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What changed in EVERTEC, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EVERTEC, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+338 added−254 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-24)

Top changes in EVERTEC, Inc.'s 2023 10-K

338 paragraphs added · 254 removed · 200 edited across 6 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

92 edited+78 added−20 removed123 unchanged
Biggest changeOur property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur. We are similarly dependent on our employees. Our operations could be materially adversely affected if one or more employees cause a significant operational breakdown or failure, either intentionally or as a result of human error.
Biggest changeTo the extent we outsource our disaster recovery, we are at risk of the vendor’s unresponsiveness in the event of breakdowns in our IT Systems. Our property, business interruption, and cybersecurity insurance may not be adequate to compensate us for all losses or failures that may occur. We are similarly dependent on our employees to maintain our IT Systems.
If we are unable to renew or negotiate extensions for our A&R MSA with Popular, our A&R ISO Agreement with Banco Popular and our A&R ATH Network Participation Agreement with Banco Popular (together with its ATH Support Schedule, the “A&R BPPR ATH Agreement ” ), or if we are required to provide significant concessions to Popular or Banco Popular to secure extensions or otherwise, our ability to renegotiate our debt, results of operations, financial condition and trading price of our common stock may be materially adversely affected.
If we are unable to renew or negotiate extensions for our A&R MSA with Popular, our A&R ISO Agreement with Banco Popular and our A&R ATH Network Participation Agreement with Banco Popular (together with its ATH Support Schedule, the “A&R BPPR ATH Agreement ” ), or if we are required to provide significant concessions to Popular or Banco Popular to secure extensions or otherwise, our ability to renegotiate our debt, secure additional debt, results of operations, financial condition and trading price of our common stock may be materially adversely affected.
Our security measures may also be breached due to the mishandling or misuse of information; for example, if such information were erroneously provided to parties who are not permitted to have the information, either by employees acting contrary to our policies or as a result of a fault in our systems.
Our security measures may also be breached due to the mishandling or misuse of Confidential Information; for example, if such information were erroneously provided to parties who are not permitted to have the information, either by employees acting contrary to our policies or as a result of a fault in our systems.
Hurricanes and other natural disasters including earthquakes, and their potential aftermaths, such as widespread power outages in Puerto Rico, damage to infrastructure and communications networks, and the temporary cessation and slow pace of reestablishment of regular day-to-day commerce, may severely impact the economies of Puerto Rico and the Caribbean more generally.
Hurricanes and other natural disasters including earthquakes and wildfires, and their potential aftermaths, such as widespread power outages in Puerto Rico, damage to infrastructure and communications networks, and the temporary cessation and slow pace of reestablishment of regular day-to-day commerce, may severely impact the economies of Puerto Rico and the Caribbean more generally.
Growth in our merchant acquiring business is derived primarily from acquiring new merchant relationships, new and enhanced product and service offerings, cross selling products and services into existing relationships, the shift of consumer spending to increased usage of electronic forms of payment, and the strength of our relationship with Banco Popular.
Growth in our merchant acquiring business is derived primarily from acquiring new merchant relationships, new and enhanced product and service offerings, cross selling products and services into existing relationships, the shift of consumer spending to increased usage of electronic forms of payment, and the strength of our existing commercial relationship with Banco Popular.
Some of our systems have experienced in the past and may experience in the future security breaches and, although they did not have a material adverse effect on our results of operations or reputation, there can be no assurance of a similar result in the future.
Some of our IT Systems have experienced in the past and may experience in the future security breaches and, although they did not have a material adverse effect on our results of operations or reputation, there can be no assurance of a similar result in the future.
Treasury indicated may also apply to certain stock redemptions by a foreign corporation funded by certain United States affiliates); tax policy initiatives and reforms under consideration (such as those related to the Organization for Economic Co-Operation and Development’s (“OECD”) Base Erosion and Profit Shifting, or BEPS, project and other initiatives); the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties.
Treasury indicated may also apply to certain stock redemptions by a foreign corporation funded by certain United States affiliates); tax policy initiatives and reforms (such as those related to the Organization for Economic Co-Operation and Development’s (“OECD”) Base Erosion and Profit Shifting, or BEPS, project and other initiatives); the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties.
The elimination of Popular’s holdings of our common stock and the corresponding termination in Popular’s right to nominate directors to our Board of Directors may negatively impact our business relationship with Popular and increase the likelihood of a change of control of our Company.
The elimination of Popular’s holdings of our common stock and the corresponding termination of Popular’s right to nominate directors to our Board of Directors may negatively impact our business relationship with Popular and increase the likelihood of a change of control of our Company.
If any of our financial, accounting, or other data processing systems or applications fail or experience other significant shortcomings, our ability to serve our clients and accordingly our results of operations could be materially adversely affected.
If any of our financial, accounting, or other data processing systems or applications or other IT Systems fail or experience other significant shortcomings, our ability to serve our clients and accordingly our results of operations could be materially adversely affected.
Failure to comply with federal and state laws and regulations relating to data privacy and security, or the expansion of current, or the enactment of new, laws or regulations relating to data privacy and security, could adversely affect our business, financial condition and operating results.
Failure to comply with federal, state and foreign laws and regulations relating to data privacy and security, or the expansion of current, or the enactment of new, laws or regulations relating to data privacy and security, could adversely affect our business, financial condition and operating results.
Instability in Latin America has been caused by many different factors, including (i) exposure to foreign exchange variation, (ii) significant governmental influence over local economies; (iii) substantial fluctuations in economic growth; (iv) instability in the banking sector and high inflation levels or domestic interest rates; (v) wage, price or exchange controls, or restrictions on expatriation of earnings; (vi) changes in governmental economic or tax policies or unexpected changes in regulation which may restrict the movement of funds or results in the deprivation of contract or property rights; (vii) imposition of trade barriers; (viii) terrorist attacks and other acts of violence or war; (ix) high unemployment; and (x) overall political, social, and economic disruptions.
Instability in Latin America has been caused by many different factors, including (i) exposure to foreign exchange 24 Table of Contents variation, (ii) significant governmental influence over local economies; (iii) substantial fluctuations in economic growth; (iv) instability in the banking sector and high inflation levels or domestic interest rates; (v) wage, price or exchange controls, or restrictions on expatriation of earnings; (vi) changes in governmental economic or tax policies or unexpected changes in regulation which may restrict the movement of funds or results in the deprivation of contract or property rights; (vii) imposition of trade barriers; (viii) terrorist attacks and other acts of violence or war; (ix) high unemployment; and (x) overall political, social, and economic disruptions.
Our operations, business, customers and partners could be adversely affected by climate change. There are increasing and rapidly evolving concerns over the risks of climate change and related environmental sustainability matters. The physical risks of climate change including rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters.
There are increasing and rapidly evolving concerns over the risks of climate change and related environmental sustainability matters. Our operations, business, customers and partners could be adversely affected by climate change. The physical risks of climate change include rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters.
A substantial portion of our business is generated from our Amended and Restated Independent Sales Organization Sponsorship and Services Agreement (the “A&R ISO Agreement”) with Banco Popular, which was amended and restated on July 1, 2022, among other things, to extend its term to 2035.
A substantial portion of our business is generated from our Amended and Restated Independent Sales Organization Sponsorship and Services Agreement (the “A&R ISO Agreement”) with Banco Popular, which was amended and restated on July 1, 2022, among other things, to extend its term to end in 2035.
Many countries in Latin America have suffered significant political, social and economic crises in the past, including most recently as a result of the COVID-19 pandemic and the related restrictions imposed to mitigate its impact, as well as the resulting macroeconomic slowdown, and these events may occur again in the future.
Many countries in Latin America have suffered significant political, social and economic crises in the past, including as a result of the COVID-19 pandemic and the related restrictions imposed to mitigate its impact, as well as the resulting macroeconomic slowdown, and these events may occur again in the future.
In the event inflation continues to increase, we may seek to increase the sales prices of our products and services in order to maintain satisfactory margins. Any attempts to offset cost increases with price increases may result in reduced sales, increase customer dissatisfaction or otherwise harm our reputation.
In the event inflation remains elevated or continues to increase, we may seek to increase the sales prices of our products and services in order to maintain satisfactory margins. Any attempts to offset cost increases with price increases may result in reduced sales, increase customer dissatisfaction or otherwise harm our reputation.
Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us, could cause our customers, riders and users to reduce their use of our products and services.
Any concerns about our data privacy and security practices (even if unfounded), or any failure, real or perceived, by us to comply 21 Table of Contents with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us, could cause our customers, riders and users to reduce their use of our products and services.
Moreover, to the extent inflation has other adverse effects on the market, it may adversely affect our business, financial condition and results of operations. Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute shareholder value, and adversely affect our business, financial condition and results of operations.
Moreover, to the extent inflation has other adverse effects on the market, it may adversely affect our business, financial condition and results of operations. 27 Table of Contents Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute shareholder value, and adversely affect our business, financial condition and results of operations.
If the A&R ISO Agreement is not renewed, we will have to seek other card association sponsors, we will not benefit from Banco Popular referral of merchants and we may experience the loss of some merchants if Banco Popular itself enters the merchant acquiring business or agrees to sponsor another independent sales organization.
If the A&R ISO Agreement is not renewed, we will have to seek other card association sponsors, we will not benefit from Banco Popular referral of merchants and we may experience the loss 15 Table of Contents of some merchants if Banco Popular itself enters the merchant acquiring business or agrees to sponsor another independent sales organization.
Policing such unauthorized use of our proprietary rights is often very difficult, and therefore, we are unable to guarantee that the steps we have taken will prevent misappropriation of our proprietary 24 Table of Contents software/technology or that the agreements entered into for that purpose will be effective or enforceable in all instances.
Policing such unauthorized use of our proprietary rights is often very difficult, and therefore, we are unable to guarantee that the steps we have taken will prevent misappropriation of our proprietary software/technology or that the agreements entered into for that purpose will be effective or enforceable in all instances.
Moreover, if we fail to comply with new laws, regulations, expectations or reporting requirements, or if we are perceived as failing, our reputation and business could be adversely impacted. Any reputational damage associated with environmental, social and governance (ESG) factors may also adversely impact our ability to recruit and retain employees and customers.
Moreover, if we fail to comply with new laws, regulations, expectations or reporting requirements, or if we are perceived as failing, our reputation and business could be adversely impacted. Any reputational damage associated with ESG factors may also adversely impact our ability to recruit and retain employees and customers.
Prolonged delays in the repairs to the island’s infrastructures, decline in business volumes, insufficient federal recovery and rebuilding assistance and any other economic declines due to hurricanes and their aftermaths may impact the demand for our services and could have a material adverse effect on our business and results of operations.
Prolonged delays in the repairs to the island’s infrastructures, decline in business volumes, insufficient federal recovery and rebuilding assistance and any other economic declines due to natural disasters and their aftermaths may impact the demand for our services and could have a material adverse effect on our business and results of operations.
There can be no guarantee that this growth 16 Table of Contents will continue and the loss or deterioration of these relationships, whether due to the termination of the A&R ISO Agreement or otherwise, could negatively impact our business and result in a material reduction of our revenue and income.
There can be no guarantee that this growth will continue and the loss or deterioration of these relationships, whether due to the termination of the A&R ISO Agreement or otherwise, could negatively impact our business and result in a material reduction of our revenue and income.
Our financial performance and results of operations may be adversely affected by general economic, political, and social conditions and uncertainty in the emerging markets in which we operate.
Our financial performance and results of operations may be adversely affected by general economic, political, and social conditions and uncertainty in the international markets in which we operate.
Increases in chargebacks or other liabilities could adversely affect our business, financial condition or results of operations. 19 Table of Contents We are subject to the credit risk that our merchants will be unable to satisfy obligations for which we may also be liable.
Increases in chargebacks or other liabilities could adversely affect our business, financial condition or results of operations. We are subject to the credit risk that our merchants will be unable to satisfy obligations for which we may also be liable.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NYSE and other applicable securities laws and regulations. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange (The "NYSE") and other applicable securities laws and regulations. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing.
Such events and disasters could disrupt our operations or the operations of 23 Table of Contents customers or third parties on which we rely and could result in market volatility. Additionally, we may face risks related to the transition to a low-carbon economy.
Such events and disasters could disrupt our operations or the operations of customers or third parties on which we rely and could result in market volatility. Additionally, we may face risks related to the transition to a low-carbon economy.
Our management and other personnel devote a 27 Table of Contents substantial amount of time to compliance with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly.
Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly.
Any failure, or perceived failure, by us to comply with our posted privacy policies or with any current or future federal or state data privacy or security-related laws, regulations, regulatory guidance, orders, or other legal obligations relating to privacy or security could adversely affect our reputation, brand and business, and may result in claims, proceedings, or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets.
Any failure, or perceived failure, by us to comply with our posted privacy and security-related policies or with any current or future federal or state data privacy or security-related laws, regulations, regulatory guidance, orders, or other legal obligations relating to privacy or security could adversely affect our reputation, brand and business, and may result in claims, proceedings, or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets, and may otherwise adversely affect our financial condition and operating results.
We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our Consolidated Statement of Financial Position, and otherwise affect our future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our stockholders and increase the complexity, burden and cost of tax compliance. 25 Table of Contents We are exposed to inflation, which could negatively affect our business, financial condition and results of operations.
We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our Consolidated Statement of Financial Position, and otherwise affect our future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our stockholders and increase the complexity, burden and cost of tax compliance.
Antitrust Due to our ownership of the ATH network and our merchant acquiring and payment services business in Puerto Rico, we are involved in a significant percentage of the debit and credit card transactions conducted in Puerto Rico each day.
Antitrust 22 Table of Contents Due to our ownership of the ATH network and our merchant acquiring and payment services business in Puerto Rico, we are involved in a significant percentage of the debit and credit card transactions conducted in Puerto Rico each day.
While we are not a direct-to-consumer business, we do collect, process, store, use and share some personal data of our employees and business partners, which is governed by a variety of federal and state laws and regulations. Laws and regulations relating to data privacy and security are complex and rapidly evolving and subject to potentially differing interpretations.
While we are not a direct-to-consumer business, we do collect, process, store, use and share personal data of our employees and business partners, which is governed by a variety of U.S. federal and state and foreign laws and regulations. Laws and regulations relating to data privacy and security are complex and rapidly evolving and subject to potentially differing interpretations.
If Popular were to terminate or fail to perform under the A&R MSA, or our other material agreements with Popular, our revenues could be materially reduced and our profitability and cash flows could also be materially reduced, all of which would have a material adverse impact on our financial condition and results of operations.
If Popular were to terminate or fail to make required payments under the A&R MSA, or our other material agreements with Popular, our revenues could be materially reduced and our profitability and cash flows could also be materially reduced, all of which would have a material adverse impact on our financial condition and results of operations.
It is possible that other types of environmental and social regulations, for example regulations regarding the 22 Table of Contents use of energy or water or regulations regarding human capital management matters, may also result in increased costs.
It is possible that other types of environmental and social regulations, for example regulations regarding the use of energy or water or regulations regarding human capital management matters, may also result in increased costs.
Puerto Rico ’ s fiscal crisis could have a material adverse effect on our business and the trading price of our common stock. For the years ended December 31, 2022 and 2021, approximately 78% and 80%, respectively, of our total revenues were generated from our operations in Puerto Rico.
Puerto Rico ’ s fiscal crisis could have a material adverse effect on our business and the trading price of our common stock. For the years ended December 31, 2023 and 2022, approximately 73% and 78%, respectively, of our total revenues were generated from our operations in Puerto Rico.
Risks Related to Our Business Our services to Banco Popular, our largest customer, account for a significant portion of our revenues, and we expect that our services to Popular will continue to represent a significant portion of our revenues for the foreseeable future.
Risks Related to Our Business 14 Table of Contents Our services to Banco Popular, our largest customer, account for a significant portion of our revenues, and we expect that our services to Popular will continue to represent a significant portion of our revenues for the foreseeable future.
Such actions by those lenders could also cause cross defaults under our other indebtedness. 28 Table of Contents If any such debt is accelerated and we are unable to repay the amounts outstanding thereunder, the lenders under any such secured credit facilities could proceed against the collateral securing such indebtedness.
Such actions by those lenders could also cause cross defaults under our other indebtedness. If any such debt is accelerated and we are unable to repay the amounts outstanding thereunder, the lenders under any such secured credit facilities could proceed against the collateral securing such indebtedness.
We cannot predict the size of future issuances of our common stock or the effect, if any that future issuances and sales of our common stock will have on the market price of our common stock.
We cannot predict the size of future issuances of our common stock or the effect, if any that future issuances and sales of our 28 Table of Contents common stock will have on the market price of our common stock.
Any such heightened supervision of our relationship with our banking and financial services customers, including Popular, could have an effect on our contractual relationship with our customers as well as on the standards applied in the evaluation of our services. See “Item 1.
Any such heightened supervision of our relationship with our banking and financial services customers, including Popular, could have an effect on our contractual relationship with our customers as well as on the standards applied in the evaluation of our services. See “Part I, Item 1.
A significant security breach, such as loss of credit card numbers and related information, could have a material adverse effect on our reputation, expose us to significant liability and result in a loss of customers.
A significant security breach, such as loss of credit card numbers or other Confidential Information, could have a material adverse effect on our reputation, expose us to significant liability and result in a loss of customers.
Such failures or shortcomings could be the result of events that are beyond our control, which may include, for example, computer viruses, fires, electrical or telecommunications outages, natural disasters, disease pandemics, terrorist acts or other unanticipated damage to property or physical assets.
Such failures or shortcomings could be the result of events that are beyond our control, which may include, for example, computer viruses, fires, electrical or telecommunications outages, natural disasters, future disease pandemics or other public health crisis, terrorist acts, political instability, or other unanticipated damage to property or physical assets.
In addition to the $174.0 million which was available for borrowing under our revolving credit facility as of December 31, 2022, the terms of the secured credit facilities enable us to increase the amount available under the term loan and/or revolving credit facilities if we are able to obtain loan commitments from banks and satisfy certain other conditions.
In addition to the $194.0 million which was available for borrowing under our revolving credit facility as of December 31, 30 Table of Contents 2023, the terms of the secured credit facilities enable us to increase the amount available under the term loan and/or revolving credit facilities if we are able to obtain loan commitments from banks and satisfy certain other conditions.
Additionally, the elimination of Popular’s ownership of our common stock could result in disruptions to relationships with customers and other business partners and adversely affects us. For the year ended December 31, 2022, approximately 39% of our revenue was attributable to Banco Popular, a wholly owned subsidiary of Popular.
Additionally, the elimination of Popular’s ownership of our common stock could continue to result in disruptions to relationships with customers and other business partners and adversely affect us. For the year ended December 31, 2023, approximately 35% of our revenue was attributable to Banco Popular, a wholly-owned subsidiary of Popular.
Attacks on information technology systems continue to grow in frequency, complexity and sophistication, a trend we expect will continue. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information.
We also operate payment, cash access and electronic card systems. Attacks on IT Systems continue to grow in frequency, complexity and sophistication, a trend we expect will continue. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information.
Puerto Rico’s economy, including the ongoing financial crisis and the effects of potential natural disasters, including weather events connected to climate change, could have a prolonged negative impact on the countries in which we operate and, as a result, could have a material adverse effect on our business and results of operations.
Puerto Rico’s economy, including the ongoing financial crisis and the effects of potential natural disasters, including weather events connected to climate change, or future disease pandemics or other public health crisis, could have a prolonged negative impact on the countries and markets in which we operate and, as a result, could have a material adverse effect on our business and results of operations.
Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.
Even though some of these attacks have been successful; none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, and we cannot guarantee that any such incidents will not have such an impact in the future.
If the lenders under the secured credit facilities accelerate the repayment of borrowings, the proceeds from the sale or foreclosure upon such assets will first be used to repay debt under our secured credit facilities and we may not have sufficient assets to repay our unsecured indebtedness thereafter.
If the lenders under the secured credit facilities accelerate the repayment of borrowings, the proceeds from the sale or foreclosure upon such assets will first be used to repay debt under our secured credit facilities and we may not have sufficient assets to repay our unsecured indebtedness thereafter. As a result, our common stock could be negatively impacted.
Furthermore, if we are unable to satisfy our obligations as a public company or the specific timing of such costs, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Furthermore, if we are unable to satisfy our obligations as a public company or the specific timing of such costs, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation. Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
As of December 31, 2022, we had net receivables of $9.4 million from the Government and certain public corporations. A protracted government shutdown could negatively affect our financial condition. During any protracted federal government shutdown, the federal government may reduce or cut funding for certain welfare and disaster relief programs.
As of December 31, 2023, we had net receivables of $11.1 million from the Government and certain public corporations. A protracted government shutdown could negatively affect our financial condition. 23 Table of Contents During any protracted federal government shutdown, the federal government may reduce or cut funding for certain welfare and disaster relief programs.
Because 26 Table of Contents we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, and to pay any dividends with respect to our common stock.
Given that we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, and to pay any dividends with respect to our common stock.
The technology solutions underlying our 17 Table of Contents services have occasionally contained, and may in the future contain, undetected errors or defects when first introduced or when new versions are released. We may experience difficulties in installing or integrating our technologies on platforms used by our customers.
The IT Systems underlying our services have occasionally contained, and may in the future contain, undetected errors or defects when first introduced or when new versions are released. We may experience difficulties in installing or integrating our IT Systems on platforms used by our customers.
Any of these occurrences could diminish our ability to operate one or more of our businesses, or result in potential liability to clients, reputational damage and regulatory intervention or fines, any of which could materially adversely affect our financial condition or results of operations. Our ability to recruit, retain and develop qualified personnel is critical to our success and growth.
Any of these occurrences could diminish our ability to operate one or more of our businesses, or result in potential liability to clients, reputational damage and regulatory intervention or fines, any of which could materially adversely affect our financial condition or results of operations.
Further, Popular may require significant concessions from us with respect to pricing, services, and other key terms, both in respect of the current term and any future extension of the A&R MSA.
Further, Popular may require significant concessions from us with respect to pricing, services, and other key terms, both in respect of the current term and any future extension of the A&R MSA. We regularly discuss with Popular the terms of the A&R MSA and the services we provide Popular thereunder and make modifications to such terms.
We cannot be certain that we will be able to negotiate an extension to the MSA upon its expiration on its terms. Even if we can negotiate an extension of the A&R MSA, any new master services agreement may be materially different from the existing A&R MSA.
We cannot be certain that we will be able to negotiate an extension to the A&R MSA upon its current expiration date, which is scheduled for 2028. Even if we can negotiate an extension of the A&R MSA, any new master services agreement may be materially different from the existing A&R MSA.
We rely on the continuing growth of our merchant relationships, which in turn is dependent upon our alliance with Banco Popular and other distribution channels.
Although Banco Popular is not our sole distribution channel, it is the most significant. We rely on the continuing growth of our merchant relationships, which in turn is dependent upon our alliance with Banco Popular and other distribution channels.
Our amended and restated certificate of incorporation authorizes us to issue 206,000,000 shares of common stock, of which 64,847,233 are outstanding as of December 31, 2022. All of these shares, other than the 11,654,803 shares held by our officers and directors, are freely transferable without restriction or further registration under the Securities Act.
Our amended and restated certificate of incorporation authorizes us to issue 206,000,000 shares of common stock, of which 65,450,799 are outstanding as of December 31, 2023. All of these shares, other than the 866,616 shares held by our officers and directors as of December 31, 2023 are freely transferable without restriction or further registration under the Securities Act.
Banking In general, financial institution regulators require their supervised institutions to cause their service providers to agree to certain terms and to agree to supervision and oversight by applicable financial regulators, primarily to protect the safety and soundness of the financial institution.
Banking In general, financial institution regulators require their supervised institutions to cause their service providers to agree to certain terms and to agree to supervision and oversight by applicable financial regulators, primarily to protect the safety and soundness of the financial institution. We have agreed to such terms and provisions in many of our service agreements with financial institutions.
We have agreed to such terms and provisions in many of our service agreements with financial institutions. 21 Table of Contents We and our customers are also generally subject to U.S. federal, Puerto Rico and other countries’ laws, rules and regulations that affect the electronic payments industry, including with respect to activities in the countries where we operate and due to our relationship with customers that are subject to banking and financial regulation, including Popular.
We and our customers are also generally subject to U.S. federal, Puerto Rico and other countries’ laws, rules and regulations that affect the electronic payments industry, including with respect to activities in the countries where we operate and due to our relationship with customers that are subject to banking and financial regulation, including Popular.
The Amended and Restated Master Service Agreement (the “A&R MSA”) by and among Popular, Banco Popular de Puerto Rico and EVERTEC Group, is our most significant client contract, and was amended and restated to include terms ending in 2028.
The A&R MSA by and among Popular, Banco Popular de Puerto Rico and EVERTEC Group, is our most significant client contract, and was amended and restated to include a term ending in 2028.
Beneficiaries of certain federal programs, such as the Supplemental Nutrition Assistance Program (SNAP), obtain their benefits through electronic benefits transfer (EBT) accounts. A temporary or permanent reduction in federal welfare and relief programs could lead to a decrease in electronic benefit card volume.
Beneficiaries of certain federal programs, such as the Supplemental Nutrition Assistance Program (SNAP), obtain their benefits through EBT accounts. A temporary or permanent reduction in federal welfare and relief programs could lead to a decrease in electronic benefit card volume. The effect of a protracted government shutdown may materially and adversely affect our revenues, profitability, and cash flows.
There is also a risk that we may lose critical data or experience system failures. We perform the vast majority of disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery. To the extent we outsource our disaster recovery, we are at risk of the vendor’s unresponsiveness in the event of breakdowns in our systems.
There is also a risk that we may lose critical data or experience IT System failures. We perform the vast majority of disaster recovery operations ourselves, though we utilize select third parties for some aspects of recovery.
At the end of the relevant contract term, clients can renew or renegotiate their contracts with us, but may also decide to engage one of our competitors to provide products and services.
Our standard merchant contract has an initial term of up to three years, with automatic one-year renewal periods. At the end of the relevant contract term, clients can renew or renegotiate their contracts with us, but may also decide to engage one of our competitors to provide products and services.
Our contracts with private clients generally run for a period of one to five years. Our government contracts typically run for one year and do not include automatic renewal periods due to government procurement rules and related fiscal funding requirements. Our standard merchant contract has an initial term of up to three years, with automatic one-year renewal periods.
Our contracts with private clients generally run for a period of one to six years, and usually contain automatic renewal periods. Our government contracts typically run for one year and do not include automatic renewal periods due to government procurement rules and related fiscal funding requirements.
If EVERTEC Group does not comply with the terms of its preferential tax exemption grant, it may be subject to reduction of the benefits of the grant, tax penalties, other payment obligations or full revocation of the grant, which could have a material adverse effect on our financial condition, results of operations and our stock price.
Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary information will be effective. 26 Table of Contents If EVERTEC Group does not comply with the terms of its preferential tax exemption grant, it may be subject to reduction of the benefits of the grant, tax penalties, other payment obligations or full revocation of the grant, which could have a material adverse effect on our financial condition, results of operations and our stock price.
The markets in which we operate have recently experienced historically high levels of inflation. As inflation rates continue to increase or persist for a prolonged period of time, it may continue to affect our expenses, including, but not limited to, employee compensation expenses and benefits as well as increased general administrative costs.
As inflation rates continue to increase or if they persist for a prolonged period of time, they may continue to affect our expenses, including, but not limited to, increased employee compensation expenses and benefits as well as increased general administrative costs.
Further, if our clients fail or merge with or are acquired by other entities that are not our clients, or that use fewer of our services, they may discontinue or reduce their use of our services.
Mergers and consolidations of financial institutions reduce our number of clients and potential clients, which could adversely affect our revenues. Further, if our clients fail or merge with or are acquired by other entities that are not our clients, or that use fewer of our services, they may discontinue or reduce their use of our services.
If one or both of the BPPR ATH Agreements are not extended, our ATH brand and network could be negatively impacted, and our financial condition and results of operations materially adversely affected. Our inability to renew or continue to maintain client contracts on favorable terms or at all may materially adversely affect our results of operations and financial condition.
If one or both of the BPPR ATH Agreements are not extended, our ATH brand and network could be negatively impacted, and our financial condition and results of operations also be materially adversely affected.
In addition, the stock market in general has from time to time experienced extreme price and volume fluctuations. These market fluctuations could reduce the market price of our common stock for reasons unrelated to our operating performance. From time to time we are subject to various legal proceedings which could adversely affect our business, financial condition or results of operations.
In addition, the stock market in general has from time to time experienced extreme price and volume fluctuations. These market fluctuations could reduce the market price of our common stock for reasons unrelated to our operating performance.
Such attacks have become a point of focus for individuals, businesses, and governmental entities. 18 Table of Contents Unauthorized access to our computer systems or databases could result in the theft or publication of confidential information, the deletion or modification of records or could otherwise cause interruptions in the successful operations of our businesses.
Such attacks have become a point of focus for individuals, businesses, and governmental entities. Unauthorized access to our or third-party IT Systems could result in the theft or publication, the deletion or modification or other compromise to the confidentiality, integrity or availability of Confidential Information and could disrupt successful operations of our businesses.
In connection with any acquisitions, in addition to other U.S. federal requirements, we must also comply with antitrust and/or competition law requirements. ESG Regulatory Developments The recent emphasis on environmental, social and other sustainability matters has resulted and may continue to result in the adoption of new laws and regulations, including new reporting requirements.
ESG Regulatory Developments The recent emphasis on environmental, social and other sustainability matters has resulted and may continue to result in the adoption of new laws and regulations, including new reporting requirements.
Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. We cannot assure that key personnel, including our executive officers, will continue to be employed or that we will be able to attract and retain qualified personnel in the future.
We cannot assure that key personnel, including our executive officers, will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to recruit, retain or develop qualified personnel could adversely affect our business, financial condition or results of operations.
Additionally, any such failure by clients to comply could also result in fines, penalties or obligations imputed to EVERTEC, which could also have a material adverse effect on our business.
Additionally, any such failure by clients to comply could also result in fines, penalties or obligations imputed to EVERTEC, which could also have a material adverse effect on our business. We rely on our information technology systems, employees and certain suppliers and counterparties, and certain failures or disruptions in those systems or chains could materially adversely affect our operations.
Suppliers and third parties with which we do business could also be sources of operational risk to us, including relating to breakdowns or failures of such parties’ own systems or employees.
Our operations could be materially adversely affected if one or more employees cause a significant operational breakdown or failure, either intentionally or as a result of human error. Suppliers and third parties with which we do business could also be sources of operational risk to us, including relating to breakdowns or failures of such parties’ own systems or employees.
In recent years, there have been a number of mergers and consolidations in the banking and financial services industry. Mergers and consolidations of financial institutions reduce our number of clients and potential clients, which could adversely affect our revenues.
Consolidations in the banking and financial services industry could adversely affect our revenues by eliminating existing or potential clients and making us more dependent on a more limited number of clients. There have been a number of mergers and consolidations in the banking and financial services industry.
Any of these events may negatively impact our financial condition and results of operations. The A&R MSA, A&R ISO Agreement, A&R BPPR ATH Agreement, amended and restated in July 1, 2022, have terms ending in 2028, 2035, and 2030, respectively.
The A&R MSA, A&R ISO Agreement, and A&R BPPR ATH Agreement, amended and restated on July 1, 2022, have terms ending in 2028, 2035, and 2030, respectively. Our inability to renew or continue to maintain client contracts on favorable terms or at all may materially adversely affect our results of operations and financial condition.
We are leveraged. As of December 31, 2022, the total principal amount of our indebtedness was approximately $435.0 million.
As of December 31, 2023, the total principal amount of our indebtedness was approximately $993.5 million.
As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data, such as names and addresses, social security numbers, driver’s license numbers, cardholder data and payment history records. We also operate payment, cash access and electronic card systems.
We are subject to security breaches or other confidential data theft from our systems, which can adversely affect our reputation and business. 17 Table of Contents As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data, such as names and addresses, social security numbers, driver’s license numbers, cardholder data and payment history records, as well as proprietary information belonging to our business or to our business partners (collectively, "Confidential Information").
There is no assurance that we will be able to realize the intended benefits of the Popular Transaction. Specifically, the Popular Transaction could cause disruptions in our remaining businesses or otherwise limit the ability to compete for or perform certain contracts or services.
Specifically, the Popular Transaction has caused disruptions, and could continue to cause disruptions, in our remaining businesses and has and could continue to otherwise limit our ability to compete for or perform certain contracts or services.
Changes in interchange fees charged by credit card associations and debit networks could increase our costs or otherwise materially adversely affect our business. 20 Table of Contents From time to time, card associations and debit networks change interchange, processing, and other fees, which could impact our merchant acquiring and payment services businesses.
From time to time, card associations and debit networks change interchange, processing, and other fees, which could impact our merchant acquiring and payment services businesses.
Some statements contained in this Annual Report on Form 10-K, including statements in the following risk factors section, constitute forward-looking statements. Please also refer to the section titled “Forward- Looking Statements” at the beginning of this Annual Report on Form 10-K.
The occurrence of any of the following risks might cause our stockholders to lose all or a part of their investment in our Company. Some statements contained in this Report, including statements in the following risk factors section, constitute forward-looking statements. Please also refer to the section titled “Forward- Looking Statements” at the beginning of this Report.
All our businesses require a wide range of expertise and intellectual capital to adapt to the rapidly changing technological, social, economic and regulatory environments. In order to successfully compete and grow, we must recruit, retain and develop personnel who can provide the necessary expertise across a broad spectrum of intellectual capital needs.
Our ability to recruit, retain and develop qualified personnel is critical to our success and growth. All our businesses require a wide range of expertise and intellectual capital to adapt to the rapidly changing technological, social, economic and regulatory environments.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal operations are conducted in Puerto Rico. Our principal executive offices are leased and located at Cupey Center Building, Road 176, Kilometer 1.3, San Juan, Puerto Rico 00926. We own one property in Costa Rica, in the province of San Jose, which is used by our Costa Rican subsidiary for its payment services business.
Biggest changeItem 2. Properties Our principal operations are conducted in Puerto Rico. Our principal executive offices are leased and located at Cupey Center Building, Road 176, Kilometer 1.3, San Juan, Puerto Rico 00926.
We also lease space in 13 other locations across Latin America and the Caribbean, including various data centers and office facilities to meet our sales and operating needs. We believe that our properties are in good operating condition and adequately serve our current business operations.
We also lease space 32 Table of Contents in 20 other locations across Latin America and the Caribbean, including various data centers and office facilities to meet our sales and operating needs. We believe that our properties are in good operating condition and adequately serve our current business operations.
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We own two properties, one in Costa Rica, in the province of San Jose, which is used by our Costa Rican subsidiary for its payment services business, and one in Tupã, Brazil, which is used by Sinqia for their commercial business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeManagement believes, based on the opinion of legal counsel and other factors, that the aggregated liabilities, if any, arising from such actions will not have a material adverse effect on the financial condition, results of operations and the cash flows of the Company.
Biggest changeManagement believes, based on the opinion of legal counsel and other factors, that the aggregated liabilities, if any, arising from such actions will not have a material adverse effect on the financial condition, results of operations and the cash flows of the Company. See Note 25 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for additional information.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUnder the terms of the 2022 Plan, any shares of common stock of the Company covered by outstanding awards under the 2013 Plan as of the Effective Date will again become available for grant, to the extent the shares underlying such awards are not issued because they are forfeited or settled or terminated without distribution of shares of common stock of the Company. 31 Table of Contents The following table summarizes equity compensation plans approved by security holders and equity compensation plans that were not approved by security holders as of December 31, 2022: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) Weighted average exercise price of outstanding options, warrants and rights (B) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C) Equity compensation plans approved by security holders 1,363,780 $0.00 4,596,629 Equity compensation plans not approved by security holders N/A N/A N/A Stock Performance Graph The following Performance Graph shall not be deemed incorporated by reference and shall not constitute soliciting material or otherwise considered filed under the Securities Act of 1933 or the Exchange Act.
Biggest changeThe following table summarizes equity compensation plans approved by security holders and equity compensation plans that were not approved by security holders as of December 31, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) Weighted average exercise price of outstanding options, warrants and rights (B) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C) Equity compensation plans approved by security holders 1,799,012 $0.00 3,117,365 Equity compensation plans not approved by security holders N/A N/A N/A Stock Performance Graph The following Performance Graph shall not be deemed incorporated by reference and shall not constitute soliciting material or otherwise considered filed under the Securities Act or the Exchange Act.
The following graph shows a comparison of the cumulative total return for our common stock, the Russell 2000 Index and the S&P Composite 1500 / Information Technology Index for the five years ended December 31, 2022. The graph assumes that $100 was invested on December 31, 2017 in our common stock and each index and that all dividends were reinvested.
The following graph shows a comparison of the cumulative total return for our common stock, the Russell 2000 Index and the S&P Composite 1500 / Information Technology Index for the five years ended December 31, 2023. The graph assumes that $100 was invested on December 31, 2017 in our common stock and each index and that all dividends were reinvested.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades on the NYSE under the symbol “EVTC”. Holders of Record As of February 17, 2023, there were 483 registered holders of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades on the NYSE under the symbol “EVTC”. Holders of Record As of February 22, 2024, there were 328 registered holders of our common stock.
Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board and will depend on many factors, including our financial condition, earnings, available cash, business opportunities, legal requirements, restrictions in our debt agreements and other contracts, capital requirements, level of indebtedness and other factors that our Board deems relevant.
The Board anticipates declaring similar dividends in future quarters on a regular basis, however, any ultimate declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board and will depend on many factors, including our financial condition, earnings, available cash, business opportunities, legal requirements, restrictions in our debt agreements and other contracts, capital requirements, level of indebtedness and other factors that our Board deems relevant.
Note that historical stock price performance is not necessarily indicative of future stock price performance. 32 Table of Contents
Note that historical stock price performance is not necessarily indicative of future stock price performance.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Obligations.” Issuer Purchases of Equity Securities The following table summarizes repurchases of shares of the Company's common stock in the three month period ended December 31, 2022: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced program (1) Approximate dollar value of shares that may yet be purchased under the program 10/1/2022-10/31/2022 412,252 32.62 412,252 11/1/2022-11/30/2022 156,147 34.01 156,147 12/1/2022-12/31/2022 172,638 30.74 172,638 741,037 32.94 741,037 78,198,083 (1) On February 24, 2022, the Company announced that its Board approved an increase to the current stock repurchase program, authorizing the purchase of up to an aggregate of $150 million shares of the Company’s common stock under the program which expires on December 31, 2023.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Obligations.” Issuer Purchases of Equity Securities The following table summarizes repurchases of shares of the Company's common stock in the three-month period ended December 31, 2023: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced program (1) Approximate dollar value of shares that may yet be purchased under the program 11/1/2023-11/30/2023 209,560 35.26 209,560 12/1/2023-12/31/2023 135,155 37.79 135,155 344,715 36.82 344,715 137,493,259 (1) On July 20, 2023, the Company announced that its Board approved an increase to the current stock repurchase program, authorizing the purchase of up to an aggregate of $150 million shares of the Company’s common stock under the program which expires on December 31, 2024.
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Under the repurchase program, the Company may repurchase shares in the open market, through accelerated share repurchase programs, Rule 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.
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Under the terms of the 2022 Plan, any shares of common stock of the Company covered by outstanding awards under the 2013 Plan as of the Effective 34 Table of Contents Date will again become available for grant, to the extent the shares underlying such awards are not issued because they are forfeited or settled or terminated without distribution of shares of common stock of the Company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Years ended December 31, (In thousands) 2022 2021 Variance Revenues $ 618,409 $ 589,796 $ 28,613 5 % Operating costs and expenses Cost of revenues, exclusive of depreciation and amortization shown below 292,621 250,164 42,457 17 % Selling, general and administrative expenses 89,770 68,048 21,722 32 % Depreciation and amortization 78,618 75,070 3,548 5 % Total operating costs and expenses 461,009 393,282 67,727 17 % Income from operations $ 157,400 $ 196,514 $ (39,114) (20) % Revenues Total revenues for the year ended December 31, 2022 were $618.4 million, an increase of $28.6 million compared to $589.8 million in the prior year.
Biggest changeFor more information regarding EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, including a quantitative reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share to the most directly comparable GAAP financial performance measure, which is net income, see “—Net Income Reconciliation to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share” and “—Covenant Compliance” below. 39 Table of Contents Results of Operations Years ended December 31, (In thousands) 2023 2022 Variance Revenues $ 694,709 $ 618,409 $ 76,300 12 % Operating costs and expenses Cost of revenues, exclusive of depreciation and amortization shown below 336,756 292,621 44,135 15 % Selling, general and administrative expenses 128,172 89,770 38,402 43 % Depreciation and amortization 93,621 78,618 15,003 19 % Total operating costs and expenses 558,549 461,009 97,540 21 % Income from operations $ 136,160 $ 157,400 $ (21,240) (13) % Revenues Total revenues for the year ended December 31, 2023 were $694.7 million, an increase of $76.3 million compared to $618.4 million in the prior year.
Revenue Recognition The Company’s revenue recognition policy follows the guidance from Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , which provide guidance on the recognition, presentation, and disclosure of revenue in consolidated financial statements. Application of this policy requires us to make certain judgements and estimates.
Revenue Recognition The Company’s revenue recognition policy follows the guidance from Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , which provide guidance on the recognition, presentation, and disclosure of revenue in the consolidated financial statements. Application of this policy requires us to make certain judgements and estimates.
In connection with the Credit Agreement, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiary guarantors party thereto, entered into a Guarantee Agreement (the “Guarantee Agreement”), pursuant to which EVERTEC Group’s obligations under the 2022 Credit Facilities and under any cash management, interest rate protection or other hedging arrangements entered into with a lender or any affiliate thereof are guaranteed by EVERTEC and each of EVERTEC’s existing wholly-owned subsidiaries (other than EVERTEC Group) and subsequently acquired or organized subsidiaries, subject to certain exceptions.
In connection with the Credit Agreement, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiary guarantors party thereto, entered into a Guarantee Agreement (the “Guarantee Agreement”), pursuant to which EVERTEC Group’s obligations under the Credit Facilities and under any cash management, interest rate protection or other hedging arrangements entered into with a lender or any affiliate thereof are guaranteed by EVERTEC and each of EVERTEC’s existing wholly-owned subsidiaries (other than EVERTEC Group) and subsequently acquired or organized subsidiaries, subject to certain exceptions.
In addition, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiaries party thereto, entered into a Collateral Agreement (the “Collateral Agreement”), pursuant to which, subject to certain exceptions, the 2022 Credit Facilities are secured, to the extent legally permissible, by substantially all of the assets of (1) EVERTEC, including a perfected pledge of all of the limited liability company interests of EVERTEC Intermediate Holdings, LLC (“Holdings”), (2) Holdings, including a perfected pledge of all of the limited liability company interests of EVERTEC Group and (3) EVERTEC Group and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by EVERTEC Group or any guarantor and (b) a perfected security interest in substantially all tangible and intangible assets of EVERTEC Group and each guarantor.
In addition, on December 1, 2022, EVERTEC, EVERTEC Group and the subsidiaries party thereto, entered into a Collateral Agreement (the “Collateral Agreement”), pursuant to which, subject to certain exceptions, the Credit Facilities are secured, to the extent legally permissible, by substantially all of the assets of (1) EVERTEC, including a perfected pledge of all of the limited liability company interests of EVERTEC Intermediate Holdings, LLC (“Holdings”), (2) Holdings, including a perfected pledge of all of the limited liability company interests of EVERTEC Group and (3) EVERTEC Group and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by EVERTEC Group or any guarantor and (b) a perfected security interest in substantially all tangible and intangible assets of EVERTEC Group and each guarantor.
Borrowings under the Revolving Credit Facility that are denominated in a currency other than Dollars will bear interest at the Alternative Currency Rate for the Interest Period in effect for such borrowing plus an applicable margin of 1.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 1.75%, 2.00%, 2.25% or 2.50% per annum) based upon the Company’s total net leverage ratio.
Borrowings under the Revolving Facility that are denominated in a currency other than Dollars will bear interest at the Alternative Currency Rate for the Interest Period in effect for such borrowing plus an applicable margin of 1.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 1.75%, 2.00%, 2.25% or 2.50% per annum) based upon the Company’s total net leverage ratio.
Many medium- and small-size institutions in the Latin American markets in which we operate have outdated computer systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.
Many medium- and small-size institutions in the Latin American markets in which we operate have outdated systems and updating these IT legacy systems is financially and logistically challenging, which presents a business opportunity for us.
We believe our business 34 Table of Contents model should enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures. Relationship with Popular On September 30, 2010, EVERTEC Group entered into a 15-year MSA, and several related agreements with Popular.
We believe our business model should enable us to continue to grow our business organically in the primary markets we serve without significant incremental capital expenditures. 36 Table of Contents Relationship with Popular On September 30, 2010, EVERTEC Group entered into a 15-year MSA, and several related agreements with Popular.
For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.
For this reason, Adjusted EBITDA, as it relates to the Company's segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.
The Payment Services - Latin America segment revenues consist of revenues related to providing access to the ATH network of ATMs and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring.
The Latin America Payments and Solutions segment payment revenues consist of revenues related to providing access to the ATH network of ATMs and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring.
Therefore, these areas are aggregated and presented as “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and Other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments.
Therefore, these areas are aggregated and presented within the “Corporate and Other” category in the financial statements alongside the operating segments. The Corporate and Other category consists of corporate overhead expenses, intersegment eliminations, certain leveraged activities and other non-operating and miscellaneous expenses that are not included in the operating segments.
Changes in judgement with respect to assumptions and estimates in revenue recognition could impact the amount of revenue recognized. Valuation of Goodwill The valuation of goodwill for impairment require the use of significant estimates and assumptions. The Company may test for goodwill impairment using a qualitative or a quantitative analysis.
Changes in judgement with respect to assumptions and estimates in revenue recognition could impact the amount of revenue recognized. Valuation of Goodwill The valuation of goodwill for impairment requires the use of significant estimates and assumptions. The Company may test for goodwill impairment using a qualitative or a quantitative analysis.
The negative covenants in the 2022 Credit Facilities include, among other things, limitations (subject to exceptions) on the ability of EVERTEC and its restricted subsidiaries to: • declare dividends and make other distributions; • redeem or repurchase capital stock; • grant liens; • make loans or investments (including acquisitions); • merge or enter into acquisitions • sell assets; • enter into any sale or lease-back transactions; • incur additional indebtedness; • prepay, redeem or repurchase certain indebtedness; • modify the terms of certain debt; • restrict dividends from subsidiaries; • change the business of EVERTEC or its subsidiaries; and • enter into transactions with their affiliates.
The negative covenants in the Credit Facilities include, among other things, limitations (subject to exceptions) on the ability of EVERTEC and its restricted subsidiaries to: • declare dividends and make other distributions; 47 Table of Contents • redeem or repurchase capital stock; • grant liens; • make loans or investments (including acquisitions); • merge or enter into acquisitions • sell assets; • enter into any sale or lease-back transactions; • incur additional indebtedness; • prepay, redeem or repurchase certain indebtedness; • modify the terms of certain debt; • restrict dividends from subsidiaries; • change the business of EVERTEC or its subsidiaries; and • enter into transactions with their affiliates.
However, our ability to fund future operating expenses, dividend payments, capital expenditures, mergers and 42 Table of Contents acquisitions, and our ability to make scheduled payments of interest, to pay principal on or refinance our indebtedness and to satisfy any other of our present or future debt obligations will depend on our future operating performance, which may be affected by general economic, financial, and other factors beyond our control.
However, our ability to fund future operating expenses, dividend payments, capital expenditures, mergers and acquisitions, and our ability to make scheduled payments of interest, to pay principal on or refinance our indebtedness and to satisfy any other of our present or future debt obligations will depend on our future operating performance, which may be affected by general economic, financial, and other factors beyond our control.
Additionally, our credit agreement imposes certain restrictions on the distribution of dividends from subsidiaries. Our primary use of cash is for operating expenses, working capital requirements, capital expenditures, acquisitions, dividend payments, share repurchases, debt service, and other transactions as opportunities present themselves.
Additionally, our credit agreement imposes certain restrictions on the distribution of dividends from subsidiaries. 44 Table of Contents Our primary use of cash is for operating expenses, working capital requirements, capital expenditures, acquisitions, dividend payments, share repurchases, debt service, and other transactions as opportunities present themselves.
According to the September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean. We serve 26 countries in the region out of 12 offices, including our headquarters in Puerto Rico.
According to the September 2022 Nilson Report, we are one of the largest merchant acquirers in Latin America based on total number of transactions and we believe we are the largest merchant acquirer in the Caribbean. We serve 26 countries out of 20 offices, including our headquarters in Puerto Rico.
The A&R ISO Agreement, which sets our merchant acquiring relationship with Popular, now includes revenue sharing provisions with Popular. The MSA modifications include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through September 30, 2028, a 10% discount on certain MSA services beginning in October of 2025 and adjustments to the existing CPI pricing escalator clause.
The A&R ISO Agreement, which defines our merchant acquiring relationship with Popular, now includes revenue sharing provisions with Popular. The MSA modifications also include the elimination of the exclusivity requirement, the inclusion of annual MSA minimums through September 30, 2028, a 10% discount on certain MSA services beginning in October of 2025 and adjustments to the CPI pricing escalator clause.
Core bank processing and network services revenues are derived in part from a recurrent fixed fee, from fees based on the number of accounts on file (i.e., savings or checking accounts, loans, etc.), or computer resources utilized.
Core bank processing and network services revenues are derived in part from a recurrent fixed fee and from fees based on the number of accounts on file (i.e., savings or checking accounts, loans, etc.), server capacity usage or computer resources utilized.
Latin America is one of the fastest-growing mobile markets globally, with a growing base of tech-savvy customers that demonstrate a preference for credit cards, digital wallets, contactless payments, and other value-added offerings. The region's FinTech sector is driving change via new contactless payment technology that are becoming popular alternatives to cash payments.
Latin America is one of the fastest-growing mobile markets globally, with a growing base of tech-savvy customers that demonstrate a preference for credit cards, digital wallets, contactless payments, and other value-added offerings. The region's fintech sector is driving change via new contactless payment technology, which is becoming a popular alternative to cash payments.
Covenants The 2022 Credit Facilities are subject to customary affirmative and negative covenants.
Covenants The Credit Facilities are subject to customary affirmative and negative covenants.
Overview EVERTEC is a leading full-service transaction-processing business in Puerto Rico, the Caribbean and Latin America, providing a broad range of merchant acquiring, payment services and business process management services.
Overview EVERTEC is a leading full-service transaction-processing business in Latin America, Puerto Rico and the Caribbean, providing a broad range of merchant acquiring, payment services and business solutions.
Based on current SOFR rates, the Company expects to reclassify gains of $3.7 million from accumulated other comprehensive loss into interest expense over the next 12 months.
Based on current SOFR rates, the Company expects to reclassify gains of $6.3 million from accumulated other comprehensive income (loss) into interest expense over the next 12 months.
These include: (i) merchant acquiring services, which enable point of sales (“POS”) and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and electronic benefit transfer (“EBT”) cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments.
These include: (i) merchant acquiring services, which enable POS and e-commerce merchants to accept and process electronic methods of payment such as debit, credit, prepaid and EBT cards; (ii) payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (“ATM”) and EBT card programs; and (iii) business process management solutions, which provide “mission-critical” technology solutions such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments.
Guarantees and Collateral The 2022 Credit Facilities are secured by substantially all assets of EVERTEC and its existing and future material subsidiaries (including EVERTEC Group), subject to customary exceptions, and guarantee repayment of the 2022 Credit Facilities.
Guarantees and Collateral The Credit Facilities are secured by substantially all assets of EVERTEC and its existing and future material subsidiaries (including EVERTEC Group), subject to customary exceptions.
The Company funded such repurchase with cash on hand. At December 31, 2022, the Company's share repurchase program has approximately $78 million remaining and approved for future use. The Company may repurchase shares in the open market, through accelerated share repurchase programs, 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.
The Company funded such repurchases with cash on hand. At December 31, 2023, the Company's share repurchase program has approximately $137.5 million remaining and approved for future use. The Company may repurchase shares in the open market, through accelerated share repurchase programs, 10b5-1 plans, or in privately negotiated transactions, subject to business opportunities and other factors.
Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period.
In connection with the preparation of our consolidated financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of certain assets and liabilities, and in some instances, the reported amounts of revenues and expenses during the period.
Based on our current level of operations, we believe our cash flows from operations and the available secured Revolving Facility will be adequate to meet our liquidity needs at least for the next twelve months from the date of this Annual Report on Form 10-K.
Based on our current level of operations, we believe our existing cash flows from operations and the available secured Revolving Facility will be adequate to meet our liquidity needs at least for the next twelve months from the date of this Report.
A summary of significant accounting policies is included in Note 1 of the Notes to Audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. We believe that the following accounting estimates is the most critical; require the most difficult, subjective, or complex judgments; and thus, results in estimates that are inherently uncertain.
A summary of significant accounting policies is included in Note 1 to the Audited Consolidated Financial Statements appearing elsewhere in this Report. We believe that the following accounting estimates are the most critical; require the most difficult, subjective, or complex judgments; and thus, results in estimates that are inherently uncertain.
The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses, and financial institutions) and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants).
The segment revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions), ATH Movil (person-to-person) and ATH Business (person-to-merchant) digital transactions and EBT (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants).
Management's Discussion and Analysis of Financial Condition and Results of Operation” within our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022. See Note 1 of the Notes to Audited Consolidated Financial Statements for additional information about the Company and the basis of presentation of our financial statements.
Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 24, 2023. See Note 1 to the Audited Consolidated Financial Statements for additional information about the Company and the basis of presentation of our financial statements.
In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees, fees from payment and collection platforms, and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks.
In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value.
In addition, our presentation of Adjusted EBITDA is substantially consistent with the equivalent measurements that are contained in the secured credit facilities in testing EVERTEC Group’s compliance with covenants therein such as the total secured net leverage ratio.
The Company’s presentation of Adjusted EBITDA is substantially consistent with the equivalent measurements that are contained in the secured credit facilities in testing EVERTEC Group’s compliance with covenants therein such as the secured leverage ratio.
Capital Resources Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. During the years ended December 31, 2022 and 2021, the Company invested approximately $71.9 million and $66.9 million, respectively.
Capital Resources Our principal capital expenditures are for hardware and computer software (purchased and internally developed) and additions to property and equipment. During the years ended December 31, 2023 and 2022, the Company invested approximately $85.0 million and $71.9 million, respectively in our capital resources.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) focuses on discussion of our 2022 results as compared to our 2021 results. For discussion of our 2021 results as compared to our 2020 results, see “Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) focuses on discussion of our 2023 results as compared to our 2022 results. For discussion of our 2022 results as compared to our 2021 results, see “Part II, Item 7.
Interest The interest rates under the 2022 Credit Facilities denominated in US Dollars, are based on, at EVERTEC Group’s option (a) the Adjusted Term SOFR for the Interest Period in effect for such borrowing plus an applicable margin of 1.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 1.75%, 2.00%, 2.25% or 2.50% per annum) based upon the Company’s total net leverage ratio or (b) the ABR plus an applicable margin of 0.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 0.75%, 1.00%, 1.25% or 1.50% per annum) based upon the Company’s total net leverage ratio.
Dollars, are based on, at EVERTEC Group’s option (a) the Adjusted Term SOFR, which means SOFR plus 10 basis points, for the Interest Period in effect for such borrowing plus an applicable margin of 1.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 1.75%, 2.00%, 2.25% or 2.50% per annum) based upon the Company’s total net leverage ratio or (b) the ABR plus an applicable margin of 0.50% per annum, which applicable margin is subject to four 25 bps step-ups (i.e. 0.75%, 1.00%, 1.25% or 1.50% per annum) based upon the Company’s total net leverage ratio.
The overhead and leveraged costs relate to activities such as: • marketing, • corporate finance and accounting, • human resources, • legal, • risk management functions, • internal audit, • corporate debt related costs, • non-operating depreciation and amortization expenses generated as a result of merger and acquisition activity, • intersegment revenues and expenses, and • other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level. 40 Table of Contents The Chief Operating Decision Maker (“CODM”) reviews the operating segments separate financial information to assess performance and to allocate resources.
The overhead and leveraged costs relate to activities such as: • marketing, • corporate finance and accounting, • human resources, • legal, • risk management functions, • internal audit, • corporate debt related costs, • non-operating depreciation and amortization expenses generated as a result of merger and acquisition activity, 42 Table of Contents • intersegment revenues and expenses, and • other non-recurring fees and expenses that are not considered when management evaluates financial performance at a segment level.
Segment Results of Operations The Company operates in four business segments: Payment Services - Puerto Rico & Caribbean, Payment Services - Latin America (collectively “Payment Services segments”), Merchant Acquiring, and Business Solutions. 39 Table of Contents The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and point of sale (“POS”) transactions, ATM management and monitoring, ATH Movil and ATH Business.
Segment Results of Operations The Company operates in four business segments: Payment Services - Puerto Rico & Caribbean, Latin America Payments and Solutions, Merchant Acquiring, and Business Solutions. 41 Table of Contents The Payment Services - Puerto Rico & Caribbean segment revenues are comprised of revenues related to providing access to the ATH debit network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring.
On July 1, 2022, we modified and extended the main commercial agreements with Popular, which had initial terms ending in 2025, including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement (as amended, the “A&R ISO Agreement”), a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA (the “A&R MSA Agreement”).
On July 1, 2022, we modified and extended the main commercial agreements with Popular, including a 10-year extension of the Merchant Acquiring Independent Sales Organization Agreement (as amended, the "A&R ISO Agreement"), a 5-year extension of the ATH Network Participation Agreement and a 3-year extension of the MSA (the "A&R ISO Agreement").
Liquidity and Capital Resources Liquidity Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, and acquisitions. We also have a $200.0 million Revolving Facility, of which $174.0 million was available for borrowing as of December 31, 2022.
Liquidity and Capital Resources Liquidity Our principal source of liquidity is cash generated from operations, and our primary liquidity requirements are the funding of working capital needs, capital expenditures, acquisitions, dividend payments, share repurchases and debt service. We also have a $200.0 million Revolving Facility, of which $194.0 million was available for borrowing as of December 31, 2023.
(“CONTADO”), net of cash dividends received. 2) Primarily represents share-based compensation and severance payments. 3) Represents fees and expenses associated with corporate transactions as defined in the 2022 Credit Agreement and the gain from the Popular transaction. 4) Represents operating depreciation and amortization expense, which excludes amounts generated as a result of merger and acquisition activity. 5) Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount. 6) Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items. 7) Represents the 35% non-controlling equity interest in Evertec Colombia, net of amortization for intangibles created as part of the purchase.
(“CONTADO”), net of cash dividends received. 2) Primarily represents share-based compensation and severance payments. 3) Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement and the foreign currency swap loss. 4) Represents non-cash unrealized gains (losses) on foreign currency remeasurement for assets and liabilities denominated in non-functional currencies. 5) Represents operating depreciation and amortization expense, which excludes amounts generated as a result of merger and acquisition activity. 6) Represents interest expense, less interest income, as they appear on our consolidated statements of income and comprehensive income, adjusted to exclude non-cash amortization of the debt issue costs, premium and accretion of discount. 7) Represents income tax expense calculated on adjusted pre-tax income using the applicable GAAP tax rate, adjusted for certain discrete items. 8) Represents the non-controlling equity interests, net of amortization for intangibles created as part of the purchase.
Voluntary Prepayments and Reduction and Termination of Commitments 44 Table of Contents EVERTEC Group may prepay loans under the Term Loan Facility and permanently reduce the loan commitments under the Revolving Facility at any time without premium or penalty, subject to compensation for any break funding costs incurred by a lender and timely submission of a notice of prepayment or commitment reduction, as applicable.
Voluntary Prepayments and Reduction and Termination of Commitments Other than as set forth below with respect to the New TLB Facility, EVERTEC Group may prepay loans under the Term Loan Facilities and permanently reduce the loan commitments under the Revolving Facility at any time without premium or penalty, subject to compensation for any break funding costs incurred by a lender and timely submission of a notice of prepayment or commitment reduction, as applicable.
As of December 31, 2022, we had cash and cash equivalents of $197.2 million, of which $119.7 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico.
As of December 31, 2023, we had cash and cash equivalents of $295.6 million, of which $206.5 million resides in our subsidiaries located outside of Puerto Rico for purposes of (i) funding the respective subsidiary’s current business operations and (ii) funding potential future investment outside of Puerto Rico.
The following table presents the balance of operating lease obligations: December 31, (In thousands) 2022 2021 Operating lease liability - current 5,936 5,580 Operating lease liability - long-term 10,788 16,456 Total operating lease liabilities $ 16,724 $ 22,036 See Note 24 of the Notes to Audited Consolidated Financial Statements for additional information regarding operating lease obligations. 2022 Secured Credit Facilities On December 1, 2022 (the “Closing Date”), EVERTEC and EVERTEC Group, entered into a credit agreement (the “Credit Agreement”) with a syndicate of lenders and Truist Bank (“Truist”), as administrative agent and collateral agent, providing for (i) a $415.0 million term loan A facility (the “Term Loan Facility”) and (ii) a $200.0 million revolving credit facility (the “Revolving Facility”, and together with the Term Loan Facility, the “2022 Credit Facilities”).
The following table presents the balance of operating lease obligations: December 31, (In thousands) 2023 2022 Operating lease liability - current 6,693 5,936 Operating lease liability - long-term 9,033 10,788 Total operating lease liabilities $ 15,726 $ 16,724 See Note 25 to the Audited Consolidated Financial Statements for additional information regarding operating lease obligations. 2023 Secured Credit Facilities On December 1, 2022, EVERTEC and EVERTEC Group, entered into a credit agreement with a syndicate of lenders and Truist Bank (“Truist”), as administrative agent and collateral agent, providing for (i) a $415.0 million term loan A facility that matures on December 1, 2027, and a $200.0 million revolving credit facility (the “Revolving Facility”, and together with the Term A Loan Facility, the “2022 Credit Facilities”) that matures on December 1, 2027 (the “2022 Credit Facilities Maturity Date”).
Refer to Note 15 of the Notes to Audited Consolidated Financial Statements for tabular disclosure of the fair value of derivatives and to Note 17 of the Notes to Audited Consolidated Financial Statements for tabular disclosure of gains (losses) recorded on cash flow hedging activities. At December 31, 2022, the cash flow hedge is considered highly effective.
Refer to Note 16 to the Consolidated Financial Statements in this Report for tabular disclosure of the fair value of derivatives and to Note 19 to the Consolidated Financial Statements in this Report for tabular disclosure of gains (losses) recorded on cash flow hedging activities. At December 31, 2023, the cash flow hedge is considered highly effective.
Depreciation and amortization Depreciation and amortization expense for the year ended December 31, 2022 amounted to $78.6 million, an increase of $3.5 million or 5% when compared to the same period in the prior year.
Depreciation and amortization Depreciation and amortization expense for the year ended December 31, 2023 amounted to $93.6 million, an increase of $15.0 million or 19% when compared to the same period in the prior year.
Refer to the table below for details regarding our dividends in 2022 and 2021: 43 Table of Contents Declaration Date Record Date Payment Date Dividend per share February 18, 2021 March 1, 2021 March 26, 2021 $0.05 April 22, 2021 May 3, 2021 June 4, 2021 0.05 July 22, 2021 August 2, 2021 September 3, 2021 0.05 October 21, 2021 November 1, 2021 December 3, 2021 0.05 February 15, 2022 February 25, 2022 March 25, 2022 0.05 April 21, 2022 May 2, 2022 June 3, 2022 0.05 July 28, 2022 August 8, 2022 September 2, 2022 0.05 October 21, 2022 November 1, 2022 December 2, 2022 0.05 Stock Repurchase During 2022, the Company repurchased 2,810,182 shares of the Company’s common stock at a cost of $96.6 million.
Refer to the table below for details regarding our dividends in 2023 and 2022: 45 Table of Contents Declaration Date Record Date Payment Date Dividend per share February 15, 2022 February 25, 2022 March 25, 2022 $0.05 April 21, 2022 May 2, 2022 June 3, 2022 0.05 July 28, 2022 August 8, 2022 September 2, 2022 0.05 October 21, 2022 November 1, 2022 December 2, 2022 0.05 February 16, 2023 February 28, 2023 March 17, 2023 0.05 April 20, 2023 May 1, 2023 June 2, 2023 0.05 July 20, 2023 July 31, 2023 September 1, 2023 0.05 October 19, 2023 October 30, 2023 December 1, 2023 0.05 Stock Repurchase During 2023, the Company repurchased 1,009,653 shares of the Company’s common stock at a cost of $36.1 million.
On the same date, we also sold to Popular certain assets in exchange for 4.6 million shares of EVERTEC common stock owned by Popular (collectively with the contract amendments, the “Popular Transaction”).
On the same date, we also sold to Popular certain assets in exchange for 4.6 million shares of EVERTEC common stock owned by Popular (collectively with the contract amendments, the "Popular Transaction"). On August 15, 2022, through a secondary offering, Popular sold its remaining shares of EVERTEC common stock.
The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment.
EVERTEC also charges merchants for other services that are unrelated to the number of transactions or the transaction value. The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment.
Net cash used in financing activities for the year ended December 31, 2022 was $156.8 million, compared to $81.3 million in prior year.
Net cash provided by financing activities for the year ended December 31, 2023 was $403.3 million, compared with cash used of $156.8 million in prior year.
The effective tax rate for the period was 10.8%, compared with 11.3% in the 2021 period.
The effective tax rate for the period was 6.4%, compared with 10.8% in the 2022 period.
For network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices.
For network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from transaction switching, processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services.
Comparison of the years ended December 31, 2022 and 2021 The following table presents our cash flows from operations for the years ended December 31, 2022 and 2021: Years ended December 31, (In thousands) 2022 2021 Cash provided by operating activities $ 223,361 $ 228,420 Cash used in investing activities (133,324) (83,820) Cash used in financing activities (156,768) (81,285) Effect of foreign exchange rate on cash, cash equivalents and restricted cash (3,529) 1,497 Net (decrease) increase in cash, cash equivalents and restricted cash $ (70,260) $ 64,812 Net cash provided by operating activities for the year ended December 31, 2022 was $223.4 million, a decrease of $5.1 million compared to 2021.
Comparison of the years ended December 31, 2023 and 2022 The following table presents our cash flows from operations for the years ended December 31, 2023 and 2022: Years ended December 31, (In thousands) 2023 2022 Cash provided by operating activities $ 224,290 $ 223,361 Cash used in investing activities (507,932) (133,324) Cash provided by (used in) financing activities 403,270 (156,768) Effect of foreign exchange rate on cash, cash equivalents and restricted cash 8,439 (3,529) Net increase (decrease) in cash, cash equivalents and restricted cash $ 128,067 $ (70,260) Net cash provided by operating activities for the year ended December 31, 2023 was $224.3 million, an increase of $0.9 million compared to 2022.
We use Adjusted Net Income to measure our overall profitability because we believe it better reflects our comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of merger and acquisition activity.
Adjusted Earnings per common share is defined as Adjusted Net Income divided by diluted shares outstanding. The Company uses Adjusted Net Income to measure the Company’s overall profitability because the Company believes it better reflects the comparable operating performance by excluding the impact of the non-cash amortization and depreciation that was created as a result of merger and acquisition activity.
Events of Default 45 Table of Contents The events of default under the 2022 Credit Facilities include, without limitation, nonpayment, material misrepresentation, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined in the Credit Agreement) and cross-events of default on material indebtedness.
Events of Default The events of default under the 2022 Credit Facilities include, without limitation, nonpayment, material misrepresentation, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined in the Credit Agreement) and cross-events of default on material indebtedness. The unpaid principal balance at December 31, 2023 of the Term Loan Facility was $993.5 million.
The increase in revenues was primarily driven by an increase in transaction volumes, mainly POS processing, the continued strong digital payments growth from ATH Movil Business, higher issuing services and the revenue contribution from the acquisition completed in the second quarter.
The increase in revenues was primarily driven by an increase in POS transaction volumes, continued strong digital payments growth from ATH Movil, primarily ATH Business, increases in transaction processing and monitoring services provided to the Latin America Payments and Solutions segment, as well as revenue contribution from issuing services provided to health care companies and revenue from the small acquisition completed in the second quarter of 2022.
Payment Services - Puerto Rico & Caribbean Years ended December 31, (In thousands) 2022 2021 Revenues $178,481 $155,392 Adjusted EBITDA 100,780 89,939 Adjusted EBITDA margin 56.5 % 57.9 % Payment Services - Puerto Rico & Caribbean segment revenues for the year ended December 31, 2022 increased by $23.1 million to $178.5 million when compared to the same period in the prior year.
Payment Services - Puerto Rico & Caribbean Years ended December 31, (In thousands) 2023 2022 Revenues $203,232 $178,481 Adjusted EBITDA 118,266 100,860 Adjusted EBITDA margin 58.2 % 56.5 % Payment Services - Puerto Rico & Caribbean segment revenues for the year ended December 31, 2023 increased by $24.8 million to $203.2 million when compared to the same period in the prior year.
Scheduled Amortization Payments The Term Loan Facility amortizes in equal quarterly installments at a rate per annum equal to, initially, 5% of the principal amount and, for any installment payments to be made in the calendar year ending 2027, 7.5% of the principal amount, with the balance payable on the Maturity Date.
Scheduled Amortization Payments The Term Loan A Facility and Incremental TLA Facility amortizes in equal quarterly installments at an amount equal to (a) 46 Table of Contents initially, $5,966,720.78 per quarter and (b) for any installment payments to be made in the calendar year ending 2027, $8,950,081.17 per quarter, with the balance payable on the 2022 Credit Facilities Maturity Date.
Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, as presented in this Annual Report on Form 10-K, are supplemental measures of our performance that are not required by or presented in accordance with GAAP.
Recent Accounting Pronouncements For a description of recent accounting standards, see Note 2 to the Audited Consolidated Financial Statements included in this Report. Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, as presented in this Report, are supplemental measures of our performance that are not required by or presented in accordance with GAAP.
Additionally, the Company acquired a business for $44.4 million, net of cash acquired, as well as $7.3 million in certificates of deposit in connection with this business acquisition in 2022.
In addition, the Company acquired two businesses for an aggregated amount of $417.6 million, net of cash acquired, and an investment in equity investee of $5.5 million. During the prior year, the Company acquired a business for $44.4 million, net of cash, as well as $7.3 million in certificates of deposit in connection with this business acquisition in 2022.
EVERTEC Group is required to make certain mandatory prepayments of the 2022 Credit Facilities in certain circumstances.
EVERTEC Group is required to make certain mandatory prepayments of the 2022 Credit Facilities in certain circumstances. Interest With respect to the 2022 Facilities and the Incremental TLA Facility, the interest rates under the Credit Facilities denominated in U.S.
The fair value of this derivative is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. During the years ended December 31, 2022, 2021 and 2020, the Company reclassified losses of $3.0 million, $7.1 million and $5.1 million, respectively, from accumulated other comprehensive loss into interest expense.
During the years ended December 31, 2023, 2022 and 2021, the Company reclassified gains of $5.6 million, losses of $3.0 million and losses of $7.1 million, respectively, from accumulated other comprehensive income (loss) into interest expense.
In this Annual Report on Form 10-K, we refer to the term “Adjusted EBITDA” to mean EBITDA as so defined and calculated in a substantially consistent manner for purposes of determining compliance with the total secured net leverage ratio based on the financial information for the last twelve months at the end of each quarter. 46 Table of Contents Net Income Reconciliation to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share (Non-GAAP Measures) We define “EBITDA” as earnings before interest, taxes, depreciation and amortization.
As of the date of filing of this Report, no event has occurred that constitutes an Event of Default or Default. 48 Table of Contents In this Report, we refer to the term “Adjusted EBITDA” to mean EBITDA as so defined and calculated in a substantially consistent manner for purposes of determining compliance with the total secured net leverage ratio based on the financial information for the last twelve months at the end of each quarter.
Income tax expense Years ended December 31, (In thousands) 2022 2021 Variance Income tax expense $ 28,983 $ 20,562 $ 8,421 41 % Income tax expense for the year ended December 31, 2022 amounted to $29.0 million, an increase of $8.4 million when compared to the same period in the prior year.
Income tax expense Years ended December 31, (In thousands) 2023 2022 Variance Income tax expense $ 5,477 $ 28,983 $ (23,506) (81) % Income tax expense for the year ended December 31, 2023 amounted to $5.5 million, a decrease of $23.5 million when compared to the same period in the prior year.
Finally, our financial condition and results of operations are, in part, dependent on the economic and general conditions of the geographies in which we operate. Rising interest rates, inflationary pressures and economic uncertainty in the markets in which we operate may affect consumer confidence which could result in a decrease in consumer spending and an impact to our financial results.
Rising interest rates, inflationary pressures, foreign currency fluctuations and economic uncertainty in the markets in which we operate may affect consumer confidence, which could result in a decrease in consumer spending and an impact to our financial results. 37 Table of Contents Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
The decrease was primarily driven by the effects from the sale of a business to Popular and the one-time credit granted to them upon closing, partially offset by less cash used to pay down accounts payable and accrued liabilities as the Company continues to effectively manage working capital. Net cash used in investing activities increased $49.5 million to $133.3 million.
The increase was primarily driven by less cash used to pay down accounts payable and accrued liabilities as the Company continues to effectively manage working capital. Net cash used in investing activities was $507.9 million compared to $133.3 million.
Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC 280, Segment Reporting , given that it is reported to the CODM for purposes of allocating resources. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by revenues and adjusted EBITDA.
Adjusted EBITDA, as it relates to operating segments, is presented in conformity with ASC Topic 280, Segment Reporting , given that it is reported to the CODM for purposes of allocating resources. The Company has recast prior periods to conform with the modified definition of Adjusted EBITDA.
Interest Rate Swaps As of December 31, 2022, the Company has an interest rate swap agreement, entered in December 2018, which converts a portion of the interest rate payments on the Company’s 2024 Term B Loan from variable to fixed: Swap Agreement Effective date Maturity Date Notional Amount Variable Rate Fixed Rate 2018 Swap April 2020 November 2024 $250 million 1-month SOFR 2.89% In connection with the Credit Agreement, the Company amended the 2018 Swap variable rate from 1-month LIBOR to 1-month SOFR as allowed by the expedients included in ASC Topic 848 Reference Rate Reform.
Interest Rate Swaps As of December 31, 2023, the Company has two interest rate swap agreements, entered into in December 2018 and May 2023, which convert a portion of the interest rate payments on the Company’s 2024 Term B Loan from variable to fixed: Swap Agreement Effective date Maturity Date Notional Amount Variable Rate Fixed Rate 2018 Swap April 2020 November 2024 $250 million 1-month SOFR 2.929% 2023 Swap November 2024 December 2027 $250 million 1-month SOFR 3.375% As of December 31, 2023, the carrying amount of the derivatives included on the Company’s consolidated balance sheets was an asset of $4.4 million and a liability of $0.9 million.
The Company acquired customer relationships amounting to $10.6 million and $14.8 million during the year ended December 31, 2022 and 2021, respectively and acquired $0.3 million in available-for-sale debt securities, compared with $3.0 million in 2021. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility.
The Company also acquired customer relationships amounting to $10.6 million in the prior year. Generally, we fund capital expenditures with cash flow generated from operations and, if necessary, borrowings under our Revolving Facility and, as described above in connection with the Sinqia Transaction, using additional committed financing.
The decrease in the effective tax rate was primarily driven by the impact of the Popular Transaction which was taxed at a preferential tax rate and the impact from the reversal of a potential liability for uncertain tax positions because of the expiration of the statute of limitation, partially offset by the impact of higher revenues in higher taxed jurisdictions, a shift in the mix of business in Puerto Rico and higher withholding taxes.
Effective tax rate in the prior year was impacted by the gain recognized from closing the Popular Transaction, which was taxed at a preferential tax rate and the reversal of a potential liability for uncertain tax positions as a result of the expiration of the statute of limitation.
The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below.
See Note 26 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for the reconciliation of EBITDA to consolidated net income. The following tables set forth information about the Company’s operations by its four business segments for the periods indicated below.
Non-operating income (expenses) Years ended December 31, (In thousands) 2022 2021 Variance Interest income 3,121 1,889 $ 1,232 65 % Interest expense (24,772) (22,810) (1,962) 9 % Gain on sale of a business 135,642 — 135,642 100 % (Loss) gain on foreign currency remeasurement (7,645) 1,897 (9,542) (503) % Earnings of equity method investment 2,968 1,713 1,255 73 % Other income 1,138 2,502 (1,364) (55) % Total non-operating income (expenses) $ 110,452 $ (14,809) $ 125,261 (846) % Non-operating income for the year ended December 31, 2022 increased by $125.3 million to $110.5 million when compared to the same period in the prior year, as it includes the gain from the Popular Transaction of $135.6 million, an increase of $1.3 million in earnings from the Company’s equity method investment and an increase of $1.2 million in interest income.
Non-operating income (expenses) Years ended December 31, (In thousands) 2023 2022 Variance Interest income $ 8,512 $ 3,121 $ 5,391 173 % Interest expense (32,321) (24,772) (7,549) 30 % Gain on sale of a business — 135,642 (135,642) 100 % (Loss) gain on foreign currency remeasurement (8,276) (7,645) (631) 8 % Loss on foreign currency swap (24,065) — (24,065) — % Earnings of equity method investment 4,976 2,968 2,008 68 % Other income 367 1,138 (771) (68) % Total non-operating income (expenses) $ (50,807) $ 110,452 $ (161,259) (146) % Non-operating income (expenses) for the year ended December 31, 2023 decreased by $161.3 million when compared to the same period in the prior year.
Business Solutions Years ended December 31, (In thousands) 2022 2021 Revenues $235,299 $243,807 Adjusted EBITDA 100,568 116,488 Adjusted EBITDA margin 42.7 % 47.8 % Business Solutions segment revenues for the year ended December 31, 2022 decreased by $8.5 million to $235.3 million primarily driven by the impact from the Popular Transaction, specifically, the one-time credit granted to Popular upon closing amounting to $6.3 million and the impact from the sale of assets to Popular which the Company estimates at $30 million annually, in addition to lower hardware and software sales.
Business Solutions Years ended December 31, (In thousands) 2023 2022 Revenues $226,960 $235,299 Adjusted EBITDA 86,880 100,568 Adjusted EBITDA margin 38.3 % 42.7 % Business Solutions segment revenues for the year ended December 31, 2023 decreased by $8.3 million to $227.0 million when compared to the same period in the prior year, primarily driven by the impact from the assets sold as part of the Popular Transaction completed in the third quarter of 2022, which were of higher margins, partially offset by the one-time credit granted to Popular upon closing of the Popular Transaction.
The unpaid principal balance at December 31, 2022 of the Term Loan Facility was $415.0 million. The additional borrowing capacity for the Revolving Facility at December 31, 2022 was $174.0 million.
The additional borrowing capacity for the Revolving Facility at December 31, 2023 was $194.0 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.
The Revolving Credit Facility terminates on the Maturity Date, and loans thereunder may be borrowed, repaid and reborrowed prior thereto.
The New TLB Facility amortizes in equal quarterly at a rate equal to 1% per calendar year, with the balance payable on the Term Loan B Maturity Date. The Revolving Credit Facility terminates on the 2022 Credit Facilities Maturity Date, and loans thereunder may be borrowed, repaid and reborrowed prior thereto.
You should not consider EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share as alternatives to cash flows from operating activities or any other performance measures determined in accordance with GAAP, as an indicator of cash flows, as a measure of liquidity or as an alternative to operating or net income determined in accordance with GAAP. 47 Table of Contents A reconciliation of net income to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share is provided below: Year Ended December 31, 2022 (Dollar amounts in thousands) Net income $ 238,869 Income tax expense 28,983 Interest expense, net 21,651 Depreciation and amortization 78,618 EBITDA 368,121 Equity income (1) (1,121) Compensation and benefits (2) 20,335 Transaction, refinancing and other fees (3) (117,828) Adjusted EBITDA 269,507 Operating depreciation and amortization (4) (44,418) Cash interest expense, net (5) (21,008) Income tax expense (6) (36,509) Non-controlling interest (7) 34 Adjusted net income $ 167,606 Net income per common share (GAAP): Diluted $ 3.45 Adjusted Earnings per common share (Non-GAAP): Diluted $ 2.42 Shares used in computing adjusted earnings per common share: Diluted 69,312,717 1) Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Dominican Republic, Consorcio de Tarjetas Dominicanas, S.A.
In addition, in evaluating EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share, you should be aware that in the future the Company may incur expenses such as those excluded in calculating them. 49 Table of Contents A reconciliation of net income to EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share is provided below: Year Ended December 31, 2023 (Dollar amounts in thousands) Net income $ 79,876 Income tax expense 5,477 Interest expense, net 23,809 Depreciation and amortization 93,621 EBITDA 202,783 Equity income (1) (1,945) Compensation and benefits (2) 29,312 Transaction, refinancing and other fees (3) 53,545 Loss on foreign currency remeasurement (4) 8,276 Adjusted EBITDA 291,971 Operating depreciation and amortization (5) (52,913) Cash interest expense, net (6) (24,286) Income tax expense (7) (29,038) Non-controlling interest (8) (257) Adjusted net income $ 185,477 Net income per common share (GAAP): Diluted $ 1.21 Adjusted Earnings per common share (Non-GAAP): Diluted $ 2.82 Shares used in computing adjusted earnings per common share: Diluted 65,814,317 1) Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Dominican Republic, Consorcio de Tarjetas Dominicanas, S.A.
Cost of revenues also includes a $4.1 million impairment loss related to a multi-year software development recorded during the second quarter. 37 Table of Contents 38 Table of Contents Selling, general and administrative Selling, general and administrative expenses for the year ended December 31, 2022 amounted to $89.8 million, an increase of $21.7 million or 32% when compared to the same period in the prior year driven by an increase in personnel costs as well as an increase in professional fees.
The increase in cost of revenues was primarily driven by an increase in personnel costs, mainly due to the impact of increased headcount in Latin America including the added headcount from the acquisitions, an increase in professional fees and cloud services, and the impact of the revenue sharing agreement with Banco Popular. 40 Table of Contents Selling, general and administrative Selling, general and administrative expenses for the year ended December 31, 2023 amounted to $128.2 million, an increase of $38.4 million or 43% when compared to the same period in the prior year driven by an increase in expenses incurred as part of the closing and integration of Sinqia, as well as an increase in personnel costs and professional fees primarily related to corporate development initiatives.
For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed, and other processing services. The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment.
Revenues are based on monthly fixed fees and, in several cases, variable fees based on usage. The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment.
Adjusted EBITDA decreased by $10.3 million as the increase in revenues was entirely offset by an increase in operating expenses driven by the impact of the revenue sharing agreement with Popular that began on July 1, 2022 and higher transaction processing costs as a result of a lower average ticket.
Adjusted EBITDA decreased by $2.6 million when compared to the same period in the prior year, primarily driven by higher operating expenses, including the revenue sharing agreement with Popular which began during the third quarter of 2022, and higher processing costs driven by the effect of a declining average ticket.
Latin America revenue benefited from strong organic growth from existing customers and the revenue contribution from the BBR acquisition completed in the third quarter. Cost of revenues Cost of revenues for the year ended December 31, 2022 amounted to $292.6 million, an increase of $42.5 million or 17% when compared to the same period in the prior year.
Cost of revenues Cost of revenues for the year ended December 31, 2023 amounted to $336.8 million, an increase of $44.1 million or 15% when compared to the same period in the prior year.
The Company continues to account for this agreement as a cash flow hedge. As of December 31, 2022, and 2021, the carrying amount of the derivatives included on the Company’s consolidated balance sheets was an asset of $7.4 million and a liability of $13.4 million, respectively.
As of December 31, 2022, the carrying amount of the derivative asset included on the Company's consolidated balance sheets was $7.4 million. The fair value of this derivative is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis.
We define “Adjusted EBITDA” as EBITDA further adjusted to exclude unusual items and other adjustments described below. Adjusted EBITDA by segment is reported to the CODM for purposes of making decisions about allocating resources to the segments and assessing their performance.
This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−0 removed6 unchanged
Biggest changeThe impact on future interest expense as a result of future changes in interest rates will depend largely on the gross amount of our borrowings at that time. As of December 31, 2022, the Company has an interest rate swap agreement, entered into in December 2018, which converts a portion of our outstanding variable rate debt to fixed.
Biggest changeThe impact on future interest expense as a result of future changes in interest rates will depend largely on the gross amount of our borrowings at that time.
These market risks principally involve the possibility of change in interest rates that will adversely affect the value of our financial assets and liabilities or future cash flows and earnings, foreign exchange risk that may result in unfavorable foreign currency translation adjustments and inflation.. Market risk is the potential loss arising from adverse changes in market rates and prices.
These market risks principally involve the possibility of change in interest rates that will adversely affect the value of our financial assets and liabilities or future cash flows and earnings, foreign currency exchange risk that may result in unfavorable foreign currency translation adjustments and inflation. Market risk is the potential loss arising from adverse changes in market rates and prices.
The following analysis provides quantitative information regarding these risks. Interest rate risks 48 Table of Contents Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We issued floating-rate debt which is subject to fluctuations in interest rates.
The following analysis provides quantitative and qualitative information regarding these risks. 50 Table of Contents Interest rate risks Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. We issued floating-rate debt which is subject to fluctuations in interest rates.
While we proactively try to mitigate these rising costs, we may not be able to fully offset these impacts and these could result in negative effect on our results of operation. Thus, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future. 49 Table of Contents
While we proactively try to mitigate these rising costs, we may not be able to fully offset these impacts, which could result in negative effect on our results of operation. Thus, we cannot assure you that our results of operations and financial condition will not be materially impacted by inflation in the future. 51 Table of Contents
Non-functional currency transactions are remeasured into the functional currency which results in a foreign exchange gain or loss recorded through Other income (expenses). For the years ended December 31, 2022, 2021 and 2020, we recognized foreign currency remeasurement losses of $7.6 million, gains of $1.9 million and gains of $2.9 million, respectively.
Non-functional currency transactions are remeasured into the functional currency which results in a foreign exchange gain or loss recorded through Other income (expenses). For the years ended December 31, 2023, 2022 and 2021, we recognized foreign currency remeasurement losses of $8.3 million, losses of $7.6 million and gains of $1.9 million, respectively.
Foreign currency exchange risk We conduct business in certain countries in Latin America for which we have determined that the functional currency is other than the US dollar. Given this, our operating results are exposed to volatility due to fluctuations in exchange rates for the countries' functional currencies.
Foreign currency exchange risk We conduct business in certain countries in Latin America and the Caribbean for which we have determined that the functional currency is other than the U.S. dollar. Given this, our operating results are exposed to volatility due to fluctuations in exchange rates for the countries’ functional currencies.
We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes. See Note 14 of the Notes to Audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K for additional information related to the secured credit facilities.
We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes. See Note 15 to the Audited Consolidated Financial Statements appearing elsewhere in this Report for additional information related to the secured credit facilities.
The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap. The counterparty to the swap is a major US based financial institution and we expect the counterparty to be able to perform its obligations under the swap.
The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap. The counterparties to the swaps are major U.S. based financial institution and we expect both counterparties to be able to perform its obligations under the swaps.
For subsidiaries whose local currency is their functional currency, their assets and liabilities are translated into U.S. dollars at exchange rates at the balance sheet date, and revenues and expenses are translated using average exchange rates in effect during the period. The resulting foreign currency translation adjustments are reported in accumulated other comprehensive loss in the audited consolidated balance sheets.
For subsidiaries whose local currency is their functional currency, their assets and liabilities are translated into U.S. dollars at exchange rates at the balance sheet date, and revenues and expenses are translated using average exchange rates in effect during the period.
As of December 31, 2022, the Company had $23.5 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive loss compared with an unfavorable foreign currency translation adjustment of $36.0 million as of December 31, 2021.
The resulting foreign currency translation adjustments are reported in accumulated other comprehensive income (loss) in the audited consolidated balance sheets. As of December 31, 2023, the Company had $14.8 million in a favorable foreign currency translation adjustment as part of accumulated other comprehensive income compared with an unfavorable foreign currency translation adjustment of $23.5 million as of December 31, 2022.
Our secured credit facilities accrue interest at variable rates and are subject to floors or minimum rates. A 100 basis point increase in interest rates over our floor on our debt balances outstanding as of December 31, 2022, under the secured credit facilities would increase our annual interest expense by approximately $1.9 million.
Based upon a sensitivity analysis of our outstanding debt on December 31, 2023, a hypothetical 100 basis point increase in interest rates over our floor on our debt balances outstanding as of December 31, 2023, under the secured credit facilities would increase our annual interest expense by approximately $7.4 million.
Added
Our secured credit facilities accrue interest at variable rates and are subject to floors or minimum rates.
Added
As of December 31, 2023, the Company has two interest rate swap agreements, entered into in December 2018 and May 2023, which convert a portion of the interest rate payments on the Company's Term Loan Facility from variable rate debt to fixed.

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