falsedesktopEVTC2020-09-30000155986520000035{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Large accelerated filer\t☒\tAccelerated filer\t☐\nNon-accelerated filer\t☐\tSmaller reporting company\t☐\nEmerging growth company\t☐\t\t\n", "q10k_tbl_1": "\t\tPage\nPart I. FINANCIAL INFORMATION\t\t\nItem 1.\tFinancial Statements\t\n\tUnaudited Condensed Consolidated Balance Sheets as of September 30 2020 and December 31 2019\t1\n\tUnaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30 2020 and 2019\t2\n\tUnaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended September 30 2020 and 2019\t3\n\tUnaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30 2020 and 2019\t5\n\tNotes to Unaudited Condensed Consolidated Financial Statements\t6\nItem 2.\tManagement's Discussion and Analysis of Financial Condition and Results of Operations\t23\nItem 3.\tQuantitative and Qualitative Disclosures about Market Risk\t38\nItem 4.\tControls and Procedures\t38\nPart II. OTHER INFORMATION\t\t40\nItem 1.\tLegal Proceedings\t40\nItem 1A.\tRisk Factors\t40\nItem 2.\tUnregistered Sales of Equity in Securities and Use of Proceeds\t40\nItem 3.\tDefaults Upon Senior Securities\t40\nItem 4.\tMine Safety Disclosures\t40\nItem 5.\tOther Information\t40\nItem 6.\tExhibits\t41\nSIGNATURES\t\t42\n", "q10k_tbl_2": "\tSeptember 30 2020\tDecember 31 2019\nAssets\t\t\nCurrent Assets:\t\t\nCash and cash equivalents\t144147\t111030\nRestricted cash\t18049\t20091\nAccounts receivable net\t111852\t106812\nPrepaid expenses and other assets\t44835\t38085\nTotal current assets\t318883\t276018\nInvestment in equity investee\t12417\t12288\nProperty and equipment net\t43255\t43791\nOperating lease right-of-use asset\t26824\t29979\nGoodwill\t395048\t399487\nOther intangible assets net\t222085\t241937\nDeferred tax asset\t3657\t2131\nNet investment in leases\t394\t722\nOther long-term assets\t5511\t5323\nTotal assets\t1028074\t1011676\nLiabilities and stockholders' equity\t\t\nCurrent Liabilities:\t\t\nAccrued liabilities\t54099\t58160\nAccounts payable\t36057\t39165\nUnearned income\t19800\t20668\nIncome tax payable\t7475\t6298\nCurrent portion of long-term debt\t14250\t14250\nCurrent portion of operating lease liability\t5877\t5773\nTotal current liabilities\t137558\t144314\nLong-term debt\t484306\t510947\nDeferred tax liability\t2575\t4261\nUnearned income - long term\t30827\t28437\nOperating lease liability - long-term\t21380\t24679\nDerivative liability\t27370\t14452\nOther long-term liabilities\t13850\t12963\nTotal liabilities\t717866\t740053\nCommitments and contingencies (Note 13)\t\t\nStockholders' equity\t\t\nPreferred stock par value $0.01; 2000000 shares authorized; none issued\t0\t0\nCommon stock par value $0.01; 206000000 shares authorized; 71906983 shares issued and outstanding as of September 30 2020 (December 31 2019 - 72000261)\t719\t720\nAdditional paid-in capital\t6552\t0\nAccumulated earnings\t351252\t296476\nAccumulated other comprehensive loss net of tax\t(52386)\t(30009)\nTotal EVERTEC Inc. stockholders' equity\t306137\t267187\nNon-controlling interest\t4071\t4436\nTotal equity\t310208\t271623\nTotal liabilities and equity\t1028074\t1011676\n", "q10k_tbl_3": "\tThree months ended September 30\t\tNine months ended September 30\t\n\t2020\t2019\t2020\t2019\nRevenues (affiliates Note 14)\t136507\t118804\t376386\t360188\nOperating costs and expenses\t\t\t\t\nCost of revenues exclusive of depreciation and amortization\t57854\t51878\t168900\t154498\nSelling general and administrative expenses\t16682\t15152\t51528\t45355\nDepreciation and amortization\t18127\t16972\t53761\t50440\nTotal operating costs and expenses\t92663\t84002\t274189\t250293\nIncome from operations\t43844\t34802\t102197\t109895\nNon-operating (expenses) income\t\t\t\t\nInterest income\t429\t348\t1165\t864\nInterest expense\t(5867)\t(7267)\t(18829)\t(22191)\nEarnings of equity method investment\t202\t371\t733\t726\nOther income (expense)\t2486\t252\t2766\t(619)\nTotal non-operating expenses\t(2750)\t(6296)\t(14165)\t(21220)\nIncome before income taxes\t41094\t28506\t88032\t88675\nIncome tax expense\t6513\t3720\t15551\t10018\nNet income\t34581\t24786\t72481\t78657\nLess: Net income attributable to non-controlling interest\t118\t32\t323\t201\nNet income attributable to EVERTEC Inc.'s common stockholders\t34463\t24754\t72158\t78456\nOther comprehensive income (loss) net of tax of $123 $(278) $(964) and $(1279)\t\t\t\t\nForeign currency translation adjustments\t(3245)\t(576)\t(10483)\t3714\nGain (loss) on cash flow hedges\t643\t(2922)\t(11894)\t(13019)\nTotal comprehensive income attributable to EVERTEC Inc.'s common stockholders\t31861\t21256\t49781\t69151\nNet income per common share - basic attributable to EVERTEC Inc.'s common stockholders\t0.48\t0.34\t1.00\t1.09\nNet income per common share - diluted attributable to EVERTEC Inc.'s common stockholders\t0.47\t0.34\t0.99\t1.07\n", "q10k_tbl_4": "\tNumber of Shares of Common Stock\tCommon Stock\tAdditional Paid-in Capital\tAccumulated Earnings\tAccumulated Other Comprehensive Loss\tNon-Controlling Interest\tTotal Stockholders' Equity\nBalance at December 31 2019\t72000261\t720\t0\t296476\t(30009)\t4436\t271623\nShare-based compensation recognized\t0\t0\t3483\t0\t0\t0\t3483\nRepurchase of common stock\t(336022)\t(3)\t(775)\t(6522)\t0\t0\t(7300)\nRestricted stock units delivered net of cashless\t201066\t2\t(2708)\t0\t0\t0\t(2706)\nNet income\t0\t0\t0\t22211\t0\t64\t22275\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3600)\t0\t0\t(3600)\nOther comprehensive loss\t0\t0\t0\t0\t(20164)\t(853)\t(21017)\nCumulative adjustment for the implementation of ASU 2016-13\t0\t0\t0\t(74)\t0\t0\t(74)\nBalance at March 31 2020\t71865305\t719\t0\t308491\t(50173)\t3647\t262684\nShare-based compensation recognized\t0\t0\t3639\t0\t0\t0\t3639\nRestricted stock units delivered net of cashless\t(2445)\t0\t(71)\t0\t0\t0\t(71)\nNet income\t0\t0\t0\t15484\t0\t141\t15625\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3593)\t0\t0\t(3593)\nOther comprehensive income\t0\t0\t0\t0\t389\t295\t684\nBalance at June 30 2020\t71862860\t719\t3568\t320382\t(49784)\t4083\t278968\nShare-based compensation recognized\t0\t0\t3663\t0\t0\t0\t3663\nRestricted stock units delivered net of cashless\t43385\t0\t(679)\t0\t0\t0\t(679)\nNet income\t0\t0\t0\t34463\t0\t118\t34581\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3593)\t0\t0\t(3593)\nOther comprehensive loss\t0\t0\t0\t0\t(2602)\t(130)\t(2732)\nBalance at September 30 2020\t71906245\t719\t6552\t351252\t(52386)\t4071\t310208\n", "q10k_tbl_5": "\tNumber of Shares of Common Stock\tCommon Stock\tAdditional Paid-in Capital\tAccumulated Earnings\tAccumulated Other Comprehensive Loss\tNon-Controlling Interest\tTotal Stockholders' Equity\nBalance at December 31 2018\t72378710\t723\t5783\t228742\t(23789)\t4147\t215606\nShare-based compensation recognized\t0\t0\t3279\t0\t0\t0\t3279\nRepurchase of common stock\t(618573)\t(6)\t(3129)\t(14351)\t0\t0\t(17486)\nRestricted stock units delivered\t507308\t5\t(5933)\t0\t0\t0\t(5928)\nNet income\t0\t0\t0\t26644\t0\t90\t26734\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3617)\t0\t0\t(3617)\nOther comprehensive loss\t0\t0\t0\t0\t(2090)\t0\t(2090)\nBalance at March 31 2019\t72267445\t722\t0\t237418\t(25879)\t4237\t216498\nShare-based compensation recognized\t0\t0\t3436\t0\t0\t0\t3436\nRepurchase of common stock\t(368293)\t(4)\t(3201)\t(7505)\t0\t0\t(10710)\nRestricted stock units delivered\t38364\t1\t(235)\t0\t0\t0\t(234)\nNet income\t0\t0\t0\t27058\t0\t79\t27137\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3610)\t0\t0\t(3610)\nOther comprehensive loss\t0\t0\t0\t0\t(3717)\t0\t(3717)\nBalance at June 30 2019\t71937516\t719\t0\t253361\t(29596)\t4316\t228800\nShare-based compensation recognized\t0\t0\t3453\t0\t0\t0\t3453\nRepurchase of common stock\t(8120)\t0\t(253)\t0\t0\t0\t(253)\nRestricted stock units delivered\t18167\t0\t(142)\t0\t0\t0\t(142)\nNet income\t0\t0\t0\t24754\t0\t32\t24786\nCash dividends declared on common stock $0.05 per share\t0\t0\t0\t(3597)\t0\t0\t(3597)\nOther comprehensive loss\t0\t0\t0\t0\t(3498)\t(293)\t(3791)\nBalance at September 30 2019\t71947563\t719\t3058\t274518\t(33094)\t4055\t249256\n", "q10k_tbl_6": "\tNine months ended September 30\t\n\t2020\t2019\nCash flows from operating activities\t\t\nNet income\t72481\t78657\nAdjustments to reconcile net income to net cash provided by operating activities:\t\t\nDepreciation and amortization\t53761\t50440\nAmortization of debt issue costs and accretion of discount\t1530\t1256\nOperating lease amortization\t4377\t3966\nProvision for expected credit losses and sundry losses\t1732\t3224\nDeferred tax benefit\t(2082)\t(4197)\nShare-based compensation\t10785\t10168\nLoss on disposition of property and equipment and other intangibles\t753\t691\nEarnings of equity method investment\t(733)\t(726)\nDividend received from equity method investment\t0\t485\nDecrease (increase) in assets:\t\t\nAccounts receivable net\t(7096)\t6475\nPrepaid expenses and other assets\t(7138)\t(7268)\nOther long-term assets\t284\t(1450)\n(Decrease) increase in liabilities:\t\t\nAccrued liabilities and accounts payable\t(7969)\t(6834)\nIncome tax payable\t1548\t(2080)\nUnearned income\t2350\t6718\nOperating lease liabilities\t(5720)\t(4825)\nOther long-term liabilities\t2296\t1467\nTotal adjustments\t48678\t57510\nNet cash provided by operating activities\t121159\t136167\nCash flows from investing activities\t\t\nAdditions to software\t(23521)\t(27969)\nProperty and equipment acquired\t(13402)\t(21994)\nProceeds from sales of property and equipment\t3\t101\nNet cash used in investing activities\t(36920)\t(49862)\nCash flows from financing activities\t\t\nStatutory withholding taxes paid on share-based compensation\t(3456)\t(6304)\nRepayment of short-term borrowings for purchase of equipment and software\t(1553)\t(852)\nDividends paid\t(10786)\t(10824)\nRepurchase of common stock\t(7300)\t(28449)\nRepayment of long-term debt\t(27685)\t(10688)\nNet cash used in financing activities\t(50780)\t(57117)\nEffect of foreign exchange rate on cash cash equivalents and restricted cash\t(2384)\t0\nNet increase in cash cash equivalents and restricted cash\t31075\t29188\nCash cash equivalents and restricted cash at beginning of the period\t131121\t86746\nCash cash equivalents and restricted cash at end of the period\t162196\t115934\nReconciliation of cash cash equivalents and restricted cash\t\t\nCash and cash equivalents\t144147\t102535\nRestricted cash\t18049\t13399\nCash cash equivalents and restricted cash\t162196\t115934\nSupplemental disclosure of cash flow information:\t\t\nCash paid for interest\t18081\t21668\nCash paid for income taxes\t15257\t12535\nSupplemental disclosure of non-cash activities:\t\t\nPayable due to vendor related to equipment and software acquired\t1486\t2707\n", "q10k_tbl_7": "Note 1 - The Company and Basis of Presentation\t7\nNote 2 - Recent Accounting Pronouncements\t8\nNote 3 - Current Expected Credit Losses\t9\nNote 4 - Property and Equipment Net\t10\nNote 5 - Goodwill and Other Intangible Assets\t10\nNote 6 - Debt and Short-Term Borrowings\t11\nNote 7 - Financial Instruments and Fair Value Measurements\t12\nNote 8 - Equity\t13\nNote 9 - Share-based Compensation\t13\nNote 10 - Revenues\t14\nNote 11 - Income Tax\t16\nNote 12 - Net Income per Common Share\t17\nNote 13 - Commitments and Contingencies\t17\nNote 14 - Related Party Transactions\t17\nNote 15 - Segment Information\t18\nNote 16 - Subsequent Events\t22\n", "q10k_tbl_8": "(In thousands)\tSeptember 30 2020\nBalance at beginning of period\t3460\nCurrent period provision for expected credit losses\t1058\nWrite-offs\t(1428)\nRecoveries of amounts previously written-off\t3\nBalance at end of period\t3093\n", "q10k_tbl_9": "(Dollar amounts in thousands)\tUseful life in years\tSeptember 30 2020\tDecember 31 2019\nBuildings\t30\t1458\t1542\nData processing equipment\t3 - 5\t124867\t116950\nFurniture and equipment\t3 - 20\t7081\t6936\nLeasehold improvements\t5 -10\t3008\t2814\n\t\t136414\t128242\nLess - accumulated depreciation and amortization\t\t(94421)\t(85780)\nDepreciable assets net\t\t41993\t42462\nLand\t\t1262\t1329\nProperty and equipment net\t\t43255\t43791\n", "q10k_tbl_10": "(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tTotal\nBalance at December 31 2019\t160972\t54571\t138121\t45823\t399487\nForeign currency translation adjustments\t0\t(4439)\t0\t0\t(4439)\nBalance at September 30 2020\t160972\t50132\t138121\t45823\t395048\n", "q10k_tbl_11": "\t\tSeptember 30 2020\t\t\n(Dollar amounts in thousands)\tUseful life in years\tGross amount\tAccumulated amortization\tNet carrying amount\nCustomer relationships\t8 - 14\t343489\t(239718)\t103771\nTrademarks\t10 - 15\t41934\t(35164)\t6770\nSoftware packages\t3 - 10\t278609\t(185911)\t92698\nNon-compete agreement\t15\t56539\t(37693)\t18846\nOther intangible assets net\t\t720571\t(498486)\t222085\n", "q10k_tbl_12": "\t\tDecember 31 2019\t\t\n(Dollar amounts in thousands)\tUseful life in years\tGross amount\tAccumulated amortization\tNet carrying amount\nCustomer relationships\t8 - 14\t344883\t(220434)\t124449\nTrademarks\t2 - 15\t42025\t(32456)\t9569\nSoftware packages\t3 - 10\t256220\t(169974)\t86246\nNon-compete agreement\t15\t56539\t(34866)\t21673\nOther intangible assets net\t\t699667\t(457730)\t241937\n", "q10k_tbl_13": "(Dollar amounts in thousands)\t\nRemaining 2020\t12859\n2021\t48703\n2022\t42899\n2023\t37704\n2024\t29156\n", "q10k_tbl_14": "(In thousands)\tSeptember 30 2020\tDecember 31 2019\n2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))\t191423\t207261\n2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))\t307133\t317936\nNote payable due April 30 2021(1)\t78\t175\nNote payable due January 1 2022(1)\t1408\t2231\nTotal debt\t500042\t527603\n", "q10k_tbl_15": "\tSeptember 30 2020\t\tDecember 31 2019\t\n(In thousands)\tCarrying Amount\tFair Value\tCarrying Amount\tFair Value\nFinancial liabilities:\t\t\t\t\nInterest rate swap\t27370\t27370\t14452\t14452\n2023 Term A Loan\t191424\t189380\t207261\t206388\n2024 Term B Loan\t307133\t308760\t317936\t324163\n", "q10k_tbl_16": "(In thousands)\tForeign Currency Translation Adjustments\tCash Flow Hedges\tTotal\nBalance - December 31 2019 net of tax\t(16872)\t(13137)\t(30009)\nOther comprehensive loss before reclassifications\t(10483)\t(15208)\t(25691)\nEffective portion reclassified to net income\t0\t3314\t3314\nBalance - September 30 2020 net of tax\t(27355)\t(25031)\t(52386)\n", "q10k_tbl_17": "Nonvested restricted shares and RSUs\tShares\tWeighted-average grant date fair value\nNonvested at December 31 2019\t1592755\t20.71\nForfeited\t(149811)\t19.18\nVested\t(402842)\t26.98\nGranted\t413733\t31.62\nNonvested at September 30 2020\t1453835\t24.30\n", "q10k_tbl_18": "\tThree months ended September 30 2020\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tTotal\nTiming of revenue recognition\t\t\t\t\t\nProducts and services transferred at a point in time\t43\t357\t0\t4824\t5224\nProducts and services transferred over time\t23652\t18791\t30646\t58194\t131283\n\t23695\t19148\t30646\t63018\t136507\n", "q10k_tbl_19": "\tThree months ended September 30 2019\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tTotal\nTiming of revenue recognition\t\t\t\t\t\nProducts and services transferred at a point in time\t43\t228\t0\t2939\t3210\nProducts and services transferred over time\t20299\t18853\t26436\t50006\t115594\n\t20342\t19081\t26436\t52945\t118804\n", "q10k_tbl_20": "\tNine months ended September 30 2020\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tTotal\nTiming of revenue recognition\t\t\t\t\t\nProducts and services transferred at a point in time\t80\t994\t0\t7886\t8960\nProducts and services transferred over time\t63838\t56487\t80532\t166569\t367426\n\t63918\t57481\t80532\t174455\t376386\n", "q10k_tbl_21": "\tNine months ended September 30 2019\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tTotal\nTiming of revenue recognition\t\t\t\t\t\nProducts and services transferred at a point in time\t2835\t419\t0\t6590\t9844\nProducts and services transferred over time\t60957\t57282\t79203\t152902\t350344\n\t63792\t57701\t79203\t159492\t360188\n", "q10k_tbl_22": "(In thousands)\tSeptember 30 2020\nDecember 31 2019\t1191\nServices transferred to customers\t2790\nTransfers to accounts receivable\t(1740)\nSeptember 30 2020\t2241\n", "q10k_tbl_23": "\tThree months ended September 30\t\tNine months ended September 30\t\n(In thousands)\t2020\t2019\t2020\t2019\nCurrent tax provision\t7381\t6096\t17633\t14215\nDeferred tax benefit\t(868)\t(2376)\t(2082)\t(4197)\nIncome tax expense\t6513\t3720\t15551\t10018\n", "q10k_tbl_24": "\tThree months ended September 30\t\tNine months ended September 30\t\n(In thousands)\t2020\t2019\t2020\t2019\nCurrent tax provision\t\t\t\t\nPuerto Rico\t3280\t2117\t6487\t5433\nUnited States\t214\t187\t508\t202\nForeign countries\t3887\t3792\t10638\t8580\nTotal current tax provision\t7381\t6096\t17633\t14215\nDeferred tax (benefit) provision\t\t\t\t\nPuerto Rico\t(989)\t(1583)\t(1535)\t(3178)\nUnited States\t(68)\t(169)\t1033\t(168)\nForeign countries\t189\t(624)\t(1580)\t(851)\nTotal deferred tax benefit\t(868)\t(2376)\t(2082)\t(4197)\n", "q10k_tbl_25": "\tNine months ended September 30\t\n(In thousands)\t2020\t2019\nComputed income tax at statutory rates\t33012\t33253\nDifferences in tax rates due to multiple jurisdictions\t831\t405\nExcess tax benefits on share-based compensation\t(262)\t(1300)\nEffect of income subject to tax-exemption grant\t(21662)\t(24128)\nUnrecognized tax benefit\t1173\t211\nOther expense\t2459\t1577\nIncome tax expense\t15551\t10018\n", "q10k_tbl_26": "\tThree months ended September 30\t\tNine months ended September 30\t\n(Dollar amounts in thousands except per share information)\t2020\t2019\t2020\t2019\nNet income attributable to EVERTEC Inc.'s common stockholders\t34463\t24754\t72158\t78456\nLess: non-forfeitable dividends on restricted stock\t0\t2\t0\t2\nNet income available to EVERTEC Inc.'s common shareholders\t34463\t24752\t72158\t78454\nWeighted average common shares outstanding\t71886439\t71942403\t71921069\t72148312\nWeighted average potential dilutive common shares (1)\t1115341\t1372301\t1128748\t1382553\nWeighted average common shares outstanding - assuming dilution\t73001780\t73314704\t73049817\t73530865\nNet income per common share - basic\t0.48\t0.34\t1.00\t1.09\nNet income per common share - diluted\t0.47\t0.34\t0.99\t1.07\n", "q10k_tbl_27": "\tThree months ended September 30\t\tNine months ended September 30\t\n(Dollar amounts in thousands)\t2020\t2019\t2020\t2019\nTotal revenues (1)(2)\t57343\t52702\t165703\t154022\nCost of revenues\t700\t1719\t3100\t3580\nOperating lease cost and other fees\t2053\t1959\t6094\t6177\nInterest earned from affiliate\t\t\t\t\nInterest income\t93\t43\t290\t98\n", "q10k_tbl_28": "(Dollar amounts in thousands)\tSeptember 30 2020\tDecember 31 2019\nCash and restricted cash deposits in affiliated bank\t80149\t64724\nOther due to/from affiliate\t\t\nAccounts receivable\t26944\t39095\nPrepaid expenses and other assets\t4466\t4211\nOperating lease right-of use assets\t17993\t20617\nOther long-term assets\t11\t57\nAccounts payable\t4523\t7250\nUnearned income\t34621\t35489\nOperating lease liabilities\t18442\t20905\n", "q10k_tbl_29": "\tThree months ended September 30 2020\t\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tCorporate and Other (1)\tTotal\nRevenues\t33284\t21241\t30646\t63018\t(11682)\t136507\nOperating costs and expenses\t19045\t18284\t15643\t35276\t4415\t92663\nDepreciation and amortization\t3349\t2936\t477\t4372\t6993\t18127\nNon-operating income (expenses)\t127\t2959\t161\t411\t(970)\t2688\nEBITDA\t17715\t8852\t15641\t32524\t(10073)\t64659\nCompensation and benefits (2)\t258\t686\t244\t466\t2015\t3669\nTransaction refinancing and other fees (3)\t500\t0\t0\t0\t1205\t1705\nAdjusted EBITDA\t18473\t9538\t15885\t32990\t(6853)\t70033\n", "q10k_tbl_30": "\tThree months ended September 30 2019\t\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tCorporate and Other (1)\tTotal\nRevenues\t30411\t20596\t26436\t52945\t(11584)\t118804\nOperating costs and expenses\t15821\t11943\t15978\t32259\t8001\t84002\nDepreciation and amortization\t3093\t2650\t457\t3780\t6992\t16972\nNon-operating income (expenses)\t410\t(3824)\t8\t67\t3962\t623\nEBITDA\t18093\t7479\t10923\t24533\t(8631)\t52397\nCompensation and benefits (2)\t284\t109\t285\t549\t2228\t3455\nTransaction refinancing and other fees (3)\t0\t0\t0\t0\t(372)\t(372)\nAdjusted EBITDA\t18377\t7588\t11208\t25082\t(6775)\t55480\n", "q10k_tbl_31": "\tNine months ended September 30 2020\t\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tCorporate and Other (1)\tTotal\nRevenues\t90632\t62678\t80531\t174455\t(31910)\t376386\nOperating costs and expenses\t53904\t53882\t42579\t105901\t17923\t274189\nDepreciation and amortization\t9791\t8508\t1431\t13049\t20982\t53761\nNon-operating income (expenses)\t62\t4297\t473\t1482\t(2815)\t3499\nEBITDA\t46581\t21601\t39856\t83085\t(31666)\t159457\nCompensation and benefits (2)\t742\t2263\t695\t1374\t5846\t10920\nTransaction refinancing and other fees (3)\t500\t0\t0\t0\t5647\t6147\nAdjusted EBITDA\t47823\t23864\t40551\t84459\t(20173)\t176524\n", "q10k_tbl_32": "\tNine months ended September 30 2019\t\t\t\t\t\n(In thousands)\tPayment Services - Puerto Rico & Caribbean\tPayment Services - Latin America\tMerchant Acquiring net\tBusiness Solutions\tCorporate and Other (1)\tTotal\nRevenues\t92910\t62533\t79203\t159492\t(33950)\t360188\nOperating costs and expenses\t43666\t47170\t45926\t101128\t12403\t250293\nDepreciation and amortization\t8476\t7393\t1348\t12113\t21110\t50440\nNon-operating income (expenses)\t1461\t411\t39\t287\t(2091)\t107\nEBITDA\t59181\t23167\t34664\t70764\t(27334)\t160442\nCompensation and benefits (2)\t778\t448\t760\t1632\t6774\t10392\nTransaction refinancing and other fees (3)\t0\t2\t0\t0\t37\t39\nAdjusted EBITDA\t59959\t23617\t35424\t72396\t(20523)\t170873\n", "q10k_tbl_33": "\tThree months ended September 30\t\tNine months ended September 30\t\n(In thousands)\t2020\t2019\t2020\t2019\nTotal EBITDA\t64659\t52397\t159457\t160442\nLess:\t\t\t\t\nIncome tax expense\t6513\t3720\t15551\t10018\nInterest expense net\t5438\t6919\t17664\t21327\nDepreciation and amortization\t18127\t16972\t53761\t50440\nNet income\t34581\t24786\t72481\t78657\n", "q10k_tbl_34": "\tThree months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nRevenues\t136507\t118804\t17703\t15%\nOperating costs and expenses\t\t\t\t\nCost of revenues exclusive of depreciation and amortization\t57854\t51878\t5976\t12%\nSelling general and administrative expenses\t16682\t15152\t1530\t10%\nDepreciation and amortization\t18127\t16972\t1155\t7%\nTotal operating costs and expenses\t92663\t84002\t8661\t10%\nIncome from operations\t43844\t34802\t9042\t26%\n", "q10k_tbl_35": "\tThree months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nInterest income\t429\t348\t81\t23%\nInterest expense\t(5867)\t(7267)\t1400\t(19)%\nEarnings of equity method investment\t202\t371\t(169)\t(46)%\nOther income\t2486\t252\t2234\t887%\nTotal non-operating expenses\t(2750)\t(6296)\t3546\t(56)%\n", "q10k_tbl_36": "\tThree months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nIncome tax expense\t6513\t3720\t2793\t75%\n", "q10k_tbl_37": "\tNine months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nRevenues\t376386\t360188\t16198\t4%\nOperating costs and expenses\t\t\t\t\nCost of revenues exclusive of depreciation and amortization\t168900\t154498\t14402\t9%\nSelling general and administrative expenses\t51528\t45355\t6173\t14%\nDepreciation and amortization\t53761\t50440\t3321\t7%\nTotal operating costs and expenses\t274189\t250293\t23896\t10%\nIncome from operations\t102197\t109895\t(7698)\t(7)%\n", "q10k_tbl_38": "\tNine months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nInterest income\t1165\t864\t301\t35%\nInterest expense\t(18829)\t(22191)\t3362\t(15)%\nEarnings of equity method investment\t733\t726\t7\t1%\nOther income (expense)\t2766\t(619)\t3385\t(547)%\nTotal non-operating expenses\t(14165)\t(21220)\t7055\t(33)%\n", "q10k_tbl_39": "\tNine months ended September 30\t\t\t\nIn thousands\t2020\t2019\tVariance 2020 vs. 2019\t\nIncome tax expense\t15551\t10018\t5533\t55%\n", "q10k_tbl_40": "\tThree months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t33284\t30411\nAdjusted EBITDA\t18473\t18377\nAdjusted EBITDA Margin%\t55.5\t60.4%\n", "q10k_tbl_41": "\tThree months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t21241\t20596\nAdjusted EBITDA\t9538\t7588\nAdjusted EBITDA Margin%\t44.9\t36.8%\n", "q10k_tbl_42": "\tThree months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t30646\t26436\nAdjusted EBITDA\t15885\t11208\nAdjusted EBITDA Margin%\t51.8\t42.4%\n", "q10k_tbl_43": "\tThree months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t63018\t52945\nAdjusted EBITDA\t32990\t25082\nAdjusted EBITDA Margin%\t52.4\t47.4%\n", "q10k_tbl_44": "\tNine months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t90632\t92910\nAdjusted EBITDA\t47823\t59959\nAdjusted EBITDA Margin%\t52.8\t64.5%\n", "q10k_tbl_45": "\tNine months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t62678\t62533\nAdjusted EBITDA\t23864\t23617\nAdjusted EBITDA Margin%\t38.1\t37.8%\n", "q10k_tbl_46": "\tNine months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t80531\t79203\nAdjusted EBITDA\t40551\t35424\nAdjusted EBITDA Margin%\t50.4\t44.7%\n", "q10k_tbl_47": "\tNine months ended September 30\t\nIn thousands\t2020\t2019\nRevenues\t174455\t159492\nAdjusted EBITDA\t84459\t72396\nAdjusted EBITDA Margin%\t48.4\t45.4%\n", "q10k_tbl_48": "\tNine months ended September 30\t\n(In thousands)\t2020\t2019\nCash provided by operating activities\t121159\t136167\nCash used in investing activities\t(36920)\t(49862)\nCash used in financing activities\t(50780)\t(57117)\nEffect of foreign exchange rate on cash cash equivalents and restricted cash\t(2384)\t0\nIncrease in cash cash equivalents and restricted cash\t31075\t29188\n", "q10k_tbl_49": "\tThree months ended September 30\t\tNine months ended September 30\t\tTwelve months ended\n(Dollar amounts in thousands except per share information)\t2020\t2019\t2020\t2019\tSeptember 30 2020\nNet income\t34581\t24786\t72481\t78657\t97524\nIncome tax expense\t6513\t3720\t15551\t10018\t18508\nInterest expense net\t5438\t6919\t17664\t21327\t23931\nDepreciation and amortization\t18127\t16972\t53761\t50440\t71403\nEBITDA\t64659\t52397\t159457\t160442\t211366\nEquity income (1)\t(202)\t(372)\t(733)\t(241)\t(943)\nCompensation and benefits (2)\t3669\t3455\t10920\t10392\t14326\nTransaction refinancing and other fees (3)\t1907\t0\t6880\t280\t7098\nAdjusted EBITDA\t70033\t55480\t176524\t170873\t231847\nOperating depreciation and amortization (4)\t(9888)\t(8673)\t(28943)\t(25516)\t(38307)\nCash interest expense net (5)\t(5301)\t(6644)\t(16917)\t(20774)\t(23159)\nIncome tax expense (6)\t(7472)\t(5509)\t(21729)\t(15454)\t(26514)\nNon-controlling interest (7)\t(155)\t(63)\t(412)\t(287)\t(472)\nAdjusted net income\t47217\t34591\t108523\t108842\t143395\nNet income per common share (GAAP):\t\t\t\t\t\nDiluted\t0.47\t0.34\t0.99\t1.07\t\nAdjusted Earnings per common share (Non-GAAP):\t\t\t\t\t\nDiluted\t0.65\t0.47\t1.49\t1.48\t\nShares used in computing adjusted earnings per common share:\t\t\t\t\t\nDiluted\t73001780\t73314704\t73049817\t73530865\t\n", "q10k_tbl_50": "31.1*\tCEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n31.2*\tCFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n32.1**\tCEO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n32.2**\tCFO Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n101.INS XBRL**\tInstance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.\n101.SCH XBRL**\tTaxonomy Extension Schema\n101.CAL XBRL**\tTaxonomy Extension Calculation Linkbase\n101.DEF XBRL**\tTaxonomy Extension Definition Linkbase\n101.LAB XBRL**\tTaxonomy Extension Label Linkbase\n101.PRE XBRL**\tTaxonomy Extension Presentation Linkbase\n"}{"bs": "q10k_tbl_2", "is": "q10k_tbl_3", "cf": "q10k_tbl_6"}None
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)
(787) 759-9999
(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.
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.comas soon as reasonably practicable after filing such material with the SEC.
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.
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;
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
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:
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Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their country.
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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.
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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.
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.