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•	our reliance on our relationship with Popular, Inc. (“Popular”) for a significant portion of our revenues pursuant to our master services agreement with them, and to grow our merchant acquiring business;

•	as a regulated institution, the likelihood we will be required to obtain regulatory approval before engaging in certain new activities or businesses, whether organically or by acquisition, and our potential inability to obtain such approval on a timely basis or at all, which may make transactions more expensive or impossible to complete, or make us less attractive to potential sellers;

•	our ability to renew our client contracts on terms favorable to us, including our contract with Popular, and any significant concessions we may have to grant to Popular with respect to pricing or other key terms in anticipation of the negotiation of the extension of the MSA, both in respect of the current term and any extension of the MSA;

•	our dependence on our processing systems, technology infrastructure, security systems and fraudulent payment detection systems, as well as on our personnel and certain third parties with whom we do business, and the risks to our business if our systems are hacked or otherwise compromised;

•	our ability to develop, install and adopt new software, technology and computing systems;

•	a decreased client base due to consolidations and failures in the financial services industry;

•	the credit risk of our merchant clients, for which we may also be liable;

•	the continuing market position of the ATH network;

•	a reduction in consumer confidence, whether as a result of a global economic downturn or otherwise, which leads to a decrease in consumer spending;

•	our dependence on credit card associations, including any adverse changes in credit card association or network rules or fees;

•	changes in the regulatory environment and changes in international, legal, tax, political, administrative or economic conditions;

•	the geographical concentration of our business in Puerto Rico, including our business with the government of Puerto Rico and its instrumentalities, which are facing severe political and fiscal challenges;

•	additional adverse changes in the general economic conditions in Puerto Rico, whether as a result of the government’s debt crisis or otherwise, including the continued migration of Puerto Ricans to the U.S. mainland, which could negatively affect our customer base, general consumer spending, our cost of operations and our ability to hire and retain qualified employees;

•	a protracted federal government shutdown may affect our financial performance;

•	operating an international business in Latin America and the Caribbean, in jurisdictions with potential political and economic instability;

•	our ability to execute our geographic expansion and acquisition strategies, including challenges in successfully acquiring new businesses and integrating and growing acquired businesses;

•	our ability to protect our intellectual property rights against infringement and to defend ourselves against claims of infringement brought by third parties;

•	our ability to recruit and retain the qualified personnel necessary to operate our business;

•	our ability to comply with U.S. federal, state, local and foreign regulatory requirements;

•	evolving industry standards and adverse changes in global economic, political and other conditions;

•	our high level of indebtedness and restrictions contained in our debt agreements, including the senior secured credit facilities, as well as debt that could be incurred in the future;

•	our ability to prevent a cybersecurity attack or breach in our information security;

•	our ability to generate sufficient cash to service our indebtedness and to generate future profits;

•	our ability to refinance our debt;

•	the possibility that we could lose our preferential tax rate in Puerto Rico;

•	the risk that the counterparty to our interest rate swap agreements fail to satisfy its obligations under the agreement;

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•	uncertainty of the pending debt restructuring process under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), as well as actions taken by the government of Puerto Rico or by the PROMESA Board to address the fiscal crisis in Puerto Rico;

•	the aftermath of Hurricanes Irma and Maria and their continued impact on the economies of Puerto Rico and the Caribbean;

•	the possibility of future catastrophic hurricanes affecting Puerto Rico and/or the Caribbean, as well as other potential natural disasters;

•	uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021;

•	the nature, timing and amount of any restatement; and

•	the impact of a novel strain of coronavirus ("COVID-19"), and measures taken in response to the outbreak, on our revenues, net income and liquidity due to current and future disruptions in operations as well as the macroeconomic instability caused by the pandemic.

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The Company

EVERTEC, Inc. (formerly known as Carib Latam Holdings, Inc.) and its subsidiaries (collectively the “Company,” or “EVERTEC”) is a leading full-service transaction processing business in Latin America and the Caribbean. The Company is based in Puerto Rico and provides a broad range of merchant acquiring, payment processing and business process management services. The Company provides services across 26 countries in the region. EVERTEC owns and operates the ATH network, one of the leading automated teller machine ("ATM") and personal identification number ("PIN") debit networks in the Caribbean and Latin America. In addition, EVERTEC provides a comprehensive suite of services for core bank processing and cash processing in Puerto Rico and technology outsourcing in all the regions the Company serves. EVERTEC serves a broad and diversified customer base of leading financial institutions, merchants, corporations and government agencies with solutions that are essential to their operations, enabling them to issue, process and accept transactions securely. EVERTEC's common stock is listed under the ticker symbol "EVTC" on the New York Stock Exchange.

Basis of Presentation

The unaudited condensed consolidated financial statements of EVERTEC have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the Securities and Exchange Commission and, accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Company for the year ended December 31, 2019, included in the Company’s 2019 Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements, prepared in accordance with GAAP, contain all adjustments necessary for a fair presentation. Intercompany accounts and transactions are eliminated in consolidation.

Risks and Uncertainties due to COVID-19 Pandemic

COVID-19 presents material uncertainty and risk with respect to EVERTEC’s business, results of operations and cash flows, as well as with respect to changes in laws and regulations and government and regulatory policy. COVID-19’s impact on global economies could have a material adverse effect on (among other things) the profitability, capital and liquidity of the Company, particularly if consumer spending levels are depressed for a prolonged period of time. While the rapid development and fluidity of the situation prevents management from having clear visibility into the medium and long-term impacts, management believes possible effects may include, but are not limited to, disruption to the Company’s customers and revenue, absenteeism in the Company’s workforce, unavailability of products and supplies used in operations, and a decline in the value of assets held by the Company, including, among other things, tangible and intangible long-lived assets, and increased levels in the Company's current expected credit loss reserve.

Given the uncertain and rapidly evolving situation, management has taken certain precautionary measures intended to help minimize the risk of COVID-19 to the Company, its employees, and customers, including the following:

•

The Company deployed its business continuity plan for the entire organization a few days before the government of Puerto Rico enacted a shelter-in-place directive on March 16, 2020. Since then, every country in which the Company operates has implemented some type of social distancing measures. Management expects that most of our employees will remain working remotely for an undetermined period, until it is deemed safe by management to return to our offices and as permitted or advised by local authorities in each country where the Company operates;

•

In connection with the Company's business continuity plan, the Company transitioned most of its employees to a work from home environment. For certain critical employees who are required to remain working on-site in order to, among other things, maintain network operations oversight functions, cash handling and other critical operations for our customers, we have implemented safety measures including administering daily temperature checks upon entry into the work site, providing protective gear, developing safe social distancing workspaces and increasing overall sanitation at our offices;

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•	As a precautionary measure, to increase the Company's cash position and preserve its financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak, the Company drew down $30 million on its Revolving Facility (see Note 6) in April. The Company fully repaid the Revolving Facility since then;

•	On May 1, 2020, the Company commenced deferral of payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act"); management anticipates a $2.7 million deferral of payroll taxes during the allowed time under the CARES Act. Through June 30, 2020, the Company has deferred payroll taxes amounting to $0.8 million;

•	Management identified additional expense reductions that are intended to be implemented as necessary; and

•	Management has suspended all non-essential travel for employees.

While the Company anticipates that the foregoing measures are temporary, management cannot predict their duration, and management may elect or need to take additional precautions as more information related to COVID-19 becomes available, as may be required by governmental authorities, or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. The extent to which the COVID-19 pandemic and EVERTEC’s precautionary measures in response to it, may impact the Company’s business, financial condition or results of operations will depend on the ongoing developments related to the pandemic and its direct and indirect consequences, all of which are highly uncertain and cannot be predicted at this time.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued updated guidance for the measurement of credit losses on financial instruments, which replaces the incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The main objective of this update and subsequent clarifications and corrections, including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-03, is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments affect the Company's trade receivables. Additional disclosures about significant estimates and credit quality are also required. The Company adopted this new guidance effective January 1, 2020, using a modified retrospective approach through a cumulative-effect adjustment to retained earnings, considered immaterial to the consolidated financial statements. Results for reporting periods beginning after January 1, 2020 are presented under the new guidance provided by Accounting Standards Codification ("ASC") Topic 326, while prior period amounts are not adjusted and continue to be reported under legacy GAAP.

Refer to Note 3, Current Expected Credit Losses, for discussions of the implementation of ASC Topic 326 with respect to the Company’s consolidated financial statements.

In August 2018, the FASB issued updated guidance for customer’s accounting for implementation, set-up and other upfront costs (collectively referred to as implementation costs) incurred in a cloud computing arrangement constituting a service contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The updated guidance does not impact the accounting for the service element of a hosting arrangement that is a service contract. The Company adopted this guidance prospectively effective January 1, 2020 with respect to all implementation costs incurred in a cloud computing arrangement constituting a service contract.

In November 2018, the FASB issued updated guidance to clarify the interaction between the guidance for collaborative arrangements and the updated revenue recognition guidance. The amendments in this update, among other things, provide guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under ASC Topic 606, Revenue from Contracts with Customers. The Company adopted the amendments in this update effective January 1, 2020. All contracts after this date are being evaluated under the updated guidance.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued updated guidance for ASC Topic 848, Reference Rate Reform, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met for a limited period of time in order to ease the potential burden in accounting for (or recognizing the

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effects of) reference rate reform on financial reporting. The amendments in this update are elective and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments to this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating whether to elect the adoption of this guidance with respect to the consolidated financial statements.

Accounting Pronouncements Issued Prior to 2020 and Not Yet Adopted

In December 2019, the FASB issued updated guidance for ASC Topic 740, Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles set out in ASC Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments to this update are effective for fiscal years, and interim periods within such fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact, if any, of the adoption of this guidance on the consolidated financial statements.

Allowance for Current Expected Credit Losses

The Company has only one type of financial asset that is subject to the expected credit loss model, which is trade receivables from contracts with customers. While contract assets and net investments in leases are also subject to the impairment requirements of ASC Topic 326, the impairment loss identified for these financial assets is immaterial to the consolidated financial statements.

To measure expected credit losses, trade receivables are grouped based on shared risk characteristics (i.e., the relevant industry sector and customer's geographical location) and days past due (i.e., delinquency status), while considering the following:

•	Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their country.

•

The Company has two main industry sectors: private and governmental. The private pool is comprised mainly of leading financial institutions, merchants and corporations, while the governmental pool is comprised by government agencies. The governmental customers possess different risk characteristics than private customers because although all invoices are due every 30 days, governmental customers usually pay within 60 to 90 days after issuance (i.e., between 30 to 60 more days than private customers). The Company provides to its customers a broad range of merchant acquiring, payment services and business process management services, which constitute mission-critical technology solutions enabling customers to issue, process and accept transactions securely.

•	The expected credit loss rate is likely to increase as receivables move to older aging buckets. The Company used the following aging categories to estimate the risk of delinquency status: (i) 0 days past due; (ii) 1-30 days past due; (iii) 31-60 days past due; (iv) 61-90 days past due; and (v) over 90 days past due.

The credit losses of the Company’s trade receivables have been historically low and most balances are collected within one year. Therefore, the Company determined that the expected loss rates should be calculated using the historical loss rates adjusted by macroeconomic factors. The historical rates are calculated for each of the aging categories used for pooling trade receivables. To determine the collected portion of each bucket, the collection time of each trade receivable is identified, to estimate the proportion of outstanding balances per aging bucket that ultimately will not be collected. This is used to determine the expectation of losses based on the history of uncollected trade receivables once the specific past due period is surpassed. The historical rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to settle the receivables by applying a country risk premium as the forward-looking macroeconomic factor. Specific reserves are established for certain customers for which collection is doubtful.

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Rollforward of the Allowance for Expected Current Credit Losses

The activity in the allowance for expected current credit losses on trade receivables during the period from January 1, 2020 to June 30, 2020, was as follows:

(In thousands)		June 30, 2020
Balance at beginning of period		$	3,460
Current period provision for expected credit losses		713
Write-offs		(1,427		)
Recoveries of amounts previously written-off		3
Balance at end of period		$	2,749

The Company does not have a delinquency threshold for writing-off trade receivables. The Company has a formal process for the review and approval of write-offs.

Impairment losses on trade receivables are presented as net impairment losses within cost of revenue, exclusive of depreciation and amortization in the unaudited condensed consolidated statement of income and comprehensive income. Subsequent recoveries of amounts previously written-off are credited against the allowance for expected current credit losses within accounts receivable, net on the unaudited condensed consolidated balance sheet.

Property and equipment, net consists of the following:

(Dollar amounts in thousands)		Useful life in years		June 30, 2020				December 31, 2019
Buildings		30		$	1,515			$	1,542
Data processing equipment		3 - 5		119,100				116,950
Furniture and equipment		3 - 20		7,138				6,936
Leasehold improvements		5 -10		3,015				2,814
				130,768				128,242
Less - accumulated depreciation and amortization				(90,881		)		(85,780		)
Depreciable assets, net				39,887				42,462
Land				1,312				1,329
Property and equipment, net				$	41,199			$	43,791

Depreciation and amortization expense related to property and equipment for three and six months ended June 30, 2020 amounted to $4.3 million and $8.5 million, respectively, compared to $4.3 million and $8.3 million for the corresponding periods in 2019.

The changes in the carrying amount of goodwill, allocated by operating segments, were as follows (see Note 15):

(In thousands)		Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Total
Balance at December 31, 2019		$	160,972			$	54,571			$	138,121			$	45,823			$	399,487
Foreign currency translation adjustments		—				(3,862		)		—				—				(3,862		)
Balance at June 30, 2020		$	160,972			$	50,709			$	138,121			$	45,823			$	395,625

Goodwill is tested for impairment on an annual basis as of August 31, or more often if events or changes in circumstances indicate there may be impairment. The Company may test for goodwill impairment using a qualitative or a quantitative analysis. In the quantitative analysis, the Company compares the estimated fair value of the reporting units to their carrying values, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is

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not considered impaired. If the fair value does not exceed the carrying value, an impairment loss is recorded for the excess of the carrying value over the fair value, limited to the recorded balance of goodwill. In the first half of 2020, global equity markets conditions deteriorated in reaction to the COVID-19 pandemic resulting in a corresponding decrease in the Company's stock price and market capitalization. As a result, management performed assessments as to whether the fair value of reporting units was less than carrying value as of June 30, 2020 and concluded that it was more likely than not that the fair value continued to be in excess of the carrying value for all reporting units. No impairment losses were recognized as of June 30, 2020.

The carrying amount of other intangible assets at June 30, 2020 and December 31, 2019 was as follows:

				June 30, 2020
(Dollar amounts in thousands)		Useful life in years		Gross amount				Accumulated amortization				Net carrying amount
Customer relationships		8 - 14		$	343,756			$	(233,324	)		$	110,432
Trademarks		10 - 15		41,919				(34,262		)		7,657
Software packages		3 - 10		267,204				(180,477		)		86,727
Non-compete agreement		15		56,539				(36,750		)		19,789
Other intangible assets, net				$	709,418			$	(484,813	)		$	224,605

				December 31, 2019
(Dollar amounts in thousands)		Useful life in years		Gross amount				Accumulated amortization				Net carrying amount
Customer relationships		8 - 14		$	344,883			$	(220,434	)		$	124,449
Trademarks		2 - 15		42,025				(32,456		)		9,569
Software packages		3 - 10		256,220				(169,974		)		86,246
Non-compete agreement		15		56,539				(34,866		)		21,673
Other intangible assets, net				$	699,667			$	(457,730	)		$	241,937

Amortization expense related to other intangibles for the three and six months ended June 30, 2020 amounted to $13.5 million and $27.1 million, respectively, compared to $12.9 million and $25.1 million for the corresponding periods in 2019.

The estimated amortization expense of the balances outstanding at June 30, 2020 for the next five years is as follows:

(Dollar amounts in thousands)
Remaining 2020		$	25,563
2021		47,008
2022		41,727
2023		36,783
2024		28,458

Total debt at June 30, 2020 and December 31, 2019 follows:

(In thousands)		June 30, 2020				December 31, 2019
2023 Term A Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(2))		$	194,058			$	207,261
2024 Term B Loan bearing interest at a variable interest rate (LIBOR plus applicable margin(1)(3))		307,764				317,936
Senior Secured Revolving Credit Facility(2)		15,000				—
Note payable due April 30, 2021(1)		111				175
Note payable due January 1, 2022(1)		1,373				2,231
Total debt		$	518,306			$	527,603

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(1)	Net of unaccreted discount and unamortized debt issue costs, as applicable.

(2)	Applicable margin of 1.75% at June 30, 2020 and 2.00% at December 31, 2019.

(3)	Subject to a minimum rate ("LIBOR floor") of 0% plus applicable margin of 3.50% at June 30, 2020 and December 31, 2019.

Secured Credit Facilities

On November 27, 2018, EVERTEC and EVERTEC Group (“Borrower”) entered into a credit agreement providing for the secured credit facilities, consisting of a $220.0 million term loan A facility that matures on November 27, 2023 (the “2023 Term A Loan"), a $325.0 million term loan B facility that matures on November 27, 2024 (the “2024 Term B Loan”), and a $125.0 million revolving credit facility (the “Revolving Facility”) that matures on November 27, 2023, with a syndicate of lenders and Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent, swingline lender and line of credit issuer (collectively the “2018 Credit Agreement”).

The 2018 Credit Agreement requires mandatory repayment of outstanding principal balances based on a percentage of excess cash flow, provided that no such payment shall be due if the resulting amount of the excess cash flow multiplied by the applicable percentage is less than $10 million. On March 5, 2020, in connection with this mandatory repayment clause, the Company repaid $17.0 million as a result of excess cash flow calculation performed for the year ended December 31, 2019.

The unpaid principal balance at June 30, 2020 of the 2023 Term A Loan and the 2024 Term B Loan was $195.5 million and $311.1 million, respectively. The additional borrowing capacity under our Revolving Facility at June 30, 2020 was $86.7 million. The Company issues letters of credit against the Revolving Facility which reduce the additional borrowing capacity of the Revolving Facility.

Notes Payable

In December 2019, EVERTEC Group entered into two non-interest bearing financing agreements amounting to $2.4 million to purchase software and maintenance. As of June 30, 2020 and December 31, 2019, the outstanding principal balance of the notes payable was $1.5 million and $2.4 million, respectively. The current portion of these notes is included in accounts payable and the long-term portion is included in other long-term liabilities in the Company's unaudited condensed consolidated balance sheet.

Interest Rate Swaps

As of June 30, 2020, the Company has an interest rate swap agreement, entered into 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 LIBOR		2.89%

The Company has accounted for this agreement as a cash flow hedge.

Additionally, the Company had an interest rate swap agreement that matured in April 2020, with a notional amount of $200 million and a fixed rate of 1.9225%. The Company accounted for this swap as a cash flow hedge from inception to maturity.

As of June 30, 2020 and December 31, 2019, the carrying amount of derivatives included in other long-term liabilities on the Company's unaudited condensed consolidated balance sheets was $28.1 million and $14.5 million, respectively. The fair value of these derivatives is estimated using Level 2 inputs in the fair value hierarchy on a recurring basis. Refer to Note 8 for disclosure of losses recorded on cash flow hedging activities.

During the three and six months ended June 30, 2020, the Company reclassified losses of $1.4 million and $1.6 million, respectively, from accumulated other comprehensive loss into interest expense. Based on current LIBOR rates, the Company expects to reclassify losses of $6.8 million from accumulated other comprehensive loss into interest expense over the next 12 months.

The cash flow hedge is considered highly effective.

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Recurring Fair Value Measurements

The Company's interest rate swaps are the only financial instruments measured at fair value on a recurring basis. The fair value is estimated using Level 2 inputs under the fair value hierarchy. These derivatives were in a liability position with balances of $28.1 million and $14.5 million as of June 30, 2020 and December 31, 2019, respectively.

The following table presents the carrying value, as applicable, and estimated fair values for financial instruments at June 30, 2020 and December 31, 2019:

		June 30, 2020								December 31, 2019
(In thousands)		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Financial liabilities:
Interest rate swap		$	28,123			$	28,123			$	14,452			$	14,452
2023 Term A Loan		194,058				187,439				207,261				206,388
2024 Term B Loan		307,764				300,105				317,936				324,163

Accumulated Other Comprehensive Loss

The following table provides a summary of the changes in the balances of accumulated other comprehensive loss for the six months ended June 30, 2020: 

(In thousands)		Foreign Currency Translation Adjustments				Cash Flow Hedges				Total
Balance - December 31, 2019, net of tax		$	(16,872	)		$	(13,137	)		$	(30,009	)
Other comprehensive loss before reclassifications		(7,238		)		(14,110		)		(21,348		)
Effective portion reclassified to net income		—				1,573				1,573
Balance - June 30, 2020, net of tax		$	(24,110	)		$	(25,674	)		$	(49,784	)

Long-term Incentive Plan ("LTIP")

During the three months ended March 31, 2018, 2019 and 2020, the Compensation Committee of the Company's Board of Directors ("Board") approved grants of restricted stock units (“RSUs”) to executives and certain employees pursuant to the 2018 LTIP, 2019 LTIP and 2020 LTIP, respectively, all under the terms of the Company's 2013 Equity Incentive Plan. Under the LTIPs, the Company granted restricted stock units to eligible participants as time-based awards and/or performance-based awards.

The vesting of the RSUs is dependent upon service, market, and/or performance conditions as defined in the grants. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee is providing services to the Company on the vesting date. Time-based awards vest over a period of three years in substantially equal installments commencing on the grant date and ending on February 28 of each year for the 2018 LTIP, February 22 of each year for the 2019 LTIP, and February 27 of each year for the 2020 LTIP.

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For the performance-based awards under the 2018 LTIP, 2019 LTIP, and 2020 LTIP, the Compensation Committee established adjusted earnings before income taxes, depreciation and amortization ("Adjusted EBITDA") as the primary performance measure while maintaining focus on total shareholder return through the use of a market-based total shareholder return ("TSR") performance modifier. The TSR modifier adjusts the shares earned based on the core Adjusted EBITDA performance upwards or downwards (+/- 25%) based on the Company’s relative TSR at the end of the three-year performance period as compared to the companies in the Russell 2000 Index. The Adjusted EBITDA performance measure will be calculated for the one-year period commencing on January 1 of the year of the grant and ending on December 31 of the same year, relative to the goals set by the Compensation Committee for this same period. The shares earned will be subject to an additional two-year service vesting period.

Performance and market-based awards vest at the end of the performance period that commenced on February 28, 2018 for the 2018 LTIP, February 22, 2019 for the 2019 LTIP, and February 27, 2020 for the 2020 LTIP. The periods end on February 28, 2021 for the 2018 LTIP, February 22, 2022 for the 2019 LTIP and February 27, 2023 for the 2020 LTIP. Unless otherwise specified in the award agreement, or in an employment agreement, awards are forfeited if the employee voluntarily ceases to be employed by the Company prior to vesting.

The following table summarizes nonvested restricted shares and RSUs activity for the six months ended June 30, 2020:

Nonvested restricted shares and RSUs		Shares			Weighted-average grant date fair value
Nonvested at December 31, 2019		1,592,755			$	20.71
Forfeited		(147,136	)		19.18
Vested		(337,452	)		26.24
Granted		413,733			31.62
Nonvested at June 30, 2020		1,521,900			$	23.83

For the three and six months ended June 30, 2020, the Company recognized $3.6 million and $7.1 million of share-based compensation expense, compared with $3.4 million and $6.7 million for the corresponding periods in 2019.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into primary geographical markets, nature of the products and services, and timing of transfer of goods and services. The Company's operating segments are determined by the nature of the products and services the Company provides and the primary geographical markets in which the Company operates. Revenue disaggregated by segment is discussed in Note 15, Segment Information.

In the following tables, revenue for each segment is disaggregated by timing of revenue recognition for the periods indicated.

	Three months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Total
Timing of revenue recognition
Products and services transferred at a point in time	$	32			$	206			$	—			$	2,765			$	3,003
Products and services transferred over time	19,553				17,887				24,765				52,729				114,934
	$	19,585			$	18,093			$	24,765			$	55,494			$	117,937

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	Three months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Total
Timing of revenue recognition
Products and services transferred at a point in time	$	115			$	121			$	—			$	2,774			$	3,010
Products and services transferred over time	20,585				19,751				26,793				52,409				119,538
	$	20,700			$	19,872			$	26,793			$	55,183			$	122,548

	Six months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Total
Timing of revenue recognition
Products and services transferred at a point in time	$	37			$	637			$	—			$	3,062			$	3,736
Products and services transferred over time	40,186				37,696				49,886				108,375				236,143
	$	40,223			$	38,333			$	49,886			$	111,437			$	239,879

	Six months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Total
Timing of revenue recognition
Products and services transferred at a point in time	$	2,792			$	191			$	—			$	3,651			$	6,634
Products and services transferred over time	40,658				38,429				52,767				102,896				234,750
	$	43,450			$	38,620			$	52,767			$	106,547			$	241,384

Contract Balances

The following table provides information about contract assets from contracts with customers.

(In thousands)	June 30, 2020
December 31, 2019	$	1,191
Services transferred to customers	1,849
Transfers to accounts receivable	(826		)
June 30, 2020	$	2,214

The current portion of contract assets is recorded as part of prepaid expenses and other assets, and the long-term portion is included in other long-term assets in the unaudited condensed consolidated balance sheets.

Accounts receivable, net at June 30, 2020 amounted to $91.7 million. Unearned income and unearned income - long term, which refer to contract liabilities, at June 30, 2020 amounted to $22.1 million and $28.7 million, respectively, and may arise when consideration is received or due in advance from customers prior to performance. Unearned income is mainly related to upfront fees for implementation or set up activities, including fees charged in pre-production periods in connection with hosting

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or managed services. During the three and six months ended June 30, 2020, the Company recognized revenue of $4.0 million and $9.2 million, respectively, that was included in unearned income at December 31, 2019. During the three and six months ended June 30, 2019, the Company recognized revenue of $5.2 million and $11.3 million, respectively, that was included in unearned income at December 31, 2018.

The components of income tax expense for the three and six months ended June 30, 2020 and 2019, respectively, consisted of the following:

		Three months ended June 30,								Six months ended June 30,
(In thousands)		2020				2019				2020				2019
Current tax provision		$	4,654			$	3,428			$	10,252			$	8,119
Deferred tax benefit		(134		)		(939		)		(1,214		)		(1,821		)
Income tax expense		$	4,520			$	2,489			$	9,038			$	6,298

The Company conducts operations in Puerto Rico and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the government of Puerto Rico as well as foreign jurisdictions. The following table presents the components of income tax expense for the three and six months ended June 30, 2020 and 2019, and its segregation based on location of operations:

		Three months ended June 30,								Six months ended June 30,
(In thousands)		2020				2019				2020				2019
Current tax provision (benefit)
Puerto Rico		$	1,528			$	1,503			$	3,207			$	3,316
United States		139				(97		)		294				15
Foreign countries		2,987				2,022				6,751				4,788
Total current tax provision		$	4,654			$	3,428			$	10,252			$	8,119
Deferred tax (benefit) provision
Puerto Rico		$	(458	)		$	(1,119	)		$	(546	)		$	(1,595	)
United States		1,126				373				1,101				1
Foreign countries		(802		)		(193		)		(1,769		)		(227		)
Total deferred tax benefit		$	(134	)		$	(939	)		$	(1,214	)		$	(1,821	)

Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements.

As of June 30, 2020, the Company has $70.2 million of unremitted earnings from foreign subsidiaries. The Company has not recognized a deferred tax liability on undistributed earnings for the Company’s foreign subsidiaries because these earnings are intended to be indefinitely reinvested.

As of June 30, 2020, the gross deferred tax asset amounted to $19.4 million and the gross deferred tax liability amounted to $19.0 million, compared to $13.1 million and $18.7 million, respectively, as of December 31, 2019.

Income tax expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following:

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		Six months ended June 30,
(In thousands)		2020				2019
Computed income tax at statutory rates		$	17,602			$	22,563
Benefit of net tax-exempt interest income		(15		)		(36		)
Differences in tax rates due to multiple jurisdictions		1,149				3
Tax benefit due to a change in estimate		131				300
Effect of income subject to tax-exemption grant		(12,050		)		(16,322		)
Unrecognized tax expense		193				202
Other expense (benefit)		2,028				(412		)
Income tax expense		$	9,038			$	6,298

The reconciliation of the numerator and denominator of the income per common share is as follows:

		Three months ended June 30,								Six months ended June 30,
(Dollar amounts in thousands, except per share information)		2020				2019				2020				2019
Net income attributable to EVERTEC, Inc.’s common stockholders		$	15,484			$	27,058			$	37,695			$	53,702
Weighted average common shares outstanding		71,864,499				72,128,795				71,938,574				72,252,974
Weighted average potential dilutive common shares (1)		909,866				1,171,758				1,080,645				1,396,959
Weighted average common shares outstanding - assuming dilution		72,774,365				73,300,553				73,019,219				73,649,933
Net income per common share - basic		$	0.22			$	0.38			$	0.52			$	0.74
Net income per common share - diluted		$	0.21			$	0.37			$	0.52			$	0.73

 

(1)	Potential common shares consist of common stock issuable under the assumed release of restricted stock awards using the treasury stock method.

EVERTEC is a defendant in a number of legal proceedings arising in the ordinary course of business. Based on the opinion of legal counsel and other factors, management believes that the final disposition of these matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss would be insignificant. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material.

For details of the Company's commitments, refer to Note 22, Commitments and Contingencies included in the Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The following table presents the Company’s transactions with related parties for the three and six months ended June 30, 2020 and 2019:

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		Three months ended June 30,								Six months ended June 30,
(Dollar amounts in thousands)		2020				2019				2020				2019
Total revenues (1)(2)		$	53,788			$	52,290			$	108,360			$	101,320
Cost of revenues		$	1,782			$	1,338			$	2,400			$	1,861
Operating lease cost and other fees		$	2,060			$	2,090			$	4,041			$	4,218
Interest earned from affiliate
Interest income		$	108			$	27			$	197			$	55

(1)	Popular revenues as a percentage of total revenues were 45%, 42%, 45% and 42%, respectively, for each of the periods presented above.

(2)	Includes revenues generated from investee accounted for under the equity method of $0.1 million, $0.2 million, $0.4 million, and $0.5 million, respectively, for each of the periods presented above.

As of June 30, 2020 and December 31, 2019, EVERTEC had the following balances arising from transactions with related parties:

(Dollar amounts in thousands)		June 30, 2020				December 31, 2019
Cash and restricted cash deposits in affiliated bank		$	96,113			$	64,724
Other due to/from affiliate
Accounts receivable		$	30,894			$	39,095
Prepaid expenses and other assets		$	4,374			$	4,211
Operating lease right-of use assets		$	18,878			$	20,617
Other long-term assets		$	28			$	57
Accounts payable		$	3,763			$	7,250
Unearned income		$	35,846			$	35,489
Operating lease liabilities		$	19,252			$	20,905

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.

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, and ATM management and monitoring. 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). For ATH debit 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 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. For EBT services, revenues are primarily derived from the number of beneficiaries on file.

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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 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), as well as licensed software solutions for risk and fraud management and card payment processing. 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 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. 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. 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. 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.) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally non-recurring.

In addition to the four operating segments described above, management identified certain functional cost areas that operate independently and do not constitute businesses in themselves. These areas could neither be concluded as operating segments nor could they be combined with any other 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. 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

The Chief Operating Decision Maker ("CODM") reviews the operating segments separate financial information to assess performance and to allocate resources. Management evaluates the operating results of each of its operating segments based upon revenues and Adjusted EBITDA. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments. 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. 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. As such, segment assets are not disclosed in the notes to the accompanying unaudited condensed consolidated financial statements.

The following tables set forth information about the Company’s operations by its four business segments for the periods indicated:

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	Three months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Corporate and Other (1)				Total
Revenues	$	27,461			$	19,797			$	24,764			$	55,495			$	(9,580	)		$	117,937
Operating costs and expenses	17,453				17,947				12,230				37,008				7,709				92,347
Depreciation and amortization	3,193				2,815				455				4,381				6,995				17,839
Non-operating income (expenses)	(178		)		584				158				684				(883		)		365
EBITDA	13,023				5,249				13,147				23,552				(11,177		)		43,794
Compensation and benefits (2)	253				835				235				472				1,956				3,751
Transaction, refinancing and other fees (3)	—				—				—				—				2,656				2,656
Adjusted EBITDA	$	13,276			$	6,084			$	13,382			$	24,024			$	(6,565	)		$	50,201

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $7.3 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $2.3 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $4.3 million.

(2)	Primarily represents share-based compensation.

(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.

	Three months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Corporate and Other (1)				Total
Revenues	$	30,482			$	21,106			$	26,793			$	55,183			$	(11,016	)		$	122,548
Operating costs and expenses	13,630				17,654				15,230				35,959				2,387				84,860
Depreciation and amortization	2,740				2,547				423				4,479				7,006				17,195
Non-operating income (expenses)	470				1,601				10				34				(3,061		)		(946		)
EBITDA	20,062				7,600				11,996				23,737				(9,458		)		53,937
Compensation and benefits (2)	257				173				255				529				2,284				3,498
Transaction, refinancing and other fees (3)	—				—				—				—				362				362
Adjusted EBITDA	$	20,319			$	7,773			$	12,251			$	24,266			$	(6,812	)		$	57,797

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $9.7 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software sale and developments of $1.3 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $5.5 million.

(2)	Primarily represents share-based compensation, other compensation expense and severance payments.

(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received.

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	Six months ended June 30, 2020
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Corporate and Other (1)				Total
Revenues	$	57,348			$	41,437			$	49,885			$	111,438			$	(20,229	)		$	239,879
Operating costs and expenses	34,859				35,598				26,936				70,625				13,508				181,526
Depreciation and amortization	6,442				5,572				954				8,677				13,989				35,634
Non-operating income (expenses)	(65		)		1,338				312				1,071				(1,845		)		811
EBITDA	28,866				12,749				24,215				50,561				(21,593		)		94,798
Compensation and benefits (2)	484				1,577				451				908				3,831				7,251
Transaction, refinancing and other fees (3)	—				—				—				—				4,442				4,442
Adjusted EBITDA	$	29,350			$	14,326			$	24,666			$	51,469			$	(13,320	)		$	106,491

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $16.3 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software developments and transaction processing of $3.9 million from Payment Services - Latin America to Payment Services - Puerto Rico & Caribbean. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $9.4 million.

(2)	Primarily represents share-based compensation.

(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A.

	Six months ended June 30, 2019
(In thousands)	Payment Services - Puerto Rico & Caribbean				Payment Services - Latin America				Merchant Acquiring, net				Business Solutions				Corporate and Other (1)				Total
Revenues	$	62,499			$	41,937			$	52,767			$	106,547			$	(22,366	)		$	241,384
Operating costs and expenses	27,845				35,227				29,948				68,869				4,402				166,291
Depreciation and amortization	5,383				4,743				891				8,333				14,118				33,468
Non-operating income (expenses)	1,051				4,235				31				220				(6,053		)		(516		)
EBITDA	41,088				15,688				23,741				46,231				(18,703		)		108,045
Compensation and benefits (2)	494				339				475				1,083				4,546				6,937
Transaction, refinancing and other fees (3)	—				2				—				—				409				411
Adjusted EBITDA	$	41,582			$	16,029			$	24,216			$	47,314			$	(13,748	)		$	115,393

(1)

Corporate and Other consists of corporate overhead, certain leveraged activities, other non-operating expenses and intersegment eliminations.  Intersegment revenue eliminations predominantly reflect the $18.9 million processing fee from Payments Services - Puerto Rico & Caribbean to Merchant Acquiring and intercompany software sale and developments of $3.4 million from Payment Services - Latin America to the Payment Services - Puerto Rico & Caribbean. Corporate and Other was impacted by the intersegment elimination of revenue recognized in the Payment Services - Latin America segment and capitalized in the Payment Services - Puerto Rico & Caribbean segment; excluding this impact, Corporate and Other Adjusted EBITDA would be $10.3 million.

(2)	Primarily represents share-based compensation, other compensation expense and severance payments.

(3)	Primarily represents fees and expenses associated with corporate transactions as defined in the 2018 Credit Agreement and the elimination of non-cash equity earnings from our 19.99% equity investment in Consorcio de Tarjetas Dominicanas S.A., net of cash dividends received.

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The reconciliation of EBITDA to consolidated net income is as follows:

	Three months ended June 30,								Six months ended June 30,
(In thousands)	2020				2019				2020				2019
Total EBITDA	$	43,794			$	53,937			$	94,798			$	108,045
Less:
Income tax expense	4,520				2,489				9,038				6,298
Interest expense, net	5,810				7,116				12,226				14,408
Depreciation and amortization	17,839				17,195				35,634				33,468
Net income	$	15,625			$	27,137			$	37,900			$	53,871

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•	Our ability to provide competitive products;

•	Our ability to provide in one package a range of services that traditionally had to be sourced from different vendors;

•	Our ability to serve customers with disparate operations in several geographies with technology solutions that enable them to manage their business as one enterprise; and

•	Our ability to capture and analyze data across the transaction processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction processing value chain (such as only merchant acquiring or payment services).

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•	The Company deployed its business continuity plan for the entire organization a few days before the government of Puerto Rico enacted a shelter-in-place directive on March 16, 2020. Since then, every country in which the Company operates has implemented some type of social distancing measures. Management expects that most of our employees

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•

In connection with the Company's business continuity plan, the Company transitioned most of its employees to a work from home environment. For certain critical employees who are required to remain working on-site in order to, among other things, maintain network operations oversight functions, cash handling and other critical operations for our customers, we have implemented safety measures including administering daily temperature checks upon entry into the work site, providing protective gear, developing safe social distancing workspaces and increasing overall sanitation at our offices;

•	As a precautionary measure, to increase the Company's cash position and preserve its financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak, the Company drew down $30 million on Revolving Facility in April. The Company fully repaid the Revolving Facility since then;

•	On May 1, 2020, the Company commenced deferral of payroll taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act"); management anticipates a $2.7 million deferral of payroll taxes during the allowed time under the CARES Act. Through June 30, 2020, the Company has deferred payroll taxes amounting to $0.8 million;

•	Management identified additional expense reductions that are intended to be implemented as necessary; and

•	Management has suspended all non-essential travel for employees.

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•	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

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•	they do not reflect cash outlays for capital expenditures or future contractual commitments;

•	they do not reflect changes in, or cash requirements for, working capital;

•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements;

•	in the case of EBITDA and Adjusted EBITDA, they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness;

•	in the case of EBITDA and Adjusted EBITDA, they do not reflect income tax expense or the cash necessary to pay income taxes; and

•	other companies, including other companies in our industry, may not use EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings per common share or may calculate EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common share differently than as presented in this Report, limiting their usefulness as a comparative measure.

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1)	Represents the elimination of non-cash equity earnings from our 19.99% equity investment in Dominican Republic, Consorcio de Tarjetas Dominicanas S.A. ("CONTADO"), net of dividends received.

2)	Primarily represents share-based compensation.

3)	Represents fees and expenses associated with corporate transactions as defined in the Credit Agreement, recorded as part of selling, general and administrative expenses.

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.

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•	Significant decline in sales volumes and sales volumes mix in our Merchant Acquiring business;

•	Decreased number of POS and ATM transactions, and other services (e.g. Lockbox, ACH) affecting our Payments Services - Puerto Rico & Caribbean segment;

•	Changes in consumer behavior resulting from COVID-19, such as decreased consumer confidence and negative trends in consumer purchase patterns due to consumers’ disposable income, credit available and debt levels;

•	Decreased productivity due to travel bans, remote working policies or shelter-in-place orders; and

•	A slowdown of global economic activity, which has significantly impacted our customers, due to the crisis and governmental responses to the crisis.

•	lower than normal sales volumes and sales volumes mix in our merchant acquiring business;

•	continued decreased number of POS and ATM transactions, and other services affecting our Payments Services - Puerto Rico & Caribbean segment;

•

payment processing risks associated with disruptions to merchant activity and business failures including chargeback risk. As an unprecedented number of merchants have been required to suspend their operations, there may be an increase in consumer chargebacks associated with processed transactions that merchant clients have submitted but have not fulfilled. Merchants may be unable to fund these chargebacks, potentially resulting in losses to us;

•	the revenue streams for certain lines of business in the Business Solutions segment may be adversely affected, including but not limited to core banking, network services, IT consulting, cash processing and item processing, among others;

•	reduced transactional revenue in our Payments Services - Latin America segment;

•	increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity;

•	additional regulatory requirements, including, for example, government initiatives or requests to reduce or eliminate payment fees or other costs;

•	changes to normal operations, including the possibility of one or more clusters of COVID-19 cases affecting our employees;

•	impairments in our ability to deliver key projects on time, which may have an impact on our revenue for all segments during 2020 and beyond;

•	negative effects of general macroeconomic conditions on consumer confidence, including the impacts of any recession and rises in unemployment resulting from the COVID-19 pandemic, as well as significant reductions in consumer spending, which would result in a loss of profits and other material adverse effects;

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•	significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by the temporary inability of consumers to purchase or use our products due to illness or quarantine, which would result in a loss of profits and other material adverse effects; and

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the impact of public concern regarding the risk of contracting COVID-19 on demand from consumers, including due to consumers not leaving their homes or otherwise shopping in a different manner than they historically have or because some of our consumers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic, which would result in a loss of profits and other material adverse effects.

•	the duration, scope, and severity of the COVID-19 pandemic;

•	the effectiveness of government actions to contain the virus or treat its impact; the disruption or delay of production and delivery of materials and products in our supply chain;

•	the length and impact of work-from-home policies and government restrictions, including travel bans and shelter-in-place orders;

•	the temporary or prolonged shutdown of manufacturing facilities or retail stores and decreased retail traffic;

•	staffing shortages;

•	general economic, financial, and industry conditions, particularly conditions relating to liquidity, financial performance, and related credit issues in all sectors of the economy (including but not limited to the retail sector), which may be amplified by the effects of COVID-19; and

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the short, medium and long-term effects of COVID-19 on the global economy, particularly in the countries where we operate, including on consumer confidence and spending, unemployment and bankruptcy rates, financial markets and the availability of credit to us, our suppliers and our customers in the event that the extension of additional credit becomes necessary due to the continuation of the current state of affairs for a prolonged and undetermined period of time.

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