Hello, and welcome to the EVERTEC Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I will now turn the conference over to Beatriz Brown-Sáenz of Investor Relations. Please go ahead, ma'am. Beatriz Brown-Sáenz: 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 would 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 will now hand the call over to Mac.

Thanks, Beatriz. I'm pleased to report very strong third quarter results that were above our expectations as we continue to execute on our initiatives across all our markets. Strength was broad-based with every one of our segments growing both revenue and EBITDA over the prior period. We also continue to make progress on the Sinqia acquisition and hope to announce the closing of that transformational deal in the near future. On today's call, I will start with some highlights from the quarter, and then we'll turn it over to Joaquin, who will provide further details on our third quarter results as well as an update to our expectations for the remainder of the year. Beginning on Slide 4. Total revenue was approximately $173 million for the third quarter, an increase of approximately 19% compared to the third quarter of 2022. Adjusted EBITDA was approximately $79 million, an increase of approximately 31% when compared with the prior year quarter. Adjusted EBITDA margin was 45.4%, approximately 410 basis points above last year's level and above our expectations and guidance. Adjusted earnings per share was $0.80, an increase of 51% from the prior year quarter's adjusted EPS of $0.53. As a reminder, we changed our calculation of adjusted EBITDA, adjusted net income and adjusted earnings per share metrics earlier this year to exclude the impact of noncash unrealized gains and losses from foreign currency remeasurement, and all variances against prior year have been compared against recast figures. We generated operating cash flow of $163 million, and we returned approximately $33 million to our shareholders through dividends and share repurchases. Additionally, our liquidity remains strong at approximately $366 million as of September 30. Moving on to our business update on Slide 5. In Puerto Rico, we experienced growth across all our segments. Merchant Acquiring…

Thank you, Mac, and good afternoon, everyone. Turning to Slide 8, you will see the consolidated third quarter results for EVERTEC. As a reminder, in the first quarter this year, we made a change to our calculation of adjusted EBITDA, adjusted net income and adjusted EPS to exclude the effects of noncash unrealized gains and losses from foreign currency remeasurement and prior period numbers have been recast to conform to the current period presentation. Total revenue for the third quarter was $173.2 million, up approximately 19% compared to $145.8 million in the prior year, as all of our business segments performed above our expectations. Revenue growth was primarily driven by strong sales volume and transaction volumes, the recognition of a $6.3 million catch-up adjustment related to our Getnet Chile relationship and the impact in the prior year of the onetime credit granted to Popular upon closing of the Popular transaction. Adjusted EBITDA for the quarter was $78.7 million, an increase of approximately $18.5 million or 31% when compared to the prior year quarter. The increase in adjusted EBITDA was driven by the increase in revenue, partially offset by an increase in operating expenses as we had higher personnel costs and an increase in professional fees, driven by corporate development initiatives and cloud services, partially offset by recoveries of previously recorded operational losses. Adjusted EBITDA margin was approximately 45.4%, an approximate 410 basis points increase compared to the prior year quarter. The increase in margin reflects leverage from the revenue upside mainly the Getnet Chile catch-up, which flows completely through EBITDA. Additionally, prior year margin was negatively impacted by the onetime credit granted to Popular upon closing of the Popular transaction. Adjusted net income for the quarter was $52.4 million, an increase of 47% compared to $35.6 million in the prior…

[Operator Instructions] And the first question comes from Vasu Govil with KBW.

It was really a strong quarter, really strong revenue performance. And even if I sort of exclude the couple of onetime factors you called out, it was still -- I think I'm estimating low double-digit revenue growth. So Mac in looking like what surprised you to the upside versus your expectation? And then what sort of making you expect sort of a meaningful deceleration in the fourth quarter? I mean is there still some conservatism in the guide? Or is some moving factors we should be mindful of?

No, I mean, look, certainly, Puerto Rico payments surprised us in terms of some of the strength that we saw coming from sales volume on both transactions. As we said, obviously, we do have somewhat of a benefit in this quarter because last year, the second half of September was impacted by Fiona, and we can certainly see that in the numbers. Going to Q4, yes, I mean we're always balanced in how we are approaching the whole year. I think we've always given a full year and not necessarily a quarterly guidance. So we think we're taking into consideration some of the trends that we've been seeing, but certainly a little bit of a deceleration considering that it's been so strong in the third quarter.

And just a quick follow-up. As you probably are aware, the Fed sort of came out with a proposal yesterday to lower the debit interchange caps. Could you remind us how much of your debit volume goes on the Visa MasterCard networks? And do you expect that to be a tailwind to you guys if you were able to tack on some pricing on the top of that?

So we haven't broken out what -- how much goes through Visa MasterCard, but we have said, right, that most of the volume that we see in Puerto Rico is debit. So that would certainly have an effect. And we've also mentioned that a lot of our pricing is bundled. But I think it's a little bit early to really kind of gauge how much of an impact this could have. In the past, we obviously went through Durbin. And when we went through Durbin, there were certainly movements depending on the clients and the sophistication behind those clients, where they also wanted to get some of the benefit that acquirers were getting. So I think it's a little bit early, but it's certainly positive.

And the next question comes from John Davis with Raymond James.

Just actually wanted to follow up a little bit on Vasu's question around just kind of bigger picture revenue growth, 10% this quarter going to low singles, but for the full year, still going to be healthy and quite a bit quicker than you've historically grown once you make all the adjustments. So Mac, how do you think about pre-Sinqia and post Sinqia, you can talk about the normalized growth rate of the business? Is this a mid-single digits? Is it higher? What are the puts and takes? I feel like there's been so many moving pieces over the last 4 or 5 years, whether it's hurricanes or COVID. Just to trying to understand what the normalized growth rate is here.

Yes. Yes, John, happy to try and answer that. So as you know, we don't give long-term guidance, and we've been very careful. And given, to your point, the complexity of our business. I think we've all been sort of surprised at the resiliency of the U.S. economy and the consumer. And we've also been very pleased with our execution, right? We've rolled out ATH Movil additional features. We've been able to grab market share here and keep our customers. Outside of Puerto Rico, our customers have exceeded their expectations. So if you look at Mercado Libre, you look at Santander, Getnet, they're beating their projections using our technology. So we feel like, look, no company is perfect, but we feel like we've executed well. We've grown our market share, and we've kept our customers. Going forward, it's hard to predict. And when the next call, we'll give you guidance for next year. But things could decelerate as people anticipate, but we're not giving you guidance for next year. But we have been pleased with what we've been able to accomplish this year.

Okay. And then just a follow-up. I know you haven't closed Sinqia yet, but we're, let's call it, 3 months into the process of -- I know you can't officially integrate until it's done, but conversations. Curious, what are you more excited about today, whether it's a cross-sell opportunity, cost savings? Just maybe an update on thinking now that you've been kind of in the process with these guys for 3 months now.

Sure. Yes. Look, I've spent a lot of time in Sao Paulo since we announced this deal. And we're still incredibly excited about it, right? I mean this is -- first, it's a known company in Brazil that has a great reputation. They've been public for 10 years, strong sell-side coverage. Auditors or Deloitte, they've got a great reputation with their customers. We walked you through a while back, who their customers are and their different segments. Out of the gate, we're going to be really focused on how do they continue to execute well and then how do we help accelerate growth. So when we look at synergies, which weren't baked into sort of the rationale of the deal when we talk about it's going to be accretive next year even without. But we are going to focus on growth. So we will focus first on payment. So the ability to sell our payments products in Brazil across their base is going to be a priority for us. As you may know, iFood, which is that Uber or the DoorDash of Brazil, the #1 food delivery company, already issued 700,000 cards using our platform. Alelo is already a customer. So we already have some products that are ready and available and that are localized to the market that we can start selling. Additionally, we can localize some of the products that we have like place to pay or our acquiring module if that demand presents itself with their customers as well. So selling products using the strength they have, the leadership team they have, the commercial relationships, we're incredibly excited about. And then exporting their products, right? I mean they're digital products, they have a great onboarding solution. They have a great automated collection solution. So we're going to look through all of their different products, whether it's on their digital services or one of their industry-specific products to see which of those we can export over time and the quickest. We're still doing the work up to determine that. So we're excited. We think that this is going to be some good revenue synergies. And over time, there will be cost savings, but that's not going to be our priority. But we do think over time, just like we've done with other acquisitions, if you look at our margins in our LatAm segment, we've made acquisitions, we've held margins together. We do think that we'll be able to share development teams to potentially share some of our infrastructure over time. But we're going to do it very deliberately in a way that doesn't prohibit sort of -- or detract from our agility and our growth.

Okay. And last one for me, just again another Sinqia question. They've been successful by in large part, their ability to acquire companies, integrate that and grow the business. Do you plan to continue to enable them to do that to deploy capital in Brazil? Do you think that's kind of be your focus kind of going forward moving into Brazil? Just thoughts on -- that they've been successful doing a lot of M&A, and I would assume you're going to continue to do that, but just any thoughts there.

Yes. So we will. So they have a very -- we spent time with the M&A team, their methodology. They've done a great job acquiring 24 companies over the last several years. That team will stay intact because they have very -- they're very deep into the market. They have relationships with entrepreneurs. They have relationships with companies. They have a pipeline. So we will continue to work with them to focus on Brazilian targets, and we bring capital that they didn't have in the past, right, given our current capability and given the cash that we throw off. However, we're not going to focus just on Brazil. Alberta is very focused on looking throughout the region, looking into other markets. So we will focus on Brazil for sure, but we'll continue to look across the region.

And the next question comes from Nate Svensson with Deutsche Bank.

Great results. Happy to see the print. I was wondering if you could give a little more color about the contractual minimums with Getnet that you think you're going to bust. So maybe can you talk about some of the drivers that are pushing you above that? Is this sort of growth at Getnet that has exceeded expectations? Is it efforts from EVERTEC? Is it macro? And then I guess maybe more broadly, sort of what portion of your book of business has contractual terms similar to what you have at Getnet? I know earlier you talked about Santander exceeding expectations. So I guess a little more color on what drove the Getnet performance above expectations and then how that applies to the rest of your book of business?

Yes. So this is Mac. I'll take sort of strategically how we think about this, and then I'll hand it to Joaquin, if he wants to provide more details. Look, one of the things that we are proud of is that the team has -- we've made acquisitions, we bought some good technology and then we've localized it in specific countries to take advantage of opportunities. But when we did that, we would match it against a real commercial opportunity. We didn't -- we don't necessarily localize and wait for them to come, we actually localize it when there's demand. So with some of the contracts, particularly when it was a significant build, we would put minimums in place to ensure they didn't necessarily want to pay big implementation fees. So we put minimums in place to ensure that we could recover our investment and not be wholly dependent on their success selling the product and that type of thing. So we have built some contracts in that manner, and this was one of the larger ones. So it's played out very well and they have been incredibly successful. They have over 150,000 merchants up. We believe they've been the most successful to challenge Transbank. But not only have they been successful in that we're recovering our investment and a good return on top, they're blowing through it. And that's what you're seeing this quarter is a multi-quarter catch-up, right? So this isn't stuff that just occurred in this quarter. We're catching up for multiple quarters because the combination of both of our efforts have exceeded both of our expectations.

Got it. That's super helpful color. And then another comment I wanted a little clarification on. So Joaquin, you mentioned that EBITDA margins in the fourth quarter are going to be lower to increased investments in the business and resulting in higher OpEx. So maybe you could give a little more color on what those specific investments are, what OpEx line items you're going to see the increases and then sort of what the sort of long-term strategic rationale for those investments are?

I mean I think that in this case, we're kind of highlighting very specific projects that are coming into play. I would say, mainly in the professional lines, professional fees, pipeline and cloud services. We are continuously looking at our infrastructure, looking for ways to be more efficient to bring our technology to a next level, and just timing-wise some of those will fall into the fourth quarter. Plus we have some very specific corporate initiatives that we are doing mainly across Latin America as we continue to look at different markets and evaluate different ways of entering Brazil, et cetera, that will also fall into the fourth quarter.

The next question comes from Bob Napoli with William Blair.

I guess another question on Sinqia. Just since this is a new business for you, how do you think about Sinqia's tech stack relative to competition? There's a lot of innovation in the bank tech space. And I think Sinqia is doing a cloud transition to the cloud, but just any thoughts around the challenges and opportunities and how that tech stack compares to the competition.

Yes. So Bob, what I would tell you is, look, Sinqia is acquired, like we said, 24 assets over the last decade. And then they also have a legacy business that was sort of the genesis of the company. They've done an incredibly good job, and we sort of interviewed the marketplace, interviewed competitors, interviewed ex employees. They did a good job providing good service, providing good technology to their customers. But they have built product road maps, and they have got to move some of the more stuff to the cloud, right? They're in this journey. They're not finished with it. So just like most companies that have been around for a while, they're still migrating some stuff to the cloud. They're still going along that journey. And they're still on some of their platforms, determining which one they're going to decommission which one they're going to keep. So they are still along that journey. But I think they're executing it well. But that is something that we will help them focus on and make sure that they execute and that they're able to make the migration that they've set out to accomplish.

And then maybe some color on the sales activity in Latin America, just the pipeline, what you're seeing there?

Bob, this is Joaquin. I mean I think as we've said before, the organic side of the business continues to perform very well. Obviously, is a result of some of the products and the investments that we've been making over time. I think Santander and what we just reported is a perfect example of how the investments that we made originally when we acquired the Chile asset then all the investments we did to convert that into a processing platform are actually now giving very good results. And that's driving the pipeline as well. I mean this type of performance certainly brings others to take a look and participate. So we're certainly continuing to take advantage of that.

What's also interesting, Bob, is as we've acquired these different assets and localized in different countries and then become more, I guess, of experts and how do we commercialize these and sell them. We're beginning to find opportunities where we can bundle these products, right? So if you take 1 of our wallet solutions, you take 1 of our risk management solutions, you take 1 of our issuing solutions, can you put those together and offer unique solutions? So we feel good about the pipeline. We're continuing to sell in the things we do business in. But now that we have a broader set of products, we're becoming a more interesting solution to customers in these markets.

[Operator Instructions] And the next question comes from James Faucette with Morgan Stanley.

Just quickly following up on Sinqia. Anything that you can share in terms of key to do still to get past, whether it be from a regulatory perspective or other issues like that? Just trying to make sure that we understand what the roadmaps is here still to get that closed.

To get -- I mean, the big thing was the shareholder approval, right? So we've got that behind us. We're still working through small issues, but we're still focused on the close and feel good about getting this deal flows. But the big issue for us was the shareholder approval. That was the long pull on the top.

Got it. Got it. Got it. And then when you think about next year, I think you kind of really appreciate you calling out the grow-over challenges from this year into next year, et cetera. But what are the things that you're watching from a macro perspective besides just like inflation rates coming down probably a little bit faster at least in Puerto Rico than I had anticipated? And anything else that we should be aware of that could move things around?

James, this is Joaquin. I mean, look, as I said, I think that for what it's worth in Puerto Rico, we continue to expect a stable backdrop as we said in 1 of the other questions that we got, I think we've all been surprised by the strength of the consumer and how that's got reflected in, let's say, sales volume and transactions, even though we're kind of way past some of these very specific funds that were hitting people's bank accounts. It seems like reconstruction is starting to have, let's say, an undertone in the performance of the Puerto Rico economy, not hugely significant to the point where we can kind of pinpoint, but there's certainly more activity and that's why we feel that on a go-forward basis, it will be stable in Puerto Rico. And in Latin America, obviously, we have multiple countries that we're tracking in terms of potential effects. But given the type of services that we're providing outside of Puerto Rico, it is really more driven by the pipeline and being able to execute and deliver on time for those clients. So I'd say that at a high level, that's kind of our macro what we're always considering.

And the next question comes from Jamie Friedman with Susquehanna.

Let me echo the congratulations. Joaquin, when I do the math on the implications for the Q4 though, I'm getting a decel down to the low single digits. And I think you made some comments specifically about September in your prepared remarks. I was just hoping you could kind of help unpack if the slowdown is of that magnitude, why it would be? And if you could repeat what you said about September.

Yes. So September of last year, the second half of September was impacted by Hurricane Fiona. We had a hurricane that came through. And we saw -- and actually, we called out when we had the Q3 call, and there was slowdown in the last 2 weeks of last year. And that certainly was a positive in the rollover this year, both in Merchant Acquiring and in Payments Puerto Rico. So as we go into Q4, obviously, we won't have that benefit, number one. Also, when you look at the growth rate in this quarter, we have Santander, which is big in the Latin America segment. And then in Business Solutions, we have the grow-over from last year, given the CPI effect, which was another $6 million in the previous year. So the Business Solutions segment, once we get into the next quarter will be in the low single digit, which is what we've expected, right? So those are the main drivers. And then obviously, just a little bit of a slowdown in the overall trending payments just given what we're coming off of.

Okay. And then, Mac, I think that you or Joaquin had alluded to some pricing opportunities in Merchants. I was wondering if you could kind of elaborate on that. What if you could share the magnitude or how you're thinking at least strategically of that price?

Actually, Jamie, what we called out is that we're going to be lapping a lot of those now going into Q4, which is actually another driver that's going into how we're looking at the fourth quarter. So Q3 also benefited from some of those pricing initiatives that we actually put in place last year, and that has been a tailwind. As we've said previously, pricing initiatives in a broader sense where we're kind of impacting the whole portfolio. It's something that we don't do all the time. That's what we've called this one out. We are, however, always looking at different segments of the portfolio, different verticals within the portfolio where the different dynamics or types of cards or mix is impacting profitability and we'll go in and adjust. And those are a lot more subtle to the overall results, but it's something that we're always doing. In this case, what we're calling out is we're going to lap an effect of pricing initiatives that impacted pretty much the whole portfolio last year, and we benefited from that throughout.

And this does conclude the question-and-answer session. I would like to turn the call to Mac Schuessler for any closing comments.

Again, we'd like everyone -- to thank everyone for joining us tonight for the call. And we look forward to seeing you in upcoming conferences. Goodbye.

Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.