Good afternoon, and welcome to the EVERTEC Incorporated Second Quarter 2019 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, Please note, this event is being recorded. I would now like to turn the conference over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon. With me today are Max Schuessler, our President and Chief Executive Officer and Joaquin Castillo, our Chief Financial Officer. A replay of this call will be available until Wednesday, August 7. Access information for the replay is listed in today's financial release, which is available on our website under Investor Relations section of evertecinc.com. For those listening to the replay, this call was held July 31.
Please note there is a presentation that accompanies this conference call and is accessible in the Investor Relations section of our website. Before we begin, I'd like to remind everyone that this call may contain forward looking statements as defined by 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 statements 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 SEC 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 earnings. Reconciliation to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides. I'll now hand the call over to Mac.
Thanks, Kaye, and good afternoon, everyone. We are pleased with our results for the Q2 of 2019, which exceeded our expectations and we are therefore increasing our guidance for the full year. We are executing well and we continue to benefit from Puerto Rico's economic recovery, our innovation strategies and our Latin America focus. Beginning on Slide 4, I'll cover some of the quarter's financial highlights and provide you with an update on recent developments. Total revenue was $123,000,000 an increase of 8% compared to 2018.
We are
seeing growth across all segments. We are benefiting from some pricing actions, our deployment of value added solutions, new managed services, hardware and software sales and the completion of some longer term projects this quarter. Adjusted EBITDA was $58,000,000 or 7% growth over the prior year and adjusted earnings per share was $0.51 an increase of 11% compared to last year. We generated significant operating cash flow and returned approximately $35,000,000 year to date to our shareholders through dividends and share repurchases. Moving on to our exciting progress in Latin America, beginning on Slide 5.
First, we are pleased to announce an agreement to acquire Place2Pay, a Colombian based gateway and payment service provider. Their services are focused on enabling customers with a digital presence, accept different forms of payment and include customers in different industries. We believe Place2Pay is the 2nd largest local player and competes with other regional companies. We anticipate this gateway to become our primary digital offering for the region as well as strengthen our presence in Colombia. We anticipate this transaction to close by the end
of the year, but we
are waiting for regulatory approval. Next, we are also pleased with the recent expansion of our regional agreement with Citibank for a collection payment platform to include Mexico and Guatemala. The platform is currently operational in Colombia. And while the first clients under this expanded agreement will likely begin in Q4 of this year, we would anticipate this to provide a modest impact on 2020 growth. Over the next several years, we would expect this to grow with Citibank's introduction of their one receivable product to more of their clients across the region.
Lastly, earlier this quarter, we announced our 5 year processing agreement with Santander Chile, the largest bank in the country, as they move to open the merchant acquiring market. We expect this new agreement will contribute to our Latin America revenue and EBITDA growth in 2020 beyond. These new agreements as well as the acquisition are consistent with our Latin America growth strategy. We are focused on localizing our products so that we can be agile when the markets open. We intend to pursue profitable business models as these markets evolve, and we intend to provide multiproduct solutions to multiple clients in each country that
we do business in.
As we have indicated we intend to go deep in the markets that we are currently operating in. Moving on to progress in Puerto Rico on Slide 6. First, revenue growth in Puerto Rico and the Caribbean grew approximately 9%, driven by organic transaction growth of approximately 5% and pricing actions. In addition, we had a positive impact from contract wins now producing revenue in our Business Solutions segment and revenue related to hardware and software sales as well as the completion of several projects. 2nd, regarding innovation, we are seeing the positive impact of our ATH Movil and ATH Movil Business products, which are anticipated to contribute almost 1% of our revenue growth in 2019.
3rd, on a more macro view, the federal government approved an additional $1,400,000,000 in relief funding in June that included approximately $600,000,000 for EBT support, which will be available in August. Also, the PROMESA Board certified a new fiscal plan on May 9 with a slight increase in the projection for total disaster relief funding to $83,000,000,000 We continue to believe that the federal funds anticipated to flow into Puerto Rico will positively impact the economy as well as provide a window of opportunity for changes in the public sector. Although there is currently some ambiguity in the administration of the Puerto Rican government, changes that create more transparency and control will hopefully build confidence for investors and the federal government, which could increase the federal fund flow and private investment on the island over the long term. In the short term, the events that have transpired over the last few weeks could have an effect on the timing of disaster relief funds as FEMA notified the government of Puerto Rico that they would have to receive approval to draw funds to draw on funds related to the hurricane. In summary, we are pleased with the strong financial results and I particularly want to thank my colleagues for advancing our strategic initiatives this quarter in LatAm and Puerto Rico.
We look forward to sharing our further progress with you in the coming quarters. With that, I will now turn the call over to Joaquin.
Thank you, Mac, and good afternoon, everyone. I'll now provide a review of our Q2 2019 results. Turning to Slide 8, you will see the consolidated second quarter results for EVERTEC. Total revenue for the 2nd quarter was $122,500,000 up 8 percent to $113,300,000 for the prior year. Our sales volume for the quarter was down slightly versus prior year, primarily due to prior year's volume benefiting from EBT relief funding that ended last quarter.
Additionally, we had a lower average ticket this quarter offset by higher net spread driven by pricing actions. We also benefited from new fees on ATH Movil and ATH Movil Business, increased core banking transactions and increase in network services related to new managed services. And lastly, revenue increased due to hardware and software sales and completed projects of approximately $2,500,000 Total revenue for the 6 months year to date was $241,400,000 and up 8 percent year over year. Adjusted EBITDA for the quarter was $57,800,000 an increase of 7% from $53,800,000 in the prior year. Adjusted EBITDA margin was 47.2 percent and this represents a 30 basis point decrease in our adjusted EBITDA margin compared to the prior year.
The year over year decrease in margin primarily reflects the impact of the elevated average ticket last year that drove a higher than normal margin as well as the mix of revenue this year that was skewed to Business Solutions segment this quarter, which has a lower margin contribution. Additionally, we continue to have higher costs related to our investments in technology platforms and FX negatively impacted us approximately $1,000,000 this quarter. Year to date adjusted EBITDA was $115,400,000 an increase of 7% from $107,700,000 in the prior year. Adjusted net income in the quarter was $37,200,000 an increase of 8% as compared to the prior year, primarily reflecting the higher adjusted EBITDA offset by increased interest and operating depreciation and amortization. Our adjusted net income effective tax rate in the quarter was 11% and we now anticipate our full year tax rate to be approximately 12%.
Adjusted EPS was $0.51 for the quarter and grew 11% compared to the prior year and benefited from our share repurchases to date. Year to date, adjusted net income was $74,300,000 up 7% and adjusted earnings per common share was 1.01 dollars up 9% from $0.93 in the prior year. Moving on to Slide 9, I'll now cover our segment results starting with the Merchant Acquiring segment. In the 2nd quarter, Merchant Acquiring net revenue increased 3% year over year to approximately $26,800,000 The revenue increase was driven primarily by pricing actions impacting both our spread Average ticket declined approximately 8% versus the prior year, but was in line with our expectations as spend continues to move towards more normalized levels. Adjusted EBITDA for the segment was $12,300,000 down 3%.
Adjusted EBITDA margin was 45.7%, down approximately 300 basis points as compared to last year, reflecting the impact on margin of the lower average ticket this quarter. Anticipate a similar margin over the next few quarters. For the 6 month period, merchant acquiring increased 7% to $52,800,000 primarily due to the same reasons I referenced in the quarter. Adjusted EBITDA year to date for the segment was $24,200,000 up 3% and adjusted EBITDA margin was 45.9%, a 170 basis point decrease as compared to last year. On Slide 10, you will see the results of the payment services Puerto Rico and the Caribbean segment.
Revenue for the segment in the Q2 was 30,500,000 dollars up approximately 9% as compared to last year. Transaction volumes grew approximately 5% and we continue to benefit from new transaction fees for services such as ATH Movil and ATH Movil Business that we implemented last year. Adjusted EBITDA for the segment was $20,300,000 increasing 11% as compared to last year. Adjusted EBITDA margin was 66.7%, up approximately 120 basis points as compared to last year, primarily due to new transaction fees. Year to date revenue for the segment was 60 $2,500,000 up approximately 13% as compared to last year.
Year to date adjusted EBITDA was 41,600,000 dollars and adjusted EBITDA margin was 66.5 percent, up approximately 190 basis points as compared to last year for the same reasons previously mentioned. For the full year, we now anticipate this segment to be in the high single digits revenue growth and continue to deliver consistent margins. On Slide 11, you will see the results for our Payment Services Laban segment. Revenue for the segment in the Q2 was 21,100,000 up approximately 10% as compared to last year. This growth was driven by intercompany license and service revenue and organic revenue growth of approximately 5%, partially offset by the anticipated $300,000 of client attrition.
Revenue will continue to be uneven due to license sale implementations and consulting services that did not occur in the same quarter last year. We continue to focus on our strategy of shifting from a licensing model to a processing model, which will eventually result in a more recurring and growing revenue base and the Santander agreement we announced earlier this quarter is an example of executing on this goal. Adjusted EBITDA for the segment was 7,800,000 dollars and adjusted EBITDA margin was 36.8 percent, up significantly as compared to last year driven by the intercompany services and license sales to Puerto Rico partially offset by FX. Year to date revenue for the segment was 41,900,000 dollars up approximately 6% as compared to last year. Total revenue growth for the full year in the LATAM segment is now anticipated to be mid single digit and considers lower client attrition of $2,000,000 to $3,000,000 Year to date adjusted EBITDA for the segment was $16,000,000 dollars and adjusted EBITDA margin was 38.2%.
For the full year, we now anticipate the adjusted EBITDA margin to be in the mid-30s due to the impact from intercompany services and license revenue. On Slide 12, you will find the results for the Business Solutions segment. Business Solutions revenue for the 2nd quarter was approximately 12% to $55,200,000 Revenue growth in this segment was driven by new services for both Banco Popular and government of Puerto Rico as well as hardware and software sales and other projects completed in the quarter, representing revenue of approximately $2,500,000 and primarily resulting from the integration for Banco Popular's Reliable acquisition. For the quarter, adjusted EBITDA was $24,300,000 and adjusted EBITDA margin was 44%, down approximately 3 10 basis points as compared to last year. The decrease in the adjusted EBITDA margin was primarily driven by lower margin hardware sales and increased expenses related to infrastructure that negatively impacted the quarter.
Year to date, Business Solutions revenue was $106,500,000 up 10% and adjusted EBITDA for the segment was $47,300,000 with a 44.4 percent margin. We continue to anticipate revenue growth of mid single digits and anticipate margins to remain at this level. Moving on to Slide 13, you will see a summary of corporate and other. Our 2nd quarter adjusted EBITDA was a negative $6,800,000 an increase of 32% over prior year. Corporate and other includes the negative impact of approximately $1,300,000 related to intercompany eliminations that did not take place in the prior year.
Excluding this impact, corporate and other adjusted EBITDA would be $5,500,000 reflecting an increase of approximately $300,000 largely due to lower spend in the prior year related to the lower post hurricane activities. As a percentage of total revenue, corporate and other was 5.6% and approximately 100 basis points above the prior year, primarily due to the negative impact of the intercompany eliminations. We continue to anticipate corporate and other to be approximately 6% as a percentage of total revenue on a full year basis. Year to date, our corporate and other expense was $13,700,000 or 5.7 percent as a percentage of total revenue. Moving on to our year to date cash flow overview on Slide 14, our remaining cash balance was approximately 87,000,000 dollars including restricted cash of approximately 17,000,000 approximately $76,000,000 or a $1,000,000 decrease as compared to prior year and this includes the impact of settlement timing and other working capital differences.
Capital expenditures year to date were approximately $36,000,000 An update of critical technology infrastructure and development related some of the new contracts announced were the primary drivers in our year to date spending. Given the recent new contracts and the year to date capital expenditures, we're increasing our CapEx expectations for the full year to be in a range of $50,000,000 to $55,000,000 Next, we paid approximately $7,000,000 in scheduled debt payments, dollars 6,000,000 in withholding taxes on share based compensation and $1,000,000 of other debt pay down resulting in a total net debt decrease of approximately $14,000,000 We also paid cash dividends of approximately $7,000,000 and we repurchased approximately $28,000,000 of common stock for a total of $35,000,000 returned to our shareholders. We have approximately $34,000,000 available for future use under the company's share repurchase program through December 30 one, 2020, and we recently announced another $0.05 dividend to be paid on September 7, 2019 to shareholders of record as of August 6. Our ending cash balance as of June 30 was $78,000,000 and this included approximately $14,000,000 of restricted cash. Moving to Slide 15, you'll find a summary of our debt as of June 30, 2019.
Our quarter ending net debt position was approximately $474,000,000 comprised of the $64,000,000 of unrestricted cash and approximately 5.30 $8,000,000 of total short term borrowings and long term debt. Our weighted average interest rate was approximately 5.2%. Our net debt to trailing 12 month adjusted EBITDA was approximately 2.2 times reflecting the credit agreement terms which limit the cash applied to the net debt calculation to $60,000,000 As of June 30, total liquidity was $181,000,000 This balance excludes restricted cash and includes the available borrowing capacity under our revolver. Moving to Slide 16, I will now provide an update on our 2019 guidance. We are increasing our revenue range to 4 $77,000,000 to $482,000,000 representing growth of 5% to 6% over the last year.
The increase in the revenue range reflects our Q2 results and a modestly improved outlook for the remainder of the year and considers some uncertainty related to the recent developments in Puerto Rico and current political ambiguity. As a reminder, several of our current business solution contracts with the government require annual renewals. Regarding overall margin, we anticipate that our adjusted EBITDA margin will be approximately 47% for the year. This estimate includes the higher margin results to date and a more normal margin expectation in the back half of the year. Moving on to our operating depreciation, which came in slightly above our earlier forecast, it is now anticipated to be approximately $34,000,000 primarily due to the timing of completed projects.
Our adjusted earnings per common share outlook has been increased to $1.92 to $1.98 which represent a range of 4% to 8% as compared to $1.84 in 2018. This change reflects the Q2 results as well as the benefit on share count resulting from share repurchases made year to date and incorporates a lower effective tax rate now expected to be closer to 12% as a result of the revenue mix shift in Puerto Rico to lower tax businesses. Now turning to 2020. While we are not prepared to give guidance, I would like to comment on the pending acquisition, recent agreements and other considerations. First, place to place a small tuck in acquisition and we'll provide further details after we have regulatory approval.
Nonetheless, we're excited about the prospects of this deal and the additional process it gives us in some of our main markets. 2nd, the agreements with Citibank, Citibank, and Santander Chile are all anticipated to contribute to our LatAm growth in 2020. And as we get further along on implementation and computer pilots, we will share further insight. 3rd, while we have benefited in 2019 from further delays in client attrition in LATAM, we anticipate attrition in 2020 will be between €3,000,000 to €5,000,000 4th, we will continue our transition from a licensing to a processing model in 2020, which will provide some unevenness in our organic revenue growth in LatAm throughout the year. Lastly, in Puerto Rico, we will continue to monitor the flow of federal funds and the potential positive impact to the economy from rebuilding an investment.
In summary, it was a strong quarter for EVERTEC. We are executing well against our longer term initiatives and I look forward to updating you on our progress. We'll now open the call for questions. Operator, please go ahead and open the line.
We will now begin the question and answer The first question comes from Bob Napoli with William Blair. Please go ahead.
Thank you. I was hoping to get, I think in your presentation, and good afternoon, Mac, Joaquin and Kay. But the Santander Chile, I think it says you expect to be profitable with that in 2020. I just wanted was hoping to get maybe just some TAM or what you think the opportunity is for that business? And then I have a follow-up question.
Sure. So let me just give a little bit color on the market box so that people understand what's going on in Chile and sort of the deal that we've struck. So right now in Chile, TransBank owns all of the merchant contracts. So when you look at a lot of people entering different countries like when Global Payments or EVO or Elavon entered Spain, they actually bought a book of merchant contracts, immediately had revenue because they own the contracts and they immediately had earnings. Chile is a bit different because all the merchant contracts are owned by TransBank.
So there are 2 types of deals you can do in Chile. You can do try and do a JV with a bank. And what's going to happen with that type of JV is there's a significant investment involved, but you're going to have to add revenue $1 at a time as you board new merchants. So you're not actually buying a portfolio, you're investing in a JV and it's going to be a slow ramp if that bank picks up their share and takes the merchants away from TransBank. Our deal is a bit different.
It's processing deal. So, our deal is that we are actually providing TransBank with switching and authorization services I'm sorry Santander. Santander switching and authorization services, fraud management, merchant management. So we are the actually the processor and we actually have minimums in the contract because we know that it's going to take time for some of these banks to pick up market share and there may be in some cases a price war. So our strategy in Chile is very much similar to what we have in Puerto Rico and that we have a good processing business.
I mean, we have a nice processing segment here. That's the same thing. So our intent in Chile is we have minimums on the contract with Santander there, and we plan over time to offer multiple products to these banks like we did send in there today and other clients. And we also hope to have other processing arrangements with other banks and other merchant acquirers in the market.
Can you give any feel for like what kind of revenue with the ramp up and the size of the revenue potential from Santander and
I can when we give guidance for 2020.
Okay. But not prepared.
So right now, just not to be coy, but we are very focused on getting this implemented. We've been working on this for some time. We started negotiations well before you actually saw this contract signed. So we are focused on piloting before the end of the year and actually being in the market early next year. So our focus right now is getting Centa there up and running, making sure we hit the dates, making sure we the features so that they can grow their portfolio.
And then I think as we get more confidence on that timeline and we have those milestones, then as we give you 2020 guidance, we'll have more clarity and that's the impact because we just don't want to get ahead of ourselves. But as you know, we're incredibly excited. If you look at the GDP of Chile, it's 3 times what Puerto Rico is. We already have a good business there. We have over 200 employees.
Santander has been a customer for a while and now we are partnering with the biggest bank in the market to actually open up the market. So I think it's a great milestone reputationally, but it's also going to add revenue and EBITDA to that segment that will be helpful next year.
Thank you. And just what can you tell us about Place2Pay and the Columbia market, the gateway that you're acquiring and what you think the opportunity is or the TAM is for that business over time?
Yes. So Colombia has been I mean, we've been in the Colombia market longer than we have Chile. And we're very pleased with our team there and what they have been working on, but the market has not opened as quickly as we had hoped. And we've talked about that a little bit, I think, in the past. What this acquisition does for us is twofold.
One is it gives us an even stronger presence and Rolodex in country. So as we do believe over time that market will open, we'll be even more considered a partner of choice given our in country presence. The second thing it does is it's very similar to PayGroup. 4 years ago, when we were trying to cross sell and win business in the region, we didn't have the product set that would really win the businesses of big banks. The PayGroup acquisition that you've seen has helped us win since their Chile processing business, helped us expand our relationship with Citibank.
The Place2Pay acquisition now will give us a gateway product and an e commerce product that will strengthen our portfolio of offerings throughout the region as well. So it's complementary on both fronts, the in country presence in Colombia and also the suite of products that we can now offer to all of our customers. Great.
Thank you. Appreciate it.
Thank you, Bob.
The next question comes from Vasu Govil with KBW. Please go ahead.
Hi, thanks for taking my question and congratulations to you all. This is a good quarter for sort of making a lot of progress in Latin America.
Thank you.
So I guess the question I had for you, Mac, was as you think about the pipeline of client across Latin America, does it feel like there is an increase in pace of decision making there following this deal in Chile? And could we expect more deals to be coming in the relative near term? Or was this sort of more of a one off situation based on what was happening in Chile? And so we'll just have to wait and see as to how that region develops.
So, I mean, we talked about a little bit on the call, the year end call, where we set guidance for the year. I am more optimistic on some of the opportunities in these markets more than I have been in the previous 3 to 4 years that I served this company. I mean, we saw early on the movement with Prisma and now Prisma is owned by Advent. We knew that Santa Eder was leaving. It was public information.
And we know that other banks in Chile are looking for opportunities. So I would say we think the trend will continue to accelerate. It's country by country. Chile people are, again, continuing to look for alternatives now that the market is moving. But I'm hopeful over the coming years that this will be a trend throughout the region.
And again, it's not just one country that we see this trend, it's multiple countries where I would say for the past couple of years, there's been a lot of noise and desire and intent and speculation. But I would say within the last year, if you look at the Prisma trade and now this transaction, you're actually seeing the movement and the opportunities taking place. So I can't predict it. I can't give you a timeline of when opportunities will open in each market, but the markets where we have investments, we're engaged in trying to uncover those opportunities.
That's great. And I guess just 2 very quick ones. 1, I think Oriental Bank made an acquisition with Scotiabank in Puerto Rico, and I know Oriental was a client of yours or partner of yours. So does that have any implications for you guys? And the second quick one I had was that we've seen a lot of press articles that there was was a pullback in economic activity following all the protests that have been happening related to the political situation.
Was that reflected in your July sales volumes in any way versus the 2nd quarter trend?
So what I'd say on Scotiabank and Oriental, they're both actually customers. So I don't see in the immediate future any significant change, but both of those are customers of ours. They're both members of the ATH network, and we do business with both. So I don't see any immediate impact in that change. On the I mean, you saw in the headlines in the news that there definitely was some economic impact because in Old San Juan, the cruise ships didn't come in.
So there was an economic impact. I'll let Joaquin, if you want to speak a little bit more to that.
Yes, I mean, directionally, Vasu, as we've said on the call, we were down year over year on sales volume. That trend we're seeing in July as well. Obviously, what Max said is right. There is some economic impact in the July numbers. We're still monitoring as to how much of an impact that really is, but nothing that we would expect to continue forward as the government stabilizes.
Great. Thank you very much.
Thank you.
The next question comes from George Mihalos with Cowen. Please go ahead.
Hey, good afternoon, guys. Just wanted to the merchant acquiring business where I think you said it was pricing that drove the positive growth. Can you just square for us again why the EBITDA margin decline given the pricing benefit? What are kind of the puts and takes that impacted the quarter there?
Sure. So I would say if you look at the different puts and takes from a volume perspective, we're down year over year and that's mainly EBT. So we had some EBT funding last year that we don't have this year. We've also been seeing the a declining average ticket. That's something that impacts spread and that's something that we've been expecting even in the prior year.
We saw a very elevated average ticket and we've now set a couple of quarters that we were seeing that come back to normal. So that has a direct impact to our spread. Our pricing initiatives are offsetting some of that effect from a negative volume and a declining average ticket. And the net is negative to overall margin, and but our overall spread is positive.
Okay. And I would assume that you would expect some improvement throughout the course of the year?
In terms of our margin?
Yes.
Well, we're still expecting our average ticket to continue to come down slightly. It is still above pre hurricane levels, and we are expecting similar EBITDA margins to what we saw in Q2 for the remainder of the year.
Okay. Okay. That's helpful. And then the attrition on the LatAm side, which again continues to kind of be pushed out. Mac, again, do you feel that there are increased opportunities to maybe hold on to some of that business?
Yes. So, I mean, the longer it goes, the less likely. We were able couple of quarters ago to announce that we were able to retain a little bit of business. We will continue to try. We're not hopeful about it.
We're more hopeful on the new business. But I mean, we will continue to do the best job we can to continue to improve our services, see if we can sell them other services and keep them. But right now, it's we still believe that it's more likely that they will leave than not. Okay, great. Thank you.
Thanks, George.
The next question comes from James Friedman with Susquehanna. Please go ahead.
Hi, and thank you, Joaquin, Mac and Kaye. It's Jamie at Susquehanna. Mac, I just want to revisit a couple of the comments you made in your prepared remarks. Let me start with the managed services. What's that about?
If you can give us some use cases about how that works and how significant that is to the company's opportunity?
Hi, Jamie. So it's Joaquin. So those mine services specifically relate in this case to some government contracts that we had announced in the previous year that we have won with the Puerto Rico government. In some cases, they relate to either disaster recovery services, management of infrastructure and applications, communications, etcetera. And some of those contracts actually most of those contracts usually take some time from signing through implementation and it takes some time for us to begin to actually see revenue reflected and we're beginning to see that now.
So this is related to some contracts that we announced a couple of quarters ago.
Hey, Jamie, this is Mac. Thanks. I do want to thank you for picking up the stock. What I would say is with after the hurricane, we did have several examples of how we were able to recover very, very quickly and the government and some other customers took notice. So these types of managed services contracts, really our ability to sell those and close those picked up after we demonstrate our resiliency after the hurricane.
And Mac or Joaquin, you also said in your prepared remarks, you talked about long term project completions. Is that something that's like finite and over? Or will that be continuing through the second half and into next year?
So it's somewhere in the middle is how I can say, Jamie. These are projects that have 2 pieces to it. They have an implementation phase and then they have a more recurring phase. What you're seeing and what we're calling out in this case are price that we've been working on for in some cases a year or more. And we've ended implementation phase and we've recognized a portion of revenue related to that implementation, which will not recur.
But now we will be able to see some smaller recurring fees over time.
Okay. And then maybe my last question is about the Citibank regional agreement for collections. I'm just wondering how does that work? Is that consumer credit collections or business collections or all the above? If you can give us some idea how that process is?
Yes. So it's managed out of their cash management group and their treasury group and they've got a product called 1 Receivable. And we are sort of the engine of that and it allows some of their large customers to post their bills online to get those bills paid from their different vendors or partners then for them to be able to concentrate that cash into accounts and effectively manage their capital. So we're pretty excited about it. We originally rolled it out in Colombia.
Now we've got these two countries, and we hope to roll it out throughout the region. So and it's really core to Citibank's payment strategy and treasury management strategy in Latin America.
Okay, great. Good numbers here, guys. Thank you.
Thank you. Thank you, Jamie.
The next question is from John Davis with Raymond James. Please go ahead.
Hey, good afternoon, guys. Mac, I wanted to maybe touch on the Chile opportunity beyond Santander. So I think you mentioned potential opportunity to get some other processing relationships. Is there an opportunity for some of the smaller banks for you to actually do the front end acquiring? I'm thinking maybe some of these smaller banks don't have the resources to build out their front end capabilities.
So you could do similar to what you do in Puerto Rico where you process for some banks, but you also do the front end acquiring for other banks. Is that an option longer term in Chile?
Yes. I mean, it's really interesting because I think the investment community has really historically followed merchant acquiring businesses and in love with them because you do on the pricing, you do get the organic growth and that's sort of where I've had a lot of my background, myself in Global Payments. If you look at EVERTEC as a company, we have 2 segments in Puerto Rico around payments. 1 is the processing business and one is the merchant acquiring. And the processing business in Puerto Rico for us, Puerto Rico actually has higher margins.
So it can be a very good margin business. And our view in each of these markets is they're relatively small. I mean, if you look at Chile compared to Spain, it's a much smaller market. So the way that we think we build a profitable business is by being multi client and multi product. And that's what we've done in Puerto Rico and that's what we plan to do in Chile.
And in Chile, we already have many of these financial institutions and retailers as customers on the collection product that we just discussed that we're rolling out with Citibank in Latin America. We've also rolled out our risk management product to some of these in a cloud based format. So this is just an evolution of extending that relationship with Santander Chile so that we're now doing their acquiring process, which is even a bigger piece of their technology spend. And we plan to do that with other partners. The contract, like I said, has minimums.
It does I mean, we're very, very focused on getting Santander up and getting it right. But it does allow us over the course of the contract to go after other banks or financial institutions or new entrants who want to get into the processing or merchant acquiring business. So that's our strategy. Again, we think that, that makes more sense in a country like Chile instead of just having an exclusive merchant acquiring joint venture, which, A, is going to take time to actually make money B, you're betting on 1 financial institution, so you bet better be right because you're not buying a book and C, again, these may be the way they may win business is a pricing war, which we won't be subject to. So that's the way we chose to enter the market, and that's what we plan to replicate in the other markets.
Again, if there's another market different where there's a big merchant acquiring portfolio for sale, then maybe that would be our entry strategy. But this is our strategy for Chile and we're pretty excited about it.
Okay. And then maybe just touch on the Colombian market for a second. I think, obviously, you guys did the acquisition a couple of years back. It's kind of been very quiet. I think everyone you mentioned earlier, it's a frustrating slow for that market to open.
Is there anything behind the timing of this deal? Was it just opportunistic? Or
do you
think we're actually getting closer to the Colombian market opening? Just kind of any commentary there.
So I don't see so we talked about again when we launched the year that we saw we knew Chile was opening, I mean, and we knew Prisma was trading. There's not an indicative signal where someone has publicly stated there's going to be a change in the market. There's still a lot of speculation in the market. There's still a lot of interest by banks to see what alternatives there are. So again, there's nothing imminent.
What I would tell you is we're positioning ourselves in Colombia much as we were positioned in Chile, and that's to have a good, solid business that has stable revenue. We're already making money. We have an executive team that can interact with the banks, we can roll out products through that business. We did say earlier that we are looking at localizing our products there, But any big movements like Santander, it's a little bit TBD. And I do want to remind you on the Place2Pay, we say this every time, but on Place2Pay, we're not closed.
We got to get the regulatory approval as always.
Okay. And Joaquin, I'm not going to let you off the hook here. So any change in the aid expectations in guide or
I know you're not going
to give me quantify the impact from the protest, but how the protest has impact on the way you think about the pace of aid coming in? And I think being able to raise guidance as much pretty much signaled that there was very little aid expectations in your numbers. But just maybe talk high level or qualitatively about how you think about the protest, the impact on AIG, not just this year, but kind of as we go forward into 2020?
Sure. So as you look at the our guidance that we just put out and what that reflects for the second half, we reflected a modest improvement in our original expectations. But of course, everything that's happened and the fact that FEMA said that now we have to go through an additional hurdle for aid is something that we need to consider. In terms of the total aid coming to Puerto Rico, I don't think we have a we don't have a change in our expectation at this point. What we're seeing and what's been reflected in our actuals is what we're expecting through the end of the year.
But obviously, we continue to be cautious. We continue to monitor the disbursements, which continue to be slow and continue to be delayed. But we're comfortable with the guidance that we have for the full year. In terms of the protest, as Mac mentioned, really there's some cruise ships that have been coming to the island. And obviously, also the one was impacted because people were protesting there and they couldn't spend and some of the larger malls were closed for a couple of days.
And so it's very specific, nothing that we think is a trend and nothing that we would call out as something that's going to have a long term impact in our numbers.
Okay. All right. Thanks, guys.
Thank you.
The next question is from Jim Schneider with Goldman Sachs. Please go ahead. Good
afternoon. Thanks for taking my question. Now that we're a little bit closer to getting some clarity on the relief funds and their timing. Can you maybe just kind of walk through any more details around what your assumptions were as you entered the year and what they are now and kind of any quantification will be helpful and then kind of directionally whether they moved up or down?
Yes. I'll hand that to Joaquin.
Sorry, can you repeat that? I didn't catch that.
In terms of relief funding and the timing of it and the magnitude of it, now that there's more clarity on that front, can you maybe clarify what your assumption was with respect to your guidance heading into the year? What it is now and directionally whether it's kind of better or worse?
I think as I just said in the previous question, what we had always guided to a modest level of aid since the beginning even though we knew the complexity around the funding and the controls and the delays that we're seeing here in the island. I don't think that hasn't changed in reality except for an additional funding for EBT that was approved a couple of months ago. There's an additional $600,000,000 related to EBT that will get dispersed starting in August. If you compare that to the EBT funding, relief funding from the previous year, which was $1,200,000,000 This is half of the amount and it's going to impact half of the year. So the impact to our Merchant Acquiring segment is not very significant, but it's something positive that will definitely flow through our numbers.
And that should offset any other potential delay that we might see in AIM and all that is considered in the guidance as it stands.
That's helpful. Thanks. And then maybe just as a follow-up, you referenced several pricing actions kind of benefiting the segments and you talked about them before. But can you maybe comment further on whether there is additional pricing actions and room for that kind of on a go forward basis that would either kind of potentially benefit you as we head into 2020?
I mean, we're always looking for different ways in which to continue growing both our end and our margin. In this case, given the impact to volume from having EBT in the previous year, we thought it was and we hadn't done pricing action in some time. It was a good moment for us to take advantage of that lever. I don't think it's something that I would tell you right now we're going to do for 2020. We will discuss that as we get closer to giving guidance on 2020.
But we're always looking at different aspects of the business both from a pricing perspective, new transaction fees or new services to complement the current services. And what I would just say,
I would compliment Joaquin. I think he's done a very good job of making sure we're analyzing the profitability of certain segments, making sure that we take a look at are we making the return we want based on the risk profile, repricing them if they're appropriate, taking a look at some of the value added services like our PCI fees, are they within market, raising them where we have an opportunity. So again, I would give him a lot of credit for being much more disciplined about that, which has benefited the year.
Great. Thank you very much.
The next question comes from James Faucette with Morgan Stanley. Please go ahead.
Hi. This is Priscilla on for James. Just two quick questions. How do you think about developing your e commerce offerings overall? It's still growing rapidly in Latin America, but it's still quite small.
So how do you think about it when you're prioritizing point of sale versus online?
Yes, I mean, that's a great question. So what I would tell you is we're seeing not only a shift to online, but even to mobile, which is even a quick transition. In Puerto Rico, we've done a very good job of capturing the mobile market with our ATH mobile product and making sure that we have the ability to use your mobile phone and we'll continue to focus on that segment. But I think one of the openings or one of the opportunities we had to make is to have a better gateway, so that we can provide better services to merchants and give them a better alternative for processing online payments and that was part of the rationale for place to pay. We do see the shift.
It hasn't occurred to the same rate that it has as you see in the U. S, But we do think with ATH in our network, we have captured a significant amount of growth by using that as a digital product. And the Place2Pay acquisition is an investment in trying to improve our gateway offering.
Got it. And then can you give us an update on Pivot and any feedback that you've received from merchants about the product so far? Where do you think you are in terms of development, especially as you try to expand it to other markets?
Sure. So we don't have an update for this call specifically on pivot. What I'll tell you is we do as we've said before, we have a road map. We have a restaurant application that we'll be piloting in a couple of months and that we'll be rolling out by the end of the year. So we are very focused on what is the development pipeline so that we continue to have new features, new segments, and we continue to be pleased with the acceptance that we're seeing in the market.
Great. Thank you.
Thank you.
The next question is a follow-up from Bob Napoli with William Blair. Please go ahead.
Thank you. Just want to get a little more color on the trends in ATH mobile and the mobile business as well. The I think you said it adds 1% to revenue growth for this year and just trying to get a feel for the trends and what you think that could add to revenue over the next few years?
Sure. So I'll take it and then I'll hand it to Joaquin. As you know, Bob, as we've spent time together, we have really focused on making sure that we are innovating, we're investing new products, new services, testing new technologies. And we are pretty excited to be able to show now how that's impacted the business. And that's why we want to show you that ATH Movil plus ATH Movil Business, so ATH Movil both products is now contributing 1% of our growth this year.
So we expect it to continue to provide growth opportunities in 2020 and some of the other products we're investing to as well. I don't know Joaquin if you want to
add anything else. The only thing I would just comment on Bob, just to remind everyone is some of the monetization of these fees began second half of last year. So we're seeing that grow over in the first half of the current year, right, get really reflected in terms of growth. That lapsed in July. Having said that, we do continue to also look in terms of innovation for different uses of both ATH Movil and ATH Movil Business and different features that we can continue to add to eventually either continue to generate a high number of transactions, which we continue to see today and new fees as well.
But that's something that will happen over time.
Thank you. And then just last question, the cat you raised your CapEx forecast for this year and just wondered what the addition was for?
So it's mainly we did some big hardware refresh that were due and we took advantage of good pricing to take to make those. And some of these contracts that we just mentioned like Santander, Citibank require development, require infrastructure. And obviously, as we push to get this into production as soon as possible, and we're having to invest in ourselves for that type of growth, which is actually part of our capital allocation strategy in terms of investing for growth both through M and A and through CapEx.
Great. Thank you. Appreciate it.
Thanks, Bob.
This concludes our question and answer session. I would like to turn the conference back over to Mac Schuessler for any closing remarks.
So everyone, I'd like to thank you for joining the call. Thank you for listening us today. I look forward to seeing you over the coming months at different conferences and different visits. Thank you and good night.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.