XML 92 R31.htm IDEA: XBRL DOCUMENT

Segment Information

12 Months Ended

Dec. 31, 2019

The Company operates in four business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America (collectively "Payment Services segments"), Merchant Acquiring, and Business Solutions.

The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions) and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants). For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.

The Payment Services - Latin America segment revenues consist of revenues related to providing access to the ATH network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), as well as, licensed software solutions for risk and fraud management and card payment processing. For ATH debit network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services.

The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of

the transaction value. EVERTEC also charges merchants for other services that are unrelated to the number of transactions or the transaction value.

The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally non-recurring.

In addition to the four operating segments described above, Management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other operating segments. Therefore, these areas are aggregated and presented as “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments. The overhead and leveraged costs relate to activities such as:


•	marketing,


•	corporate finance and accounting,


•	human resources,


•	legal,


•	risk management functions,


•	internal audit,


•	corporate debt related costs,


•	non-operating depreciation and amortization expenses generated as a result of the Merger,


•	intersegment revenues and expenses, and


•	other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level

The Chief Operating Decision Maker ("CODM") reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with Accounting Standards Codification Topic 280, "Segment Reporting" given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and adjusted EBITDA performance. As such, segment assets are not disclosed in the notes to the accompanying consolidated financial statements.

The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below. Historical information has been conformed to the updated presentation.



	December 31, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	125,544	$	84,453	$	106,388	$	216,662	$	(45,673	)	$	487,374
Operating costs and expenses	61,396		65,701		62,098		138,224		15,453			342,872
Depreciation and amortization	11,646		9,930		1,814		16,529		28,163			68,082
Non-operating income (expenses)	1,781		286		48		340		(2,688		)	(233		)
EBITDA	77,575		28,968		46,152		95,307		(35,651		)	212,351
Compensation and benefits⁽²⁾	1,034		1,501		1,004		2,114		8,145			13,798
Transaction, refinancing, and other fees ⁽³⁾	—		210		—		—		(163		)	47
Adjusted EBITDA	$	78,609	$	30,679	$	47,156	$	97,421	$	(27,669	)	$	226,196

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $39.0 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring, intercompany software sale and developments of $6.7 million from Payment Services- Latin America to Payment Services- Puerto Rico & Caribbean and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees.


(2)	Primarily represents share-based compensation and other compensation expense and severance payments.


(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received.



	December 31, 2018
(In thousands)	Payment Services - Puerto Rico & Caribbean			Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	114,119		$	80,899	$	99,655	$	197,602	$	(38,406	)	$	453,869
Operating costs and expenses	52,006			75,240		55,778		126,232		19,485			328,741
Depreciation and amortization	9,734			9,284		1,698		13,878		28,473			63,067
Non-operating income (expenses)	2,420			11,750		3		477		(11,356		)	3,294
EBITDA	74,267			26,693		45,578		85,725		(40,774		)	191,489
Compensation and benefits⁽²⁾	1,087			1,034		938		2,088		8,512			13,659
Transaction, refinancing, exit activity and other fees ⁽³⁾	(250		)	—		—		—		7,561			7,311
Adjusted EBITDA	$	75,104		$	27,727	$	46,516	$	87,813	$	(24,701	)	$	212,459

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $36.1 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring, intercompany software sale and developments of $2.3 million from Payment Services- Latin America to Payment Services- Puerto Rico & Caribbean and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees.


(2)	Primarily represents share-based compensation and other compensation expense and severance payments.


(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement, relief contributions related to the 2017 hurricanes and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received.



	December 31, 2017
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other ⁽¹⁾			Total

Revenues	$	101,687	$	62,702	$	85,778	$	189,077	$	(32,100	)	$	407,144
Operating costs and expenses	57,463		66,786		57,574		119,761		19,477			321,061
Depreciation and amortization	8,993		8,880		2,254		15,774		28,349			64,250
Non-operating income (expenses)	2,229		8,726		1		13		(7,708		)	3,261
EBITDA	55,446		13,522		30,459		85,103		(30,936		)	153,594
Compensation and benefits⁽²⁾	589		816		573		1,687		6,090			9,755
Transaction, refinancing, and other fees ⁽³⁾	2,499		3,220		6,465		—		2,495			14,679
Adjusted EBITDA	$	58,534	$	17,558	$	37,497	$	86,790	$	(22,351	)	$	178,028

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment eliminations predominantly reflect the $32.1 million processing fee from Payments Services - Puerto Rico and Caribbean to Merchant Acquiring and cost transfer fees from Corporate and Other to Payment Services Latin America for leveraged services and management fees.


(2)	Primarily represents share-based compensation and other compensation expense and severance payments.

(3)

Primarily represents fees and expenses associated with corporate transactions as defined in the 2013 Credit Agreement and consulting, audit and legal expenses incurred as part of the prior year restatement of financial results, certain fees paid to resolve a software maintenance contract matter, a software impairment charge and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.

The reconciliation of EBITDA to consolidated net income is as follows:



	Years ended December 31,
(In thousands)	2019		2018		2017
Total EBITDA	$	212,351	$	191,489	$	153,594
Less:
Income tax expense	12,975		12,596		4,780
Interest expense, net	27,594		29,257		29,145
Depreciation and amortization	68,082		63,067		64,250
Net Income	$	103,700	$	86,569	$	55,419

The geographic segment information below is classified based on the geographic location of the Company’s subsidiaries:



	Years ended December 31,
(Dollar amounts in thousands)	2019		2018		2017
Revenues ⁽¹⁾
Puerto Rico	$	392,628	$	358,436	$	329,533
Caribbean	15,950		15,672		14,909
Latin America	78,796		79,761		62,702
Total revenues	$	487,374	$	453,869	$	407,144


(1)	Revenues are based on subsidiaries’ country of domicile.

Major customers

For the years ended December 31, 2019, 2018 and 2017, the Company had one major customer which accounted for approximately $208.0 million or 43%, $186.8 million or 41%, and $175.4 million or 43%, respectively, of total revenues. See Note 21.

The Company’s next largest customer, the Government of Puerto Rico, consolidating all individual agencies and public corporations, represented 7% of the Company’s total revenues for each the years ended December 31, 2019, 2018 and 2017.