Kay Sharpton – Vice President-Investor Relations Mac Schuessler – President and Chief Executive Officer Joaquin Castrillo – Chief Financial Officer.

James Schneider – Goldman Sachs Bryan Keane – Deutsche Bank Bob Napoli – William Blair Tien-tsin Huang – JPMorgan John Davis – Raymond James.

Good afternoon, everyone, and welcome to the EVERTEC Third Quarter 2018 Earnings Conference Call. Today’s conference call is being recorded. At this time, I’d like to turn the call over to Kay Sharpton, Vice President of Investor Relations. Please go ahead..

Thank you and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquin Castrillo, our Chief Financial Officer. A replay of this call will be available until Tuesday, November 6.

Access information for the replay is listed in today’s financial release, which is available on our website under the Investor Relations section of evertecinc.com. For those listening to the replay, this call was held October 30.

Please note, there is a presentation that accompanies this conference call, and it is accessible on the Investor Relations section of our website. Before we begin, I’d like to remind everyone that this call may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. EVERTEC cautions that these statements are not guarantees of future performance.

All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.

Please refer to the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements.

During today’s call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income and adjusted earnings per common share.

Reconciliation to GAAP measures and certain additional information are also included in today’s earnings release and related supplemental slides. I’ll now hand the call over to Mac..

Thanks, Kay, and good afternoon, everyone. Before I cover a third quarter highlights, I’d like to comment on our appointment of Joaquin Castrillo as our new CFO. Over the past few months, we have assessed Joaquin get several qualified external candidates.

Given Joaquin has been a strong leader of our finance team and long-term contributor to the overall success of EVERTEC. He was unanimously supported by our Board and the management team. I’m a firm believer and cultivating talent from within as part of our corporate culture and look forward to partnering with Joaquin to lead EVERTEC’s ongoing growth.

Now turning to our results. We’re pleased that our results for the third quarter of 2018 exceeded our expectations. We’re executing well and we continue to benefit from Puerto Rico’s increased rebuilding and recovery activity.

Beginning of Slide 4, I’ll cover some of the quarters financial highlights and provides you with an update on recent developments. Total revenue was $112 million an increase of 9% compared to 2017, as we anniversary the hurricanes that hit Puerto Rico and the Caribbean last September.

Additionally, we have anniversaries the acquisition of PayGroup as of July. Adjusted EBITDA was $52 million or 25% growth over the prior period and adjusted earnings per share was 0.45% an increase of 36% compared to last year.

We generated significant operating cash flow year-to-date of approximately $128 million, which is $20 million higher than last year. Given the third quarter results and our confidence for the remainder of the year, we are raising our guidance and Joaquin will provide further details later on the call. Moving onto progress in Puerto Rico on Slide 5.

Regarding the fiscal budget, the PROMESA Board is updated the fiscal plan to include the impact a projected federal and private insurance inflows of $82 billion over the next 15 years. New debt agreements as well as decreases in government spending, which could result a budget surplus over the next 15 years.

While the updated fiscal plan is encouraging, there still needs to be structural reforms to jumpstart the economy for longer-term growth. Regarding the debt restructuring for Puerto Rico, the unsecured creditors recently dropped their opposition to restructuring approximately $4 billion issued by the Government Development Bank.

Final court approval of the agreement is anticipated on November 6. Additionally, an agreement was reached on the COFINA bonds in late August. The Governor introduced legislation for the agreement in early October and the bankruptcy court hearing is scheduled for November 20.

We believe both of these agreements are important steps for storing Puerto Rico’s financial stability. Relief funds to Puerto Rico continue to flow in and we’re benefiting from the continued release of private insurance payments as well as HUD funding and other expanded benefit programs. Now turning to Slide 6. I’ll continue with our business update.

First, we were pleased with the stronger than expected revenue in the quarter and Puerto Rico and the Caribbean, which grew approximately 10% driven by transaction growth of approximately 16% in average ticket growth of 9%. Most important, almost all merchant categories were out prior to lapping the September hurricane impact.

We continue to benefit from relief and recovery programs, gas prices, as well as increased tax payments. Regarding new business, we have signed two contracts for the benefit of the government of Puerto Rico. First, we will provide managed IT services to administer the funds for the disaster recovery program under the community development block grant.

And second, we’ll provide business continuity and hosting services for the Department of Treasury to align with the government’s initiative to mitigate risks. This new business is an affirmation of our unique position in Puerto Rico and our ability to assist the ongoing mission critical efforts of the Puerto Rican government.

Additionally, we have also recently signed a service support agreement with Banco Popular related to their recent acquisition of the Wells Fargo auto financing business. We believe that is quality organizations like Banco Popular expand. We had the distinct opportunity to benefit from continued market consolidation.

Second in Latin America, revenue was up 8% year-over-year and we now have comparable results quarter-over-quarter since we have anniversaried the PayGroup acquisition. We also benefited from new contracts for which revenue we’d recognized this quarter. Now turning to Slide 7.

I’d like to comment on our innovation efforts, which we believe will further strengthen our market leadership position in Puerto Rico and contribute to our long-term growth opportunities in Latin America. We recently announced the pilot phase of an ATH Móvil payment solution for e-commerce websites and mobile applications.

We anticipate providing this feature for all participating ATH Móvil businesses at the beginning of 2019. On this slide, you can see how easy it is for our pilot partners who represent some of the most innovative startups as well as established businesses in Puerto Rico to provide customers access to paying with their ATH debit card.

Additionally, I’m pleased to note that through our partnership with Parallel18, a startup incubator that I mentioned last quarter, we have engaged with a total of 16 startups to gain insights into their offerings and how we can potentially collaborate. And our innovations are starting to pay off.

The third quarter benefited from additional transaction fees for services such as ATH Móvil business and ATH Móvil switching fees. In summary, we are pleased with the strong 2018 financial results and our progress on the strategic initiative that will deliver growth in 2019 and beyond. With that, I will now turn the call over to Joaquin..

Thank you, Mac, and good afternoon, everyone. I’ll now provide a review over third quarter of 2018 results. Turning to Slide 9. You will see the consolidated third quarter results for EVERTEC. Total revenue for the third quarter was $112 million, up 9% compared to $102.7 million in the prior year.

While it was a relatively easy comparison to last year, given the hurricane impacts, our sales volume continued to be elevated across most merchant payment categories prior to lapping those hurricane results. Total revenue year-to-date was $335.6 million and also up 9% year-over-year.

Adjusted EBITDA for the quarter was $52.1 million, an increase of 25% from $41.7 million in the prior year. Adjusted EBITDA margin was 46.5% and this represents a 590 basis point increase in our adjusted EBITDA margin compared to the prior year.

The year-over-year increase in margin primarily reflects the impact of the hurricane in last year’s numbers and an improved revenue mix effective cost controls as well as favorable effects in the quarter. Year-to-date adjusted EBITDA was $159.8 million, an increase of 13%.

Adjusted net income in the quarter was $33.6 million, an increase of 38% as compared to the prior year and the increased primarily reflects the higher adjusted EBITDA.

The effective tax rate in the quarter was 11.9% and we now anticipate that our full year tax rate will be approximately 13%, which is on the low end over previously expected range of 13% to 14%. Adjusted EPS was $0.45 for the quarter and grew 36% compared to the prior year.

Year-to-date adjusted net income was $102.7 million, up 15% and adjusted earnings per common share was $1.38, up 13% from $1.22 in the prior year. Moving onto Slide 10, I’ll now cover our segment results starting with Merchant Acquiring. In the third quarter, Merchant Acquiring net revenue increased 14% year-over-year to approximately $24.5 million.

The revenue increase was due to increased volumes driven by lapping the hurricane results, but more importantly, the first two months of the quarter were consistent with strong Q2 results.

The primary growth drivers continue to be federal relief programs that drove a significant increase in electronic benefit card volume, increased government tax payments and gas purchases, reflecting increases in the price of gas year-over-year. We believe insurance proceeds and recovery funds continued to drive the overall increase in sales volumes.

Adjusted EBITDA for the segment was $10.9 million, up 16%. Adjusted EBITDA margin was 44.7% of approximately 110 basis points compared to last year. Reflecting increased sales volume of ATH branded cards and the improved margin contribution from the increased average ticket.

Sequentially, however, margins were down from last quarter due to slightly lower average ticket as well as impact from mixed shift as large merchant retailers and EBT transactions increase their share of total sales volume contributing a lower net spreads.

For the nine month period, merchant acquiring revenue increased 9% to $73.8 million, primarily due to the same reasons I referenced in the quarter. Adjusted EBITDA year-to-date for the segment was $34.4 million, up 16%. And adjusted EBITDA margin was 46.6%, an increase of approximately 270 basis points.

On Slide 11, you will see the results for the payment services Puerto Rico and the Caribbean segment. Revenue for the segment in the third quarter was $29 million, up approximately 15% as compared to last year.

Transaction volumes are consistent with Q2 levels with our volume growing 5% on a comparable basis prior to lapping the hurricane results in September. Additionally, we benefited in the quarter from new transactional fees for services such as ATH Móvil business and ATH Móvil switching fees.

Adjusted EBITDA for the segment was $19.2 million, increasing 27% of compared to last year. Adjusted EBITDA margin was 66.5%, up approximately 620 basis points as compared to last year, primarily due to a hurricane impacts last year and new transactional fees.

Year-to-date revenue for the segment was $84.2 million, up approximately 7% as compared to last year. Year-to-date adjusted EBITDA was $54.9 million and adjusted EBITDA margin was 65.2%, up approximately a 130 basis points. On Slide 12, you will see the results for our payment services Latin America segment.

Revenue for the segment in the third quarter was $18.9 million, up approximately 8% as compared to last year. We now have comparable year-over-year results as we have Anniversaried PayGroup acquisition completed in July 2017.

This growth was driven by organic expansion of our existing clients as well as new business revenue offset by approximately $0.9 million of client migration. We expect the full year impact of client migration to be approximately $3 million to $3.5 million.

Adjusted EBITDA for the segment was $6.6 million and adjusted EBITDA margin was 34.6%, up approximately 1,320 basis points as compared to last year, primarily due to contract repricing, cost management, as well as favorable FX impact in the quarter of $1 million or 545 basis points.

We are projecting lower margins in fourth quarter as a result of the incremental client attrition that I mentioned, as well as other investments spending on product initiatives. Additionally, we have not incorporated any FX gains or losses. Year-to-date revenue for the segment was $58.5 million, up approximately 35% as compared to last year.

Year-to-date adjusted EBITDA for the segment was $18.3 million, increasing 38%. Adjusted EBITDA margin was 31.3%, up approximately 70 basis points as compared to last year. On Slide 13, you will find the results for the Business Solutions segment. Business Solutions revenue in the third quarter was up approximately 6% to $48.8 million.

Revenue growth in the segment was driven by lapping the hurricane impact last year, new services for both Banco Popular and the government, partially offset by lower IT services. For the quarter, adjusted EBITDA was $21.7 million and adjusted EBITDA margin was 44.5%, up approximately 250 basis points as compared to last year.

The increase in the adjusted EBITDA margin was primarily driven by effective cost management measures, which results in lower operating expenditures. Year-to-date Business Solutions revenue was up approximately 2% to $146 million and adjusted EBITDA for the segment was $68.1 million, with a 46.6% margin.

Moving onto Slide 14, you will see a summary of our Corporate and Other segment. Our third quarter expense was $6.4 million, an increase of 5% over prior year. As a percentage of total revenue, corporate and other was 5.7% and approximately 20 basis points below prior year.

Year-to-date, our corporate and other was $15.9 million, a year-to-date reduction of 10% as compared to last year. As a percentage of total revenue corporate and other was 4.7% and approximately 100 basis points below prior year. We planned for modest additional expense in the fourth quarter as we execute against planned corporate initiatives.

We now anticipate our corporate and other expenses to be up for the full year, while flat as a percent of total revenue. Moving on to year-to-date cash flow overview on Slide 15, our beginning cash balance was $60 million, including restricted cash of $10 million.

Net cash provided by operating activities was approximately $128 million or a $20 million increase. Capital expenditures year-to-date were approximately $25 million. We now anticipate capital expenditures will be in a range of $37 million to $42 million.

Next, we made approximately $41 million in debt payments and reduced approximately $15 million in short term borrowings, withholding tax for already used and other debt resulting in a total net debt decrease of $56 million.

We returned to paying cash dividends this quarter of approximately $4 million, and we recently announced another $0.05 dividends to be paid on December 7 to shareholders of record as of November 5. Our ending cash balance as of September 30 was $104 million and this included approximately $30 million of restricted cash.

While this cash balance is somewhat higher than we would normally anticipate, we continue to be committed toward capital allocation strategy. First, we invest in ourselves for growth either through internal projects or through M&A opportunities. Second, we paid down debt through schedule debt payments.

And third, returned cash to shareholders through dividends and as we have excess cash through share repurchases. We have approximately $72 million available for future use under the company share repurchase program through December 31 of 2020. Moving to Slide 16, you will find a summary of our debt as of September 30.

Our quarter ending net debt position was approximately $479 million, comprise of the $91 million of unrestricted cash and approximately $571 million of short-term borrowings and long-term debt. Our weighted average interest rate was approximately 4.6%.

Our net debt to trailing 12 month adjusted EBITDA was 2.75 times, reflecting the credit agreement terms which limits the cash applied to the net debt calculation to $25 million. As of September 30, total liquidity was $152 million. This balance exclude restricted cash and includes the available borrowing capacity under our revolver of $65 million.

Moving to Slide 17, I will now provide an update on our 2018 guidance. We are raising our revenue outlook for the year to a range of $448 million to $452 million, representing a range of 10% to 11% over last year.

The increasing the revenue range reflects our year-to-date results on an improved revenue projection for the remainder of the year, primarily in the merchant segment. We now project the Merchant segment revenues to grow mid-teens on our payment services Puerto Rico and the Caribbean segment revenue is now anticipated to grow low double-digits.

Regarding overall margin, we now anticipate that our adjusted EBITDA margin will be approximately 47% for the year. Our adjusted earnings per common share outlook has been increased to $1.79 to $1.83, which represents a range of 22% to 24% as compared to a $1.47 in 2017.

Now turning to some comments on 2019, we have a number of items that are notable that I like to review. First, the timing of federal fund is still clear and there will be a shift in the mix of the type of funding.

For example, they increased EBT funding and the number of participants that qualify for EBT funds will return to pre-hurricane levels after April. While we expect the increased levels of other federal funds to continue and positively impact our Merchant segment, how that flows through consumer spending will continue to be challenging to forecast.

Second, in LatAm, we currently estimate attrition of $3 million to $6 million in revenue related to client migration and we anticipate these to be higher in the second half of the year. Third, the CPI index for September was announced October 11 and was 2.28%, which will positively impact a significant portion of our business solutions revenue.

Lastly, we plan to update you with our full 2019 outlook next quarter. In summary, it was a good quarter for EVERTEC. We’re pleased to raise our outlook for 2018 and I look forward to meeting you and seeing you over the coming months. We will now open the call for questions. Operator, please go ahead and open the line..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from James Schneider of Goldman Sachs. Please go ahead..

Good afternoon, thanks for taking my questions and congratulations on the solid results.

I guess I wanted to maybe first ask, a clarification on your earlier commentary and I’m not sure if – I just wanting to clarify what you were talking about when you said that the strengthened the payments segment was really good in the first two months of the quarter.

What happened in September? Can you maybe clarify that? Did it actually get stronger or what happened on the margin? I just want to make sure that I understand your comment on that front..

Sure, Jim. So what we’re trying to say that the first two months of the quarter resembled the type of growth that we saw in Q2 and Q1, and September we had or prior year we had the impact of the hurricane. So the growth that we saw in that specific month is not comparable..

I see. That’s very clear. Thank you. And then I guess as you go forward, can you maybe kind of look across the solutions business and talk about beyond the two contracts that you’ve already announced with respect to the disaster recovery funds and then the other contract.

Maybe talk about what scope there is for additional contracts to come and can you give us a sense of what the pipeline of additional contracts might be either from government sources or from a Banco Popular..

Yes. So this is Mac, James. What I would say is, these two contracts specifically demonstrate that our performance during the hurricane has shown in the rest of the island – when it comes to disaster recovery and BCP, we’re a great partner. So that is something that we can continue to sell and contain to try and build up our pipeline.

So that’s one thing that I think from a business solutions perspective, we’ll continue to try and work on the island with our prospects. The second is, if you look at the reliable acquisition of Banco Popular, it shows you there’s continued consolidation.

And as the Popular in particular and the other bank partners are our partners, we’re the beneficiary of that. So business solution is something we’re focused on and with these two wins will be something that – we continue to focus in addition to the payments business..

Great. Thank you very much..

Thanks, James..

Our next question will come from Bryan Keane of Deutsche Bank. Please go ahead..

Hi. We’re just going to ask about in the payment services Latin America. Actually I think it’s in payment service Puerto Rico and the Caribbean. These new transaction fees that you talked about how material are these and then, will they continue going forward as we model out from here..

Yes. I’ll take the question and I will give it to Joaquin. I would say, as we talked about with ATH Móvil, we are beginning to charge fees for the switching fees to the banks for those particular transactions. And so we’ve layered that in for all the ATH Móvil transactions.

In addition, for those that we’re categorizing as consumer to business, we’re actually charging much like it’s a credit card transaction. So we’re beginning to see that flow through the P&L and we anticipated it to come through next year. We don’t break those out separately for reporting purposes.

But we do think it’s relevant not only to impact the P&L but also to help us maintain our market share. I don’t know, Joaquin if you want to add anything..

Sure. I will say on this point, it’s still small in terms of contribution in the grand scheme of things. However, some of these fees just started now in Q3 and we’re really excited about the overall growth of these fees and what they can represent in the future.

And I think, if you look at it, Bryan the innovation that we’re doing with ATH Móvil on mobile sites and websites for the local businesses, it really helping us. It is reaffirming that ATH Móvil is the number one brand on the island. So when we bring up these mobile solutions, we continue to have that type of market share.

So again, it’s really important to grow the P&L, but it’s also important to gain our market share as the volume shift online..

Okay. And then just wanted to ask about the M&A pipeline in particularly Latin America.

How’s that looking? Any closer to closing more deals?.

Yes. So as we’ve said in the past, we won’t comment on a deal until we have one that we’re ready that’s either signed or we’re close to closing. But it is something, we talked about on the last call that we pulled back from a transaction. So even immediately after the hurricane, we were focused on that.

And we continue to focus on that and look for opportunities and assets because we think that’s an important way to grow that business more quickly. So it’s – we’re still very focused on that..

Okay. All right. Thanks..

Thanks Bryan..

Our next question will come from Bob Napoli of William Blair. Please go ahead..

Thank you and good afternoon. Joaquin, congratulations on your promotion to CFO, appreciate it. And I look forward to meeting you..

Thank you, Bob..

I don’t know you’re going to give guidance for 2019 next quarter, but if you think Mac about the medium to long-term, what is – can you give any feel now that we’re rebounded from the hurricane. I know there’s still noise on recovery funds and all that.

But what is the right organic growth rate for this business? I think the consensus for next year or somewhere in the 5% to 6% revenue growth range and somewhere around there medium term.

Is that the right growth rate? Or is that a disappointing growth rate with the opportunities you have in Latin America outside of Puerto Rico or even within Puerto Rico with ATH and Popular?.

Yes. So, as in the past we can’t give long-term guidance and probably won’t as we guide into 2019 and we’re not ready to give guidance for 2019. I would encourage you to take a look at the plan that the government filed with PROMESA and PROMESA certified. What it shows you is how they’re thinking about financial flows through the islands.

So no one would have anticipated at the beginning of the year necessarily that Puerto Rico would have recovered like it did. If you looked at other proxies like New Orleans after Katrina, you would have expected a different outcome.

We are fairly confident and hopeful that we will continue to see relief money come into – some of the insurance money will continue to come in. But the relief funding, we think will come in and large volumes over the next few years.

Bob, the difficulty is to anticipate how those programs flow through because as Joaquin talked about, a big part of 2018 was an EBT increase. So the electronic benefits the welfare program. In 2019 and beyond it’s different programs that will substitute the EBT program that will help impact the island.

How those flow through into our business lines and how they impact our payments business. We’re still trying to determine the best way to model that for 2019. So at this point it would be disingenuine to try and even give you any type of direction.

We do know that there’s going to be a significant flow of funds, but we’re still modeling ourselves since the composition will change what that means for 2019. I don’t know, Joaquin if you want to add anything..

No. I mean I think the main factor is uncertainty Bob, around the different types of funds, the timing and how those will eventually impact the consumer. So that we actually see in our numbers. In EBT funds, as Mac mentioned and I was telling the scripted comments, will shift in the beginning of next year.

So we’ll see a decrease in what we’ve seen today, after release of EBT sales volume, and that will probably get replaced by some other type of funding as it’s reflected in fiscal plan, but timing and then again the type of that – how that makes impact to consumer is still very uncertain for us..

But what we are focused on Bob, is making sure that we maintain and grow our market share here where we can by being innovative and competitive and also hopefully opening up new categories. We can’t control what the Feds put on the island, but we control how much we grab..

And then just outside of Puerto Rico, the growth rate target, I mean 8% I guess this quarter. I know you have some deconversions, but what opportunities are you seeing, obviously you have a great balance sheet right now, lots of cash flow and cash and capabilities on the M&A side.

But even excluding that the acquisition, how is the acquisition performing and how are the cross sell is going? Can you get that? I mean, Latin America should be a double digit organic grower given the secular trends.

Can you get there and stay there?.

Yes. So what I would say is, right now where we sit today and we’re in a much better position in Latin than we ever have been because we are participating across the region. We have better products than we’ve ever had and we have strong country specific management.

We do have going into next year some attrition that is going to hit us that we’ve talked about previously and we do have the need to change from a licensing model to a processing model. In a licensing model, you get the money upfront, in the processing, it’s more recurring revenue. So that will be the pivot for next year.

So to your point, Bob, we can take advantage of the secular trends. The other piece that has to pivot and change in each country is that they do open up the markets to competition.

So if you look in Columbia, we’ve been successful but as banks, hopefully will leave some of the consortiums Redeban or Credibanco and in Chille you have Transbank that’s when we’ll see the ability to get to a nice secular growth rate. So we’re doing the right things at EVERTEC to assemble the right assets and build the right operating model.

So that when the markets do change, we think that we will be in a unique position..

Thank you. Appreciate it..

Thanks, Bob..

Our next question will come from Tien-tsin Huang of JPMorgan. Please go ahead..

Thank you. And welcome to the call. Joaquin I just wanted to ask first on ATH and the mobile product. Is ATH underrepresented on mobile and online. I’m just curious how much traction you could potentially get.

I understand secular trends are strong, but is that underrepresented today?.

So Tien-tsin, I’ll give it to Joaquin in a second. I would tell you, if you live in Puerto Rico, it's not underrepresented from a P2P perspective. ATH Móvil, since everyone in Puerto Rico, it's almost like UnionPay in China, you've got to have one if you have a bank account because the government issues you a UnionPay card.

Here, most of the banks participate. And so the debit cards are ATH Móvil. So the usage and the adoption was over 1.1 million customers. And if you take out the elderly and children, it's a significant part of the transaction population.

Now getting – so as a utility that people are using for payment, ATH Móvil is the most predominant, I would say what we've launched from an innovation perspective, the ability for people to use ATH Móvil on people's website and it's the most convenient way to actually check out on some of these websites with the largest grocer, the largest gas station.

If you come to Puma on the island, you're going to see that ATH Móvil though they're not my competitors. So in the P2P, we are the predominant and face-to-face. We're the predominant as it moves to mobile, we're making where we are the most convenient as well..

All right. So I'll echo everything Mac said. I think the only thing I'll add is that we're trying to take advantage of the huge base of users that we've been able to put on ATH Móvil.

So all these new innovation products that we're putting out is really leveraging on that base on trying to add additional services that give us some levers to try and monetize it into the future..

And I don't know if you caught it, Tien-tsin. Locally, when we have a press conference, we had the President of Acano come speak, the President of Puma speak. And Acano will tell you once they enabled our ATH Móvil product on their mobile device, on their mobile site, we were the number one payment choice. So we don't think it's underrepresented.

And we think we're in a position to continue to maintain or gain share online..

Got it. Yeah. Maybe I worded it poorly, but you answered it. It’s when you turn on the button, I wasn't sure if you got a lift in terms of participation or checkout on ATH versus other options. But it sounds like once you enable it, it takes over as it should like you've said in the face-to-face world..

Yes. I mean, Tien-tsin, just as a reminder, it's a pilot at this point. We're rolling this out, this model to all of our ATH Móvil Businesses at the beginning of next year, and the expectation is that we get some additional traction as a result of that..

And some of it, Tien-tsin, is we’re trying to maintain our share, it moves to a mobile device and online with some big retailers.

And then we talk about Parallel18, which is very, very small opportunities, but as business models change in Puerto Rico, where people may order food on their mobile device and have it delivered like an Uber Eats, which is as prevalent here or as people move their spending habits to new apps, that we're picking up new share. So it's both.

We're trying to protect the share that we have as it moves to mobile commerce, but as new categories open up, we want to be the first one to offer the payment solutions to those start-ups..

It makes sense, it makes sense. My quick follow-up. The EBITDA margin, you had 100% basically incremental margin in the third quarter.

Sounds like FX was some of the help is – is that right to be looking at it 100% incremental margin that all the revenue year-on-year growth flow through to the bottom line? Or were there other onetime factors to consider that maybe enhance that?.

So when we look year-over-year, again, last year was impacted by the hurricane in Q3. So we have that drag on margin as a comparison to the previous period. The FX was definitely a lift approximately 100 basis points. And obviously, we are getting better margin just because of the payments segments performing other's been performing..

Very good. Thank you..

[Operator Instructions] Our next question will come from John Davis of Raymond James. Please go ahead..

Hey, good afternoon and congratulations to your team. Quickly, just one housekeeping one. Any update on the client attrition? Mac, your referenced it earlier, but it seems like it keeps gets pushed out.

Any change to the time schedule there or the total dollars amount you expect to eventually lose?.

Yes. So I mean, the dollar amount over time remains constant. It's just been spread over multiple years. As we said about this business, it's very difficult the sales cycles can be long and sometimes even after sale cycle, you have a multi-year transition.

So I would say that the absolute number, that's a cumulative number has not materially changed but has been spread out. For next year, I will let Joaquin speak about..

Yes. So actually for this year, we're expecting approximately $3.5 million. And then for next year, obviously, as Mac mentioned, we've had these delays and have created sort of a tale going forward. So we're expecting $3 million to $6 million for 2019.

But to reiterate what Mac said, the overall number that we said from the beginning continues to be the same. It's just being spread out..

And that overall numbers $10 million to 12 million, correct?.

I believe, we said $10 million to $14 million..

Okay. Perfect. And then Mac, as PROMESA Board seems to be making progress, do you have any sense on when you could see potential austerity go into effect? On the island is, if you have a better view today than you did three months ago. Any color there'll be helpful..

Yes. So again, there's still a bit of uncertainty, I will say the biggest impact to DFA if they hit this year's Christmas bonus because that's a substantial portion and typically that gets paid fairly quickly.

And then again, you can look at the plan, the PROMESA plan, at least what the government has certified with the PROMESA Board, it's fairly well laid out, at least what their expectation is on funds coming into the island and when they'll take cuts in the government..

Okay. And then on migration trends. Now that's school back in session, I know the summer is tough.

Has more people returned to the island as we sit here kind of the year out from the hurricane just from your sense, do you feel like most people that left came back? And what do you think kind of the ultimate kind of attrition and population is kind of to date based off of kind of your gut feel? Am not asking for specific number field where more people will come back?.

Yes. So I will tell you the number of people that have come back significantly exceeded what I would have expected at the beginning of the year. And I would tell you even under the Act 2022 provision, which is where people are moving from the states for the tax benefits, there's still a significant movement of people.

That's significantly growth there's not many people come in on an annual basis anyway, but has not impacted that trend. So we've been surprised with the migration trends. I don't think there's one good statistic that you can look with a significant level of confidence.

But I've been surprised at the number of people that people that have come back, not only Puerto Ricans who migrated back post hurricane, but also the people from the states who are coming to take advantage of the new tax code..

Yes, the one thing I'll add is, obviously, a lot of relief funding coming into the island and all the reconstruction work has created additional demand for jobs. So a lot of people are staying because there's more jobs available. And we've also seen an influx of people coming into the island from different parts of the U.S.

to help in that restructuring effort. So that's normalizing a little bit some of the immigration that we would have seen. But definitely, it's better than what we would have expected right after hurricane..

Okay, great. And last one for me. Mac, we're sitting here a year out, I think, as the hurricane recovery reasonable detail, not to be taken lightly has far exceeded everyone's wildest expectations. You guys have generated a ton of free cash flow. The outlook looks good.

Leverage is 2.75 on its stated basis, but if you exclude the rest of the cash, it's even lower. It doesn't feel like buybacks and M&A are mutually exclusive at this point.

So maybe just talk about the appetite and the stock is still cheap here and you have for buybacks? Would you prefer dividends? It just feels like you could actually do both a decent-sized acquisition and some buyback, maybe buy back the money that did not spend on dividends during the uncertainty.

So just any kind of color of the commentary that will be helpful?.

Sure. I mean, what I would tell you is as I address Bob's question, we are always looking at M&A and that's an important part of our thesis. And I think as Joaquin stated. Well, growth is the first place that will invest. So as we look at our plan for 2019, I'm trying to determine whether investments are required and will continue to look at M&A.

After that we will take a look at, how do you return to back cash to shareholders and we do have that plan in place, the buyback, I can't give specifics of when we're going to do what in advance, but we’re focused on all the different components..

Okay. All right. Thanks guys..

Thank you. .

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Mac Schussler for any closing remarks..

So thanks everyone for joining the call. I want to congratulate Joaquin on his appointment and thanks for all he's done over the last quarter, to help us get to where we are. And I look forward to seeing you all on the road over the coming months. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..