February 2020 - s1.q4cdn.com · – Santander Chile agreement with EVTC for acquiring processing...
Transcript of February 2020 - s1.q4cdn.com · – Santander Chile agreement with EVTC for acquiring processing...
Investor Presentation
February 2020
Disclosures
Forward-looking StatementsCertain statements in this presentation constitute “forward-looking statements” within the meaning of, and subject to the protection of, the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may
cause the actual results, performance or achievements of EVERTEC to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words “believes,” “expects,”
“anticipates,” “intends,” “projects,” “estimates,” and “plans” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” “may,”
and “could” are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future
events, circumstances or results are forward-looking statements. Various factors that could cause actual future results and other future events to differ
materially from those estimated by management include, but are not limited to: our reliance on our relationship with Popular for a significant portion of
revenue and to grow our merchant acquiring business; our ability to renew our client contracts on terms favorable to us, including our Master Services
Agreement (MSA) with Popular, and any significant concessions we may have to grant to Popular with respect to pricing or other key terms in anticipation
of the negotiation of the extension of the MSA, both in respect of the current term and any extension of the MSA; a potential government shutdown; a
continuation of the Government of Puerto Rico’s fiscal crisis; the effectiveness of our risk management procedures; our dependence on our processing
systems, technology infrastructure, security systems and fraudulent-payment-detection systems, and the risk that our systems may experience
breakdowns or fail to prevent security breaches, confidential data theft or fraudulent transfers; our ability to develop, install and adopt new technology;
impairments to our amortizable intangible assets and goodwill; a decreased client base due to consolidations in the banking and financial-services
industry; the credit risk of our merchant clients, for which we may also be liable; a decline in the market for our services due to increased competition,
changes in consumer spending or payment preferences; the continuing market position of the ATH® network; our dependence on credit card associations
and debit networks; regulatory limitations on our activities, including the potential need to seek regulatory approval to consummate transactions, due to our
relationship with Popular and our role as a service provider to financial institutions, and our potential inability to obtain such approval on a timely basis or at
all; changes in the regulatory and enforcement environment and changes in international, legal, tax, political, administrative or economic conditions; our
ability to comply with federal, state, and local regulatory requirements; the geographical concentration of our business in Puerto Rico; operating an
international business in multiple regions with potential political and economic instability; operating an international business in countries and with
counterparties that increase our compliance risks and put us at risk of violating U.S. sanctions laws; our ability to execute our expansion and acquisition
strategies; our ability to protect our intellectual property rights; our ability to recruit and retain qualified personnel; evolving industry standards; our high
level of indebtedness and restrictions contained in our debt agreements; our ability to generate sufficient cash to service our indebtedness and to generate
future profits; and the impact of natural disasters or catastrophic events in the countries in which we operate. Consideration should be given to the areas of
risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in the reports we file with the
SEC from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We
undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated
events unless we are required to do so by law.
Use of Non-GAAP MeasuresThis presentation will reference certain non-GAAP financial information. For a description and reconciliation of non-GAAP measures presented in this
Transaction Processor Uniquely Focused on Latin America
Attractive Secular Industry Trends and PR Revitalization
Comprehensive and Scalable Service Offering
Solid Financial Performance and Cash Flow Generation Profile
Aligned Strategic Growth Initiatives
Investment Highlights
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Transaction Processor Uniquely Focused on Latin America
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A Leading End-to-End Transaction Processor in Latin America …
3
Payment Services
PR & Caribbean
and LatAm(1)
MerchantAcquiring
ATH Network: ATM Processing, POS, P2P Mobile,
P2B
Card Issuer Processing
Merchant Processing: Mobile Payments, Payments Hub
Electronic Payments: B2B, ACH, Bill Pay, Risk
Management Solutions
Back-End Merchant Processing
Reporting and Analytics
Customer Service & Support
Loyalty & Rewards Programs
Business Solutions
Front-EndMerchant Processing
Managed Services
Network Management Services
Cash, Item, Print & Mail Processing
IT Professional Services & BPO
Electronic Benefit Transfer (EBT)
Core Bank Processing
Note: (1) Payment Services includes two discretely reported Segments: a) Puerto Rico & Caribbean, and b) Latin America. Not all services listed under Payment Services are offered across both Segments. 5
… With A Unique Focus on Latin American Markets …
EVTC Operating Footprint
+2,300
+30,000Merchants Served
Employees across
11 Countriesincluding
+800
+80,000
Outside of PR
POS Terminals
+2,000Connected ATMs
Snapshot of Regional Operating Platform, in Numbers
26 CountriesPresence in
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… And a Growing Record of Partnerships …
Partnership Overview
Year Entered
Country / Region
2015
Acquired 65% stake in Processa, a diversified payment processor
Remaining participation held by Compensar, Colombia’s second largest “Caja de CompensaciónFamiliar”
Colombia
2017
Acquired 100% of EFT Group S.A., a company known commercially as PayGroup
Payment processing and software services provider focused on financial institutions throughout LatAm
Chile
2018
Expanded regional agreement with Citibank for a collection payment platform to include Mexico and Guatemala
Mexico and Guatemala
2018
5-year processing agreement with Santander Chile, the largest bank in the country, as they move to open the merchant acquiring market
Chile
2019
Acquired 100% PlacetoPay, a Colombian-based, gateway and payment service provider currently serving Colombia and Equador
Expanding to new markets by Q3 2020
Colombia
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… Led By A Team of Proven Industry Professionals
Team of +2,300 Evertec engineers, programmers and other professionals across 11 countries in Latin America and Puerto Rico
Mac SchuesslerPresident and CEOFormer President of International for Global Payments with +20 years of payment industry leadership experience
Joaquin CastrilloChief Financial Officer+6 years of experience with Evertec
Formerly with PwC in the Banking and Capital Markets group
Philip E. SteurerEVP and Chief Operating OfficerFormer SVP at First Data with +20 years of experience in transaction processing
Luis A. RodriguezGeneral Counsel & EVP of Corporate DevelopmentFormer Director at JP Morgan & Deutsche Bank in New York with +10 years of experience
Rodrigo Del CastilloSVP Payment Services LatAmFormer President of PayGroup with +30 years of experience in payments solutions in LatAm
Miguel VizcarrondoEVP Puerto Rico Segment Leader+15 years of merchant acquiring experience with Banco Popular and Evertec
Carlos RamírezEVP Puerto Rico Sales+25 years of experience with Evertec
Guillermo RospigliosiEVP Product, Marketing and InnovationFormer Managing Director of Cybersource at Visa with +20 years of experience
Paola PérezEVP Human Resources+7 years of Compliance, Audit and HR experience with Evertec
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Attractive Secular Industry Trends and Revitalization in Puerto Rico2
• Regulatory Pressure
– Prisma 51% sold in Argentina (January 2019)
• Competitive Pressure
– Chile market opening – Santander Chile agreement with
EVTC for acquiring processing
• New Innovations
– Smart POS, digital banks, new entrants
– C6Bank in Brazil agreement with EVTC for Risk Center product
Non-Cash Payments Volume(1)
Source: McKinsey Global Payment Report (2019), Global Payments Report 2018. Note: (1) Measured as non-cash payments as a percentage of total payments volume in selected regions.
Strategically Positioned to Capitalize on LatAm’sGrowing Payments Markets Opportunity
• Rising online presence and smartphone
usage
• Growing number of merchants authorized
to accept cards
Markets are Evolving and Opening
Cash-to-Card Conversion Fueling Growth
Payments Revenue Growth
(% Total Payments Volume)
(‘17-’ 22E CAGR)
69%
53%42%
70%
84%
WO
RL
D
EM
EA
LA
TIN
A
ME
RIC
A
AS
IA
NO
RT
H
AM
ER
ICA
7% 7%
5% 5%
6%
Latin
Am
eri
ca
Asi
a /
Paci
fic
No
rth
Am
eri
ca
EM
EA
Wo
rld
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… And Benefit from Revitalization of Puerto Rico
Rebuilding and Relief Funds
Progress on Fiscal Stability and Economic Health
• Judicial approval of the COFINA restructuring
• Proposal to restructure over $35B of debt
• Employment has remained stable throughout 2019
• Certain metrics are showing less outward emigration
(1) Source: New Fiscal Plan for Puerto Rico, 5/9/2019, Exhibit 8, p. 21.
• Promesa plan includes $83 billion over 15 years(1)
• HUD appoints financial monitor and releases $8.5 billion
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Comprehensive and Scalable Service Offering3
Comprehensive Suite of Value-Adding Payments Services …
▪ Managed service provider services suite, including cloud and on-premise
▪ Network and connectivity administration
▪ Item and document management solutions
PR │ LatAm
▪ Integrated digital, core and correspondent banking solutions
▪ Comprehensive suite of advanced payments, e-payments and collection
services
▪ Complete ATM switching & driving solutions
▪ ATM network administration, implementation & monitoring
▪ Analytics-driven fraud monitoring & detection platform
▪ Comprehensive POS and Internet card payment solutions
▪ Issuing, acquiring & switch modules
▪ End-to-end platform to issue, route, authorize, settle and administer card
programs
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P2P/B payments service
and acquiring platform
P2B platform allows merchants to receive
mobile payments from registered ATH debit card
users
... With Growing Portfolio of Digital Payments Solutions …
Own and operate PIN debit network enabling merchants to accept
ATH debit cards
Serves +2,000 ATMs providing a host of value-added services
Provides solutions to detect and control fraud with real time ATM and POS
transaction monitoring
Supports ongoing technology enhancements to improve
customer experience
+1MUsers
+100M# Transfers
+15kMerchants
Innovative SmartPOS and
pay-at-the table solutions
enhancing customer experience and
streamlining checkout processes for
merchants
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Aligned Strategic Initiatives4
Aligned Strategic Initiatives to Drive Growth
Merchant, Payments – PR & Caribbean
Payments - LatAmBusiness Solutions – PR
& Caribbean
Defend dominant position with competitive prices and differentiated
value proposition
Innovate to enhance customer experience and
grow the market
Leverage infrastructure and regional workforce to
optimize margins
Maximize cross-sell opportunities and enhance payments product offering
Benefit from local leadership and Spanish-
speaking developers
Utilize financial capacity for acquisitions
Support Government effort for efficiencies
Compete effectively for new business solution
services
Benefit from market consolidations
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3
1
2
3
1
2
3
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Solid Financial Performance and Cash Flow Generation Profile
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Resilient, Recurring and Growing Revenue Base
Note: (1) Corporate and Other reflects the elimination of intersegment revenues.
Historical Revenue, by Segment
2019 Revenue Breakdown, by Segment
Payment Services - LatAm
16%
Business Solutions
45%
Merchant Acquiring
22%
Payment Services - PRand Caribbean
17%
2019 Revenue Total: $487M
▪ Resilient revenue base with no segment representing the
majority of revenue
▪ Long-term contracts with financial institutions, merchants,
corporations and governments
− Contracts typically vary between 1 to 5 years, often with
automatic renewals
− 15-year exclusive Master Services Agreement with
Banco Popular through 2025, with contractual price
adjustments
▪ Growth drivers: Innovation, product diversity, M&A
Revenue Base Overview
Payment Services – PR & Carib.
Merchant AcquiringBusiness Solutions
Payment Services – LatAm
Corporate & Other(1)
($ in millions)
(% of total)
$374$408
$454
$389
$487
$180 $184 $189 $198 $217
$99 $100 $102 $114 $126
$38 $47 $63 $81
$84 $85 $91
$86
$100 $106
($28) ($33) ($32) ($39) ($46)
2015 2016 2017 2018 2019
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Notes: (1) Non-GAAP reconciliation summary in appendix, page 24. (2) 2017 Adjusted EBITDA negatively impacted by hurricanes. (3) Adj. EBITDA margin reconciliation summary in appendix, page 27.
Regional Operating Scale Driving Industry Leading Margins and Financial Results
Adjusted EBITDA(1)
($ / share)
Adjusted EPS (1)
Operating Scale As a Key Strategic Advantage
2019 Adj. EBITDA Margin by Segment (3)
(% of total)
▪ Operating presence in 11 countries; headquartered in
San Juan, Puerto Rico
− Commercial presence in 26 countries
▪ Operate 5 data centers with broad range of
processing capabilities and certifications:
− Puerto Rico (2), Colombia, Chile, and Costa Rica
($ in millions)
(2)
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$186 $188
$178
$212
$226
2015 2016 2017 2018 2019
$1.59 $1.67
$1.47
$1.84 $1.96
2015 2016 2017 2018 2019
Note: (1) Free Cash Flow is operating cash flows less capital expenditures. Free Cash Flow does not represent our residual cash flow available for discretionary expenditures, since we have mandatory debt service requirements or other non-discretionary expenditures that are not deducted from the measure. See reconciliation in appendix on page 25. (2) 2017 results includes the negative impact of hurricanes. (3) Includes higher than normal capital expenditures for technology infrastructure spending. (4) Non-GAAP reconciliation for net debt/adjusted EBITDA in appendix, p.26. Net debt calculation reflects credit agreement limitation of $60 million cash applied.
… With Attractive Cash Flow Generation …
Free Cash Flow(1)
($ in millions)
▪ Strong, recurring revenue profile
▪ Attractive EBITDA margin ~ 47%
▪ Moderate capex
▪ Tax grant in place through 2026 with
~4% tax rate applicable to ~70% of
revenue base
▪ Improved Net Debt / Adj. EBITDA
multiple to 2.1x
(x)
(2)
Net Debt / Adj. EBITDA(4)
(3)
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… And Disciplined Approach to Capital Deployment
Priority - Invest for Growth, Internal and M&A
• Maintenance capital expenditures of ~$20-$25M
• Growth capital expenditures of ~$20-$25M*
• Potential acquisition targets typically up to $100M
‒ Revolver capacity of $125M
Target Leverage Ratio of 2.0-3.0x
• Current net debt leverage ratio of ~2.1x LTM Adj. EBITDA
• Capacity of 4.25x; adjusts to 4.0x in October 2020
Return Capital to Shareholders
• Current annual dividend of ~$15M, $0.05 quarterly, per share
• ~31M share repurchases authorization remaining
*2020 guidance for total capital expenditures is approximately $45 million
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AppendixA
Non-GAAP Reconciliation Summary
The non-GAAP measures referenced in this release material are supplemental measures of the Company’s performance and are not required by, or
presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). They are not measurements of
the Company’s financial performance under GAAP and should not be considered as alternatives to total revenue, net income or any other
performance measures derived in accordance with GAAP or as alternatives to cash flows from operating activities, as indicators of operating
performance or as measures of the Company’s liquidity. In addition to GAAP measures, management uses these non-GAAP measures to focus on
the factors the Company believes are pertinent to the daily management of the Company’s operations and believes that they are also frequently
used by analysts, investors and other interested parties to evaluate companies in the industry. Reconciliations of the non-GAAP measures to the
most directly comparable GAAP measure are included in the schedules to this release. These non-GAAP measures include EBITDA, Adjusted
EBITDA, Adjusted Net Income and Adjusted Earnings per common share and are defined below.
EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. This measure 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 the Company's segments, is presented in conformity with Accounting Standards Codification 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. In addition, the Company's presentation of Adjusted EBITDA is substantially consistent with the
equivalent measurements that are contained in the senior secured credit facilities in testing EVERTEC Group’s compliance with covenants therein
such as the senior secured leverage ratio.
Adjusted Net Income is defined as net income adjusted to exclude unusual items and other adjustments.
Adjusted Earnings per common share is defined as Adjusted Net Income divided by diluted shares outstanding.
The Company uses Adjusted Net Income to measure the Company's overall profitability because the Company believe better reflects the Company's
comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of Apollo
Global Management LLC’s acquisition of a 51% indirect ownership in EVERTEC Group (the "Merger"). In addition, in evaluating EBITDA, Adjusted
EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future the Company may incur expenses
such as those excluded in calculating them. Further, the Company's presentation of these measures should not be construed as an inference that
the Company's future operating results will not be affected by unusual or nonrecurring items.23
($ in millions) 2015 2016 2017 2018 2019
Net Income (loss) $ 85.4 $ 75.1 $ 55.4 $ 86.6 $ 103.7
Income tax expense (benefit) (3.3) 8.3 4.8 12.6 13.0Interest expense, net 23.8 24.2 29.1 29.3 27.6
Depreciation and amortization 65.0 59.6 64.3 63.1 68.1
EBITDA $ 170.9 $ 167.2 $ 153.6 $ 191.6 $ 212.4
Cost savings and software maint. reimbursement(1) $ 1.9 $ 0.5 $ - $ - $ -Equity income(2) (0.1) - (0.6) (0.3) (0.5)
Compensation and benefits(3) 12.2 10.5 9.8 13.7 13.8 Pro forma cost reduction initiatives(4) - - - - -Transaction, refinancing and non-recurring fees(5) 1.3 9.4 2.5 7.6 0.5Purchase accounting(6) 0.1 - - - -
Exit Activity(7) - - 12.8 - -Adjusted EBITDA $ 186.3 $ 187.6 $ 178.1 $ 212.6 $ 226.2
Operating depreciation and amortization (8) (29.3) (28.5) (30.6) (29.2) (34.9)Cash interest expense, net (9) (20.7) (20.5) (24.7) (26.1) (27.0)Income tax expense (10) (13.2) (13.8) (15.1) (19.5) (20.2)Non-controlling interest (11) - (0.3) (0.6) (0.5) (0.3)
Adjusted Net Income $ 123.1 $ 124.5 $ 107.1 $ 137.3 $ 143.7 Net income per common share (GAAP):
Diluted $ 1.11 $ 1.01 $ 0.76 $ 1.16 $ 1.41 Adjusted Earnings per common share (Non-GAAP):
Diluted $ 1.59 $ 1.67 $ 1.47 $ 1.84 $ 1.96 Shares used in computing adjusted earnings per common share:
Diluted 77,181,123 74,473,369 72,872,188 74,420,110 73,475,763
Non-GAAP Reconciliation Annual Results Summary GAAP Net Income to Adjusted EBITDA
(1) Predominantly represents reimbursements received for certain software maintenance expenses from Popular. (2) Represents the elimination of non-cash equity earnings from Evertec’s 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received. (3) Primarily represents share-based compensation and other compensation expense and severance payments.(4) Represents the pro forma effect of the expected net savings primarily in compensation and benefits from the reduction of certain temporary employees and professional services.(5) Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, recorded as part of selling, general and administrative expenses and cost of
revenues. (6) Represents the elimination of the effects of purchase accounting in connection with certain arrangements where Evertec receives reimbursements from Popular. (7) Impairment charge and contractual fee accrual for a software solution that was determined to be commercially unviable. (8) Represents operating depreciation and amortization expense, which excludes amounts generated as a result mergers & acquisitions activity. (9) Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of debt
issue costs, premiums and accretion of discount.(10) Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discreet items. (11) Represents the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase. 24
Notes: (1) Capital expenditures exclude $10M merchant portfolio acquired in 2015, $16M of acquisitions in 2016, $43M of acquisitions in 2017 and $6M of acquisitions in 2019. (2) Free cash flow represents operating cash flow less capital expenditures. Free cash flow does not represent Evertec’s residual cash flow available for discretionary expenditures, since it has mandatory debt service requirements and other non-discretionary expenditures that are not deducted from the metrics.
($ in millions)
Non-GAAP Reconciliation Summary Free Cash Flow
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019
Operating Cash Flows $ 162.4 $ 168.1 $ 145.8 $ 172.7 $ 179.9
Capital Expenditures(1) (37.0 $ (42.3) (33.5) (41.3) (59.9)
Free Cash Flow(2) $ 125.4 $ 125.8 $ 112.3 $ 131.4 $ 120.0
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12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019
Unrestricted Cash ($28.7) ($51.9) ($50.4) ($69.9) ($111.0)
Total Debt 674.4 663.5 624.7 545.3 533.4
Net Debt $645.7 $611.6 $574.3 $475.4 $422.4
Adjusted EBITDA 2019 186.3 187.6 178.0 212.5 226.2
Net Debt / Adjusted EBITDA 3.5x 3.3x 3.3x 2.3x 2.1x
($ in millions)
Non-GAAP Reconciliation Summary Net Debt to Adjusted EBITDA
26
($ in millions)
Non-GAAP Reconciliation Segment Revenues and Adjusted EBITDA
December 31, 2019
PaymentServices -
Puerto Rico & Caribbean
Payment Services - Latin
America
Merchant Acquiring, net
Business Solutions
Corporate and Other(1) Total
Revenues $ 125.5 $ 84.5 $ 106.4 $ 216.7 $ (45.7) $ 487.4
Operating costs and expenses 61.4 65.7 62.1 138.2 15.5 342.9
Depreciation and amortization 11.6 9.9 1.8 16.5 28.2 68.1
Non-operating income (expenses) 1.8 0.3 — 0.3 (2.7) (0.2)
EBITDA 77.6 29.0 46.2 95.3 (35.7) 212.4
Compensation and benefits(2) 1.0 1.5 1.0 2.1 8.1 13.8
Transaction, refinancing and other fees(3) — 0.2 — — (0.2) —
Adjusted EBITDA $ 78.6 $ 30.7 $ 47.2 $ 97.4 $ (27.7) $ 226.2
Notes: (1) Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations. Intersegment revenue eliminations predominantly reflect $39.0 million processing fee from the Payments Services - Puerto Rico & Caribbean segment to the Merchant Acquiring segment and intercompany software license and development revenues of $6.7 million from the Payment Services -Latin America segment charged to the Payment Services - Puerto Rico & Caribbean segment. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $22.0 million. (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 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 (if any).
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