Segment Information

12 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Segment Information

Segment Information

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 point of sale ("POS") transactions, ATM management and monitoring, ATH Movil and ATH Business. 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 of ATMs 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 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 merger and acquisition activity,

•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 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 ASC 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. 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:

	December 31, 2021
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total
Revenues	$	155,392	$	105,963	$	143,965	$	243,807	$	(59,331)	$	589,796
Operating costs and expenses	84,742		86,152		75,795		150,433		(3,840)		393,282
Depreciation and amortization	16,085		11,395		3,583		18,930		25,077		75,070
Non-operating income (expenses)	842		8,216		1,107		3,056		(7,109)		6,112
EBITDA	87,577		39,422		72,860		115,360		(37,523)		277,696
Compensation and benefits (2)	1,702		3,080		1,012		1,775		7,575		15,144
Transaction, refinancing, and other fees (3)	660		—		—		(647)		1,965		1,978
Adjusted EBITDA	$	89,939	$	42,502	$	73,872	$	116,488	$	(27,983)	$	294,818

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $42.4 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software developments and transaction processing of $9.2 million from Payment Services- Latin America to both Payment Services- Puerto Rico & Caribbean and Business Solutions, and transaction processing and monitoring fees of $7.6 million from Payment Services - Puerto Rico & Caribbean to Payment Services - Latin America.

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

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

	December 31, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean		Payment Services - Latin America		Merchant Acquiring, net		Business Solutions		Corporate and Other (1)		Total
Revenues	$	124,771	$	84,641	$	109,788	$	234,965	$	(43,577)	$	510,588
Operating costs and expenses	72,968		73,030		58,163		141,446		23,589		369,196
Depreciation and amortization	13,455		11,299		1,905		17,551		27,308		71,518
Non-operating income (expenses)	202		6,934		650		1,938		(3,691)		6,033
EBITDA	65,460		29,844		54,180		113,008		(43,549)		218,943
Compensation and benefits (2)	987		2,934		926		1,794		7,742		14,383
Transaction, refinancing, exit activity and other fees (3)	500		—		—		—		6,641		7,141
Adjusted EBITDA	$	66,947	$	32,778	$	55,106	$	114,802	$	(29,166)	$	240,467

(1)Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $34.6 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software sale and developments of $9.0 million from Payment Services- Latin America to Payment Services- Puerto Rico & Caribbean.

(2)Primarily represents share-based compensation.

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

	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 revenue eliminations predominantly reflect the $39.0 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring, intercompany software sale and developments of $6.7 million from Payment Services-Latin America to Payment Services-Puerto Rico & Caribbean.

(2)Primarily represents share-based compensation, 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.

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

	Years ended December 31,
(In thousands)	2021		2020		2019
Total EBITDA	$	277,696	$	218,943	$	212,351
Less:
Income tax expense	20,562		19,002		12,975
Interest expense, net	20,921		23,572		27,594
Depreciation and amortization	75,070		71,518		68,082
Net Income	$	161,143	$	104,851	$	103,700

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

	Years ended December 31,
(In thousands)	2021		2020		2019
Revenues (1)
Puerto Rico	$	473,647	$	418,151	$	392,628
Caribbean	18,917		14,873		15,950
Latin America	97,232		77,564		78,796
Total Revenues	$	589,796	$	510,588	$	487,374

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

Major customers

For the years ended December 31, 2021, 2020 and 2019, the Company had one major customer which accounted for approximately $245.3 million or 42%, $225.5 million or 44%, and $208.0 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 6%, 8%, and 7% of the Company’s total revenues for the years ended December 31, 2021, 2020 and 2019, respectively.