Evertec Inc

NYSE:EVTC

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon, everyone, and welcome to the EVERTEC Second Quarter 2022 Earnings Conference Call. Today's conference call is being recorded.

At this time, I would now like to turn the call over to Mr. Kevin Hunt of Investor Relations. Please go ahead.

[Kevin Hunt, IR]

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

I'll now hand over the call to Mac.

[Mac Schuessler, President and CEO]

Thanks, Kevin, and good afternoon, everyone.

We are pleased with our second quarter results in both Puerto Rico and LatAm driven by strong revenue growth. Puerto Rico benefited from increased transaction volumes and onetime revenue while LatAm continues to benefit from organic transactional growth. We were also able to close both the Popular transaction and the BBR acquisition on July 1, in line with our previously announced expected timing, and I want to thank the whole team who worked tirelessly to get these transactions to completion.

On today's call, I will start with some highlights from the quarter, and then we'll turn it over to Joaquin, who will provide further details on our second quarter results, a review of the impact from the Popular transaction and an update to our outlook.

Beginning on Slide four. Total revenue was $161 million for the second quarter, an increase of approximately 8% compared to the second quarter of 2021. Adjusted EBITDA was $73 million, a decrease of approximately 9%; and adjusted earnings per share was $0.65, a decrease of approximately 17% from the prior year quarter.

During the quarter, we returned approximately $18 million to our shareholders through dividends and share repurchases, an increase of $14 million when compared with the prior year. Additionally, our liquidity remains strong at $404 million as of June 30. Moving to our Puerto Rico update on Slide five. Merchant Acquiring revenue increased slightly when compared with a year ago and in line with our expectations.

Last year's second quarter was heavily impacted by COVID stimulus that did not repeat in the current period, resulting in lower sales volume during the quarter. However, we were able to offset this headwind with select pricing actions. Payments - Puerto Rico benefited from increased POS transaction volumes, up 6% year-over-year as well as continued strong growth from ATH Movil and ATH Business and an increase in issuing services for Medicare health care providers in Puerto Rico.

The segment also benefited from a small tuck-in acquisition completed at the beginning of the quarter that allows us to process payments for government services in Puerto Rico. We expect these will continue to grow as the government continues to modernize its services and shifts towards digital payments. This further demonstrates our commitment to use our balance sheet for growth through acquisitions and our willingness to execute when opportunities arise.

Our Business Solutions segment revenue increased approximately 7% year-over-year. Revenue in the quarter benefited from the printing contract discussed on prior calls as well as contribution from onetime software sales in the Dominican Republic. We also benefited from higher volumes in certain services to Popular and the 5% CPI clause in our MSA with Popular, which will be credited in the third quarter now that the transaction is closed.

Finally, a few comments on the macro environment in Puerto Rico. The unemployment rate has dropped to 6.6% in 2022, down from 8.1% in 2021, and this is the lowest unemployment rate in Puerto Rico in over 60 years. The overall economic activity index continues to trend higher, up 3.5% year-over-year in the month of April to a six-year high.

And finally, travel and tourism continues to recover with average hotel occupancy rates at 61%, up from 54% in 2021. So even though we are not shielded from broader macroeconomic challenges, we expect that we will benefit from the continued strengthening of the Puerto Rico economic environment.

Turning now to Latin America on Slide six. LatAm revenue was up nearly 19% compared to the prior year. We continue to experience strong organic growth from our existing customer base with a healthy pipeline of new opportunities.

We continue to grow in countries where we have had a presence for many years like Costa Rica while accelerating growth in countries where we have entered into more aggressively in the past few years, such as Chile and Mexico. Mexico is worth calling out with very high double-digit growth in the quarter, albeit off a smaller base when compared to some of our other LatAm countries.

Next, let's turn to Slide seven to cover a few additional items. We are very pleased to have closed the Popular transaction on July 1. We worked hard to strengthen our relationship with Popular over the years. We are excited that Popular will remain a strategic customer for EVERTEC for many years into the future, and we look forward to growing our business with the bank.

Recall that we extended our Merchant Acquiring contract with the bank through 2035. We extended our ATH network agreement through 2030, and our master service agreement was modified and extended through 2028.

We also sold certain assets back to Popular that are solely used by them and align to their customer experience initiatives and that don't conform to our long-term strategy. The completion of this transaction resets our relationship with Popular, creates a partnership with them to grow our payments business and allows us to focus our resources on other high-growth products and segments.

Joaquin will revisit some of the impacts from that transaction on our Puerto Rico segment in a few minutes. We look forward to the increased flexibility we will have once we no longer need to be a subsidiary of Popular for purposes of the Bank Company Holding Act, allowing us to grow other aspects of our business, particularly in Latin America. On that front, we are also pleased to have closed the BBR acquisition on July 1, which expands our capabilities in Chile as well as provides an entry for EVERTEC into Peru.

We look forward to the contribution from BBR in the second half of 2022. In connection with the closing of these transactions, we have made some organizational changes that will better align with our long-term growth strategy, strengthening different areas of our organization and leveraging our executive team's strength.

With that, I will now turn it over to Joaquin to provide a more in-depth look at our second quarter results.

[Joaquin Castrillo, CFO]

Thank you, Mac, and good afternoon, everyone.

Turning to Slide 9, you will see the consolidated second quarter results for EVERTEC. Total revenue for the second quarter was $160.6 million, up approximately 8% compared to $149.1 million in the prior year.

Second quarter results in Puerto Rico reflected increased payment transaction volume as well as the continued growth of ATH Movil and ATH Business and the contribution from the tuck-in acquisitions completed this quarter. We also benefited from the printing contract that was signed in June 2021, onetime software sales Mac noted on the effects of the 5% CPI escalator in our Popular MSA, which has now been amended with the close of the transaction on July 1.

We continue to experience double-digit growth in Latin America, mainly due to organic growth, and we continue to grow existing relationships as well as expand our presence in certain countries. Adjusted EBITDA for the quarter was $73.4 million, a decrease of approximately 9% from $80.3 million in the prior year. Adjusted EBITDA margin was 45.7%, an approximately 810 basis point decrease compared to the prior year.

The decline in margin is driven by the $4.1 million impairment loss recorded in the quarter for a multiyear software development, foreign currency exchange losses of approximately $200,000 in the quarter compared with gains of approximately $1.4 million in the prior year quarter, increased provisions for expected losses as well as changes in the mix of business and higher operating expenses in part due to inflationary impacts.

Adjusted net income for the quarter was $47 million, a decrease of approximately 18% as compared to the prior year, primarily reflecting the lower adjusted EBITDA as well as a higher tax rate and higher operating depreciation and amortization. Our adjusted effective tax rate in the quarter was higher than expected at approximately 18% as we continue to grow in LatAm and experienced higher rates in these jurisdictions and a shift in the mix of business in Puerto Rico.

As a result, we now expect the tax rate for the full year to range from 14% to 15% compared to our prior expectation of 13% to 14%. Adjusted EPS was $0.65 for the quarter, a decrease of approximately 17% compared to the prior year. Moving on to Slide 10. I'll now cover our segment results, starting with Merchant Acquiring.

In the second quarter, Merchant Acquiring net revenue increased slightly year-over-year to approximately $38.5 million as the prior year presented a tough comparable period given the benefits from COVID-related stimulus that positively impacted last year results. Sales volume was down year-over-year by approximately 1.5%, and our average ticket declined 2.8%, which are directionally aligned with our expectations.

Our overall spread was also down year-over-year driven by changes in our portfolio mix as we experienced lower sales volume in higher spread verticals such as retailers and higher volumes in lower-margin verticals such as gas stations and utilities. We were able to mitigate these headwinds through the implementation of certain pricing initiatives that began earlier in the year.

Adjusted EBITDA for the segment was $17.5 million, down approximately 15%. Adjusted EBITDA margin was 45.5%, down approximately 810 basis points as compared to last year, reflecting higher operating expenses, mainly processing costs driven by higher volume of transactions.

On Slide 11, you will see the results for Payment Services Puerto Rico and the Caribbean segment. Revenue for the segment in the second quarter was $46.1 million, up approximately 19%, driven primarily by increased transaction volumes for POS processing, which grew 6% year-over-year and ATH Movil, which grew 16%, mainly driven by ATH Business as sales volumes continue to grow.

We also benefited from increased transaction volumes and project revenues from our issuing services for health care companies in Puerto Rico and continue to benefit from increases in transaction processing and monitoring services provided to the Payment Services Latin America segment.

As Mac highlighted, we completed a small acquisition during the quarter that contributed to the year-over-year growth of this segment as well and gives us further inroads to address cash payments in the island, which, as we have stated in the past, are estimated to be close to 50% of all payments.

Adjusted EBITDA for the segment was $23.8 million, up slightly as compared to last year. Adjusted EBITDA margin was 51.8%, down approximately 950 basis points as compared to last year, primarily due to the software impairment charge I referred to earlier as well as higher operating expenses.

On Slide 12, you will see the results for our Payment Services LatAm segment. Revenue for the segment in the second quarter was $30.8 million, up approximately 19% as compared to last year. Organic growth with existing customers was the primary driver this quarter. Of the revenue growth, over 40% was attributable to our existing customer base in Costa Rica, while Mexico and Chile contributed over 30% as the customer wins that we have announced in these countries have begun to contribute in a more significant manner. Mexico, in particular, has delivered strong growth, increasing approximately 50% from the prior year.

We are very pleased with the growth we are seeing in these countries as it provides further evidence that our growth strategies are paying off. Adjusted EBITDA for the segment was $9.6 million, and adjusted EBITDA margin was 31.1%, down approximately 11 percentage points as compared to last year.

The decrease in margin is driven by lower FX remeasurement benefit of approximately $1.6 million as the prior year reflected a benefit of approximately $1.4 million versus a slight loss of approximately $200,000 in the current period. There were also higher personnel costs and higher provisions for expected losses.

On Slide 13, you will find the results for the Business Solutions segment. Business Solutions revenue for the second quarter was up approximately 7% to $64.7 million as we benefited from the 5% CPI escalator in our MSA with Popular, increased volumes in core banking services, the printing contract that began in June last year, and we also benefited from one bank software sales in the Dominican Republic, amounting to approximately $1 million.

As a reminder, our MSA with Popular was amended with the close of the Popular transaction on July 1, which results in a credit that will effectively reverse the accumulated impact of the CPI escalator we have recognized since October of 2021. This credit will occur now in the third quarter.

For the quarter, adjusted EBITDA was $29.8 million and adjusted EBITDA margin was 46.1%, down approximately 430 basis points as compared to last year. The adjusted EBITDA margin decrease was a result of higher printing related costs driven by inflationary effects, increase in provisions for expected losses and an increase in cost of sales directly related to the mix of business. Moving on to Slide 14. You will see a summary of Corporate and Other.

Our second quarter adjusted EBITDA was approximately negative $7.4 million, and our adjusted EBITDA as a percentage of total revenue was 4.6%, higher than prior year but in line with our expectations for 2022.

Moving on to our cash flow overview on Slide 15. Our beginning cash balance was approximately $286 million, including restricted cash of approximately $20 million. Net cash provided by operating activities year-to-date was approximately $130 million, a nearly $18 million increase compared to prior year. Capital expenditures for the 6-month period were approximately $29 million, and we continue to anticipate approximately $60 million of capex for the full 2022 year.

We recognize the customer relationship cost of approximately $10.6 million in connection with the Puerto Rico acquisition previously mentioned and purchased certificates of deposit for approximately $7.3 million, which were part of a contractual requirement to close the BBR transaction. These certificates of deposit were transferred to the sellers upon close on July 1. We paid approximately $10 million in long-term debt payments, $6 million withholding taxes on share-based compensation and $1 million of other debt pay downs, which resulted in a total net debt decrease of approximately $17 million.

We paid cash dividends of $7 million and repurchased approximately 879,000 shares of common stock for a total of approximately $35 million. We have approximately $115 million available for future use under the company's share repurchase program. I would also highlight that on July 1, we received approximately 4.6 million shares of our total stock from Popular in connection with the Popular transaction close, and this will reduce our share count beginning in the third quarter.

Our ending cash balance as of June 30 was $311 million, and this included approximately $23 million of restricted cash. Moving to Slide 16. You will find a summary of our debt as of June 30, 2022. Our quarter ending net debt position was approximately $173 million, comprised of approximately $285 million of unrestricted cash and approximately $458 million of total short-term borrowings and long-term debt. Our weighted average interest rate was approximately 5.3%.

Our net debt to trailing 12-month adjusted EBITDA was approximately 1.4 times. As of June 30, total liquidity was approximately $404 million. This balance excludes restricted cash and includes the available borrowing capacity under our revolver. Turning to Slide 17. I will revisit some of the highlights of financial effects from the Popular transaction that closed on July 1, 2022, making all contract extensions effective on that date.

As a reminder, we have extended our ISO agreement with Popular through 2035 and incorporated a revenue share provision that will better align our interest as we focus on innovation and work together to expand our share of payments in Puerto Rico and the Caribbean. This revenue share will begin in the month of July and will represent an incremental expense to our Merchant Acquiring segment that will reset our margin for the segment in the low to mid-40s range going forward.

We have also extended our ATH agreement with Popular through 2030, strengthening the number one form of payment in Puerto Rico with its largest issuer and amended and extended our MSA with Popular through 2028. As part of the extension, we have conceded the 5% CPI for the 2021-2022 period that commenced on October 1, 2021, and will be retroactively crediting the cumulative impact of CPI now in Q3, which amounts to approximately $7 million, mostly impacting the Business Solutions segment.

Additionally, we have reduced the CPI cap from 5% to 1.5% through 2025 on MSA services and introduced minimums through 2028, aligning both of our interests in working together into the future. We also sold certain assets back to Popular that generate approximately $30 million in revenues on an annualized basis and will represent a negative year-over-year impact to revenue and margins starting in Q3 that will reset our Business Solutions margin to the low 40s on a normalized basis going forward. All these impacts, we expect will result in an overall consolidated normalized margin in the low to mid-40s range on a go-forward basis. Moving to Slide 18. I will now provide you with an update on our 2022 outlook.

While we are pleased with the strong revenue in the second quarter, a portion of the upside came from CPI impact, which will be reversed; strength from some popular businesses that have now been sold; and some onetime software sales that are not expected to repeat in the second half. That said, we are encouraged by the solid volume trends in Puerto Rico and progress within Latin America, and this allows for increasing our revenue target.

For 2022, we now expect revenue to be in a range of $607 million to $615 million, representing growth of 3% to 4%. This is up from our prior target range of $597 million to $605 million. Despite some of the charges that impacted second quarter results, we still expect EBITDA margin for the full year to be between 45% to 46%. As noted earlier, we are now expecting a slightly higher tax rate of 14% to 15%. And given the rising rate environment, we are also expecting higher interest expense.

Please be mindful that these two trends might accelerate into 2023. We are maintaining our adjusted earnings per share outlook of $2.52 to $2.60 for the full year. This represents a year-over-year decline of 5% to 8% as compared to the adjusted earnings per share in 2021 of $2.74 and considers the impact from the Popular transaction mentioned above.

On a GAAP basis, earnings per share is anticipated to be between $1.81 to $1.90. Regarding the back half of the year, we are assuming contributions from both the BBR acquisition in our LatAm segment and the Puerto Rico acquisition we discussed earlier in our Payment Puerto Rico segment as well as the impacts from the Popular transaction highlighted above.

For our full year segment outlook, we continue to expect our Merchant Acquiring segment to grow low to mid-single digits as we continue to see some headwinds from tough comparables in the prior year. Mid- to high single-digit growth in payments - Puerto Rico and the Caribbean, high teens to low 20s in payments - Latin America and a mid- to high single-digit reset in Business Solutions.

Finally, this guidance also includes the benefit from the share repurchases in the first half and the approximately 4.6 million reduction in share count that occurred on July one related to the Popular transaction. In summary, we are pleased with our results in the first half of 2022 and are delighted to have closed both the Popular transaction and the BBR acquisition. We look forward to hopefully seeing you in person at upcoming conferences later in the coming months.

Operator, please go ahead and open the line for questions.

[Operator]

[Operator Instructions] And our first question comes from Bob Napoli of William Blair. Please go ahead.

[Bob Napoli, William Blair]

Than you. A lot going on there. So the BPOP transaction being - so we'll have a full effect of that in the second quarter and your low to mid-40s EBITDA margin is what you're talking about is the corporate EBITDA margin over the long term. We would expect that to be in the second quarter. There were a number of, I think, one-offs in this quarter maybe that had some effect.

[Joaquin Castrillo, CFO]

Bob, this is Joaquin. I think you mean in the second half and the second quarter does not have any of the impact --

[Bob Napoli, William Blair]

In the third quarter, I meant third quarter.

[Joaquin Castrillo, CFO]

Yes, yes, in the third quarter. So the third quarter - so let me start from the back. The 40% - the low 40 to mid-40s margin is on a go-forward basis, taking into consideration the different effects of the transaction. As we mentioned, though, the third quarter will have this credit related to CPI that will be, let's say, a onetime impact because it is a retroactive amount.

[Bob Napoli, William Blair]

Okay. What is the CPI credit? What is the amount?

[Joaquin Castrillo, CFO]

About $7 million.

[Bob Napoli, William Blair]

$7 million?

[Joaquin Castrillo, CFO]

Yes.

[Bob Napoli, William Blair]

And that's built into your guidance for the full year.

[Joaquin Castrillo, CFO]

It is built into our guidance for the full year. That's correct.

[Mac Schuessler, President and CEO]

Because that's a CPI uplift from the very end of last year and the first half of this year. They get a credit back to that. So - but you won't see that until Q3 given that we closed at the end of - we closed during the quarter, Q3 - or beginning.

[Bob Napoli, William Blair]

And just with your balance sheet and the strength, I mean, Banco Popular has said on their call, they're looking to sell down their position. I think their agreement is to take it from 10% to 5% ownership. With your balance sheet in such great shape, why wouldn't you just buy the shares from Banco Popular?

[Joaquin Castrillo, CFO]

So I think we'd be consistent, Bob, on our capital allocation strategy. Obviously, to the extent that we don't have M&A and growth in front of us, we'll certainly consider repurchases. And so it's something that we'll consider based on market conditions.

[Mac Schuessler, President and CEO]

Yes. So Bob, this is Mac. I mean we will definitely consider, depending on the pricing, participating in their sell-down. We do want to make sure though that we have the appropriate capability, though, to continue to pursue M&A because part of the thesis of this transaction was to free us up from the Bank Company Holding Act. But we will definitely look at their sell-down as an opportunity to deploy capital as well.

[Bob Napoli, William Blair]

And last question was in that line. Given the lift - reduction of restrictions, Latin America seems to be doing well. So maybe just some commentary on your interest and what you're seeing and opportunities to add to Latin America and where you're seeing, in particular, strength. I know you called out Mexico. How is Chile doing?

[Mac Schuessler, President and CEO]

Yes. So the businesses are performing well. Both Mexico and Chile have performed well. We've exceeded our sort of expectations. As you know, for the quarter, we grew 19% in Latin America, which, Bob, when I first got the job, you really pushed me hard I got to get to double digit. And so we are, and we're pleased with that. We are still focused on M&A.

We're still looking throughout the region. We announced there's still not only the closing of the Popular transaction but also the closing of BBR, which is the deal in Chile, and a small tuck-in deal in Puerto Rico as well that complements our payments business here.

[Bob Napoli, William Blair]

Thank you, appreciate it.

[Mac Schuessler, President and CEO]

Thanks Bob.

[Operator]

Our next question comes from Vasu Govil of KBW. Please go ahead.

[Vasu Govil, KBW]

Hi, thanks for taking my questions. The first one for you, Mac, big M&A announcement related to one of your competitors in Chile. Does that change the competitive dynamics for you at all in the region? Are there any high-level thoughts on that?

[Mac Schuessler, President and CEO]

Yes, great question. I mean, look, two good companies. I know those organizations and some of the leaders in both. What I would say is, look, regardless of the change in the environment, whether it's a hurricane or a pandemic or changes on the competitive landscape, we feel like that we've always focused very intently on our customers and been able to perform well regardless of the change around us. So we still think we have a very competitive value proposition for these local markets and being a Latin American player, and we think that this doesn't change that.

[Vasu Govil, KBW]

That's helpful. And then two quick modeling ones for Joaquin. First, the higher interest expense, any color on how we can calibrate that higher interest burden for next year between...

[Joaquin Castrillo, CFO]

I mean what I would tell you, Vasu, if you look at our - on our capital structure, right, we do have a swap that helps us mitigate a portion of the interest lift. It's above - slightly above 50% of our total outstanding debt. So that kind of gives you a little bit more color as to how much of our capital structure is subject to those increases going forward.

[Vasu Govil, KBW]

Got it. And then just on the pricing initiatives you've talked about, I think the first we heard about that was last quarter if I'm not mistaken. So do we expect them to lap in the fourth quarter? Or do we see some benefit from those in the next year as well?

[Joaquin Castrillo, CFO]

So as we've said before, Vasu, I think this is something that we do continuously. I think in some cases, they might be a little bit more impactful than others. But we've been very strategic and very detailed oriented in terms of how we evaluate the portfolio on where and when we want to execute those price initiatives. We thought that given some of the headwinds that we saw because of the tough comps last year that some of these pricing initiatives were prudent, and that's how we'll continue to evaluate those going forward.

[Vasu Govil, KBW]

Thank you very much.

[Mac Schuessler, President and CEO]

Thanks Vasun.

[Operator]

Our next question is from John Davis of Raymond James. Please go ahead.

[John Davis, Raymond James]

Hi, good afternoon guys. Joaquin, I want to touch on the margins for a second. Obviously, there's a lot of moving pieces with the BPOP transaction. But you've seen a lot of your larger peers in the U.S. talk down margins on wage inflation and other pressures. So just curious, I know you said low to mid-40 margins post transaction. Has those expectations come down at all a little bit? Obviously, even within the range - are you seeing similar kind of inflation pressures on wages and others? Just curious on your comment there.

[Joaquin Castrillo, CFO]

I mean I would say that from a wage perspective, yes, and I think there are specific pockets where we're seeing that a little bit more than others. I can tell you that in Latin America specifically, when we're talking about technology resources, we are seeing wage inflation, and we have reacted to some of that competition through wage increases. What I would say is - and we've said this in the past, John. We are very much margin focused.

We've been able to maintain our margins, even though we're growing in Latin America, which is our lowest margin segment. We knew that the Popular transaction was going to put some pressure on that margin on a go-forward basis. But as we stated when we announced the transaction originally, we have certain levers on our side from a revenue perspective and from a cost perspective that we'll continue to execute to try and partly maintain that expectation of low to mid-40s and over time increase it.

[Mac Schuessler, President and CEO]

Well, John, I think one thing that's important is, I mean, the transaction with Popular brought margins down because of the businesses that we sold and then the share that we're giving them on MAB. As you look at our guidance for the year, I mean, we have seen pressure on discrete items as it relates to inflation like paper costs for our printing business, but that's not huge. And also we have seen in the labor market, particularly outside of Puerto Rico, we've been very focused on ensuring that we can retain our key talent and develop these products where we have our own intellectual property and we think are unique in the region and to recruit new programmers because the pipeline of development is critical to our growth.

So we've been fortunate that those are low-cost markets to begin with. So the increases that we've made, we've been able to offset in other ways. And it really hasn't upset our margin expectations for the year. That's why - in a significant way, and that's why the guidance is where it is.

[John Davis, Raymond James]

Okay. And then a follow-up on one of Bob's questions earlier. Obviously, the BPOP transaction closed about a month ago. Has there been any significant impacts or increase in your M&A pipeline, parties that are willing to talk to you now because they're a little bit less worried about kind of bank holding company aspect? Or just curious, like, obviously, you guys did this for a reason. Has your pipeline gotten bigger? Any comments there? Obviously, the balance sheet's in great shape.

[Mac Schuessler, President and CEO]

Yes. I mean I do think this is going to open up the universe of the types of targets that we can go after. It is an unusual time right now in both credit and equity markets, right, as far as what sellers are willing to take. So I think the year has got to work through some more what are fair valuations. But we are very focused on M&A, and we do think that this is going to create new opportunities for us.

[John Davis, Raymond James]

Okay, all right, appreciate the color. Thanks guys.

[Operator]

And our next question comes from James Faucette of Morgan Stanley. Please go ahead.

[Jeff Goldstein, Morgan Stanley]

This is actually Jeff Goldstein on for James. Just thinking about your guidance for the second half here. How should we think about the upside case, specifically on the top line? Is that tourism coming back faster in Puerto Rico? Is it more kind of federal funding making its way through, more partnerships in the pipeline maybe that closed? Just how should we think about what could drive upside to your forecast at this point if you had to rank order them?

[Joaquin Castrillo, CFO]

So I would certainly say that it would be, more than anything, payments in Puerto Rico. If we look at - it's a few moving pieces really. This specific quarter, we had pretty flattish, right, Merchant Acquiring segment, but we still saw very good transactionally to come through our ATH network and ATH Movil that really exceeded what we had originally expected for Q2, so as we - to Q3 to the extent that we continue to see that strong growth from a transactional perspective and we start to see some shifts in our merchant segment. And the reason I say that is we continue to see lower average ticket. We continue to see out of credit - more credit volume than debit volume that are putting pressure on our spread.

So if we're actually continuing to see good transactional volume in our network and then some of those trends in Merchant Acquiring start to move our way, that could push us towards the higher end of that guidance range. But those two need to combine. At this point, if you look at our Merchant Acquiring according payment and what we've said for the full year, we are expecting kind of low to mid-single-digit growth in the Merchant Acquiring segment, which puts, say, a low single-digit growth on the second half, right?

[Jeff Goldstein, Morgan Stanley]

Okay. Got it. And then a follow-up question on e-commerce. I know e-commerce is a fairly low percentage of your mix. But how do you think about the long-term opportunity there? Can that improve materially over the next, say, four to five years? Or is that just much, much less of a focus for you than, let's say, solidifying some of your core products in new geographies?

[Joaquin Castrillo, CFO]

I would say it's incredibly important to us. We acquired a company called PlacetoPay back in 2020. We've now made that gateway, our marquee e-commerce product on most of the markets where we have a presence. We just launched it in Puerto Rico. And we've seen almost immediate reactions from our clients that didn't have access to such a good product from an e-commerce perspective.

So I would say that certainly solidifying our clients and our products is important, but this e-commerce gateway is helping us do that and then also bringing in incremental growth that we think will continue into the future. Mac, I don't know if you...

[Mac Schuessler, President and CEO]

Yes, let me just - I mean I agree with Joaquin. It's - we think it's a big part of the future. That's one of the reasons we bought PlacetoPay out of Medine. And to Joaquin's comments, we've localized that now in several of the markets that we do business with and most recently, Puerto Rico. And then we've had - in the markets where it's been around for several months, we're actually seeing an incremental uplift in the number of customers that are coming to us for e-commerce. I talked a little bit about we made an organizational change.

We - part of the organizational change is [indiscernible] is now our Group Head of Latin America, and he will continue to manage the e-commerce business. So we're keeping that as a discrete business so that we can continue to localize it, continue to really focus on adding more merchants and potentially long term using it as an offering to customers that may be looking for a regional offering, which will be even more compelling the more countries that we have the capability localized. So it will be a focus for us going forward.

[Jeff Goldstein, Morgan Stanley]

Great, all very helpful. Thank you.

[Mac Schuessler, President and CEO]

Thanks.

[Operator]

[Operator Instructions] Next question will come from Jamie Friedman of Susquehanna. Please go ahead.

[Jamie Friedman, Susquehanna]

Hi Mac, Hi Joaquin, in your prepared remarks, you mentioned the Puerto Rican unemployment rate. It's down around 6%. How do we interpret that as the implications for the business? And if so, to which segments?

[Mac Schuessler, President and CEO]

Yes. So I mean when we think about Puerto Rico this year and into the future, you still have significant funds coming in from Maria and some incremental dollars coming in from the pandemic. So helping to stimulate the economy, putting people to work, making sure that they have the discretionary funds to spend using our ATH network, spending in our merchants and actually continuing to have activity at our largest customer, Popular, is very beneficial to our business.

So having an economy that has nice tailwinds with the federal funding come in and a good unemployment rate by historical standards is good for our business given that a lot of it is driven on consumer and discretionary spending.

[Jamie Friedman, Susquehanna]

Yes. Makes sense. And then I just had one kind of housekeeping thing. In payments and services - Puerto Rico and Caribbean, there was a point, I think you were making around the software impairment charge. What was that about?

[Joaquin Castrillo, CFO]

No, we took an impairment this quarter that impacted the margins for that specific segment. Let's say a multiyear software project that we have here, we've done significant customization to it. And as a result of the evaluation of that asset, we had to record impairment.

[Jamie Friedman, Susquehanna]

Okay. I mean is there anything to worry about or that's just part of the business?

[Joaquin Castrillo, CFO]

No, we were not expecting - this is a onetime item. We're not expecting this to have any future impact.

[Jamie Friedman, Susquehanna]

Got it. Okay. Thank you, I'll drop back in the queue.

[Operator]

[Operator Instructions] At this time, it appears that we have no further questions. This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. Mac Schuessler for any closing remarks. Please go ahead.

[Mac Schuessler, President and CEO]

Thank you, operator. I want to thank each of you for joining us on the call tonight, and we look forward to seeing you in the future at conferences. Thank you.

[Operator]

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.