Company Quick10K Filing
Evertec
Price30.75 EPS1
Shares74 P/E29
MCap2,261 P/FCF17
Net Debt415 EBIT115
TEV2,676 TEV/EBIT23
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-10-30
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-26
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-02
10-K 2016-03-31 Filed 2016-05-26
10-K 2015-12-31 Filed 2016-05-26
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-03-17
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
8-K 2020-10-29 Earnings, Exhibits
8-K 2020-10-20 Regulation FD, Exhibits
8-K 2020-08-04 Earnings, Exhibits
8-K 2020-07-24 Regulation FD, Exhibits
8-K 2020-05-28
8-K 2020-05-08
8-K 2020-04-21
8-K 2020-02-25
8-K 2020-02-20
8-K 2019-10-30
8-K 2019-10-24
8-K 2019-07-31
8-K 2019-07-26
8-K 2019-05-24
8-K 2019-05-01
8-K 2019-04-25
8-K 2019-02-22
8-K 2019-02-20
8-K 2019-02-15
8-K 2018-12-21
8-K 2018-11-28
8-K 2018-11-08
8-K 2018-10-30
8-K 2018-10-26
8-K 2018-10-26
8-K 2018-08-07
8-K 2018-07-31
8-K 2018-07-26
8-K 2018-05-24
8-K 2018-05-02
8-K 2018-02-21

EVTC 10Q Quarterly Report

Note 1 - The Company and Basis of Presentation
Note 2 - Recent Accounting Pronouncements
Note 3 - Current Expected Credit Losses
Note 4 - Property and Equipment, Net
Note 5 - Goodwill and Other Intangible Assets
Note 6 - Debt and Short - Term Borrowings
Note 7 - Financial Instruments and Fair Value Measurements
Note 8 - Equity
Note 9 - Share - Based Compensation
Note 10 - Revenues
Note 11 - Income Tax
Note 12 - Net Income per Common Share
Note 13 - Commitments and Contingencies
Note 14 - Related Party Transactions
Note 15 - Segment Information
Note 16 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31109302020.htm
EX-31.2 ex31209302020.htm
EX-32.1 ex32109302020.htm
EX-32.2 ex32209302020.htm

Evertec Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.00.80.60.40.20.02012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
 
 
FORM 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020 or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
COMMISSION FILE NUMBER 001-35872
 
 
 EVERTEC, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 
 
  
Puerto Rico
 
66-0783622
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
 
 
Cupey Center Building,
Road 176, Kilometer 1.3,
 
 
San Juan,
Puerto Rico
 
00926
(Address of principal executive offices)
 
(Zip Code)
(787759-9999
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
EVTC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes      No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
Emerging growth company
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes    No  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At October 23, 2020, there were 71,906,983 outstanding shares of common stock of EVERTEC, Inc.




TABLE OF CONTENTS
 


 
 
Page
Part I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
















All reports we file with the Securities and Exchange Commission ("SEC") are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC.




FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. 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:

our reliance on our relationship with Popular, Inc. (“Popular”) for a significant portion of our revenues pursuant to our master services agreement with them, and to grow our merchant acquiring business;
as a regulated institution, the likelihood we will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition, and our potential inability to obtain such approval on a timely basis or at all, which may make transactions more expensive or impossible to complete, or make us less attractive to potential sellers;
our ability to renew our client contracts on terms favorable to us, including our contract with Popular, and any significant concessions we may have to grant to Popular with respect to pricing or other key terms in anticipation of the negotiation of the extension of the MSA, both in respect of the current term and any extension of the MSA;
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, tax, 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 political and fiscal challenges;
additional adverse changes in the general economic conditions in Puerto Rico, whether as a result of the government’s debt crisis or otherwise, 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;
a protracted federal government shutdown may affect our financial performance;
operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;
our ability to execute our geographic expansion and acquisition strategies, including challenges in successfully acquiring new businesses and integrating and growing acquired businesses;
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;
the possibility that we could lose our preferential tax rate in Puerto Rico;
the risk that the counterparty to our interest rate swap agreements fail to satisfy its obligations under the agreement;



uncertainty of the pending debt restructuring process under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), as well as actions taken by the government of Puerto Rico or by the PROMESA Board to address the fiscal crisis in Puerto Rico;
the aftermath of Hurricanes Irma and Maria and their continued impact on the economies of Puerto Rico and the Caribbean;
the possibility of future catastrophic hurricanes affecting Puerto Rico and/or the Caribbean, as well as other potential natural disasters;
uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021;
the nature, timing and amount of any restatement; and
the impact of a novel strain of coronavirus ("COVID-19"), and measures taken in response to the outbreak, on our revenues, net income and liquidity due to current and future disruptions in operations as well as the macroeconomic instability caused by the pandemic.

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. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Item 1A. Risk Factors,” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report. These forward-looking statements speak only as of the date of this Report, and we do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.








EVERTEC, Inc. Unaudited Condensed Consolidated Balance Sheets
(Dollar amounts in thousands, except for share information)

 
 
September 30, 2020
 
December 31, 2019
Assets




Current Assets:




Cash and cash equivalents

$
144,147


$
111,030

Restricted cash

18,049


20,091

Accounts receivable, net

111,852


106,812

Prepaid expenses and other assets

44,835


38,085

Total current assets

318,883


276,018

Investment in equity investee

12,417


12,288

Property and equipment, net

43,255


43,791

Operating lease right-of-use asset
 
26,824

 
29,979

Goodwill

395,048


399,487

Other intangible assets, net

222,085


241,937

Deferred tax asset

3,657


2,131

Net investment in leases
 
394

 
722

Other long-term assets

5,511


5,323

Total assets

$
1,028,074


$
1,011,676

Liabilities and stockholders’ equity




Current Liabilities:




Accrued liabilities

$
54,099


$
58,160

Accounts payable

36,057


39,165

Unearned income

19,800


20,668

Income tax payable

7,475


6,298

Current portion of long-term debt

14,250


14,250

Current portion of operating lease liability
 
5,877

 
5,773

Total current liabilities

137,558


144,314

Long-term debt

484,306


510,947

Deferred tax liability

2,575


4,261

Unearned income - long term

30,827


28,437

Operating lease liability - long-term
 
21,380

 
24,679

Derivative liability
 
27,370

 
14,452

Other long-term liabilities

13,850


12,963

Total liabilities

717,866


740,053

Commitments and contingencies (Note 13)




Stockholders’ equity




Preferred stock, par value $0.01; 2,000,000 shares authorized; none issued




Common stock, par value $0.01; 206,000,000 shares authorized; 71,906,983 shares issued and outstanding as of September 30, 2020 (December 31, 2019 - 72,000,261)

719


720

Additional paid-in capital

6,552



Accumulated earnings

351,252


296,476

Accumulated other comprehensive loss, net of tax

(52,386
)

(30,009
)
Total EVERTEC, Inc. stockholders’ equity

306,137


267,187

Non-controlling interest

4,071


4,436

Total equity

310,208


271,623

Total liabilities and equity

$
1,028,074


$
1,011,676


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(Dollar amounts in thousands, except per share information)

 

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
Revenues (affiliates Note 14)
 
$
136,507

 
$
118,804

 
$
376,386

 
$
360,188

 
 
 
 
 
 
 
 
 
Operating costs and expenses
 
 
 
 
 
 
 
 
Cost of revenues, exclusive of depreciation and amortization
 
57,854

 
51,878

 
168,900

 
154,498

Selling, general and administrative expenses
 
16,682

 
15,152

 
51,528

 
45,355

Depreciation and amortization
 
18,127

 
16,972

 
53,761

 
50,440

Total operating costs and expenses
 
92,663

 
84,002

 
274,189

 
250,293

Income from operations
 
43,844

 
34,802

 
102,197

 
109,895

Non-operating (expenses) income
 
 
 
 
 
 
 
 
Interest income
 
429

 
348

 
1,165

 
864

Interest expense
 
(5,867
)
 
(7,267
)
 
(18,829
)
 
(22,191
)
Earnings of equity method investment
 
202

 
371

 
733

 
726

Other income (expense)
 
2,486

 
252

 
2,766

 
(619
)
Total non-operating expenses
 
(2,750
)
 
(6,296
)
 
(14,165
)
 
(21,220
)
Income before income taxes
 
41,094

 
28,506

 
88,032

 
88,675

Income tax expense
 
6,513

 
3,720

 
15,551

 
10,018

Net income
 
34,581

 
24,786

 
72,481

 
78,657

Less: Net income attributable to non-controlling interest
 
118

 
32

 
323

 
201

Net income attributable to EVERTEC, Inc.’s common stockholders
 
34,463

 
24,754

 
72,158

 
78,456

Other comprehensive income (loss), net of tax of $123, $(278), $(964) and $(1,279)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(3,245
)
 
(576
)
 
(10,483
)
 
3,714

Gain (loss) on cash flow hedges
 
643

 
(2,922
)
 
(11,894
)
 
(13,019
)
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders
 
$
31,861

 
$
21,256

 
$
49,781

 
$
69,151

Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders
 
$
0.48

 
$
0.34

 
$
1.00

 
$
1.09

Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders
 
$
0.47

 
$
0.34

 
$
0.99

 
$
1.07


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



2


EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Dollar amounts in thousands, except share information)

 
 
Number of
Shares of
Common
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Earnings
 
Accumulated 
Other
Comprehensive
Loss
 
Non-Controlling
Interest
 
Total
Stockholders’
Equity
Balance at December 31, 2019
 
72,000,261

 
$
720

 
$

 
$
296,476

 
$
(30,009
)
 
$
4,436

 
$
271,623

Share-based compensation recognized
 

 

 
3,483

 

 

 

 
3,483

Repurchase of common stock
 
(336,022
)
 
(3
)
 
(775
)
 
(6,522
)
 

 

 
(7,300
)
Restricted stock units delivered, net of cashless
 
201,066

 
2

 
(2,708
)
 

 

 

 
(2,706
)
Net income
 

 

 

 
22,211

 

 
64

 
22,275

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,600
)
 

 

 
(3,600
)
Other comprehensive loss
 

 

 

 

 
(20,164
)
 
(853
)
 
(21,017
)
Cumulative adjustment for the implementation of ASU 2016-13
 

 

 

 
(74
)
 

 

 
(74
)
Balance at March 31, 2020
 
71,865,305


719




308,491


(50,173
)

3,647

 
262,684

Share-based compensation recognized
 

 

 
3,639

 

 

 

 
3,639

Restricted stock units delivered, net of cashless
 
(2,445
)
 

 
(71
)
 

 

 

 
(71
)
Net income
 

 

 

 
15,484

 

 
141

 
15,625

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,593
)
 

 

 
(3,593
)
Other comprehensive income
 

 

 

 

 
389

 
295

 
684

Balance at June 30, 2020
 
71,862,860


719


3,568


320,382


(49,784
)

4,083

 
278,968

Share-based compensation recognized
 

 

 
3,663

 

 

 

 
3,663

Restricted stock units delivered, net of cashless
 
43,385

 

 
(679
)
 

 

 

 
(679
)
Net income
 

 

 

 
34,463

 

 
118

 
34,581

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,593
)
 

 

 
(3,593
)
Other comprehensive loss
 

 

 

 

 
(2,602
)
 
(130
)
 
(2,732
)
Balance at September 30, 2020
 
71,906,245

 
$
719


$
6,552


$
351,252


$
(52,386
)

$
4,071

 
$
310,208


3


 
 
Number of
Shares of
Common
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Earnings
 
Accumulated 
Other
Comprehensive
Loss
 
Non-Controlling
Interest
 
Total
Stockholders’
Equity
Balance at December 31, 2018
 
72,378,710

 
$
723

 
$
5,783

 
$
228,742

 
$
(23,789
)
 
$
4,147

 
$
215,606

Share-based compensation recognized
 

 

 
3,279

 

 

 

 
3,279

Repurchase of common stock
 
(618,573
)
 
(6
)
 
(3,129
)
 
(14,351
)
 

 

 
(17,486
)
Restricted stock units delivered
 
507,308

 
5

 
(5,933
)
 

 

 

 
(5,928
)
Net income
 

 

 

 
26,644

 

 
90

 
26,734

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,617
)
 

 

 
(3,617
)
Other comprehensive loss
 

 

 

 

 
(2,090
)
 

 
(2,090
)
Balance at March 31, 2019
 
72,267,445

 
722




237,418


(25,879
)

4,237

 
216,498

Share-based compensation recognized
 

 

 
3,436

 

 

 

 
3,436

Repurchase of common stock
 
(368,293
)
 
(4
)
 
(3,201
)
 
(7,505
)
 

 

 
(10,710
)
Restricted stock units delivered
 
38,364

 
1

 
(235
)
 

 

 

 
(234
)
Net income
 

 

 

 
27,058

 

 
79

 
27,137

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,610
)
 

 

 
(3,610
)
Other comprehensive loss
 

 

 

 

 
(3,717
)
 

 
(3,717
)
Balance at June 30, 2019
 
71,937,516

 
$
719


$


$
253,361


$
(29,596
)

$
4,316


$
228,800

Share-based compensation recognized
 

 

 
3,453

 

 

 

 
3,453

Repurchase of common stock
 
(8,120
)
 

 
(253
)
 

 

 

 
(253
)
Restricted stock units delivered
 
18,167

 

 
(142
)
 

 

 

 
(142
)
Net income
 

 

 

 
24,754

 

 
32

 
24,786

Cash dividends declared on common stock, $0.05 per share
 

 

 

 
(3,597
)
 

 

 
(3,597
)
Other comprehensive loss
 

 

 

 

 
(3,498
)
 
(293
)
 
(3,791
)
Balance at September 30, 2019
 
71,947,563

 
719


3,058


274,518


(33,094
)

4,055


249,256


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



4


EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands) 

 
 
Nine months ended September 30,
 
 
2020
 
2019
Cash flows from operating activities


 

Net income

$
72,481

 
$
78,657

Adjustments to reconcile net income to net cash provided by operating activities:


 

Depreciation and amortization

53,761

 
50,440

Amortization of debt issue costs and accretion of discount

1,530

 
1,256

Operating lease amortization
 
4,377

 
3,966

Provision for expected credit losses and sundry losses

1,732

 
3,224

Deferred tax benefit

(2,082
)
 
(4,197
)
Share-based compensation

10,785

 
10,168

Loss on disposition of property and equipment and other intangibles

753

 
691

Earnings of equity method investment

(733
)
 
(726
)
Dividend received from equity method investment


 
485

Decrease (increase) in assets:


 

Accounts receivable, net

(7,096
)
 
6,475

Prepaid expenses and other assets

(7,138
)
 
(7,268
)
Other long-term assets

284

 
(1,450
)
(Decrease) increase in liabilities:


 

Accrued liabilities and accounts payable

(7,969
)
 
(6,834
)
Income tax payable

1,548

 
(2,080
)
Unearned income

2,350

 
6,718

Operating lease liabilities
 
(5,720
)
 
(4,825
)
Other long-term liabilities

2,296

 
1,467

Total adjustments

48,678

 
57,510

Net cash provided by operating activities

121,159

 
136,167

Cash flows from investing activities


 

Additions to software

(23,521
)
 
(27,969
)
Property and equipment acquired

(13,402
)
 
(21,994
)
Proceeds from sales of property and equipment

3

 
101

Net cash used in investing activities

(36,920
)
 
(49,862
)
Cash flows from financing activities


 

Statutory withholding taxes paid on share-based compensation

(3,456
)
 
(6,304
)
Repayment of short-term borrowings for purchase of equipment and software

(1,553
)
 
(852
)
Dividends paid

(10,786
)
 
(10,824
)
Repurchase of common stock

(7,300
)
 
(28,449
)
Repayment of long-term debt

(27,685
)
 
(10,688
)
Net cash used in financing activities

(50,780
)
 
(57,117
)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash
 
(2,384
)
 

Net increase in cash, cash equivalents and restricted cash

31,075

 
29,188

Cash, cash equivalents and restricted cash at beginning of the period

131,121

 
86,746

Cash, cash equivalents and restricted cash at end of the period

$
162,196

 
$
115,934

Reconciliation of cash, cash equivalents and restricted cash
 
 
 
 
Cash and cash equivalents
 
$
144,147

 
$
102,535

Restricted cash
 
18,049

 
13,399

Cash, cash equivalents and restricted cash
 
$
162,196

 
$
115,934

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
18,081

 
$
21,668

Cash paid for income taxes
 
15,257

 
12,535

Supplemental disclosure of non-cash activities:
 
 
 
 
Payable due to vendor related to equipment and software acquired
 
$
1,486

 
$
2,707

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Notes to Unaudited Condensed Consolidated Financial Statements


 

6


Note 1 – The Company and Basis of Presentation

The Company

EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) and its subsidiaries (collectively the “Company,” or “EVERTEC”) is a leading full-service transaction processing business in Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing and business process management services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, one of the leading personal identification number ("PIN") debit networks and automated teller machine ("ATM") in the Caribbean and Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing and cash processing in Puerto Rico and technology outsourcing in all the regions the Company serves. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with solutions that are essential to their operations, enabling them to issue, process and accept transactions securely. EVERTEC's common stock is listed under the ticker symbol "EVTC" on the New York Stock Exchange.

Basis of Presentation

The unaudited condensed consolidated financial statements of EVERTEC have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the Securities and Exchange Commission and, accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended December 31, 2019, included in the Company’s 2019 Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.

Risks and Uncertainties due to COVID-19 Pandemic

COVID-19 presents material uncertainty and risk with respect to EVERTEC’s business, results of operations and cash flows, as well as with respect to changes in laws and regulations and government and regulatory policy. COVID-19’s impact on global economies could have a material adverse effect on (among other things) the profitability, capital and liquidity of the Company, particularly if consumer spending levels are depressed for a prolonged period of time. While the rapid development and fluidity of the situation prevents management from having clear visibility into the medium and long-term impacts, management believes possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s workforce, unavailability of products and supplies used in operations, and a decline in the value of assets held by the Company, including, among other things, tangible and intangible long-lived assets, and increased levels in the Company's current expected credit loss reserve.

Given the uncertain and rapidly evolving situation, management has taken certain precautionary measures intended to help minimize the risk of COVID-19 to the Company, its employees, and customers, including the following:

The Company deployed its business continuity plan for the entire organization a few days before the government of Puerto Rico enacted a shelter-in-place directive on March 16, 2020. Since then, every country in which the Company operates has implemented some type of social distancing measures. Management expects that most of our employees will remain working remotely for an undetermined period, until it is deemed safe by management to return to our offices and as permitted or advised by local authorities in each country where the Company operates;
In connection with the Company's business continuity plan, the Company transitioned most of its employees to a work from home environment. For certain critical employees who are required to remain working on-site in order to, among other things, maintain network operations oversight functions, cash handling and other critical operations for our customers, we have implemented safety measures including administering daily temperature checks upon entry into the work site, providing protective gear, developing safe social distancing workspaces and increasing overall sanitation at our offices;


7


On May 1, 2020, the Company commenced deferral of payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act"); management anticipates a $2.9 million deferral of payroll taxes during the allowed time under the CARES Act. Through September 30, 2020, the Company has deferred payroll taxes amounting to $1.7 million;
Management identified additional expense reductions that are intended to be implemented as necessary; and
Management has suspended all non-essential travel for employees.

While the Company anticipates that the foregoing measures are temporary, management cannot predict their duration, and management may elect or need to take additional precautions as more information related to COVID-19 becomes available, as may be required by governmental authorities, or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. The extent to which the COVID-19 pandemic and EVERTEC’s precautionary measures in response to it, may impact the Company’s business, financial condition or results of operations will depend on the ongoing developments related to the pandemic and its direct and indirect consequences, all of which are highly uncertain and cannot be predicted at this time.

Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued updated guidance for the measurement of credit losses on financial instruments, which replaces the incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The main objective of this update and subsequent clarifications and corrections, including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-03, is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments affect the Company's trade receivables. Additional disclosures about significant estimates and credit quality are also required. The Company adopted this new guidance effective January 1, 2020, using a modified retrospective approach through a cumulative-effect adjustment to accumulated earnings, considered immaterial to the consolidated financial statements. Results for reporting periods beginning after January 1, 2020 are presented under the new guidance provided by Accounting Standards Codification ("ASC") Topic 326, while prior period amounts are not adjusted and continue to be reported under legacy GAAP.

Refer to Note 3, Current Expected Credit Losses, for discussions of the implementation of ASC Topic 326 with respect to the Company’s consolidated financial statements.

In August 2018, the FASB issued updated guidance for customer’s accounting for implementation, set-up and other upfront costs (collectively referred to as implementation costs) incurred in a cloud computing arrangement constituting a service contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The updated guidance does not impact the accounting for the service element of a hosting arrangement that is a service contract. The Company adopted this guidance prospectively effective January 1, 2020 with respect to all implementation costs incurred in a cloud computing arrangement constituting a service contract.

In November 2018, the FASB issued updated guidance to clarify the interaction between the guidance for collaborative arrangements and the updated revenue recognition guidance. The amendments in this update, among other things, provide guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under ASC Topic 606, Revenue from Contracts with Customers. The Company adopted the amendments in this update effective January 1, 2020. All contracts after this date are being evaluated under the updated guidance.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued updated guidance for ASC Topic 848, Reference Rate Reform, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met for a limited period of time in order to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract

8


modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments to this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating whether to elect the adoption of this guidance with respect to the consolidated financial statements.

Accounting Pronouncements Issued Prior to 2020 and Not Yet Adopted

In December 2019, the FASB issued updated guidance for ASC Topic 740, Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles set out in ASC Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments to this update are effective for fiscal years, and interim periods within such fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact, if any, of the adoption of this guidance on the consolidated financial statements.

Note 3 – Current Expected Credit Losses

Allowance for Current Expected Credit Losses

The Company has only one type of financial asset that is subject to the expected credit loss model, which is trade receivables from contracts with customers. While contract assets and net investments in leases are also subject to the impairment requirements of ASC Topic 326, no impairment losses were recognized for these financial assets as of September 30, 2020.

To measure expected credit losses, trade receivables are grouped based on shared risk characteristics (i.e., the relevant industry sector and customer's geographical location) and days past due (i.e., delinquency status), while considering the following:

Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their country.
The Company has two main industry sectors: private and governmental. The private pool is comprised mainly of leading financial institutions, merchants and corporations, while the governmental pool is comprised by government agencies. The governmental customers possess different risk characteristics than private customers because although all invoices are due 30 days after issuance, governmental customers usually pay within 60 to 90 days after issuance (i.e., between 30 to 60 more days than private customers). The Company provides to its customers a broad range of merchant acquiring, payment services and business process management services, which constitute mission-critical technology solutions enabling customers to issue, process and accept transactions securely.
The expected credit loss rate is likely to increase as receivables move to older aging buckets. The Company used the following aging categories to estimate the risk of delinquency status: (i) 0 days past due; (ii) 1-30 days past due; (iii) 31-60 days past due; (iv) 61-90 days past due; and (v) over 90 days past due.

The credit losses of the Company’s trade receivables have been historically low and most balances are collected within one year. Therefore, the Company determined that the expected loss rates should be calculated using the historical loss rates adjusted by macroeconomic factors. The historical rates are calculated for each of the aging categories used for pooling trade receivables. To determine the collected portion of each bucket, the collection time of each trade receivable is identified, to estimate the proportion of outstanding balances per aging bucket that ultimately will not be collected. This is used to determine the expectation of losses based on the history of uncollected trade receivables once the specific past due period is surpassed. The historical rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to settle the receivables by applying a country risk premium as the forward-looking macroeconomic factor. Specific reserves are established for certain customers for which collection is doubtful.


9


Rollforward of the Allowance for Expected Current Credit Losses

The activity in the allowance for expected current credit losses on trade receivables during the period from January 1, 2020 to September 30, 2020, was as follows:
(In thousands)
 
September 30, 2020
Balance at beginning of period
 
$
3,460

Current period provision for expected credit losses
 
1,058

Write-offs
 
(1,428
)
Recoveries of amounts previously written-off
 
3

Balance at end of period
 
$
3,093



The Company does not have a delinquency threshold for writing-off trade receivables. The Company has a formal process for the review and approval of write-offs.

Impairment losses on trade receivables are presented as net impairment losses within cost of revenue, exclusive of depreciation and amortization in the unaudited condensed consolidated statement of income and comprehensive income. Subsequent recoveries of amounts previously written-off are credited against the allowance for expected current credit losses within accounts receivable, net on the unaudited condensed consolidated balance sheet.