EVERTEC, inc (EVTC) Q3 2021 Earnings Call Transcript

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EVERTEC, inc (EVTC -1.44%)
Q3 2021 Earnings Call
Oct 27, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the EVERTEC Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kevin Hunt of Investor Relations. Please go ahead.

Kevin Hunt -- Investor Relations

Thank you, and good afternoon. With me today are Mac Schuessler, our President and Chief Executive Officer; and Joaquin Castrillo, our Chief Financial Officer.

Before we begin, I'd like to remind everyone this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company website at www.evertecinc.com.

I'll now hand the call over to Mac.

Morgan M. Schuessler -- President & Chief Executive Officer

Thank you, and good afternoon, everyone. Thank you for joining us on our third quarter 2021 earnings call. We are pleased to announce another strong quarter of financial results as we continue to benefit from strong sales volumes across our markets. In Puerto Rico, the continued effect from Federal funds, increased digital usage and return to some pre-COVID seasonality drove strong transaction volumes. In Latin America, we are seeing strong growth, driven by both recent implementations as well as organic growth from existing clients.

Beginning on Slide 4, our total revenue for the third quarter was $146 million, an increase of approximately 7% compared to the third quarter of 2020. Adjusted EBITDA was $70 million, roughly the same as the prior year. And our adjusted earnings per share was $0.62, a decrease of 5% year-over-year, in line with our expectations, despite a higher than expected adjusted effective tax rate. We generated significant year-to-date operating cash flow of $176 million and we returned approximately $35 million to our shareholders through dividends and share repurchases. Our liquidity remains strong at $363 million as of September 30th.

Moving on to our update for Puerto Rico on Slide 5. We saw continued strong volume and revenue growth in the third quarter. The ongoing effect from the inflow of Federal stimulus and EBITDA funds earlier in the year was a major driver of growth as well as a pick up and back-to-school spending in August, a sign that we are returning to pre-COVID spending patterns. Merchant acquiring sales volume growth was approximately 23% year-over-year. And average ticket is coming down on a year-over-year basis, but remains above pre-pandemic levels. We remain pleased with the growth of ATH Movil, which was up 24% for the quarter as we continue to see a shift in preference to digital payment methods.

Turning to the operating environment in Puerto Rico. Vaccination rates continue to increase with over 70% of the population now fully vaccinated, the highest level of any U.S. state or territory as reported by the CDC. Hospitalization rates are down over 80% from Delta variant peaks back in August and this is moving us closer to a more normal environment with the government continuing to loosen restrictions. The third quarter also had the highest hotel occupancy rates since the beginning of the pandemic and we saw the first cruise ship docked in Puerto Rico since March of 2020.

Now, turning to Latin America on Slide 6. We continue to see strong double-digit growth in Latin America as we are still benefiting from recent implementations as well as organic growth from existing clients in several countries. We are pleased to announce our recent contract with Caja Popular Mexicana for issuing, a deal that we have been working on for some time and then just recently received regulatory approval. CPM is the largest savings and loan cooperative in Mexico with 479 branches and over 3 million members representing about 35% market share. They have been focused on increasing non-traditional payment methods in Mexico, including ATM, point of sale terminals and digital payments, to that end, recently launched several credit card products, which they will be rolling out to their members using our issuing platform Hey Studio.

Our Santander relationship in Chile continues to progress ahead of our expectations. When the bank launches POS business back in March, they've set a goal of bringing 20,000 customers on board by the end of 2021. There are already about 37,000 customers and have set a new goal of reaching 50,000 by year-end. We have also successfully localized our gateway PlacetoPay in Chile. These are good examples of the kinds of growth opportunities that exist when previously closed markets open up competition. While vaccination rates and reopenings continue to vary country to country, we have seen encouraging progress in Chile and Uruguay and expect to continue to see a decrease in cases across the region as vaccines become widely available.

Turning to our people, over 95% of EVERTEC employees at our Puerto Rico headquarters have been now vaccinated and we reopened our Puerto Rico offices on a hybrid model on October 12th. We expect offices in other regions will follow in the coming months based on the conditions in each country. We remain committed to our scholarship program in Puerto Rico and across Latin America. Now, it is 7th year we awarded 107 scholarships to students across Puerto Rico and Latin America, an increase of 10% from the prior year. We were once again able to maintain a 50-50 gender ratio, providing equal opportunities for both men and women. We are proud to awarded over $870,000 in scholarships over the past seven years and look forward to continuing to support and education for STEM careers in both Puerto Rico and Latin America.

In summary, we delivered strong third quarter results. We are once again raising our 2021 outlook with a higher expected revenue range and an EPS range that is nearing to the upper end of our prior expectations, while we will certainly monitor the impacts of the different COVID 19 variance across our markets and remain cautious in certain countries. At this point, we have a positive view toward the future.

I will now hand the call over to Joaquin to review our results and guidance in more detail.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

Thank you, Mac, and good afternoon, everyone. Turning to Slide 8, you will see the consolidated third quarter results for EVERTEC. Total revenue for the third quarter was $145.9 million, up approximately 7% compared to the prior year. As Mac mentioned, our Q3 results reflect increased transaction volumes in Puerto Rico, mainly impacted by the inflow of COVID-related Federal stimulus earlier in the year and double-digit growth in LatAm as we continue to see more transactions from our recent business implementations and organic growth from existing clients.

Adjusted EBITDA for the quarter was $69.8 million, down slightly from the $70 million reported in the prior year. Adjusted EBITDA margin was 47.8%, down 350 basis points from a year ago. The decline in margin reflects the year-over-year comparison against the one-time Department of Education contract and a $2 million benefit from non-operating income due to foreign currency gains related to balance sheet remeasurement, both of which positively impacted last year's margin. Adjusted net income for the quarter was $45 million, a decrease of 5% as compared to the prior year. The decline in adjusted net income was primarily due to higher operating depreciation and amortization and a higher adjusted effective tax rate. This was partially offset by lower cash interest expense. Our adjusted effective tax rate in the quarter was 16.9%, reflecting a discrete foreign tax impact this quarter. We now expect our full year tax rate to be approximately 14%. Adjusted EPS was $0.62 for the quarter, a decrease of 5% compared to the prior year.

Moving on to Slide 9, I'll now cover our segment results, starting with merchant acquiring. In the third quarter, merchant acquiring net revenue increased approximately 23% year-over-year to $37.6 million, driven by both higher sales volume and revenue generated from the expanded relationship with Firstbank at the beginning of the year. Sales volume in the quarter increased approximately 22% year-over-year and with a strong month of August as we noted a return to more normal back to school activity versus COVID lockdowns a year ago. The inflow of both pandemic-related Federal funds and EBT funds remain growth drivers in the quarter with enhanced unemployment benefits ended in the month of September.

Partially offsetting our revenue growth in Q3 was a reduced spread primarily due to a lower average ticket and a more normalized product mix between credit and debit and local versus international transactions. Average ticket although down year-over-year continues to be above pre-pandemic levels and we continue to expect a gradual decrease going forward as consumption patterns normalize. Adjusted EBITDA for the segment was $19.2 million, up approximately 21% driven by the higher revenues in the quarter. Adjusted EBITDA margin was approximately 51%, a decrease of approximately 70 basis points as compared to last year as the revenue upside was offset by increased operating expenses mainly due to the higher volume of transactions processed.

Turning to Slide 10, you will see the results for the Payment Services Puerto Rico and the Caribbean segment. Revenue for the segment in the third quarter was $38.8 million, up approximately 16% driven by increased transactional revenue from our ATH Network and processing business and ATH Movil. POS transactions increased approximately 16% year-over-year and ATH Movil revenues increased approximately 24% when compared to prior year as we continue to see the adoption of the yield channels.

During the quarter, we also saw increased revenues of $2.2 million as a result of more services being provided to the LatAm segment in support of the newly implemented platforms. We expected intercompany revenues to gradually increase as transactions in Latin America increased. Adjusted EBITDA for the segment was $21.8 million, up approximately 18% as compared to last year. And adjusted EBITDA margin was approximately 56%, an increase of approximately 70 basis points. The margin increase was primarily due to the strong revenue growth, partially offset by an increase in technology services.

On Slide 11, you will see the results for our Payment Services Latin America segment. Revenue for the segment in the third quarter was $26.8 million, up approximately 26% as compared to last year. This increase was driven by recent business implementations and expanded relationships we have highlighted in the past, like some Santander Chile, as Mac discussed. We also saw strong organic growth from existing customers, mostly in Costa Rica and Panama as well as strong growth from our payment gateway PlacetoPay as we got you to localize in more of our existing countries. Adjusted EBITDA for the segment was $10 million, up 5% year-over-year, while adjusted EBITDA margin was 37.3%, down 760 basis points as compared to last year. The decrease in margin was mainly driven by the favorable impact in the prior year of the remeasurement of assets and liabilities denominated in U.S. dollars.

On Slide 12, you will find the results for the Business Solutions segment. Business Solutions revenue for the third quarter was down approximately 8% to $58.1 million. Most of this decline is due to the benefit to prior year from the one time Department of Education contract, which contributed approximately $4.4 million as well as a decrease in cash and item processing revenue. For the quarter, adjusted EBITDA was $26 million, a decrease of approximately 21% and adjusted EBITDA margin was 44.8%, a decline of approximately 760 basis points as compared to last year. The adjusted EBITDA margin decline was due primarily to the Department of Education contract, which was a significant contribution to margin prior year.

Moving on to Slide 13, you will see a summary of corporate and other. Our third quarter adjusted EBITDA was a negative $7.3 million, 6% higher than the prior year. Adjusted EBITDA as a percentage of total revenue was 5%, the same as prior year.

Moving on to our cash flow overview on Slide 14. Our beginning cash balance was approximately $221 million, including restricted cash of approximately $18 million. For the nine-month period, net cash provided by operating activities was approximately $176 million, a nearly $55 million increase compared to prior year. Capital expenditures were approximately $43 million, driven by higher hardware obsolescence spend as well as our continuous focus on innovation through internally developed software. We continue to expect approximately $60 million of capex for the full year.

We also recorded approximately $15 million for the extension and expansion of our relationship with Firstbank and purchase approximately $3 million in debt securities both during the first quarter. We've paid approximately $28 million in long-term debt payments, $9 million in withholding taxes on share-based compensation and $2 million of other debt pay downs, which resulted in a total net debt decrease of approximately $39 million. Year-to-date, we have paid cash dividends of approximately $11 million and repurchased approximately $24 million of common stock for a total of approximately $35 million returned to our shareholders. We have approximately $76 million available for future use under the company's share repurchase programs. Our ending cash balance as of September 30 was $263 million and this included approximately $19 million of restricted cash. Additionally, we recently announced another $0.05 dividend to be paid on December 3, 2021 to shareholders of record as of November 1, 2021.

Moving to Slide 15, you will find a summary of our debt as of September 30, 2021. Our quarter ending net debt position was approximately $228 million, reflecting approximately $472 million of total short-term borrowings and long-term debt and approximately $244 million of unrestricted cash. Our weighted average interest rate was 4.5%. Our net debt to trailing 12-month adjusted EBITDA was approximately 1.46 times. As of September 30 total liquidity was approximately $363 million. This balance excludes restricted cash and includes the available borrowing capacity under our revolver.

Moving to Slide 16, I will now provide an update on our 2021 guidance adjusted primarily due to our Q3 results. We now expect revenue to be in a range of $574 million to $583 million, representing growth of 12% to 14% over last year and compared to $570 million to $579 million previously estimated. Regarding the overall margin, we continue to anticipate that our adjusted EBITDA margin will be between 49% and 50% for the full year. We expect incremental expenses through the remainder of the year as we continue executing on specific initiatives around product and operational improvements as well as other investments around innovation. Our adjusted earnings per common share outlook have been increased on the lower-end to $2.61 to $2.66 or a growth range of 26% to 28% as compared to the adjusted earnings per share of $2.07 in 2020.

Now, turning to 2022, while we're not prepared to give guidance, I would like to comment on a few items that are notable. First, the level of Federal fund inflow into Puerto Rico during 2021 of our result of the pandemic was significant and provided an important accelerator for our Merchant Acquiring and Payment Processing Puerto Rico segments, which will then be a headwind going into 2022 and we expect a limited benefit from the remaining funds. Although we are optimistic about the progress being made on disaster recovery funds from Hurricane Maria, we do not expect to see the same level of impact.

Second, in the Merchant Acquiring segment our expanded relationship with Firstbank contributed to the growth this year. We will anniversary this transaction during the first quarter of next year. In LatAm we benefited from significant wins and multi-year projects that went into production in the beginning of the year, some of which are important minimums that contributed to this year's growth and these project minimums will not have the same impact going into 2022. That said, we are continue to announce important wins that will contribute more and more over time as volume grow. Lastly, the CPI Index for September was announced earlier this month and was 5.2%.

As a reminder, our MSA with Banco Popular caps our annual increase to 2%. This will be the highest increase we have applied since becoming a public company. As previously disclosed, the MSA with Popular includes a provision that allows for the review of fees to ensure these are market, which Popular has challenged in the past and may challenge in the future. However, we have generally been able to effectively resolve these situations with the bank. In summary, we generated strong third quarter results and remain positive about the future, which led us to again raise our full year 2021 guidance and we look forward to give you more detail on our 22 expectations on our next call.

With that, operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Vasu Govil with KBW.

Vasundhara Govil -- Keefe, Bruyette & Woods -- Analyst

Hi, thank you for taking question.

Operator

I'm sorry, one moment. You may go ahead.

Vasundhara Govil -- Keefe, Bruyette & Woods -- Analyst

Hi, thank you for my -- taking my question. Mac and Joaquin just a high-level question for you guys. I know you don't provide long-term revenue or earnings growth target because the macro situation in Puerto Rico has usually been very uncertain, but it seems the macro environment is now more stable. You may have some tailwinds from the Federal stimulus funds coming in. The pace of digitization has accelerated globally, including in most of your end markets. With that backdrop, how should we think about sort of the growth algorithm for EVERTEC over the next say three to five years, if you could provide any color in terms of how you think about that internally.

And then as a follow-up. Joaquin, if you could just talk about the fourth quarter revenue guide. How are you expecting some of the trends across the segment, because obviously in the third quarter you saw some pretty strong growth in the Merchant Acquiring segment and in the Payment Services LatAm segment, should some of those trends continue into the fourth quarter? Thank you.

Morgan M. Schuessler -- President & Chief Executive Officer

Hey, Vasu, thanks, and thanks for the question. So, on the first question, I'll take a stab at it and then I'll hand it over to Joaquin for to give his comments and the answer the second question. On the first question, as you pointed out, we don't give long-term guidance. And we will give -- we do give annual guidance and we'll give guidance for 2022 on our next call. But I do want to point out, as you pointed out, the company -- some of the dynamics of the company in the markets that we operate have improved over the past years.

Number one, in Puerto Rico, we have seen stabilization in the economy, both from the Federal funds coming through from Maria and also because of the pandemic. And in that environment, we've been able to capture additional market share as the larger banks, the international bank since left the island and both Popular and have benefit from that. I mean, I'm sorry, FirstBank and Movil have benefited from that recently. Those are all our customers, the local banks. So, we do feel like that in the short-term in the next few years we do have a great environment in Puerto Rico in which we can operate, continue to increase our market share and hopefully have a stable, more stable economy than we've seen here in the past.

Secondly, if you look at Latin America, when I arrived at the company seven years ago, these markets were closed, primarily they were operated by monopolies and duopolies for payments and we've been fortunate that the markets have opened and we now have a great set of products where we own the intellectual property, we have a Rolodex of customers that continues to increase when we added Santander, Chile and Mercado Libre and Lello. Now, with Caja Popular Mexicana we believe that our LatAm business should grow at a good pace compared to the past as well. So, we won't give you numbers and we won't give long-term guidance Vasu. We will give you 2022 guidance on our next call. But to your point, the markets have stabilized and in the case of Latin America it has now opened and I believe we've executed well to take care of those -- take advantage of those opportunities. Joaquin?

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

Yeah, in terms of the second piece of the question, Vasu, what I would say is when we look at the different segments for Q4 and other trends that we saw in Q3 in terms of how the segments grew will sustain in general I would say that NAV. For the Merchant Acquiring segment we still expect to see going to high-teens to low-20s in terms of growth in the fourth quarter. And in Latin America we're also expecting kind of high-teens, low-20s in terms of growth. Business solutions as we've communicated in the past when there is a lack of any specific project that goes into production we are expecting that in the low to mid single-digits. So, I kind of break down -- obviously thinking about the range that we just provided in the script kind of where we expect those segments to be.

Vasundhara Govil -- Keefe, Bruyette & Woods -- Analyst

Great, thank you very much. That was super helpful.

Morgan M. Schuessler -- President & Chief Executive Officer

Thanks, Vasu.

Operator

Our next question comes from Korey Marcello with Deutsche Bank. You may go ahead.

Korey Marcello -- Deutsche Bank -- Analyst

Hey, guys, thanks for taking my questions. Just wanted to talk a little bit about the volume and transaction growth. Obviously, you guys spoke a little bit about the spike you saw in October. Can you give us a sense of kind of how the volumes of transactions trended into kind of the September-October timeframe?

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

I think you meant August Korey with the back-to-school. So, we did see...

Korey Marcello -- Deutsche Bank -- Analyst

Yes, August.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

We did see that kind of come back and obviously in Puerto Rico with the vaccination rates and we are only kind of going back to normal and kids going back to schools. It's something that we sort of expected want to see that actually get reflected again once something positive. I would say that October we continue to see a strong volume when we compare it against the prior year. I would say that similar to what we saw coming off of the month of September. So, as I just mentioned on Vasu's question, I mean, we're expecting merchant acquiring to be in the high-teens, low-20s overall. So, that's based on strong volumes still in Q4.

Korey Marcello -- Deutsche Bank -- Analyst

Got it. That's helpful. And then ATH Movil I think kind of slowed to 24% you mentioned in the quarter. I believe growth was 60% last quarter and I know there is tougher comps there. But can you give us a sense of what you think kind of the right normalized growth rate is for that business coming out of the pandemic?

Morgan M. Schuessler -- President & Chief Executive Officer

Let me -- we won't sort of, again, we'll give 2020 guidance -- 2022 guidance next call. What I would say is, during the pandemic, as we've said, we saw significant increase as people moved to digital payments and we are encouraged that we now continue to see that trend continuing. And then now that people have adopted to the technology, they are using it more frequently, we are seeing a dip velocity of adoption. So, we do expect it to grow meaningfully in the future. But to your point, the comps in the past are hard.

Korey Marcello -- Deutsche Bank -- Analyst

Appreciate that guys. And just maybe if I could sneak one more in. Santander, I think you mentioned they up the guidance to 50,000 merchants in Chile. At what point do we kind of move past the minimums and start to see incremental benefit from that? Thanks guys.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

What I would say, Korey, at this point, we are still within the minimum and we have some way to go. But overall for us and obviously for Santander it's encouraging to see the types of opportunities that exist out there when we penetrate some of these markets that weren't necessarily open in the past. So, and we're going to be continue to be excited about the progress that they're making in terms of continuing to put clients on the platform.

Morgan M. Schuessler -- President & Chief Executive Officer

And I think for us as a company, I mean, not only naming these marquee brands as our customers, but now performing and exceeding their expectations when they talk about that publicly is good for our pipeline in the future. So, it's not only the impact to the financial results on that specific contract, but it's also building a reputation that not only do we win business, but we exceed our customers' expectations.

Korey Marcello -- Deutsche Bank -- Analyst

Thanks, guys.

Operator

Our next question comes from Bob Napoli with William Blair. You may go ahead.

Robert Napoli -- William Blair & Company -- Analyst

Thank you, and good afternoon Mac and Joaquin. So, the CPM win, the issuer processing in Mexico, can you give a little color on just that business, the issuer processing business. And the size of the business kind of geographically, I mean, -- and maybe a pipeline that you have in that business.

Morgan M. Schuessler -- President & Chief Executive Officer

Yeah. So, it's not our issuing business and Bob we issue both -- we assessed our customers issuing both debit and credit cards. We had announced previously that in Mexico we were doing Mercado Libre debit cards. This is for -- this is credit cards for our Caja Popular Mexicana which we're excited about, because they have 3 million customers on this 500 branches. They are the largest of their kind in the country. So, they are already in the market with the product working. We're moving slowly to make sure that we can work out any kinks, but they've already announced it publicly that this is operating the products in the market and this is a significant win for us in Mexico.

Robert Napoli -- William Blair & Company -- Analyst

And maybe, I mean, do you have more pipeline in Mexico or is that, maybe just some color on the momentum in that business.

Morgan M. Schuessler -- President & Chief Executive Officer

Yeah. So, what I would say, generally, I mean, where we see our pipeline from an organic perspective is around issuing and around acquiring processing services. We have -- those are the two biggest lines and we are seeing demand throughout the region and interest. And like I said on the previous comment with Santander Chile, the good news is not only are we announcing wins, but I think people are impressed by the fact that we are exceeding our customers' expectation. Based on their own announcements, I mean, the Santander Chile numbers we're giving you, are numbers that they've announced publicly. But, yeah, I would say, Bob, our organic pipeline is as healthy -- has been healthier than it's ever been.

Robert Napoli -- William Blair & Company -- Analyst

Great. And then -- so you have liquidity getting close to $400 million of liquidity. You certainly broadened out the markets that you're serving in Latin America. There seems to be a lot of opportunity in Latin America. From an M&A perspective, what are you focused on? Do you have a pipeline and what -- where do you see the biggest opportunities to add your business inorganically?

Morgan M. Schuessler -- President & Chief Executive Officer

Yeah. So, our thesis on the M&A has not changed significantly. We are working on a pipeline in Latin America, and we're still focused solely on Latin America and we're looking at opportunities every month. So, we're still actively looking at M&A and like I said, while not something when we have it, but there are still opportunities in Latin America that we're evaluating.

Robert Napoli -- William Blair & Company -- Analyst

And then, I guess, lastly, just on your product development or your product roadmap, where are you investing internally? What product expansions could we expect to see over the next year or two?

Morgan M. Schuessler -- President & Chief Executive Officer

Yeah. So, I think we talked little bit about this in 2019 that we -- at the end of 2019, early 2019, we talked about, we were going to invest and creating a processing model for our business, because we have just formed PayGroup. We wanted to localize and turn it to a processing business for the acquiring and issuing and we named the countries, Chile, Colombia, Mexico, Costa Rica. And so those are the investments that we've made in the past and we continue to make investments in that platform in those countries and looking at new countries as well. We've also invested heavily in PlacetoPay. So, we recently, right before the pandemic, we closed on PlacetoPay, which is our e-commerce gateway. So, we have localized that now in Costa Rica and Puerto Rico now. It was already operating in Colombia and so -- and we localized in Chile as well. So, we focused on our e-commerce gateway, because we believe that as everyone else e-commerce and digital transactions are important in that gateway is our primary and our lead product. And then we've also made investments, and Bob, as you know, around ATH Movil and that's paid off very, very well and it's become a significant part of our P&L.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

The only thing I would add is Placeto, Bob, which is actually a platform that you referred to as CPM, which is both issuing and acquiring and that goes to while not mentioned in terms of taking products and becoming a processor as we've localized that platform and now we put client is on it. We continue to get feedback in terms of functionality products that we're really taking advantage of and kind of putting into platform across the different countries that we're in. So, I would say that those are the three main areas where we're reinvesting.

Morgan M. Schuessler -- President & Chief Executive Officer

The pace and when we announced these wins Mercado Libre, when we announced Santander Chile, CPM all of these are from the PayGroup acquisition, which is now the Pay Studio product and the investments we've made and now that we're getting a payback by announcing these wins.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

Yeah. I would add, Bob, as I said in my remarks right, as we continue to enhance these products we're also making some investments that are going to hit our opex our own just the efficiencies in the operation and efficiencies around just product development and that's part of what I mentioned in the remarks around guidance for the fourth quarter.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. Appreciate it.

Morgan M. Schuessler -- President & Chief Executive Officer

Thanks, Bob.

Operator

Our next question comes from George Mihalos with Cowen. You may go ahead.

George Mihalos -- Cowen & Company -- Analyst

Good afternoon, guys. Thanks for taking my question. Just wanted to ask one. As it relates to the Merchant Acquiring business, I know you talked about some unemployment benefits ending, I'm just curious, have you seen any stored change in trend in volumes as you sort of exited September and moved into October, just curious what you're seeing on the ground there.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

What I would say, George, is I mean when we look at it year-over-year it continues to be strong across, I would say, pretty much all verticals. And when we see -- again Q3 still had an enhanced unemployment that really started to and in the second half of September so that the third quarter still saw some of that kind of push of funds coming through, I would say, sequentially, as we've said in the past. There is somewhat of a slowdown that we are tracking that applies to some of the puts and takes within Merchant Acquiring in terms of the average ticket also starting to come down to a more normal level is still high when we look at what it was pre-pandemic. But as we move away from some of the significant funding that we saw early Q2 on a sequential basis there is a slight slowdown.

George Mihalos -- Cowen & Company -- Analyst

Okay, thank you.

Morgan M. Schuessler -- President & Chief Executive Officer

Thanks, George.

Operator

Our next question comes from John Davis with Raymond James. You may go ahead.

John Davis -- Raymond James -- Analyst

Hi, good afternoon, guys. Maybe just to start wanted to hone in a little bit on LatAm. We're seeing really strong growth there. I think you guys highlighted that is kind of a growth area for. But what's going right, I think, you guys continue to kind of exceed our estimates for growth in that geography, but just wonder saying what's going on, a lot of your, I guess, larger competitors have call out LatAm is an area for growth, just want understand kind of what's going right and what's driving that growth.

Morgan M. Schuessler -- President & Chief Executive Officer

What's driving our growth, correct?

John Davis -- Raymond James -- Analyst

Correct.

Morgan M. Schuessler -- President & Chief Executive Officer

You bet, as you mentioned our competitors. So, yeah, so what I would say is over the last three or four years, as I mentioned a little bit earlier in my comments, previously these markets were closed and EVERTEC was in a position again five, six years ago where we really needed to improve our products, our services and again -- and once we did that the market would need to open. So, what I would say what is going well for EVERTEC is one is we're the beneficiary of these markets now opening. I mean, starting with Prisma getting sold to Advent, the Santander deal that we did in Chile. So, these markets are now opening. So, it's a great opportunity for anybody who is willing to invest in Latin America. And so that thesis is now playing out from a market opportunity perspective.

What's going well now is our ability to sell and win business, because if you remember, seven years ago, when we get on these calls and talk about how is the pipeline, how is the sales opportunities, it was much more difficult. But now that we have clients that are using our products, seeing that we're winning business, seeing that we're implementing business, I would say, the sales pipeline and the execution on winning business is going well. And then the implementations, I mean, I can tell you to move into a country like Santander Chile and to build that from scratch and be the first one to do it, I was incredibly proud of how we executed. The same with Mercado Libre, the ability to implement in Mexico with the largest e-commerce player in all of Latin America and that with Caja Popular Mexicana. So, what I would say is again back to interest from different players in the market around a technology partner that can help them with issuing products and the technology partner that can help them with processing.

As you've noticed, in Chile, some of the banks still want to own their own book of business and they want to own their merchant contracts, some don't. And so we've been able to partner with both sides. So, I would say across issuing and acquiring and acquiring services, our ability to win business and people seeing our dedication to the region and our ability to implement that business is what has allowed us to get to double-digit growth this year in Latin America, and that's all organic. I also believe that with PlacetoPay we've done a good job integrating that acquisition as we've learned with other acquisitions. And we've been able to localize that product more quickly in additional markets given our experience that we have with the PayGroup. But that's what I think is going well. It's very symbiotic timing that the markets are now opening. There's real interest with the entrance of Fintechs with regulators wanting more options in the market and our ability to execute on those opportunities.

John Davis -- Raymond James -- Analyst

Okay. That's very helpful color. And then maybe just switching to the balance sheet. Obviously, leverage is under 1.5 times now, just you guys have generate a lot of free cash flow year-to-date and I think when we returned the $35 million or so to shareholders. So, just maybe first kind of remind us of what your comfort level is from a leverage perspective. Also, are there any opportunities with leverage where it is the refinance the balance sheet to bring down the cost of your debt, which I think is still about 4.5%? And then finally, just a little bit surprised to see kind of no buyback should we read into that there is the potential M&A on the horizon price sensitivity just curious there, because I think if you look at your free cash flow year-to-date that you're returning to shareholders and there's kind of a big discrepancy in 1.5 times leverage is just pretty well. So, just curious thoughts from here potential to do anything on the balance sheet and maybe refi that debt at a lower rate.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

Hey, John, Joaquin here. So, look we've said before our kind of target range on leverage is 2 to 3 times. We are now, as you said, under that and we've been under that now for a couple of quarters, in part because of the good performance we've had from an EBITDA perspective. And what I would say is that we're always looking at our capital structure. I'm trying to make that more efficient. And having said that, when we look at the strategy for capital deployment and as Mac said before that hasn't really changed. I mean, our key focus here is M&A, and as Mac said, we have a pipeline. We're looking at targets every quarter.

And from a buyback perspective, consistent also with the strategy. We really look at those from an opportunistic perspective and we don't have a formal repurchase program or target that we're trying to hit and we did buyback some shares in Q1 and Q2. We did have a slower quarter this time around. But our main priority continues to be a deploying capital for growth. We have also increased our capex. So, we continue to invest in our own products, which has given us results in Latin America, and that's kind of where we are at this point even though we have a strong balance sheet.

John Davis -- Raymond James -- Analyst

Okay, all right. That's it from me. Thanks, guys.

Operator

Our next question comes from James Faucette with Morgan Stanley. You may now go ahead.

James Faucette -- Morgan Stanley -- Analyst

Thank you very much and thanks for taking time this afternoon with us. I wanted to ask you kind of outlined some of the things that have benefited you this year like stimulus etc. and obviously that abates and and that kind of thing. I'm wondering though on the flip side, as you also highlight is that we have tourism starting to pick back up and the like. How should we think about what you're like planning assumptions are or when we can kind of get back to 2019 levels and just trying to think through like the different components of the puts and takes, particularly going into next year.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

You hit on one of them which is obviously getting back a normalized economy in terms of the different factors that move at least Puerto Rico, tourism being one of them. But I'll just remind you, I mean, tourism in and of itself is less than 10% and in terms of Puerto Rico GDP. It's actually closer to 5% to 8%. And look right now, we still see, as we said in our prepared remarks, some tailwind from the stimulus that is still left out there, but not to the extent that we saw this previous year. We continue to track all of the recovery funding which at this point even though and we are optimistic that we'll see that come through next year will definitely provide more detail. That is definitely an important part of our model and our assumptions as we go into 2022. And then just how Puerto Rico continues to recover economically, we are in a better backdrop than we've been in some time from a macro environment, but we need to see how this all starts to normalize once team that you think there.

James Faucette -- Morgan Stanley -- Analyst

As far as some of the packages you're looking at, to be clear, those are still being contemplated or they've already been signed off on and you're just kind of waiting for distribution in details there?

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

In most cases, a lot of money has already been allocated, but it hasn't been distributed. Actually recently the new private company that is managing out of the transformation here in Puerto Rico for the Public Electric Authority announced close to $600 million in projects that are being awarded. So, we're starting to see some movement in the right direction that is actually getting announced. But in the context of the amount that we saw, that we're seeing in the fiscal Board plan which are in a billion, there is still some way to go. And again some of the right things have been said the past few quarters, both from the Federal administration and the local government as to the process with some of these funds. And -- but that's what we've -- as we've also said, we expect that to be more in 2022. So, as we get closer to our next call and actually discuss the details of our 2022 guidance, we hope that we can go into a bit more details to what our expectations are.

James Faucette -- Morgan Stanley -- Analyst

Great. And sorry just lastly back on the acquisitions front is clearly you guys are seeing a good flow of potential deals. Are there a few things that you can categorize for us as to what had been inhibitors to date or kind of what you would expect or would like to see happen to get more of those across the finish line?

Morgan M. Schuessler -- President & Chief Executive Officer

I mean, I can just describe generally, sometimes assets don't trade because there may be multiple shareholders that are in the country and it's very difficult for them to get the shareholders aligned if their financial institutions. It could be valuation expectations. I mean, we actually thought when the pandemic originally started that it could be an opportunity that never really happened and valuations have gotten fairly frothy since then. If you look at our historical acquisitions, we've been able to pay a multiple that has allowed us to realize benefit very quickly. And so those have been two of the bigger barriers, but we still are looking at acquisitions around the region. And as Joaquin said, look our first investment is investing in ourselves. We love to invest in our products. And we're incredibly excited that seven years later we have great products that are winning great business. Second is buying companies, which we've done and integrated those fairly well. And then the other levers of deploying our capital. But M&A is still something we're focused on. We want to deal as much as anyone else. But we'll only do the right deals and we will announce one when we have it.

James Faucette -- Morgan Stanley -- Analyst

That's great. Thanks for that detail everybody.

Morgan M. Schuessler -- President & Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from James Friedman with Susquehanna. You may now go ahead.

James Friedman -- Susquehanna Financial Group -- Analyst

Good results here guys. It's Jamie at Susquehanna. Joaquin with regard to your comments about the BPOPs contract structure, I'm just trying to figure out is it a good or bad thing that the CPI is rising and is there risk to the margin structure of the contract, because you're captive five and we're hearing a lot about inflation globally.

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

I mean, so I don't think it's neither positive or negative. I think we're being factual in terms of what the contract says and the contract does cap CPI of 5%. I would say that we are very margin conscious. We have great margins. We are always looking for ways to be efficient. Obviously, inflation is a real thing and cost of labor has been going up and it's something that we'll continue to manage through.

James Friedman -- Susquehanna Financial Group -- Analyst

And then, Mac, maybe over to you, in terms of, that good questions on this, but in terms of your increased proliferation in Latin America payments infrastructure, yeah, I realize that you're at minimums and you're calling out those minimums may not persist next year, though you'll probably win new contracts, but I mean your goal presumably with these is to get off the minimums, right?

Morgan M. Schuessler -- President & Chief Executive Officer

Santander Chile specifically, right?

James Friedman -- Susquehanna Financial Group -- Analyst

Yeah.

Morgan M. Schuessler -- President & Chief Executive Officer

Okay, yeah. So, I mean, look, so the reason we loved the deal and just for people that are sort of new to the story, when we announced Santander Chile, it was a processing deal, right, where they actually on the merchant contracts. But what we loved about the deal is that we make money first year, because we have minimums throughout the duration of the contract. So, we weren't bound by how quickly they could ramp new merchants. Now, as they surpassed those minimums, right, and as the volumes increase above what the minimum is paid for, then we will get incremental revenue which will add to our margins. So, the fact that they are exceeding their expectations means that at some point, they will exceed the minimum they we will generate even more revenue off the contract. We haven't given any guidance on what those minimums are, what we think that timing will be, it's a five-year contract, but we do, I mean, we are significantly exceeding their expectation and our own expectation. So, that should be beneficial to us during the five-year period, but we haven't given any sort of dimension around how big are the minimums, when would they flow through and how will this impact that five-year period.

James Friedman -- Susquehanna Financial Group -- Analyst

Got it, all right. Thanks for the perspective.

Morgan M. Schuessler -- President & Chief Executive Officer

Okay, great. Thank you, Jamie.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mac Schuessler for any closing remarks.

Morgan M. Schuessler -- President & Chief Executive Officer

I just want to thank everyone for joining us this afternoon and we look forward to seeing you from time to time in conferences over the next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Kevin Hunt -- Investor Relations

Morgan M. Schuessler -- President & Chief Executive Officer

Joaquin A. Castrillo-Salgado -- Chief Financial Officer

Vasundhara Govil -- Keefe, Bruyette & Woods -- Analyst

Korey Marcello -- Deutsche Bank -- Analyst

Robert Napoli -- William Blair & Company -- Analyst

George Mihalos -- Cowen & Company -- Analyst

John Davis -- Raymond James -- Analyst

James Faucette -- Morgan Stanley -- Analyst

James Friedman -- Susquehanna Financial Group -- Analyst

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