EVERTEC Inc

Previous wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) focuses on discussion of our 2023 results as compared to our 2022 results. For discussion of our 2022 results as compared to our 2021 results, see “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023. See Note 1 to the Audited Consolidated Financial Statements for additional information about the Company and the basis of presentation of our financial statements. You should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking statements. See “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Current wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) focuses on discussion of our 2024 results as compared to our 2023 results. For discussion of our 2023 results as compared to our 2022 results, see “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. See Note 1 to the Audited Consolidated Financial Statements for additional information about the Company and the basis of presentation of our financial statements. You should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking statements. See “Forward-Looking Statements and Risk Factor Summary” for a discussion of the risks, uncertainties and assumptions associated with these statements.

Previous wording

EVERTEC is a leading full-service transaction-processing business in Latin America, Puerto Rico and the Caribbean, providing a broad range of merchant acquiring, payment services and business solutions. According to the September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean. We serve 26 countries out of 20 offices, including our headquarters in Puerto Rico. We own and operate the ATH network, which we believe is one of the leading personal identification number (“PIN”) debit networks in Latin America. We process over six billion transactions annually through a system of electronic payment networks in Puerto Rico and Latin America and a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico. Additionally, we offer technology outsourcing and payment transactions fraud monitoring to all the regions we serve. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin American region.

Current wording

EVERTEC is a leading full-service transaction-processing business and financial technology provider in Latin America, Puerto Rico and the Caribbean, providing a broad range of merchant acquiring, payment services and business solutions. We believe we are one of the largest merchant acquirers in Latin America based on total number of transactions and we also believe we are the largest merchant acquirer in the Caribbean. We serve 26 countries out of 24 offices, including our headquarters in Puerto Rico. We own and operate the ATH network, which we believe is one of the leading debit networks in Latin America. We process over ten billion transactions annually through a system of electronic payment networks in Puerto Rico and Latin America and provide a comprehensive suite of services for core banking, cash processing, fulfillment in Puerto Rico and a "one stop shop" set of access to products for the financial sector in Brazil, which includes solutions such as core banking, investments, asset management, pension funds and consortium. Additionally, we offer managed services, managed security services and payment transactions fraud monitoring to all the regions where we do business. We serve a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with “mission-critical” technology solutions that enable them to issue, process and accept transactions securely. We believe our business is well-positioned to continue to expand across the fast-growing Latin America region.

Previous wording

We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services, win new customers, develop new sales channels, and enter new markets. We believe these competitive advantages include:

Current wording

We are differentiated, in part, by our diversified business model, which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets. We believe this capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services, gain new customers, develop new sales channels, and enter new markets. We believe these competitive advantages include:

Previous wording

Our broad suite of services spans the entire transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale for both card present transactions and card not present transactions, as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable POS and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and EBT cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments. We provide these services through scalable, end-to-end technology platforms that we manage and operate in-house and that generate significant operating efficiencies that enable us to maximize profitability.

Current wording

Our broad suite of services spans the entire payment processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale for both card present transactions and card-not-present transactions, as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers. These include: (i) merchant acquiring services, which enable point of sales (“POS”) and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”) cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments. We provide these services through scalable, end-to-end technology platforms that we manage and operate in-house and that generate significant operating efficiencies that enable us to maximize profitability.

Previous wording

The ongoing migration from cash and paper methods of payment to electronic payments continues to benefit the transaction- processing industry globally. We believe that the penetration of electronic payments in the markets in which we operate is significantly lower relative to the U.S. market, which, together with the ongoing shift from cash and paper methods of payment to electronic payments will continue to generate growth opportunities for our business. For example, currently the adoption of banking products, including electronic payments, in the Latin America and Caribbean region is lower relative to the mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drive incremental penetration and growth of electronic payments in Puerto Rico and other Latin America regions. We also benefit from the outsourcing of technology systems and processes trend for financial institutions and government. Many medium- and small-size institutions in the Latin American markets in which we operate have outdated systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.

Current wording

The ongoing migration from cash and paper methods of payment to electronic payments continues to benefit the transaction- processing industry globally. We continue to believe that the penetration of electronic payments in the markets in which we operate is significantly lower relative to the U.S. market, which, together with the ongoing shift from cash and paper methods of payment to electronic payments will continue to generate growth opportunities for our business. For example, currently the adoption of banking products, including electronic payments, in the Latin America and Caribbean region is lower relative to the mature U.S. and European markets. We believe that the unbanked and underbanked population in our markets will continue to shrink, and therefore drive incremental penetration and growth of electronic payments in Puerto Rico and other Latin America regions. We also benefit from the outsourcing of technology systems and processes trend for financial institutions and government. Many medium- and small-size institutions in the Latin American markets in which we operate have outdated systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.

Previous wording

On September 30, 2010, EVERTEC Group entered into a 15-year MSA, and several related agreements with Popular. On July 1, 2022, we modified and extended the main commercial agreements with Popular, including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement (as amended, the "A&R ISO Agreement"), a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA (the "A&R ISO Agreement"). The A&R ISO Agreement, which defines our merchant acquiring relationship with Popular, now includes revenue sharing provisions with Popular. The MSA modifications also include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through September 30, 2028, a 10% discount on certain MSA services beginning in October of 2025 and adjustments to the CPI pricing escalator clause. On the same date, we also sold to Popular certain assets in exchange for 4.6 million shares of EVERTEC common stock owned by Popular (collectively with the contract amendments, the "Popular Transaction"). On August 15, 2022, through a secondary offering, Popular sold its remaining shares of EVERTEC common stock. EVERTEC is no longer deemed a subsidiary of Popular under the Bank Holding Company Act. Popular continues to be the Company’s largest customer and during the year ended December 31, 2023 approximately 35% of our revenues were generated from this relationship.

Current wording

ATH Network Participation Agreement and a 3-year extension of the MSA (as amended, the "A&R ISO Agreement"). The A&R ISO Agreement, which defines our merchant acquiring relationship with Popular, now includes revenue sharing provisions with Popular. The MSA modifications also include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through September 30, 2028, a 10% discount on certain MSA services beginning in October of 2025 and adjustments to the CPI pricing escalator clause. On the same date, we also sold to Popular certain assets in exchange for 4.6 million shares of EVERTEC common stock owned by Popular (collectively with the contract amendments, the "Popular Transaction"). On August 15, 2022, through a secondary offering, Popular sold its remaining shares of EVERTEC common stock. EVERTEC is no longer deemed a subsidiary of Popular under the Bank Holding Company Act. Popular continues to be the Company’s largest customer and during the year ended December 31, 2024 approximately 31% of our revenues were generated from this relationship.

Previous wording

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period.

Current wording

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In connection with the preparation of our consolidated financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period.

Previous wording

The Company records redeemable non-controlling interests ("RNCI") in consolidated subsidiaries that result from business acquisition transactions where the Company is granted the right to purchase ("Call Option") and the sellers are granted the right to sell to the Company ("Put Option") the remaining interest at the calculated redemption value and classifies them as mezzanine equity in the consolidated balance sheets as potential redemption is not solely within the Company's control. The acquired RNCI were initially measured at fair value at the acquisition date. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and for any dividends declared. Each reporting period, a measurement period adjustment, if any, is then recorded to adjust the non-controlling interest to the higher of either the redemption value, assuming it was redeemable at the reporting date, or its carrying value, but not if such adjustment would result in a redemption value less than the initial fair value of the redeemable non-controlling interest. If and when applicable, these adjustments are recorded in equity and are not reflected in the accompanying consolidated statements of income and comprehensive income.

Current wording

Company the remaining interest at the calculated redemption value and classifies them as mezzanine equity in the consolidated balance sheets as potential redemption is not solely within the Company's control. The acquired RNCI were initially measured at fair value at the acquisition date. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and for any dividends declared. Each reporting period, a measurement period adjustment, if any, is then recorded to adjust the non-controlling interest to the higher of either the redemption value, assuming it was redeemable at the reporting date, or its carrying value, but not if such adjustment would result in a redemption value less than the initial fair value of the redeemable non-controlling interest. If and when applicable, these adjustments are recorded in equity and are not reflected in the accompanying consolidated statements of income and comprehensive (loss) income.

Previous wording

Income taxes are accounted for under the asset and liability method. A temporary difference refers to a difference between the tax basis of an asset or liability, determined based on recognition and measurement requirements for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive income in the period that includes the enactment date. A deferred tax valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax asset will not be realized.

Current wording

Income taxes are accounted for under the asset and liability method. A temporary difference refers to a difference between the tax basis of an asset or liability, determined based on recognition and measurement requirements for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive (loss) income in the period that includes the enactment date. A deferred tax valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax asset will not be realized.

Previous wording

The Company recognizes the benefit of uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement or disposition of the underlying issue with the taxing authority. Accordingly, the amount of benefit recognized in the consolidated financial statements may differ from the amount taken or expected to be taken in the tax return resulting in unrecognized tax benefits (“UTBs”). The Company recognizes the interest and penalties associated with UTBs as part of the provision for income taxes on its consolidated statements of income and comprehensive income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. Judgment is required to determine whether or not some portion or all deferred tax assets will not be realized. To the extent that the Company will not realize the benefit of some or all of our deferred tax assets, these deferred tax assets are adjusted via a valuation allowance through our provision for income taxes in the period in which this determination is made.

Current wording

The Company recognizes the benefit of uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement or disposition of the underlying issue with the taxing authority. Accordingly, the amount of benefit recognized in the consolidated financial statements may differ from the amount taken or expected to be taken in the tax return resulting in unrecognized tax benefits (“UTBs”). The Company recognizes the interest and penalties associated with UTBs as part of the provision for income taxes on its consolidated statements of income and comprehensive (loss) income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. Judgment is required to determine whether or not some portion or all deferred tax assets will not be realized. To the extent that the Company will not realize the benefit of some or all of our deferred tax assets, these deferred tax assets are adjusted via a valuation allowance through our provision for income taxes in the period in which this determination is made.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, as presented in this Report, are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to total revenues, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities as measures of our liquidity. Adjusted EBITDA at the segment level is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.

Current wording

EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, as presented in this Report for the Company on a consolidated basis, are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to total revenues, net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities as measures of our liquidity. Adjusted EBITDA at the segment level is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.

Previous wording

Cost of revenues for the year ended December 31, 2023 amounted to $336.8 million, an increase of $44.1 million or 15% when compared to the same period in the prior year. The increase in cost of revenues was primarily driven by an increase in personnel costs, mainly due to the impact of increased headcount in Latin America including the added headcount from the acquisitions, an increase in professional fees and cloud services, and the impact of the revenue sharing agreement with Banco Popular.

Current wording

Cost of revenues for the year ended December 31, 2024 amounted to $406.4 million, an increase of $69.7 million or 21% when compared to the same period in the prior year. The increase in cost of revenues was primarily driven by an increase in personnel costs, which includes the added headcount in Latin America from the acquisitions completed throughout the year, an increase in cost of sales mainly related to merchant acquiring revenue sharing agreements and the projects completed in Business Solutions and an increase in cloud services and professional fees.

Previous wording

Selling, general and administrative expenses for the year ended December 31, 2023 amounted to $128.2 million, an increase of $38.4 million or 43% when compared to the same period in the prior year driven by an increase in expenses incurred as part of the closing and integration of Sinqia, as well as an increase in personnel costs and professional fees primarily related to corporate development initiatives.

Current wording

Selling, general and administrative expenses for the year ended December 31, 2024 amounted to $145.6 million, an increase of $17.4 million or 14% when compared to the same period in the prior year driven by an increase in personnel costs and equipment expenses, primarily related to acquisitions completed, partially offset by lower professional fees.

Previous wording

Depreciation and amortization expense for the year ended December 31, 2023 amounted to $93.6 million, an increase of $15.0 million or 19% when compared to the same period in the prior year. This increase was primarily driven by an increase in amortization of intangible assets created in connection with the Sinqia, paySmart and BBR acquisitions, as well as an increase in software amortization for internally developed software.

Current wording

Depreciation and amortization expense for the year ended December 31, 2024 amounted to $127.8 million, an increase of $34.2 million or 37% when compared to the same period in the prior year. This increase was primarily driven by an increase in amortization of intangible assets created in connection with the Sinqia and paySmart acquisition, as well as an increase in software amortization for internally developed software.

Previous wording

Non-operating income (expenses) for the year ended December 31, 2023 decreased by $161.3 million when compared to the same period in the prior year. The negative variance was mainly related to the gain on sale of a business of $135.6 million recorded in the prior year period upon closing of the Popular Transaction as well as the impact in 2023 from the loss on foreign currency swap of $24.1 million and an increase in interest expense of $7.5 million resulting from the increased debt raised to finance the Sinqia acquisition. This were partially offset by an increase of $5.4 million in interest income and a $2.0 million increase in earnings from the Company’s equity method investment.

Current wording

Non-operating expenses for the year ended December 31, 2024 decreased by $4.8 million when compared to the same period in the prior year. The decrease was mainly related to the loss on foreign currency swap in the prior year of $24.1 million, an increase in other income of $15.9 million mainly related to the impact from the $8.9 million gain on the sale of tax credits along with a $3.1 million gain on sale of investments, an increase in interest income of $4.8 million, and a decrease in foreign currency losses from remeasurement of $3.1 million, partially offset by an increase in interest expense of $42.4 million resulting from the increased debt raised to finance the Sinqia acquisition.

Previous wording

Income tax expense for the year ended December 31, 2023 amounted to $5.5 million, a decrease of $23.5 million when compared to the same period in the prior year. The effective tax rate for the period was 6.4%, compared with 10.8% in the 2022 period. The decrease in the effective tax rate was primarily driven by the loss on foreign currency swap, as well as the higher interest expense resulting from the incremental debt raised as part of the Sinqia acquisition, partially offset by the impact of higher revenues in higher taxed jurisdictions, a shift in the mix of business in Puerto Rico and higher withholding taxes. Effective tax rate in the prior year was impacted by the gain recognized from closing the Popular Transaction, which was taxed at a preferential tax rate and the reversal of a potential liability for uncertain tax positions as a result of the expiration of the statute of limitation.

Current wording

Income tax expense for the year ended December 31, 2024 amounted to $4.8 million, relatively flat when compared to the same period in the prior year. The effective tax rate for the period was 4.1%, compared with 6.4% in the 2023 period. The decrease in the effective tax rate was primarily driven by the higher interest expense resulting from the incremental debt raised as part of the Sinqia acquisition, coupled with the reversal of a potential liability for uncertain tax positions as a result of the expiration of the statute of limitations, partially offset by the foreign currency hedge loss of $24.1 million in the prior year.

Previous wording

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

Current wording

The Company has four operating and reportable segments: Payment Services - Puerto Rico & Caribbean, Latin America Payments and Solutions, Merchant Acquiring, and Business Solutions based upon organization of the Company by the nature of products and services provided to customers and geography.

Previous wording

The Latin America Payments and Solutions segment payment 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 transaction switching, 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. Solution revenues consist of (a) licensing, support and maintenance (“subscription”), implementation and customization of software used to provide financial products in areas such as core banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortium, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection; and (b) outsourcing of mission critical IT services. Revenues are based on monthly fixed fees and, in several cases, variable fees based on usage.

Current wording

The Latin America Payments and Solutions segment payment 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 transaction switching, 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. Solutions revenues consist of (a) licensing, support and maintenance (“subscription”), implementation and customization of software used to provide financial products in areas such as core banking, credit, investments, payments, foreign exchange, mutual funds, pension funds and consortium, in addition to software used to execute processes such as digital onboarding, digital signature and digital collection; and (b) outsourcing of mission critical IT services. Revenues are based on monthly fixed fees and, in several cases, variable fees based on usage.

Previous wording

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.), server capacity usage 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.

Current wording

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, managed services and managed security services, 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.), server capacity usage 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.

Previous wording

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. Effective as of the quarter ended March 31, 2023, the Company modified the manner in which it calculates and reports Adjusted EBITDA presented to the CODM for assessing segment performance to exclude the impact of non-cash unrealized gains and losses from foreign currency remeasurement. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash unrealized items and unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA. 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 consolidated financial statements.

Current wording

The Company’s Chief Operating Decision Maker ("CODM") is the President and Chief Executive Officer (“CEO”). The CODM uses revenue and Adjusted EBITDA to evaluate segment performance and allocate resources, and regularly reviews performance at the segment level against budget and forecast when making decisions about the allocation of resources to each segment. Adjusted EBITDA reviewed by the CODM is calculated as EBITDA further adjusted to exclude certain non-cash unrealized items and unusual expenses such as: share-based compensation, restructuring related expenses, fees and expenses from corporate transactions such as M&A activity and financing, equity investment income net of dividends received, and the impact from non-cash unrealized gains and losses on foreign currency remeasurement for assets and liabilities in non-functional currency. Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting, given that it is used by the CODM for purposes of evaluating performance and allocating resources.

Previous wording

See Note 26 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for the reconciliation of EBITDA to consolidated net income.

Current wording

See Note 26 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for the reconciliation of segment adjusted EBITDA to consolidated income before taxes.

Previous wording

The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below.

Current wording

The following tables set forth information about the Company’s operations by its four reportable segments for the periods indicated below.

Previous wording

Payment Services - Puerto Rico & Caribbean segment revenues for the year ended December 31, 2023 increased by $24.8 million to $203.2 million when compared to the same period in the prior year. The increase in revenues was primarily driven by an increase in POS transaction volumes, continued strong digital payments growth from ATH Movil, primarily ATH Business, increases in transaction processing and monitoring services provided to the Latin America Payments and Solutions segment, as well as revenue contribution from issuing services provided to health care companies and revenue from the small acquisition completed in the second quarter of 2022. Adjusted EBITDA increased by $17.4 million to $118.3 million driven by the increase in revenues and the positive net effect of previously recorded operational losses, partially offset by higher operating expenses, including higher professional fees.

Current wording

Payment Services - Puerto Rico & Caribbean segment revenues for the year ended December 31, 2024 increased by $11.5 million to $214.7 million when compared to the same period in the prior year. The increase in revenues was primarily driven by continued strong digital payments growth from ATH Movil, primarily ATH Business, as well as increased POS transactions and increases in transaction-processing and monitoring services provided to the Latin America Payments and Solutions segment partially offset by lower issuing services revenue, mainly driven by lower active accounts. Adjusted EBITDA increased by $3.1 million to $121.4 million driven by the increase in revenues partially offset by higher operating expenses, including higher professional services, higher losses on disposition related to POS retirements along with increased infrastructure and programming expenses.

Previous wording

Latin America Payments and Solutions segment revenues for the year ended December 31, 2023 increased by $58.3 million to $186.5 million when compared to the same period in the prior year. The increase was driven by strong organic growth as well as revenue generated from the Sinqia, paySmart and BBR acquisitions completed in the fourth quarter of 2023, first quarter of 2023 and third quarter of 2022, respectively. Revenues benefited from the $6.3 million impact related to the Company’s processing contract with Getnet Chile in the third quarter. Adjusted EBITDA increased by $17.6 million when compared to the same period in the prior year, primarily related to the increase in revenues partially offset by higher personnel costs driven by higher headcount from acquisitions, an increase in professional services fees and an increase in transaction processing and monitoring expenses charged from Payments Puerto Rico segment.

Current wording

Latin America Payments and Solutions segment revenues for the year ended December 31, 2024 increased by $116.3 million to $302.8 million when compared to the same period in the prior year. Revenues benefited from the contribution from the Sinqia, paySmart, Grandata and Nubity acquisitions and continued organic growth across the region. Adjusted EBITDA increased by $19.5 million when compared to the same period in the prior year driven by the impact of the Sinqia acquisition, which contributes at a lower margin, partially offset by higher personnel costs driven by the higher headcount from acquisitions and the impact of the $6.3 million adjustment for GetNet Chile in the prior year, compared with the $2.4 million in the current year, which is 100% accretive to margin.

Previous wording

Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, acquisitions, dividend payments, share repurchases and debt service. We also have a $200.0 million Revolving Facility, of which $194.0 million was available for borrowing as of December 31, 2023. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn. The Company also obtained additional financing commitments in the aggregate amount of $660 million, for the purpose of financing the Sinqia acquisition, repaying certain existing indebtedness in connection with the Sinqia Transaction, as well as paying related debt financing fees and expenses. The obligations of the lenders to provide debt financing under the related debt commitment letter are subject to customary terms and conditions.

Current wording

Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, acquisitions, dividend payments, share repurchases and debt service. We also have a $200.0 million Revolving Facility, of which $193.9 million was available for borrowing as of December 31, 2024. The Company issues letters of credit against our Revolving Facility which reduce our availability of funds to be drawn.

Previous wording

As of December 31, 2023, we had cash and cash equivalents of $295.6 million, of which $206.5 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico. We intend to indefinitely reinvest these funds outside of Puerto Rico, and based on our liquidity forecast, we will not need to repatriate this cash to fund the Puerto Rico operations or to meet debt-service obligations. However, if in the future we determine that we no longer need to maintain cash balances within our foreign subsidiaries, we may elect to distribute such cash to the Company in Puerto Rico. Distributions from the foreign subsidiaries to Puerto Rico may be subject to tax withholding and other tax consequences. Additionally, our credit agreement imposes certain restrictions on the distribution of dividends from subsidiaries.

Current wording

As of December 31, 2024, we had cash and cash equivalents of $273.6 million, of which $224.5 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico. We intend to reinvest these funds outside of Puerto Rico, and based on our liquidity forecast, we will not need to repatriate this cash to fund the Puerto Rico operations or to meet debt-service obligations. However, if in the future we determine that we no longer need to maintain cash balances within our foreign subsidiaries, we may elect to distribute such cash to the Company in Puerto Rico. Distributions from the foreign subsidiaries to Puerto Rico may be subject to tax withholding and other tax consequences. Additionally, our credit agreement imposes certain restrictions on the distribution of dividends from subsidiaries.

Previous wording

Net cash provided by operating activities for the year ended December 31, 2023 was $224.3 million, an increase of $0.9 million compared to 2022. The increase was primarily driven by less cash used to pay down accounts payable and accrued liabilities as the Company continues to effectively manage working capital.

Current wording

Net cash provided by operating activities for the year ended December 31, 2024 was $260.1 million, an increase of $48.9 million compared to 2023 as the Company continues to effectively manage working capital.

Previous wording

Net cash used in investing activities was $507.9 million compared to $133.3 million. The increase is primarily attributable to the acquisitions completed during the current year for $417.6 million compared to an acquisition of $44.4 million in the prior year, an increase in software additions of $18.7 million and capital contributions for investments in equity investee of $5.5 million.

Current wording

Net cash used in investing activities was $118.3 million compared to $507.9 million. The decrease is primarily attributable to the acquisitions completed during 2023 for $417.6 million compared to $34.0 million for the acquisitions completed in 2024.

Previous wording

Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. During the years ended December 31, 2023 and 2022, the Company invested approximately $85.0 million and $71.9 million, respectively in our capital resources. In addition, the Company acquired two businesses for an aggregated amount of $417.6 million, net of cash acquired, and an investment in equity investee of $5.5 million. During the prior year, the Company acquired a business for $44.4 million, net of cash, as well as $7.3 million in certificates of deposit in connection with this business acquisition in 2022. The Company also acquired customer relationships amounting to $10.6 million in the prior year. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility and, as described above in connection with the Sinqia Transaction, using additional committed financing.

Current wording

Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. During the years ended December 31, 2024 and 2023, the Company invested approximately $88.4 million and $85.0 million, respectively in our capital resources. In addition, during the year ended December 31, 2024 the Company acquired Nubity and Grandata for an aggregated amount of $34.0 million, net of cash acquired, compared to an aggregated amount of $417.6 million, net of cash acquired for the two acquisitions completed in the prior year. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility. In the case of the Sinqia Transaction, the Company used additional funding through a Term B loan.

Previous wording

During 2023, the Company repurchased 1,009,653 shares of the Company’s common stock at a cost of $36.1 million. The Company funded such repurchases with cash on hand. At December 31, 2023, the Company's share repurchase program has approximately $137.5 million remaining and approved for future use. The Company may repurchase shares in the open market, through accelerated share repurchase programs, 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.

Current wording

During 2024, the Company repurchased 2,358,246 shares of the Company’s common stock at a cost of $82.3 million. The Company funded such repurchases with cash on hand. At December 31, 2024, the Company's share repurchase program has approximately $138 million remaining and approved for future use. The Company may repurchase shares in the open market, through accelerated share repurchase programs, 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.

Previous wording

The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from 1 year to 6 years, some of which may include options to extend the leases for up to 5 years, and some which may include the option to terminate the lease within 1 year.

Current wording

The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from 1 year to 5 years, some of which may include options to extend the leases for up to 5 years, and some which may include the option to terminate the lease within 1 year.

Previous wording

On December 1, 2022, EVERTEC and EVERTEC Group, entered into a credit agreement with a syndicate of lenders and Truist Bank (“Truist”), as administrative agent and collateral agent, providing for (i) a $415.0 million term loan A facility that matures on December 1, 2027, and a $200.0 million revolving credit facility (the “Revolving Facility”, and together with the Term A Loan Facility, the “2022 Credit Facilities”) that matures on December 1, 2027 (the “2022 Credit Facilities Maturity Date”). On October 30, 2023, Evertec, EVERTEC Group and other Loan Parties (as defined in the Existing Credit Agreement) party thereto, entered into a first amendment (the “Amendment”) to the credit agreement, dated as of December 1, 2022 (the “Existing Credit Agreement,” and as amended by the Amendment, the “Amended Credit Agreement”), with a syndicate of lenders and Truist, as administrative agent and collateral agent. Under the Amended Credit Agreement, a syndicate of financial institutions and other lenders provided (i) additional term loan A commitments in the amount of $60.0 million (the “Incremental TLA Facility”) and (ii) a new tranche of term loan B commitments in the amount of $600.0 million (the “New TLB Facility,” and together with the Incremental TLA Facility, the “Facilities”). The $600.0 million term loan B facility matures on October 30, 2030 (the “Term Loan B Maturity Date”). Unless otherwise indicated, the terms and conditions detailed below apply to both term loan A facility and term loan B (together “Term Loan Facilities”). In the fourth quarter of 2023, the Company prepaid $60 million of the outstanding balance on Term Loan B.

Current wording

On December 1, 2022, EVERTEC and EVERTEC Group, entered into a credit agreement with a syndicate of lenders and Truist Bank, as administrative agent and collateral agent, providing for a $415.0 million term loan A facility (the “TLA Facility”) that matures on December 1, 2027, and a $200.0 million revolving credit facility (the “Revolving Facility”) that matures on December 1, 2027 (the “Credit Agreement”). On October 30, 2023, EVERTEC and EVERTEC Group entered into a first amendment to the Credit Agreement with a syndicate of lenders and Truist Bank, as administrative agent and collateral agent, providing for (a) additional term A loans in the amount of $60.0 million under its TLA Facility maturing December 1, 2027 and (ii) a new tranche of term B loans in the amount of $600.0 million maturing October 30, 2030 (the “TLB Facility”). On May 16, 2024 and November 26, 2024, EVERTEC and EVERTEC Group entered into second and third amendments to its Credit Agreement, each providing for a pricing reduction to its TLB Facility. Unless otherwise indicated, the terms and conditions detailed below apply to both TLA Facility and TLB Facility (together, the “Term Loan Facilities”). In the fourth quarter of 2023, the Company prepaid $60 million of the outstanding balance on TLB Facility.

Previous wording

initially, $5,966,720.78 per quarter and (b) for any installment payments to be made in the calendar year ending 2027, $8,950,081.17 per quarter, with the balance payable on the 2022 Credit Facilities Maturity Date. The New TLB Facility amortizes in equal quarterly at a rate equal to 1% per calendar year, with the balance payable on the Term Loan B Maturity Date. The Revolving Credit Facility terminates on the 2022 Credit Facilities Maturity Date, and loans thereunder may be borrowed, repaid and reborrowed prior thereto.

Current wording

The TLA Facility amortizes in equal quarterly installments at an amount equal to $5,966,720.78 per quarter (increasing to $8,950,081.17 per quarter for any installment payments to be made in the calendar year ending 2027), with the balance payable on the TLA Facility maturity date. The TLB Facility amortizes in equal quarterly installments at a per annum rate equal to 1% of the original aggregate principal amount of the TLB Facility, with the balance payable on the TLB Facility maturity date. Any optional prepayments of the Term Loan Facilities can be applied to the remaining installments. The Revolving Facility terminates on December 1, 2027, and loans thereunder may be borrowed, repaid and reborrowed prior thereto.

Previous wording

Other than as set forth below with respect to the New TLB Facility, EVERTEC Group may prepay loans under the Term Loan Facilities and permanently reduce the loan commitments under the Revolving Facility at any time without premium or penalty, subject to compensation for any break funding costs incurred by a lender and timely submission of a notice of prepayment or commitment reduction, as applicable. EVERTEC Group is required to make certain mandatory prepayments of the 2022 Credit Facilities in certain circumstances.

Current wording

EVERTEC Group may prepay loans under the Term Loan Facilities and permanently reduce the loan commitments under the Revolving Facility at any time without premium or penalty, subject to compensation for any break funding costs incurred by a lender and timely submission of a notice of prepayment or commitment reduction, as applicable; provided that any prepayment of the TLB Facility made prior to May 26, 2025 is subject to a 1% prepayment premium. EVERTEC Group is required to make certain mandatory prepayments of the Term Loan Facilities and the Revolving Facility in certain circumstances.

Previous wording

With respect to the New TLB Facility, the interest rates are based on, at EVERTEC Group’s option (a) the Adjusted Term SOFR, which means SOFR plus 10 basis points, for the Interest Period in effect for such borrowing plus an applicable margin of 3.50% per annum or (b) the ABR plus an applicable margin of 2.50% per annum.

Current wording

The Term Loan Facilities and borrowings under the Revolving Facility accrue interest, at EVERTEC Group’s option at (a) the Adjusted Term SOFR, which means SOFR plus 10 basis points (for the TLA Facility and the Revolving Facility) and plus 0 basis points (for the TLB Facility), for the Interest Period in effect for such borrowing or (b) the ABR, in each case plus an applicable margin. The applicable margin for (i) the TLA Facility and the Revolving Facility is 2.00% per annum for SOFR loans and 1.50% per annum for ABR loans (each subject to four 25 bps step-downs based upon the Company’s total net leverage ratio), and (ii) the TLB Facility, is 2.75% per annum for SOFR loans and 1.75% per annum for ABR loans.

Previous wording

The Credit Facilities are secured by substantially all assets of EVERTEC and its existing and future material subsidiaries (including EVERTEC Group), subject to customary exceptions. EVERTEC and each of EVERTEC’s existing and future material wholly-owned subsidiaries (including EVERTEC Group with respect to the obligations of EVERTEC and its existing and future material wholly-owned subsidiaries (other than EVERTEC Group)), subject to certain customary exceptions, guarantee repayment of the Credit Facilities.

Current wording

The Term Loan Facilities and the Revolving Facility are guaranteed by, and secured by substantially all assets of, EVERTEC and its existing and future material subsidiaries (including EVERTEC Group), subject to customary exceptions.

Previous wording

The Credit Facilities are subject to customary affirmative and negative covenants. The negative covenants in the Credit Facilities include, among other things, limitations (subject to exceptions) on the ability of EVERTEC and its restricted subsidiaries to:

Current wording

The Term Loan Facilities and the Revolving Facility are subject to customary affirmative and negative covenants. The negative covenants include, among other things, limitations (subject to exceptions) on the ability of EVERTEC and its restricted subsidiaries to:

Previous wording

In addition, the 2022 Credit Facilities require EVERTEC Group to maintain a maximum total net leverage ratio of 4.50 to 1.00 (i) from March 31, 2023 to September 30, 2024, and 4.00 to 1.00 (ii) thereafter.

Current wording

In addition, the TLA Facility and the Revolving Facility require EVERTEC Group to maintain a maximum total net leverage ratio of (i) 4.50 to 1.00 prior to September 30, 2024, and (ii) 4.00 to 1.00 thereafter.

Previous wording

The events of default under the 2022 Credit Facilities include, without limitation, nonpayment, material misrepresentation, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined in the Credit Agreement) and cross-events of default on material indebtedness.

Current wording

The events of default under the Term Loan Facilities and the Revolving Facility include, without limitation, nonpayment, material misrepresentation, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined therein) and cross-events of default on material indebtedness.

Previous wording

The unpaid principal balance at December 31, 2023 of the Term Loan Facility was $993.5 million. The additional borrowing capacity for the Revolving Facility at December 31, 2023 was $194.0 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Current wording

The unpaid principal balance at December 31, 2024 of the TLA Facility and TLB Facility were $429.6 million and $540.0 million. The additional borrowing capacity for the Revolving Facility at December 31, 2024 was $193.9 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility. For the years ended December 31, 2024 and 2023, there were no borrowings outstanding under the revolving credit facility.