EVERTEC, Inc.
Q1 2021 Earnings Call Transcript

Published: 1 May 2021

[Operator:]

Good day, and welcome to the EVERTEC, Incorporated First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Kay Sharpton, Vice President of Investor Relations. Please go ahead.

[Kay Sharpton:]

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

[Mac Schuessler:]

Thanks, Kay, and good afternoon, everyone. We achieved strong results in the first quarter driven by consumer demand as we lapped the one-year anniversary of the pandemic as well as benefit from the impact of new business contracts in Latin America. Given the Q1 results, the passage of the new stimulus bill as well as our execution on our share repurchase program, we are raising our expectations for 2021, and Joaquin will provide further details. Beginning on Slide 4. Total revenue was $140 million for the first quarter, an increase of 14% compared to 2020. Adjusted EBITDA was $69 million, an increase of 22% as compared to the prior year. And adjusted earnings per share was $0.62, an increase of 35%. We generated significant operating cash flow during the quarter of $35 million and we returned approximately $80 million to our shareholders through dividends and execution of share repurchases. Additionally, our liquidity remains strong at $273 million as of March 31. Moving on to our update on Slide 5 for Puerto Rico. We continue to see significant transaction revenue growth as a result of the federal stimulus programs and increased consumer demand. For example, merchant revenue growth in January and February was low double-digits and then surged in March to over 46% growth as we lap the COVID-19 lockdown last year for a total quarterly revenue growth of 23%. We also continue to benefit from growth in our digital payment channels related to the ATH network. Our ATH Movil and ATH Movil Business delivered 160% revenue growth. Further, we are encouraged by the adoption rate of QR codes by both consumers and businesses. We have expanded the contactless functionality to almost 4,000 or approximately 13% of our merchants and have added QR code payment functionality to pay at the table restaurants. Additionally, toward the end of the quarter, we were pleased to extend and expand our relationship with FirstBank, driven by the recent consolidation of FirstBank and Santander.

[Joaquin Castrillo:]

Thank you, Mac, and good afternoon, everyone. Turning to Slide 8, you will see the consolidated first quarter results for EVERTEC. Total revenue for the first quarter was $139.5 million, up 14% compared to the prior year of $121.9 million COVID-impacted results. Current quarter results reflected strong consumer demand positively impacting all our transactional revenue in Puerto Rico, while also benefiting from our double-digit growth in Lat Am driven by our recent implementations. Additionally, we benefited from onetime revenue related to hardware and software sales in the Dominican Republic of approximately $1 million. Adjusted EBITDA for the quarter was $68.9 million, an increase of 22% from $56.3 million in the prior year. Adjusted EBITDA margin was 49.4%, and this represents a 320 basis point increase compared to the prior year. The increase in margin primarily reflects the higher payment revenue in both Puerto Rico and Latin America while also controlling costs. Adjusted net income for the quarter was $45 million, an increase of 34% as compared to the prior year, primarily reflecting the higher adjusted EBITDA and lower cash interest expense. This was partially offset by increased operating depreciation and amortization driven by capital expenditures in the prior year as was key projects that went into production last year. Our adjusted effective tax rate in the quarter was 14.7%, reflecting some discrete tax items that impacted the quarter. And we now expect our tax rate for the full year to range from 13% to 14%, depending on the mix of business. Adjusted EPS was $0.62 for the quarter, an increase of 35% compared to the prior year.

[Mac Schuessler:]

Absolutely. When I arrived at EVERTEC over six years ago, the first person I called was Kay. We worked together at Global Payments so I knew her intelligence, experience, integrity and relationship skills well. Since arriving, Kay has been an instrumental part of the leadership team. She has provided insight and advised beyond her areas of responsibility, and everyone here has become better because of her. Although Kay is leaving her official role, she has given me permission to call her for business advice once in a while. And beyond that, I know we will keep in touch because we are friends. Kay, I want to thank you for everything, and I know you'd like to say a few words as well.

[Kay Sharpton:]

Thanks, Mac and Joaquin, for those kind words, I've had six interesting, challenging and satisfying years at EVERTEC. Mac, what I've appreciated at EVERTEC has been the culture you've established, one that allowed me to have a voice. I always felt heard and valued. To the investors and analysts I've spoken with over the years, thank you for the hard questions. I appreciate your interest in looking beyond the numbers and seeing the exciting potential. And to my support team at ICR, I'm confident you'll give EVERTEC the same level of excellence that you've given me over the past six years. To my colleagues, thank you for sharing the warmth of Puerto Rico with me despite my language shortcomings. You provided me with an opportunity to grow, to learn and appreciate this beautiful island. It is with mixed feelings that I'm leaving, but I look forward to a new chapter in my life. I wish you well and many successes ahead. Okay, operator, I think we're ready. Open the line for questions.

[Operator:]

And the first question will come from Bob Napoli with William Blair. Pardon me Mr. Napoli. Your line is open.

[Bob Napoli:]

Hello, can you hear me? I'm sorry.

[Mac Schuessler:]

We can hear you now, Bob.

[Bob Napoli:]

Okay. Sorry. That's my phone, probably. Sorry, I was choked up from Kay's speech there. It's been great working with you, Kay. It's – and I wish you the very best. So Joaquin, the revenue growth in the back half of the year, I think you said that the revenue would be down year-over-year in the back half. I know you have a really tough comp in the third quarter, but fourth quarter if you look at the...

[Joaquin Castrillo:]

Actually, Bob, we said flat to down. So depending on kind of the range, right, that we gave. Well, yes, go ahead.

[Bob Napoli:]

Okay. Now it just seems like as you get to the fourth quarter, with all the good things that are going on here, it seems like you should have pretty solid growth if you look at the fourth quarter versus 2019. But it just seems like – I mean you guys are known for being conservative. And how – what was the onetime gain, I guess, in the third quarter? How much was that? Or...

[Joaquin Castrillo:]

Sure. So I'll give you a little bit of color, Bob. In the third quarter of last year, we had the Department of Education, and that was approximately $4 million. So that was big on the top line. But if you remember, we also recognized that net. So from a perspective of margin, it was also a very good – a big contribution to our EBITDA margin for that quarter. And yes, I mean, look, if we look at kind of the cadence of what we saw last year, the quarter after stimulus was disbursed, we did see some slowdowns. In this case and as we said in the script, some of the stimulus started to flow in the month of March. We're obviously still expecting a strong Q2. But as we kind of start moving away from that stimulus, we're kind of trending in a similar way to what we saw in Q4, where there is a slowdown. And as we get into Q4, obviously, there's still some uncertainty, and we're taking that into consideration as part of the guidance as well.

[Bob Napoli:]

Okay. I appreciate your conservative guidance, as you've done historically. But Mac, I think just a question on the – I mean the strong growth that you're showing right now, Puerto Rico has always been, in Latin America, a very heavy cash markets. Do you think this has changed? And I mean, is there – can you give a mix like of online spend or the mix of cash? Or just any thoughts on whether the secular growth has permanently shifted to use of more electronic payments in your markets?

[Mac Schuessler:]

Yes. So Bob, we talked about that a little bit on the last call. I don't have the statistics in front of me, but it was about 50% was still cash. So we still think there's a big opportunity. And we've seen a continued conversion, particularly with the pandemic, to digital form of payments. That's why we've seen so much growth in the QR codes. So we still – as we said on the last call, there's a lot of opportunity still in Puerto Rico. We're very well positioned with the relationship with Popular, with the extension of the relationship with FirstBank and with the new technology that we're deploying with ATH. If you look at Latin America, now that those markets are opening like Chile, like the relationship we now have with Mercado Libre and then we're rolling out PlacetoPay in Central America in both Costa Rica and now Panama as well, we think we're going to get an ability to capture some of that transfer from cash to electronics in Latin America as well. So that's, we think, a big trend for the entire region, including Puerto Rico.

[Bob Napoli:]

And just last question. The new contracts, can you give any color on the revenue associated with – the FirstBank expansion sounds pretty attractive and then the Chile product and some of the other – just any commentary on the new products and what it's going to mean for the business.

[Mac Schuessler:]

Well, I'll give you – so on FirstBank, what we've done is FirstBank acquired Santander. And so we've consolidated that business under the FirstBank relationship and then extended that relationship until the end of 2030 – or until 2030 as it relates to the merchant business. On the new products, PlacetoPay, like I said earlier, we've now rolled out in Costa Rica. We've added merchants there. We've now rolled it out in Panama. And then you mentioned Santander and Santander Chile. Specifically, the bank has publicly said they've already reached half of their goal within the first month or two of going into production. And so we're pretty optimistic about that as well. And I will tell you, EVERTEC, within the region, is known for being one of the fintech companies that's solely focused on Latin America and now has the success stories and the Rolodex and credentials to get us into more – to more meetings and more opportunities.

[Bob Napoli:]

Thank you, appreciate it.

[Joaquin Castrillo:]

Thanks, Bob.

[Operator:]

The next question will come from Korey Marcello with Deutsche Bank. Please go ahead.

[Korey Marcello:]

Hey guys, Congrats on the quarter. Thanks for taking my question. I just wanted to touch – you guys mentioned, obviously, the stimulus benefits and how the growth rates have typically kind of moderated a bit as you've moved away from that stimulus. Is there any kind of sense that you can give us on how the volumes kind of trended in April? Have those started to kind of die off a little bit? I'm just trying to triangulate how you get to the second quarter revenue growth that's kind of being flat even though the comps are a little bit easier. Thanks.

[Joaquin Castrillo:]

I mean, I think what we said flat was similar to Q1, not necessarily similar to prior year, right? We do have a...

[Korey Marcello:]

Right. That's what I meant, yes, similar to Q1.

[Joaquin Castrillo:]

Well, I mean, when we go into April, we have seen strong kind of volume growth in April, similar to what we saw toward March. And I think when we talk about kind of moving away from the stimulus, we're talking about more of the second half of the year. And actually, to expand a little bit more on some of the assumptions there, look, we saw very high average tickets last year even in Q2 and going into Q3 driven because of the lockdown and people having only certain places to shop and these big kind of grocery purchases for purposes of the shelter-in-place, which we're not necessarily seeing when we see the average ticket under spread now in 2021. So even though we're still seeing very high spend, very high sales volume, those are some of the puts and takes that we're also taking into consideration as we start to kind of look at the second half of the year and the fact that we're not necessarily at the same level of average ticket spread and also the mix shift between credit and debit starting to normalize.

[Korey Marcello:]

Got it. That makes sense. Any update on Business Solutions? I know you guys gave sort of the first half, second half being negative. That was the guidance kind of last quarter. Just given that new printing contract, is there any change to the Business Solutions guidance from that contract?

[Joaquin Castrillo:]

So Korey, that contract we had already considered as part of our guidance. Again, the Department of Education contract that impacted us positively in Q3 is a big driver of that kind of guide to negative – or to flat in the second half. I would say that in addition to that, as it relates to Business Solutions, specifically, we also benefited from some of the COVID-related services that we provided both to the government and to some of our financial institutional clients that related to, in the case of the government, printing checks, supporting their technology of unemployment platforms, and in the case of some of our financial institutions, continuing to support the kind of remote work environment. And again, those are some projects that were onetime in nature or that because they're related to COVID or to the relief package that we saw last year won't necessarily recur from a growth perspective in 2021.

[Korey Marcello:]

Got it. Just maybe a quick clarification. You mentioned on Lat Am, the margins. I know there's some margin headwinds there just from moving to more processing. But you mentioned they would move from about – toward the mid- to high 30s. Over what time frame was that? I was just trying to clarify that.

[Joaquin Castrillo:]

So look, at this point, right, and to give some more clarity on what we meant, today, we're seeing the revenue from Santander, which as we've stated in the past, has some minimums and is one of the things we love about this contract. But obviously, as we start to drive more transactions to the platform and start to see more cost, to the extent that Santander is still below those minimums, that will put some pressure on that margin. Having said that, we've done some other wins here that are related to processing like Mercado Libre, like Banamex, that over time will offset some of that pressure. But we would still expect to see that margin kind of come down a little bit to the kind of the mid- to high 30s. In terms of time frame, I don't know if we have a specific time frame that we can give you. We're definitely happy to see Santander continuing to push transactions above their expectations. I think that's good for them. It's very good for us. But we'll continue to monitor how that impacts the margin.

[Korey Marcello:]

Very clear, Thank you very much.

[Operator:]

The next question will come from Vasu Govil with KBW. Please go ahead.

[Vasu Govil:]

Hi, thanks for getting my question. I also definitely want to extend my good wishes to Kay. It's been great working with you. I guess my first question, as you think about like the impact that we've had from COVID, do you think that we're kind of – COVID is kind of behind us and business has mostly normalized as you think about active merchants or sort of impact on tourism, the ATM business? Can you kind of help frame if we are still seeing some of the businesses being impacted or that's pretty much behind us at this point?

[Mac Schuessler:]

So I'll take a shot and then, Joaquin, you – I mean, Vasu, there's definitely – we're back to some level of normality. We do have a lot of tourists now in Puerto Rico. Restaurants are open. But there's still a lot of places that are at lower capacity. Restaurants are at lower capacity, movie theaters, cinema. So we haven't gone back to 100% of where we were. So I would say there's still opportunity for the economy to continue to be stimulated. And there's also still a lot of money to come in from the hurricane relief that has yet to come in. That being said, we don't know what the future holds as far as new variants, anything like that. And I think no one can predict those things. But we are definitely back to a much more closer state of normality. But even schools, I mean, my son is still doing school from home. So we're much closer to being back to normality, but there's still a little bit of a way to go.

[Vasu Govil:]

Got it. And just, I guess, a follow-up on that, Mac, as you think about the macro environment, to your point, the stimulus funding and now the financial aid coming into Puerto Rico, I think the outlook probably looks a lot better than it has in the past. So is that giving you more confidence to be able to have a longer-term view of what the growth profile of the business could look like? Because I know historically, there's just been too much uncertainty on the macro front.

[Mac Schuessler:]

Yes. So I think it gives us more certainty to Puerto Rico. I don't know that we will give long-term guidance. I think we will continue to give annual guidance. But I do think the relief money you've seen come in from COVID, the relief money you've seen come in from the hurricane, which is just beginning and then if we see more infrastructure spending from the new administration, that's definitely going to benefit Puerto Rico and benefit us, on top of the fact we're still 50% cash, right? So I think you've got some pretty good dimensions of how Puerto Rico will operate over the next couple of years. But I don't think that we'll give long-term guidance.

[Vasu Govil:]

Understood. And just one last one, if I may. Just on the M&A environment, if you could talk a little bit about what the M&A pipeline looks like, what kind of assets you're looking at. And congratulations to Diego and Phil for their new roles, but if you could expand a little bit on what – where you expect Phil to focus on, et cetera.

[Mac Schuessler:]

Yes. So I mean, first, we are excited about adding Diego to the team. I mean he's had a senior leadership job at Prisma Mexico. He was one of the top guy at Prisma, and then he was the CEO of a real-time payments company in Argentina that was owned by the local banks. And he also worked at Mastercard. He's moving to Puerto Rico, and he's – of course, he's fluent in Spanish. So we think he'll be a great addition to the team. Phil is actually going to work and help me and the team on strategy and also customer excellence to make sure that we're measuring customer excellence well, making sure that we're measuring the velocity of our product adoption and then helping us continue to map out our plans for further growth. When you're asking about M&A, I mean, it continues to be something we're very focused on. The deals have not – the type of deals we see have not dramatically changed. And what we've seen since I've been here, it's – the valuations have probably gone up a little bit and people's expectations just given where in the world it is and where sort of the technology space is, but it still is important to us. And it's a significant reason, the assets that we've purchased, like PlacetoPay, is one of the reasons we're winning business. And then PayGroup is the sole reason we won Santander Chile and Mercado Libre as well. So we've been pleased with those.

[Vasu Govil:]

Great. That's great color. Thanks very much.

[Mac Schuessler:]

Thanks, Vasu.

[Operator:]

The next question will come from Jamie Friedman with Susquehanna. Please go ahead.

[Jamie Friedman:]

Kay, let me echo the congratulations. This is a great way to go out. Good numbers here. Mac, my first question is for you. In your prepared remarks, Mac, you had mentioned, I thought the – it was either the number of cards or transactions or accounts on file. You had some operating metric relative to Santander Chile. You were going kind of quick there though. Could you say that part again?

[Mac Schuessler:]

Sure. So – and typically, we don't give this level of detail out for customers, but they've publicly given it out in their market. So this is publicly available information. They have – their target for the year was 20,000 merchants. Within a month or two of rolling out the product, they already have 10,000 merchants. So they're incredibly happy with the pace of the – of their sales efforts. So that was the statistic we gave. Then I also gave a statistic of 1,800 merchants we now have up on PlacetoPay, which is our e-commerce gateway. That was originally in Colombia and Ecuador, and now we've rolled it out Panama, in Costa Rica, and we're looking to localize it in Puerto Rico as well.

[Jamie Friedman:]

Great. That sounds really positive. Joaquin, you had mentioned a shareholder agreement with BPOP that you're going to file, I guess, soon or you already did. What I don't – I'm embarrassed to say, I don't remember that in the past. It might just be me. Or is that something that is actually incremental?

[Joaquin Castrillo:]

No, Jamie. So let me give you a little bit of context. So within our shareholder agreement, we are obligated to file this registration statement as a consequence of being a well-known seasoned issuer. If you look back a couple of weeks, we filed a 10-K/A, where we actually checked the box as a well-known seasoned issuer. And this filing is in accordance to the shareholder agreement requirement because of being a well-known seasoned issuer. But to be clear, we're not aware of any intent by the bank to sell shares or anything at this point.

[Jamie Friedman:]

Is that something that you do every year? Or is that different?

[Joaquin Castrillo:]

No. So I mean the shareholder agreement has several registration rights that are available to the bank. In this case, this is an automatic type of requirement that comes in when you are a well-known seasoned issuer. And given that we are a well-known seasoned issuer, we are obviously going to comply with the shareholder agreement and file the registration statement.

[Kay Sharpton:]

Jamie, it's a three-year filing, by the way.

[Jamie Friedman:]

Okay. So like, if I look back three years ago, I would have seen something similar, Kay?

[Joaquin Castrillo:]

No, no, no. So to be clear...

[Kay Sharpton:]

No.

[Joaquin Castrillo:]

Jamie, this is the first time we're filing it. The 10-K/A is the first time that we have checked the box as a well-known seasoned issuer. And because – again, because we are a well-known seasoned issuer, the shareholder agreement has a requirement of an automatic registration statement because of that and so this is the first time that we are kind of doing this automatic registration.

[Jamie Friedman:]

Okay. All right. I’ll jump back in the queue. Really good numbers. Congratulations.

[Joaquin Castrillo:]

Thanks, Jamie.

[Operator:]

The next question will come from John Davis with Raymond James. Please go ahead.

[John Davis:]

Thanks. Good afternoon, guys. And Kay, I'll add my congratulations. No more earnings season. Must be nice. So Mac, maybe I'll just start, piggyback off of one of the earlier questions about M&A. But more from a leverage perspective, I think the balance sheet is in the best shape you guys have had it as a public company. And as you continue to grow, that leverage will still go down. So how do you think about normalized leverage? Obviously, you want to keep some dry powder for M&A, but there was a reason to keep the balance sheet levered on a few times. Just kind of thoughts on where you are about this business on a normalized basis.

[Mac Schuessler:]

Yes. So I mean going into the pandemic, I think like everyone, we were very, very conservative about making sure we understood how the change in the business environment was going to impact our business. As you saw, we bought stock in the quarter, which had been a while since we have done that. And so we are very focused on capital allocation. We know that we have sort of the powder to do additional things, whether it's buy back stock, whether to do M&A. And so we see that as a great position to be in. But like I said earlier, we are looking at M&A. We do have the repurchase program. So we will continue to figure out what's the best use of capital.

[John Davis:]

Okay. And just remind us how much is left on that now, on the buyback?

[Joaquin Castrillo:]

About $86 million.

[Mac Schuessler:]

$86 million.

[Joaquin Castrillo:]

Yes. We – in late December, John, we approved $100 million through the end of 2023. We purchased about $14 million in the first quarter. So we have about $86 million still to go.

[John Davis:]

Okay. Great. And then, Mac, I didn't know you guys have been giving some periodic ATH Movil updates. Just curious where that stands today, whether it's users, transactions. I think you had some comments in the deck that it remains strong. But just curious if there are any stats out there that you'd give us from a user base for transactions. Have you seen that tail off at all now that we're starting to reopen? Or does that remain strong?

[Mac Schuessler:]

Yes. We don't have any statistics for the call today. We did say that ATH Movil and ATH Movil Business had 160% revenue growth, right? So pretty strong growth for the quarter. And that is all – or mostly new business, right? So those are new transactions. But then also on top of that, as we've talked about, ATH Movil is capturing new transaction types, person-to-person, small businesses that didn't accept cards like food trucks. But it is also helping us strengthen our relationship with our existing merchants because you can now use it in the biggest supermarkets, the fast food chains, where typically, we would have had this on a piece of plastic, now we're getting those on the QR codes. And so we now have 4,000 merchants out, which is about 13% of our merchant banks is now accepting the ATH Movil QR code. So significant growth on both fronts, those that are actually driving incremental revenue and those that are actually driving sort of increased brand awareness and increased stickiness with our merchants.

[John Davis:]

Okay. Great. And then I do want to follow up, you mentioned earlier that the – you're finally just four years later, 3.5 years later, starting to see some of the hurricane relief money hit the island. Just curious, I think it's $8.2 billion of HUD. How should we think about that? Or what's your best guess of how that flows through? I know it's probably a little bit fuzzy, to say the least, at this point. And then remind us what else is out there. And then maybe just a bigger picture, how do you guys see the new administration from a Puerto Rico standpoint? There's some things that are – do you see positively for the island with the Biden White House? Just curious if there are any bigger-picture thoughts on the new White House.

[Joaquin Castrillo:]

John, so this is Joaquin. I mean, look, the $8.2 billion, to be clear, it's – this is positive. And – but what's happening is that a lot of the kind of strings that were attached to a lot of these funds and are getting streamlined. The obstacles to approval are also getting removed. So the path to actually getting these through to impact the economy is a little bit clear. But there is still a process in place, right. I mean this €8.2 billion – and there's been a lot of kind of articles around it. It still needs to go through a process of bidding and awarding contracts. So look, I think, and we've said in the past, unfortunately, this is a story that has come all the way from after the hurricane. We're encouraged by the fact that this is going on, and we feel that we're going to see this now start to hit the economy, but there's still somewhat of a lag between now and when we actually see that hit. In terms of what else is there, I mean, this is – the $8.2 billion is related to HUD. There are still other agencies that are in kind of the same process of distributing funds. And look, the local government has been very proactive in how they're working with the federal government. I think the federal government has been saying the right things and with the actions on this $8.2 billion are doing some of the right things that we want to see. But now we need to see some execution also from the Puerto Rico government to actually get their hands on this funding and move quickly to actually impact the economy.

[John Davis:]

Okay. And then, Mac, any bigger picture on what the new White House means for Puerto Rico more broadly, if anything?

[Mac Schuessler:]

I mean, look, I would know probably not a lot better than you guys. But by reading what you read in the press and the plans, I think, that this administration has, I mean they seem to be pro-social programs, which, by the way, we have a lot of in Puerto Rico. So continuing to support those. We're looking at new programs could be positive. I think to Joaquin's point, the ability to access the hurricane funds, it seems like that this administration may help us do that more quickly. But I mean, that's sort of speculation. But I do think that this administration, from a big picture, could benefit our business.

[John Davis:]

Okay, all right. Thanks guys.

[Operator:]

The next question will come from James Faucette with Morgan Stanley. Please go ahead.

[James Faucette:]

Hey, thank you very much. Like everybody else, just extend my thanks and best wishes to Kay as she moves on. And thanks for all your input and time over the years. I wanted to ask a couple of follow-up questions. First, you highlighted that tourism is coming back, but there's still some more to go there. But also like normal day-to-day life is also returning. Any characterization you could give us of like how much tourism has recovered? Are we back to kind of 70% to 80% of the – what you would suspect is tourist-related spend? Or just any metrics around that versus day-to-day? Just trying to gauge where you guys are seeing benefit right now.

[Joaquin Castrillo:]

Sure, James. Look, we can actually point you to some websites after this that can help kind of clear up some of the numbers. But the inbound flights have definitely come back. When we compare against the prior year, we're still definitely below what a normal kind of month or period looks like for Puerto Rico in terms of inbound travel pre-pandemic, but flights and tourism is definitely on the rise. When we look at hotel and occupancy, some of the numbers have a lag, but the expectation I think is that those are between 60% to 70% of where they were pre-pandemic, which compared to where we were during lockdown, which went down to almost 90% of what usually is, right? It's been an improvement. So look, they're still in Puerto Rico, unfortunately, some rises in cases. And the government continues to look for different ways in which to mitigate these rises, including putting some restrictions in inbound travel now very recently. That could have an effect on these trends that we've been seeing the past few weeks. So again, something that we need to monitor. And as Mac said before, we don't have real control over variants or how the cases continue to move, but certainly encouraging to see those numbers start to improve.

[Mac Schuessler:]

And James, think about it, I mean some of the core sectors like supermarket fast food, those were pretty resilient during the entire pandemic, right? People had to still put food on their tables. But people going back to the office, consuming fuel, so that – our spending in certain categories as people reactivate, get back to work, go back to restaurants. So that supply chain improves. That's where we're slowly – I mean it's not back to 100%. Like I said, even the schools are – not all the schools are back. And tourism, as an aside, isn't a huge piece of our business or even the Puerto Rican economy. But that was sort of my example of things are coming back, but there's still a bit of a way to go. But...

[James Faucette:]

Got it. Got it. That's really helpful, guys. And then Mac, just following up on your M&A commentary, you said that there are a few things that you're looking at, but also acknowledge that kind of prices or valuations and expectations there, maybe, have risen. I guess kind of the last thing to finish out the equation, at least in my mind, is how has your willingness to pay up or pay for acquisitions changed at all? I mean, has that risen along with what people are asking for? Or do you still think there are deals that should and could be had? Just trying to get a sense of how you're thinking about that final piece, which is your thought process.

[Mac Schuessler:]

Yes. So look, I mean we've bought several things since I've been here. And some have been at very low multiples, some have been at higher multiples given for that state of time. So we still look at opportunities frequently. And so we definitely wouldn't overpay for any asset, but I mean we still are constantly looking. And most of the stuff we've bought is small. We've been able to tuck it in, integrate it into our business and then grow organically well. In some of these countries, James, the things that may be for sale are the monopolies or the duopolies. And some of those may have fundamental problems because they may lose customers over time. So it's – we continue to look at M&A. We have the balance sheet to buy something if we find it attractive, and we'll continue to try and make the right decisions.

[James Faucette:]

Great. Thanks to all of you once again.

[Mac Schuessler:]

Thanks.

[Joaquin Castrillo:]

Thank you.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Mac Schuessler for any closing remarks. Please go ahead, sir.

[Mac Schuessler:]

Thank you. Again, thank you for joining the call. And I just want to, again, thank Kay for all of her hard work and all that she's done for EVERTEC over the years. And we look forward to seeing you, at least virtually for a while, at different conferences. Have a good night.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.