Greetings, and welcome to the EVERTEC Inc. 4th Quarter 2014 Earnings Conference. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Alan Cohen, Executive Vice President and Head of IR. Thank you. You may begin.
Thank you, operator, and good afternoon, everyone. Welcome to the EVERTEC 4th quarter and full year 2014 earnings call. With me today are Frank G. D'Angelo, our Chairman of the Board and Interim Chief Executive Officer and Juan Jose Roman, our Chief Financial Officer and Executive Vice President. A replay of this call will be available until Wednesday, February 25, 2015.
Access information for the replay is listed in today's financial press release, which is available on our website under the Investor Relations tab. As a reminder, this call may not be taped nor otherwise reproduced without EVERTEC's prior consent. For those listening to the replay, this call was held on February 18, 2015. Before we begin, I would like to remind everyone that this call may contain forward looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties.
EVERTEC cautions that these statements are not guarantees of future performance. All forward looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after
this call. Please refer to
the company's most recent annual report on Form 10 ks filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward looking statements. During today's call, management will provide certain information that will constitute non GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income and adjusted net income per share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings press release. With that, we will begin by turning the call over to Frank G. D'Angelo, our Chairman of the Board and Interim Chief Executive Officer.
Thank you, Alan, and thanks to everyone for joining us today. I would like to open by discussing recent additions to Evotec's Board of Directors as well as recent management changes and why we are optimistic about the future of the company. During the past 6 months, 3 new independent directors have been appointed to the Board of Directors of EvriTech. Olga Lakero, who resides in Bogota, joined us in September. August's extensive experience within the IT industry and specific knowledge of payment systems combined with her relationship in the Colombian market, benefit the company going forward.
Tom Swiatarski, who became a member of our Board in December, is a seasoned senior executive with deep industry knowledge. As a former CEO and President of DEAFOLD, Tom has significant international operating and management experience. Our newest board member is Brian Smith, President of the Latin America Group of The Coca Cola Company. Brian heads the Coca Cola business in Central America, South America, the Caribbean and Mexico, its own base. As EVERTEC continues its expansion throughout Latin America, Brian's experience and knowledge of the region will be most valuable.
I am very pleased to welcome these 3 recent additions to the Evotec Board. Also Jorge Hunguera, who's a member of our Board, retired as Vice Chairman and Special Assistant to Chief Executive of Popular on February 5. On his retirement, Jorge became an independent member of our Board, resulting in us having a total of 7 independent Board members as of April 1. In November, we announced that Max Schuessler was appointed President and Chief Executive Officer of EVERTEC and a member of our Board of Directors. Mac will assume these roles on April 1, and I will be serving as Interim CEO until that date.
We are pleased to have Mac as our incoming CEO. Mac is a 20 year veteran of the payments and financial services industry. Prior to joining EVERTEC, was President of Global Payments International Business, overseeing the company's operations in 23 countries throughout Europe and Asia. His strong leadership and operational understanding and successful track record of entering new markets and growing existing markets make him the right choice to lead EVERTEC during the next stage of our evolution. On a personal note, Mac has already moved to Puerto Rico with his family and established permanent residents in the Commonwealth.
Throughout 2014, EVERTEC continued to provide innovative payment solutions to its customers. As of the Q4 of last year, we are now piloting in Colombia a single card solution that can handle debit, credit and prepaid card account processing as well as merchant acquiring. We feel this innovative offering will be attractive in the markets we serve as it simplifies and integrates the IT operations of current and potential customers and provides financial institutions with strong competitive advantage. We also launched ATH Movil, a mobile application which allows consumers to transfer money real time peer to peer. The number of users exceeded our initial projections confirming that consumers are seeking faster and simpler payment solutions.
And for a major customer, we launched Touch ID for e banking sign on, in which the customer uses his or her fingerprint as personal identification. EVERTEC is committed to the development of innovative payment solutions for its customers and near end users. In 2014, EVERTEC invested approximately $30,000,000 in capital expenditures, including new product development and infrastructure improvements. Touching briefly on the Puerto Rico economy. The economy in Puerto Rico, our largest market continues to be a challenge.
While the government and private sector seeks solutions to reverse the trend, it is clear that it will take more time for the economy to turn around. All this being said, the recent price relief at the gas pump and on consumers' electricity bills may improve discretionary spend in the coming quarters. Just to note, almost all of the electricity in Puerto Rico is generated by oil. Outside of Puerto Rico, we continue to see opportunity for expansion as clients look to outsource their payment processing and merchant inquiry. Our breadth of products and services enables us to work with new customers, while also allowing us to cross sell into existing customers.
Turning to our financial results for the full year 2014. We delivered revenue of $361,000,000 and adjusted net income per diluted share of 1.55 dollars While we were able to grow our EPS by 11% in the year, we saw only a 1% increase in the top line, primarily due to lower than expected resale of hardware and license software sales in our Business Solutions segment. We are not satisfied with these results. We feel we can deliver strong revenue growth in the future. Management and the Board are committed to improving EVERTEC's execution in all areas of our company.
In the past 18 months, the company has repurchased $100,000,000 worth of its stock. And today, we also announced a regular quarterly dividend of $0.10 per share for the Q1 of 2015. 2014, EVERTEC returned over $57,000,000 to shareholders in the form of dividend payments and stock buybacks. The Board continuously reviews the company's uses of capital and will evaluate the best use of our excess cash in the context of our strategic objectives. In summary, we continue to see opportunities for expansion across all of our businesses and markets, and we are well positioned to take advantage of those opportunities entering 2015.
Demand in the market remains strong and we expect to continue winning share and driving growth. The addition of Mac as our new President and CEO in April is an important step in executing on our strategies. Juan Jose will now take you through our Q4 and full year 2014 financial results in some detail as well as discuss our 2015 guidance. Juan, the floor is yours. Thank you, Frank, and good afternoon, everyone.
I will now provide a detailed review of our 4th quarter and full year financial and operating results and then conclude by discussing our financial outlook for 2015. Beginning with the Q4, total consolidated revenue was $93,500,000 in line with the Q4 of last year, mostly impacted by $2,500,000 of lower hardware and software sales. Excluding hardware and software sales, our consolidated revenue growth in the 4th quarter was 3% year over year. Merchant according net revenue increased 5% year over year to $20,800,000 driven by transaction growth. Payment processing revenue for the 4th quarter increased 5 percent to $27,700,000 up from 26 $400,000 in the prior year period.
Revenue growth in the quarter was driven mainly by an increase in ATH network and POS processing transactions and accounts on file within our car product business. Our payment related businesses outside of Puerto Rico grew 9% year over year in the 4th quarter, driven mainly by card product processing. Business solution revenue decreased 5% to $45,000,000 The decrease in business solutions revenue was mainly due to a $2,500,000 year over year decline in hardware and software sales and the natural conclusion of IT consulting projects in the 4th quarter and timing of new project ramps. This was partially offset by increased revenue from our core banking solutions. Moving to expenses.
On a GAAP basis, our 4th quarter total operating expenses increased approximately 9% compared with the prior year period. Cost of revenues excluding depreciation and amortization was 40,700,000 dollars slightly lower than prior year period, reflecting lower cost of sales related to lower hardware and software sales, partially offset by higher operating expenses. Selling, general and administrative expenses for the Q4 were $15,600,000 up $7,300,000 or 88 percent for the corresponding 2013 period. This increase was primarily due to $7,400,000 of non recurring costs related to our CEO succession and acceleration of divesting of certain stock options. Depreciation and amortization expense decreased by $800,000 or 4% compared with the prior year.
The decrease resulted from lower amortization of software packages that became fully depreciated. Income from operations for the Q4 was $20,600,000 a decrease of 23% compared with the corresponding 2013 period, impacted by the aforementioned nonrecurring expenses of $7,400,000 Total non operating expenses were $5,700,000 an increase of $800,000 from the prior year, mainly due to a $1,100,000 decline in other income compared with the 2013 period. We recorded a GAAP income tax expense of $2,400,000 in the 4th quarter. On a cash basis, our income tax expense was approximately $300,000 which was in line with our expectations. As of December 31, 2014, we had approximately $29,000,000 of gross NOLs available to offset future tax payments related to our operations in Puerto Rico.
Adjusted EBITDA for the Q4 was 47,500,000 dollars a decrease of $1,600,000 or 3 percent from $49,100,000 in the corresponding 2013 period. The decrease in adjusted EBITDA was primarily due to a $1,100,000 decline in other income and $600,000 lower dividends received from investees as compared to 2013. Adjusted net income in the 4th quarter was 34 point $4,000,000 down 3 percent from $35,400,000 in the prior year, due mainly to the aforementioned decline in other income and dividends received. Adjusted net income per diluted share increased 2% to $0.44 from $0.43 in the prior year, reflecting lower average shares outstanding as a result of our share repurchase program. Moving to our balance sheet.
As of December 31, we reported $32,100,000 of unrestricted cash and $689,600,000 of total short term borrowings and long term debt. During the quarter, we made a mandatory repayment of approximately $4,800,000 on borrowings outstanding under our Term A and Term B senior secured credit facilities and pay dividends of 7,800,000 dollars As of December 31, total liquidity, which includes unrestricted cash and available borrowings capacity under our revolver, was approximately $109,000,000 For the Q4, our free cash flow defined as adjusted EBITDA minus CapEx, cash interest expense and cash income taxes was $32,500,000 compared with $31,600,000 in the prior year, representing an increase of $900,000 or 3%. Turning to our financial results for the full year 2014. As Frank mentioned, total consolidated revenue was $361,100,000 up 1% compared with 2013, impacted primarily by lower than expected hardware and software sales. Per channel recording revenue was 79,100,000 dollars up 7% from the prior year, driven mainly by an increase in transactional volumes.
Payment processing revenue was $105,400,000 in 2014, up 5% from 2013, mainly driven by an increase in our ATH network and POS processing transactions and accounts on file within our car product business. Business Solutions revenue was $176,600,000 down 4% from last year, mainly due to a $10,300,000 year over year decline in hardware and software sales, partially offset by increased revenue from core banking solutions. Excluding hardware and software sales, business solution would have increased 2%. Adjusted EBITDA for 2014 was $182,800,000 up 3% from 2013 results, driven by top line growth, continued leverage in the business and our focus on cost control initiative. Adjusted net income was $130,000,000 up 7% from 2013 and adjusted net income per diluted share was $1.65 up 11% year over year.
Full year 2014 for full year 2014, our free cash flow was approximately $134,000,000 up 7% from $125,000,000 in 20.13. Finally, we repurchased $26,200,000 or 1,200,000 shares of our stock in the Q4 of 2014. Now I will review our financial outlook for 2015. We currently expect total consolidated revenue between $368,000,000 $372,000,000 for growth of 2% to 3% in 2015. This expectation is based on the following factors: a continued challenging economy in Puerto Rico, our main market lower growth of our payment businesses in Puerto Rico and new customers implementation in 2015 and cross selling to existing customers.
We do not consider any corporate development initiative such as M and A, joint venture or alliances in our 2015 revenue forecast. We expect our adjusted EBITDA growth rate will be between 3% and 4% in 2015, driven by revenue growth, the continuation of our cost control discipline and operating leverage in our payment businesses. Finally, we expect our fully diluted earnings per share to come in between $1.68 $1.72 in 20.15, representing growth of 2% to 4%. Our fully diluted earnings per share outlook assumes operating depreciation and amortization of approximately $31,000,000 up $1,500,000 versus 2014. Cash interest expense of approximately $23,000,000 up $1,000,000 versus prior year and cash income tax of approximately $5,000,000 up $4,000,000 versus last year.
We expect fully diluted weighted average shares outstanding to be approximately 76,500,000. Dollars We expect our 2015 effective tax rate on a GAAP basis to be between 10% 12%. With that, operator, we will now open up the call for questions.
Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer Our first question is coming from the line of George Nihalos with Credit Suisse. Your line is now open. You may proceed with your question.
Great. Thanks for taking my question. Maybe just for starters as we look at the outlook the 2% to 3% growth on the top line, wanted to say what are you baking in for international growth the 9% that you saw this quarter versus what you're expecting in Puerto Rico? And then somewhat related to that, the EBITDA growth that you're guiding to looks like you're talking about 100 basis points ahead of the revenue growth. That's a little bit lower than what we're used to seeing in terms of the delta or the longer term target you guys had put out in the past.
Can you talk a little bit about how we should be thinking about EBITDA growth versus revenue growth over the long term? Is sort of the plus 100 the way we should be thinking about it going forward?
Hi, George. Yes, our guidance consider basically as we mentioned, is economic challenges in Puerto Rico. So we see a little bit of lower growth in our payment businesses for 2015 as compared to this year. Our payment businesses for 2015 has been impacted by lower EBT revenue. The last, as you remember, probably of the BBVA Oriental implementation and the expiration of the federal educational program that we recognized during the last years.
In the case of the business solution, there are some headwinds there, mostly as we see lower revenue in item processing as people move more to electronic payments out of paper. So with that a little bit outside Puerto Rico, we expect to be the low double digit growth for next year in our payment outside of Puerto Rico. So, a little consistent with this year, for the full year, our growth was 11.5%, 2014 versus 2013. To your point EBITDA, this year we grow for the full year on 100 basis points. We're expecting the same for 2015.
I definitely want to call out that also this year 2015, we're considering certain OpEx expenses related to our expansion to Colombia that we estimate around $1,000,000 $1,200,000 So there's some impact of that on our EBITDA during this year. So that's basically how we put together on how we view our guidance for this year. As we continue our growth in the payment now going forward more years from now, we do expect to continue our growth in our margins and the EBITDA should continue to outpace our revenue growth, mostly driven by our growth in our payment businesses. We continue to expect our payment businesses to accelerate faster than our business solution as has been the case for the last few years.
Okay. Well, should the business solutions business grow next year? I mean, the comps are relatively easy there. And then just one other question. In the past, you guys had provided us with POS transaction volume in Puerto Rico.
I think it was about 5% last quarter or Q3. Can you update that number for us please?
Yes, Yes. So it was the same in the Q4. It was around 5%. So it was in line with Q3 growth.
Okay, great. And just last question for me. Looking at deals outside of Puerto Rico, can you talk a little bit about how your pipeline looks there? And have there been delays given the some of the management changes that you've had recently?
Yes. Hi, this is Frank Deane. The pipeline outside of Puerto Rico is fairly strong. We're not extremely happy with it, but it's stronger as we go forward. Changes in management really had nothing to do with our pipeline or direction that we're taking.
Our strategy remains the same and we're pretty positive about our direction going forward outside of Puerto Rico.
Okay. Thank you.
Thank you very much. Our next question is coming from the line of Bob Napoli with William Blair. Your line is now open. You may proceed with your question.
Good afternoon. I guess with the hiring of Mac, I guess the revenue growth since your IPO has not been what anybody expected and I'm sure what management expected outside Puerto Rico or inside Puerto Rico. And Mac is coming in from with experience in other markets. What is the what are you expecting from him? What should be the revenue growth of this business?
And with is he going to be able to hit the ground running given that he's really familiar with other markets versus the Latin American market?
YMAC. Sounds like McDonald's commercial. Now we actually did a pretty extensive search. We hired a top notch search firm. We had quite a few finalists that we interviewed.
We did multiple interviews with each of the finalists. All directors interviewed all the finalists. Wanted somebody that was very senior level, somebody that understood payments, somebody that had the right set of characteristics in terms of being growth oriented, being aggressive, had management scale in the background. I think if I remember the numbers right, Mack brand, dollars 750,000,000 business with 1700 employees, comparable to EVERTEC in terms of scale and scope. EVERTEC is more profitable on a percentage basis than previous unit.
But it ran 23 countries in Europe. He opened new markets and he had to grow new markets. So we felt Mac was the right candidate. We had other candidates that were considered and all pretty strong people. We just felt Mac was the best one to fit our personality, our communication style, our openness in terms of communicating with each other.
And he's very growth oriented, which is one of the things that was a very hot point in the Board's interview process.
Go ahead.
But what was the other part of your question?
Well, let's just I mean, I guess what should the revenue growth rate of this company be? I mean revenue growth has been been very disappointing. I mean, Puerto Rico has been in recession forever. I mean, it's not new that it's Puerto Rico is in recession. I'm not sure that it's worse or better, but what should the growth rate of this business be?
And how do you get there?
I think we're resetting a little bit for this year. Probably what I can tell you as to what we discussed before is mostly we have been slower the process of doing expansion outside of Puerto Rico. To Frank's point that has not changed. Part of Mac joining us is his experience in markets outside of the U. S.
So that is continued to be the key strategy for EVERTEC. We're resetting a little bit during 2015, but the target is to accelerate our top line growth to the levels that we have discussed in the past. To achieve that and as in our prior discussions, it's not only the organic growth, but also doing alliances, JV or M and A and that continue to be part of our strategy. So I think you that's what you will see that we will continue to pursue that path. We continue to see significant opportunities outside Puerto Rico and Latin America, not only we continue to see significantly higher organic growth as compared to Puerto Rico.
But again, it was key and part of our test is really to do to add to our organic growth acquisitions or alliances that as you know has not happened, has taken longer than we were expecting. However, that thesis has not changed. We continue looking forward. We're very active looking for opportunities outside Puerto Rico. And on top of that, we're very focused in expanding in Colombia.
Great. Thank you very much. Thank you.
Just a follow-up to that from our side. Colombia is one of our key markets where we're paying a reasonable amount of attention to. We are going to spend more money in Colombia establishing our footprint there. We also have a lot of focus in Mexico as one of our key opportunities, maybe in the serving market segment. And we're going to expand our footprint in the Caribbean.
Thank you. Our next question is coming from the line of Bryan Keane with Deutsche Bank. Your line is now open. You may proceed with your question.
Hi. Just a question about the guidance. If I look at the 4th quarter revenue growth rate of 1%, the guidance for 2015% says 2% to 3%. So just trying to figure out what's going to improve and to accelerate as we get into next year. Where is that visibility
past? Yes. First, we put together a forecast for next year that we're comfortable that we will achieve. But I think key to remember that Q4 of this year have lower hardware and software that actually decreased our revenue for the quarter. We're not expecting that for 2015.
So most of the drag during 2014 was caused principally by the hardware and software sales. And we do not expect that scenario for next year. So that give us a much better comfort as to achieve our numbers for next year. In addition to that, we have visibility for some of the project, as you know, around 85% of our revenue is recurring revenue. And that has not changed and will not change for next year.
We do recognize the challenges in Puerto Rico. That's why we put together a forecast 2% to 3%. But again, if you take out the hardware and software impact during 2014, our revenue grew around 3% to 4%. So the 2% 3% actually consider the economic situation in Puerto Rico. So after even with that, our business has been resilient really during the last years, even though the economy has been negative.
So that's why we feel comfortable with the guidance that we put forward. Again, it doesn't consider any significant transaction. Those obviously we have in the industry, obviously, we will talk about in our next calls.
Okay. And just an update on some of those JV and alliances. I know they're not in any in the guidance, but are we any closer to signing anything versus not having the CEO on board? Are those things pushed out even further?
This is Frank Angel again. Really the not having the CEO on board really wasn't relevant to any of the activities that we're discussing. And we're actually no closer to signing any of the JVs.
Okay. And then just finally on capital allocation, what are the Board's thoughts on buying back stock here versus M and As, especially given the stock price has been depressed for a while, just how do you guys think about allocating capital?
Yes. As we mentioned today, we did repurchase approximately $26,000,000 of our stock in Q4. And as a reminder, we still have around $50,000,000 on the current program approved by our Board. But as we have discussed in the past, we will continue to invest in the growth of our business, which includes strategic M and A, the joint venture and alliances that we have discussed before. We will continue making our mandatory debt repayment of course.
And as you know, we have a quarterly dividend in place. So the best use of the free cash flow after or beyond our core objective is something we will continue discussing with the Board. But keep in mind, we still have $50,000,000 in our program available. And as we disclosed when it was approved, we still have 9 months to deliver on doing the buyback. So our priority will be obviously we see long term value growing the company and doing acquisitions or alliances.
But at the same time, we will balance that with the continuation of our buyback program.
Okay. Thanks for taking my questions.
You're welcome.
Thank you. Our next question is coming from the line of Tien Tsin Huang with JPMorgan. Your line is now open. You may proceed with your question.
Great. Thanks. First question for Frank, I guess, regarding Mac, excuse me. Just I caught the answer that you gave to Bob on YBAC, but what can we expect him to do differently, I guess, is my question. Is it borrowing from a Global Payments playbook with pricing and inorganic growth that maybe attracted you to Mac over some of the other candidates?
But just trying to better understand what he might do differently?
Yes. Well, based on Mac's background, he has strength and knowledge in a lot of key areas. Every CEO will do things differently. Sure. I think Mac is in the process of learning the rest of our businesses and looking at where the opportunities are.
I think you'll see Mac more aggressive on the sales front. I think you'll see Mac more aggressive on the expansion outside of Puerto Rico. He's a pretty solid aggressive individual and knows the business and knows how to motivate people. We aren't satisfied with our performance outside of Puerto Rico. And we're definitely focused on paying attention to that this year, the Board and Mac.
Understood. I appreciate that candid answer, which leads to my follow-up, which was given that like I said, the Global Payments playbook with JVs and inorganic growth has worked, but there could be a cost to that as well as you sort of alluded to perhaps with sales front. Does this guidance contemplate that those kinds of changes that might occur? I'm just curious what was factored in because I fully appreciate the challenge of giving guidance before he comes aboard. But just trying to understand how firm these numbers are?
Hi, Tien Tsin. This is Juan. Our guidance basically consider what we expect in terms of growth in transactions. Obviously, we always look for opportunities in term of pricing. So it's part of our regular process looking for areas where we can be a little more aggressive.
But the guidance really most of it is organic growth looking for or mostly concentrated in volume growth and transaction growth. Does that include obviously the customers we signed last year? We signed around 12 to 15 new customers last year that we will be working in implementing this year. So this year consider implementation of those customers throughout the year. The organic growth that we continue to see outside Puerto Rico, but also even in Puerto Rico, we will not have EBITDA that we have last year in hardware and software as we discussed.
So most of it, I can tell you, is just cross selling to existing customers, new products. As Frank mentioned today, we have a couple getting out of the door. So all basically build up into our numbers to get to our growth.
Okay. Okay, fair enough. Maybe just two quick housekeeping questions, and then I'll jump off. Just the CES succession cost, the $0.07 in the Q4, was that contemplated in guidance? And then finally, just did you give the growth rate in payments in January?
I think you said 5% for the Q4, but can you give us a sense of what January looked like just because that should reflect the lower gas prices? Thank you.
Yes. I don't have yet the final number for January. We don't expect any surprise really in January. I think it will be consistent. So far so good.
We are not seeing really any significant changes as compared to the last two quarters. We didn't understand the first part of your question about
CEO. Yes. The succession cost that drove the higher SG and A in the quarter was that contemplated in your prior guidance?
No, it was not. No, in the last year, you said 2014.
Yes, sorry, the Q4, the Q4. I apologize.
No, no. We adjusted the limit, but no, it was not either.
Okay. All right. So it was good.
It has been recognized in Q4, so it will not impact 2015.
Understood. Yes. So exiting that out was good expense quarter. Thank you.
Okay.
Thank you. Our next question is coming from the line of Jim Schneider with Goldman Sachs. Your line is now open. You may proceed with your question.
Good afternoon. Thanks for taking my question. Maybe one more, if I could try differently on Mac's priorities when he takes the helm in April. Can you maybe give us any color on kind of what you've asked him to concentrate kind of for 2nd and 3rd, maybe asking a little bit differently from the previous questions?
Yes, this is Frank. Mac and I, you know Mac's working as a consultant to me during this period. And we've had multiple discussions. Mac has been learning the management team, looking at our operations. I think the biggest focus Mac is going to have is in 2 areas.
The first area is going to be our sales channel and how we go to market and our go to market strategy and how we structure our sales channel. I think the second one is going to be a little bit more in the operational excellence area in terms of solid delivery to our customers in a cost effective manner. We feel there's some opportunity in there for us to do better both on the cost side and on the performance side. I think another area of
his focus is going to be
on JVs and partnerships. If you notice, we've added some fairly diverse people to our Board. We've added Brian Smith, who can help us throughout Mexico, Central America, South America and the Caribbean and Aga, who has a tremendous number of contacts in the Colombia marketplace. So I think it'll be more focused on JVs and partnerships as we go forward with MAX leadership and bringing them to closure.
That's helpful color. Thanks. And then maybe as a follow-up. For a while there in 2014, the merchant acquiring revenue growth was outpacing the payment processing growth for a while and that's no longer the case as of Q4. Understand the visibility is limited and you mentioned a number of moving parts in the color commentary, but can you maybe discuss what the underlying assumptions are in terms of any relative growth difference between payment processing and merchant acquiring for 2015?
Yes. Last year, really, we lapped the implementation of BBVA with Oriental. It was in the Q3 of last year. So we started implementation in Q4 of 2013 and completed that I'm sorry, we completed in the Q3 of 2013. So we lapsed full year in the Q3 of this year.
That's why you saw the first three quarters of 2014 faster than Q4. Our guidance considered basically a 2,050 more in line with the Q4 for merchant acquiring. So that's basically how we look more for next year in the Merchant business, more in line with Q4, because we're taking out or we will not have the impact of the BBVA implementation.
Understood. And then just a final last one for me. It sounds like your guidance basically implies that Business Solutions is no longer going to be a drag, meaning it's going to be flattish for the year. Is that roughly right?
You're right. It will be low single digit. But yes, you're right. It's not going we are not expecting to be a drag this year. Great.
Thank you.
Thank you. Our next question is coming from the line of Chris Brendler with Stifel.
I'm trying to get a little more color if you could on the Colombian market. You made some progress in 2014 with processing. It sounds like you're investing more this year. Can you just give us a little more color on what you're investing in? And is there a meaningful revenue contribution in 2015 from your expansion efforts so far?
Yes. Colombia, as I mentioned, is our focus. And as Frank mentioned, some of the investment is we will add more people in the street. We will continue looking for opportunities really to sell in Colombia. We're in the we put together our platform to start servicing Colombia.
There are some related expenses to that, just to have the fully implemented, not only for debit, but credit and prepaid. So we're completing that process just to be able to process any time of debit card or prepayment or credit card. So that's part of what we will be investing in Colombia during this year. In terms of our revenue, we will expect to start seeing revenue during this year. So far, it's going to be a small amount.
So it's not nothing that will change our guidance for 2015. But we're putting the basis really in Colombia to start seeing an accelerated growth starting in 2016.
Okay, great, Juan. Thanks. And does that mean I may have missed this, is your guidance for revenues in 2015, are we looking at about the same 9% or 12% growth outside of Puerto Rico?
It would be low single double digit during next year. That's what we're expecting right now for 2015 as compared to 2014.
Okay. And then one last question for me. Just one on Puerto Rico. It sounds like trends from Q3 to Q4 relatively stable, could get a benefit from lower energy prices. What about the proposal for a VAT tax?
I mean, I think you talked about in the past there hasn't been as direct proposals to tax the consumer into the spending. This one seems to be it could actually have an impact on your business. Can you talk about that perspective and the likelihood?
Yes. Well, it is really too early to know right now the impact. The proposed project just got to the Lake Gisla here and now is in discussion and amendment process. So we expect probably 2 or 3 weeks of discussion. As you can imagine, everyone is interested in having a say in the project.
In general, what they propose is to establish a value added tax. So it will increase the consumption taxes. However, at the same time, they are expecting to reduce tax rates to both individual and corporation. So it's hard really to guess or to understand what the impact will be. What the government really is trying to do is to bring taxes from the shallow economy that as we have discussed in the past is very big here in Puerto Rico.
So we're basically looking into the project as we speak and looking into the amendments to the project, but it's hard really to assess at this moment, because usually and it's expected, it probably will suffer major changes to what has been proposed. Okay, great. Thanks so much. Thank you.
Our next question is coming from the line of Sarah Gubins with Bank of America Merrill Lynch. Your line is now open. You may proceed with your question.
Hi. This is actually Faitan Begoli calling in for Sarah Gubins. So your 2015 revenue guidance expects Business Solutions of low single digits, merchant acquiring more in line with Q4. Could you quantify what you expect for payment processing in 2015?
It will be more or less the same to last quarter, last year. So the payments will be I think both together will be around that 4%, 5% what we see last year, last quarter. And again, low single digit for Business Solutions.
Okay. Thank you for that. Could you also switching gears a little bit go into more detail on the consumer sentiment in Puerto Rico?
Yes. Well, it's hard to guess, right? If you look at the data, even the data issued by the government of Puerto Rico official data, retail sales continue to be up. They are positive, has been positive since June 30. And this is retail sales excluding auto and cement sales, except for August 14 where we see we saw a negative, which actually we also saw that in our numbers.
But overall, when you look at the retail sales, it has been positive the whole year, same with sales tax correlation. However, when you look at the GDP, the Economic Activity Index, it has been negative. Just kind of a hard really to guess what exactly is going on. I think the consumer sentiment is go up and down. That's what we're seeing there in month.
The transaction go to the roof. Others really very slow or flat. We think is part of the whole discussion as we discussed in the previous quarter. 1st was PREPA or the electric authority, now is the new tax. So there has been a lot of noise in the market.
So what we're seeing at the end of the quarter is kind of we have to see a consistent growth versus previous year. But on a monthly basis, we see some up and down. And I think again, the sentiment really varies as to the different projects or what's going on in the press here in Puerto Rico.
I see. Okay. All right.
Thank you for that. So my last question is just on, is there any foreign exchange impact worth calling out?
No. As a reminder, around 97% of our revenue is in U. S. Dollars. So in terms of our collection, it's minimum the exposure that we have.
Okay. That's all I had. Thank you. Thank you. Our next question is coming from the line of Bob Napoli with William Blair.
Your line is open. You may proceed with your question.
I just wanted to follow-up on the hardware software sales. It would be helpful and I've asked that before if you would break that out since it is so dramatically different margin and some companies
in the space do tend
to break that revenue piece out because of the different margin characteristics. And then just a question, what percentage of your revenue today is from the Puerto Rican government? And is that where you're seeing some softness in the hardware software sales? And what do you expect the government revenue to grow in next year? Or is it down year over year?
Do you expect it to be down?
Yes. First, you're right. Some of the impact in hardware and software has been related to government accounts, different agencies. Regarding the government, it's around 10%, 11%. I think it will be probably the same slightly lower for next year.
We're not expecting that really to change. In general, the services we provide, excluding hardware and software release mission critical services. We don't see that changing more or less. It should be more or less the same as last year. We might see some hardware and software during the year related to some of the refresh they have been postponing, right, as we discussed during 2014.
But I don't think that will change dramatically. I think in any case, it will be slightly lower as a percentage for 2015. Okay.
And then coming into this quarter, you had expected an acceleration in non Puerto Rico revenue growth. And I mean, granted it wasn't down, but it was flat at 9% and you're forecasting low double digit. Why was why did you not get the acceleration you expected in the Q4? And what gives you the confidence that it's going to accelerate somewhat from the Q4 levels next year?
Yes. In part what we see you have to do with implementation of the new our growth from quarter to quarter. For next year, we consider basically the different customers that we find in 2014 that we do expect to implement during 2015. So that's part of what we added or consider when we look at next year. So that's mostly what we're expecting is just to implement some of the sales that or the sales that we did during 2014.
Q4, what we saw is basically we continue to see the acceleration in our car product is double digits. What we saw a little of a slowdown was more in the ATM that was high single digit during the quarter. But again, that goes over 10% lower. So ATM not necessarily always double digit. But that's basically what we saw a little bit of a slowdown in the ATM processing.
But again, card products continue to grow double digits.
And then in your guidance for next year, the hardware software sales you expect to be flat as part of your
Slightly higher than 2014. 2014 is abnormally low, but in no way we're projecting this to be even close to 2013 or not even close yet to the average in previous years. So slightly higher, but not much.
What was it in 2014?
It was around $4,500,000
What was it in 2013?
It was 14.5
Okay. Great. Thank you.
Thank you. Ladies and gentlemen, at this time, there are no questions in the queue. There are no further questions and we will now be ending our Q and A session. Ladies and gentlemen, we thank you very much for your participation in today's event. This does conclude the teleconference.
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