10-Q 1 evtc-20220331.htm 10-Q evtc-20220331
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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 March 31, 2022 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEVTCNew 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
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 by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At April 22, 2022, there were 71,545,702 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.




















FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 ("MSA") with them, and to grow our merchant acquiring business;
the closing of the transactions contemplated by the Asset Purchase Agreement and related agreements with Popular and Banco Popular, pursuant to which we will sell certain assets that are currently used to provide services to Banco Popular;
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 grant to Popular with respect to pricing or other key terms arising out of any disputes or 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;
operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;
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 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 level of indebtedness and restrictions contained in our debt agreements, including the secured credit facilities, as well as debt that could be incurred in the future;


our ability to prevent a cybersecurity attack or breach to our information security;
the possibility that we could lose our preferential tax rate in Puerto Rico;
the possibility of future catastrophic hurricanes, earthquakes and other potential natural disasters affecting our main markets in Latin America and the Caribbean;
uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021; and
the continued impact of the COVID-19 pandemic and measures taken in response to the outbreak, on our resources, 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 “Part 1, Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022, as updated in our subsequent filings with the SEC, and 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.

WHERE YOU CAN FIND MORE INFORMATION

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 for download through our website at www.evertecinc.com as soon as reasonably practicable after filing such material with the SEC.








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

March 31, 2022December 31, 2021
Assets
Current Assets:
Cash and cash equivalents$283,610 $266,351 
Restricted cash20,295 19,566 
Accounts receivable, net105,132 113,285 
Prepaid expenses and other assets41,533 37,148 
Assets held-for-sale23,007  
Total current assets473,577 436,350 
Debt securities available-for-sale, at fair value 3,005 3,041 
Investment in equity investee14,365 12,054 
Property and equipment, net49,509 48,533 
Operating lease right-of-use asset21,562 21,229 
Goodwill389,027 393,318 
Other intangible assets, net191,164 213,288 
Deferred tax asset7,113 6,910 
Net investment in leases54 107 
Other long-term assets12,193 9,926 
Total assets$1,161,569 $1,144,756 
Liabilities and stockholders’ equity
Current Liabilities:
Accrued liabilities$71,304 $74,540 
Accounts payable30,470 28,484 
Contract liability21,360 17,398 
Income tax payable10,135 7,132 
Current portion of long-term debt21,125 19,750 
Current portion of operating lease liability6,119 5,580 
Total current liabilities160,513 152,884 
Long-term debt438,754 444,785 
Deferred tax liability2,347 2,369 
Contract liability - long term36,726 36,258 
Operating lease liability - long-term16,660 16,456 
Derivative liability2,848 13,392 
Other long-term liabilities8,573 8,344 
Total liabilities666,421 674,488 
Commitments and contingencies (Note 14)
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; 71,699,298 shares issued and outstanding as of March 31, 2022 (December 31, 2021 - 71,969,856)
717 719 
Additional paid-in capital 7,565 
Accumulated earnings526,370 506,051 
Accumulated other comprehensive loss, net of tax(36,211)(48,123)
Total EVERTEC, Inc. stockholders’ equity490,876 466,212 
Non-controlling interest4,272 4,056 
Total equity495,148 470,268 
Total liabilities and equity$1,161,569 $1,144,756 
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
(In thousands, except per share information)
 

 Three months ended March 31,
 20222021
  
Revenues (affiliates Note 15)$150,248 $139,528 
Operating costs and expenses
Cost of revenues, exclusive of depreciation and amortization64,659 59,804 
Selling, general and administrative expenses20,384 16,102 
Depreciation and amortization19,160 18,623 
Total operating costs and expenses104,203 94,529 
Income from operations46,045 44,999 
Non-operating income (expenses)
Interest income667 389 
Interest expense(5,547)(5,906)
Earnings of equity method investment570 502 
Other income, net3,306 328 
Total non-operating expenses(1,004)(4,687)
Income before income taxes45,041 40,312 
Income tax expense 6,175 4,708 
Net income38,866 35,604 
Less: Net (loss) income attributable to non-controlling interest(32)101 
Net income attributable to EVERTEC, Inc.’s common stockholders38,898 35,503 
Other comprehensive (loss) income, net of tax of $423 and $1,085
Foreign currency translation adjustments2,214 (2,613)
Gain on cash flow hedges9,725 4,189 
Unrealized loss on change in fair value of debt securities available-for-sale(27) 
Total comprehensive income attributable to EVERTEC, Inc.’s common stockholders$50,810 $37,079 
Net income per common share - basic attributable to EVERTEC, Inc.’s common stockholders$0.54 $0.49 
Net income per common share - diluted attributable to EVERTEC, Inc.’s common stockholders$0.53 $0.49 

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
(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, 202171,969,856 $719 $7,565 $506,051 $(48,123)$4,056 $470,268 
Share-based compensation recognized— — 4,279 — — — 4,279 
Repurchase of common stock(521,643)(5)(6,193)(14,981)— — (21,179)
Restricted stock units delivered251,085 3 (5,651)— — — (5,648)
Net income— — — 38,898 — (32)38,866 
Cash dividends declared on common stock, $0.05 per share
— — — (3,598)— — (3,598)
Other comprehensive income — — — — 11,912 248 12,160 
Balance at March 31, 202271,699,298 $717 $ $526,370 $(36,211)$4,272 $495,148 
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, 202072,137,678 $721 $5,340 $379,934 $(48,254)$4,688 $342,429 
Share-based compensation recognized— — 3,380 — — — 3,380 
Repurchase of common stock(382,974)(4)(1,290)(12,974)— — (14,268)
Restricted stock units delivered411,739 4 (7,430)(1,302)— — (8,728)
Net income— — — 35,503 — 101 35,604 
Cash dividends declared on common stock, $0.05 per share
— — — (3,605)— — (3,605)
Other comprehensive income (loss)— — — — 1,576 (381)1,195 
Balance at March 31, 202172,166,443 $721 $ $397,556 $(46,678)$4,408 $356,007 

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


3

EVERTEC, Inc. Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands) 
 Three months ended March 31,
 20222021
Cash flows from operating activities
Net income$38,866 $35,604 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization19,160 18,623 
Amortization of debt issue costs and accretion of discount404 569 
Operating lease amortization1,450 1,492 
(Release) provision for expected credit losses and sundry losses59 (184)
Deferred tax benefit(702)(890)
Share-based compensation4,279 3,380 
Loss on disposition of property and equipment and impairment of intangible91 1,042 
Earnings of equity method investment(570)(502)
Decrease (increase) in assets:
Accounts receivable, net7,060 (4,048)
Prepaid expenses and other assets(5,573)(2,539)
Other long-term assets(3,319)833 
(Decrease) increase in liabilities:
Accrued liabilities and accounts payable1,773 (18,457)
Income tax payable2,248 82 
Contract liability4,387 1,185 
Operating lease liabilities23 (1,611)
Other long-term liabilities714 167 
Total adjustments31,484 (858)
Net cash provided by operating activities70,350 34,746 
Cash flows from investing activities
Additions to software (8,669)(11,971)
Acquisition of customer relationship (14,750)
Property and equipment acquired(5,627)(4,724)
Proceeds from sales of property and equipment6  
Acquisition of available-for-sale debt securities (2,968)
Net cash used in investing activities(14,290)(34,413)
Cash flows from financing activities
Statutory withholding taxes paid on share-based compensation(5,648)(8,728)
Repayment of short-term borrowings for purchase of equipment and software(806)(758)
Dividends paid(3,598)(3,605)
Repurchase of common stock(21,179)(14,268)
Repayment of long-term debt(4,938)(21,357)
Net cash used in financing activities(36,169)(48,716)
Effect of foreign exchange rate on cash, cash equivalents and restricted cash(1,903)2,700 
Net increase (decrease) in cash, cash equivalents and restricted cash17,988 (45,683)
Cash, cash equivalents and restricted cash at beginning of the period285,917 221,105 
Cash, cash equivalents and restricted cash at end of the period$303,905 $175,422 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$283,610 $156,363 
Restricted cash20,295 19,059 
Cash, cash equivalents and restricted cash$303,905 $175,422 
Supplemental disclosure of cash flow information:
Cash paid for interest$5,666 $5,982 
Cash paid for income taxes4,287 5,621 
Supplemental disclosure of non-cash activities:
Payable due to vendor related to equipment and software acquired$ $1,260 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

Notes to Unaudited Condensed Consolidated Financial Statements


 
5

Note 1 – The Company and Basis of Presentation

The Company

EVERTEC, 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 and automated teller machine ("ATM") networks 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 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.

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, 2021, included in the Company’s 2021 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.

Note 2 – Held-for-Sale

On February 24, 2022, the Company entered into a definitive agreement with Banco Popular de Puerto Rico and its parent, Popular, to sell software and prepaid assets and transfer certain employees in connection with those assets (the "Disposal group"). As consideration for the sale of the Disposal Group, Popular will deliver Evertec stock held by Popular with an approximate value of $196.6 million (the "Popular Transaction"). The Popular Transaction is expected to close mid-year 2022, subject to customary closing conditions, and is expected to result in a gain.

Accounting Policy

An asset or a disposal group is classified as held for sale in the period in which the following criteria are met: (a) management commits to a plan to sell; (b) the asset or disposal group is available for sale in its present condition; (c) an active program to locate a buyer and other actions to complete the plan to sell have been initiated; (d) the sale of the asset or disposal group is probable within one year; (e) the asset or disposal group is being be actively marketed; and (f) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated, or if it is an operation within such a cash-generating unit.

Assets and disposal groups classified as held for sale are measured at the lower of carrying amount or fair value less costs to sell. Any excess of the carrying amount over the fair value less costs to sell is recognized as an impairment loss. Depreciation of assets that have been classified as held for sale is discontinued upon classification.

Given that the Disposal Group pertains to the Business Solutions segment and that the Company concluded that it constitutes a business, goodwill from this segment was allocated to the Popular transaction and is reflected as part of the Held-for-Sale balance.

The following table details the carrying amount of the major classes of assets classified as held-for-sale as of March 31, 2022:
6

 March 31, 2022
(In thousands)
Prepaid expenses and other assets$603 
Other intangible assets, net16,591 
Goodwill5,813 
Assets held-for-sale$23,007 


Note 3 – Debt Securities

The amortized cost, gross unrealized gains and losses recorded in OCI and estimated fair value of debt securities available-for-sale by contractual maturity as of March 31, 2022 and December 31, 2021 were as follows:

 March 31, 2022
(In thousands)Gross unrealized
Amortized costGainsLossesFair Value
Costa Rica Government Obligations
After 1 to 5 years$3,032  (27)$3,005 

 December 31, 2021
(In thousands)Gross unrealized
Amortized costGainsLossesFair Value
Costa Rica Government Obligations
After 1 to 5 years$2,963 $78 $ $3,041 

Debt securities are held by a trust in the Costa Rica National Bank as a collateral requirement for settlement activities. The Company may substitute securities as needed but must maintain certain levels of collateral based on transaction volumes.

No debt securities were sold during the quarter ended March 31, 2022. A provision for credit losses was not required for the periods presented above. Refer to Note 7 for disclosure requirements related to the fair value hierarchy.

Note 4 – Property and Equipment, net

Property and equipment, net consists of the following:
(In thousands)Useful life
in years
March 31, 2022December 31, 2021
Buildings30$1,317 $1,359 
Data processing equipment
3 - 5
146,098 141,359 
Furniture and equipment
3 - 20
7,986 7,718 
Leasehold improvements
5 -10
3,323 3,277 
158,724 153,713 
Less - accumulated depreciation and amortization(110,362)(106,365)
Depreciable assets, net48,362 47,348 
Land1,147 1,185 
Property and equipment, net$49,509 $48,533 

Depreciation and amortization expense related to property and equipment for three months ended March 31, 2022 amounted to $4.6 million compared to $4.4 million for the corresponding period in 2021.

During the three months ended March 31, 2021, the Company recorded a loss on the disposition of damaged POS devices amounting to $0.4 million through cost of revenues.
7


Note 5 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (see Note 16):
(In thousands)Payment
Services -
Puerto Rico & Caribbean
Payment
Services -
Latin America
Merchant
Acquiring, net
Business
Solutions
Total
Balance at December 31, 2021$160,972 $48,402 $138,121 $45,823 $393,318 
Foreign currency translation adjustments 1,522   1,522 
Goodwill reclassified to held-for-sale   (5,813)(5,813)
Balance at March 31, 2022$160,972 $49,924 $138,121 $40,010 $389,027 

Goodwill is tested for impairment on an annual basis as of August 31, or more often if events or changes in circumstances indicate there may be impairment. The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In a qualitative analysis, the Company assesses whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. No impairment losses were recognized for the periods ended March 31, 2022 or 2021.

During the three months ended March 31, 2022, Goodwill of $5.8 million was reclassified to held-for-sale as part of the Popular Transaction, this commitment constitutes the sale of a business under ASC 805, refer to Note 2 – Held-for-Sale for further details.

The carrying amount of other intangible assets at March 31, 2022 and December 31, 2021 was as follows:
  March 31, 2022
(In thousands)Useful life in yearsGross
amount
Accumulated
amortization
Assets reclassified to Held-for-SaleNet carrying
amount
Customer relationships
8 - 14
$358,159 $(279,398)$ $78,761 
Trademarks
2 - 15
41,940 (36,984) $4,956 
Software packages
3 - 10
335,064 (224,218)(16,591)$94,255 
Non-compete agreement1556,539 (43,347) $13,192 
Other intangible assets, net$791,702 $(583,947)$(16,591)$191,164 

  December 31, 2021
(Dollar amounts in thousands)Useful life in years Gross
amount
Accumulated
amortization
Net carrying
amount
Customer relationships
8 - 14
$357,991 $(272,732)$85,259 
Trademarks
2 - 15
41,901 (36,684)5,217 
Software packages
3 - 10
326,320 (217,643)108,677 
Non-compete agreement1556,539 (42,404)14,135 
Other intangible assets, net$782,751 $(569,463)$213,288 

Amortization expense related to other intangibles for the three months ended March 31, 2022 amounted to $14.5 million compared to $14.2 million for the corresponding period in 2021. During the three month period ended March 31, 2021, the Company recorded an impairment charge through cost of revenues amounting to $0.6 million for a software solution that will no longer be used. The impairment charge affected the Company’s Payment Services – Puerto Rico & Caribbean segment.

During the three months ended March 31, 2022, Software amounting to $16.6 million was reclassified to held-for-sale as part of the Popular Transaction, refer to Note 2 – Held-for-Sale for further details.

The estimated amortization expense of the other intangible balances outstanding at March 31, 2022 for the next five years is as follows:
8

(Dollar amounts in thousands)
Remaining 2022$34,733 
202353,776 
202449,370 
202537,491 
202611,849 

Note 6 – Debt and Short-Term Borrowings

Total debt at March 31, 2022 and December 31, 2021 follows:
(In thousands)March 31, 2022December 31, 2021
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))
$166,853 $170,875 
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))
293,026 293,660 
Note payable due January 1, 2022(1)
 758 
Total debt$459,879 $465,293 
 
(1)Net of unaccreted discount and unamortized debt issue costs, as applicable.
(2)Applicable margin of 1.75% at March 31, 2022 and December 31, 2021.
(3)Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at March 31, 2022 and December 31, 2021.

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group, LLC ("EVERTEC Group") (collectively, the “Borrower”) entered into a credit agreement providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 (the “2023 Term A Loan"), a $325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term B Loan”), and a $125.0 million revolving credit facility (the “Revolving Facility”) that matures on November 27, 2023, with a syndicate of lenders and Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent, swingline lender and line of credit issuer (collectively the “2018 Credit Agreement”).

The 2018 Credit Agreement requires mandatory repayment of outstanding principal balances based on a percentage of excess cash flow, provided that no such payment shall be due if the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million or if the leverage ratio is below 1.75x. On March 8, 2021, in connection with this mandatory repayment clause, the Company repaid $17.8 million, as a result of excess cash flow calculation performed for the year ended December 31, 2020. No mandatory repayment was required in the first quarter of 2022 in connection with the excess cash flow calculation performed for the year ended December 31, 2021 as the leverage ratio was below 1.75x.

The unpaid principal balance at March 31, 2022 of the 2023 Term A Loan and the 2024 Term B Loan was $167.5 million and $295.0 million, respectively. The additional borrowing capacity under our Revolving Facility at March 31, 2022 was $119.1 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Notes Payable

In December 2019, EVERTEC Group entered into two non-interest bearing financing agreements amounting to $2.4 million to purchase software and maintenance, which were fully repaid in January 2022. As of December 31, 2021, the outstanding principal balance of the notes payable was $0.8 million. These notes were included in accounts payable in the Company's unaudited condensed consolidated balance sheets.

Interest Rate Swaps

As of March 31, 2022, the Company has an interest rate swap agreement, entered into in December 2018, which converts a portion of the interest rate payments on the Company's 2024 Term B Loan from variable to fixed: 
9

Swap AgreementEffective date  Maturity Date  Notional Amount  Variable Rate  Fixed Rate
2018 SwapApril 2020November 2024$250 million1-month LIBOR2.89%

The Company has accounted for this agreement as a cash flow hedge.

As of March 31, 2022 and December 31, 2021, the carrying amount of the derivative included on the Company's unaudited condensed consolidated balance sheets was $2.8 million and $13.4 million, respectively. The fair value of this derivative is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 8 for disclosure of losses recorded on cash flow hedging activities.

During both the three months ended March 31, 2022 and 2021, the Company reclassified losses of $1.7 million, from accumulated other comprehensive loss into interest expense. Based on current LIBOR rates, the Company expects to reclassify losses of $2.8 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

Note 7 – Financial Instruments and Fair Value Measurements

Recurring Fair Value Measurements

Debt Securities Available for Sale

The fair value of debt securities is estimated based on observable inputs, therefore classifying as a Level 2 asset within the fair value hierarchy. The fair value of debt securities was $3.0 million as of both March 31, 2022 and December 31, 2021.

Derivative Instruments

The fair value of the Company's interest rate swap is estimated using Level 2 inputs under the fair value hierarchy. This derivative was in a liability position with a balance of $2.8 million and $13.4 million as of March 31, 2022 and December 31, 2021, respectively.

The following table presents the carrying value, as applicable, and estimated fair value for financial instruments at March 31, 2022 and December 31, 2021:
 March 31, 2022December 31, 2021
(In thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets:
Costa Rica government obligations$3,005 $3,005 $3,041 $3,041 
Financial liabilities:
Interest rate swap2,848 2,848 13,392 13,392 
2023 Term A Loan166,853 166,233 170,875 168,610 
2024 Term B Loan293,026 292,359 293,660 294,735 

The fair values of the term loans at March 31, 2022 and December 31, 2021 were obtained using prices provided by third party service providers. Their pricing is based on various inputs such as market quotes, recent trading activity in a non-active market or imputed prices. These inputs are considered Level 3 inputs under the fair value hierarchy. Also, the pricing may include the use of an algorithm that could take into account movements in the general high yield market, among other variants. The secured term loans are not accounted for at fair value in the balance sheets.

Note 8 – Equity

Accumulated Other Comprehensive Loss

The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the three months ended March 31, 2022: 
10

(In thousands)Foreign Currency
Translation
Adjustments
Cash Flow HedgesUnrealized Gains (losses) on Debt Securities AFSTotal
Balance - December 31, 2021, net of tax$(35,971)$(12,261)109 (48,123)
Other comprehensive income (loss) before reclassifications2,214 8,007 (27)10,194 
Effective portion reclassified to net income 1,718  1,718 
Balance - March 31, 2022, net of tax$(33,757)$(2,536)$82 $(36,211)


Note 9 – Share-based Compensation

Long-term Incentive Plan ("LTIP")

During the three months ended March 31, 2020, 2021 and 2022, the Compensation Committee of the Company's Board of Directors ("Board") approved grants of restricted stock units (“RSUs”) to executives and certain employees pursuant to the 2020 LTIP, 2021 LTIP and 2022 LTIP, respectively, all under the terms of the Company's 2013 Equity Incentive Plan. Under the LTIPs, the Company granted RSUs to eligible participants as time-based awards and/or performance-based awards.

The vesting of the RSUs is dependent upon service and/or performance conditions as defined in the grants. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee provides services to the Company through the vesting date. Time-based awards vest over a period of three years in substantially equal installments commencing on the grant date and ending on February 27 of each year for the 2020 LTIP, March 2 of each year for the 2021 LTIP, and February 25 of each year for the 2022 LTIP.

For the performance-based awards under the 2020 LTIP, 2021 LTIP, and 2022 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDA") as the primary performance measure while maintaining focus on total shareholder return through the use of a market-based total shareholder return ("TSR") performance modifier. The Adjusted EBITDA measure is based on annual targets and can produce a payout between 0% and 200%. The TSR modifier adjusts the shares earned based on the core Adjusted EBITDA performance upwards or downwards (+/- 25%) based on the Company’s relative TSR at the end of the three-year performance period as compared to the companies in the Russell 2000 Index. The Adjusted EBITDA performance measure will be calculated for the one-year period commencing on January 1 of the year of the grant and ending on December 31 of the same year, relative to the goals set by the Compensation Committee for this same period. The shares earned will be subject to an additional two-year service vesting period and will vest on February 27, 2023 for the 2020 LTIP, March 2, 2024 for the 2021 LTIP, and February 25, 2025 for the 2022 LTIP. Unless otherwise specified in the award agreement, or in an employment agreement, awards are forfeited if the employee voluntarily ceases to be employed by the Company prior to vesting.

The following table summarizes nonvested RSUs activity for the three months ended March 31, 2022:
Nonvested RSUsSharesWeighted-average
grant date fair value
Nonvested at December 31, 20211,086,329 $34.73 
Granted655,458 42.26 
Vested(395,144)25.72 
Forfeited(943)32.75 
Nonvested at March 31, 20221,345,700 $39.10 

For the three months ended March 31, 2022, the Company recognized $4.3 million of share-based compensation expense, compared with $3.4 million for the corresponding period in 2021.

As of March 31, 2022, the maximum unrecognized cost for RSUs was $40.8 million. The cost is expected to be recognized over a weighted average period of 2.4 years.


11

Note 10 – Revenues

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into primary geographical markets, nature of the products and services, and timing of transfer of goods and services. The Company's operating segments are determined by the nature of the products and services the Company provides and the primary geographical markets in which the Company operates. Revenue disaggregated by segment is discussed in Note 16, Segment Information.

In the following tables, revenue for each segment, excluding intersegment revenues, is disaggregated by timing of revenue recognition for the periods indicated.
Three months ended March 31, 2022
(In thousands)Payment Services - Puerto Rico & CaribbeanPayment Services - Latin AmericaMerchant Acquiring, netBusiness SolutionsTotal
Timing of revenue recognition
Products and services transferred at a point in time$55 $13 $ $1,885 $1,953 
Products and services transferred over time26,430 25,497 35,629 60,739 148,295 
$26,485 $25,510 $35,629 $62,624 $150,248 

Three months ended March 31, 2021
(In thousands)Payment Services - Puerto Rico & CaribbeanPayment Services - Latin AmericaMerchant Acquiring, netBusiness SolutionsTotal
Timing of revenue recognition
Products and services transferred at a point in time$78 $676 $ $2,498 $3,252 
Products and services transferred over time24,782 22,621 30,867 58,006 136,276 
$24,860 $23,297 $30,867 $60,504 $139,528 

Contract Balances

The following table provides information about contract assets from contracts with customers.
(In thousands)March 31, 2022December 31, 2021
Balance at beginning of period$1,715 $2,796 
Services transferred to customers3,067 5,374 
Transfers to accounts receivable(1,114)(6,455)
Balance at end of period$3,668 $1,715 

The current portion of contract assets is recorded as part of prepaid expenses and other assets, and the long-term portion is included in other long-term assets in the unaudited condensed consolidated balance sheets.

Accounts receivable, net at March 31, 2022 amounted to $105.1 million. Contract liability and contract liability - long term at March 31, 2022 amounted to $21.4 million and $36.7 million, respectively, and may arise when consideration is received or due in advance from customers prior to performance. The contract liability is mainly comprised of upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with hosting services. Contract liabilities may also arise when consideration is received or due in advance from customers prior to performance. During the three months ended March 31, 2022, the Company recognized revenue of $7.1 million that was included in the contract liability at
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December 31, 2021. During the three months ended March 31, 2021, the Company recognized revenue of $8.2 million that was included in the contract liability at December 31, 2020.

Transaction price allocated to the remaining performance obligations

The estimated aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at March 31, 2022 is $247.8 million. This amount primarily consists of professional service fees for implementation or set up activities related to managed services and maintenance services, typically recognized over the life of the contract, which varies from 2 to 5 years. It also includes professional service fees for customizations or development of on-premise licensing agreements, which are recognized over time based on inputs relative to the total expected inputs to satisfy a performance obligation.

Note 11 – Current Expected Credit Losses

Allowance for Current Expected Credit Losses

Trade receivables from contracts with customers are financial assets analyzed by the Company under the expected credit loss model. 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 of 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., approximately 30 to 60 more days than private customers).
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 low historically 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 following table provides information about the allowance for expected current credit losses on trade receivables.
(In thousands)March 31, 2022December 31, 2021
Balance at beginning of period$2,523 $2,401 
Current period (release) provision for expected credit losses(321)819 
Write-offs(23)(698)
Recoveries of amounts previously written-off 1 
Balance at end of period$2,179 $2,523 

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 statements of income and comprehensive income. Subsequent
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recoveries of amounts previously written-off, when applicable are credited against the allowance for expected current credit losses within accounts receivable, net on the unaudited condensed consolidated balance sheets.

Note 12 – Income Tax

The components of income tax expense for the three months ended March 31, 2022 and 2021, respectively, consisted of the following:
 Three months ended March 31,
(In thousands)20222021
Current tax provision $6,877 $5,598 
Deferred tax benefit(702)(890)
Income tax expense $6,175 $4,708 

The Company conducts operations in Puerto Rico, the United States, and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the government of Puerto Rico as well as foreign jurisdictions. The following table presents the components of income tax expense for the three months ended March 31, 2022 and 2021, and its segregation based on location of operations:
 Three months ended March 31,
(In thousands)20222021
Current tax provision
Puerto Rico$2,315 $1,604 
United States30 30 
Foreign countries4,532 3,964 
Total current tax provision $6,877 $5,598 
Deferred tax benefit
Puerto Rico$