Good day and welcome to the EVERTEC Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

At this time, I'd like to turn the conference 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, March 3rd.

Access information for the replay is listed in today's financial release, which is available on our website under Investor Relations section of evertecinc.com. For those listening to the replay, this call was held February 25th.

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 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. Thank you for joining us on today's call. First, I'd like to touch on the recent earthquakes that affected Puerto Rico. I'm incredibly proud that through sound planning and our team's diligent efforts, EVERTEC's service was uninterrupted.

While power was only briefly disrupted throughout Puerto Rico there are structures that were impacted, particularly in the southern portion of the island that will require rebuilding. We are also assessing those merchants that were unable to transact as a result of the earthquake and giving them a credit for their terminal costs.

Additionally, EVERTEC has committed $50,000 in donations to support the community relief efforts, which are being used to activate a series of rapid response initiatives to address both the short-term needs of the impacted areas as well as long-term initiatives that can help support economic development.

Now I'll review our results for the full year of 2019 beginning on slide 4. Total revenue year for the year was approximately $487 million, up 7% compared to 2018, which exceeded the top end of our most recent guidance and well exceeded our initial expectations for the year. We generated adjusted earnings per share of $1.96, an increase of 7%.

We also generated significant operating cash flow of $180 million. We returned approximately $46 million to our shareholders with approximately $32 million in stock buybacks and $14 million in dividends. Now, I'd like to give you some more specific updates on our businesses on slide 5.

First we are pleased with the continued strong revenue performance in the fourth quarter. Puerto Rico and the Caribbean grew approximately 8%. We benefited from some one-time revenue in Business Solutions and continue to benefit from new managed services. Payment transaction growth was approximately 6% in the quarter.

And in our Merchant Acquiring business, we continue to see normalization of the average ticket, which declined approximately 7% year-over-year.

Regarding the current macro environment while the impact of the earthquake was another setback, we are encouraged with the federal response and the added focus on the federal funds that were anticipated for the island's recovery from the hurricane 2017.

Recently HUD announced the appointment of a federal financial monitor to oversee the grant administration and disbursement process and also authorized the release an $8.5 billion. However, these funds will be subject to strict oversight. This is an important step for the continued recovery of the island.

Employment has remained stable throughout the year and certain metrics are showing less outward immigration. The fiscal board continues to work, towards debt restructuring and lowering Puerto Rico's outstanding debt. If sustained, these macro trends will be important to the long-term health, of the economy in Puerto Rico.

On a positive note, we are pleased to say, that we resolved our disagreement with Popular, related to certain pricing items, which was mentioned on our third quarter earnings call.

As has been the case with disagreements, in the past we often resolve these amicably with modifications to our relationship, such as enhanced service levels, prioritization of product initiatives, among other considerations. Popular represents over 40% of our revenue and with this recent negotiation, we continue to focus on their success.

Moving to slide 6, the team executed well in the quarter, and I'd like to talk about, one of our most recent wins, which is a new service, that we began offering this year, on January 1. As a part of new Medicare supplemental benefits, we are now providing benefit cards, to eligible participants on behalf of, local Medicare benefit providers.

This chart shows at a high level, how it works. A beneficiary receives a benefit card that is refilled with an amount, they can use at merchants via our ATH network. This is a new service with over 100,000 cards issued to-date.

In 2020, we continue to seek opportunities in Puerto Rico, to leverage our technology platforms and operating scale, to deliver value-added solutions, to our customers and partners. Moving on to Latin America on slide 7, revenue in Q4 was down 2% year-over-year, as we continue to see the impacts of previously discussed attrition.

And the uneven license sales in any given quarter. That said, the team is performing well with new wins and momentum, on executing our implementation plans. Regarding our implementation for Santander Chile, we continue to be very excited about the progress being made.

Santander is in pilot in processing Visa and Mastercard transactions with our in-house barista, the Work Café. Even though we have work to complete over the next few months, this is a significant milestone for Santander, Chile and EVERTEC, as the first alternative in the market to the incumbent acquirer, Transbank.

For Citibank, a number of new clients have been launched on our collection platform. And we are progressing on our implementation for Citibanamex, which is targeted for completion before the end of the year. We also recently launched the first mobile wallet application for benefit funds, with our partner Compensar, in Colombia.

This innovation will allow Compensar members to easily make payments at allied merchants, through QR or bar codes. Regarding client wins, we recently signed a license sale for our products to Alelo, a Brazilian company that has been a market leader, in the benefit sector, since 2013.

Additionally, Bank of Costa Rica expanded their existing contract with us, for new services that include new types of POS terminals that can be offered as well as increased capabilities for small merchants. These wins are further validation of our improved reputation and services, in the region.

We also completed our acquisition of PlacetoPay, a payment gateway based in Colombia and focused primarily on enabling digital and card-not-present transactions. We are excited about expanding these services beyond Colombia and Ecuador, where it serves clients today.

Before the end of Q3, we expect to localize these gateway services and offer them in other markets, like Costa Rica, Panama and beyond. These new services will allow us to strengthen our relationship with existing clients, as well as open new sales opportunities.

Regarding the macro environment, in Chile and Colombia, we continue to monitor the evolving protests. However, we are not currently experiencing any significant impact, on our business. Turning to slide 8, I want to update you, on our strategies, in Latin America. 2019, we were pleased with the significant wins with Citibank and Santander, Chile.

And as we begin 2020, our focus is on executing and providing our partners with, excellent products and high-quality service. There continues to be a significant opportunity, for growth across Latin America, given the low penetration of card volumes as well as a growing middle class.

We continue to see positive trends in cash-to-card conversion, and an increasing online presence and smartphone usage, that should fuel growth of mobile and e-payments.

Even though many of the countries are still dominated by monopolies or duopoly, as 2019 demonstrated, the regulatory changes, the competitive pressures, and the evolving technologies in the payment space are pressuring the environment to change.

To advance our growth strategy in Latin America further, we made progress in 2019 by shifting more of our products from, a licensing model to a processing model that will grow with the transaction trends to provide recurring revenue in the region. During 2020, we are further localizing additional payment products throughout the region.

We have over 800 employees outside of Puerto Rico, and with our local leadership and Spanish-speaking developers, we can provide customized solutions, developed specifically for each client and market. We believe that we are uniquely positioned to take advantage of opportunities throughout Latin America and become the partner of choice.

As we close out an impressive year in 2019, we are also proud of being included again in the Bloomberg Gender-Equality Index, which distinguishes companies committed to transparency and general reporting and advancing women to quality. At EVERTEC, one of our core commitments is to diversity and the development of our employees.

We invest in their success by recruiting the best talent providing competitive salaries and offering training and development programs through EVERTEC University. In 2019, we launched Leadership Academy for coaching our leaders in all our regions, as well as development plans for all of our colleagues.

We believe that our employees are the key ingredient for successful innovation and a high-performing workforce. I want to thank all of our dedicated team members for their commitment throughout 2019 and for building a strong foundation for growth in 2020 and beyond. With that, I will now turn the call over to Joaquin..

Thank you, Mac, and good afternoon, everyone. I'll begin with a review of our consolidated fourth quarter and full year 2019 results, and then review each segment in greater detail. Turning to slide 11.

Total revenue for the fourth quarter 2019 was $127.2 million, up 8% compared to $118.2 million in the prior year driven by higher transaction volumes, value-added solutions, new contracts and pricing actions. Adjusted EBITDA for the quarter was $55.3 million, an increase of 5% from $52.6 million in the prior year.

Adjusted EBITDA margin was 43.5%, and this represents a 100 basis point decline in our adjusted EBITDA margin compared to the prior year.

The decrease in margin year-over-year is primarily attributable to increased project costs, negative FX impact, and higher other operating expenses such as rent and cloud-related expenses that impacted our margin in Q4.

Adjusted net income in the quarter was $34.9 million, an increase of 1% as compared to the prior year and $0.48 on a per-share basis an increase of 4%. The increase primarily reflects the increased adjusted EBITDA offset by increased operating depreciation and amortization and a higher tax rate in the quarter as compared to last year.

For the full year, total revenue was $487.4 million, and was up 7% year-over-year. Adjusted EBITDA was $226.2 million, an increase of 6% with an adjusted EBITDA margin of 46.4%, down 40 basis points as compared to prior year.

Adjusted net income was $143.7 million up 5% and adjusted earnings per common share was $1.96, up approximately 7% year-over-year. Our full year non-GAAP tax rate was 12.3%, slightly lower than 12.4% in prior year. Moving on to slide 12. I will now cover our segment results starting with Merchant Acquiring.

In the fourth quarter, net revenue increased 5% year-over-year to approximately $27.2 million. The revenue increase was due to increased transactions as well as pricing impacting both our spread and our non-transactional revenue.

Our volume was down 1.65% as we continue to have a tough compare to prior year that included higher EBT relief funding and we continue to see an average ticket decline of approximately 7% year-over-year, as the average ticket continues to move towards more normal levels.

Adjusted EBITDA for the segment was $11.7 million and adjusted EBITDA margin was 43.2%, down approximately 360 basis points as compared to last year, primarily as a result of a lower average ticket.

For the full year, Merchant Acquiring was up approximately 7% at $106.4 million, reflecting the growth over last year's results, primarily due to the same reasons mentioned in the quarter.

Adjusted EBITDA for the full year was $47.2 million, up 1% and adjusted EBITDA margin was 44.3% down 240 basis points as compared to last year, primarily due to the impact of the lower average ticket. On slide 13 our results for Payment Services Puerto Rico and the Caribbean segment.

Revenue in the fourth quarter was $32.6 million, up approximately 9% as compared to last year. Transactions grew approximately 6%, and we continue to benefit from transaction fees on services such as ATH Movil and ATH Movil Business. Adjusted EBITDA for the segment was $18.7 million, down 8% and adjusted EBITDA margin was 57.1%.

Adjusted EBITDA margin was down due to increased project expenses, primarily related to post-implementation EBITDA expenses as well as increased cloud-related expenses.

For the full year, the segment revenue grew 10% to $125.5 million, driven primarily by softer comparisons early in the year one-time revenue from the EBT service contract and benefit from new transaction fees for services such as ATH Movil and ATH Movil Business.

Adjusted EBITDA for the full year was $78.6 million, up 5% and adjusted EBITDA margin was 62.6%, down 320 basis points as compared to last year, primarily due to increased project expenses and the delayed government contract renewals in Q3. On slide 14 you will find the results for Payment Services Latin America.

Revenue in the fourth quarter for the segment was $21.9 million, down approximately 2% as compared to last year, driven primarily by mid-single-digit organic growth, partially offset by anticipated client attrition of approximately $500,000 and lapping significant license sales last year.

Adjusted EBITDA for the segment was $7.1 million and adjusted EBITDA margin was 32.2%, down as compared to last year due primarily to negative FX impact in the quarter of $700,000 as compared to a positive impact in Q4 2018 of $1.5 million.

Adjusting for the FX impact respectively in both years, margins for Q4 would have been at relatively similar levels. For the full year the segment revenue grew 4% to $84.5 million, driven primarily by the full year benefit of intercompany transactions to Puerto Rico and organic growth partially offset by the anticipated client attrition.

Adjusted EBITDA for the full year was $30.7 million and adjusted EBITDA margin was 36.3%, up 200 basis points as compared to last year. Moving to slide 15, Business Solutions revenue in the fourth quarter increased 11% to $57.2 million.

We benefited from the CPI increase that began in October 2019, and from one-time revenue of approximately $2.5 million related to a network solutions project completed in Q4 as well as the increase in volume of the new services associated with Popular's acquisition of Reliable.

Adjusted EBITDA for the segment was $25 million and adjusted EBITDA margin was 43.8%, up 550 basis points as compared to last year due primarily to a revenue mix shift of higher-margin revenue as compared to the lower-margin results last year related to hardware sales. For the year, Business Solutions grew 10% to $216.7 million.

Full year adjusted EBITDA for the segment was $97.4 million, up 11% and adjusted EBITDA margin was 45%, up 60 basis points year-over-year. Moving to slide 16, you will see a summary of our Corporate expenses. Our fourth quarter Corporate and Other expense was $7.1 million, a year-over-year decrease of 19%.

The decrease primarily reflects higher expenses related to projects completed in the fourth quarter of last year. For the full year, Corporate and Other expense was $27.7 million and as a percent of revenue increased approximately 30 basis points to 5.7%. Moving on to our year-to-date cash flow overview on slide 17.

Net cash provided by operating activities was approximately $180 million or a $7 million increase as compared to the prior year. Capital expenditures were approximately $60 million and included a higher spend than normal due to our investments in innovation and product improvements as well as an update of critical technology infrastructure.

We completed our PlacetoPay acquisition for approximately $6 million in cash as well as an additional earn-out component that may become payable upon the achievement of certain performance growth targets.

And finally, we paid cash dividends to stockholders of approximately $14 million and repurchased approximately $32 million of common stock for a total of approximately $46 million returned to our shareholders for the year. We have approximately $31 million available for future use under the company's share repurchase program.

Our ending cash balance as of December 31st was $131 million which includes approximately $20 million in restricted cash. Moving to slide 18, our year ending net debt position was approximately $422 million comprised of the $111 million of unrestricted cash and approximately $533 million of total short-term borrowings and long-term debt.

Our weighted average interest rate was approximately 4.8%. Our net debt to trailing 12-month adjusted EBITDA was approximately 2.1 times, reflecting a $60 million cap on cash in accordance with our credit facility. As of December 31st, total liquidity which excludes restricted cash and includes the available borrowing capacity was $228 million.

Before I move on to our outlook, as a reminder, the terms of our current agreement include an excess cash flow sweep feature that applies to cash generated over a certain level to be paid against our loan. In addition the interest rate swap entered into in Q4 of 2018 takes effect in April 2020.

We currently anticipate cash interest to remain relatively flat year-over-year in 2020. Moving to slide 19, I will now provide you with our 2020 outlook. We expect revenue to be in a range of $501 million to $508 million, representing growth of 3% to 4%.

Our adjusted earnings per share outlook of $2 to $2.06 represent a range of 2% to 5% as compared to the adjusted earnings per share in 2019 of $1.96. On a GAAP basis, earnings per share is anticipated to be between $1.45 to $1.51. I will now highlight some of the key underlying assumptions and uncertainties that we have analyzed and planned for.

While the anticipated release of federal funds is at least $8.5 billion in the current fiscal year, these will be subject to strict oversight that will continue to impact the timing of when these funds actually flow through the economy.

In addition actual distribution is dependent on the Puerto Rico government providing approved plans for the use of the funds. The timing of the approval and the actual distribution remains unclear with very little track record for us to assess. As a result, we have assumed modest economic growth in 2020.

Moving to the segments, we project low to mid-single-digit growth in Merchant Acquiring, primarily based on our assumptions about deferral funds flow as well as a continued normalization of the average ticket. Our Payment Services Puerto Rico and the Caribbean segment revenue is anticipated to grow low single digits.

While we continue to anticipate healthy transaction growth as well as contributions from ATH Móvil and ATH Móvil Business this will moderate from 2019 growth rate as we lap the initial introduction of the business fees as well as the benefit in 2019 of $2.7 million one-time EBT project revenue.

Our Latin America Payment Segment revenue is anticipated to be high-single to low double-digit growth including $3 million to $5 million of anticipated client attrition. As a reminder, a portion of our revenue is still driven by license sales rather than recurring revenues and therefore may be uneven throughout the year.

Additionally, we have included some modest negative impact for FX in 2020. Our low side guidance reflects some additional negative risks related to foreign currency.

And finally, the Business Solutions segment revenue growth is anticipated to grow low to mid-single-digits reflecting the tailwinds from the CPI increase and recent new contracts as well as full year impact of some of the services that began in the second half of the year for Popular mainly related to Reliable.

Regarding Corporate expenses, we would expect this to approximate 5% of total revenue. All these items are considering in our guidance and combined, we believe will generate adjusted EBITDA margin in the range of 46% to 47% or a slight increase over our adjusted EBITDA margin year-over-year.

On a quarterly basis, we anticipate the first quarter revenues and margins to be softer than the rest of the year due to a slow start to federal funds, stronger spending that was related to the hurricane recovery last year, higher project expenses as well as the lapping of the onetime revenue in the first quarter.

January 2020 sales volume was down approximately 3% including some impacts from the earthquakes. We expect both revenue and earnings growth to be largely back half-weighted as new services are fully implemented and federal funds flow begin to benefit the island.

Our operating depreciation and amortization is anticipated to increase to approximately $39 million to $40 million up $4 million to $5 million primarily reflecting depreciation and amortization related to multiyear projects that went into production last year as well as new projects that are anticipated to go into production in 2020.

Our non-GAAP effective tax rate is anticipated to be up slightly given the increased mix of LatAm business to approximately 13%. And this guidance reflects approximately flat average diluted shares of approximately 73.3 million.

Our capital expenditures for 2020 are expected to be approximately $45 million and reflect our ongoing investment in technology, localization of our products in Latin America and investment in transitioning our licensing model in LatAm to a pricing model. Our capital allocation strategy remains unchanged.

We will continue to focus on growth investments internally as well as through M&A. We plan to continue our dividends to shareholders and as excess cash is available we will repurchase shares on our current share repurchase program. In summary, we executed well during 2019 and delivered strong cash generation.

As we continue to focus on our innovation and opportunities in Puerto Rico and expanding our LatAm business, we look forward to updating you on our progress in the coming year. 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 Vasu Govil of KBW. Please go ahead. .

Thanks, guys. Thanks for taking my question. I guess first on the BPOP resolution it was good to see that happen within the quarter. Was there any pricing change or results and the economic impact from the new deal? Just trying to understand the, sort of, give and takes to come to the resolution..

Yes. Thanks, Vasu. This is Mac. So we talked about the pricing dispute on the last call because we felt like it was potentially a headwind going into this year. But given that we were able to resolve it through the quarter we're not going to comment a lot further than that.

Often these have to do with some type of product issues, service-level issue other considerations, but we're not going to comment more than we already have except that it's resolved and it's baked into the guidance..

Great. And then Joaquin, I know, you gave us a lot of color on the outlook. I'm just trying to make sure I got everything.

But it sounded like you were saying the margins would be kind of flat to slightly up but at the low end it could also be down a little bit year-on-year? And then could you, kind of, talk to like so what are the sort of puts and takes towards the low and high end of the range? And then just based on the EPS guide like, am I missing something? Did you say the D&A was going to be higher? Is that the delta?.

Yes. So I'll let -- I mean we -- margin is going to be flat to up. I'll let Joaquin, sort of, walk you through the pieces..

So yes, Vasu. To kind of take your last question first. D&A is the main component going down to EPS. That will be higher. And if you look at where we ended up in Q4 and kind of run that through next year that has an impact of an increase plus we have obviously additional projects that we expect to go into production.

As we kind of go through 2020 that should make up the remainder of the difference that we called out. So all-in-all it's a $4 million to $5 million increase in D&A. In terms of -- and also we're considering buybacks to the extent of the dilution from our long-term incentive plan.

So we're really considering a flat weighted average share count going forward. In terms of the margin, yes, we called out a flattish margin on the high end. We will see some expansion in that margin. Obviously, some of the puts and takes in terms of the segments. We can run very quickly through that.

In terms of Merchant Acquiring, we continue to see declining average ticket. So that's key in terms of being able to maintain that margin at a flat to negative level, which is what we expect for the full year. If we think about our payment Puerto Rico segment, we had a big -- a one-timer in the beginning of Q1 of last year that was high margin.

We won't have that going into 2020. And as we called out, we had some higher expenses related to the -- going into production with a key platform for EBT. And we've had some additional expenses flow through the P&L as we stabilized that platform. That will flow through Q1 a little bit as well. So that should impact the margin negatively.

If we look at LatAm, we expect negative margins there, mainly as we've called out in the past, we have $3 million to $5 million of expected attrition. And as we said, this is high-margin revenue that's coming out.

And we're still growing the top line healthy, right? But the revenue that's coming in won't be enough to offset that margin erosion from that attrition. And as we look at Business Solutions we expect a flat to slightly positive margin. As we continue to put volume through these platforms, we should be able to potentially see some margin expansion.

But as we've seen throughout 2019, we have other one-timers on hardware sales that might lead us to the lower end of that range of being flattish. And then, in terms of corporate expenses, we're kind of keeping those lower than this year. So that's a positive. And that's kind of the puts and takes as we see the different segments for next year..

Great. Thank you very much. And if I could just sneak one last one.

I don't know if -- I didn't catch it, but did you sort of size the contribution on revenue and EBITDA expected from the PlacetoPay acquisition in the 2020 outlook?.

We did not..

I guess could you offer some more --.

So, what I would say is, I mean, if you look at our LatAm segment, we're pretty excited about what's occurred.

We feel like the acquisitions that we've had in the past have now given us a portfolio and a market presence and a Rolodex to where we're adding organic business nicely, if you look at Santander Chile, if you look at Citibank and now if you look at this transaction that we have with Alelo. PlacetoPay is nice.

It's very small and it's going to give us a gateway. Already, this is operation in Colombia and we plan to activate it within Central America this year, but we're not breaking that out separately. But it's a relatively small acquisition..

Got it. Thank you for the color..

Yes. Thanks,Vasu..

Our next question will come from George Mihalos with Cowen. Please go ahead..

Hey, guys. Thanks for taking my question. Maybe just to follow up on some of the prior questions around margins. Can you help us think of sort of a long-term framework or how you're thinking about longer-term margin expansion that the company could deliver? I know there are a number of puts and takes that obviously are going to be impacting 2020.

But as we kind of think on a normalized basis, is there a framework to think about longer-term margin expansion on an annualized basis?.

Yes. So I'll give you my view and then I'll hand it Joaquin. What I would tell you is, we already have fairly high margins as a company, when you look at our peer group and the Puerto Rican growth.

We'll continue to come through with good margins and we'll continue to manage cost to try and maintain those margins and invest in products, so we maintain that business. When you look at Latin America, it certainly is at a lower margin. You can see we break those segments out. And so, hopefully, over time that will grow at a significant rate.

So that it will put pressure on the margins. So we're very focused on it. And, like I said, we've already got some of the best margins in the industry..

Yes. The only thing I'll add, George, this is Joaquin, is that, we've kind of called out our transition to a processing model in LatAm. And we -- when we acquired the Chile operation, it was mostly license-based. We continue to have license sales today which are not a -- its not model where we can take advantage of our economies of scale.

So as we continue to move and execute on that strategy of processing over time, we should put ourselves in a position to be able to expand margin. But we're still, obviously, investing and executing on getting those up and running..

George, do we loose you?.

Hey, sir. I can --.

Okay..

Yes. Sorry about that. Mac, just outlook on M&A in the pipeline and maybe any sort of color you could provide around there. Thank you..

Sure. So George we are very focused on M&A, as we have, since I've started the company. I would say, we continue to have a pipeline that we're focused on. We won't comment, of course, on any deals as -- before we actually have them. But we're focused and we're happy with what we're currently evaluating..

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

Hi, guys. Wanted to just ask about some of the implementations Santander Chile, Citi and then some of the pipeline update that you gave.

How does that impact 2020? Are these -- are any of these material changes to the growth rate in 2020? Or are they having a material impact?.

Yeah. So what I would say is again for the first time in several years, we're really adding significant business that are organic wins. So Santander Chile has a meaningful impact to the segment, and then Citibank to a lesser extent. So they'll impact 2020.

And then we hope that as we grow those relationships and as those businesses grows and volumes grows, it will have a positive impact in the future years as well. And then we also hope to continue to have organic wins just like these. So that's what was core for us to tell you about Alelo and that win as well.

But they will have an impact on the growth rate in 2020 and beyond..

The only thing I would add is most of that impact will be back half-weighted. And as we said in the prepared remarks, we're still bringing these up. Citibank, we continue to bring clients onto the platform. Banamex which was kind of the bigger region that we announced a few calls ago is still ongoing. So that's still in the implementation phase.

And once we're able to get both Santander and Citi is when we'll start to see some of that revenue come through the LatAm segment..

And then I do think it's important to note and we said on the call, I mean, I said at the beginning of the call is, we're pleased with the progress. I mean, with Santander Chile, we are already processing Visa and Mastercard transactions at their internal barista at their headquarters..

Got it. Got it. And then Joaquin just thinking about the margins they came in a little bit below our estimates. I know you talked about last quarter for full year 2019 adjusted EBITDA margins being at 47% and they fell a little bit below that.

Is there anything to think about in particular that caused a surprise to kind of be lower than expected on the EBITDA margin for the quarter?.

So I would say the two things that worked against us this quarter was one foreign currency. So in Latin America we had a negative effect from FX that impacted margin. And then as I mentioned, we put our EBT project into production towards the latter half of Q3.

And we continue to work on stabilizing that platform, which is a very complex project, multi-year project that we're now running on a day-to-day. And so now as we continue to kind of get a handle on the operation, we have some additional expense running through OpEx.

And as I mentioned in the last question, we understand that that will flow a little bit into Q1. But it's something that at the end of the day if you look at our full year guidance, we're still expecting 46% to 47% margins or a slight improvement from where we are in 2019 for 2020..

Got it. Thanks so much guys..

Thanks, Bryan..

Our next question will come from John Davis of Raymond James. Please go ahead..

Hey, good afternoon guys. Can you maybe just start on the balance sheet? I think leverage is I believe all-time lows at just a shade over two times to get the interest expense you said I think was going to be flat year-over-year. So kind of a twofold question.

One is there an ability to refi that debt or do anything there? And then also feels like the cash interest being flat maybe just talk a little bit about the puts and takes especially given kind of where rates are.

Remind us what's fixed and what's floating and how we should think about that going forward?.

Sure. So in terms of the interest, we have our -- we had a forward swap that we entered into as part of our last refi. So Q4 of 2018, when we completed the refi. We entered into a -- so that starts April of 2020. Obviously, that's what will -- given where rates are will work against us for the remainder of 2020.

So that's unfortunate in terms of how rates have moved. Having said that, the -- about 50% of our debt continues to be floating. So that 50% that's still floating we'll get the benefit of the lower rates and that should offset the negative impact from the fixed swap.

As it relates to just our overall refinancing strategy, I mean it's -- that's not something that we comment before we actually engage or close on a refinancing. And what I do want to clarify is our capital allocation strategy hasn't changed.

We will continue to look to invest for growth first through M&A like we just did the PlacetoPay acquisition and through CapEx for innovation and new products. We'll continue to pay down our debt based on scheduled pay downs, although we also have this excess cash flow sweep that we mentioned as part of the remarks that will hit in Q1.

And to the extent we have additional cash we'll go through repurchase and continue to pay our dividend..

Okay.

But just to clarify, there's nothing that would keep you there a little bit call premium or any big kind of penalty fee for you to refi that debt? That's just -- you're not going to comment on it but there's -- I just want to see if there's any make sure there's not anything that prohibits you from refi-ing that debt that's maybe not clear to us from the outside?.

No. No there isn't anything specific that I can put out that would put us in a position where we couldn't make that an option..

John that question doesn't have anything to do with 10-year treasuries hitting an all-time low, does it?.

And then Mac bigger-picture question here. I think you've commented -- we've got a lot of questions on the margin so far. I think 11% revenue growth in 2018 on the rebound from the hurricanes. It was 7% last year kind of guiding to 3% to 4%.

How should we think about both the revenue growth algorithm of the company, as well as the EPS growth? It seems like margins were going to be flat give or take maybe some onetime items.

I'm not asking for long-term guidance but just how should we think about -- or how do you manage the business? Is it a revenue growth? Is it EPS growth? Is it cash flow growth? Just maybe some higher level commentary on kind of how you think about managing the businesses over the next several years?.

Yes. So what I would say is, we are very focused on being opportunistic in pursuing opportunities in Latin America. We -- as we said at the beginning of the year last year we are confident. At the beginning of last year we said we believe.

At the beginning of this year we say we are confident that these markets are opening as demonstrated by some of the transactions and demonstrated by some of the business that we've been able to win.

So we are very focused on continuing to expand our footprint continuing to expand our Rolodex and continuing to expand our products so that we're building a unique franchise which frankly we believe are one of the few fintechs that are really focused on the region given both the complexity and given the relative size that it means to other players.

So we will be focused on continuing to accelerate revenue growth in LatAm by making those investments and by executing well. I do think that you can look at how we've done that over the past couple of years. We've done a good job I believe in not only maintaining, but in some years growing margin by being very careful about those expenses.

But albeit overall it does have a lower margin. So we are very focused on growth in LatAm. In Puerto Rico, we already have significant share and the island has been through a lot of different phases over the past couple of years.

We're very focused on maintaining our share, maintaining our margin and then growing as best as possible which ends up in sort of the low single mid-single-digit by taking advantage of new trends as more transactions are moved to electronic forms like we just talked about with the Medicare product.

So that's sort of the focus is just sort of maintain our margin and our share in Puerto Rico and grow as things continue to move to electronic payments, but then really, really focus on accelerating growth in LatAm. And I feel pretty good about what we've done over the past couple of years on both fronts..

Okay. And then last one for me. Maybe just zoom in a little bit on M&A in Latin America. I think for myself and probably most people on this call, it's difficult for us to see what's out there what's trading. Is it -- has it been relatively active? Maybe just help us kind of -- with a little bit of color on deals that you look at nothing specific.

But size of deals are these $10 million, $20 million, $30 million deals? Are these $100 million deals? Are they both? Just maybe help us think about how active the LatAm M&A market is and where multiples are if they're rational or not and just kind of a state of the LatAm M&A market in your view if you don't mind?.

Well the start of your question is what I love is that there's not a lot of visibility to transactions in Latin America and that's one of our advantages.

So what I would say is when we look at some of the transactions that we've consummated we paid pretty good multiples, if you look at the environment today with what's going on in the payment space particularly those that are harder to find and those that are more of a tuck-in niche for us that we can blow out across our network of customers.

Those have been extremely valuable. There are some property valuations when you look at Brazil and some bigger transactions, but that's not where we've spent our time. So they're -- again Latin America has been less active as the U.S. and Europe and Brazil, but we still are finding opportunities that we think we continue to build the franchise.

Every once in a while a big may come along like Prisma in Latin America. But they're still tend to be the ones that we're seeing are of the smaller size. But again I think those are perfect for us because we can fill those in get them a good multiple and create value for shareholders.

Again if you think about four years ago this segment was $37 million in revenue. This year it's going to be north of $90 million. And it was $11 million in EBITDA and this year it's going to be more than $30 million. And I think a big part of that was the M&A strategy, and then turning those assets into organic growth..

Okay, all right. Thanks guys..

Thanks, John.

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

Thank you, and good afternoon. The -- just a follow-up on Latin America growth. What -- I missed the – Joaquin, the revenue growth for Latin America that you're forecasting for 2020.

And then Mac what are your thoughts on longer-term organic revenue growth for Latin America?.

Hi, Bob, so we -- what we mentioned was high single to low-double-digit growth for 2020..

Okay..

But that includes $3 million to $5 million rolling off..

Right..

So if you call it round numbers $90 million you've got some negative -- you've got a decline in the top line of a couple of percentage points. So if you normalize that you'd probably be in low double digits fully. So we do have the headwind that's been living with us for a long time, but it's now low-double-digit.

What I would say Bob long-term is, we don't give long-term guidance but we can tell you what we're doing this year, which is going to be high single low digit, again with $3 million to $5 million coming off. So to me organically and with a little M&A that's low double. A lot of that growth this year is organic.

It's Santander Chile, it's Citibank, it's Alelo. It's these deals that we're posting on the Board those will continue to grow over time as transactions grow and/or if the relations grow. And we hope to continue to win more business like that. So we're pretty optimistic. Five years ago the markets really weren't open like they are becoming now.

And I don't know that we were in the same position that we were at that time as well reputationally and from a product and services perspective. So we're pretty optimistic and we feel like this is a good year for growth in LatAm..

No. I mean, I think the market forecast is for growth in LatAm for payments in high single digits.

I mean, I guess you would expect to grow at least in line with the market and preferably above given your market position long-term?.

Yeah. Absolutely. I mean if we're picking up share in some of these markets then in some markets where we're going from the very small banks, we should be growing faster. Again if you look at Chile specifically, which we don't we won't break out, we're going to see significant growth. So you have to look market by market.

But yes we intend to grow as fast as the market if not faster..

Okay. And then just on the bank tech side if you will. I mean, your -- you have a very, very large customer on the bank tech side and there's a lot going on in bank tech digitization.

I mean, are you investing in technology to the extent, obviously you have a big contract coming up but even to the point where you can expand and offer more services, not only to Popular, but also to -- I mean it's a pretty active Neo bank or New bank market in Latin America. And I think you had mentioned a partnership last quarter in that area.

So what are you investing to the point that you need to on the digital banking side to keep up with all the innovation that we see in other companies for your clients? And then can you expand that into other Latin American relationships and then particularly just on the New bank or Neo bank space?.

Sure. It's a great question. So as we talked about I think it was one or two calls ago, C6 Bank in Brazil is one of our customers and they're using our risk products. So, even some of these new banks across the region are using our products. What I would tell you is we're focused on continued innovation whether we do it in-house or externally.

That's why we bought PlacetoPay because it gave us a gateway. So we're continuing to invest in products. And I think specifically to your point with Popular, we're continuing to make sure that we stay close to our clients understand, the service levels that are acquired, the products that are acquired and building sort of a long-term view on that.

But even with Banco, if you look at the product we have for the bank today it's one of the products they're most pleased with. It's their online digital product, where people can check deposits do transfers, access ATH Móvil. And we're pretty proud of that product..

And then just the – I mean, people have talked about the balance sheet. But assuming that you don't make an acquisition of materiality you are going to buy back stock. Would – and so we would expect to see that share count go down.

You don't have any buyback other than to the extent to keep the shares flat for the incentive plans correct?.

I mean, that's right Bob, we'll continue to apply our capital allocation strategy..

But I think he's asking about guidance. Guidance just assumes share buyback –.

Yeah. The guidance assumes that they're flat – that we're just buying the valuation from the long-term goal..

Yeah.

So I mean, we still have the stock purchase – the stock buyback authorization and plan $31 million?.

That's right..

And – but right now the guidance – just assumes flat share count.

So that's what you're looking?.

Right. But you would obviously expand that buyback unless you make a significant acquisition. That buyback authorization I would guess – I would expect..

Yeah. We definitely are focused on how do we use cash efficiently..

Yeah. Okay. Thank you. Appreciate it..

All right. Thank you, Bob..

[Operator Instructions] Our next question will come from James Friedman of Susquehanna. Please go ahead..

Hey, guys. Congratulations on the numbers..

Thank you..

I'll just ask my two questions upfront. The first one is about this page 6. Mac, you referred to it in your prepared remarks. I'm just trying to understand in the Medicare payment process who should we be thinking of as EVERTEC's customer in here? Is it the health insurance company, the beneficiary? That's my first one.

And then I'll just get in my second one. Joaquin some of these segments the – and this is a very simplistic question, but in both Merchant and Payment Puerto Rico we are seeing revenue grow faster than volume. I think in your prepared remarks you referred to ATH.

Is this the pricing that you're referring to? Or is there something else going on? So, first one on payments in Medicare and the second one on volume versus revenue. Thanks..

Yeah. Good questions. So what I would say on the Medicare payment program that the customers are the big insurance companies on the island MCS and MMM. And what I would say is, they're big customers in other areas in the Business Solutions segment specifically. So this is an example of our scale and our presence on the island.

When there are new opportunities to just digitize transactions, we're in a sort of the perfect position to assist them. So this specific product is – the customers are the big insurance companies. And then on the other question, I'll hand it to Joaquin..

Actually both – the merchants continue to be our customers as well. So these participants within this program will use these benefit cards our merchants as well. So we are kind of in two places for purposes of this program, where we are providing services to the Medicare companies in terms of enabling their access to this type of electronic payment.

And at the same time, we are using our network and our merchant and network to acquire those payments. In terms of your other question, Jamie, so in the case of Merchant Acquiring, we did have pricing actions right, that help us keep our spread up compared to previous years.

Even though sales volumes coming down, we've been able to keep revenue growing in part because of those pricing actions. In the case of payment processing the same applies. We also had ATH Movil and ATH Movil Business fees come through the second half of 2018. So, we saw kind of grow over all through 2019 of those fees coming in.

And as we also mentioned in our script, as we look at 2020, we will have obviously a moderation of that growth from the ATH Movil and ATH Movil Business fees, because we've lapped the implementation of them..

Got it. Thank you..

Our next question will come from James Faucette of Morgan Stanley. Please go ahead..

Thank you very much. A couple of questions from me. Going back to the OpEx, and specifically D&A, that you mentioned will be up during the course of the year as new projects come on.

Should we be thinking about that D&A remaining at elevated levels as we go into 2021? Or do we start to have that come off a little bit? And I guess the second thing I wanted to follow-up on drawing out my two questions at once. You called out ATH Movil as a benefit in payment services.

Can you give us some color as to what adoption looks like there? And whether the growth is just continued adoption itself? Or improvement in what you're able to monetize there?.

Okay. This is Joaquin. So, I'll start with your second question. In terms of adoption, we continue to have over 1 million users on the ATH Movil app. What we continue to see is more payments flowing to the platform being used on a more frequent basis.

And we haven't given specific numbers, but we continue to see a sequential growth as it relates to the P2P app. And we continue to push the use of our ATH Movil Business side of the equation given that we still have -- see opportunities of P2P users actually using it for business purposes.

So, we continue to see also a healthy growth in the business side, and we continue to see an opportunity to improve in the utilization as we move forward. In terms of D&A, obviously we did have some multi-year projects coming to production in the second half of 2019, which are really the drivers of the uptick through all of 2020.

We usually have projects of significance that we're working on. I would say that the projects that we're talking about this time around are larger than usual. So, I don't think that this uptick would be something sustainable into the future.

We're not giving 2021 guidance, but it's definitely something that we continue to monitor and that we will manage accordingly as we move through 2020..

Great. Thanks..

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 Schuessler for any closing remarks..

Thank you, and thanks to everyone participating on the call. We look forward to giving you updates throughout the year. Good night..

The conference has now concluded. We thank you for attending today's presentation. And you may now disconnect your lines..