Investor Presentation. March 2017

Transcription

1 Investor Presentation March

2 Disclosures Forward-looking statements Certain statements in this presentation constitute forward-looking statements within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of Such statements can be identified by the use of forward-looking terminology such as believes, expects, may, estimates, will, should, plans or anticipates or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. Among the factors that significantly impact our business and could impact our business in the future are: the effect of the Restatement of our previously issued financial results for the years ended December 31, 2014 and 2013 as described in Note 2 to the quarterly unaudited financial statements, and any claims, investigations or proceedings arising as a result; the effectiveness of our efforts to remediate the material weakness in our internal controls over financial reporting described in Item 4 of this Quarterly Report and our ability to maintain effective internal controls and procedures in the future; our reliance on our relationship with Popular, Inc. ( Popular ) for a significant portion of our revenues and with Banco Popular de Puerto Rico ( Banco Popular ), Popular s principal banking subsidiary, to grow our merchant acquiring business; for as long as we are deemed to be controlled by Popular, we will be subject to supervision and examination by U.S. federal banking regulators, and our activities will be limited to those permissible for Popular. Furthermore, as a technology service provider to regulated financial institutions, we are subject to additional regulatory oversight and examination. As a regulated institution, we most likely will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition; our ability to renew our client contracts on terms favorable to us; our dependence on our processing systems, technology infrastructure, security systems and fraudulent payment detection systems, as well as on our personnel and certain third parties with whom we do business, and the risks to our business if our systems are hacked or otherwise compromised; our ability to develop, install and adopt new software, technology and computing systems; a decreased client base due to consolidations and failures in the financial services industry; the credit risk of our merchant clients, for which we may also be liable; the continuing market position of the ATH network; a reduction in consumer confidence, whether as a result of a global economic downturn or otherwise, which leads to a decrease in consumer spending; our dependence on credit card associations, including any adverse changes in credit card association or network rules or fees; changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions; the geographical concentration of our business in Puerto Rico, including our business with the government of Puerto Rico and its instrumentalities, which are facing severe fiscal challenges and fiscal and regulatory oversight uncertainties; our exposure to climate risks in Puerto Rico; additional adverse changes in the general economic conditions in Puerto Rico, including the continued migration of Puerto Ricans to the U.S. mainland, which could negatively affect our customer base, general consumer spending, our cost of operations and our ability to hire and retain qualified employees; operating an international business in multiple regions with potential political and economic instability, including Latin America; our ability to execute our geographic expansion and acquisition strategies; our ability to protect our intellectual property rights against infringement and to defend ourselves against claims of infringement brought by third parties; our ability to recruit and retain the qualified personnel necessary to operate our business; our ability to comply with U.S. federal, state, local and foreign regulatory requirements; evolving industry standards and adverse changes in global economic, political and other conditions; our high level of indebtedness and restrictions contained in our debt agreements, including the senior secured credit facilities, as well as debt that could be incurred in the future; our ability to prevent a cybersecurity attack or breach in our information security; our ability to generate sufficient cash to service our indebtedness and to generate future profits; our ability to refinance our debt; and the risk that the counterparty to our interest rate swap agreement fails to satisfy its obligations under the agreement. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. The Company does not undertake, and specifically disclaims any obligation, to update any of the forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by the federal securities laws. Investors should refer to the Company s Form 10-K for the year ended December 31, 2016 (the 2016 Form 10-K ) for a discussion of factors that could cause events to differ from those suggested by the forward-looking statements, including factors set forth in the sections entitled Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations. Use of Non-GAAP measures Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, the company has provided non-gaap financial measures, which it believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. For these reasons, management also uses these measures in part to assess its performance. In addition, the Company s presentation of Adjusted EBITDA is consistent with the equivalent measurements contained in the Credit Agreement in testing EVERTEC Group s compliance with covenants therein such as the senior secured leverage ratio. Any non- GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP measures. Further, EVERTEC s non-gaap measures may be calculated differently from similarly titled measures of other companies. Reconciliations of these non-gaap measures to related GAAP measures, including footnotes describing the specific adjustments, are provided in the appendix of this presentation and in the Investor Relations section of the EVERTEC web site, 2

3 A Leading End-to-End Transaction Processor in Latin America Complete Portfolio of Products and Services Market Leadership Diversified Revenue Base 1 Broad Customer Universe Merchant Acquiring Payment Processing Business Solutions #1 in the Caribbean / CentAm 2 #10 in LatAm 2 Enables merchants to accept and process electronic payments # 1 card issuer processor & ATM / debit network in the Caribbean Process and route electronic payments Top provider of mission critical technology solutions Full suite of technology solutions 23% 29% 48% 25,000+ merchant locations 200+ financial institutions 250+ enterprises Notes: (1) Represents total of 2016 revenue. (2) Source: September 2016 Nilson Report. 3

4 With A Strong Footprint and Unique Focus on Growing Regional Markets MX With Growth Expected to Continue Into the Future (1) (Payments Industry Revenue Growth % CAGR 14-19E) US GT ES BZ CR GCI HON NIC PAN EC PER Current presence Target future expansion COL BM DR PR BVI HT USVI CLP Curaçao BOL ARG PAR URU Presence in 18 countries; sales offices in 7 of them Local market expertise: +25-years of on-the-ground presence, language and cultural understanding Diversified solution set As Card Penetration Per Capita Continues to be <50% of (2) (% Penetration = V/MA purchase volume / GDP) Scalable technology platform +2 billion transactions processed per year Notes: (1) Global Payments 2015: A Healthy Industry Confronts Disruption, McKinsey & Company.. (3) The World DataBank, Company reports and J.P. Morgan 2015 estimates.. 4

5 Led By A Team of Proven Industry Professionals Morgan M. Mac Schuessler, Jr. President and CEO Former President of International for Global Payments, Inc. with over 20 years of payment industry leadership experience Mariana Goldvarg President for Latin America Former President of Equifax Latin America with over 20 years of experience in LatAm financial services sectors, including ~10 years at Citibank Peter Smith Chief Financial Officer Former Chief Accounting Officer at FIS with over 10 years of experience in the financial technology sector Miguel Vizcarrondo EVP Merchant Acquiring and Payment Processing Over 10 years of merchant acquiring experience with Banco Popular and Evertec Philip E. Steurer EVP and Chief Operating Officer Former SVP at First Data with over 20 years of experience in transaction processing Carlos Ramírez EVP Business Solutions Over 25 years of experience with Evertec Guillermo Rospigliosi EVP Product, Marketing and Innovation Former Managing Director of Cybersource at Visa with over 20 years of experience Luis A. Rodriguez General Counsel & SVP of Corporate Development Former Director at JP Morgan and Deutsche Bank in New York with over 10 years of experience 3 Team of +1,650 Evertec engineers, programmers and other professionals across 7 countries in Puerto Rico and Latin America 5

6 2016 Significant Progress on Our Objectives Solid Financial Performance Revenue growth +4% and Adjusted EPS +5% Returned $70 million to shareholders through share repurchases and dividends Renewed commitment to the customer Strengthened partnership with Popular, FirstBank, and Oriental Enhanced ATH brand through innovation such as ATH Movil Improved LatAm service delivery and account management Invested in the operations and infrastructure Capital investment over the past two years ~$80 million Improved infrastructure and operations Delivered corporate development performance Completed two acquisitions Pending acquisition in Chile 6

7 Investment Highlights 1 Resilient Business Model Strong market position combined with secular payments trends and high customer retention create a resilient business model Approximately 89% of 2016 revenue was recurring Strong performance through economic downturn 2 Diversified Growth Profile Revenue CAGR of 4% ( ) Adjusted EBITDA CAGR of 5% ( ) Growth across all business segment 3 Leverageable Platform Approximately 48% Adjusted EBITDA margin 2016 Leverageable technology platform provides scale 4 Attractive Cash Flow Profile High cash flow conversion supported by advantaged tax structure Investing in the business Returning cash to shareholders 5 Improved Balance Sheet Majority of debt maturities in 2020 Sustained liquidity through undrawn revolver, cash, and operating cash flow De-leveraging through growth and structured pay down 7

8 1 Recurring Revenue Business Model Highlights Revenue Profile (1) Long-term contracts with financial institutions, merchants, corporations and governments Contracts typically 1- to 5-year in duration, often with automatic renewals 15-year exclusive Master Services Agreement with Banco Popular Runs through 2025 and remains in place with change of control Recurring Business Solutions 37% Project- Based Business Solutions 11% Merchant Acquiring 23% Payment Processing 29% ~89% Recurring Revenue With contractual price adjustments (1) Year ended December 31,

9 1 Resilient Business in Puerto Rico Sustained growth despite macro headwinds, driven by secular Payments trends and management execution 1 2 Despite lackluster GDP performance and weak retail sales 5.5% 0.5% (0.2%) (0.6%) (1.0%) (1.7%) (1.7%) F 3 4 EVERTEC has delivered Revenue growth 0.3% (0.1%) (0.0%) (2.9%) (2.3%) F and Adjusted EBITDA (1) growth CAGR: 4% CAGR: 5% Note 1: See Non-GAAP reconciliation summary in appendix, p.15, $ s in millions; Source: 2016F GDP and retail sales Trading Economics, Feb

10 2 Diversified Revenue Growth ($ in millions) Revenue by Segment 2016 Revenue by Segment CAGR: 4% 8% 5% 2016 Revenue Total: $390M 2016 Operating Income by Segment 2% 2016 Operating Income Total: $140M 10

11 3 Strong Margins and High Operating Leverage Adjusted EBITDA (1) High Adjusted EBITDA Margin CAGR: 5% : ~160bps Additional Adjusted EBITDA growth achieved through operating efficiencies Significant operating leverage Note: See Non-GAAP reconciliation summary in appendix, p.15 1 $ in millions 11

12 4 Attractive Cash Flow Generation Key Attributes Free Cash Flow (1)(2) Recurring revenue Strong EBITDA margins (~48%) Low maintenance capex Tax advantaged status 15-year tax grant through % tax rate applicable to ~77% of 2016 revenues 1 Free cash flow defined as adjusted EBITDA less capital expenditures, cash interest expense, and cash income taxes; 2015 capital expenditures excludes acquired merchant portfolio; 2016 capital expenditures exclude $16M of acquisitions. See reconciliation in appendix on page $ in millions 12

13 5 Improved Balance Sheet Recently completed refinance extends the majority of debt maturities to 2020 and adjusts leverage ratio cap to 4.75x through 9/30/18, then adjusting to 4.25x Net debt / Adjusted EBITDA Sustain strong liquidity through capacity in undrawn revolver, cash on the balance sheet, and free cash flow generation Net Debt Strategic acquisitions expected to fit within leverage constraints Prudent return of excess cash to shareholders Note: Figures from EVERTEC Group level per Credit Agreement;. Net debt represents unpaid principal balance less cash net debt to trailing twelve month adjusted EBITDA of 3.4x reflects the amended credit agreement which limits the cash applied in the net debt calculation to $25M. 13

14 Appendix 14

15 Non-GAAP Reconciliation Summary GAAP Net Income to Adjusted EBITDA ($ in millions) 12/31/ /31/ /31/ /31/ /31/ /31/2016 Net income (loss) $28 $75 ($27) $66 $85 $75 Income tax expense (benefit) (33) (59) $1 $9 (3) 8 Interest (income) expense $37 $ Depreciation and amortization $70 $ EBITDA $115 $142 $82 $166 $171 $167 Cost savings and software maint reimbursement 1 $3 $2 $2 $2 $2 $1 Equity income (1) (0) (0) Compensation and benefits Pro forma cost reduction initatives Pro forma VRP benefits Transaction, refinancing and non-recurring fees Management fees Purchase accounting 8 (0) (1) Adjusted EBITDA $149 $168 $178 $182 $186 $188 1 Represents reimbursements received from Popular for software maintenance expenses as part of the Merger 2 Represents the elimination of non-cash equity in earnings of investments reported in net income from equity ownership in CONTADO and in Serfinsa, net of cash dividends 3 For 2013, primarily represents non-cash equity based compensation expense. For 2012, represents a one-time payment made to the former CEO and other non-cash equity based compensation. For 2011, represents includes one-time costs related to the voluntary retirement program ( VRP ) 4 Represents the pro forma effect of the expected net savings primarily in compensation and benefits from the reduction of certain temporary employees and professional services 5 For 2011, adjustment represents the pro forma net savings in compensation and benefits related to the employees that participated in the VRP 6 Represents primarily: (i) costs associated with the issuance and refinancing of EVERTEC s debt of approximately $2.4M and $8.8M for 2011 and 2012, respectively and $58.6M for the nine months ended September 30, 2013; (iii) costs associated with certain non-recurring corporate transactions, including, for example, costs related to EVERTEC Group s conversion to an LLC and the distributions made to our stockholders during 2012 of $4.0M and $3.9M for 2011 and 2012, respectively; and (iv) a non-recurring, non-cash asset write-off of $1.6M in 2012 and other non-recurring expenses of $1.6M in 2011, (v) corporate transaction fees associated with refinance in 2016 and restatement related expense in Represents consulting fee payable to sponsors. In connection with our Initial Public Offering during the second quarter of 2013, our consulting agreements with Apollo and Popular were terminated. 8 Represents elimination of the effects of purchase accounting in connection with certain arrangements where we receive reimbursements from Popular; and for 2011, our rights to buy equity interests 15

16 Non-GAAP Reconciliation Summary Free Cash Flow ($ in millions) Year ended 12/31/ /31/ /31/ /31/ /31/ /31/2016 Adjusted EBITDA $149 $168 $178 $182 $186 $188 Capital expenditures 1 (22) (27) (28) (26) (36) (41) Cash interest income (expense) 2 (42) (49) (22) (22) (21) (21) Cash income taxes 3 (2) (3) (2) (1) (6) (9) Free Cash Flow $83 $89 $126 $133 $123 $ capital expenditures excludes acquired merchant portfolio $10M; 2016 capital expenditures excludes $16M of acquisitions 2 Represents interest expense adjusted to exclude non-cash amortization of the debt issue cost, premium and accretion of discount 3 Represents cash taxes paid for each period presented 16