Good afternoon, everyone, and welcome to EVERTEC's third quarter 2018 earnings conference call. Today's conference call is being recorded. At this time, I'd like to turn the call over to Kay Sharpton, Vice President of Investor Relations. Please go ahead.
Thank you. Good afternoon. With me today are Morgan Schuessler, our President and Chief Executive Officer, and Joaquín Castrillo, our Chief Financial Officer. A replay of this call will be available until Tuesday, November 6th. Access information for the replay is listed in today's financial release, which is available on our website under the Investor Relations section at evertecinc.com. For those listening to the replay, this call was held October 30th. 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 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. 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-K, 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. 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 Morgan.
Thanks, Kay. Good afternoon, everyone. Before I cover our third quarter highlights, I'd like to comment on our appointment of Joaquín Castrillo as our new CFO. Over the past few months, we have assessed Joaquín against several qualified external candidates. Given Joaquín has been a strong leader of our finance team and long-term contributor to the overall success of EVERTEC, he was unanimously supported by our board and the management team. I'm a firm believer in cultivating talent from within as part of our corporate culture and look forward to partnering with Joaquín to lead EVERTEC's ongoing growth. Now, turning to our results. We are pleased that our results for the third quarter of 2018 exceeded our expectations. We are executing well, and we continue to benefit from Puerto Rico's increased rebuilding and recovery activity.
Beginning on Slide four, I will cover some of the quarter's financial highlights and provide you with an update on recent developments. Total revenue was $112 million, an increase of 9% compared to 2017, as we anniversary the hurricanes that hit Puerto Rico and the Caribbean last September. Additionally, we have anniversaried the acquisition of PayGroup as of July. Adjusted EBITDA was $52 million, or 25% growth over the prior period, and adjusted EPS was $0.45, an increase of 36% compared to last year. We generated significant operating cash flow year-to-date of approximately $128 million, which is $20 million higher than last year. Given the third quarter results and our confidence for the remainder of the year, we are raising our guidance, and Joaquín will provide further details later on the call. Moving on to progress in Puerto Rico on Slide five.
Regarding the fiscal budget, the PROMESA board has updated the fiscal plan to include the impact of projected federal and private insurance inflows of $82 billion over the next 15 years, new debt agreements, as well as decreases in government spending, which could result in budget surplus over the next 15 years. While the updated fiscal plan is encouraging, there still needs to be structural reforms to jumpstart the economy for longer-term growth. Regarding the debt restructuring for Puerto Rico, the unsecured creditors recently dropped their opposition to restructuring approximately $4 billion issued by the Government Development Bank. Final court approval of the agreement is anticipated on November the 6th. Additionally, an agreement was reached on the COFINA bonds in late August. The governor introduced legislation for the agreement in early October, and the bankruptcy court hearing is scheduled for November the 20th.
We believe both of these agreements are important steps for restoring Puerto Rico's financial stability. Relief funds for Puerto Rico continue to flow in, and we are benefiting from the continued release of private insurance payments as well as HUD funding and other expanded benefit programs. Now, turning to Slide six, I will continue with our business update. First, we were pleased with the stronger than expected revenue in the quarter in Puerto Rico and the Caribbean, which grew approximately 10%, driven by transaction growth of approximately 16% and average ticket growth of 9%. Most important, almost all merchant categories were up prior to lapping the September hurricane impact. We continue to benefit from relief and recovery programs, gas prices, as well as increased tax payments. Regarding new business, we have signed two contracts for the benefit of the government of Puerto Rico.
First, we will provide managed IT services to administer the funds for the disaster recovery program under the Community Development Block Grant. Second, we will provide business continuity and hosting services for the Puerto Rico Department of Treasury to align with the government's initiative to mitigate risks. This new business is an affirmation of our unique position in Puerto Rico and our ability to assist the ongoing mission-critical efforts of the Puerto Rican government. Additionally, we have also recently signed a service support agreement with Banco Popular related to their recent acquisition of the Wells Fargo auto financing business. We believe that as quality organizations like Banco Popular expand, we have the distinct opportunity to benefit from continued market consolidation. Second, in Latin America, revenue was up 8% year-over-year, and we now have comparable results quarter-over-quarter since we have anniversaried the PayGroup acquisition.
We also benefited from new contracts for which revenue was recognized this quarter. Turning to slide seven, I'd like to comment on our innovation efforts, which we believe will further strengthen our market leadership position in Puerto Rico and contribute to our long-term growth opportunities in Latin America. We recently announced the pilot phase of an ATH Móvil payment solution for e-commerce websites and mobile applications. We anticipate providing this feature for all participating ATH Móvil businesses at the beginning of 2019. On this slide, you can see how easy it is for our pilot partners, who represent some of the most innovative startups as well as established businesses in Puerto Rico, to provide customers access to paying with their ATH debit card.
Additionally, I'm pleased to note that through our partnership with Parallel18, a startup incubator that I mentioned last quarter, we have engaged with a total of 16 startups to gain insights into their offerings and how we can potentially collaborate. Our innovations are starting to pay off. The third quarter benefited from additional transaction fees for services such as ATH Móvil Business and ATH Móvil switching fees. In summary, we are pleased with the strong 2018 financial results and our progress on strategic initiatives that will deliver growth in 2019 and beyond. With that, I will now turn the call over to Joaquín.
Thank you, Mac, and good afternoon, everyone. I'll now provide a review of our third quarter 2018 results. Turning to slide nine, you will see the consolidated third quarter results for EVERTEC. Total revenue for the third quarter was $112 million, up 9% compared to $102.7 million in the prior year. While it was a relatively easy comparison to last year, given the hurricane impacts, our sales volume continued to be elevated across most merchant payment categories prior to lapping those hurricane results. Total revenue year-to-date was $335.6 million and also up 9% year-over-year. Adjusted EBITDA for the quarter was $52.1 million, an increase of 25% from $41.7 million in the prior year. Adjusted EBITDA margin was 46.5%, and this represents a 590 basis point increase in our adjusted EBITDA margin compared to the prior year.
The year-over-year increase in margin primarily reflects the impact of the hurricane in last year's numbers and an improved revenue mix, effective cost controls, as well as favorable effects in the quarter. Year-to-date, adjusted EBITDA was $159.8 million, an increase of 13%. Adjusted net income in the quarter was $33.6 million, an increase of 38% as compared to the prior year. The increase primarily reflects the higher adjusted EBITDA. The effective tax rate in the quarter was 11.9%, and we now anticipate that our full-year tax rate will be approximately 13%, which is on the low end of our previously expected range of 13%-14%. Adjusted EPS was $0.45 for the quarter and grew 36% compared to the prior year. Year-to-date, adjusted net income was $102.7 million, up 15%, and adjusted earnings per common share was $1.38, up 13% from $1.22 in the prior year.
Moving on to slide 10, I'll now cover our segment results, starting with Merchant Acquiring. In the third quarter, Merchant Acquiring net revenue increased 14% year-over-year to approximately $24.5 million. The revenue increase was due to increased volumes driven by lapping the hurricane results, but more importantly, the first two months of the quarter were consistent with strong Q2 results. The primary growth drivers continue to be federal relief programs that drove a significant increase in electronic benefit card volume, increased government tax payments, and gas purchases reflecting increases in the price of gas year-over-year. We believe insurance proceeds and recovery funds continue to drive the overall increase in sales volumes. Adjusted EBITDA for the segment was $10.9 million, up 16%.
Adjusted EBITDA margin was 44.7%, up approximately 110 basis points as compared to last year, reflecting increased sales volume of ATH-branded cards and the improved margin contribution from the increased average ticket. Sequentially, however, margins were down from last quarter due to slightly lower average ticket as well as impact from mix shift as large merchant retailers and EBT transactions increased their share of total sales volume, contributing at lower net spreads. For the nine-month period, Merchant Acquiring revenue increased 9% to $73.8 million, primarily due to the same reasons I referenced in the quarter. Adjusted EBITDA year-to-date for the segment was $34.4 million, up 16%, and adjusted EBITDA margin was 46.6%, an increase of approximately 270 basis points. On slide 11, you will see the results for the Payment Services Puerto Rico and the Caribbean segment.
Revenue for the segment in the third quarter was $29 million, up approximately 15% as compared to last year. Transaction volumes were consistent with Q2 levels, with our volume growing 5% on a comparable basis prior to lapping the hurricane results in September. Additionally, we benefited in the quarter from new transaction fees for services such as ATH Móvil Business and ATH Móvil switching fees. Adjusted EBITDA for the segment was $19.2 million, increasing 27% as compared to last year. Adjusted EBITDA margin was 66.5%, up approximately 620 basis points as compared to last year, primarily due to the hurricane impacts last year and new transaction fees. Year-to-date revenue for the segment was $84.2 million, up approximately 7% as compared to last year. Year-to-date adjusted EBITDA was $54.9 million and adjusted EBITDA margin was 65.2%, up approximately 130 basis points.
On slide 12, you will see the results for our Payment Services LatAm segment. Revenue for the segment in the third quarter was $18.9 million, up approximately 8% as compared to last year. We now have comparable year-over-year results as we have anniversary the PayGroup acquisition completed in July 2017. This growth was driven by organic expansion of our existing clients, as well as new business revenue offset by approximately $0.9 million of client migration. We expect the full year impact of client migrations to be approximately $3 million to $3.5 million. Adjusted EBITDA for the segment was $6.6 million and adjusted EBITDA margin was 34.6%, up approximately 1,320 basis points as compared to last year, primarily due to contract repricing, cost management, as well as favorable FX impact in the quarter of $1 million or 545 basis points.
We are projecting lower margins in the fourth quarter as a result of the incremental client attrition that I mentioned, as well as other investment spending on product initiatives. Additionally, we have not incorporated any FX gains or losses. Year-to-date revenue for the segment was $58.5 million, up approximately 35% as compared to last year. Year-to-date adjusted EBITDA for the segment was $18.3 million, increasing 38%. Adjusted EBITDA margin was 31.3%, up approximately 70 basis points as compared to last year. On slide 13, you will find the results for the Business Solutions segment. Business Solutions revenue in the third quarter was up approximately 6% to $48.8 million. Revenue growth in the segment was driven by lapping the hurricane impact last year, new services for both Banco Popular and the government, partially offset by lower IT services.
For the quarter, adjusted EBITDA was $21.7 million and adjusted EBITDA margin was 44.5%, up approximately 250 basis points as compared to last year. The increase in the adjusted EBITDA margin was primarily driven by effective cost management measures, which resulted in lower operating expenditures. Year-to-date, Business Solutions revenue was up approximately 2% to $146 million, and adjusted EBITDA for the segment was $68.1 million with a 46.6% margin. Moving on to slide 14, you will see a summary of our Corporate and Other segment. Our third quarter expense was $6.4 million, an increase of 5% over prior year. As a percentage of total revenue, Corporate and Other was 5.7% and approximately 20 basis points below prior year. Year-to-date, our Corporate and Other was $15.9 million, a year-to-date reduction of 10% as compared to last year.
As a percentage of total revenue, Corporate and Other was 4.7% and approximately 100 basis points below prior year. We plan for modest additional expense in the fourth quarter as we execute against planned corporate initiatives. We now anticipate our Corporate and Other expenses to be up for the full year, but flat as a % of total revenue. Moving on to year-to-date cash flow overview on slide 15. Our beginning cash balance was $60 million, including restricted cash of $10 million. Net cash provided by operating activities was approximately $128 million or a $20 million increase. Capital expenditures year-to-date were approximately $25 million. We now anticipate capital expenditures will be in a range of $37 million-$42 million.
We paid approximately $41 million in debt payments and reduced approximately $15 million in short-term borrowings, withholding tax for RSUs and other debt, resulting in a total net debt decrease of $56 million. We returned to paying cash dividends this quarter of approximately $4 million, and we recently announced another $0.05 dividend to be paid on December 7th to shareholders of record as of November 5th. Our ending cash balance as of September 30th was $104 million, and this included approximately $13 million of restricted cash. While this cash balance is somewhat higher than we would normally anticipate, we continue to be committed to our capital allocation strategy. First, we invest in ourselves for growth, either through internal projects or through M&A opportunities. Second, we pay down debt through scheduled debt payments.
Third, we return cash to shareholders through dividends and as we have excess cash through share repurchases. We have approximately $72 million available for future use under the company's share repurchase program through December 31st of 2020. Moving to slide 16, you will find a summary of our debt as of September 30th. Our quarter-ending net debt position was approximately $479 million, comprised of the $91 million of unrestricted cash and approximately $571 million of short-term borrowings and long-term debt. Our weighted average interest rate was approximately 4.6%. Our net debt to trailing 12 months adjusted EBITDA was 2.75 times, reflecting the credit agreement terms, which limits the cash applied to the net debt calculation to $25 million. As of September 30th, total liquidity was $152 million. This balance excludes restricted cash and includes the available borrowing capacity under our revolver of $65 million.
Moving to slide 17, I will now provide an update on our 2018 guidance. We are raising our revenue outlook for the year to a range of $448 million-$452 million, representing a range of 10%-11% over last year. The increase in the revenue range reflects our year-to-date results and an improved revenue projection for the remainder of the year, primarily in the Merchant segment. We now project the Merchant segment revenues to grow mid-teens and our Payment Services Puerto Rico and Caribbean segment revenue is now anticipated to grow low double digits. Regarding overall margin, we now anticipate that our adjusted EBITDA margin will be approximately 47% for the year. Our adjusted earnings per common share outlook has been increased to $1.79-$1.83, which represents a range of 22%-24% as compared to $1.47 in 2017.
Now turning to some comments on 2019, we have a number of items that are notable that I'd like to review. First, the timing of federal funds is still clear, and there will be a shift in the mix of the type of funding. For example, the increased EBT funding and the number of participants that qualify for EBT funds will return to pre-hurricane levels after April. While we expect the increased levels of other federal funds to continue and positively impact our Merchant segment, how that flows through to consumer spending will continue to be challenging to forecast. Second, in LatAm, we currently estimate attrition of $3 million-$6 million in revenue related to client migration, and we anticipate this to be higher in the second half of the year.
Third, the CPI index for September was announced October 11th and was 2.28%, which will positively impact a significant portion of our Business Solutions revenue. Lastly, we plan to update you with our full 2019 outlook next quarter. In summary, it was a good quarter for EVERTEC. We're pleased to raise our outlook for 2018. I look forward to meeting you and seeing you over the coming months. We will now open the call for questions. Operator, please go ahead and open the line.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause for a moment to assemble our roster. Our first question today will come from James Schneider of Goldman Sachs. Please go ahead.
Good afternoon. Thanks for taking my questions. Congratulations on the solid results. I guess I wanted to just maybe first ask a clarification on your earlier commentary, and I'm not sure if I just wanted to clarify what you were talking about when you said that the strength in the Payments segment was really good in the first two months of the quarter. What happened in September? Can you maybe clarify that? Did it actually get stronger, or what happened on the margin? I just want to make sure that I understand your comment on that front.
Sure, James. What we were trying to say is that the first two months of the quarter resembled the type of growth that we saw in Q2 and Q1. In September, we had a prior year. We had the impact of the hurricane. The growth that we saw in that specific month is not comparable.
Oh, I see. That's very clear. Thank you. I guess as you go forward, can you maybe kind of look across the Solutions business and talk about beyond the two contracts that you've already announced with respect to the disaster recovery funds and the other contract. Maybe talk about what scope there is for additional contracts to come, and can maybe give us a sense of what the pipeline of additional contracts might be, either from government sources or from Banco Popular.
Yeah. This is Mac, James. What I would say is these two contracts specifically demonstrate that our performance during the hurricane has shown the rest of the island that when it comes to disaster recovery and BCP, we're a great partner. That is something that we can continue to sell and continue to try and build up our pipeline. That's one thing that I think from a business solutions perspective, we'll continue to try and work on the island with our prospects. The second is, if you look at the reliable acquisition of Banco Popular, it shows you there's continued consolidation. As Popular in particular and the other bank partners are our partners, we're the beneficiary of that. Business solutions is something we're focused on, and with these two wins, will be something that we continue to focus on in addition to the payments business.
Great. Thank you very much.
Thanks, James.
Our next question will come from Bryan Keane of Deutsche Bank. Please go ahead.
Hi. Was just going to ask about in the Payment Services Latin America. Actually, I think it's in Payment Services Puerto Rico and the Caribbean. These new transaction fees that you talked about, how material are these, will they continue going forward as we model out from here?
Yes. I'll take the question, and I'll give it to Joaquín. I would say, as we talked about with ATH Móvil, we are beginning to charge fees for the switching fees to the banks for those particular transactions. We've layered that in for all the ATH Móvil transactions. In addition, for those that we're categorizing as consumer-to-business, we're actually charging much like it's a credit card transaction. We're beginning to see that flow through the P&L, and we anticipate it to come through next year. We don't break those out separately for reporting purposes, but we do think it's relevant not only to impact the P&L, but also to help us maintain our market share. I don't know, Joaquín, if you want to add anything.
Sure. I'll say at this point, it's still small in terms of contribution in the grand scheme of things. However, some of these fees just started now in Q3, and we're really excited about the overall just growth of these fees and what they can represent in the future.
I think, too, if you look at it, Bryan, the innovation that we're doing with ATH Móvil on mobile sites and websites for the local businesses, it's really helping us. It is reaffirming that ATH is the number one brand on the island, when we bring up these mobile solutions, we continue to have that type of market share. Again, it's really important to grow the P&L, but it's also important to gain our market share as the volumes shift to online.
Okay. Just wanted to ask about the M&A pipeline, and particularly Latin America. How's that looking? Any closer to closing some more deals?
Yeah. As we've said in the past, we won't comment on a deal until we have one that we're ready, that's either signed or we're close to closing. It is something we talked about on the last call that we pulled back from a transaction. Even immediately after the hurricane, we were focused on that, and we continue to focus on that and look for opportunities and assets because we think that's an important way to grow that business more quickly. We're still very focused on that.
Okay. All right. Thanks.
Thanks, Bryan.
Our next question will come from Robert Napoli of William Blair. Please go ahead.
Thank you, and good afternoon. Joaquín, congratulations on your promotion to CFO. Appreciate it. Look forward to meeting you.
Thank you, Bob. Same here.
I know you're going to give guidance for 2019 next quarter, but if you think, Mac, about the medium to long term, can you give any feel now that you've rebounded from the hurricane? I know there's still noise on recovery funds and all that, but what is the right organic growth rate for this business? I think the consensus for next year is somewhere in the 5%-6% revenue growth range and somewhere around there medium term. Is that the right growth rate, or is that a disappointing growth rate with the opportunities you have in Latin America outside of Puerto Rico, or even within Puerto Rico with ATH and Popular?
As in the past, we can't give long-term guidance, and probably won't as we guide into 2019, and we're not ready to give guidance for 2019. I would encourage you to take a look at the plan that the government filed with PROMESA and that PROMESA certified. What it shows you is how they're thinking about financial flows through the island. No one would've anticipated at the beginning of the year necessarily that Puerto Rico would've recovered like it did. If you looked at other proxies like New Orleans after Hurricane Katrina, you would've expected a different outcome. We are fairly confident and hopeful that we will continue to see relief money come in. Some of the insurance money will continue to come in, but the relief funding we think will come in in large volumes over the next few years.
Bob, the difficulty is to anticipate how those programs flow through, because as Joaquín talked about, a big part of 2018 was an EBT increase. The electronic benefits, the welfare program. In 2019 and beyond, it's different programs that will substitute the EBT program that will help impact the island. How those flow through into our business lines and how they impact our payments business, we're still trying to determine the best way to model that for 2019. At this point, it would be disingenuous to try and even give you any type of direction. We do know that there's going to be a significant flow of funds, but we're still modeling ourselves since the composition will change what that means for 2019. I don't know, Joaquín, if you want to add anything?
I think the main factor is uncertainty, Bob, around the different types of funds, the timing, and how those will eventually impact the consumer. We actually see it in our numbers. EBT funds, as Mac mentioned, and was said in the scripted comments, will shift in the beginning of next year. We'll see a decrease in what we've seen today as it relates to EBT sales volume, and that will probably get replaced by some other type of funding as is reflected in the fiscal plan. Timing, and then again, how that mix impacts the consumer is still very uncertain for us.
What we are focused on, Bob, is making sure that we maintain and grow our market share here where we can by being innovative and competitive, and also hoping. As banks hopefully will leave some of the consortiums, Redeban or Credibanco, and in Chile you have Transbank, that's when we'll see the ability to get to a nice secular growth rate. We're doing the right things at EVERTEC to assemble the right assets and build the right operating model so that when the markets do change, we think that we will be in a unique position.
Thank you. Appreciate it.
Thanks, Bob.
Our next question will come from Tien-Tsin Huang of JPMorgan. Please go ahead.
Thank you, and welcome to the call. Joaquín, I just wanted to ask first on ATH and the mobile product. Is ATH underrepresented on mobile and online? I'm just curious how much traction you could potentially get. I understand the secular trends are strong, but is it underrepresented today?
Tien-Tsin , I'll give it to Joaquín in a second. I would tell you, if you live in Puerto Rico, it's not underrepresented from a P2P perspective. ATH Móvil, since everyone in Puerto Rico, it's almost like UnionPay in China. You got to have one if you have a bank account because the government issues you a UnionPay card.
Right.
Here, most of the banks participate, the debit cards are ATH Móvil. The usage and the adoption with over 1.1 million customers, and if you take out the elderly and children, it's a significant part of the transaction population. As a utility that people are using for payment, ATH Móvil is the most predominant. I would say what we've launched from an innovation perspective, the ability for people to use ATH Móvil on people's websites, and it's the most convenient way to actually check out on some of these websites with the largest grocer, the largest gas station. If you come to Puma on the island, you're going to see the ATH Móvil logo, not my competitors'.
Right.
In the P2P, we are the predominant, and face-to-face, we're the predominant. As it moves to mobile, we're making it to where we are the most convenient as well.
Right.
I echo everything Mac said. I think the only thing I'll add is that we're trying to take advantage of the huge base of users that we've been able to put on ATH Móvil. All these new innovation products that we're putting out is really leveraging on that base and trying to add additional services that give us some leverage to try and monetize into the future.
I don't know if you caught it, Tien-Tsin, locally, when we had a press conference, we had the president of Econo come speak, the president of Puma speak. Econo will tell you, once they enabled our ATH Móvil product on their mobile device, on their mobile site, we were the number one payment choice. We don't think it's underrepresented, and we think we're in a position to continue to maintain or gain share online.
Got it. Yeah. Maybe I worded it poorly, but you answered it. It was when you turn on the button, I wasn't sure if you got a lift in terms of participation or checkout on ATH versus other options. It sounds like once you enable it takes over as it should, like you said, in the face-to-face world.
Yeah. Just as a reminder, it's a pilot at this point. We're rolling this out, this model, to all of our ATH Móvil Business at the beginning of next year. The expectation is that we get some additional traction as a result of that.
Some of this, Tien-Tsin, is we're trying to maintain our share as it moves to a mobile device and online with some big retailers. We talk about Parallel18, which is very small opportunities. As business models change in Puerto Rico, where people may order food on their mobile device and have it delivered like an Uber Eats, which isn't as prevalent here, or as people move their spending habits to new apps, that we're picking up new share. It's both. We're trying to protect the share that we have as it moves to mobile commerce. As new categories open up, we want to be the first one to offer the payment solutions to those startups.
Makes sense. Mac, quick follow-up. The EBITDA margin, you had 100%, basically, incremental margin in the third quarter. Sounds like FX was some of the help. Is that right to be looking at it, 100% incremental margin, that all the revenue year-on-year growth flowed through to the bottom line? Or were there other one-time factors to consider that maybe enhanced that?
When we look year-over-year, again, last year was impacted by the hurricane in Q3, we have that drag on margin as a comparison to the previous period. The FX was definitely a lift, approximately 100 basis points. Obviously we are getting better margin just because of the payments segments performing how they've been performing.
All right. Very good. Thank you.
Thanks, Tien-Tsin .
Again, to ask a question, please press star then one. Our next question will come from John Davis of Raymond James. Please go ahead.
Hey, good afternoon. Congratulations, Joaquín. Quickly, just one housekeeping one. Any update on the client attrition? Mac, you referenced it earlier, but it seems like it keeps getting pushed out. Any change to the times schedule there, or the total dollars amount that you expect to eventually lose?
Yeah. The dollar amount over time has remained fairly constant. It's just been spread over multiple years. As we've said about this business, it's very difficult. The sales cycles can be long, and sometimes even after the sales cycle, you have a multi-year transition. I would say that the absolute number, the total cumulative number, has not materially changed. It has been spread out. For next year, I'll let Joaquín speak about.
Yeah. Actually for this year, we're expecting approximately $three and a half million. For next year, obviously, as Mac mentioned, we've had these delays that have created sort of a tail going forward. We're expecting $3 million-$6 million for 2019. To reiterate what Mac said, the overall number that we said from the beginning continues to be the same. It's just been spread out.
That overall number is $10 million-$12 million, correct?
I believe we said $10 million-$14 million.
Okay. Perfect. Mac, as PROMESA board seems to be making progress, do you have any sense on when you could see potential austerity go into effect on the island? Do you have a better view today than you did three months ago? Any color there would be helpful.
Yeah. Again, there's still a bit of uncertainty. I will say, the biggest impact could be if they hit this year's Christmas bonus because that's a substantial portion, and typically that gets paid fairly quickly. Again, you can look at the PROMESA plan, at least what the government has certified with the PROMESA board. It's fairly well laid out, at least what their expectation is on funds coming into the island and when they'll take cuts in the government.
Okay. On migration trends now with school back in session, I know the summer is tough. Have more people returned to the island as we sit here kind of a year out from the hurricane? Just from your sense, do you feel like most of the people that left came back? What do you think the ultimate kind of attrition in population is to date based off of your gut feel? I'm not asking for a specific number.
Yeah.
It feels like more people have come back.
Yeah. I will tell you, the number of people that have come back significantly exceeded what I would have expected at the beginning of the year. I would say even under the Act 20 and Act 22 provision, which is where people are moving from the U.S. for the tax benefits, there's still a significant movement of people in. Significant being relative, because not that many people come in on an annual basis anyway, but it has not impacted that trend. We've been surprised with the migration trends. I don't think there's one good statistic that you can look at with a significant level of confidence, but I've been surprised at the number of people that have come back. Not only Puerto Ricans who have migrated back post-hurricane, but also the people from the U.S. who are coming to take advantage of the new tax code.
Yeah. The one thing I'll add is, obviously a lot of the relief funding coming into the island and a lot of the reconstruction work has created additional demand for jobs. A lot of people are staying because there's more jobs available. We've also seen an influx of people come into the island from different parts of the U.S. to help in that reconstruction effort. That's normalizing a little bit some of the immigration that we would have seen. Definitely, it's better than what we would have expected right after the hurricane.
Okay. Great. Last one for me. Mac, we're sitting here a year out, I think. The hurricane recovery, not to be taken lightly, has far exceeded everyone's wildest expectations. You guys have generated a ton of free cash flow. The outlook looks good. Leverage is 275 on a stated basis, but if you include the rest of the cash, it's even lower. Does it feel like buybacks and M&A are mutually exclusive at this point? Maybe just talk about the appetite, the stock is still cheap here, that you have for buybacks. Would you prefer dividends? It just feels like you could actually do both a decent-sized acquisition and some buyback, maybe buyback the money that you did not spend on dividends during the uncertainty. Just any kind of color commentary there would be helpful.
Sure. What I would tell you is, as I addressed Bob's question, we are always looking at M&A, and that's an important part of our thesis. I think as Joaquín stated well, growth is the first place that we'll invest. As we look at our plan for 2019, we're trying to determine what investments are required, and we'll continue to look at M&A. After that, we will take a look at how do you return back cash to shareholders, and we do have that plan in place, the buyback. I can't give specifics of when we're going to do what in advance, but we're focused on all different components.
Okay. All right. Thanks, guys.
Thank you.
Ladies and gentlemen, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Morgan Schuessler for any closing remarks.
Thanks everyone for joining the call. I want to congratulate Joaquín on his appointment, and thanks for all he's done over the last quarter to help us get to where we are, and I look forward to seeing you all on the road over the coming months. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.