Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Evertec Inc (EVTC, Financial) reported a 27% increase in revenue for Q2 2024, reaching $212 million.
- Adjusted EBITDA for the quarter was $86.1 million, up approximately 16% year-over-year.
- Adjusted EPS for the quarter was $0.83, up 17% year-over-year, surpassing expectations.
- The company successfully repriced its Term Loan B, reducing the interest rate by 25 basis points.
- Evertec Inc (EVTC) returned significant cash to shareholders, including $6 million through dividends and $70 million through an accelerated share repurchase program.
Negative Points
- Adjusted EBITDA margin decreased to 40.6%, down from the previous year due to the lower margin profile of the Sinqia business.
- Higher operating depreciation and amortization expenses partially offset the EPS gains.
- Higher cash interest expense resulted from the incremental debt raised for the Sinqia acquisition.
- The Latin America segment, particularly in Brazil, experienced some softness in the software market, impacting Sinqia and other technology providers.
- The company's net debt to trailing 12 months adjusted EBITDA increased to 2.28 times, up from 0.86 times a year ago.
Q & A Highlights
Q: Jamie Friedman, Susquehanna Financial Group, LLLP - Analyst: Can you elaborate on the sustainability of the improved spreads and transaction growth in Puerto Rico?
A: Joaquin Castrillo, CFO: We are actively managing pricing in our merchant portfolio, and we expect the benefits from these initiatives to continue through the end of this year. The impact on growth is roughly one-third from pricing, one-third from sales volume growth, and one-third from non-transactional fees.
Q: Jamie Friedman, Susquehanna Financial Group, LLLP - Analyst: How is the legacy LATAM business performing?
A: Joaquin Castrillo, CFO: The legacy LATAM business continues to grow at low-double digits, consistent with historical trends. We are not breaking out Sinqia and LATAM separately as we manage the business holistically.
Q: Vasu Govil, Keefe, Bruyette & Woods, Inc. - Analyst: Can you provide an update on the growth expectations for Sinqia and the impact of the software market softness in Brazil?
A: Morgan Schuessler, CEO: The slowdown in growth is attributed to the political situation in Brazil, impacting corporate spending. However, we are optimistic about reaccelerating growth through operational excellence and modernizing platforms, despite the macroeconomic challenges.
Q: Vasu Govil, Keefe, Bruyette & Woods, Inc. - Analyst: Was the one-time project in business solutions expected to fall in this quarter?
A: Joaquin Castrillo, CFO: The timing of the one-time project was uncertain, but it did fall in this quarter, contributing to the outperformance.
Q: Cris Kennedy, William Blair - Analyst: Can you provide a timeline for the modernization efforts at Sinqia?
A: Morgan Schuessler, CEO: The modernization is a multiyear project, but we are already seeing immediate benefits. We are prioritizing the most impactful projects and expect to see continued progress into next year.
Q: Cris Kennedy, William Blair - Analyst: What is the status of the M&A pipeline for Sinqia?
A: Morgan Schuessler, CEO: We have a strong M&A pipeline and are focused on opportunities across the entire geography, not just Brazil, to expand our product offerings and market presence.
Q: Nate Svensson, Deutsche Bank Securities Inc. - Analyst: Can you provide an update on the volume growth trajectory for the acquiring business into the back half of the year?
A: Joaquin Castrillo, CFO: July sales volume is slightly slower than the second quarter, which is expected due to seasonal factors like tax season. Overall, the trends are stable.
Q: Nate Svensson, Deutsche Bank Securities Inc. - Analyst: Can you discuss the margin leverage going forward, excluding the impact of Sinqia?
A: Joaquin Castrillo, CFO: We are focused on margin optimization across all segments. The payment segments in Puerto Rico are very scalable, and we are also working on improving margins in LATAM through various initiatives.
Q: John Davis, Raymond James & Associates, Inc. - Analyst: Why are second-half margins expected to be slightly below first-half margins?
A: Joaquin Castrillo, CFO: The one-time project in business solutions contributed to higher margins in the first half. Normalizing for that, the second-half margins are aligned with the first half.
Q: John Davis, Raymond James & Associates, Inc. - Analyst: Can you help us understand the macro vs. micro issues impacting Sinqia's performance?
A: Morgan Schuessler, CEO: The macroeconomic environment in Brazil has impacted growth, but we are optimistic about reaccelerating growth through operational improvements and customer engagement. We believe we can drive growth even if the macro environment remains challenging.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
