Atento Reports Fiscal 2016 Second-Quarter Results

OREANDA-NEWS. August 03, 2016. Atento S.A. (NYSE: ATTO), the largest provider of customer-relationship management and business-process outsourcing services in Latin America, and among the top three providers globally, today announced its second-quarter 2016 operating results. All comparisons in this announcement are year-over-year and in constant-currency (CCY), unless noted otherwise.

Alejandro Reynal, Atento?s Chief Executive Officer, commented, "We continue to navigate the challenging growth environment in Brazil. However, our focus on driving the optimal balance of growth, profitability and liquidity enabled us to deliver revenue growth of 13% in the Americas, which almost complete offset the decline in Brazil, stable margins and positive free cash flow. Our performance was driven by new client wins and expanding our share of wallet with existing clients, particularly in financial services. In addition, each of our regions posted an increase in mix of revenue from higher value-add solutions. Our results this quarter underscore our commitment to remain the reference partner for the CRM BPO needs of our clients is on track."  

Mr. Reynal continued, "We have refreshed our long term growth strategy to further diversify our revenue base and selectively deploy capital to where its value is the highest. This sharpened focus includes consolidating our leadership position in core voice services, further expansion into higher value-add solutions, especially in financial services, and accelerated growth in digital services."

Mauricio Montilha, Atento?s Chief Financial Officer, said, "Our proactive cost and efficiency initiatives continue to deliver expected benefits. Our focus on disciplined capital allocation, improving returns and strict working capital management, drove free cash flow before interest of \\$39.4 million in the quarter, and \\$13.1 million year-to-date. Our improving cash flow profile, strong liquidity position of \\$215 million and low leverage of 2.0x reflect our enhanced financial flexibility."

Mr. Montilha continued, "Persistent macro-economic headwinds in Brazil have weighed on our growth, and we expect this environment to continue through the year. However, against this backdrop, our success in driving the optimal balance of growth, profitability and liquidity provides us with the confidence to reaffirm our full-year outlook for revenue growth between 1% and 5% and adjusted EBITDA margin between 11% and 12%." 

Second Quarter Consolidated Operating Results

All comparisons in this announcement are year-over-year and in constant-currency (CCY), unless noted otherwise. 

Revenue declined 0.4% as a shift in country mix due to foreign exchange, a 10.1% macro-driven decline in Brazil and a 1.3% decline in EMEA, were almost completely offset by a 13.0% increase in the Americas. Year-to-date, revenue grew 90 basis points. Our strategy to diversify our revenue progressed in the quarter as our mix of revenue from the Americas increased 340 basis points to a record 41.8% of revenue. Revenue from clients other than Telef?nica increased by 4.8%, accounting for 57.0% of revenue, an increase of 290 basis points. This growth was supported by share of wallet gains, particularly in financial services, as well as new client wins in financial services and telecommunications. In addition, each region drove an increase in mix from higher value-add solutions. Revenue from Telef?nica declined 6.6%, largely driven by the macro-driven declines in Brazil. On a reported basis, total revenue declined 12.3%.    

Adjusted EBITDA increased 0.2%, mainly due to a favorable shift in mix of services, while adjusted EBITDA margin was flat at 12.0%.

Second quarter reported financial results included \\$8.1 million in non-recurring items mostly related to proactive actions to align cost structure with current market conditions, including current and expected macro-driven volume declines in Brazil and Spain and the acceleration of sites to lower cost locations in Brazil.  

Adjusted EPS declined to \\$0.13 driven by foreign exchange, increases in net interest expense and depreciation, and a higher share count.

Free cash flow before interest expense was \\$39.4 million, driven by a significant improvement in working capital. Year-to-date, free cash flow before interest was \\$13.1 million. 

The Company ended the second quarter with total liquidity of \\$215 million and net debt to adjusted EBITDA of 2.0x.

Adjusted earnings and adjusted EBITDA are non-GAAP financial measures and are reconciled to their most directly comparable GAAP measures in the accompanying financial tables.

Brazil Region

The macro-economic environment in Brazil continues to drive a challenging growth environment. Revenue in the quarter declined 10.1%, with a 21.4% decrease in revenue from Telef?nica. Revenue from non-Telef?nica clients declined 2.8%. Importantly, our focus on revenue diversification drove a 9.2% increase in higher value-add solutions, lifting the mix of revenue from these services by 330 basis points to 39% of revenue. In addition, approximately 60% of the workstations won in the quarter came from financial services, a key growth sector for the Company. On a reported basis, revenue declined 21.3%.

Adjusted EBITDA decreased 11.7% while margin decreased 10 basis points to 13.4%. The decline in adjusted EBITDA was driven by the decline in revenue, however margin performance was aided by further actions to improve cost and efficiencies, focus on inflation pass-through, and the improved mix of higher value-add solutions.  Cost and efficiency actions include the rationalization of headcount and the relocation of sites to lower-cost Tier 2 locations. At the end of the quarter, 62% of sites were located in Tier 2 locations, up 400 basis points from the end of Fiscal 2015.     

Americas Region

Revenue for the Americas increased 13.0%, reflecting broad-based gains by country, sector and mix of higher value-add services. Revenue from non-Telef?nica clients increased 17.8%, as their mix of total revenue reached 53.9%, up 290 basis points. Growth was supported by new client wins and share of wallet gains with existing clients in all markets, led by financial services. Growth was particularly strong in Argentina, Colombia, Chile, Peru and our U.S. nearshore business. Revenue from Telef?nica increased 7.9%, driven by double-digit growth in Mexico, Colombia and Argentina and single-digit growth in Peru. Our focus on revenue diversification drove a 3.4% increase in revenue from higher value-add solutions, lifting the mix of these services to 12.1% of revenue, up 40 basis points. In addition, revenue from the Americas comprised a record 41.8% of total company revenue in the quarter, up 340 basis points. On a reported basis, revenue declined 4.6%.

Adjusted EBITDA was flat, while margin declined 140 basis points to 12.9% driven by investments in growth with new clients, an unexpected and mandatory minimum wage increase of 13% in Peru, and an increase in mix of revenue from telecommunications clients.

EMEA Region

In EMEA, our consistent focus on profitable growth drove improvements in the trajectory of revenue and profitability in the quarter. Revenue declined just 1.3%, an improvement on both a year-over-year and sequential basis. Revenue from non-Telef?nica clients increased 1.7% led by gains from financial services.  This is the first quarter of growth from non-Telef?nica clients in over five quarters. Revenue from Telef?nica declined 3.1%. Our focus on revenue diversification drove a 27.3% increase in revenue from higher value-add solutions, driving the mix of these services to 9.8% of revenue, up 220 basis points. In addition, revenue from non-Telef?nica clients reached 39.0% of revenue, up 110 basis points. On a reported basis, revenue increased 0.8%.   

Adjusted EBITDA increased 44%, while adjusted EBITDA margin increased 170 basis points to 5.8%. This solid performance was driven by the Company's disciplined approach to profitable growth opportunities and continued focus on cost and efficiency initiatives.     

Strong Balance Sheet and Ample Liquidity Enhance Financial Flexibility

At June 30, 2016, the Company had cash, cash equivalents and short-term financial investments totaling \\$159.5 million and undrawn revolving credit facilities of €50 million for total liquidity of \\$215 million. Total net debt with third parties equaled \\$459.1 million, a decrease of \\$5.0 million. The Company's last twelve month (LTM) adjusted EBITDA to net debt with third parties was 2.0x. 

During the second quarter of 2016, the Company invested \\$9.5 million, or 2.1% of revenue, in capital expenditures.

Refresh of Strategy

The Company announced it has refreshed its focus on profitable growth opportunities as it looks to extend its leadership position in the \\$10.4 billion Latin America CRM BPO market and expand its addressable market. This refresh supports the Company's commitment to further diversify its revenue base and also provides a roadmap for the disciplined deployment of capital to where its value is the highest. This refreshed focus includes consolidating our leadership position in core voice services, further expansion into higher value-add solutions, especially in financial services, and accelerated growth in digital services.

Fiscal 2016 Guidance

The Company expects to operate in a challenging growth environment in many of its markets during the balance of Fiscal 2016. In this environment, the Company remains focused on driving the optimal balance of profitable growth and liquidity, strengthening its balance sheet and maintaining financial flexibility. By continuing to execute on its priorities for Fiscal 2016, including tight cost controls and disciplined capital allocation, the Company is well-positioned to outperform the market, increase its leadership position in Latin America, and remain the reference partner for the CRM BPO needs of its clients.

For the full year Fiscal 2016, the Company expects:

• Consolidated revenue growth in the range of 1% to 5%, in constant currency.
• Adjusted EBITDA margin in the range of 11% to 12%, in constant currency.
• Non-recurring items, which are included as add-backs in adjusted EBITDA, in the range of \\$15 million. The Company will continue to proactively align its cost structure with prevailing market conditions.
• Net interest expense in the range of \\$60 million to \\$65 million.
• Debt pay down of \\$27 million.
• Cash capital expenditures of approximately 5% of revenue, reflecting investments in both growth and maintenance.
• Effective tax rate of approximately 32%.
• Fully diluted share count of approximately 73.8 million shares.

This guidance assumes no acquisitions or changes in the current operating environment, capital structure or exchange rates movements on the translation of our financial statements into US dollars.  If the average of foreign exchange rates in the second quarter of Fiscal 2016 remain through the rest of the Fiscal 2016, net interest expense could be in the range of \\$70 million to \\$75 million.

Conference Call

Atento will host a conference call and webcast for analysts on Tuesday, August 2, 2016 at 5:00 pm ET to discuss the financial results. The conference call can be accessed by dialing: +1 (877) 407-3982 toll free domestic, UK: (+44) 0 800 756 3429 toll free, Brazil: (+55) 0 800 891 6221 toll free, or Spain: (+34) 900 834 236 toll free. All other international callers can access the conference call by dialing: +1 (201) 493-6780 toll free. No passcode is required. Individuals who dial in will be asked to identify themselves and their affiliations. The conference call will also be webcasted through a link on Atento's Investor Relations website at investors.atento.com. A web-based archive of the conference call will also be available at the above website.

About Atento

Atento is the largest provider of customer relationship management and business process outsourcing (CRM BPO) services in Latin America, and among the top three providers globally, based on revenues. Atento is also a leading provider for U.S.-based companies nearshoring CRM/BPO services to Latin America. Since 1999, the company has developed its business model in 14 countries where it employs more than 150,000 people. Atento has over 400 clients to whom it offers a wide range of CRM BPO services across multiple channels. Atento's clients are mostly leading multinational corporations in sectors such as telecommunications, banking and financial services, media and technology, health, retail and public administrations, among others. Atento?s shares trade under the symbol ATTO on the New York Stock Exchange (NYSE). In 2015, Atento was named one of the World?s 25 Best Multinational Workplaces by Great Place to Work® for third consecutive year. For more information visit www.atento.com   

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "continue" or similar terminology. These statements reflect only Atento's current expectations and are not guarantees of future performance or results. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition in Atento's highly competitive industries; increases in the cost of voice and data services or significant interruptions in these services; Atento's ability to keep pace with its clients' needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; the effects of global economic trends on the businesses of Atento's clients; the non-exclusive nature of Atento's client contracts and the absence of revenue commitments; security and privacy breaches of the systems Atento uses to protect personal data; the cost of pending and future litigation; the cost of defending Atento against intellectual property infringement claims; extensive regulation affecting many of Atento's businesses; Atento's ability to protect its proprietary information or technology; service interruptions to Atento's data and operation centers; Atento's ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where Atento operates; changes in foreign exchange rates; Atento's ability to complete future acquisitions and integrate or achieve the objectives of its recent and future acquisitions; future impairments of our substantial goodwill, intangible assets, or other long-lived assets; and Atento's ability to recover consumer receivables on behalf of its clients. In addition, Atento is subject to risks related to its level of indebtedness. Such risks include Atento's ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; Atento's ability to comply with covenants contained in its debt instruments; the ability to obtain additional financing; the incurrence of significant additional indebtedness by Atento and its subsidiaries; and the ability of Atento's lenders to fulfill their lending commitments. Atento is also subject to other risk factors described in documents filed by the company with the United States Securities and Exchange Commission. 

These forward-looking statements speak only as of the date on which the statements were made. Atento undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

SELECTED FINANCIAL DATA

The following selected financial information should be read in conjunction with the interim consolidated financial statements and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented elsewhere in the Form 6-K.