Good afternoon, everyone, and welcome to EVERTEC's fourth quarter and full year 2017 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your question, you may press star and two. Please also note today's event is being recorded. This time, I'd like to turn the conference call over to Kay Sharpton, Vice President of Investor Relations. Ma'am, you may begin.
Thank you. Good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer, and Peter Smith, our Chief Financial Officer. A replay of this call will be available until Wednesday, February 28th. 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 21st. Please note there is a presentation that accompanies this conference call, and it 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 statement. During today's call, management will provide certain information that constitutes non-GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income, 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 Mac.
Thanks, Kay. Good afternoon, everyone. Thank you for joining us on today's call. This quarter, we overcame numerous challenges and made solid progress assisting our customers and restoring our payments businesses in Puerto Rico. Transaction volumes and spending have bounced back faster than our prior expectations, but continue to be erratic in the post-Maria period. We also continue to grow in Latin America with the benefit of PayGroup, as well as modest growth in our existing business. I'll cover some of the year's highlights, provide you with an update on recent developments, and then comment on our priorities for 2018. Beginning on slide four, we have a summary of our 2017 results. Total revenue was approximately $407 million, an increase of 5% compared to 2016, which exceeded the top end of our most recent guidance by approximately $6 million. We generated adjusted earnings per share of $1.47.
Despite the hurricane, we generated significant operating cash flow of almost $146 million. We returned approximately $29 million to our shareholders this year through almost $8 million in stock buybacks and $22 million in dividends. As the conditions in Puerto Rico have yet to stabilize, the board chose to continue to suspend the dividend at this time. I'd like to give you some more specific updates for our businesses on slide five. First, we are pleased with the solid progress on revenues in this quarter, surpassing our expectations, driven primarily by elevated post-hurricane spending. Sales volume recovered to approximately 95% of last year's levels by the end of the quarter and almost 80% on average for the quarter.
While we are encouraged by the increase off the lows of September and October, we believe that consumers benefited from the moratorium on mortgage and consumer loan payments that was offered by the major banks in Puerto Rico, as well as lower utility expenses due to the power and water outages. Additionally, we observed increased hurricane-related large ticket spending, which we believe was partially supported by relief and reconstruction efforts as well as insurance payments. While we're encouraged by the aggregate spending levels in Q4, the underlying spending patterns remain unpredictable, and this is likely to continue in the near term. We also are uncertain as to the impact of immigration. At this time, it remains unclear as to how many Puerto Ricans living off the island will return when the power is fully restored.
Power restoration has been slow and challenging, only reaching approximately 65% of the island residents at the end of the quarter. The situation is further complicated by the Title III process and the weak financial condition of PREPA. Approximately 15% of our merchants are still not processing transactions compared to normal levels. How many will be restored and when they will be restored is still unclear. We believe that federal relief funds, once ultimately received, will provide spending stimulus to the economy and benefit EVERTEC. Shifting to our earnings in this quarter, we were negatively impacted by the hurricanes. Unfortunately, results were also impacted by an impairment charge related to project delays and overruns with a third-party vendor, in part caused by the hurricane. While disappointing, we are committed to satisfying our client and anticipate the completion of this multi-year project in 2018.
In Latin America, revenue growth was significant and benefited from the PayGroup acquisition. On a comparable basis, excluding PayGroup, we generated mid-single-digit revenue growth despite the impact of some client migrations. I am pleased to announce four wins in Latin America that were completed recently. First, we renewed our largest customer outside of Puerto Rico, Banco de Costa Rica. This customer has been with us for almost 10 years. We again won this through a public bid process. Second, we expanded our business in Central America with one of the world's largest retailers. These two specific wins reflect the benefit of our customer service initiatives over the past three years. Third, we achieved our first cross-sell of a PayGroup product to one of our Colombian customers. This will be one of our first processing clients as we build our payment processing capabilities leveraging PayGroup assets.
Four, we completed a cross-sell of multiple PayGroup solutions to one of the accounts that is migrating off of other EVERTEC products. Achieving these two early wins demonstrates the positive benefit of the PayGroup acquisition. Another notable recent event was that EVERTEC received a certification as Essential Costa Rica , a distinction that is awarded to companies that demonstrate excellence, sustainability, social progress and innovation. We are proud of our employees in Costa Rica and believe this award further supports our reputation among clients, suppliers, and partners. Lastly, as a step in the integration of PayGroup, we completed a reorganization in the quarter. We will now be reporting our Latin American payments business separately from our Puerto Rico payments business. Rodrigo del Castillo, formerly head of PayGroup, will lead Latin America. We believe that this organization and reporting structure will allow us to operate more effectively and provide for better decision-making.
Peter will provide additional details on the segment reporting. Reflecting on 2017 and our accomplishments, slide six is a summary of the areas I'd like to comment on. First, we have demonstrated a strong commitment to our customers through service and innovation. Our clients in Puerto Rico witnessed our capabilities and commitment to their success despite incredible challenges. We believe no one outside of Puerto Rico, nor on the island, was able to achieve our level of responsiveness and client service, and I am proud of my colleagues here in Puerto Rico. Second, we were able to further enhance our position as an innovator with our introduction of ATH Móvil Business, which is supported by the growing acceptance of ATH Móvil, now with over one million users. We have over 3,000 businesses now using the ATH Móvil Business application.
Third, in Latin America, with the full impact of the 2017 PayGroup acquisition, our revenue in 2018 is anticipated to approximately double from where we were at the end of 2015. We now have significantly more competitive products, have entered some of the most interesting markets, and have a deeper bench of talent in the regions. Lastly, I am proud of our service in the communities where we operate. EVERTEC employees contributed thousands of hours of work for those in need. It was truly a time when our values were put into action. Looking ahead to 2018 on slide seven, we will continue to support the rebuilding of Puerto Rico. It will continue to be our top priority to get more merchants back in business. We will also focus on growing the acceptance of our ATH Móvil Business solution.
Additionally, we stand ready to address opportunities to help the Puerto Rican government with their efforts to streamline their operations. In Latin America, we will continue our focus on service improvements, build on our product offerings, and leverage our client base with cross-selling opportunities. Lastly, we will focus on delivering shareholder value through our careful deployment of capital. With that, I will now turn the call over to Peter.
Thank you, Mac, and good afternoon, everyone. I'll begin with a review of our consolidated fourth quarter and full year 2017 results, provide some information on our new segment reporting structure, and then review each segment in greater detail. Turning to slide nine. Total revenue for the fourth quarter of 2017 was $99.6 million, down 2% compared to $101.9 million in the prior year, and reflects an estimated $8 million impact from the hurricanes, which was better than we projected exiting Q3 due to higher than anticipated transaction and sales volumes in Puerto Rico. During the quarter, consumer spending was erratic and this trend has continued into the first quarter of 2018, as Mac referenced. Adjusted EBITDA for the quarter was $37 million, a decrease of 22% from $47.6 million in the prior year.
Adjusted EBITDA margin was 37.2%, and this represents a 950 basis point decline in our adjusted EBITDA margin compared to the prior year. The decline year-over-year is primarily attributable to the impact of lost high-margin volumes due to the hurricanes, and we estimate this contributed approximately 600 basis points of margin impact. The fourth quarter results also include a $5 million impairment charge on a project where we experienced customer delays driven by the hurricane and related cost overruns with a third-party vendor. We were also negatively impacted by foreign currency of approximately 40 basis points and by increased information security and compliance of approximately 30 basis points as compared to the prior year. Adjusted net income in the quarter was $17.7 million, a decrease of 43% as compared to the prior year, and $0.24 on a per-share basis, a decrease of 44%.
The decrease primarily reflects lower adjusted EBITDA as well as higher interest and depreciation expense as compared to last year. Our full-year non-GAAP tax rate was 12.3%, and our rate in Q4 was higher than anticipated due to higher taxes in the LatAm region and a higher than anticipated proportion of Puerto Rico taxable income outside our preferential tax decree. For the full year, total revenue was $407.1 million and was up 5% year-over-year. Adjusted EBITDA was $178 million, a decrease of 5%, with an adjusted EBITDA margin of 43.7%, down 450 basis points as compared to prior year. Adjusted net income was $107.1 million, down 14%, and adjusted earnings per common share was $1.47, down approximately 12% year-over-year. Before I discuss the results of our segments, I wanted to provide some overall background on our segment reporting changes.
We've expanded our segment reporting and will now provide reporting on four operating segments, as well as provide information on corporate and other expenses, which also includes inter-segment eliminations. As compared to our prior segments, our most notable change is that we have separated our payment processing segment into two segments. Payment Services, Puerto Rico and the Caribbean, and Payment Services, Latin America. In our slides and release, we have provided the revenue and adjusted EBITDA performance metrics on each segment. You will also find a reconciliation of our non-GAAP measures to GAAP results in the release and the appendix of this presentation. Additionally, for reference, we have provided a supplemental schedule included with the 8-K filing of the earnings release, which recaps our historical results in the new segments for the full year 2015 through 2017, as well as the quarterly results for 2016 and 2017.
Moving on to slide 11, I'll now cover our segment results, starting with merchant acquiring. In the fourth quarter, merchant acquiring net revenue decreased 21% year-over-year to approximately $18.2 million. The revenue decline was due to reduced volumes related to the hurricanes. As compared to our Q3 estimates, we experienced higher than anticipated sales volume, which grew progressively over the quarter to levels just below the prior year in December. Consumer spending was erratic and our average ticket was elevated as consumers and businesses spent money recovering from the hurricanes. Our merchant mix and net revenue spread also improved throughout the quarter as smaller merchants reopened for business. To put this into perspective, our average net revenue percentage spread improved approximately 15% from October to December as electricity coverage increased across the island. Notwithstanding, our percentage still remains considerably lower than last year, reflecting an unfavorable merchant mix.
As of the end of January, approximately 15% of our merchants still had not processed a transaction since Maria. At this time, it remains unclear whether or when these merchants will restart their businesses, but we are proactively engaged in assisting them where possible. adjusted EBITDA for the segment was $7.8 million and adjusted EBITDA margin was 42.7%, down approximately 80 basis points as compared to last year, primarily as a result of the reduced revenue related to the hurricanes. For the full year, merchant acquiring was down approximately 6% year-over-year at $85.8 million, reflecting the year-over-year impact of a mid-2016 customer contract change, as well as the impact of the hurricanes in the second half of the year.
adjusted EBITDA for the merchant segment for the full year was $37.5 million, down 10%, and adjusted EBITDA margin was 43.7%, down 190 basis points as compared to last year. On slide 12 are the results for the Payment Services, Puerto Rico and the Caribbean segment. Revenue in the fourth quarter in the segment was $22.9 million, down approximately 11% as compared to last year, primarily due to the hurricane impacts. Our revenue was better than we anticipated as volumes grew beyond our Q3 estimates. Puerto Rico transaction volumes in the quarter averaged 75% of prior year levels, growing from less than 50% in October to 95% in December. This average has sustained into Q1. However, on a day-to-day basis, the volumes have been erratic. adjusted EBITDA for the segment was $8.1 million, down 50%, and adjusted EBITDA margin was 35.6%.
adjusted EBITDA was impacted by reduced revenue related to the hurricanes, as well as the impairment charge that I mentioned earlier. For the full year, the segment grew 2% to $101.7 million, driven by the merchant customer contract change that impacted us in the first half of 2017. adjusted EBITDA for the full year was $58.5 million, down 7%, and adjusted EBITDA margin was 57.6%, although down 570 basis points as compared to last year, primarily due to the hurricane and the impairment charge. On slide 13, you will find the results for our Payment Services Latin America segment. Revenue in the fourth quarter in the segment was $19.3 million, up approximately 55% as compared to last year, primarily driven by our acquisition of PayGroup, which contributed approximately $6 million.
Adjusted EBITDA for the segment was $4.3 million and adjusted EBITDA margin was 22.1%, down 610 basis points as compared to last year, primarily due to the lower margin contribution from PayGroup and the impacts of customer attrition. For the full year, the segment grew 33% to $62.7 million, driven primarily by the PayGroup acquisition in July. Adjusted EBITDA for the full year was $17.6 million and adjusted EBITDA margin was 28%, down 460 basis points as compared to last year. Moving to slide 14, Business Solutions revenue in the fourth quarter decreased 7% to $46.1 million. We benefited from the CPI increase on the Banco Popular MSA, which was offset by reduced professional service revenue due to hurricane-related project delays. As a reminder, we completed multiple large projects in the prior year quarter, which contributed to the year-over-year variance.
Adjusted EBITDA for the segment was $21.4 million and adjusted EBITDA margin was 46.4%, down 230 basis points as compared to last year. For the year, Business Solutions grew 3% to $189.1 million, reflecting the growth and impacts of these same drivers. Full year adjusted EBITDA for the segment was $86.8 million, down 3%, and adjusted EBITDA margin was 45.9%, down 250 basis points year-over-year. Moving to slide 15, you will see a summary of our corporate expense. Our fourth quarter corporate and other expense was $4.6 million, a year-over-year reduction of 28.5%. The decline primarily reflects reduced incentive compensation and professional fees. For the full year, corporate and other expense was $22.4 million, up 3% over the prior year. Moving on to our year-to-date cash flow review on Slide 16.
Net cash provided by operating activities was approximately $146 million, or a $22 million decrease as compared to the prior year. We had an approximately $1.8 increase in our restricted cash. Our acquisition of PayGroup was for approximately $42.8 million. Capital expenditures were approximately $33.4 million. Next, we paid approximately $20 million in principal debt payments and reduced approximately $20 million in short-term and other borrowings, resulting in a total net debt decrease of approximately $40 million. Finally, we have paid cash dividends to stockholders of approximately $22 million and repurchased approximately $8 million of common stock, for a total of approximately $29 million returned to our shareholders for the year. We have approximately $72 million available for future use under the company's share repurchase program as well. Our ending cash balance as of December 31 was $50 million.
Moving on to slide 17, you will find a summary of our debt as of December 31st, 2017. Our quarter-ending net debt position was approximately $574 million, comprised of the $50 million of unrestricted cash and approximately $625 million of total short-term borrowings and long-term debt. A weighted average interest rate was approximately 4%. Our net debt to trailing 12-months adjusted EBITDA was 3.3 times, reflecting the terms of our credit agreement, which limits the cash applied to the net debt calculation to $25 million. As of December 31st, total liquidity, which excludes restricted cash and includes the available borrowing capacity under our existing revolver, was $134 million. As a reminder, we have a $27 million principal payment due in April to retire our 2018 term loan A.
We are planning to retire this obligation with cash on hand in our revolver, which reduces from $100 million to $65 million in April as well. We made significant progress this year on our government receivables. Our government receivable as of December 31st was approximately $11 million, which is down approximately $7 million from the balance at the end of 2016. Before I discuss our 2018 guidance details, it's important to note that at a high level, we are encouraged by the improved volumes and spending activity in Puerto Rico, but remain cautious due to all the uncertainties we face. Notwithstanding these uncertainties, we remain committed to sharing our estimates and assumptions, updating them as the year progresses as appropriate when we have more clarity. Moving to slide 18, I will now provide you with our 2018 guidance.
We expect revenue to be in a range of $411 million to $425 million, representing growth of 1%-5%. Our adjusted earnings per share outlook of $1.25 to $1.41 represents a range of negative 15% to negative 4%, as compared to the adjusted earnings per share in 2017 of $1.47. On a GAAP basis, earnings per share is anticipated to be between $0.60 and $0.76. I will now highlight some of the key underlying uncertainties that we are faced with and how we've analyzed and planned for them. These key uncertainties are the following: the impact and timing of power restoration, the winding down of the bank moratorium stimulus, mainland immigration, federal relief funding and insurance proceeds, government fiscal plan and budget initiatives.
With respect to power restoration, we believe we will have a clearer understanding of our projected sustained transactions, volumes, and revenues a month or two after all powers are restored on the island. Since power is now reported to be approximately 75% restored at the customer's level on the island, we project that the last 25% will have a modest positive impact on transaction growth as transactions are more likely to disperse among the merchant base as compared to grow in the aggregate. However, we remain uncertain until such time. We are also monitoring whether or not the approximately 15% inactive merchants will restore their businesses when power is fully restored. If they do not restore business, we would lose fixed monthly fee revenues, and we have assumed that approximately just over half of these merchants will not restore service.
As the power is expected to be substantially restored by the end of the second quarter, we believe that this timeframe will give us a clearer view in terms of sustained transaction volumes and merchant attrition. We also anticipate continued reduced net revenue spread as larger merchants are expected to process more sales volume. As Mac mentioned, the bank moratorium on consumer and business loan payments provided relief and stimulus in the fourth quarter and into the first quarter of 2018. As these programs end, we are monitoring the impact. We believe we will see a continued benefit from this disposable income stimulus in the first quarter that reduces over the quarter and ends in the second quarter. It remains to be seen whether or not spending will reduce upon program completion. We've not projected a significant impact from this.
By many reports, there has been a significant emigration from the island to the U.S., and there are also reports that many island residents have returned to the island. The net census picture is not clear, and there is also a concern that another wave of island residents will emigrate after the school year ends, which has been the historical emigration pattern. We have assumed that emigration will continue to impact us negatively throughout the year and more significantly in the second half of the year. The timing of federal disaster relief funds is still uncertain, as is the full benefit of hurricane insurance payments. While it's likely that these funds will be received, the timing and quantity is less clear. We have estimated that these funds will provide a positive stimulus in the second half of the year.
The government's fiscal plan and related budget initiatives are a work in process. We continue to support the government in its initiatives to improve efficiency in collections, but at this time, can't plan for any impacts and have assumed we will renew our existing contracts in the normal course. Considering all of these variables, we project Puerto Rico transaction volumes to essentially sustain their current levels over the first half of the year and only modestly increase in the back half of the year, when power is fully restored and relief funds are added to the economy, but the immigration impact is greater. We anticipate a negative impact for merchant attrition and the reduced spread to affect us for the majority of the year. Given these assumptions, merchant revenue is anticipated to be down mid-single digits year-over-year.
Our payment services Puerto Rico and Caribbean segment revenue is also anticipated to decline mid-single digits for these same reasons. Our Latin America payment segment will continue to benefit from the PayGroup transaction in the first half, partially offset by $5 million-$8 million of anticipated client attrition, resulting in growth for the segment of approximately 20%. adjusted EBITDA margins in the segment are estimated to decline as the addition of PayGroup is anticipated to only partially offset the anticipated attrition loss of higher margin revenue. Finally, the Business Solutions segment revenue is anticipated to grow low to mid-single digits, reflecting our Banco Popular revenue expectations and other IT projects expected to contribute during the year. Regarding corporate expenses, we expect these to approximate 2017 levels.
We've also implemented cost actions of $3 million-$4 million and plan for a related charge of approximately $1 million in Q1. All of these items are considered in our guidance and combined, we believe will generate adjusted EBITDA margins in a range of 40%-42%, or approximately a 200 to 400 basis point decrease from our adjusted EBITDA margin year-over-year. On a quarterly basis, we anticipate margins will be lowest in the first quarter and that we would expect to see modest improvement sequentially each quarter with revenue growth. Our operating depreciation is anticipated to increase approximately $3.5 million to $34 million, 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 2018 by approximately $1 million-$2 million based on consensus LIBOR projections.
Our non-GAAP effective tax rate is anticipated to be between 11%-13%, and we believe we will be unaffected by the recent U.S. tax changes. The guidance does not reflect additional share repurchases. The weighted average dilutive shares are estimated to be approximately 73.5 million shares for the year. Our capital expenditures for 2018 are anticipated to be in a range of $35 million-$40 million. We plan to retire the $27 million term loan A in April with our cash on hand and existing revolver facility while we remain cautious and will continue to prudently manage expenditures as Puerto Rico stabilizes. With respect to the new revenue recognition standard, ASC 606, we have concluded its impact will be immaterial. I want to thank everybody that worked diligently on this significant project over the past year.
We executed well during this extraordinary period and delivered strong cash generation under challenging conditions. We are very proud of our hurricane response and the significant contributions we made to help Puerto Rico bounce back from Maria. As we continue to focus on helping our customers in Puerto Rico and expanding our LatAm business, we will remain cautious as we manage through the post-hurricane uncertainties. We look forward to updating you on our progress. We will now open the call for questions. Operator, please go ahead and open the line.
Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then one on your touch-tone telephones. If you are using a speakerphone, we do ask you to please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your question, you may press star and two. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Bob Napoli from William Blair. Please go ahead with your question.
Thank you. Appreciate the segment information. Lot of stuff you guys hammered through there. I guess maybe a question on the Payment Services Latin America segment. It sounds like you've had already some cross-selling success. I don't know if you can talk about what you think cross-sell synergies could be from that business and what type of growth rate you expect for that business organically. Understanding you have a couple customers deconverting, but as you get through that, what type of revenue growth would you expect to have for that group, as you say, go into 2019 and 2020?
Yes. This is Mac. I'll sort of answer from the cross-sell opportunity and the product side. As I said earlier, the products that we've inherited as part of PayGroup, we think are some of the best in the region, and we have already had some early wins in Colombia and Dominican Republic as well. We continue to have a pretty healthy existing pipeline that the PayGroup had and also cross-sell pipeline now that we've matched them with our customer base. Peter, I don't know if you want to
Yeah. Hi, Bob.
Hey, Peter.
The organic growth was approximately 6% in the quarter. That was affected by a couple million dollars of attrition over the year, which was approximately $750,000 in the quarter. Secondly, after we get through the attrition impact, which the majority will hit in 2018, we anticipate growing in the low double-digit area.
What do you think EBITDA margins should be for that segment over the medium term?
Well, as we plan for next year, we have multiple things going on. Specifically, the attrition, which we've estimated at $5 million-$8 million of high margin revenue, we continue to integrate PayGroup. As we announced, we had some wins there. We also have some other opportunities on the organic side, we hope to continue the margin performance that we exited Q4, which is 22% and really are planning towards a 20% type margin for the full year.
Bob, the strategy has been to expand our footprint into these exciting markets invest in the products to make sure they're highly competitive and we can be successful in these cross-sells. Over time, we hope to expand the margins.
Last question, I'll turn it over. Just on the immigration side, Banco Popular and some of the others have suggested that the reports of the level of immigration have been grossly exaggerated, I just wasn't sure you were agreeing with that. Just as my second part of that last question, EBITDA margins in the past were in the mid to high 40s% to 50%. As we're looking at 2019 and 2020 and understanding you're investing heavily in non-Puerto Rico, can those EBITDA margins get maybe back to the mid-40s%?
Bob, I'll take the immigration question. I would say right now it's a bit ambiguous because people have left. Some people are still here working. Their families have left to enroll in schools. They may come back, or that person may decide to migrate in the summer. I don't think there's any data right now that is highly reliable because it's sort of uncharted territories. At this point, we really can't give you sort of a forecast on the immigration trends.
That's right. The data's all over. We also have on the island a lot of relief workers which are contributing to our payments volume.
Right
Too, is another variable that makes it difficult to really understand the impact of the emigration. I will note that our overall payment volume that we can track, which is a complex item to track. We estimate that we have between one and 2% of our volume from cardholders that is in the U.S. right now. That's one metric that we're following to see how that changes over time. With respect to the margin that as we move forward, obviously it depends largely upon the future in Puerto Rico. We do anticipate to be in this lower margin in the Latin America segment as we continue to build out on our strategy, which will require some investment in each country.
As we have experienced, as we develop that, after we've posted that investment, we will continue to grow margin within that country, but there's going to be initial investment as we move forward in each particular country.
Thank you.
Thanks, Bob.
Our next question comes from George Mihalos from Cowen. Please go ahead with your question.
Great. Good afternoon, guys. Encouraging commentary. Just wanted to start off on the merchant acquiring segment where I think you highlighted the elevated average ticket. Curious if you're seeing that elevated ticket continue in the first quarter. I want to make sure I understand it. I think you talked about sort of a positive spread coming from mix, so I guess more SMB customers. Is that surprising given that I certainly would have thought more of the volume would've been more towards larger retailers and maybe how you're thinking about that first half over back half.
Hi, George. It's Peter. Firstly, what we called out on the prepared marks is that our spread increased 15%, and that was coming off of where we were at the beginning of the recovery from the hurricane, and that was greater than what we had projected at that time. However, it's important to note that we're still behind the prior year levels, so we still have a mix issue as compared to the past. As we looked at the spending that is going on, just to give you some perspective from day to day, we see double-digit swings in transactions and payment volume. We're obviously very encouraged with the overall spend and the overall transactions, but it's not something that's comparable to what we experienced before the hurricane.
With respect to spread, right now we're seeing an impact in high single digits with respect to that as well as unfavorably. With respect to the average ticket, that too is approximately the same in a favorable amount. We're seeing elevated spending almost across every category, some of which is driven by higher gas prices. Just generally, we're seeing a higher spend per ticket.
Okay. That's helpful. Just thinking about the roll-off of some of that high margin revenue on the payment services side, should we be thinking of that sort of spread out evenly throughout the year, or will that be more sort of back-end loaded based on the visibility that you have today?
I'd say it's predominantly from Q2 on. It's smaller in the first quarter, and then it gradually builds throughout the year.
Okay, great. Thanks, guys.
Thanks, George.
Our next question comes from Vasundhara Govil from Morgan Stanley. Please go ahead with your question.
Hi. Thanks for taking my question and congratulations. I think things are progressing better than we'd anticipated. I know you guys said that the payment trends are quite erratic, but could you still try to give us the trends on a monthly basis, how they've progressed and where they are in January?
Hi, Vasu. As we indicated from our last call, we were projecting to get to approximately an 80% level. In fact, we reached 95%, so that was significantly better. That trend has sustained into January and so far into February between essentially 95% and 100% of our prior year level. Some of that, we believe, as we indicated in our script, is related to the moratorium where there's more disposable income in the pockets of consumers. We're monitoring that. We're obviously encouraged by that, but cautious as we look forward.
Got it. Just continuing on the questions about the spread impact and the ticket sizes. I don't know if you have these numbers handy, but could you give us some sense on what the historical processing volume mix has been between small and large merchants and where it is compared to that right now?
I think it's a challenging statistic to give you. It's definitely predominantly more large merchants. We have some emerging categories such as tax payments that are different previously. Just given the elevated spend that's almost across all our categories, it'd have to be difficult to give you a precise amount. We're absolutely seeing a higher proportion of large merchants.
Understood. Just last one. The tax reform, I believe, had some provision for a tariff to be applied on products manufactured by foreign subsidiaries, including Puerto Rico, which I think the thought was that would impact some pharma manufacturing in Puerto Rico. How were you guys thinking about that? Is that a potential risk? Is that sort of one of the factors that you're considering in how you formulated guidance?
Well, it's clearly not a direct risk to us because we're not directly affected as a company. However, to the extent those businesses change their production levels and potentially re-domicile back to the United States, that could impact us and the overall economy in Puerto Rico. I think it's premature to make any estimates based on that, and we're also anxious to see what countermeasures the Puerto Rican government produces in their upcoming tax reform.
Thank you very much.
Our next question comes from Bryan Keane from Deutsche Bank. Please go ahead with your question.
Hi, guys. Encouraging signs here. Just want to ask on disaster relief stimulus and insurance fund stimulus, has that kicked in yet or is that more you think later in 2018?
Yeah. This is Mac. I think there's more to come. I don't think we've seen nearly the extent of the insurance payments nor the relief funding. We have seen some impact, but I think that's going to play out throughout the year and even into 2019.
Okay. Peter, just was hoping you could give us maybe some cadence by quarter of revenue and earnings. It sounds like maybe second quarter will be the low for revenue and earnings, and then maybe the back half of the year will be stronger than the first half. Just thinking about how to model this out.
Yeah. We're looking at it as just sort of a steady upward trend. Almost slow ascent, if you will, from Q1 onward to the end of the fourth quarter.
Okay. The attrition from the clients runoff won't happen until the second quarter of this year.
That's right. That should for our estimates be offset by some of the payments in Puerto Rico as Puerto Rico improves.
Okay. All right. That's all I had. Thanks, guys.
Thank you.
Our next question comes from Jim Snyder from Goldman Sachs. Please go ahead with your question.
Good afternoon. Thanks for taking my question. I was wondering if you could maybe just comment a little bit on the solutions business. I know some of these contracts are a little bit hard to have visibility on, but maybe talk about the cadence of some of the business in terms of the pushouts that you saw, more importantly, what you see in terms of any contract renewals that are coming up throughout the course of 2018.
Yeah. Hi, Jim. Just first and foremost in the business solutions, it predominantly reflects our master service agreement with Banco Popular. We see and predict some modest growth with respect to that arrangement. What we're also experiencing is a benefit from our hurricane response, where we are picking up business in business continuity services where enterprises on the island are seeking our support in lieu of our performance during the hurricane, which is obviously good.
Very good. Just as a quick follow-up, can you maybe just address specifically what you're seeing in terms of the ATM volumes specifically and maybe talk about how much of that is being driven in terms of the recovery by aid that's arriving on the island versus the kind of the organic spend by cardholders who are residents?
I would say similar to pretty much all the tickets that we experience on the spending side. You're seeing more or less the same amount of transactions, a higher money withdrawal. There's also a lot of relief workers on the island. As we've discussed before, there's still a strong cash presence and preference among merchants and so forth as well.
Makes sense. Thank you.
Once again, if you would like to ask a question, please press star and then one. To withdraw your question, please press star and two. Our next question comes from Tien-Tsin Huang from JP Morgan. Please go ahead with your question.
Thanks. I guess I'll ask on the upside in the fourth quarter revenue, is that all just better hurricane recovery or did some of the cross-sell and other things contribute as well?
The majority of it certainly was the hurricane, and then we executed some other projects kind of through multiple segments and that contributed. The significant majority of that was the hurricane.
Got it. Sorry, go ahead.
I was saying just as compared to our estimates, Tien-Tsin.
Understood. Just wanted to make sure I didn't miss anything. To clarify the $5 million impairment, was that contemplated in your prior guide? Because obviously you offset that with the revenue and the flow-through would've been much greater. I know it's tricky with impairments and when you recognize it or potentially see it, but just trying to understand how that fits with everything else.
No would be the answer. We generally don't plan for this. As we indicated in our remarks, the hurricane impacted our customer, which caused some delays and that kind of cascaded to where we ended up experiencing some overruns with our critical third-party vendor. That was what transpired.
Right. Was that sort of contemplated as a potential risk to your guidance previously?
No, it wouldn't. If we were aware of that, we would've recorded that earlier.
Gotcha. Just wanted to make sure that was the case. Then just lastly, I know you got a lot of questions on the client fee conversions, but once we're through sort of 2018, is there more potentially to come beyond what you called out for 2018?
There is a little tail in 2019 of approximately $3 million-$4 million that we currently estimate. To the extent these pushouts from 2018, which by our latest estimates, we don't believe they will because the projects to de-convert have commenced, that there would still be a year-over-year effect in 2019.
Okay, great. Thanks for all that. Appreciate it.
Once again, if you would like to ask a question, please press star and one. Ladies and gentlemen, at this time and showing no additional questions, I'd like to turn the conference call back over to Mac Schuessler, President and Chief Executive Officer.
Again, thanks to everyone for joining the call, and I do want to reiterate thanks to all the employees at EVERTEC for making so much progress through a very challenging year. Everyone, have a good night.
Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.