Nov 7, 2013
Executives
Luis M. Marin Cabrera – Treasurer, Senior Vice President and Head-Investor Relations Peter L.
Harrington – President and Chief Executive Officer Wanda Betancourt – Senior Vice President-Marketing and Communications Juan José Román Jimenez – Executive Vice President and Chief Financial Officer
Analysts
Ashish Sabadra – Deutsche Bank Securities, Inc. Tien-tsin Huang – JPMorgan Securities LLC George Mihalos – Credit Suisse Securities LLC Sara Gubens – Bank of America Merrill Lynch Bob Napoli – William Blair & Company
Operator
Good day everyone. And welcome to the EVERTEC’s Third Quarter 2013 Earnings Conference Call.
Today’s conference is being recorded. At this time I would like to turn the conference over to Luis Cabrera, Senior Vice President and Head of Investors Relations.
Please go ahead sir.
Luis M. Marin Cabrera
Thank you, operator. Good afternoon everyone.
Welcome to EVERTEC’s third quarter 2013 earnings call. I’m Luis Cabrera, Senior Vice President, Treasurer, Head of Investor Relations & Corporate Development.
With me today is Peter Harrington, our President and CEO, Juan José Román, Executive Vice President and Chief Financial Officer. A supplemental slide presentation that accompanies this call and webcast can be found on our Investor Relations website at ir.evertecinc.com and will remain available after the call.
A replay of this call will be available until Wednesday, November 13. Access information for the replay is listed in today’s financial press release which is available on our website under the Investor Relations tab.
As a reminder, this call may not be taped or otherwise reproduce without EVERTEC’s prior consent. For those listening to the replay, this call was held and recorded on November 6, 2013.
Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are about our expectations for future performance subject to known and unknown risks and uncertainties.
EVERTEC cautions that this statements are not guarantees of future performance. All forward-looking statements made today reflects our current expectations only and we undertake no obligations to update any statements to reflect events that appear after this call.
Please refer to the company’s most recent prospectus on Form 424(b)(4) filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements. During today’s call, management will provide certain information that will constitute non-GAAP financial measures under our SEC rules such as adjusted EBITDA, adjusted net income and adjusted net income per share.
Reconciliations to GAAP measures and certain additional information are also included in today’s earning press release. With that, we’ll begin by turning over the call to Peter Harrington, our President and CEO.
Peter?
Peter L. Harrington
Thank you, Luis. And thanks everyone for joining us today.
I am pleased to report another solid quarter of growth and continued execution of our expansion strategy. Consistent with our expectations we had strong revenue growth during the quarter in our Merchant Acquiring and Payment Processing segments.
With Merchant Acquiring revenue up 8% and Payment Processing revenue up 6%. Adjusted EBITDA grew 14% during the quarter and our adjusted net income grew at very strong 86%.
Overall our solid results for the third quarter reflect the continued secular growth in the payment markets in which we operate, as well as the successful execution of our growth strategy. I am pleased with the progress we are making and further penetrating and gaining share in Latin America as well as the focused effort of our management team, on managing cost and driving productivity.
This has resulted in a 430 basis point expansion in our adjusted EBITDA margin for the quarter. As you also saw this afternoon our Board of Directors declared a $0.10 regular quarterly dividend for common share, the dividend is payable on December 6 to share holders of record as of November 18.
As mentioned last quarter, our decision to initiate a regular quarterly dividend program is a reflection of our significant cash flow generation, strong balance sheet and the ability to saying predictable long-term growth with low incremental capital requirements. Going forward we remain committed to the prudent return of capital to shareholders and to continue dynamically to evaluate the best uses of our excess cash in the context of our strategic objectives.
On the corporate development front I would like to spend a moment discussing four new business wins and developments that we are particularly excited about and that are consistent with the growth strategy we have discussed with you before. First we signed a deal with the government of the U.S.
Virgin Islands to provide processing and datacenter services to the Bureau of Information Technology. This new business win is our first significant deal expanding our business solution services outside of Puerto Rico and underscores the multiple levers we have to drive expansion.
Second, we recently signed a significant contract with a largest hospital management company in Puerto Rico, which operates 12 hospitals on the island. We will provide licensing and hosting services for their payroll and HR applications.
Third we signed four new Latin American bank issuers to provide processing services including our first customer in Jamaica, and lastly we have completed the application for a Visa principal member license for Colombia. The receipt of this license will allow us to provide merchant acquiring services, expanding the breadth of services we can provide our valued customers and allowing us to capitalize on an attractive growth opportunity.
Colombia could represent a $500 million merchant acquiring market then it would be the largest markets we have enter to date. We believe that the approval of the license will be granted in the very near future.
During the third quarter we also completed a 23 million share secondary offering from a [indiscernible] which increased our free flow and we will hopefully improved liquidity of our public shares going forward. I would like to thank our existing shareholders to increase their stake for their continued support and welcome to our new shareholders.
Given the recent spotlight put on the Puerto Rican economy in the press and a number of questions we have received from both analyst and investors, I thought it would be helpful to also spend a moment on the local economy in our business on the island. First, I would like to note that the Puerto Rican economy has being challenged for the last seven years.
This is not new news, but as many of you already know Evertec has been able to consistently grow every year in this economic environment. Second, several indicators suggest that the Puerto Rican economy is now worse today than it has been.
Real GNP, retail sales and unemployment are all in better spots today than they have been over the past many years. Furthermore the new government administration has put it in a number of initiatives to address the current fiscal situation.
That would certainly we believe these can have a positive impact over the medium-term. Third, Evertec point of sales processing transactions in Porto Rico have grown in the 6% to 7% range year-to-date versus the same period last year.
Growth in Q3 was actually higher than that and we believe this trend will continue through the end of the year. This indicator is better evidence of the continued solid growth in the market, because today we process over 70% of the card based transactions on the island.
Let me remind you that we have provided some additional information on our website. Before I turn it over to Wanda, who will take you through our financial results in more detail, I would like to welcome Eduardo Camargo to our senior management team.
As you saw in our press release Eduardo has been appointed as Chief Information Officer of Evertec and would be responsible for managing our information technology organization and infrastructure. Eduardo career expands over 30 years in Latin American financial services and payment industry.
And he will be a tremendous asset to us going forward. We welcome Eduardo to the team.
With that I will turn it over to Wanda.
Wanda Betancourt
Thank you Peter and good afternoon everyone. As Peter mentioned Evertec continue to deliver solid financial performance during the third quarter.
We have consistent and strong revenue growth in our merchant acquiring and payment processing segments and generated adjusted EBITDA growth of 14%. Our adjusted EBITDA margin increased by approximately 430 basis points to 49.7% which underscores a positive impact of our productivity initiatives as well as its scalability of our leading technology platform.
This revenue and adjusted EBITDA growth combined with the positive impact of our debt refinancing lead to a very strong adjusted net income and adjusted EPS growth. I will now spend some time going through our financial results in more detail turning with our revenues.
On a consolidated basis total revenue for the third quarter increased 4% to $87.4 million up from $83.8 million in the third quarter of 2012. Looking at the underlying segment, merchant acquiring net revenues grew 8% to $18.2 million driven primarily by higher transaction and sales volumes.
This 8% increase is consistent with a normalized growth we experienced in the first half of this year and it led the continued secular growth of payments in our business. Now on to payment process, payment processing revenue increased 6% this quarter to $24.7 million from $23.3 million in the prior year period.
Revenue growth in the quarter was driven primarily by an increase in transaction process and accounts on file. Finally, Business Solutions revenue increased 2% to $43.7 million.
As we expected, Business Solutions revenue growth moderated this quarter from the first half rate of approximately 8%, due to the intra-year timing of project completion and product sales. We have disclosed a potential impact of project-based timing in this segment before.
Over a full year period, we continue to expect business solution to grow in the low to mid single digit on a percentage basis. Moving to expenses, on a GAAP basis our total operating expenses were flat for the third quarter as compared to prior year.
For the third quarter cost of revenues excluding the depreciation and amortization was $39.1 million, a decrease of $1.8 million or 4% from the corresponding 2012 period. The decline in our cost of revenues was primarily due to an erosion in professional fees, lower operating cash taxes as [indiscernible] of our 15-year tax grant and the intra-year timing of project completions and product sales within our business solutions segment.
Total selling, general and administrative expenses for the quarter were $8.8 million, up $1.5 million or 21% from the corresponding 2012 period. The increase in selling, general and administrative expense was primarily due to $1.6 million of one-time expenses related to a secondary offering of common stock, we completed in September, partially offset by a declining operating taxes as a result of our tax grant, as well as the elimination of management fees associated with our consulting agreements with Popular and Apollo at where on one at the time of our IPO in April.
Income from operations for the three months ended September 30, 2013 was $21.9 million representing an increase of $4 million or 22% as compared to the corresponding 2012 period. The increasing income from operation was driven by the formation factor impacting our revenues and operating costs and expenses.
Total non-operating expenses were $5.7 million, a decrease of $8.7 million from the corresponding 2012 period. A decrease in non-operating expenses was primarily driven by an interest expense reduction of $8.4 million as a result of our debt refinancing.
We recorded an income tax expense of approximately $1.4 million in the third quarter and on a cash basis our income tax expense was of approximately $400,000. As of September 30, 2013 we had approximately $100 million of NOLs available to offset official tax payments related to our operations in Puerto Rico.
Adjusted EBITDA for the quarter was $43.4 million, up $5.4 million or 14% from $38 million in the corresponding 2012 period. The increase in adjusted EBITDA was primarily driven by revenue growth and the impact of our productivity initiatives.
Adjusted EBITDA margins improved by approximately 430 basis points to 49.7%, from 45.4% in the corresponding 2012 period. Adjusted net income was $29.5 million, up 86% from $16.9 million in the prior year.
The increase in adjusted net income was primarily due to a same factors impacting adjusted EBITDA and lower cash interest expense as a result of the debt refinancing we completed in April of this year. Adjusted net income per diluted share increased 71% to $0.36 from $0.21 in the prior year.
Moving to our balance sheet, as of September 30, we reported $28 million of our restricted cash and $695.3 million of total short-term borrowings and long-term debts which represents total net debt of $667.3 million. During the quarter, we made a mandatory repayment of approximately $4.8 million from borrowings outstanding under our Term A and Term B senior secured credit facility.
As of September 30 total liquidity which includes on restricted cash and available borrowing capacity under our revolver was approximately $128 million. We continue to generate significant levels of free cash flows.
Year-to-date, our free cash flow defined as adjusted EBITDA minus CapEx cash interest expense and cash income taxes was approximately $93 million of 16% from $80.1 million for the nine months ended September 30, 2012. We have converted approximately 72% of our adjusted EBITDA to free cash flows year-to-date which is 68% for the same time period in 2012.
Now, I will discuss with you our expectations for the remainder of the year. In Q4, we expect our Merchant Acquiring business to continue to grow in the high single-digit range on a year-over-year basis.
We also expect the payment process in business to continue to grow in the mid single-digit range. Based on the timing of certain projects, we expect our business solutions segment revenue to be similar to last year.
On a full year basis, we are still finding related factors we expect to impact our results including the accounting related agreement of certain IT consulting projects, longer than expected implementation times for new contacts and they relate in the funding of a federal government program. Regarding the accounting agreement of certain IT consulting projects, during this year we have had a higher than anticipated proportion of hosting related projects within our IT consulting business.
Based on the accounting guidelines, revenue generated in connection with hosting contracts are amortized over the lack of the contract. You can see the growth of these revenues on our balance sheet as on [indiscernible].
As it was note, we have had a $2.6 million increase in our net income in the beginning of this year which will be realized in future periods over the life of the contracts and this will continue in Q4. While this had an impact in 2013, we are pleased to expand this customer hosting relationships and enhance our recurring revenue stream going forward.
The second factor impacting our revenue this year is longer than expected implementation times for certain new contracts. We have had some services that began later in the year than expected and some delayed from Q4 into early 2014.
This is all timing related and will begin to benefit us early in 2014 and beyond. And lastly, the third factor impacting our revenue this year was aforementioned delay of federally funded U.S.
government program that we provide processing services for. We have processed for this program since 2008 and this is the first year in which it has importantly being delayed.
Just recently however we learned that funding was approved by the U.S. federal government and the Governor of Porto Rico has already began preparation in order to begin this program in early 2014.
Our performance year-to-date, the timing related factor adjusted cost and the insight we have in creating minor [ph] of the year while guidance for full year 2013 is for revenues to come out between $357 million and $359 million, adjusted EBITDA between $177 million and $179 million and for our fully diluted earning per share to come in between $1.47 and $1.49 In summary, our business fundamental are strong. We are particularly pleased with the continuous strong performance in our Merchant Acquiring and Payment Processing businesses.
We continue to successfully execute our growth strategy and we see significant opportunities to growth and expand our business penetrate and gain share in Latin America. With that operator, we’ll now open the calls for questions.
Operator
Thank you. (Operator Instructions) And we’ll take our first question from Bryan Keane with Deutsche Bank.
Ashish Sabadra – Deutsche Bank Securities, Inc.
Hi this is Ashish Sabadra on behalf of Bryan Keane. Its good see that improvement in revenues and Payment Processing as well as Merchant Acquiring.
Just the question was based on your guidance you are guiding more like 3% to 4.5% growth for the fourth quarter. And I understand a lot of it is due to weakness, due to business solution and the timing.
But just on the merchant acquiring considering that you have that alliance and also easier comp to the prior year, should we expect the revenue growth to improve in merchant acquiring? So the question was more around the revenue growth and merchant acquiring, should we expect that to improve considering as easier comps as well as BBVA ramping up?
Peter L. Harrington
Yes, we do expect for Q4 in addition to our [indiscernible]. We’re also completing implementation of the Oriental BBVA in early October.
So we expect a strong merchant acquiring growth in Q4, not only because of that, but also keep in mind that is holiday season in Q4 and there is a natural seasonality to that business as well as some of our payment process in businesses. So yes, it will be a strong Q4 as we said high single-digit and that includes some of the impact of completing the migration of the EBITDA merchants into Oriental Bank.
Ashish Sabadra – Deutsche Bank Securities, Inc.
Okay, thanks for the color. Just on the Puerto Rico, again, thanks for the color on the call.
Two quick questions, I was wondering if you could just provide some color around what percentage of the revenue is generated from Puerto Rican government contracts. And another question would be is there any risk to your tax agreement with the Puerto Rican government in case of the government decides to raise taxes or any other adverse event?
Peter L. Harrington
Yeah, the first part of the question is around 10% similar to last year has not changed significantly. But keep in mind that most of those services are mission-critical for the government of Puerto Rico had a chance support, literally benefits transfers and even some of those are actually founded by the federal government.
To the second part of the question regarding our tax rent, no we’re very comfortable with our tax rent as a confident within the governor of Puerto Rico EVERTEC. You have to keep in mind that includes our compromised to keep employment in Puerto Rico, a significant investment for the 15 years of that contract that we are committed to do.
So it’s a benefit obviously from tax respective. But on the other hand, we’re committed to invest in Puerto Rico and create employment in Puerto Rico.
So historically, in the last four years, I comparatively have never changed a grand to any company. And keep in mind that many other blue chip companies in Puerto Rico have similar tax rent.
So we feel very comfortable and they have never really have done in the history.
Ashish Sabadra – Deutsche Bank Securities, Inc.
Yeah, that's great. That's great.
One final question for me on the international front. There has been some great progress on that front.
I was wondering if it's possible to quantify the benefit, the revenue benefit from the first three strategic initiatives or the business development. And also you just talk about the pipeline for new business development initiatives in the international market?
Thanks.
Peter L. Harrington
On the initiatives when you look at the first two which are in our Business Solution segments, those are certainly in a low single digit of $1 million that will generate in revenue to the Company. So we feel very good about that.
To us, it's more important actually that we now proven that we can take some of those products and services that we have traditionally sold in Puerto Rico and now be able to leverage that and sell those outside of the market, which is what excites us the most now. Certainly, the four banks are in line with what we have done in the past.
We signed a number of banks last year. We signed a number of banks this year.
These banks will obviously not get implemented until third, fourth quarter as early as though next year. It’s the normal cycle.
And finally, the Columbia is one we’re very excited about, because it’s a very big market and we’ve just, we are kind of guessing the number of about half $500 million, but clearly it is a market that is at least five to 10 times bigger from an acceptance perspective than the Puerto Rican market is. And so now if we get this license, some of the customer relationships we now have in Colombia, we believe we can start to actually enter the acquiring market in that country.
And that where the market decides of Colombia, we think over the next couple of years, we could take certainly a 5% to 10% market share as what our goal is.
Ashish Sabadra – Deutsche Bank Securities, Inc.
Sorry, great, thanks. Thanks a lot for the color.
Peter L. Harrington
Okay.
Operator
We will go next to Tien-tsin Huang with JPMorgan.
Tien-tsin Huang – JPMorgan Securities LLC
Great, thanks. Just a follow up on that last couple of points, just the timing of when some of these business developments might flow in, I cut the four banks coming in second half of the year, how about the two business solutions deals?
When could we expect that to cut over?
Peter L. Harrington
Well, the first one, we will get some in the fourth quarter and some in early 2014. The second one will take some time to roll out in 12 hospitals, so we will see the majority of it in 2014.
Tien-tsin Huang – JPMorgan Securities LLC
And then the Colombia acquiring, assuming you get the license, what should we expect from that point forward? I mean do you need distribution deals or do you have something lined up where by we can actually see it going to market and trying to secure contracts?
Peter L. Harrington
Yes, it’d be the lateral. So we’ve got some relationships there, that we think we can leverage to begin sometime in 2014 in merchant acquiring business in Colombia.
Now [indiscernible] will be starting it up against the incumbents that are in the market, because most of the banks there operate under the old companies like [indiscernible], but we think we can get the business started in 2014.
Tien-tsin Huang – JPMorgan Securities LLC
Okay, good. And then just business solutions, it sounds like that’s the bulk of the revision here in the guide.
Peter L. Harrington
Yeah.
Tien-tsin Huang – JPMorgan Securities LLC
And my question here is just Popular, I got everything what you mentioned on in terms of explaining, but just how about surprises from Popular in terms of discretionary spend and things like that, any the other things that could surprise us?
Peter L. Harrington
Not really. For examples, one is related to the deferral of revenue is mostly, I just can’t imagine, there are many projects we host for popular and all other institutions, certain services right.
So when they operate, we will have a number of hours that we can provide services for. So depending on what they request us to do for them, so if for example, they request and operate for an application that we do hosting, then those hours actually have to refer to more – maybe more than this surprises was that in proportion of these type of request this year from Popular and all others, but mostly popular of course are related to hostile application that we host for them.
Last year for example, we were expecting this year to do kind of the same as we did last year in terms of non-hosting relation, that’s makes this work change. We thought that Q4, we will dedicate more time to those services that we actually can book immediately their revenue, but now when we look at the guideline, we will still have a significant amount of hours from Popular, that are hosting related.
So it’s not really that they are not providing the hours. We actually have a significant guideline, but the impact really is that their request is more related to hosting related project and we are deferring that, but it is but on a good rate, because then once we complete the project, we will start recognizing that into revenues in future years every month for the term of the hosting project.
Tien-tsin Huang – JPMorgan Securities LLC
All right. So it will be a little bit more visible and recurring?
Peter L. Harrington
Yes.
Tien-tsin Huang – JPMorgan Securities LLC
If you don’t mind I will ask one more, just on the acquiring, back to acquiring, pricing yield up 8% this quarter, the acquiring pieces, sounds like the volume from your prepared remarks, Peter was running sort of 6% to 7%, so are yields getting better or is the difference just be PBA ramping and others? Thank you.
Peter L. Harrington
It’s not really a drastic change in that. It’s more of – we started the ramp up on some of the oriental stuff that we finished at the end of the third quarter, so we saw some benefit from that, but basically I mean the business is operating as it has.
Again it’s been more the mixed engine and mix is that higher margins, right. It’s where we have a bigger percentage of the local players than we had expected.
Tien-tsin Huang – JPMorgan Securities LLC
Great, thanks for the feedback.
Operator
And we will go next to George Mihalos with Credit Suisse.
George Mihalos – Credit Suisse Securities LLC
Hey guys, thanks for taking my questions. I think if I am not mistaken on the 2Q call.
You broke out the growth rate from non-Puerto Rico, non-Puerto Rican geographies, can you update that for us for the third quarter?
Peter L. Harrington
Yeah, it was again in the low double digits in the third quarter.
George Mihalos – Credit Suisse Securities LLC
Low double digits?
Peter L. Harrington
Okay. And then just long term, I know you spoke about a couple of push outs, a government contract and then some accounting, but as you think of your revenue growth targets longer-term has anything changed from kind of the seventh plus organic that you are targeting longer-term?
Peter L. Harrington
No.
George Mihalos – Credit Suisse Securities LLC
Okay, it's helpful. And then last question from me again, on the push-out of the contract due to funding, how much of an impact does that had, would you expect that to have in the fourth quarter and have you noticed any other sort of slow down in October from the government shutdown?
Thank you.
Peter L. Harrington
No, that was probably the only thing we noticed, is that it represents give or take about a million dollars.
George Mihalos – Credit Suisse Securities LLC
Okay, great thank you.
Peter L. Harrington
And as Juan said it’s a program we’ve been executing since 2008 and we’re guessing it’s the shutdown because it's normally granted around the first of October and it’s been – it just got pushed out to the early part of 2014.
Operator
And we’ll go next to Sara Gubens with Bank of America Merrill Lynch.
Sara Gubens – Bank of America Merrill Lynch
Hi, thanks good afternoon. Just a variation of the last question about your expectations for longer term growth, I’m wondering if any of the factor that you talked about, change your expectation of how long it will take you to get to double-digit adjusted EBITDA growth.
And I don’t know really the comment about next year at all, but if you think those factors might make it more difficult to do double-digit EBITDA growth on a net adjusted basis next year?
Juan José Román Jimenez
No, Sara. No, basically just as we mentioned there is a couple of delays in certain specific project and solution.
We continue to see very strong merchant acquiring agreement processing growth. If you remind that agreement side also include our growth in Puerto Rican.
So we expect that to continue, that’s why our speaker mentioned had not seen any change in our medium to long-term view of the growth of the company. So I think it’s very particular for the Q4 in those projects.
However, our buyback continue to be there is very strong. As Peter said we just signed upon another four banks during this quarter.
We keep moving into our strategy into Colombia. So now we’re comfortable that we will continue and we will execute it in our medium-term goals.
Sara Gubens – Bank of America Merrill Lynch
Great, and then could you talk about the pipeline for acquisitions outside of Puerto Rico?
Juan José Román Jimenez
What we have said before, right now we are more focused on merchant alliances and joint ventures, and we’re still very, very comfortable that the stuff that we’re working on that we will be able to close one of those, if not two of those in the near future. So we’ve been more focused on that, we still have a number of conversations on the acquisitions side, but there is nothing at this point that it's worth bringing up.
Sara Gubens – Bank of America Merrill Lynch
Okay, and then just last question I think you signed up about 16 new banking clients last year, do you have a comparable number for where you are year-to-date on new bank clients?
Juan José Román Jimenez
We’re probably somewhere in the nine to 10 range is what I would say, I don't have the number in front of me but it's about 9 or 10 year to date.
Sara Gubens – Bank of America Merrill Lynch
Thank you.
Operator
And we will do next to Bob Napoli with William Blair.
Bob Napoli – William Blair & Company
Thank you, just on little more on Colombia I mean you have signed a client that you it come on board this year that I think it was $5 million of revenue, but you may not come on board until the next year. Could you get maybe a little bit color on what you have, the clients you have signed in Colombia and maybe a pipeline in that market?
Juan José Román Jimenez
Yes, we have that customer that signed, we're going to be doing card processing and ATM processing for that customer, okay, debit card processing. So that's done, we are in the implementation cycle with them, we expect them to come online in early 2014, that's what we said before.
We have an active pipeline and in fact I will be in Colombia in early December for a major kickoff on a number of potential customers in the market. So we are comfortable if we now have an active pipeline and that we’ve got, once we bring that first customer up we think we’ll really start to get some traction.
We think certainly when we granted this license that would help us to gain more traction in the market.
Bob Napoli – William Blair & Company
That customer, what type of revenue Peter do you expect out of that customer?
Peter L. Harrington
Long-term we expect the first customer to generate around $5 million per annum that about the right number, we won’t see that in 2014 we’ll probably in 2015 and beyond, that’s the number we – that we are looking, but based on the volumes, that they have projected to us, okay, that’s what we say.
Bob Napoli – William Blair & Company
Then the non-Puerto Rico growth rate, do you see visibility on getting that number up to the 20% range in 2014?
Peter L. Harrington
Yes, I think we believe the more accurate number would be in the mid to high teen, that’s what we think we’re going to see on year-over-year basis.
Bob Napoli – William Blair & Company
Okay, and then the pipeline of new business, can you give kind of a broad feel of where geographically where the pipeline is and how does that pipeline today compare to where you were say a year-ago?
Peter L. Harrington
I would say it’s not much different than where we were a year ago, I would say that where we sold probably more customers and paying them more over the last two years, we’ve well penetrated that market as we said before, so obviously the opportunities on numerous as they were a couple of years ago. So we are still very focused in the Dominican, as you could see we just signed our first customer in Jamaica, Mexico, Colombia, Guatemala, Puerto Rico.
So we are actively got a pipeline in all of those markets.
Bob Napoli – William Blair & Company
Okay, great thank you very much.
Operator
W
Unidentified Analyst
Yes, just a quick follow up on the Colombia license application just wondering how long do you expect the process to take?
Peter L. Harrington
We think will have the approval by the end of the year and so we believe we can start to leverage that license in 2014, we are at the end of the process we are just waiting for approval at this point.
Unidentified Analyst
And, on Puerto Rico specifically lot of – there was lot of worries about government bond ratings and what not starting in late August, earlier September and given some of your peers in Mainland you asked noted that there was a slowdown in spending in the month of September, earlier October. Just wondering if you saw any split down in the Puerto Rico market in the last month of the quarter and beginning of the Q4?
Peter L. Harrington
No I would tell you, that’s why we’re trying to give you some sense to that number that. In the third quarter we actually saw looking at just POS transactions that we process because we believe that based on the size, the percentage of the market that we process, transactions.
That to us the best indicator for you guys to look at our business, is how are those transactions growing year-over-year, and like we said they grew 6% to 7% on a year-over-year basis, the reality it was more or like about 7.5% in the third quarter. So they actually did better in the third quarter then we had seen in the first two quarters.
So from that – now that’s driven more by again that cash to card conversion than it is by retail sales, as we said in the past, and that’s continues to happen.
Unidentified Analyst
Thank you.
Operator
And there are no other questions at this time, I would like to turn the conference back to Peter Harrington, CEO for closing remarks.
Peter L. Harrington
Thank you operator, thank you again for taking the time with us today. I just want to let you know that we remain very excited about our strong pipeline of new business opportunities as we head into 2014, and are confident in our ability to execute on one or more strategically alliance in the merchant acquiring business.
We thank you for your support and we look forward to discuss in the year end results and providing more insights into our plans and development for 2014 on our next quarterly conference call. Operator you may now end the call.
Operator
Thank you everyone that does conclude today’s conference. We thank you for your participant.