostly to our Merchant Acquiring segment, we're estimating that to be about to $1 million on the top line. And yeah, those have a flow through to EBITDA. But the main impact is to your point different currency remeasurement losses that we detailed in the prepared remarks.

Okay. So lots of moving pieces here but if I take a step back as we look, and I think a couple of times you said that the transaction was kind of in line with your expectations, but if I just add back a couple of pennies for the hurricane, it looks like 3Q was a little bit light even excluding things but 4Q is implied to be a little bit better. So is it fair to say that kind of excluding the one-time items, everything is kind of in line with expectations and absent interest expense, nothing changes from your view of earnings power as we head into 2023?

That's correct. So when you start to just for some of the one-time that we called out, John, and obviously the impact from the tax rate, which was also affected by the foreign currency remeasurement impact. We would have pretty much been within the earnings part that we kind of guided towards last quarter for this 2022 year.

Okay. So I guess the point, you made some good call for '23. But as we think about 2023 obviously these onetime things won't repeat your thinking, similar revenue growth, similar margin profile for '23 that you were thinking three months ago, maybe the only slight difference, as we have a little bit higher rates. So you have a little bit of a higher interest expense going into next year?

That's fair. Obviously, we're not giving '23 guidance but at a high level, I think what we wanted to highlight more than anything, John, is we've been giving some numbers based on what we expected. It kind of different segments to look like from a margin perspective, post transaction and when we start to normalize for some of the onetime impacts. We're very close to what we expected. So your statement is correct.

Okay. And then last one for me, Mac, just obviously you did this transaction with BPOP to clean it up, clean up the story and enable you to do M&A, so maybe just comments on the M&A pipeline, obviously you guys were tied up for a while probably getting this BPOP transaction closed, but now that we're kind of three months in the rear-view mirror, any comments on the M&A pipeline, how you see it obviously ample capacity with levered at 1.4 times, but any color there would be appreciated?

Yeah, I mean, as you know, we don't really talk about something that we hadn't, but I'd say we're even more focused than we were before. We've got a great balance sheet, we now don't have the regulatory requirements and we're actively looking at targets as we speak, and we hope is markets start to rationalize as rates stay up, that will continue to find some attractive opportunities and then I would point you to the organic stuff, I mean MercadoLibre is the most valuable and best e-commerce company in the region and we just extended from Mexico, now into Chile with those gaps, which is a significant testament to our brand. And then also Grupo Aval, most people probably are not familiar with that bank, but they're the holding company, some of the largest banks in Colombia, they've got about 18 million bank clients and about 60 million pensioners in the country of Colombia. So we're pretty excited about those guests on FRE's e-commerce gateway.

Okay. Appreciate the color. Thanks, guys.

Thank you. Next question will be come from Vasu Govil of KBW. Please go ahead.

Hi, thank you for taking my questions. I guess the first question for you, hopefully, in the guidance, for the fourth quarter, it seems to be still a pretty wide range, so maybe you could help us think about the key variables that could push us to the lower-end versus the higher-end. And then within that, I guess as it relates to hurricane Fiona, I know obviously a very unfortunate event. But in the past when calamities like that have happened, you've seen a pickup, there tends to be a pickup in insurance proceeds, and that sometimes drive increased spending in ensuming period. So like how are you thinking about those dynamics playing out?

Hey, Vasu. So, taking the second part of your question first. What I would say as it relates to Fiona, I mean there is no significant funding really expected as a result of the hurricane. Most of the metropolitan areas we're up and running relatively quickly. There are certain areas that and we said this in the remarks are still pretty impacted. So there are some funds coming into kind of do some reconstruction and help some of those businesses, but it's not to the extent or we are not expecting that type of impact that we saw or even close to that impact with Maria. So we're not expecting any real tailwind as a result of Fiona or any expected funding here into the fourth quarter. In terms of the range and the guidance, I mean from a topline perspective, we've kind of maintained the range that we had last quarter from that high side, I would say that it's mainly related to our -- to the spending here in Puerto Rico. Obviously, given the good tough compares of the prior year, it is difficult from quarter-over-quarter to define what's really the normalized baseline from which to grow and so that's why we're keeping that kind of a wider range than usual.

Thank you. That was the helpful color. And I guess my follow-up would be on the Payments Processing sort of segment in Puerto Rico and the Caribbean, that was Payment Services segment. Sorry, that was pretty strong. And I got the transaction growth in the ATH mobile, but maybe you could talk about what surprised you the most of the upside and can we expect this trend to continue into the fourth quarter and then into next year?

In terms of payment in Puerto Rico, number one, we have a small acquisition that we did in the second quarter that's definitely helping us in terms of the topline growth here over the prior year. But I would say that two things continue to perform very well. One is ATH mobile business, which continues to grow and continues to be, have a very good contribution per transaction. So we continue to look for ways to penetrate the cash environment in Puerto Rico and ATH mobile business continues to be a very good product for that. And in addition to that, some of the ancillary services that we have within Payment Services, like for example we do issuing for some of the healthcare companies in Puerto Rico, we actually signed a few years back with them have also continued to perform healthcare companies in Puerto Rico continuing to look for ways to electronify some of the benefits that they are giving their customers. We've become a pretty good source to help them do that. So we've also driven, I would say better than expected growth from those products.

And I would just reiterate the ATH mobile business. We're converting P2P transactions often to business transactions, that still remains an opportunity into the future. I will say Vasu as I did mentioned in kind of the 2023 configurations. We will anniversary the small acquisition we did in Q2 of next year. So I would say that there will be some moderation once we anniversary the acquisition.

So fair, and then Mac, if I could sneak in just one small one for you, just to follow up on the M&A question before, have valuations started to reset to a level that you think again become actionable in the near term. And then, specifically, what type of assets are you most interested in, is it more of the bank JV type of staff or more technology assets sort of what regions if you could give more color on how you're thinking, what you think might make more sense?

Sure. I mean I would say what -- I would say, sellers haven't necessarily capitulated but we are having some more reasonable conversations around valuations and target realize they have to make money and it so the conversations have changed and become a bit more reasonable. We're still focused on Latin America and we're still focused on the countries Colombia, Chile, Mexico, same countries that we're doing business in today. We're not focused of course on Venezuela or mainly focused on Argentina at this time. And I would say we love the payments businesses. We would look at a JV. We would look at a issuing or acquiring business and we also might consider some adjacencies. So we might look at an adjacency that is a technology that we would sell to the same customer type, that we feel like we could scale given our network.

Super helpful. Thank you very much.

Thank you.

Thank you. Next question will be from James Faucette of Morgan Stanley. Please go ahead, sir.

Hey, guys. This is Jeff Goldstein on for James. Just following up on one of that the Vasu's questions. I know it's hard to have a crystal ball on these things, but if we're thinking about the Puerto Rico economy as a whole and it takes some of the macro drivers, the issues around the hurricane, and then just what you're seeing in your own business. How are you feeling about the outlook for Puerto Rico today, may be compared to three months ago?

I mean, compared to three months ago is in a very long time frame. What I would say is the Puerto Rico still slated to receive reconstruction funding from Maria which we've discussed in the past. It's quite significant but it's over a significant period of time. And that is still to come. So I would say that Puerto Rico is shielded from the general macroeconomic environment that we're seeing, I mean from an inflation perspective, from an interest rate perspective. Having said that, Puerto Rico because of everything that happened with the hurricanes and COVID stimulus which on a per capita basis was more meaningful. There are certain economic factors that seems to be in a stronger place than they have been before and that for us is encouraging in terms of continuing to have kind of a better macroeconomic backdrop with which we need to work on. But it's something that we need to continue to definitely monitor and that continues to grow.

Yeah, I mean, I would just add. Look there still funding from Maria that needs to come in right to rebuild some of the infrastructure and some of the housing and there's also the infrastructure bill that Congress passed. So we still on a relatively small economy, have some nice tailwinds for the short term.

Got it. Okay and then just on the expansion of the MercadoLibre relationship into Chile. Is there anything you can talk about related to the economic contribution from that and then you mentioned obviously having a relationship with MercadoLibre in Mexico right now, but how should we think about additional geographic expansion possibilities for that relationship?

So, we haven't broken out the financial impact. What I would tell you is both countries now in MercadoLibre we're very specific, we only announce those deals are in production. So we are in product, we have been in production in Mexico for a while and it's exceeded our expectations. And then we are now in production in Chile where a group of all we've just signed the contract. So we've got to bring that up, which is our e-commerce gateway. It's prepaid and debit in both countries. And like I said, we're not breaking it out the numbers, but I will tell you we've exceeded our expectations in Mexico, which is contributing to the strong organic growth and we now have implemented it in Chile. It will take a while to ramp. But it should have an impact on us over the long term as well.

The only thing I'll add is to my last point there, I mean this is a ramp-up around raising production what they are, starting this business in Chile, it is unlike we're migrating a portfolio of cards that's going to give us immediate contribution to our top line growth. Having said that, it's a great relationship to Mac's point exceeded expectations in Mexico. So over time, we're expecting this to ramp up and start contributing in a more meaningful way.

All right. I appreciate the color.

Thank you.

Thank you. [Operator Instructions] Actually we will have a question. Next question will come from Chris Kennedy of William Blair. Please go ahead.

Hey, good afternoon, and thanks for all the detail a thanks for taking the question. Can you talk a little bit about the acceleration of your Latin America business? I think you've had multiple quarters of accelerating growth. Just kind of talk about what's driving that, if you can?

Yeah, I mean I'll just running from a high level, we've localized our place-to-pay platform now, it's now over seven countries, so we're seeing that volume come through, as I talked about MercadoLibre is exceeding expectations. So it's been some nice pieces of business that we've won over the last year or two and it's the look continued localization of the products that we purchased through M&A.

I'll add a couple of more points. One, I think we've mentioned like couple goal of cross-selling opportunities that we've been able to close in Nebraska, a couple of years that again have started small and have now gotten to a point where the contribution is impacting the overall segment a little bit more. The same goes for some of the Mexico relationships that we've announced MercadoLibre in Mexico, and [indiscernible] in Mexico. We kind of announce those wins maybe a year or year and a half ago, and they have now gotten to a point where they've gotten traction and they are contributing in a more meaningful way. So, I think to the extent that we continue to put some of these pieces together and they start to grow over time. This has been the expectation, these are markets that are expected to grow at this space and we're trying to put ourselves in that--in those positions with some of these client wins.

I mean, Chris, what ultimately this has done is we've built distribution channels now in each of these countries. And now that we have products where we have our own IP, like Joaquin said we can cross-sell and up-sell and over time, create leverage. So we're pretty excited.

Yeah. Fantastic. I appreciate that. And then just a small one, can you give the current revenue contribution from ATH mobile business and the other ATH mobile initiative you have?

We haven't broken that out, Chris.

Okay, understood. Thank you.

Thank you.

Thank you. That concludes our question-and-answer session. Now I'd like to turn the call back over to Mr. Mac Schuessler for closing remarks.

Thank you. I want to thank everyone again for joining our call and we look forward to seeing at upcoming conferences. Good night.