Good morning everyone and welcome to the EVERTEC First Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Kay Sharpton, Vice President of Investor Relations. Go ahead..

Thank you and good morning. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquin Castrillo our Chief Financial Officer.

Before we begin, I'd like remind everyone that this call may contain forward-looking statement and should be considered in conjunction with cautionary statements contained in our earnings release and the Company's most recent periodic SEC report.

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.

Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company's website at www.evertecinc.com. I'll now hand the call over to Mac..

Thanks Gary and good morning everyone. Before we begin, on behalf of our company, I'd like to share our sympathies with all of those who have been affected by this global pandemic.

In particular, I want to express my regrets to those who have lost loved ones and my gratitude to those in the medical community and all the essential workers who are on the front lines for the benefit of us all.

I also want to thank my colleagues who are diligently working remotely as well as those who have continued to tirelessly work on sites, given the nature of their roles.

Just as with hurricane Maria, the EVERTEC team is continually demonstrating their adaptability, persistence and strong values, making me incredibly proud and honored to lead this organization.

While we continue to cautiously monitor the impact of COVID-19, we believe that our past experiences with extreme circumstances have proven the resiliency of our business and our people.

We're fortunate to be able to highlight on this call the successful efforts of our team to maintain our business operations and even implement e-solutions during the quarter. Turning to Slide 4, I'd like to cover some of these highlights.

In preparation for COVID-19, we deployed our business continuity plans a few days before the Puerto Rico government enacted a shelter-in-place directive on March the 16th. Since then, every country in which we operate has implemented some types of social distancing measures.

Our priority has been the safety and support of our colleagues as we transitioned to a work-from-home environment, but also implementing safety measures for those critical employees that were needed on site.

Through our internal initiatives, we were able to provide equipment and remote access to our colleagues as well as clear direction and focus throughout the organization to keep everyone informed and productive.

For our colleagues who needed to be on site, keep the network operations running, as well as cash handling and other critical operations for our customers, we implemented safety procedures such as temperature check each day, as they enter the building, provided protective gear, developed safe distancing spaces and increase the overall sanitation at all our offices.

In March, a significant focus of ours was supporting our clients evolving needs as well. For our largest customer Popular, we assisted them in the transition of over 4400 employees to work-from-home environment.

Many of our customers depend on us for communication, security and numerous other business functions that require modifications in this new environment.

Adjustments included increasing the capacity of our phone lines to allow from more customer calls, as well as modifying our systems for our customers, as it related to late fees and interest charges, license and tax handling and the acceleration of other projects necessary to serve clients in this new environment.

For the small business clients in our Puerto Rico merchant portfolio, we are particularly mindful of the severe impacts to their finances brought on by the pandemic and are assisting them with applying for aid as well as finding other ways that we can provide support.

And for the community throughout organizations footprint we are already promoting our application to the 2020 scholarship program, to which we have contributed over $500,000 over the past five years. The need has never been greater to help these students and our commitment firmly remains.

While our results in the quarter were impacted by effects of the pandemic, both in Puerto Rico and Latin America, we believe our unwavering investment in our employees, customers and communities during this time of crisis, strengthens our relationship with each of our stakeholders over the long run.

Beginning on Slide 5, I'll cover some of the quarter's financial highlights and provide you with an update on recent developments. Total Revenue was $122 million, an increase of 3% compared to 2019.

Our revenue results in January and February were on track with our expectations, but in mid March, transactional revenue was impacted by COVID-19 measures. Additionally, we had the one-time revenue last year that was a headwind for Q1 this year.

Adjusted EBITDA was $56 million, or a 2% decrease as compared to the prior year, and adjusted earnings per share was $0.46, a decrease of 8% compared to last year. We generated significant operating cash flow and returned approximately $7 million for our shareholders through share repurchases.

Dividends approved by the Board in February were paid on April the 3rd and our next dividend will be paid June 5th. Our quarter end liquidity was over $220 million.

Moving onto our business update on Slide 6, first in Latin America, we are pleased that we were able to continue to provide our customers with new innovative solutions, such as the new service implemented for Exito, the largest supermarket chain in Colombia.

Through our portal, customers can purchase a card for necessity that has been then redeemable using a virtual card at Exito establishment or online. For every COP50,000 of card purchases through April the 30th, Exito contributed COP5,000 to a relief fund.

This is a creative solution that is helpful during this challenging time to support the community in Colombia. This new service is supported our recently acquired digital payment gateway, PlacetoPay. We also implemented an e-commerce solution for our large us retailer operating in Central America to further support their card-not-present payments.

These payments became critical as a result of COVID-19, as they easily facilitate home delivery and pickup. Additionally, we implemented a virtual benefit card program for the Dominican Republic Government, to distribute aid to those families with economic needs impacted by the pandemic.

This program which was implemented by April 1st has impacted over 530,000 families in the community by distributing over $64 million, which helped both the banked and un-banked population. Lastly, we are pleased with the progress on our Santander Chile project and have now successfully tested the acceptance of American Express.

We still have more work to do, but this is a significant milestone. We have delayed our go-live date as most merchants are closed to Santiago, and we're using this time to do further testing and preparation with an expected implementation in just a few months.

We continue to see interest in our products and although timelines may be extended due to COVID-19 we are seeing growth opportunities. We have differentiated ourselves from our competitors through our customer focus, our service and our investments, and we believe we will emerge as a unique payment service provider in Latin America.

Moving on to Puerto Rico, the environment is challenging in just like the rest of the world, we are seeing significant increases in unemployment and small businesses are struggling.

Puerto Rico is anticipated to receive $5 billion in Federal Aid through CARES and the Government of Puerto Rico provided their own aid package, which included approximately $800 million. The local government has also supported the economy that continuing to employee the government workforce.

As for the reopening of Puerto Rico, earlier this week, several industries were allowed to resume business, which is positive to provide some economic activity. The government is evaluating the opening of additional business segments by May 18th, depending on how COVID-19 cases developed over the next few weeks.

We will continue to focus on serving our clients' needs, on innovation, and on executing the opportunities as they arise. Turning to the rest of 2020 while the COVID-19 impact was clearly evident in our results in March, it is challenging to provide annual guidance given the uncertainty around the depth and duration of the pandemic at this time.

The best perspective we can provide on the impact to our business is to share preliminary trends we are seeing so far in the month of April. Joaquin will share those trends and provide an illustration of how if they continue they will impact Q2.

We are encouraged by the recently released government plans for the gradual reopening of the economy and we would expect to see some improvement as these planes implemented. Fortunately, we continue to have a strong balance sheet with low leverage.

We expect to continue to have positive cash flow, under all the scenarios we have modeled and we believe we have adequate liquidity to weather the storm. Our commitment is to continue to keep steady in this turbulence and focus on the longer term opportunities will remain ahead of us.

Whether the recovery is a V or U or a W, we are confident in one thing based on our previous challenges, the human spirit's ability to prevail over adversity. With this understanding, we will continue to focus on our values with a view to the future and we believe we will become better for it was. With that, I will now turn the over to Joaquin..

Thank you, Mac, and good morning everyone. I'll now provide a review of our first quarter 2020 results. Turning to Slide 8, you will see the consolidated first quarter results for EVERTEC. Total revenue for the first quarter was $121.9 million, up 3% compared to $118.8 million in the prior year, which included a onetime revenue benefit of $2.7 million.

Our overall performance over the first two months of the year were in line with expectations as we saw modest sales volume and transaction growth in Puerto Rico and Latin America as well as some good progress in some of our key projects.

Beginning in mid-March however, our Merchant, Payment Puerto Rico and Payment -- segments were directly affected by the pandemic of the some of our business solutions lines of business some lines of business that are transactional. Our Latin America segment was also negatively impacted by affect.

We estimate that the impact to revenue related to COVID-19 in the quarter was approximately $3 million. Adjusted EBITDA for the quarter was $56.3 million, a decrease of 2% from $57.6 million in the prior year. Adjusted EBITDA margin was 46.2%, and this represents 230 basis point decrease, compared to the prior year.

The year-over-year decrease in margin primarily reflects the decrease in transactional revenue, the increased mix of business in Latin America and Business Solutions which are lower margin as well as the impact of the prior year one-time project revenue.

The adjustments in the quarter for adjusted EBITDA included our normal adjustments for non-cash equity and share-based compensation and also include a $2.1 million charge related to transactional fees.

Adjusted net income in the quarter was $33.5 million, a decrease of 10% as compared to the prior year, primarily reflecting the lower adjusted EBITDA as well as increased operating depreciation and amortization, partially offset by lower cash interest expense.

Our adjusted effective tax rate in the quarter was 17.6%, primarily reflecting the impact of COVID-19 on the mix of business as well as the discrete tax item of approximately $500,000. We expect our full year effective tax rate to be higher than prior year, primarily due to the impact of COVID-19 to our mix of business.

Adjusted EPS was $0.46 for the quarter and decrease 8% compared to a prior year. Moving on to Slide 9, I'll now cover our segment results starting with Merchant Acquiring. In the first quarter, Merchant Acquiring net revenue decreased 3% year-over-year to approximately $25.1 million.

The revenue through February increased by low single-digits and then in March decreased approximately 11%, driven primarily by lower sales volume in the last two weeks of approximately 40% year-over-year.

Puerto Rico social distancing measures began on March 16th and allowed for only essential businesses to remain open such as supermarkets, pharmacies, banks, gas stations, and only for a limited period of time of day.

All other businesses have to remain closed and people could only go out of their homes to buy groceries, medications and visit doctors or hospitals. These measures drove down sales voting for business categories, except for supermarkets and pharmacies.

Average ticket which has stabilized in January and February, increased in March by driving by changes in consumer behavior towards larger purchases that enabled them to remain in their homes for longer periods of time. Spread, however, declined mainly driven by the mix shift. Adjusted EBITDA for the segment was $11.3 million, down 6%.

Adjusted EBITDA margin was 44.9%, down approximately 120 basis points as compared to last year, reflecting the impact of lower transactional revenue and the mix of business. Expenses are mostly variable in this segment. On Slide 10, you will see the results of the Payment Services, Puerto Rico and the Caribbean segment.

Revenue for the segment in the first quarter was $29.9 million, down approximately 7% as compared to last year, primarily due to $2.7 million one-time project revenue last year. In addition, we had negative transaction growth year-over-year, mainly for the same COVID-19 reasons that impacted our merchant segment after March 16.

January and February saw POS transaction growth in the mid single digit range, and then down approximately 17% in the month of March. We experienced a similar drop off on interim transaction volumes as well.

These were partially offset by ATH Movil and ATH Movil business transaction growth, as well as new transactional volumes and incremental revenue recognized from the new service with Medicaid benefits we discussed last quarter.

Adjusted EBITDA for this segment was $16.1 million decreasing 24% compared to last year, adjusted EBITDA margin was 53.8%, down over 1000 basis points as compared to last year, primarily due to lower revenue and high operating expenses related to post implementation costs from the EBT project.

This segment has mostly fixed costs related to technology infrastructure. On Slide 11, you will see the results for our Payment Services in LatAm segment. Revenue for this segment in the first quarter was $21.6 million, up approximately 4% as compared to last year. This growth was driven by the acquisition of PlacetoPay as well as organic growth.

This growth was partially offset by attrition of approximately 500,000 in the quarter. Now these effects impact of the Chilean peso, the Brazilian Real, and the Colombian peso all declined approximately 20% versus prior year. Prior year also included 500,000 of a one-time intercompany license revenue.

Other than effects that are a special impact to our LatAm segment from COVID-19 was limited, as a social distancing measures in some of the countries in which we operate were less strict started later in the month of March And many of our contracts have minimums and also have a revenue component based on accounts on fire or plastics issues.

We are expecting more significant impact us moving to Q2 based on some of the trends we have been following, and some of our implementation projects get delayed.

Adjusted EBITDA for the segment was $8.2 million and adjusted EBITDA margin was 38.1% down approximately 150 basis points as compared to last year, driven by the impact of one-time intercompany license revenue as well as the high margin attrition in the quarter.

We now anticipate that we may see some delays in the attrition this year given the current environment and anticipate the attrition in 2020 to now be between 3 million to 4 million. On Slide 12, you will find the results for the business solutions segment. Business solutions revenue for the first quarter was up approximately 9% to $55.9 million.

Revenue growth in the segments was driven by new services for Popular as well as projecting implementations that impacted the quarter by approximately $1.5 million. For the quarter, adjusted EBITDA was $27.4 million and adjusted EBITDA margin was 49.1% up approximately 420 basis points as compared to last year.

The increasing in adjusted EBITDA margin was primarily driven by the increased revenue in the quarter. Moving on to Slide 13, you will see a summary of corporate and other.

Our first quarter adjusted EBITDA was negative 6.8 million, a decrease of 3%, as compared to prior year' and 5.5% as a percentage of total revenue, approximately 30 basis points favorable to the prior year.

Moving on to our year-to-date cash flow overview on Slide 14, our beginning cash balance was approximately $131 million, including restricted cash of approximately $20 million.

Net cash provided by operating activities was unfortunately $34 million, a $5 million increase as compared to prior year and this includes the impact of settlement timing and other working capital differences. Capital expenditures year-to-date were approximately $9 million.

We paid approximately $21 million debt payments which included a $17 million payment related to an excess cash flow sweet feature in a trade agreement and supply the cash generated over a certain level to be paid against our loan.

$3 million in withholding taxes on share-based compensation $1 medium of other debt pay down, resulting in a total net decrease of approximately $24 million. We did not pay cash dividends in the quarter due to timing of the payment occurring after quarter end on April 3rd.

We repurchased approximately $7 million of common stock, now we have approximately $23 million available for future use under the Company share repurchase program and we've recently another $0.5 dividends to be paid on June 5, 2020 to shareholders of the record as of May 4.

Our ending cash balance as of March 31 was $125 million and this included approximately $22 million of restricted cash. Moving to Slide 15, you'll find a summary of our debt as of March 31, 2020.

Our quarter ending net debt position was approximately $408 million, comprised of approximately $104 million of unrestricted cash and approximately $512 million of total short-term borrowings and long-term debt. Our weighted-average interest rate was 4.41%. Our net debt to trailing 12 months adjusted EBITDA was under two times for the first time.

A multiple below two times threshold will provide a 25 basis point improvement in our interest rate on approximately 45% of our debt. However, we will likely go above the two-time multiple in Q2 given the impact on adjusted EBITDA related to COVID-19. As of March 31st total liquidity was over $220 million.

This balance excludes restricted cash and includes the available borrowing capacity under our revolver. At the end of the quarter, although we are confident of our cash and liquidity position, we decided to draw $30 million of our revolver for a further buffer our liquidity.

The cost to draw on the revolver will have minor impact on our interest expense and seemed prudent given the uncertainty of the environment. Moving to Slide 16, given the very unique nature of the COVID-19 pandemic, we are suspending our annual guidance.

But to provide some disability and perspective on how COVID-19 is impacting our business, we are sharing a view of our preliminary April revenue impact just for study purposes showing the estimated second quarter revenue and adjusted EPS on these levels.

Based on this, total revenue will be down approximately 12% from prior year, resulting in total revenue of $108 million and adjusted EPS would be down approximately 41% or $0.30 per share in Q2. Adjusted EBITDA margin is an estimate assuming fixed costs.

Although we are focusing on cost containment where possible for purpose of this illustration, we have some limited levers, most of which will be offset by COVID-19 potential impact. That said, at these levels, we expect to deliver about $42 million in adjusted EBITDA.

As Mac mentioned in his remarks, the Puerto Rico Government announced last week that, several business verticals could begin to open this past Monday. This is certainly positive and we have seen an improvement over the few days in terms of volumes and transactions.

However, there's still much uncertainty as to what impact the pandemic will have on the economy and future consumer behavior and also this opening of the economy is subject to COVID cases remaining under control.

We will continue to monitor the situation and provide an update when we have greater clarity on the depth and breadth of the COVID-19 pandemic impact to our business. On a positive note, we continue to anticipate positive cash flow even in the lowest now mode.

And depending on the results, we would see an uptick in our leverage ratio, but still remaining near three times levered. In summary, it was a challenging quarter, but we continue to execute well. I guess our longer initiative we believe will continue to benefit in 2020 and beyond. We will now open the call for questions.

Operator, please go ahead and open the line..

[Operator Instructions] Our first question is from Vasu Govil from KBW. Go ahead..

Hi. Thanks for taking my question. It's good to talk to you all and glad that that everyone is safe and healthy. I guess my first question, within things for the trends on April that you gave us, but within the month.

Can you talk us through, if you saw much improvement towards the end of the month and into early May and sort of what the magnitude changes are that you were seeing in the improvement?.

Sure Vasu. This is Joaquin. And so, I'll just walk you through what we have been seeing. In March the activity order for Puerto Rico started March 16th, so I would say the second half of March, we saw a decline in volume kind of getting to high thirties.

That grew a little bit more going into the first two weeks of April as everybody got really serious in the shelter-in-place initiative. So, we saw high thirties, low forties and it stabilized there through the first two weeks of April. It improved slightly towards the end coming down to low thirties.

And now, as I said in prepared remarks, the governor allowed several businesses to open up this past Monday. We don't have that much of stability because it's only been a few days, but we've seen a couple of days commonly in the high teens, low twenties.

So, we need to see how this continues to develop, and hopefully in the next stage of businesses opening of May 18th. To the extent that we are able to kind of control the positive cases and more sectors continue to open, we would expect to continue see a positive trend, but it's still early. So, we're definitely looking at this very closely..

Thanks. That's really helpful. And Mac, at a very high level, what we hearing across the payments industry is that the pandemic is sort of accelerating the shift of digital by multiple years in many cases. And that digital will be the new way of life for many people as trying to acting in a certain ways.

Are you seeing evidence of that in Puerto Rico in particular in some of the LatAm economies that were more cash focused? And do you think that coming out of it the growth rates going to be structurally higher for EVERTEC?.

So, we agree with what you're hearing from our peers. There's a move to digital payments. I mean, I will tell you what we've seen with ATH Movil and particularly ATH Movil business. It's become the preferred payment method for many of the small businesses, some of the small grocery stores. So, we have seen that trend and that business has held up.

We've even seen it as we talked about in Columbia, when we talked about Exito trying to create a virtual card to make shopping more in a digital environment. So, we are seeing that trend.

We do think that, that trend will continue to accelerate coming out of COVID-19 and we are very happy that we've invested in ATH Movil and then we've also made the investment in PlacetoPay. So, during this period, given sort of where we are from a liquidity perspective, we need to invest in this technology. So, it come out of this stronger..

Our next question is from Korey Marcello from Deutsche Bank. Go ahead..

Hey guys, this is Korey on for Brian Keen. I just wanted to ask first, if you could talk a little bit about the merchant base, kind of the mix of merchants that you have there, maybe it's a small merchant and then maybe online volume as well.

Just any color you could give around that?.

Yes. I'll take it first. You've got to remember in Puerto Rico, where we're less weighted on travel and entertainment. We have a lot of the local economy. So, we've got a lot of the supermarkets the pharmacies, the utilities are our customers. So, that's why you've seen the type of relative stability in some of our payments businesses and segments.

And on the digital piece, we don't break that out separately. We have given some of the growth rates on ACH in the past we were not on this call. But as I said earlier, that's become one of the preferred methods of payment is the ability to pay with your cell phone small businesses.

I personally, gone to another local pizza places and you place your order on the front line, you walk up to the door and you show them your phone that you've already paid and they hand the pizza out the door to you. So, we are seeing the digital increase.

But that sort of gives you sort of an understanding of the waiting a lot of the core economy is part of our processing. I don't know if you want to add anything Joaquin..

Yes, just to give you some additional color around the portfolio. We have seen a pretty significant shift, and mainly driven by the businesses that are that have the ability to remain open because all other businesses were required to remain closed.

So, we are seeing a significant shift towards supermarkets, pharmacies and gas stations mainly as those are the essential "businesses" that could continue to do this and throughout this period. It would be other important or I guess, key factors series, we're also seeing an increase in the average ticket.

So, although these are as I mentioned, in the script lower margin businesses, we are seeing the average ticket homeowner or at least that's what we saw in these last few weeks, as people go out to the supermarket and make larger purchases, so they can stay within their homes for a longer period of time.

So, that kind of offsets a little bit some of the shifts that we're seeing towards these lower margin businesses. Then alluding to what Mac said, I would just add that there should all these digital channels continue to grow and even throughout this whole period, right.

So, as physical payments, card present payments are taking this hit and given the shelter-in-place, we have seen a slowdown in some of the other P2P transactions and business transactions and they do continue to grow year-over-year..

I guess, as a quick follow up, you guys mentioned some potential kind of outcomes for the upcoming quarter around EBITDA. Just curious, I think that was related to some six cars.

So, I'm just curious if you could go into some detail maybe what, what type of cost take out controls that you guys are taking and how that could potentially benefit versus the expectation that you laid out..

Sure. So, as we've seen in the past, we run a very high margin on a normalized basis some of the best industries. So, we are very cost conscious continuously, we run the Company, very lean and so significant levers of cost, and are really not there for us.

However, we are always looking for areas where we can be more efficient and we continue to focus on those given the obviously impact to the top line and as we identify those will continue to execute..

Yes, so let me just say going into this, we were very focused on taking care of our employees, and our employees take care of our customers. So, we actually saw an acceleration of expenses for setting up in a virtual environment making sure we had and then some additional compensation for those that had to continue to work on site.

So, we were very focused on investing to make sure that the operation continued to perform well and we were very, very focused on productivity. So, if back to the other call, we are continuing to invest in our digital platforms. We're continuing to invest in Santander Chile, which is we make good progress on even during this period.

But that being said, we did offset that back Of course, T&E was down, around travel budget went down. We're very closely managing our marketing budget and others and training budgets to make sure that we try to offset some of the incremental cost that we’ve incurred as we moved into the remote working.

Going forward, we will continue to look at those discretionary expenses, and make sure that we manage those as closely as possible without sacrificing the future growth of the Company.

Because as a company in emerging markets, it's really enters in new countries with some interesting opportunities, we don't want to cut expenses at the expense of future growth. But we're going to be very diligent in making sure that we manage margin with some of the discretionary expenses..

Our next question is from Bob Napoli from William Blair. Go ahead..

Thank you. Good morning, everybody good to hear about everybody's doing well, and you guys are doing well.

On 16th, just throwing up on the April trend and kind of the rough guys, so are you assuming that the April trend holds for the quarter to get you to the $42 million of EBITDA? Or do you have -- and what is your thought on the trend through the quarter?.

No, as I said, this obviously assumes our April trends continue. But again, the governor just opened a few sectors of the business and there's additional sectors that might open up in May, at the same time that's subject to the COVID-19, continuing to and so -- so this is really a preliminary view, based on what we saw in April..

Bob, the short answer is yes..

Okay..

We're assuming in the quarter in the slide that you're seeing, but that assumption does not factor in that the economy is already opening. And then the governor is continuing to open businesses, as we speak this week and next week. So, but it is -- but also those businesses could open and then they could close again, right.

So -- but [indiscernible] quarter is three months of April..

Yes..

But we are already seeing a couple of things. One is we are seeing continued money hitting bank accounts, the unemployed, and we are also seeing the governor opening the economy..

Okay. Thank you. And there is the card-not-present growth rate and mix.

I think you said you haven't given that up, and especially in this environment, that would be really helpful to understand what percentage of your business, your payments businesses card-not-present, and kind of what the growth rate of that is?.

Yes, it's a great point. And we may consider doing that in the future. What I would tell you is, the good news is it's every day becomes a bigger piece of the business and it is growing even through this environment. But right now, we're not prepared to disclose that. But given your feedback, we'll take a look at doing that in the future..

Just last question.

In the Santander Chile, what are your thoughts on what the revenue to be, out of that is overtime? And do you have broader strategy for Chile that you want to use that to build off of?.

Yes. So what I would tell you is what we said on previous calls. And our goal in Chile is to replicate to some extent, what we have in Puerto Rico and that's a broad set of products with a broad base of clients. And we already have a lot of the Chilean banks and retailers as customers on our bill payment platform.

This is hopefully, one of several Merchant Acquiring customers over time, and merchant processing customers. So we plan to have sort of a broad customer base and solution set.

We haven't given specific carve-out of what the revenue is going to be at Santander Chile, but we did said on the previous call as we [teed] up 2020 that it would be a significant part of that segment for this year, and really helped to contribute to pre-COVID-19 to double-digit growth in the segment..

Our next question is from John Davis from Raymond James. Go ahead..

Hey, good afternoon guys or good morning. I just wanted to maybe touch a little bit on card penetration, in Puerto Rico. I think many expect COVID to accelerate cash the card.

I know the data is a little bit difficult, but maybe can you give an idea of what card penetration looks like in Puerto Rico today?.

What I would tell you, John is, we obviously have been focused on trying to create additional avenues through some of our digital products to get to that cash economy, but there continues to be a very large piece of the pie that is an informal in unofficial economy that is part of of Puerto Rico.

So, it's tough for us to be that specific percentage, but what I can tell you is that, through the products that we're putting out there, like ATH Movil and ATH Movil business under growth rates that we're seeing in some of those digital products, and we are definitely making a dent in penetrating some of that to non-card economy that exists here..

And to add to Joaquin's point, it's definitely less penetrated than the U.S. There's still a significant sort of informal economy. What I would reiterate also, I think the theme of several of the questions on the call, this is accelerating the adoption of technology.

So, people who didn't try in the past to use ATH Movil, people that didn't try to ATH Movil business application, there is a more rapid pace of adoption, because people are being forced to use, even I think in each of our businesses.

We've really pushed the envelope of what can be, what physicians can work from home and more and more people within our own company are more comfortable with Zoom, different technologies. So, we're actually seeing that with our consumer base as well.

So, I do think this is going to be a catalyst, down to actually hopefully close the gap, and digitize or electronify payments at a faster pace..

Okay, great. And then any update on the approved HUD funding or any of the other kind of aid that was coming to the Island from the hurricanes? This sped it up, slowed it down, just kind of any update there would be helpful..

There's no real update, John. I mean, the construction side or the construction sector was one of the business areas that was able to go back to business this last Monday.

And so, we are obviously looking at this very closely and seeing now that people are getting back from work and looking to get back to reconstruction, if we see more of an inflow of that funding. But not nothing specific that I will call out from our last call..

Okay, thanks. So then one more maybe for Mac. Just talking a little bit about your appetite for M&A here, I think, obviously maybe not right now, but kind of on the other side of COVID or once things stabilize a little bit, get evaluations, look better, your balance sheets the best shape it ever been in.

So you just maybe talk about the pipeline and how you think about M&A going forward from here?.

Yes. I mean, our perspective has not changed in that part of the thesis on how we grow the Company. To your point, we do feel fairly good about the balance sheet and about the performance of the Company, particularly compared to other payment peers. So, it's still a focus of ours. I can tell you, we are still whether, even organic growth.

We're still having calls with prospects. We've had several calls with leaders in South America and some potential clients, on the inorganic side on the M&A side, it's a bit slower, it's a bit more complicated because people aren't necessarily willing to sell it a completely distressed price.

So, there may have to be some normalization or sort of shaking out of what valuations look like. But it's incredibly, important part of our story and it's a place that we continue to focus..

Our next question is from James Faucette from Morgan Stanley. Go ahead..

Just wanted to touch bases as you're seeing and looking across different geographies, are you seeing much variance in terms of activity levels and a rate of improvement as people open up the economies or start to and within the regions that you serve have, how much impact if any, has there been from government stimulus on what you're seeing in terms of your business flow?.

I guess what I would say, of course each country is different and again, it's difficult for us to monitor because our businesses are different in each country.

So, we don't have apples to apples to apples between each country we do business in necessarily, but some countries went into a sell from place faster than others, some have had more of a broad base pandemic than others. So, we have seen sort of a difference in how each country operates.

We have moved into a complete where we can in every country, we've moved to a remote workforce. So, our philosophy has been the same protecting our employees, making sure they're focused, but it's been different from country-to-country and coming out of it has been different from each country. But we have seen stimulus in several countries.

Of course, we talked about what we've seen in Puerto Rico. We've also as I said earlier in the Dominican Republic, the support of the government there to distribute funds to those not only the bank population but the unbanked.

I think seeing those dollars flow through trends for the country, the countries where we have a significant piece of business like Puerto Rico that's just now starting to occur..

And then, I think you talked about and there's been a lot of talk about like kind of a potential for a permanent shift in the trajectory of adoption of the of electronic payments and in the light. And that makes sense to me.

I'm wondering how that is impacting both your own product development thoughts as well as what you're looking at for potential future M&A.

M&A has always been important part of EVERTEC, opportunity set and just how the current environment may be shifting that and reprioritizing if at all?.

And it goes back I think to a question that was previously asked about expenses. I will tell you the ship to electronic payments and online, I mean we have historically seen in our products and then that was one of the reasons that we bought PlacetoPay was because we knew this was just going to be a natural evolution.

With the pandemic of COVID-19, we are now again, as I said earlier to what extent we don't know. But the adoption is going to be faster, particularly if you know the shelter-in-place or is slow gradual reopening of economies occurs because then people are going to adopt to those technologies for a longer period of time.

So, our approach is going to be very cautious from an investment perspective to make sure we, not only do we continue to invest, but in some places we accelerate our investment, and we move into more quickly on different projects and different initiatives.

So, for us, it's going to be to not -- me to continue to invest in those areas, in some cases accelerate the investment..

[Operator Instructions] Our next question is from John Coffey from Susquehanna. Go ahead..

Hey, guys, it's actually Jamie Friedman, good to hear your voices. Glad you’re well, thank you for this Slide 16. Really interesting and incremental, but not to be worse than that slide is that Business Solutions, which is large segment for you is still growing, right.

So every suffering and merchant, so it is my question is -- now I realize businesses, Business Solution decelerating, but maybe if you could talk about some of the characteristics of that business that may be less economically sensitive, I think that would be helpful?.

Yes. So just to give some context, right, within that segment, we provide a most of our core banking services to Banco Popular.

And a lot of those services, which are a kind of backbone or back office of the some of their key systems and are based on number of accounts on file, number of loans, et cetera, which aren't really impacted by the volatility and transactional basis. In addition to that, to Mac's point before on digital and some of the questions that we've gotten.

And we also managed the digital channels for the bank, so we've actually seen some increases in some of those channels and users going into those channels that are helping that that line of business.

And as we also do some of these support projects in terms of COVID-19, we also run their networks and have supported them in the work from home environment. And all of those things are helping a from a stability perspective and also from the slight growth that you see on this sheet.

And what I would say is even if we go into some of our other businesses like printing, we do a lot of regulatory and printing and mailing, which isn't impacted again by the volatility. We do have some small pieces here that are more discretionary for our clients. So those we are already expecting them to come down.

And we do have some transactional lines of business in there like item processing and cash processing where we've actually seen a deceleration, but overall, it is a stable segment with some specific lines where we're actually seeing some growth. So that's why we're seeing that 2% on there..

Okay, thanks for that. And then a question I got from the investor was about your ATM exposure.

And I'm going to say, I can't remember the details, but if you could talk about that a little bit?.

Sure. So, we -- ATM is a big part of our payments Puerto Rico segments. We process most of ATMs in Puerto Rico, I would say, and very much like POS, we saw a deceleration and actually negative a year-over-year growth on ATM volumes.

Again, people wanting to the shelter-in-place, and there wasn't really a need to get cash out of the ATM because most businesses were closed. And just like with POS is now that businesses are kind of starting to open up first the beginning of this week, we are seeing some improvements in those trends, still negative year-over-year.

But the expectation is that businesses will start to open up, we cannot see those trends come back very similar to what we're seeing in POS..

Got it. Let me, last one Mac. We saw, you guys know EBT better than probably anyone. I was just wondering, it's not quite the same category, but the PPP that participation for small business has been a big theme for some of the state-side fintects. So anyway, I guess my question would be.

To what degree are you involved in like SBA distributions? I think you did have a comment on that first slide, but if you could talk about that a little bit would be helpful?.

Sure. I'll take that one, Jamie. I mean in terms of the PPP program on SBA loans, we aren't really involved in any of that distribution.

The banks here in Puerto Rico are the ones actually making those loans to small businesses, specifically from an EBT perspective, and what we have seen is an acceleration of some of the disaster recovery funds that were approved last year on that were supported to run through in June, July timeframe.

Some of those were accelerated as a result of COVID-19. But what we are really monitoring is the impact of obviously all of these unemployment benefits that are an add-on to regular unemployment. So, as part of the CARES Act we have, all the self-employed receiving some money.

The local government also had an initiative that put money into people's pockets in especially also self-employed. And it's an interesting mix because obviously, these are replacements of funds that these people would have otherwise generated through working. And so, we need to wait and see how that impacts all of our transactional businesses.

And what specifically on PPP, we're not directly involved in any distribution..

Our next question is from Bob Napoli from William Blair. Go ahead..

Hi. I just wanted to follow up. We listened in on the Banco Popular earnings call last week and they called out a 46% decline in debit and credit card spending in April. And you're a lot lower than that. I was just trying your Merchant Acquiring business is so much lower.

I was trying to understand why your business would not -- would be not nearly as bad as BPOP's was?.

They also take into consideration their credit portfolio, which from our perspective, I mean, we don't manage from the issuing side those balances. Obviously, I don't know those credit cards are used here, but in terms of correlating both, I mean..

It's hard to do apples-to-apples. They may be looking at their international spend. So when their customers are spending off Islands at some of the issuing business on the credit side, we don't manage. So, it's hard to compare apples-to-apples..

How much of your mix is credit versus debit? Is it primarily debit?.

It is primarily debit. Yes. It is primarily debit..

So if you look at it on the issuing side, it's primarily debit. On the MAB side, we process both..

Thank you. Then just maybe a follow up on the BPOP relationship because I get this question a lot as they're a significant part of your revenue, when you think that contracts through 2025 and you have, I mean, you mentioned a couple quarters ago there was a pricing discussion. You said is somewhat normal, but you felt the need to call it out.

Just any update on any pricing discussions? And how long before that contract went terminates, would you like to renew it? I mean you seem obviously extremely tied in with BPOP..

So, let me -- it's a good question, Bob. I would say is, we did say that the pricing dispute we got behind us. I would just say what this is similar to Hurricane Maria and the fact that we think we've demonstrated the Banco Popular, how important of a partner we are.

We help them mobilize very, very quickly their workforce to work remotely and implement some new programs to actually. We do cut checks on their behalf. We do manage a lot where some of these disbursements are being made. So, we feel like in the feedback we've gotten is demonstrating how important of a partner we are.

And I think that bodes well in the future because, as I always said every day we're focused on how do we perform since they want to renew as much as possible in the future..

At this time, we have no more questions. So, it concludes our question-and-answer session. I would now like to turn the conference back over to Mac Schuessler for closing remarks..

Thank you. So, again, I just want to reiterate appreciate the hard work of all of our colleagues, making sure that we focus on our customers, and I look forward to speaking to some of you on some of the virtual conferences coming up. Thanks again..

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