Hurricanes Irma and especially Maria devastated Puerto Rico-based payment processor Evertec Inc.’s business in September, and the company’s merchant business is in for a long recovery as the island struggles to restore electric power and other essential services to businesses and residences.
In reviewing Evertec’s third-quarter results during a Tuesday conference call with analysts, president and chief executive Morgan M. “Mac” Schuessler noted that San Juan-based Evertec’s processing system never stopped operating. But many of merchants, banks, and ATMs served by the company did.
“In the 10 days of the quarter after Hurricane Maria, payment volume fell to less than 10% of our normal volume,” Schuessler said of Evertec’s Payment Processing segment, according to a call transcript from Thomson Reuters StreetEvents. The segment includes debit and credit card processing, the ATH ATM and point-of-sale network, and automated clearing house and electronic benefits transfer services.
Schuessler, a former Global Payments Inc. executive, also noted that Hurricane Irma “significantly affected” the company’s Merchant Acquiring segment in the U.S. Virgin Islands, which lie just east of Puerto Rico.
After hitting the northern part of the Virgin islands, the eye of Hurricane Irma, then a Category 5 storm with 185 miles per hour winds, passed just north of Puerto Rico on Sept. 6, according to USA Today.
But Hurricane Maria inflicted much greater damage on Puerto Rico after it made landfall Sept. 20 as a Category 4 storm with 155 mph winds, the first Category 4 storm to hit the island since 1932, according to press reports. Since then, the Internet, TV, and newspapers have been full of reports about Puerto Rico’s demolished power grid and the problems in restoring it.
“Until this past weekend, Evertec was powered without interruption by its diesel generators,” chief financial officer Peter J. S. Smith said on the call, according to the transcript. “To expeditiously get power this past weekend, we needed to make and made special arrangements with the power authority to directly pay a third-party contractor to accelerate our connection to the grid. It cost us approximately one month’s worth of diesel expense.”
With power, water and food suddenly scarce, Evertec employees struggled to get to work and take care of their families in the immediate aftermath of the storm.
“Through internal initiatives and with the help of our partners, we were able to provide day care, water, food, and expedite the provision of gas and financial services to our employees,” Schuessler said, according to the transcript.
Transactions in the Payment Processing segment had been growing in the 8% to 9% range before Maria hit, but the 90% drop afterward resulted in negative 1% transaction growth for the quarter, according to Schuessler.
Although it operated in 18 Latin American and Caribbean countries in 2016, Evertec generated 84% of its $389.5 million in revenues from Puerto Rico, according to its annual report to the Securities and Exchange Commission. Its biggest customer is its former owner, Popular Inc., the island’s leading banking company that still had a 16% share in Evertec as of Dec. 31.
Despite the hurricanes, Evertec’s total third-quarter revenues rose 9% year over year to $102.7 million, but net income fell 54% to $8.57 million. Company executives attributed the higher revenues to transaction growth in July and August as well as new volumes from Evertec’s $42.8 million July acquisition of EFT Group S.A., a Chilean processor that goes by the PayGroup brand.
With many businesses knocked out, Merchant Acquiring segment revenues fell 2% to $21.6 million. Revenues in the Payment Processing segment, which now includes PayGroup, rose 24% to $34.2 million. The Business Services segment, which includes core bank processing, saw revenues increase 5% to $47 million.
To conserve cash during the rebuilding effort, Evertec suspended its dividend and extended its share-repurchase program, which was set to expire Dec. 31, by three years.