Afternoon, and welcome to the EVERTEC Incorporated 4th Quarter 2018 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is also being recorded. And at this time, I'd like to turn the conference call over to Ms.
Kate Sharpton, Vice President of Investor Relations. Ma'am, you may begin.
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, February 27. Access information for the replay is listed in today's financial release, which is available on our website under the Investor Relations section of evertecinc.com. For those listening to the replay, this call was held February 20th.
Please note there is a presentation that accompanies this conference call and it is accessible in the Investor Relations section of the website. Before we begin, I'd 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 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 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 earnings per common share. Reconciliations to GAAP measures and additional information are also included in today's earnings release and supplemental slides. I'll now turn the call over to Matt.
Thanks, Kaye, and good afternoon, everyone. Thank you for joining us on today's call. Our record Q4 and full year results in 2018 reflect the resiliency of Puerto Rico and our solid execution both here and throughout Latin America. I'll cover some of the quarter highlights as well as provide you with an update on recent developments and then comment on our strategies for growth in 2019 and beyond. Beginning on slide 4, we have our summary of our 2018 results.
Total revenue was approximately $454,000,000 up 11% compared to 2017, which exceeded the top end of our most recent guidance and well exceeded our initial expectations for the year. We generated adjusted earnings per share of $1.84 an increase of 25%. We also generated significant operating cash flow of $173,000,000 This included a one time benefit in Q4 related to $1,800,000 in connection with a federal program for companies affected by Hurricane Maria who retained employees immediately following the storm. We resumed our dividend midway through the year and repurchased stock in the Q4 resulting in the return of approximately $17,000,000 to our shareholders with $10,000,000 in stock buybacks and $7,000,000 in dividends. Now I'd like to give you some more specific updates for our businesses on Slide 5.
First, we are pleased with the continued strong revenues in the quarter. Puerto Rico and the Caribbean grew approximately 23% as we lap the post hurricane results, with transaction growth of approximately 47%, offset by an average ticket decline of 6% as we begin to see average ticket normalize. The team executed well in the quarter and I'll talk about some of the wins in a moment. But before I do that, I'd like to briefly mention some of the positive exposure Puerto Rico received to start the year. While the impact of the hurricanes in 2017 were devastating, 2019 kicked off with renewed interest in the island, including the New York Times listing Puerto Rico as the number one travel destination, the 3 week local run of Hamilton, Jimmy Fallon Show featuring Puerto Rico and the recent 30 member House delegation visit.
We hope that this additional exposure will create a lift in tourism, further investment on the island and additional congressional aid. As a side note, EVERTEC a proud sponsor of the Hamilton event featuring Lin Manuel himself. While the timing of federal funds in 2019 remains unclear, the certified PROMESA plan projects federal and private insurance flows of $82,000,000,000 over the next 15 years with approximately $13,000,000,000 to be distributed in 2019. Just a few days ago, HUD released the first $1,500,000,000 in reconstruction funds. Further, the judicial approval of the COFINA restructuring is an important step for Puerto Rico to address its debt problem.
Although the impact to our business from the various federal funds will vary from year to year depending on the type of funding, we believe the federal relief funds and the progress made to address the island's debt will have a positive impact on the overall economy of Puerto Rico. Moving to Slide 6, I'd like to comment on some of our business highlights and how these wins relate to our overall strategy to maintain and grow our business. While we have a dominant position in Puerto Rico in the Merchant and Payment segments through our price and service, we will continue to invest in innovation to defend our market share and margin as well as expand the overall market. As evidence of our commitment, we are pleased that we retained all of our top 40 merchants and topping off the year, we won the largest worldwide franchisee of McDonald's that serves over 65 restaurants in Puerto Rico. As it relates to innovation, we recently launched our integrated pay at the table solution for our clients.
This integrated solution improves our clients' efficiencies by speeding up the payment process, increasing the number of tables that can be served and streamlining the payment reconciliation process. Largely as a result of this new product, we signed a 3 year renewal with 1 of Puerto Rico's largest casual dining enterprises, International Restaurant Services, which franchises a number of brands such as Chili's, Macaroni Grill and Chang's. Additionally, during the year, we successfully launched Pivot, a dynamic cloud based point of sale system for the SMB market, which integrates processing payments with additional business management tools such as inventory management, reporting and business intelligence, as well as integration options for other back office software. With our local service capabilities, integration support for our clients and planned further enhancements, Rico, but in Tortola and the U. S.
Virgin Islands as well. Additionally, we are pleased with the pilot of our ATH Movil solution for e commerce websites and mobile applications that we launched in the Q4 with the largest gas station chain in Puerto Rico, Puma and the largest supermarket chain as well, Econo. In 2019, we will continue to seek opportunities to leverage our technology platforms and operating scale to deliver value added solutions to our customers and partners. While there will be investment costs associated with these new innovations, we expect to offset these investments with new avenues for growth and continued leveraging of our infrastructure. For example, we can now leverage our regional workforce across our multiple locations to recruit the most cost effective and productive talent possible to deliver our services.
We believe this strategy will allow us to optimize our overall company margins over time. Turning to Slide 7, I'd like to review our recent wins in Business Solutions and also discuss our opportunities in this segment. 1st, assisting the government of Puerto Rico is a priority for us. In addition to the 2 wins we announced last quarter, we recently signed a new contract with the Puerto Rico Department of Education for a technology consulting project. As one of our largest customers in this segment, we will continue to focus on ways to assist the Puerto Rico government to be more effective and efficient.
I am also pleased to announce that we extended our contract with Santander in Puerto Rico, which is our 2nd largest business solutions banking client. These two wins are great examples of our continued ability to compete and win new business in this segment through competitive pricing and a unique value proposition. Looking forward, we will continue to focus on strengthening our relationship with Banco Popular as well as other clients in this segment and would expect to benefit from continued market consolidation. Moving on to Latin America on Slide 8. In 2018, we more than doubled our segment revenue and EBITDA as compared to our results just 3 years ago.
Results in Q4 were strong, driven by high single digit organic growth and one time intercompany revenue between Puerto Rico and LatAm as we begin to cross sell the PayGroup acquired products and process transactions from the island, partially offset by some anticipated client attrition. Regarding client attrition, I'm very pleased that Banco Atlantida in Honduras who had previously notified us they were leaving has not only renewed their contract, but also expanded their relationship, doubling their previous contract value. Additionally, we signed a term license agreement for our risk management product with Eglobal, one of the top providers of switching services in Mexico and who serves the 2 biggest financial institutions in the country. Turning to Slide 9, I'd like to review the opportunities in Latin America and why we are excited about the potential evolution of these markets. Latin America presents a significant opportunity for growth given its low penetration of card volumes as well as its growing middle class.
We continue to see positive trends in cash to card conversion and an increasing online presence and smartphone usage, which will continue to fuel growth of mobility payments. There is also increasing card utilization driven by the growth in a number of merchants authorized to accept cards. That said, many of the countries are still largely dominated by monopolies or duopolies for payment processing and these are often owned by the local banks. This environment, however, is evolving primarily due to 3 pressures. First, there's regulatory pressure.
For example, in Argentina, the government mandated that the local bank owned processor, Prisma, be divested. Prisma recently announced a 51% sale to Advent International and the shareholder banks have 3 years to divest the remaining 49%. We hope the regulatory pressure will extend to other countries in Latin America as this will create an opportunity for new entrants or partnerships. 2nd, there are competitive pressures. Banks in Latin American markets are now looking for new partners in order to differentiate their service offering from other banks.
An example of this is the recent Santander Chile announcement to not renew its contract with TransBank, the sole acquirer processor in that market. 3rd, the evolution in technology in the payment space, which is still in a developmental stage in many markets in Latin America, creates additional pressure for the markets to change. Brazil was one of the first payment markets to open in Latin America, which has resulted in new entrants introducing innovative solutions for digital banking, smart POS devices and other mobile technologies that have served to fuel the growth of e payments in the market. We believe our innovations such as our pivot solution will be key to being selected as a partner of choice as other markets in Latin America open. Turning to Slide 10, our strategy in Latin America is driven by developing a strong local client base for our acquisitions such as Processa and PayGroup that have expanded our geography as well as our product offering.
We are shifting more of our products from a licensing model to a processing model to provide recurring revenue that will hopefully grow with the transaction trends in the region. We have created a cloud based version of our risk management product that is operating in multiple countries. During 2019 and into 2020, we are further localizing additional payment products specifically in Costa Rica, Mexico, Colombia and Chile. We have over 800 employees outside of Puerto Rico and with our local leadership and Spanish speaking developers, we can provide customized solutions developed specifically for each client and market. Furthermore, with the completed refinancing of our debt, we have additional capacity on our increased revolver of $125,000,000 as well as cash on hand and strong free cash flow anticipated for 2019 to grow our business.
We believe we are uniquely positioned to take advantage of opportunities throughout Latin America as the pressure from regulators, the competitive environment and new technologies open these markets. And in 2019, due to our recently completed rebranding effort, we are operating under one brand to solidify our identity in the market. As we closed out an impressive year in 2018, I am also proud of our recent inclusion in the Bloomberg Gender Equality Index, which distinguishes companies committed to transparency in gender reporting and advancing women's equality. At EVERTEC, one of our core values is diversity. We believe that diversity provides the key ingredient for successful innovation and a high performing workforce.
I want to thank all of our dedicated team members for their commitment throughout 2018 and for building a strong foundation for growth into 2019 and beyond. With that, I will now turn the call over to Joaquin.
Thank you, Mac, and good afternoon, everyone. I'll begin with a review of our consolidated 4th quarter and full year 2018 results and then review each segment in greater detail. Turning to Slide 13. Total revenue for the Q4 of 2018 was $118,200,000 up 19% compared to $99,600,000 in the prior year and reflects the growth over the post hurricane impacted results last year and increased transaction and sales volumes in Puerto Rico resulting from post hurricane recovery activity as well as growth in our Latin America business. Adjusted EBITDA for the quarter was $52,600,000 an increase of 42% from $37,000,000 in the prior year.
Adjusted EBITDA margin was 44.5 percent and this represents a 7 30 basis point increase in our adjusted EBITDA margin compared to the prior year. The increase year over year is primarily attributable to the growth over last year's hurricane impacted results as well as an impairment charge taken in prior year 4th quarter of $5,000,000 We were also favorably impacted by $1,500,000 of foreign currency exchange mostly related to remeasurement of assets and liabilities as compared to prior year. Sequentially, our overall margin was impacted by higher corporate expenses as a result of planned corporate initiatives, higher revenues from low margin lines of business and contractual one time obligations and other expenses that negatively impacted our margin for Q4. Adjusted net income in the quarter was $34,500,000 an increase of 95% as compared to the prior year on $0.46 on a per share basis, an increase of 92%. The increase primarily reflects the higher adjusted EBITDA, a lower tax rate in the quarter as compared to last year, partially offset by higher cash interest expense.
For the full year, total revenue was $453,900,000 and was up 11% year over year. Adjusted EBITDA was $212,500,000 an increase of 19 percent with an adjusted EBITDA margin of 46.8 percent, up 3 10 basis points as compared to prior year. Adjusted net income was $137,200,000 up 28% and adjusted earnings per share was 1.84 dollars up approximately 25% year over year. Our full year non GAAP tax rate was 12.4% as compared to 12.3% in the prior year. Moving on to Slide 14, I'll now cover our segment results starting with Merchant Acquiring.
In the Q4, net revenue increased 42% year over year to approximately $25,800,000 revenue increase was due to increased volumes as compared to last year's hurricane impacted results as well as increased spending related to post hurricane recovery activities and included a significant increase in electronic benefit card volumes. Our average ticket declined year over year as well as sequentially moving toward more normal levels as compared to last year. Transactions remained strong and spread was also up relative to last year, which was driven by very high average ticket and dominated by low spread merchant mix of larger retailers and EBT. Spreads now reflecting more balanced distribution of volumes between merchants more aligned with pre hurricane periods. Adjusted EBITDA for the segment was 12.1 $1,000,000 and adjusted EBITDA margin was 46.8 percent, up approximately 4 10 basis points as compared to last year, primarily as a result of the increased revenue.
For the full year, merchant acquiring was up approximately 16% year over year at $99,700,000 reflecting the growth over last year's share gain impacted results. Adjusted EBITDA for the merchant segment for the full year was $46,500,000 up 24 percent and adjusted EBITDA margin was 46.7 percent, up 300 basis points as compared to last year. On Slide 15 are the results for Payment Services Puerto Rico and the Caribbean segment. Revenue in the Q4 in the segment was $30,000,000 up approximately 31% as compared to last year primarily due to the hurricane impacts. Transaction also reflected significant growth as compared to the hurricane impacted quarter resulting in year over year growth of 47%.
We saw January 2019 transaction volumes grow approximately 10% as January 2018 was still negatively impacted by the hurricane. Adjusted EBITDA for the segment was $20,200,000 up 148% and adjusted EBITDA margin was 67.4%. Adjusted EBITDA benefited from increased revenue growth over last year's hurricanes as well as the impairment charge that I mentioned earlier. For the full year, the segment revenue grew 12% to $114,100,000 driven primarily by the growth over last year's hurricane results. Adjusted EBITDA for the full year was $75,100,000 up 28 percent and adjusted EBITDA margin was 65.8%, up 8 20 basis points as compared to last year, primarily due to the hurricane and last year's impairment charge.
On Slide 16, you will find the results for Payment Services Latin America. Revenue in the Q4 in the segment was $22,400,000 up approximately 16% as compared to last year. This growth was driven primarily by high single digit organic growth and intercompany services and license sales, a portion of which is one time to the Puerto Rico payment segment of approximately $2,300,000 as we continue to progress in our licensing to processing initiatives in key regions. This was partially offset by client attrition of approximately $1,000,000 Adjusted EBITDA for the segment was $9,400,000 and adjusted EBITDA margin was 42%, as compared to last year, primarily driven by the intercompany services and license sale to Puerto Rico previously mentioned and an FX gain we benefited from as a result of assets and liabilities in nonfunctional currency. Adjusting for the intercompany transaction and FX gain, margins for the quarter would have been consistent with prior quarter margins.
For the full year, the segment grew 29 percent to $80,900,000 driven primarily by the full year benefit of PayGroup acquisition and was also impacted by the intercompany transaction to Puerto Rico. Adjusted EBITDA for the full year was 27,700,000 dollars and adjusted EBITDA margin was 34.3%, up 6 30 basis points as compared to last year and was also benefited from the intercompany transaction to Puerto Rico. Moving to Slide 17, Business Solutions revenue in the Q4 increased 12 percent to $51,600,000 We benefited from the TPI increase on the Banco Popular MSA as well as increased hardware and software sales and increases in almost every revenue category as compared to last year's sugar gain impacted results. Adjusted EBITDA for the segment was $19,800,000 and adjusted EBITDA margin was 38%, down 8 10 basis points as compared to last year due to increases in lower margin revenues such as hardware and software sales and was also impacted by mostly non recurring expenses of approximately $2,100,000 including contractual obligations and other expenses. For the year, Business Solutions grew 5% to 197,600,000 dollars Full year adjusted EBITDA for the segment was $87,800,000 up 1% and adjusted EBITDA margin was 44 point 4 percent, down 150 basis points year over year.
Moving to Slide 18, you will see a summary of our corporate expense. Our Q1 corporate and other expense was $8,800,000 a year over year increase of 92%. The increase primarily reflects higher expenses related to projects completed in the Q4. For the full year, corporate and other expense was $24,700,000 just about even with prior year as a percent of revenue as we had anticipated. Moving on to our year to date cash flow overview on Slide 19.
Net cash provided by operating activities was approximately $173,000,000 or a $27,000,000 increase as compared to the prior year. Capital expenditures were approximately $41,000,000 and included some additional spend related to innovation and product development initiatives in Puerto Rico and LatAm. Next, our change related to financing activities of approximately $88,000,000 resulted from our Term Loan A repayment that matured in April, our debt repayments and our refinancing transaction, which I'll comment on in a moment. And finally, we paid cash dividends to stockholders of approximately $7,000,000 and repurchased approximately $10,000,000 of common stock for a total of approximately $17,000,000 returned to our shareholders for the year. Have approximately $62,000,000 available for future use under the company's share repurchase program.
Our ending cash balance as of December 31 was $87,000,000 including approximately $17,000,000 in restricted cash. Moving to Slide 20, before I review our debt as of December 31, I'd like to comment on our refinancing that was completed in November. We now have a senior secured credit facility that consists of $125,000,000 5 year revolver, dollars 220,000,000 5 year term loan A and $325,000,000 6 year term loan B. The rate as of December 31 on our revolver and term loan A is LIBOR plus 2 25 basis points, a 25 basis point reduction from our previous revolver and Term Loan A. Term Loan B rate is LIBOR plus 3.50, a 100 basis point increase from our previous Term Loan B.
We are pleased with the increased revolver capacity from $65,000,000 to 100 and $25,000,000 giving us additional capital flexibility. Our maximum leverage ratio remained at 4.25 times and this steps down to 4 times in October 2020. As a reminder, we currently have a swap in place for $200,000,000 or approximately 37% of our debt at a rate of 5.4%, which terminates in April 2020. Additionally, we entered into a forward swap of $250,000,000 or approximately 45% of our debt that will become effective April 2020 at a rate of approximately 6.4%. For 2019, we anticipate our cash interest will increase approximately $3,000,000 as a result of the refinancing.
Now on to a summary of our debt. Our year ending net debt position was approximately 475,000,000 dollars comprised of the $70,000,000 of unrestricted cash and approximately $545,000,000 of total short term borrowing and long term debt. Our weighted average interest rate was approximately 5.2%. Our net debt to trailing 12 month adjusted EBITDA was 2.3 times, reflecting a $60,000,000 cap on cash in accordance with our credit facility. As of December 31, total liquidity, which excludes restricted cash and includes the available borrowing capacity, was $168,000,000 Moving to Slide 21, I will now provide you with our 2019 outlook.
We expect revenue to be in a range of $464,000,000 to $476,000,000 representing growth of 2% to 5%. Our adjusted earnings per share outlook of $1.80 to $1.90 represents a range of minus 2% to plus 3% as compared to the adjusted earnings per share in 2018 of $1.84 On a GAAP basis, earnings per share is anticipated to be between $1.26 to $1.36 I will now highlight some of the key underlying assumptions and uncertainties that we have analyzed and planned for. EBT incremental funds are expected to continue through March 31. Once the incremental EBT funding is reduced to normal levels, we would expect a negative impact to our merchant and payment services Puerto Rico and Caribbean segments in the last three quarters of the year. While the PROMESA plan assumes $13,000,000,000 will be received in the current fiscal year, actual distribution continues to be slow and it's still unclear how quickly the funds will be released.
The timing of these funds is key to Puerto Rico being able to grow at the rate suggested by the fiscal plan. Furthermore, 2018 benefited from direct funding to consumers through private insurance claims, FEMA funds and EBT. Going forward, the funds expected to be received are destined for reconstruction efforts, which are not direct to consumers. And although positive, we are not expecting the same impact to our business. Additionally, the fiscal plan also calls for structural reforms to the government to achieve sustainable growth.
Given these three factors, timing, type of funds and government reforms, we have assumed modest growth in the last three quarters of 2019. Moving to the segments, we project mid single digit growth in Merchant Acquiring, driven by continued strong volume growth in the Q1, offset by negative impact of the termination of post hurricane extraordinary EBT funding. Average ticket is anticipated to continue to decline to pre hurricane levels, and and we anticipate a relatively flat spread for the majority of the year. Our payment services, Puerto Rico and Caribbean segment is also anticipated to grow mid single digits and will continue to benefit from ATH Movil and ATH Movil Business. Our Latin America payments segment is anticipated to be high single digit organic growth, offset by $3,000,000 to $5,000,000 of anticipated client attrition, resulting in flat to slightly positive growth for the segment.
As a reminder, a portion of our revenue is still driven by license sales in 2019 rather than recurring revenues and therefore maybe uneven throughout the year. And finally, the Business Solutions segment revenue growth is anticipated to grow lowtominsingledigits reflecting the tailwinds from the CPI increase and recent new contracts, partially offset by continued decline from cash and item processing. Regarding corporate expenses, we would expect these to approximate 2018 levels as a percentage of revenue. All of these items are considered in our guidance and combined, we believe will generate adjusted EBITDA margins in a range of 46% to 47% or approximately an even basis with our adjusted EBITDA margin year over year. No FX gains or losses have been included in our outlook.
These represented a positive impact in 2018 of approximately $2,500,000 On a quarterly basis, anticipate Q1 revenues and margins to be somewhat stronger than the rest of the year given the easier comp versus Q1 of prior year that was still recovering from hurricane impact. We expect the rest of the quarters to be relatively even. Our operating depreciation and amortization is anticipated to increase to approximately $32,000,000 up $2,300,000 primarily reflecting increased depreciation related to new projects that will be going into production during the year. As I referenced, our cash interest expense is anticipated to increase in 2019 by approximately $3,000,000 based on impact of our new debt facilities. Our non GAAP effective tax rate is anticipated to be approximately 13%.
The guidance reflects approximately flat average diluted shares of approximately $74,400,000 which we assume that we would repurchase shares to offset any dilution related to long term incentive compensation. Capital expenditures for 2019 are anticipated to be in a range of $40,000,000 to $45,000,000 and reflect our ongoing investment in technology, localization of our products in Latin America and investments in transitioning our licensing model in LatAm to a processing model. Turning to Slide 22, I'd like to review our capital deployment strategy. We continue to focus on growth investments internally as well as through M and A. Our maintenance level of capital expenditures is approximately $25,000,000 and our investment for growth this year will be approximately $15,000,000 to $20,000,000 We anticipate keeping our leverage ratio within 2 to 3 times our adjusted EBITDA, which allows us to use current cash flow for our upside revolver for acquisitions as opportunities arise.
Most potential acquisition targets in the regions we are actively looking into range up to $100,000,000 and can be executed within our current capital structure and available capacity. We carefully evaluate acquisition opportunities based on strategic fit and risk adjusted returns and also compare these returns to other available uses of capital. We plan to continue our dividends to shareholders and as excess cash is available, we will repurchase shares on our current share repurchase program. In summary, we executed well during this extraordinary year and delivered strong cash generation. As we continue to focus on our innovation and opportunities in Puerto Rico and expanding our LatAm business, we look forward to updating you on our progress.
We'll now open the call for questions. Operator, please go ahead and open the line.
Our first question today comes from Bob Napoli from William Blair. Please go ahead with your question.
Thank you. Good afternoon, Mac, Joaquin and Kay. Appreciate the question. Just on your guidance for next year, this company generates a lot of cash, obviously, and the share count, you're not really reducing the share count and you're not paying down debt. So in your model, you're building a lot of cash, which I guess obviously gives you a lot of flexibility for M and A.
Is that the right assumption?
Hi, Bob, it's Joaquin. So as we've kind of detailed in the prepared remarks, we are investing for growth. So we're looking at both internally as we go through some of our products and move our LatAm products from licensing to processing as well as externally through M and A. So yes, the answer is we are looking first at M and A and we've been consistent in how we pay down our debt, which is through the normal schedule pay downs and we have our dividend and any excess cash then we apply to share repurchases.
But you don't have that in your model, the share repurchases?
No. In our model, as we said, what we've considered is basically leveling out the dilution from our long term incentive plan at this point.
Okay. And then in the revenue guidance, which is essentially in line as are the margins in line with our expectations, the EBT program, what is the effect when that EBT program runs off? So you're assuming that benefit runs off, but the PROMESA funds, dollars 13,000,000,000 you're assuming there's no effect on the economy, you're not getting any benefit from the additional stimulus, if you would?
So, the first part of your question as it relates to EBT, that represents a percentage of growth to our Merchant Acquiring segment into next year. As it relates to the funding, I don't think that no impact is what we're considering. What we're saying is timing is key in being able to keep the momentum of growth that we've seen. And at this point, what we know is that the disbursement of these funds has been slower than expected. And as such, we've considered a slowdown in terms of growth in transactions because of that timing of funds.
Yes. Hey, Bob, this is Max. So let me just give you a little bit more color. So the $1,200,000,000 that came in last year, that's coming out in 2019. There's no subsequent funding.
That flows straight through the EBT program and direct through our merchants. Now there is talk within Congress about funding an incremental $600,000,000 but that has not been approved. It's still up the air and it's still for debate. So that's an example of where some programs as to whether or not they'll get funded at all are still being debated by Congress. There are some programs which have been funded and that are now making it to the island once the government proves they have the right processes in place like $1,500,000,000 and those types of funding we've already modeled into the business.
So there is I mean, as we've said on the last call and on this call, there's a significant volume of economic stimulus that's going to pass through the island, but the timing is the piece that is the most uncertain at this point. But specifically to your $1,200,000,000 question on EBT, we have forecasted that to go away. But again, there is a request out there to add another $600,000,000 but it has not been approved.
Great. Thank you. Appreciate it.
Our next question comes from Vasu Guezel from KBW. Please go ahead with your question.
Hi. Thanks for taking my question. I guess first just to follow-up, Mac, it seems like you're saying that what you've modeled into your guide in terms of fiscal stimulus is only what's been approved so far versus the $13,000,000 that's expected. Is that the right way to think about it? And if there were more approvals that could potentially be upside versus the guide?
Yes. So let me I'll let Joaquin answer that. I mean we have modeled some significant economic stimulus. But again, it's complicated because the timing of that. But I'll let Joaquin talk specifically to the model.
Right, Vasu. So the type of funding that's coming through, as we said, is very different to the funding that we saw in 2018, which is going directly to the consumers. The funding that we're expecting, which is earmarked for reconstruction funding, is going to go to corporations and companies that are here in Puerto Rico actually doing the reconstruction work. Obviously, the expectation is that, that would increase the labor force and that would, at the end of the day, have more people being able to spend and then get that reflected into our numbers. But it's a very different impact.
And again, at this point, the timing is something that is uncertain. We've obviously factored some growth into our model considering some of this delay in funding, but an actual number of what the impact of that is not specific.
Understood. And then just on the transaction growth rate, I got sort of the 47% growth in the quarter, but a decline in average ticket. Could you maybe give us how that sort of trended through the quarter, so October, November, December? Because I know like the comps were easy initially. And then maybe what trends you've seen in Jan Feb so far?
Sure. So in terms of how that trended from a transaction perspective, The month as we were closer to the hurricane, of course, the month of October was almost 130% growth year over year because obviously there was no power, no mitigation, so very limited electronic transaction growth. That trended towards 17% for the quarter. So that's how we get to the 47% that we mentioned. As we look into January, we're looking at approximately 10%.
Now the sooner January was still somewhat impacted by the hurricane, we saw that pick up and start to get more normalized in the month of February, March.
Got it. Thank you very much.
Thanks, Vasu.
Next question comes from James Faucette from Morgan Stanley. Please go ahead with your question.
I know you've talked about a little bit, but I'm hoping you can expound a little bit on your plans for OpEx in the coming year years, just kind of what you're seeing both competitively and from an opportunity perspective that's kind of pushing you to look at that. I mean, particularly because your revenue seems about as we had targeted, but the profitability seems to be a little bit directed towards investment and looking for additional opportunities. So just looking for additional color where you're seeing incremental opportunity from that investment?
Yes. So I'll answer that and let Joaquin finish it off. I mean, we are investing in Puerto Rico, both in ATH Movil and some other innovations. We think that it's going to help us maintain our margin and our market share here and hopefully open up some of the markets. And so we are making investments in that.
We think we'll be successful in the marketplace by winning new business when we do that as we talked about on the call. We also think that those innovations are going to be very interested in some of the markets open up in Latin America. So the pivot solution that we talked about, that type of solution is not in many South American countries. And when we talk to candidates for partnerships, they find that a very interesting product because those markets tend to be less mature. So we're investing in that side of the house on the innovation piece for the merchant business and the ATH business.
Secondly, if you look at business in Latin America, we're also investing in localizing the platform that we purchased for Processa. So that's part of the expense you'll see as well. And we're specifically localizing that product in markets where we have a presence and where we have clients or we have good prospects. So we're localizing it in Colombia, Mexico, Costa Rica and Chile. So that's how you think about the OpEx.
We're investing not because of really a market trend of competitiveness from a pricing perspective, but we're investing because we see an opportunity to expand the market in Puerto Rico and maintain our margin here and also open up new markets in Latin America. So it's an investment for growth. Joaquin, I don't know if you want to add anything or No, I
think you've covered it. I mean, we are focused on innovation and trying to position ourselves in Latin America with these products and moving from a licensing model to a processing model and trying to convert that into a more recurring base of revenue into the future.
Yes. Let me add one more thing. We are very and we did it last year at the beginning of the year. We try to make sure we're very efficient on our expenses. We do feel like now that we have a regional employee base that we're able to leverage employees across the region.
I commented on early in the call, so that we can find the most cost effective and efficient employees or workforce so that we can manage the costs on the
effective. And just following up on that and a couple of the other comments you made. 1, as you make improvements to the platform, etcetera, how applicable and transportable is that to other markets and new markets that you may have an opportunity to enter down the road?
Well, a couple of things I'd say. First off, you got to realize in these markets, there's usually 1 or 2 players. So as they look for alternative, we may be one of the only or one of the few alternatives because people haven't historically done this and created this capability in market. As far as the amount of work it takes to port from market to market, it really depends on the product. The risk monitoring product tends to be more similar from market to market.
There's not a lot of localization regulations that are required to change that product. So we already have a cloud based product that we can port from market to market. On some of the, let's say, the acquiring platform, you've got to integrate into local networks. You may have a local tax regime, you may have local product features that are unique like certain types of loans and payment features that you've got to add. So it really depends on the product.
But we are trying as we make this investment to at least even those that require a more significant component of localization, we are trying to make sure that we put it in an operating model that can easily scale or more easily scale as we bring it to your markets.
That's great. Thank you so much.
Yes.
Our next question comes from John Davis from Raymond James. Please go ahead with your question.
Hey, good afternoon, guys. Joaquin, just wanted to touch a little bit further on Bob's question. What are the underlying assumptions in Puerto Rico spending kind of 1Q versus the rest of the year? And how is that relative to what it was for the full year, understanding there were some a lot of variability in 2018? Just trying to get a sense for the spending trends that you're embedded in guidance.
I mean, again, when we
look at 2018, 2018 was a very erratic year in terms of the spend. We had a lot of reconstruction work coming into the island, people staying for extended period of times here, just working on bringing out the electrical system, the communication system. We had the additional EBT funding coming through. That's about $1,200,000,000 We had private insurance claims that were also flowing through the economy and specific FEMA funds that were going to people affected by the hurricane. All those, which are part of the fiscal plans, dollars 13,000,000,000 expected in fiscal 2018, went through the economy in the previous year.
As we look into 2019, there's an expectation for an additional $12,000,000,000 to $13,000,000,000 Now if you look at the composition of those funds, the type of funding is different. These funds are going for, again, reconstruction work and very specific types of work that's going to be done by corporations or companies coming into the island to basically spend that money. What we've seen is that those funds are now subject to additional bureaucracy that's making the deployment slower than what we would have expected. And what we've modeled into our guidance is basically a range where we have a modest slowdown of growth after Q1 given the EBT additional funding coming away. Our average ticket continuing to decline as it tries to assimilate to what were pre hurricane levels as well as the same impact to our payment processing segment due to the processing of transactions.
And that's how we thought of it.
Okay. So if I were to surmise it to say that it's likely going to be below 2018 levels, but probably above historic levels as far as spending growth for the full year taking away kind of the quarterly cadence. Is that a reasonable assumption as far as the underlying spending trends that are embedded in guidance?
Yes, that's reasonable.
Okay. Mac, I just want
to touch on international expansion. I think this is the most kind of bullish you've sounded on it in a while, specifically with Prisma and Transbank in Chile, but also on M and A. It feels like that those opportunities in Chile, for example, potentially would be more of a partnership JV model. So maybe talk a little bit about that opportunity versus more traditional M and A where you would buy and how you decide whether or not the partner, which is probably less capital intensive versus going out and spending kind of up to $100,000,000 on something as you look at to expand in Latin America and South America?
Yes. And let me explain a little bit because we did approach sort of explaining the opportunity and our capabilities a bit differently with this call. I've always been optimistic about the LatAm opportunity. This call, we wanted really because as I've spent more time with investors, we realized explaining market because some of these people don't aren't as visible even though it is public and then explaining our competencies and capabilities. So it was very deliberate to help investors understand that part of the story.
I will say I am more enthusiastic as time progresses because of two reasons. One is we do see more movement in the market over the last, call it, 6 months than we have before because of these two moves in 2 major markets. And I'm also more upbeat because I feel today we have a better footprint than we did 3 years ago and we have much better products. So that is I am pretty optimistic about the markets opening. But again, it's like Puerto Rico funding.
We can't impact the timing and our position with that. So what I would tell you is in these markets, the Prisma deal was forced by the regulators and that is going to create an opportunity for those banks to look for alternatives now. And then the Transbank deal is when any bank chooses to leave, it creates disruption across the entire market and opportunities for us to potentially partner with multiple banks or different banks within that country. So it could be the nice thing about EVERTEC is some of these financial institutions we already have a relationship with, with our fraud product. So we could sell them fraud products.
We could also be a processor. So we could be a processor for their acquiring business or we may try and JV on the merchant acquiring side. So we're very flexible in the model that we could create for the key partners in each of these markets. But again, the big challenge for us is the timing of these markets, but the movement in these 2 specific markets most recently are encouraging.
Okay, great. And last one for me. Any update on ACH Mobile, either monetization efforts there or how it's trended? I think gave some impressive stats of over a 1000000 users last quarter. So just curious, I think you started charging for it in the 4th quarter.
How that's going? Are you still seeing pretty significant growth there? Any color you could provide would be great.
Sure. So we're not breaking it out separately, because it's a specific product. We don't report product revenue. What I would tell you is ATH Mobile continues to be a very effective tool for us to increase the value of the ATH network. We are now getting recurring revenue off of it because we monetized that last year.
So that innovation along with some of the other things that we've done like picking the table has helped us reduce some business and secure some of the largest accounts on the island and pivot. I mean it's early days now, but we do feel like that that's going to be a good product for the SMB market that's underserved today. So I would say, for us, all of these innovations, we feel good about what the opportunities they're providing in Puerto Rico. Thanks, guys.
Our next question comes from George Mihalos from Cowen. Please go ahead with your question.
Hey, guys. Thanks for taking my questions. Maybe to kind of start off on some of the prior questions as it relates to the LatAm segment. Mac, I think you said $3,000,000 to $5,000,000 or $3,000,000 to $5,000,000 of grow over from some of these deconversions. Just curious your sense about maybe being able to do somewhat better than that given the positive news you had this quarter.
And then I also just want to make sure the mid single digit growth that or excuse me, the high single digit growth that you were targeting ex the deconversions, does that include some additional new wins in there or is that just based on the current book of business that you have now?
Yes. So what I would say is we're very pleased with the retention that we accomplished and it was a meaningful account for that segment and we were able to double the business. Again, given the timing or the time that's gone by, we think it's not highly probable that we'll continue to retain more of those to them. On the organic growth rate, I'll let Joaquin answer what actually was in that number. So what I would say, George, is
ex attrition, what we're targeting is a high single digit to low double digit. Obviously, we're now in additional regions and our expectation is to always grow at least at the rate that the market grows. And so that's more or less
where we are at. And that's the reason, as you know, George, to move from a licensing to a processing model, because then we grow with the transaction growth within that market and that's going to be more reflective of what the market trend is. Okay. That's
very interesting. Anything you can kind of share in terms of the demand trends and the pricing related to that?
Yes. Okay. So, I think
Anything you can kind of share in terms of
the demand trends and the pricing related to that? I would assume that the discount rates there are somewhat higher than what you would have traditionally seen?
Yes. So what I would tell you is it's early days, but we're very pleased with the initial launch. Most or many of them, a meaningful number, the business that we're putting on that product are competitive takeaways. So that's very interesting fact. And it is more profitable than a standalone POS because we're charging a similar margin at a higher cost.
So and I would also say this is a market where we believe that the fact we can bring local capabilities, we can integrate it to local networks. As we roll out new products, we'll be able to localize the taxing. And then as we offer local service and implementation, I mean, some of these merchants are like music store. I mean, maybe a music teacher, this is actually one of our merchants. He's a musician that teaches music lessons and sells instruments.
Using a PC or technology to upload all of his inventory is not his expertise, but us being here on the island and being able to provide him with that capability is providing a value add that we think is unique to EVERTEC. So again, it's early days, but we are finding there's demand for the product and we are finding the way that we deliver the service and the localization is very unique. Thanks,
guys. Our next question comes from Bryan Keane from Deutsche Bank. Please go ahead with your question.
Yes. Hi, guys. Just a couple of clarifications on the guidance. Joaquin, maybe you can just help with the cadence of revenue by quarter. Sounds like the Q1 will be the strongest and then it decelerates throughout the year.
Is that right?
That's correct. We are expecting Q1 to be a slightly stronger quarter. We're expecting the rest of the quarters to behave relatively how they behaved in the current year. Now I'll just remind everybody, we do have a still a piece of revenue in LatAm that's license based. So it can get a little bit bumpy as it relates to LatAm.
And we have the attrition that we called out, which we are not necessarily expecting. I know in the past, we've called out it accelerating to the end of the year. We don't expect that to necessarily be the case this year. Okay.
That's helpful. And so what does that mean then for, I know it's hard to say normalized revenue base by segment, but taking out some of the EBT funding and some of the natural stimulus, is there a way to think about the segments by kind of a normalized growth rate? I think the Latin America region sounds like it's high single digit, but just trying to think about the merchant acquiring and then the Payment Services, PR and Caribbean segments, just what they would look like kind of if he didn't have stimulus and that's kind of where we're going, it sounds like after we get post the EBT funding?
I mean, what I
would say, Brian, is there's a lot of puts and takes that are going into these numbers today and many different factors that we've called out that provide for more uncertainty than what we would like to have in terms of what we would expect into the future. So today, what we are seeing is obviously the impact of funding coming off of 2018 and assumptions just based on the delays of federal funding specifically to 2019.
But Brian, I do want to end up because I want to make sure I heard the question right. I mean PROMESA has certified a budget with the Governor and the funding is about $82,000,000,000 and that's going to be over multi years. So this is going to be a phenomenon that occurs in Puerto Rico. I think the estimate is 10 years, 15 years, but the majority within the first four, right? And I think the challenge is going to be the timing of those funds, and it's not maybe the smoothness of those funds.
But this is not going to be just 2019 phenomena. The large volumes, I think, north of $10,000,000,000 per year is going to occur for at least the next 4 years. Again, this is not EVERTEC's view. This is PROMESA who has been placed by Congress, their view along with the Governor.
I'll just add that, that same plan has expectations for just overall Puerto Rico economy growth that go hand in hand with structural reform to the government. And if that reform doesn't take place, the numbers within that plan are very different. So that's another key factor that needs to be considered when we're looking at this in a longer term.
And that is on the PROMESA website, if you want to see how the government, but the federal PROMESA and the governor have forecast Exhibit 8, I believe, in the PROMESA plane.
Yes. I know that's good clarification. Just trying to think about the difference between EBT funding directly to the consumer versus the PROMESA plan, which is to the businesses, which will foster down to the consumer. So trying to think about it. But let me my last question is just on margins.
Margins, the guidance is kind of for flattish margins. I know we talked about some investments and a little bit of client attrition. But is there a way to think about what a normalized margin should you be able to get margin increases on a year over year basis, exing out some of these onetime factors?
I mean, when we look
at even LATAM and what we're trying to do in LATAM, we're trying to move from a licensing model to a processing model. With that in mind, right, trying to leverage our scale and actually grow margin. And what I would say is, today, our focus is on innovation and trying to get these products to a level that we need to, to actually be able to execute on that strategy. So it's definitely a focus and we're always focused on trying to look for ways to expand margin and reduce cost. But today, yes, we do have some additional cost that's making our margin flattish.
I think with the I mean, the Puerto Rico margin, a lot of our investments is here to maintain that margin. We already have pretty healthy margins in Puerto Rico. If you look at the LatAm segment, they're lower margins, 10 percentage points to 15 percentage points. Over time, as we have a couple of years where we make that investment, hopefully, we can expand those margins. So I really think I would think about our margins across 2 different places.
I would think about Puerto Rico. The hope is that we can maintain margins through investment because we have best in the industry. And then I would think about LatAm that as we make these investments, as we grow the business, every new customer that we bring on one of these platforms that we've localized should come in at a higher incremental margin bringing up the overall margins. But that's going to take time. The other thing that I mentioned earlier on the call was in managing the overall company margin, we are looking at how do you use leverage the workforce across the locations now.
So we have a couple of 100 employees in Chile, a couple of 100 in Colombia, a couple of 100 in Costa Rica, over 1,000 in Puerto Rico. So we now have the ability to move calls, to move processing work, paperwork, those types of things across the region to try and blend out the best margin possible at the corporate level. So managing that operational efficiency is something that we've become more focused on as well. Got it. Got it.
All right. Thanks for the color. Thanks, guys.
And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like turn the conference call back over to management for any closing remarks.
So I want to thank everybody for joining the call today. We appreciate your continued interest in the company. And Joaquin and I look forward to seeing you over
the couple of months.
Operator, you can close the call.
Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.