Atento Reports Fiscal 2017 First-Quarter Results Solid Start in Fiscal 2017 Highlighted by Topline Growth, Maintained Margins and Continued Improvement in Cash flow

($ in millions except EPS)

Q1 2017

Q1 2016

CCY
Growth

Revenue ⁽¹⁾

468.0

415.7

3.0%

Reported Net Income ⁽²⁾

9.0

(4.4)

Reported Earnings Per Share ⁽²⁾

$0.12

($0.06)

Net Operating Cash Flow from/(used)
in Operating Activities

(9.3)

(22.9)

Adjusted EBITDA ⁽³⁾

53.6

49.0

-0.2%

Adjusted Margin 

11.5%

11.8%

Adjusted Earnings per Share ⁽²⁾

$0.17

$0.13

30.8%

Free Cash Flow before Net Interest ⁽⁴⁾

(9.7)

(27.6)

Leverage (x) ⁽⁵⁾

1.6x

1.9x

(1)

Revenue excludes Morocco which was divested in September 2016.  

(2)

Reported Net Income and Earnings Per Share and Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Earnings per Share refer only to continuing operations. Reported and Adjusted Earnings Per Share, for the period ended March 31, 2017, were calculated considering the number of ordinary shares of 73,909.056. For the period ended March 31, 2016, the number of ordinary shares was 73,751.131.

(3)

EBITDA is defined as profit/(loss) for the period from continuing operations before net finance costs, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude acquisition and integration related costs, restructuring costs, sponsor management fees, asset impairments, site relocation costs, financing and IPO fees, and other items which are not related to our core results of operations. EBITDA and Adjusted EBITDA are not measures defined by IFRS. The most directly comparable IFRS measure to EBITDA and Adjusted EBITDA is net income for the period from continuing operations.

(4)

We define Free Cash Flow (FCF) as net cash flow from operating activities less net cash and disposals of payments for acquisition of property, plant, equipment and intangible assets.

(5)

Considered the pro-forma Net Debt adjusted to give effect to the Reorganization Transaction, regarding Preferred Equity Certificates.

($ in millions)

Q1 2017

Q1 2016

CCY
growth

Brazil Region

Revenue

238.4

182.5

5.2%

Operating Income

18.7

7.2

114.9%

Adjusted EBITDA

34.3

24.9

12.8%

Margin

14.4%

13.6%

Americas Region

Revenue

173.4

177.3

-0.3%

Operating Income

6.8

14.5

-52.4%

Adjusted EBITDA

17.4

23.4

-24.7%

Margin

10.0%

13.2%

EMEA Region

Revenue

56.7

56.3

4.2%

Operating Income

1.9

(3.1)

N.M

Adjusted EBITDA

4.2

2.9

68.0%

Margin

7.4%

5.2%

Guidance

Consolidated Revenue Growth (CCY)

1% to 5%

Adjusted EBITDA Margin Range (CCY) ⁽¹⁾

11% to 12%

Non-recurring Expenses – Adjustments to EBITDA

~$13MM

Net Interest Expense Range

$60MM to $65MM

Cash Capex (% of Revenue)

~3-4%

Effective Tax Rate

~34%

Diluted Share Count

Cash Conversion as % of Adj. EBITDA

~40%

Consolidated Income Statements for the Three Months Ended March 31, 2016 and 2017

For the three months ended
March 31,

Change (%)

Change
excluding
FX (%)

($ in millions, except percentage changes)

2016 (*)

2017

(unaudited)

Revenue

415.7

468.0

12.6

3.0

Other operating income

0.8

0.8

-

14.3

Operating expenses:

Supplies

(15.0)

(16.8)

(12.0)

(4.3)

Employee benefit expenses

(312.6)

(345.8)

(10.6)

(1.6)

Depreciation

(10.7)

(11.8)

(10.3)

1.7

Amortization

(10.7)

(13.6)

(27.1)

(16.2)

Changes in trade provisions

(0.3)

(0.2)

33.3

33.3

Other operating expenses

(51.1)

(55.8)

(9.2)

2.8

Total operating expenses

(400.4)

(444.0)

(10.9)

(1.4)

Operating profit

16.1

24.8

54.0

42.5

Finance income

1.5

2.1

40.0

16.7

Finance costs

(17.9)

(17.4)

2.8

12.1

Change in fair value of financial instruments

0.5

-

N.M.

N.M.

Net foreign exchange (loss)/gain

(3.6)

3.3

N.M.

N.M.

Net finance expense

(19.5)

(12.0)

38.5

43.7

(Loss)/profit before tax

(3.4)

12.8

N.M.

N.M.

Income tax expense

(1.0)

(3.8)

N.M.

N.M.

(Loss)/profit from continuing operations

(4.4)

9.0

N.M.

N.M.

Loss from discontinued operations

(0.4)

-

N.M.

N.M.

(Loss)/profit for the period

(4.8)

9.0

N.M.

N.M.

(Loss)/profit attributable to:

Owners of the parent

(4.8)

8.9

N.M.

N.M.

Non-controlling interest

-

0.1

N.M.

N.M.

(Loss)/profit for the period

(4.8)

9.0

N.M.

N.M.

Other financial data:

EBITDA ⁽¹⁾ (unaudited)

37.5

50.2

33.9

22.4

Adjusted EBITDA ⁽¹⁾ (unaudited)

49.0

53.6

9.4

(0.2)

(1) For reconciliation with IFRS as issued by the IASB, see section "Summary Consolidated Historical Financial Information - Reconciliation of EBITDA and Adjusted EBITDA to profit/(loss)".

(*) Restated, excluding discontinued operations - Morocco.

N.M. means not meaningful

Reconciliation of EBITDA and Adjusted EBITDA to profit/(loss):

For the three months ended March 31,

($ in millions)

2016

2017

(unaudited)

(Loss)/profit from continuing operations ^(*)

(4.4)

9.0

Net finance expense (*)

19.5

12.0

Income tax expense (*)

1.0

3.8

Depreciation and amortization (*)

21.4

25.4

EBITDA (non-GAAP) (unaudited)

37.5

50.2

Restructuring costs ^(a)

6.2

3.4

Site relocation costs ^(b)

5.7

-

Asset impairments and Other ^(c)

(0.4)

-

Total non-recurring items ^(**)

11.5

3.4

Adjusted EBITDA (non-GAAP) (unaudited)

49.0

53.6

(*)

The amounts of March 31, 2016, were restated excluding discontinued operations – Morocco

(**)

Non-recurring items fall primarily into three categories of investment:

• The first includes investments to lower our variable cost structure, which is mostly labor, in response to the exceptional and severe adverse macroeconomic conditions in key markets such as Brazil, Mexico, Argentina and Spain, which drove significant declines in volume. For the three months ended March 31, 2016 and 2017 we invested $4.6 million and $2.5 million, respectively, in these activities.

• The second includes investments in Brazil, to relocate and consolidate our sites from higher to lower costs locations. This program started in 2014 when 53 percent of our sites were in Tier 2 cities. For the three months ended March 31, 2016 we invested $5.7 million in these activities. We have not invested in this program for the three months ended in March 31, 2017 as we consider it was substantially completed in 2016. We ended the three months period at March 31, 2017 with 64.5% of our sites in Tier 2 cities.

• The third includes investments to drive a more sustainable lower-cost and competitive operating model, especially considering the exceptional adverse macroeconomic circumstances and associated declines in volume referenced above. For the three months ended March 31, 2016 and 2017 we invested $1.6 million and $0.9 million, respectively, in these activities. We expect these adjustments due to exceptional macro circumstances in most cases like Brazil and Argentina, will continue until the third quarter of 2017.

(a)  

Restructuring costs incurred in the three months ended March 31, 2016 and 2017 primarily included restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs for the three months ended March 31, 2016, primarily relates to costs to adapt the organization in EMEA to lower levels of activity, and severance costs in Brazil. Restructuring costs incurred in three months ended March 31, 2017, primarily relates to the costs to adapt the organization in Argentina to the lower level of activities and the investments made in Brazil to implement a lower-cost operating model.

(b)  

Site relocation costs incurred for three months ended March 31, 2016 include costs associated with our strategic initiative to relocate call centers from tier 1 cities to tier 2 cities in Brazil to achieve efficiencies through lower rental costs, attrition and absenteeism.

(c)  

Asset impairments and other costs incurred for the three months ended March 31, 2016 primarily relates to the collection in EMEA of receivables that had previously been impaired.

Reconciliation of Adjusted Earnings to (loss)/profit:

For the three months ended March 31,

($ in millions)

2016

2017

(unaudited)

(Loss)/profit from continuing operations ^(*)

(4.4)

9.0

Amortization of acquisition related intangible assets ^(a)

5.4

6.8

Restructuring costs ^{(b) (**)}

6.2

3.4

Site relocation costs ^{(c) (**)}

5.7

-

Asset impairments and Other ^{(d) (**)}

(0.4)

-

Net foreign exchange gain on financial instruments ^(e)

(0.5)

-

Net foreign exchange impacts ^(f)

3.0

(3.3)

Tax effect ^(g)

(5.3)

(3.4)

Total of add-backs

14.1

3.5

Adjusted Earnings (non-GAAP) (unaudited)

9.7

12.5

Adjusted Basic Earnings per share (in U.S. dollars) ^(***) (unaudited)

0.13

0.17

(*)

The amounts of March 31, 2016, were restated excluding discontinued operations – Morocco

(**)

Non-recurring items fall primarily into three categories of investment:

• The first includes investments to lower our variable cost structure, which is mostly labor, in response to the exceptional and severe adverse macroeconomic conditions in key markets such as Brazil, Mexico, Argentina and Spain, which drove significant declines in volume. For the three months ended March 31, 2016 and 2017 we invested $4.6 million and $2.5 million, respectively, in these activities.

• The second includes investments in Brazil, to relocate and consolidate our sites from higher to lower costs locations. This program started in 2014 when 53 percent of our sites were in Tier 2 cities. For the three months ended March 31, 2016 we invested $5.7 million in these activities. We have not invested in this program for the three months ended in March 31, 2017 as we consider it was substantially completed in 2016. We ended the three months period at March 31, 2017 with 64.5% of our sites in Tier 2 cities.

• The third includes investments to drive a more sustainable lower-cost and competitive operating model, especially considering the exceptional adverse macroeconomic circumstances and associated declines in volume referenced above. For the three months ended March 31, 2016 and 2017 we invested $1.6 million and $0.9 million, respectively, in these activities. We expect these adjustments due to exceptional macro circumstances in most cases like Brazil and Argentina, will continue until the third quarter of 2017.

• Amortization of acquisition related intangible assets represents the amortization expense of customer base, recorded as intangible assets. This customer base represents the fair value (within the business combination involving the acquisition of control of Atento Group) of the intangible assets arising from service agreements (tacit or explicitly formulated in contracts) with Telefónica Group and with other customers.

(a)

Amortization of acquisition related intangible assets represents the amortization expense of customer base, recorded as intangible assets. This customer base represents the fair value (within the business combination involving the acquisition of control of Atento Group) of the intangible assets arising from service agreements (tacit or explicitly formulated in contracts) with Telefónica Group and with other customers.

(b)

Restructuring costs incurred in the three months ended March 31, 2016 and 2017 primarily included restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs for the three months ended March 31, 2016, primarily relates to costs to adapt the organization in EMEA to lower levels of activity, and severance costs in Brazil. Restructuring costs incurred in three months ended March 31, 2017, primarily relates to the costs to adapt the organization in Argentina to the lower level of activities and the investments made in Brazil to implement a lower-cost operating model.

(c)

Site relocation costs incurred for three months ended March 31, 2016 include costs associated with our strategic initiative to relocate call centers from tier 1 cities to tier 2 cities in Brazil to achieve efficiencies through lower rental costs, attrition and absenteeism.

(d)

Asset impairments and other costs incurred for the three months ended March 31, 2016 primarily relates to the collection in EMEA of receivables that had previously been impaired.

(e)

Since April 1, 2015, the Company designated the foreign currency risk on certain of its subsidiaries as net investment hedges using financial instruments as the hedging items. As a consequence, any gain or loss on the hedging instrument, related to the effective portion of the hedge is recognized in other comprehensive income (equity) as from that date. The gains or losses related to the ineffective portion are recognized in the income statements and for comparability, and those adjustments are added back to calculate Adjusted Earnings.

(f)

Since 2015, management analyzes the Company financial condition performance excluding net foreign exchange impacts, which eliminates the volatility of foreign exchange variances from our operational results.  

(g)

The tax effect represents the impact of the taxable adjustments based on a tax rate of 27.3% and 49.3%, for the three months ended March 31, 2016 and 2017, respectively.

(***)

Adjusted Earnings per share is calculated based on 73,909,056 weighted average number of ordinary shares outstanding as of March 31, 2017, 73,751,131 as of March 31, 2016.

As of March 31,

($ in millions, except Net Debt/Adj. EBITDA LTM)

2016

Cash and cash equivalents

148.6

170.9

Debt:

   7.375% Senior Secured Notes due 2020

296.6

298.2

   Brazilian Debentures

192.3

167.6

   Contingent Value Instrument ⁽¹⁾

23.9

-

   Finance Lease Payables

4.2

3.2

   Other Borrowings

80.0

70.8

Total Debt

597.0

539.8

Net Debt with third parties ⁽²⁾ (unaudited)

448.4

368.9

   Adjusted EBITDA LTM ^{(3) (*)}  (non-GAAP) (unaudited)

240.3

226.8

Net Debt/Adjusted EBITDA LTM  (non-GAAP) (unaudited)

1.9x

1.6x

(*)

Restated, excluding discontinued operations – Morocco.

(1)

The CVI was terminated on November 8, 2016 as described in "Note 10 of the interim consolidated financial statements".

(2)

In considering our financial condition, our management analyzes Net debt with third parties, which is defined as total debt less cash, cash equivalents, and short-term financial investments. Net debt with third parties is not a measure defined by IFRS and it has limitations as an analytical tool. Net debt with third parties is neither a measure defined by or presented in accordance with IFRS nor a measure of financial performance, and should not be considered in isolation or as an alternative financial measure determined in accordance with IFRS. Net debt is not necessarily comparable to similarly titled measures used by other companies.

(3)

Adjusted EBITDA LTM (Last Twelve Months) is defined as EBITDA adjusted to exclude certain acquisition and integration related costs, restructuring costs, management fees, site-relocation costs, financing fees and other items, which are not related to our core results of operations.

For the three months ended March 31,

($ in millions)

2016

2017

(unaudited)

Net cash flow used in operating activities

(22.9)

(9.3)

Payments for acquisition of property, plant, equipment and intangible assets

(19.1)

(14.1)

Free cash flow (non-GAAP) (unaudited)

(42.0)

(23.4)