Atento Reports Fiscal 2Q17 Results Highlighted by Continuation of Topline Growth

($ in millions except EPS)

Q2 2017

Q2 2016

CCY Growth

YTD 2017

YTD 2016

CCY Growth

Income Statement

Revenue ⁽¹⁾

473.7

448.6

+2.4%

941.7

864.3

+2.7%

Adjusted EBITDA ⁽³⁾

52.5

54.2

-6.1%

106.2

103.0

-3.2%

Adjusted EBITDA Margin ⁽³⁾

11.1%

12.1%

-1.0pp

11.3%

11.9%

-0.6pp

Recurring Net Income ⁽²⁾

9.6

9.5

-3.0%

22.1

19.9

+8.9%

Recurring Earnings Per Share ⁽²⁾

$0.13

$0.13

-

$0.30

$0.26

+7.1%

Reported EBITDA ⁽³⁾

46.1

46.1

-2.9%

96.4

83.4

8.8%

Reported Net Income ⁽²⁾

(3.7)

(8.1)

+57.5%

5.4

(12.9)

n.m.

Reported Earnings Per Share ⁽²⁾

($0.05)

($0.11)

$0.07

$(0.16)

n.m.

Cashflow, Debt and Leverage

FCF before Interest and Acquisitions ⁽⁴⁾

15.4

33.8

5.8

6.3

Net Debt

400.4

459.1

Leverage (x) ⁽⁵⁾

1.8x

2.0x

1.8x

2.0x

(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 June 30, 2017, were calculated considering the number of ordinary shares of 73,909,056. For the period ended June 30, 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 before interest and acquisitions as operating cashflow minus Capex payments and income tax expenses.

(5)

Does not consider the debt refinance. On a pro-forma basis, leverage ratio would be 1.6x.

($ in millions)

Q2 2017

Q2 2016

CCY growth

YTD 2017

YTD 2016

CCY growth

Brazil Region

Revenue

233.5

202.2

5.8%

471.8

384.7

5.5%

Operating Income

13.4

10.3

26.4%

32.1

17.4

66.3%

Adjusted EBITDA

28.7

27.1

-1.0%

63.0

52.0

6.1%

Margin

12.3%

13.4%

13.4%

13.5%

Americas Region

Revenue

185.7

189.1

-0.3%

359.1

366.3

-0.3%

Operating Income

10.4

14.3

-26.8%

17.2

28.8

-39.6%

Adjusted EBITDA

21.7

24.3

-11.8%

39.1

47.7

-18.0%

Margin

11.7%

12.9%

10.9%

13.0%

EMEA Region

Revenue

55.1

57.8

-2.0%

111.8

114.1

1.1%

Operating Income

1.2

(1.7)

N.M.

3.1

(4.9)

N.M

Adjusted EBITDA

3.8

3.6

8.6%

8.1

6.3

28.6%

Margin

6.9%

6.2%

7.2%

5.5%

US$MM

Actual

Adjustments

Proforma

Cash Balance

146.3

-

146.3

EUR RCF

57.1

(57.1)

-

Undrawn SS RCF (Club Multicurrency)

-

+50.0

50.0

Undrawn SS RCF (Bilateral Multicurrency)

-

+55.0

55.0

(=) Total Liquidity

203.4

47.9

251.3

1st Brazilian Debenture (CDI+3.7%)

129.4

(129.4)

-

2nd Brazilian Debenture (CDI+3.75%)

20.8

-

20.8

7.375% Senior Secured Notes due 2020

304.2

(304.2)

-

6.125% Senior Secured Notes due 2022

-

+400.0

400.0

BNDES Credit Facility

59.4

-

59.4

Other Borrowings

32.9

-

32.9

(=) Total Debt

546.7

-33.6

513.1

(=) Net Debt

400.4

366.8

Net Leverage (Net Debt / LTM Adj. EBITDA)

1.6x  

Guidance

New

Prior

Consolidated Revenue Growth (CCY)

5% to 8%

1% to 5%

Adjusted EBITDA Margin Range (CCY)

11% to 12%

11% to 12%

Net Interest Expense Range

$55MM to $60MM

$60MM to $65MM

Cash Capex (% of Revenue)

~3-4%

~3-4%

Effective Tax Rate

~39%

~34%

Diluted Share Count

~73.9MM shares

~73.9MM shares

Cash Conversion as % of Adj. EBITDA

~40%

~40%

Consolidated Income Statements for the Three and Six Months Ended June 30, 2016 and 2017

($ in millions, except percentage changes)

For the three months ended June 30,

Change

Change excluding

For the six months ended June 30,

Change

Change excluding

2016 ^(*)

2017

(%)

FX (%)

2016 ^(*)

2017

(%)

FX (%)

(unaudited)

(unaudited)

Revenue

448.6

473.7

5.6

2.4

864.3

941.7

9.0

2.7

Other operating income

0.7

8.3

N.M.

N.M.

1.5

9.1

N.M.

N.M.

Operating expenses:

Supplies

(14.9)

(17.5)

(17.4)

(15.9)

(29.9)

(34.3)

(14.7)

(9.2)

Employee benefit expenses

(338.3)

(355.1)

(5.0)

(1.8)

(651.1)

(700.8)

(7.6)

(1.7)

Depreciation

(11.8)

(11.1)

5.9

9.8

(22.4)

(22.9)

(2.2)

5.4

Amortization

(13.3)

(12.3)

7.5

10.9

(23.9)

(25.9)

(8.4)

(1.6)

Changes in trade provisions

-

0.2

N.M.

N.M.

(0.3)

-

100.0

100.0

Other operating expenses

(50.0)

(63.5)

(27.0)

(22.1)

(101.1)

(119.3)

(18.0)

(9.1)

Total operating expenses

(428.3)

(459.3)

(7.2)

(3.9)

(828.7)

(903.2)

(9.0)

(2.7)

Operating profit

21.0

22.7

8.1

6.1

37.1

47.6

28.3

22.4

Finance income

0.7

1.5

114.3

114.3

2.2

3.6

63.6

44.0

Finance costs

(19.9)

(16.0)

19.6

23.1

(37.8)

(33.5)

11.4

17.5

Change in fair value of financial instruments

0.2

(0.3)

N.M.

N.M.

0.7

(0.3)

(142.9)

(142.9)

Net foreign exchange gain/(loss)

(9.2)

(4.3)

53.3

52.7

(12.9)

(0.9)

93.0

93.0

Net finance expense

(28.2)

(19.1)

32.3

34.1

(47.8)

(31.1)

34.9

38.2

(Loss)/profit before tax

(7.2)

3.6

150.0

147.4

(10.7)

16.5

N.M.

N.M.

Income tax expense

(0.6)

(7.3)

N.M.

N.M.

(1.5)

(11.1)

N.M.

N.M.

(Loss)/profit from continuing operations

(7.8)

(3.7)

52.6

56.0

(12.2)

5.4

144.3

141.9

Discontinued operations:

Loss from discontinued operations

(0.3)

-

100.0

100.0

(0.7)

-

100.0

100.0

(Loss)/profit for the period

(8.1)

(3.7)

54.3

57.5

(12.9)

5.4

141.9

139.7

(Loss)/profit attributable to:

Owners of the parent

(8.1)

(3.9)

51.9

55.2

(12.9)

5.1

139.5

137.5

Non-controlling interest

-

0.2

N.M.

N.M.

-

0.3

N.M.

N.M.

Other financial data:

EBITDA ⁽¹⁾ (unaudited)

46.1

46.1

-

(2.9)

83.4

96.4

15.6

8.8

Adjusted EBITDA ⁽¹⁾ (unaudited)

54.2

52.5

(3.1)

(6.1)

103.0

106.2

3.1

(3.2)

(1)  For reconciliation with IFRS as issued by IASB, see section "Summary Historical Consolidated 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

June 30,

For the six

months ended

June 30,

($ in millions)

2016

2017

2016

2017

(unaudited)

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

(7.8)

(3.7)

(12.2)

5.4

Net finance expense ^(*)

28.2

19.1

47.8

31.1

Income tax expense ^(*)

0.6

7.3

1.5

11.1

Depreciation and amortization ^(*)

25.1

23.4

46.3

48.8

EBITDA (non-GAAP) (unaudited)

46.1

46.1

83.4

96.4

Restructuring costs ^(a)

6.7

5.5

12.9

8.9

Site relocation costs ^(b)

0.2

-

5.9

-

Asset impairments and Other ^(c)

1.2

0.9

0.8

0.9

Total non-recurring items ^(**)

8.1

6.4

19.6

9.8

Adjusted EBITDA (non-GAAP) (unaudited)

54.2

52.5

103.0

106.2

(*) The amounts of June 30, 2016, were restated excluding discontinued operations – Morocco.

(**) We define non-recurring items as items that are limited in number, clearly identifiable, unusual, are unlikely to be repeated in the near future in the ordinary course of business and that have a material impact on the consolidated results of operations. Non-recurring items fall mainly 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, Spain and Mexico, which drove significant declines in volume. For the three months ended June 30, 2016 and 2017 we invested $3.2 million and $1.4 million, respectively, in these activities. Considering the six months ended June 30, 2016 and 2017, we invested $8.0 million and $3.8 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 and six months ended June 30, 2016 we invested $0.1 million and $5.7 million in these activities. We have not invested in this program for the three and six months ended in June 30, 2017 as it was substantially completed in 2016. We ended the three months period at June 30, 2017 with 63.9% 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 June 30, 2016 and 2017 we invested $3.5 million and $4.1 million, respectively, in these activities. Considering the six months ended June 30, 2016 and 2017, we invested $4.8 million and $5.1 million respectively in these activities. We expect that these adjustments continue until the third quarter of 2017, due to exceptional macro circumstances in most cases, like in Brazil and Argentina.

a)    

Restructuring costs for the three and six month ended June 30, 2016, are primarily related to costs to adapt the organizations in EMEA and Brazil to lower levels of activity and other minor restructurings in the Americas. Restructuring costs incurred in three and six months ended June 30, 2017, are primarily related to the costs of adapting the organization in Argentina and Brazil to the lower level of activities and the investments made in Brazil, Mexico and Spain to implement a lower-cost operating model.

b)   

Site relocation costs incurred for the three and six months ended June 30, 2016 are related to the anticipation of site closures in Brazil in connection with the site relocation program.

c)  

Asset impairments and other costs incurred for the three months ended June 30, 2016 and 2017 mainly refer to consulting and other non-recurring costs.

Reconciliation of Adjusted Earnings to profit/(loss):

For the three

months ended

June 30,

For the six

months ended

June 30,

($ in millions)

2016

2017

2016

2017

(unaudited)

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

(7.8)

(3.7)

(12.2)

5.4

Amortization of acquisition related intangible assets ^(a)

6.2

4.3

11.4

11.1

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

6.7

5.5

12.9

8.9

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

0.2

-

5.9

-

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

1.2

0.9

0.8

0.9

Net foreign exchange gain on financial instruments ^(e)

(0.2)

0.3

(0.7)

0.3

Net foreign exchange impacts ^(f)

9.2

4.3

12.9

0.9

Tax effect ^(g)

(6.0)

(2.0)

(11.1)

(5.4)

Total of add-backs

17.3

13.3

32.1

16.7

Adjusted Earnings (non-GAAP) (unaudited)

9.5

9.6

19.9

22.1

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

0.13

0.13

0.26

0.30

(*) The amounts of June 30, 2016 were restated excluding discontinued operations - Morocco.

(**) We define non-recurring items as items that are limited in number, clearly identifiable, unusual, are unlikely to be repeated in the near future in the ordinary course of business and that have a material impact on the consolidated results of operations. 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, Spain and Mexico, which drove significant declines in volume. For the three months ended June 30, 2016 and 2017 we invested $3.2 million and $1.3 million, respectively, in these activities. Considering the six months ended June 30, 2016 and 2017, we invested $8.0 million and $3.7 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 and six months ended June 30, 2016 we invested $0.1 million and $5.7 million in these activities. We have not invested in this program for the three and six months ended in June 30, 2017 as it was substantially completed in 2016. We ended the three months period at June 30, 2017 with 63.9% 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 June 30, 2016 and 2017 we invested $3.5 million and $4.0 million, respectively, in these activities. Considering the six months ended June 30, 2016 and 2017, we invested $4.8 million and $5.0 million respectively in these activities. We expect that these adjustments continue until the third quarter of 2017, due to exceptional macro circumstances in most cases, like in Brazil and Argentina.

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 Telefonica Group and with other customers.

b)    

Restructuring costs for the three and six month ended June 30, 2016, are primarily related to costs to adapt the organizations in EMEA and Brazil to lower levels of activity and other minor restructurings in the Americas. Restructuring costs incurred in three and six months ended June 30, 2017, are primarily related to the costs of adapting the organization in Argentina and Brazil to the lower level of activities and the investments made in Brazil, Mexico and Spain to implement a lower-cost operating model.

c)     

Site relocation costs incurred for the three and six months ended June 30, 2016 are related to the anticipation of site closures in Brazil in connection with the site relocation program.

d)    

Asset impairments and other costs incurred for the three months ended June 30, 2016 and 2017 mainly refer to consulting and other non-recurring  costs.

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, our 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 tax rate of 13.1% for the three months period ended June 30, 2017, 30.4% for the same period ended June 30, 2016, 24.4% for the six month period ended June 30, 2017 and 29.4% for the same period ended June 30, 2016.

(***)

Adjusted Earnings per share, is calculated based on the weighted average number of ordinary shares outstanding of 73,909,056 as of June 30, 2017. For the period ended June 30, 2016 the weighted average number of ordinary shares outstanding was 73,751,131.

As of June 30,

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

2016

(unaudited)

Cash and cash equivalents

159.5

146.3

Debt:

     7.375% Senior Secured Notes due 2020

302.5

304.2

     Brazilian Debentures

204.9

150.2

     Contingent Value Instrument ⁽¹⁾

23.9

-

     Finance Lease Payables

4.1

9.1

     Other Borrowings

83.2

83.2

Total Debt

618.6

546.7

Net Debt with third parties ⁽²⁾ (unaudited)

459.1

400.4

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

232.1

225.2

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

2.0x

1.8x

(*)  

Restated, excluding discontinued operations – Morocco.

(1)

The CVI was terminated on November 8, 2016.

(2)

In considering our financial condition, our management analyzes Net debt with third parties, which is defined as total debt less cash and cash equivalents. 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 restructuring costs, site relocation costs, asset impairments and other items not related to our core results of operations.

Q2

YTD

2017

2016

2017

2016

Operating Cash Flow ⁽¹⁾

30.0

62.1

40.1

60.2

Cash Capex ⁽²⁾

(10.1)

(20.6)

(24.2)

(39.7)

Income Tax Paid

(4.4)

(7.7)

(10.1)

(14.2)

Free Cash Flow before interest and Acquisitions

15.4

33.8

5.8

6.3

29.4%

62.3%

5.4%

6.1%

(27.1)

0.0

(27.1)

0.0

Net Interest Paid

(14.8)

(21.7)

(28.5)

(36.1)

Free Cash Flow (FCF)

(26.5)

12.1

(49.9)

(29.8)

(1)

We define Operating Cash flow as Net Cash flow from/(used in) operating activities (as per 6K) adding back net interest and income tax expenses.

(2)

Does not consider acquisitions