Executive Summary / Key Takeaways

• Strategic Independence Achieved: EVERTEC's 2022 separation from Popular, Inc. and the October 2025 discount implementation mark the culmination of a decade-long diversification strategy, with Latin America revenue growing from 10% in 2015 to 33% by 2024, fundamentally altering the company's risk profile.

• LatAm Growth Engine Firing on All Cylinders: The Latin America Payments and Solutions segment delivered 18.9% constant-currency growth in Q3 2025, driven by Sinqia's successful reacceleration, recent tuck-in acquisitions (Grandata, Nubity), and the Tecnobank deal, positioning EVERTEC to capture disproportionate share in a region where electronic payments penetration remains far below U.S. levels.

• Margin Resilience Despite Headwinds: While the 10% Popular discount creates a $14 million annual EBITDA headwind starting in 2026, management's proactive cost efficiency initiatives have preserved consolidated adjusted EBITDA margins near 40%, demonstrating operational leverage and pricing power in core Puerto Rico operations.

• Execution Risk in the Spotlight: The August 2025 cybersecurity incident in Sinqia's PIX environment, though contained, exposed vulnerabilities in EVERTEC's fastest-growing segment, while client attrition (notably MercadoLibre (MELI)) and currency volatility in Brazil remind investors that LatAm expansion carries operational complexity beyond Puerto Rico's stable monopoly economics.

• Valuation Balancing Growth and Concentration: Trading at 13x earnings and 9.5x EBITDA with a 23.6% ROE, EVERTEC offers a compelling risk/reward profile for investors willing to underwrite management's ability to sustain high-teens LatAm growth while absorbing Popular-related headwinds and maintaining cybersecurity standards.

Setting the Scene: The Evolution of a Regional Payments Champion

EVERTEC, founded in 1988 and headquartered in San Juan, Puerto Rico, spent its first two decades building an unassailable position as the island's dominant transaction processor. The company's original sin—and source of its historical strength—was a deep integration with Popular, Inc. (BPOP), Puerto Rico's largest financial institution. A 2010 Master Service Agreement initially accounted for the majority of EVERTEC's revenues, creating a stable but concentrated business model that resembled a regulated utility more than a growth-oriented fintech.

This concentration became both a blessing and a curse. While it provided predictable cash flows and high margins (the Payments - Puerto Rico & Caribbean segment still delivers 54% EBITDA margins), it masked the company's vulnerability to a single customer's strategic shifts and Puerto Rico's macroeconomic stagnation. The 2022 transaction that redefined this relationship—extending agreements while selling assets to Popular in exchange for 4.6 million shares, which Popular subsequently sold—marked EVERTEC's emancipation. The October 2025 implementation of a 10% discount on certain MSA services, while creating a $14 million annual headwind, represents the final step in this transition: EVERTEC now competes for Popular's business on market terms rather than legacy arrangements.

Simultaneously, EVERTEC embarked on a deliberate, acquisition-fueled expansion into Latin America. By 2015, LatAm represented just 10% of revenue; by 2024, it reached 33%. This wasn't opportunistic deal-making but a strategic recognition that Latin America's electronic payments penetration—significantly lower than the U.S.—offered a multi-decade growth runway. The region's fragmented banking sector, outdated core systems, and growing consumer demand for digital payments created a perfect storm of opportunity for a proven processor with scalable technology.

Today, EVERTEC operates across 26 countries with four distinct segments: Payments - Puerto Rico & Caribbean (the legacy cash cow), Latin America Payments and Solutions (the growth engine), Merchant Acquiring (the stable contributor), and Business Solutions (the IT services backbone). Each segment faces different competitive dynamics and margin profiles, creating a diversified yet strategically coherent business model that generates approximately 40% EBITDA margins and converts the majority of that into free cash flow.

Technology, Products, and Strategic Differentiation: The Moat Beyond Geography

EVERTEC's competitive advantage rests on four pillars that management consistently emphasizes: proprietary technology, implementation expertise, public company credibility, and on-the-ground presence. Unlike global giants that export solutions from distant development centers, EVERTEC's technology is developed and deployed locally, creating a customization capability that multinational competitors struggle to match.

The company's core technology stack—spanning the ATH debit network, Paystudio processing platform, and Sinqia's core banking software—represents two decades of accumulated intellectual property. This matters because Latin American financial institutions operate under unique regulatory regimes, currency controls, and consumer behaviors that require deep localization. When Banco de Chile (BCH) selected EVERTEC for acquiring processing, it wasn't choosing a generic global platform; it was selecting a partner that could navigate Chile's specific requirements while helping the bank differentiate from Transbank, the legacy incumbent. EVERTEC's ability to "move quickly to implement" customized solutions, as CEO Mac Schuessler notes, creates switching costs that transcend price competition.

The recent acquisitions of Grandata (Mexico, data analytics for underbanked populations) and Nubity (Mexico, AWS cloud management) illustrate a deliberate strategy to layer value-added services atop core processing. Grandata's behavioral data capabilities enable EVERTEC's bank clients to offer credit to previously unbanked segments, expanding the addressable market for electronic payments. Nubity's cloud expertise accelerates the modernization of legacy core banking systems, a critical pain point for mid-sized Latin American institutions. These tuck-in deals aren't about scale; they're about creating cross-sell opportunities that increase revenue per client while deepening integration.

The Tecnobank acquisition, closed October 1, 2025 for $148 million, targets Brazil's vehicle financing contract registration market—a niche that offers both high margins and natural synergies with Sinqia's financial institution clients. This deal exemplifies EVERTEC's M&A discipline: buying controlling stakes (75%) in profitable, technology-enabled businesses that can leverage EVERTEC's regional footprint while operating with entrepreneurial autonomy. Management expects Tecnobank to contribute to high-teens LatAm growth in 2026, though new wins like Banco de Chile and Financiera Oh won't materially impact revenue until implementation completes.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

EVERTEC's Q3 2025 results provide clear evidence that the diversification strategy is working. Consolidated revenue of $228.6 million grew 8% year-over-year, with constant-currency growth of 10%—exceeding management's internal expectations. More importantly, the segment mix continues shifting toward higher-growth, higher-potential markets.

Latin America Payments and Solutions delivered $90.4 million in revenue, up 18.9% (18% constant currency), driven by Brazil's reacceleration, organic growth across the region, and contributions from Grandata and Nubity. Segment EBITDA of $24.4 million produced a 27% margin, down slightly from 27.3% in Q3 2024 due to the absence of a prior-year $1.8 million GetNet Chile adjustment that was 100% margin-accretive. The underlying margin expansion story remains intact: Sinqia's turnaround—driven by leadership changes, technology modernization, and contract repricing—has restored double-digit growth, while new acquisitions contribute at higher margins than the segment average.

Payments - Puerto Rico & Caribbean generated $55.2 million, up 4.7%, with EBITDA margins expanding 40 basis points to 54.1%. ATH Móvil's mid-teens growth and 7% POS transaction growth demonstrate that even mature markets can produce solid returns when you own the dominant network. The segment's resilience ahead of the Popular discount implementation shows pricing power and operational efficiency gains that should cushion the 2026 impact.

Merchant Acquiring grew 2.9% to $46.8 million, with EBITDA margins of 39.8% (down 30 basis points). The modest growth reflects a deliberate strategy to prioritize spread improvement over volume, with pricing initiatives boosting profitability despite a lower average ticket driving higher processing costs. The Bad Bunny residency provided a temporary volume boost in Q3, but management expects normalization in 2026, offset by new merchant implementations.

Business Solutions grew just 0.9% to $61.7 million, with EBITDA margins compressing to 40.7% from 41.7%. This segment bears the brunt of the Popular discount, which will reduce Q4 2025 revenue by approximately $4 million and create an $18 million annual headwind in 2026. The low growth reflects both the discount impact and a mix shift toward lower-margin hardware sales, partially offset by cost efficiencies.

Consolidated adjusted EBITDA of $92.6 million produced a 40.5% margin, down slightly from 41.1% in Q3 2024 but remarkably stable given the Popular discount headwind and cybersecurity-related expenses. The company's ability to maintain margins while investing in LatAm expansion demonstrates operational leverage and disciplined cost management.

Cash flow generation remains robust. Nine-month operating cash flow of $260.1 million and free cash flow of $171.6 million represent conversion rates that support both growth investments and shareholder returns. The balance sheet carries $474.7 million in cash, with $396.1 million held offshore to fund LatAm operations—a prudent structure that minimizes repatriation taxes while providing strategic flexibility.

Outlook, Guidance, and Execution Risk: The Path to 2026

Management's updated 2025 guidance reflects confidence in the LatAm momentum while acknowledging known headwinds. Revenue guidance of $921-927 million implies 8.9-9.6% growth, with constant-currency growth of 10-11%—raised from prior expectations due to Q3 overperformance and improved foreign currency outlook. Adjusted EBITDA margin guidance of approximately 40% signals that cost efficiency initiatives will largely offset the Popular discount and cybersecurity expenses.

The segment-level outlook reveals the strategic priorities: LatAm Payments and Solutions expects high-teens growth (low-20s constant currency), Merchant Acquiring targets mid-single-digit growth, Payments Puerto Rico anticipates mid-single-digit growth despite the discount, and Business Solutions projects low-single-digit growth reflecting the Popular headwind.

The preliminary 2026 outlook introduces key variables that will determine whether EVERTEC can sustain its premium valuation. CFO Karla Cruz-Jusino explicitly quantified the Popular discount impact at $14 million annually, with the CPI escalator capped at 2% until October 2026. This creates a clear earnings bridge: management must deliver $14 million in cost savings or incremental revenue just to maintain 2025 profitability levels.

Three factors will decide success. First, LatAm organic growth momentum must continue at high-teens rates to offset the Popular headwind and drive overall revenue acceleration. The Tecnobank acquisition, while strategically sound, won't contribute materially until late 2026, meaning organic execution is critical. Second, cost efficiency initiatives must deliver the promised $14 million in savings without compromising service quality or growth investments. The early implementation of these measures in late 2024 suggests management has a head start, but sustained execution remains unproven. Third, cybersecurity resilience must hold; any recurrence of the PIX incident could derail commercial momentum and trigger regulatory penalties.

Management's commentary on the cybersecurity incident reveals both confidence and lingering risk. CEO Mac Schuessler's assertion that the incident was "isolated to the PIX real-time payment system in Brazil and did not impact any other EVERTEC products or services" and that "we've really been able to harden our systems" suggests the company has contained the damage. However, the $6.5 million increase in other income included a $5.7 million net gain on tax credit sales—one-time benefits that won't recur—while expenses included professional services and potential contractual claims related to the incident. The absence of observed commercial impact in Q3 is encouraging, but the full financial and reputational cost may not be visible for several quarters.

Risks and Asymmetries: What Could Break the Thesis

The investment thesis faces four material risks that could meaningfully impair returns. Each connects directly to the core narrative of LatAm expansion and Puerto Rico independence.

1. Popular Discount Absorption Risk: While management has prepared for the $14 million headwind, the actual impact could exceed estimates if the discount leads to further price negotiations or if cost efficiencies prove harder to achieve than anticipated. The Business Solutions segment, which will bear most of the impact, already shows margin compression from mix shift. If EVERTEC cannot offset the full $14 million, 2026 EBITDA margins could compress to 38-39%, triggering multiple contraction.

2. LatAm Execution and Currency Risk: The 18.9% constant-currency growth in Q3 masks a 9% currency headwind from Brazilian real devaluation. If Brazil's economic conditions deteriorate—exacerbated by potential tariffs on steel, oil, and agriculture—both transaction volumes and currency translation could suffer. Moreover, the Tecnobank integration and Sinqia's continued reacceleration are management assumptions, not guarantees. A slowdown in LatAm growth to low-teens would eliminate the primary engine driving valuation.

3. Cybersecurity and Regulatory Risk: The PIX incident, while contained, exposed vulnerabilities in EVERTEC's fastest-growing segment. Brazil's central bank has tightened regulations around instant payments, and any future breach could result in fines, client attrition, or mandatory security investments that compress margins. The incident's limited scope (two financial institution customers) suggests operational controls functioned, but the attack vector—criminals exploiting the PIX system across multiple technology companies—indicates systemic risk that EVERTEC cannot fully control.

4. Client Concentration and Economic Exposure: Despite diversification, Puerto Rico still represents approximately 67% of revenue. The island's economy remains vulnerable to federal funding disruptions (e.g., SNAP program changes), natural disasters, and population decline. While ATH Móvil's mid-teens growth demonstrates local market strength, any macroeconomic shock could disproportionately impact EVERTEC's most profitable segment. Additionally, client attrition beyond MercadoLibre—particularly among mid-sized LatAm banks—could offset new wins.

These risks are partially mitigated by management's proactive stance. The early implementation of cost efficiencies, the disciplined M&A strategy (buying controlling stakes rather than full acquisitions), and the strong balance sheet (1.8x net debt/EBITDA, below the 2-3x target range) provide flexibility. However, the asymmetry is clear: upside requires flawless execution across multiple geographies and product lines, while downside can be triggered by a single operational misstep or macro shock.

Valuation Context: Pricing a Transforming Fintech

At $29.59 per share, EVERTEC trades at 13.1x trailing earnings and 9.5x EBITDA—valuations that appear modest for a company delivering 8-9% revenue growth and 40% EBITDA margins. The P/FCF ratio of 13.0x and P/OCF of 8.2x suggest the market is pricing in moderate growth with limited multiple expansion, creating potential upside if LatAm momentum accelerates.

Relative to peers, EVERTEC's valuation reflects its regional focus. Global Payments (GPN) trades at 12.0x earnings with 6% growth and 31.8% operating margins—lower growth, higher scale. Fidelity National Information Services (FIS) trades at 208x earnings due to one-time losses, but its 23.9% operating margins and 5.4-5.7% growth guidance show similar profitability with less expansion potential. Fiserv (FI) trades at 9.9x earnings with 17% margins but only 3.5-4% organic growth. dLocal (DLO), the pure-play LatAm fintech, trades at 23.7x earnings with 35% historical growth but compressed 37% gross margins, reflecting its volume-driven model.

EVERTEC's 23.6% ROE exceeds all peers except dLocal (35.6%), while its 1.55x debt-to-equity ratio is manageable and below the 2-3x target range. The company's capital allocation strategy—balancing M&A (Tecnobank for $148 million), dividends (0.68% yield, 8.85% payout ratio), and share repurchases ($150 million authorization through 2026)—demonstrates discipline. The weighted average interest rate of 6.24%, down 47 basis points year-over-year due to debt repricing and lower SOFR rates, provides a tailwind that partially offsets incremental borrowing for acquisitions.

The valuation puzzle centers on whether EVERTEC deserves a premium for its LatAm optionality or a discount for its Puerto Rico concentration. The market appears to be splitting the difference: the 9.5x EBITDA multiple is in line with slower-growth incumbents like FIS, while the 13.1x P/E is below dLocal's fintech premium. This suggests investors are waiting for proof that LatAm growth can sustainably offset Popular headwinds and that cybersecurity risks are fully contained.

Conclusion: A Regional Champion at an Inflection Point

EVERTEC has successfully executed a strategic transformation from Puerto Rico-centric processor to diversified Latin American fintech, with LatAm revenue tripling as a share of the total over the past decade. The company's proprietary technology, local presence, and proven M&A integration capability create a durable moat in a region where electronic payments adoption remains in early innings. Q3 2025's 18.9% constant-currency LatAm growth, combined with maintained 40% EBITDA margins despite known headwinds, validates management's execution.

However, this progress comes with heightened execution risk. The $14 million Popular discount, while manageable, requires flawless cost efficiency delivery. The PIX cybersecurity incident, though contained, exposed vulnerabilities in the fastest-growing segment. Client attrition and currency volatility remind investors that LatAm expansion is inherently more complex than Puerto Rico's stable monopoly economics.

The investment thesis hinges on two variables: sustained high-teens LatAm organic growth and cybersecurity resilience. If EVERTEC can deliver 15-20% constant-currency growth in the LatAm segment while maintaining 27%+ EBITDA margins, the Popular headwind becomes a rounding error and the stock's 13x P/E multiple should expand toward fintech peers. Conversely, any slowdown in LatAm momentum or recurrence of security breaches would validate the market's cautious valuation and likely trigger multiple compression.

For investors, EVERTEC offers a rare combination: a profitable, cash-generative business transforming its growth profile while trading at a reasonable valuation. The next 12 months will determine whether this regional champion can become a Latin American powerhouse—or if execution risks will keep it tethered to its Puerto Rico roots.