U.S. Markets open in 52 mins

Edited Transcript of ATTO earnings conference call or presentation 21-May-19 2:00pm GMT

Q1 2019 Atento SA Earnings Call

Grand Duchy Of Luxembourg Jun 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Atento SA earnings conference call or presentation Tuesday, May 21, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlos López-Abadía

Atento S.A. - CEO & Director

* Mauricio Teles Montilha

Atento S.A. - CFO

* Shay Chor

Atento S.A. - IR Director & Corporate Treasurer

================================================================================

Conference Call Participants

================================================================================

* Alvaro Lewis

* Daniel Federle

Crédit Suisse AG, Research Division - Research Analyst

* David John Koning

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Matheus Nascimento

Goldman Sachs Group Inc., Research Division - Associate

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

* Vincent Alexander Colicchio

Barrington Research Associates, Inc., Research Division - MD

* Vitor Tomita

Itaú Corretora de Valores S.A., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to Atento First Quarter 2019 Results Conference Call. The call will begin with prepared comments by management followed by a question-and-answer session. Today's call is being recorded. (Operator Instructions)

I will now turn the call over to Shay Chor, with -- Corporate Treasurer, Investor Relations Director for Atento. Please go ahead.

--------------------------------------------------------------------------------

Shay Chor, Atento S.A. - IR Director & Corporate Treasurer [2]

--------------------------------------------------------------------------------

Thank you, operator, and welcome everyone to our fiscal 2019 first quarter earnings conference call. Here with us for today's call are Carlos López-Abadía, Atento's CEO; and Mauricio Montilha, Atento's CFO.

Following their review of Atento's financial and operating results, we will open the call for your questions. Before proceeding, please note that certain comments made on this call will contain financial information that has been prepared under International Financial Reporting Standards. In addition, this call may contain information that constitutes forward-looking statements, which are not guarantees of the future performance and involve risks and uncertainties. Certain results may differ materially from those in the forward-looking statements as a result of various factors.

We encourage you to review our publicly available disclosure documents filed with the relevant securities regulators, and we invite you to read the complete disclosure included here on the second slide of our earnings call presentation. Our public filings and earnings presentation can be found at investors.atento.com. Please note that unless noted otherwise, all growth rates are on a year-over-year and constant currency basis.

I will now turn the call over to Carlos.

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Shay, and good day, everyone. Thank you for joining us today. In my first earnings call back in March, I covered my first impressions after joining Atento and my immediate priorities based on those impressions.

Before we discuss Atento's first quarter performance, I would like to provide an update on both the initial impressions and the progress made on the priorities I discussed with you then. Beginning in March was that Atento has great long-term opportunities based on its net market leadership, strong brand, solid relationships with clients and employees, talent and better capabilities. After my first 100 days, those initial views have been nothing but deepened and confirmed. Atento is a clear leader in Latin America with the potential of much more.

My view for our initial priorities although it has evolved, it remains essentially unchanged. These priorities are, one, improve the operation of the business with a focus on profitability and reliability; two, accelerate the development and growth of our new services, particularly in digital; and three, build the basis for long-term profitable growth. As I anticipated in our previous call, I want to share with you today some of the actions that we are planning, and in many cases, already taking in order to execute on the first of those priorities, improving the operation of the business.

We have conducted a forward review of our operations services portfolio, across the structure and commercial and delivery effectiveness. As a result, we have identified a number of areas of in-need opportunity in 2019. We see the potential to achieve high efficiencies in many of our support functions. We are already looking at our supply chain, technology, HR support and finance and accounting. We found opportunities to improve our service to clients, while lowering our cost to serve them through [shared] services and taking advantage of in and cross-country synergies.

We are also consolidating operations and restructuring to lower our cost, where they can meaningfully improve with the resell investment. Another area of in-need focus in order to improve our operations is governance as well as performance management. We're implementing a more rigorous process and management system centered on high-impact areas, such as budgeting and forecasting, a common governance and metric system across the company and that can solve process and costs. Although, we will focus our investor conference in September on our long-term plan, specifically on new services and digital, I do want to very clearly set the stage with our view of the opportunity.

The voice retail market will continue to be with us for a long time, but in an evolving fashion. Voice services are still growing in many markets. While established voice customers are declining in volume, new entrants, notably [indiscernible] companies are increasing the use of voice services. The nature of the services is changing, however. There is a clear move to high-value services as the lower value ones are being automated away.

In this environment, our focus is on high-value voice, back office BPO and most importantly in Vivo, as well as automation of Atento's operations. We see significant growth in all these areas for the foreseeable future with attractive margins commensurate with the value added to our clients. We're developing comprehensive plan to accelerate our capabilities and growth in these areas and are prepared to make the necessary investments to be a leader in the next-generation BPO. I'm looking forward to discussing this pass of intel with you in September.

We are focusing on our operational improvement in our next-generation services plans with a sense of urgency, spread by the conviction that we live at the turning point in our industry. We're focused unprecedented opportunities to those we have a determination and agility to capture them.

With that in mind, I want to share with you, not just our plans, but some specific progress on some of our recent successes. We continue to strengthen our relationships with key clients. We have renewed our contract with Vivo in Brazil, which encompasses all customer care activities for the B2B and B2C segments, offering to Vivo the implementation of innovations and automation to improve customer experience and generate efficiencies. While we are strengthening our relationship with Telefónica, we continue to grow in Multisector. We reached 62% of our revenue last quarter. We also won 18 new logos in Q1.

In the area of digital and higher value-added services, we're also making progress. We continue to grow our digital and value-added solutions faster than our base, including multiple digital sales, digital collections and Vivo customer care contracts won this quarter. We continue to gain traction on Vivo's clients, providing value-added voice and omni-channel solutions with great reach in the U.S. and in Brazilian market.

In EMEA, we're launching several automation of high-value voice projects. One of which includes the deployment of our [800 box] to process front office and back office customer service transactions. We believe it is imperative for the long-term success of Atento that we make the necessary investments in both differential improvements and the acceleration of next-generation services and capabilities. As a result, we are incurring in a number of onetime costs in 2019 with many of those costs impacting us in the first 3 quarters.

Our recent $100 million bond issuance give us the financial flexibility to incur such costs. It also allows us to make investments in digital and solution capabilities, such as acquiring the remaining stakes that we do not already own in Interfile and R Brasil. We're also reliant on operating cash flow, which we anticipate will normalize by the year-end.

As I anticipated in our first call and reiterated today, 2019 will be a transition year for us. We need to make the necessary changes to set Atento in the path of sustainable, profitable growth. We have a lot of work ahead of us and I expect the next 3 quarters to be difficult for us.

Our Q1 results and our forecast for the year reflect the trends and plans I outlined today. Our Q1 revenue grew while traditional services declined. Thanks to higher growth in digital, higher value services and new clients. It is growth, but also the right type of growth. Our profit results, despite the fact that they include some extraordinary items, highlight the recent following changes we are introducing.

We expect the business to start improving in the second half of the year, expecting with many of the initiatives outlined today firmly in place, expecting us to begin 2020 in a profitable growth trajectory. We are planning flat to slightly positive revenue growth for full year 2019, with most of the onetime extraordinary expenses being incurred in the first 3 quarters of the year. Including onetime charges and IFRS effects, we expect EBITDA margin to end the year between an 11% to 12%. Excluding these effects, normalized EBITDA margin range would be between 9.5% and 10.5%.

Let me conclude the way I started, emphasizing my deepening conviction that Atento is a company with a great potential, while our market is at the digital inflexion point. Now, we have the assets and the determination not only to succeed, but to be a global leader. We are taking the necessary steps to strengthen Atento's operating and financial performance in order to build a solid foundation to capitalize on this market opportunity.

I will turn the call over to Mauricio to cover in more detail our results and forecast.

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Carlos. Good morning, everyone. I'm glad to be here today to talk about our Q1 results. As Carlos mentioned, Q1 results were in line as anticipated and reflect the challenge and opportunities for Atento. Revenues up 2% reflect strong growth with the new clients and service, more than a successive decline in more traditional, less complex voice volumes. Once again Brazilian Multisector sales drove our revenue growth. Sales in Brazil increased just over 6%. We expect our revenues grew nearly 8.5% in Brazil and we're behind much of the 4.6% rise in the total Multisector sales, which accounted for 62.4% all of Atento's revenues at the end of the first quarter.

Telefónica sales decreased a little more than 1% and the value-added solutions reached 27.9% of total revenues, a 290 basis points expansion. Our profitability declined versus last year's quarter due to the lower volume in traditional low-value voice as well as the onetime extraordinary events that Carlos highlighted, which we consider to be an investment to transform the business in addition to improving our profit trajectory.

Reported EBITDA decreased 2.8% to $42 million and includes a positive effect of $13.7 million related to the adoption of IFRS 16, a negative $8.1 million of one-offs related to rightsizing our America business and agreements with unions in Chile and Argentina. Excluding this cost and the IFRS effect, our EBITDA margin was 8.3%, which was also impacted by the increase in Brazil's minimum wage and the business environment in the America region, which remains challenging.

Earnings per share was a negative $0.61, mainly from a $0.51 impacting from a tax settlement in Spain, which was accounted for as a nonrecurring. Therefore, while adjusting for this effect and other nonrecurring impacts, recurring EPS was negative $0.06. Adjusting for the $8.1 million pretax extraordinary costs, recurring EPS would have been positive $0.01.

In the context of a global tax audit of the periods 2013 to 2016, Atento Spain signed a tax agreement with Spanish tax authorities. The criteria adopted by the tax administration was in connection with certain aspects, among others, of the deductibility of certain specific intercompany financing and operating expense originated during the acquisition of Atento Spain, which was different from the tax treatment applied by the company. As a result of this discrepancy, the amount of the tax credit carry-forward of the Spanish tax group together with the corresponding effects in subsequent tax periods, was reduced in an amount equivalent to $37.8 million.

Free cash flow from before interest and acquisition was negative $38 million, in line with Q1 2018 and expected seasonality. Net debt at the end of the quarter was $565 million, which includes a $175 million from IFRS 16. Excluding this reporting in fact, the net debt was $390 million with net leverage increasing to 2.4x. This net leverage compared to 1.8x in Q1 2018 and it reflects lower EBITDA from the adjustments we did in Q2 2018 and extraordinary costs incurred in Q1 2019. We expect net leverage to remain around Q1 2019 level in the short term, but improve towards year-end when both EBITDA and cash flow normalize.

As previously announced, we concluded the issuance of $100 million as on amount toward 2022 senior secured notes, which will provide increased financial flexibility for the company to invest in transforming the business.

Please turn to Slide 8. The strong growth in Brazil's Multisector sales, mainly came from financial service companies, primarily the ramp up in volumes of the new clients that we acquired last year and which drove the mix 1.5 percentage points higher to 70.5% of our sales in this market.

Brazil adjusted EBITDA margin expanded 160 basis points to 12.7% or 10.2% when excluding of one-offs and the effects of IFRS 16, a drop of almost 100 basis points like-for-like. This lower profitability is explained by the high increase in wages which was 4.6% in 2019 compared to 1.6% in 2018. This impact will be mostly recovered throughout the year as we pass the higher cost of contractual prices.

Please turn to Slide 9. Moving to Americas, Argentina and Mexico business conditions continue to be challenging. While in Argentina, we are seeing a drop in volumes across the board. In Mexico, the conditions there have been impacting most of our volumes with financial service clients. Lower volumes in Peru, mainly at Telefónica, also impacted our Americas revenues and profitability with sales of Telefónica down 5.6%. Higher volume in Chile and Colombia partially offset by the challenging business climate in Mexico and Argentina, resulted in mixed Multisector performance. As a percent of revenues, Multisector increased 1.9 percentage points to 61.5% of the total. The adjusted EBITDA margin decreased 230 basis points to 8.7% as the region accounted for the bulk of the extraordinary costs. [Excluding] this and the effects of IFRS 16, the margin would be 9.4%.

Please turn to Slide 10. Like Brazil, the EMEA also made a healthy contribution to revenue growth. Sales increased just over 5%, with growth in both Multisector and Telefónica. The 7.5% increase in Multisector sales reflected new client programs in the first quarter, mostly in the utility sector. The mix of Multisector sales expanded nearly 1 percentage point to 39.7%. Telefónica sales rose nearly 4%. The region's adjusted EBITDA margin rose 240 basis points to 10.2%. However, excluding effects of IFRS 16, this would have been 8.1%, in line with expected normalized level of between 8% to 9%. This is stable profitability, despite some top line growth, reflects margin ramp-up of new contracts and the low utilization rates in certain client programs. The results in overcapacity will also be addressed in the coming quarters. As we always do, we would like to take the moment to acknowledge that our EMEA business was recognized as one of the Best Companies to Work by Forbes and Great Place to Work.

Please turn to Slide 11. [CapEx] cash flow in addition to seasonal effects impacts our EBITDA, our working capital was impacted by higher-than-expected revenue anticipation by our clients in the previous quarter as explained in our Q4 2018 earnings call. As a percent of revenues, cash CapEx was 3.8% compared to 2.7% in the first quarter of 2018 and in line with expectations for the year. During the quarter, we did not repurchase any shares. At this time, we believe that investing in the growth areas and transforming the business, as Carlos highlighted, is the best use of our shareholders' capital.

Please turn to Slide 12. At the end of the quarter, our cash position stood at $80 million which coupled with $68 million available through our revolving credit facility amounted to nearly $146 million implying liquidity. On the debt side, I would like to highlight the adoption of IFRS 16, increases our total debt by $175 million. Excluding this effect, net debt at the end of the quarter was $390 million, putting net leverage at 2.4x. As I pointed in my opening remarks, the increasing leverage reflects lower EBITDA in the last 12 months, as a result of the adjustments we did in Q2 2018 and the extraordinary costs incurred in Q1 2019. We expect net leverage to remain as this leverage in short term, but improve towards year-end when both the EBITDA and cash flow normalize. Also, on leverage, I'd like to mention that the rating agency has already been using a similar methodology regarding the impacts of IFRS 16 in our net debt and EBITDA. Therefore, we do not expect that the 3.5x leverage calculated under the IFRS will have any material impact in our ratings.

As I noted earlier, we concluded in early April, a $100 million re-tap on our 2022 bond, which will provide an increase in financial flexibility for the company to invest in transforming the business. The proceeds were used to refinance our $35 million debt in Brazil and also paying back approximately $25 million in revolving credit facility in Brazil and Mexico. We are also using part of the proceeds to acquire the remaining stakes in Interfile and R Brasil.

Please turn to Slide 13. Moving to 2019 guidance, we expect revenue growth to be flat to low single digits. While we're accelerating to digital, we continue to see drops in baseline volumes, especially the [warm assets of CRM]. On profitability, we expect EBITDA margin to be in the range of a 11% to 12%, including extraordinary events to transform the business and the effects of IFRS 16. While we expect that extraordinary cost will have a negative impact of $25 million to $35 million, we estimated the adoption of IFRS 16 will have a positive effect on approximately $55 million.

As for the remainder of our guidance, we forecast 2019 interest expense of between $35 million and $40 million already reflecting the expenses related to the bond re-tap. Consistent with first quarter, cash CapEx will be between 3.5% and 4.5% of revenues for the year. In terms of effective tax rate, we expect it to be in line with previous years around 35% of the recurring net income.

Finally, I'd like to highlight that as happened in Q1 2019, we expect to continue incurring extraordinary cost in the short term to transform the business both in Q1 and Q3.

That concludes our prepared remarks. Operator, we are now ready to start the question-and-answer part of our call. Please open the phone for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from Vitor Tomita with Itaú BBA.

--------------------------------------------------------------------------------

Vitor Tomita, Itaú Corretora de Valores S.A., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Carlos, Mauricio, Shay, two questions on our side. First, if you could elaborate on how you view potential acquisition opportunities in addition to the remaining stakes in Interfile and R Brasil? And if there's a specific type of target you're looking for or any regions in which you would focus when looking for potential acquisitions? That's the first question. And the second, if you could provide any views on free cash flow trends for the full year?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Vitor, thank you for the question. This is Carlos. Let me address the first one on M&A, and I'll ask Mauricio to answer your second one on free cash flow. Our approach to growth is fundamentally going to be around organic growth. We are -- so we have disclosed that we are acquiring the rest of the shares that we now own in Interfile and R Brasil. And we will look at things opportunistically, particularly, when we have an opportunity to acquire strategic assets of technology. But the going-forward basis, we significantly -- the focus is going to be on organic growth, not growing bulk through acquisitions. Again, looking at things opportunistically, particularly, regarding strategic assets or technology or cash flows. Mauricio?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [4]

--------------------------------------------------------------------------------

Vitor, we -- as you know, we don't provide any guidance on the cash flow. Although, as you all know, we, as a company, we've been targeting to have 30% free cash flow conversion EBITDA in this -- clearly this year, it's going to be slightly lower given the facts we have those additional investments to transform the business. So I'll say before investments, we continue with our internal target, that is around 30% and the investments will take another, now as we already disclosed it in this call.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

Our next question is from Dave Koning with Robert W. Baird.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [6]

--------------------------------------------------------------------------------

And I guess, first of all, just when we think about the segments, I think, Brazil and EMEA were both up mid-single digits in Q1 and Americas was down low single digits. Is that kind of the pace? You talked a little bit about different paces throughout the year, but for the whole year, is that kind of the pace that you would expect each of those to grow?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [7]

--------------------------------------------------------------------------------

Let me take a crack at that, and I'll ask Mauricio to provide additional detail. We see Brazil as in the path to recovery, and I think EMEA as well has been improving results. We have some work to do in all regions, such as Americas. But, I think, at this point in time, the guidance that we have provided is aggregate for the company and not specifically to any particular market.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [8]

--------------------------------------------------------------------------------

Okay. And then secondly, D&A was $30 million-or-so in the quarter. Historically, that's been more like $17 million. Is that $30 million, is that kind of the run rate that we'd expect going forward?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [9]

--------------------------------------------------------------------------------

Dave, Mauricio speaking. Yes, the increase is related to the IFRS change as you're going to see in the 6-K, the IFRS impact in Q1 were about $13-point -- almost $13.7 million increase in EBITDA, where in the other hand you have a $12 million increase in depreciation. So net-net -- and $5 million increase in the interest expense. So these are the numbers that are impacting Q1. So we'll look like for Q3, Q4, Q2 onwards for depreciation.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [10]

--------------------------------------------------------------------------------

Got you. So we should expect that $30 million or so to continue?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [11]

--------------------------------------------------------------------------------

Absolutely, yes.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [12]

--------------------------------------------------------------------------------

Okay. And then just one last quick one. Just to make sure we're in the ballpark. I think, if we put low single digits constant currency in, we get somewhere in the range of $1.65 billion to $1.70 billion of revenue. That is kind of what you're thinking at the current currency rates, right?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [13]

--------------------------------------------------------------------------------

It's -- it is just the market naturally resides there. So we don't know. We report Q1, we have the average rates for Q1. So thankfully, today, the rates have changed as well, so in fact flat to 0 and it will be somewhat to this ballpark number you mentioned.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Our next question is from Vincent Colicchio with Barrington Research.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [15]

--------------------------------------------------------------------------------

One clarification on the recent comment there. So currency rates don't change. The $1.65 billion to $1.70 billion is what you would expect the constant currency for the year. Is that right?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [16]

--------------------------------------------------------------------------------

Yes. This is Mauricio speaking. Yes, correct. I was just mentioning, the -- Dave's question was about the dollar amount. The dollar will change, but the constant currency relatively will not change all over the year.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [17]

--------------------------------------------------------------------------------

Okay. And what drove the strength in value-added solutions and should we expect that to continue throughout the year?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [18]

--------------------------------------------------------------------------------

This is Carlos. I think we -- you should expect -- we definitely expect the value-added solutions to increase over time. That's where we are putting our emphasis. As I mentioned in my remarks, there's a number of areas of growth for us and for the industry as a whole. Voice value-added, BPO front end to back end BPO, and very specifically, digital, is where we are putting our emphasis, our efforts and our investments. So my expectation is that we will grow there, not only this year, but in the foreseeable future, that is where the industry is going, that's where we are going.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [19]

--------------------------------------------------------------------------------

And the wage increases in Brazil, any sense for how much of that can be recovered from customers?

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [20]

--------------------------------------------------------------------------------

We, typically, as you know, we have in most of our complex in Brazil, we have a clause to press wage increase to practice. Typically, we recovered 2/3 of the wage increase in pricing. As well, we do along the -- in the universe of the country, so we have some recover already in Q2, very little in Q1, dividend in very few countries, (inaudible) events in Q1, but Q2 and Q3 and that's typically why seasonality of Brazil is really high and skewed towards Q4, as we saw last year. So we are expecting 2/3 of this will come to prices and 1/3 efficiency in the other adjustment to contracts we may succeed to during the year.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Our next question is from Rodrigo Villanueva with Bank of America Merrill Lynch.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [22]

--------------------------------------------------------------------------------

Carlos, Mauricio and Shay, my question is related to the nonrecurring expenses that you expect for 2019. I was wondering if you could quantify them. And also to ask if you expect these nonrecurring expenses to be spread throughout all the following 3 quarters or do you expect them to be mostly impacting results in the first half of the year?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [23]

--------------------------------------------------------------------------------

This is Carlos. As I mentioned, we expect the bulk of that impact the first 3 quarters, a big part of it the first half of the year. So they are front-loaded. The -- apologize, can you repeat back the question when the timing of expensing, what was the other part?

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [24]

--------------------------------------------------------------------------------

So basically just to quantify them. I mean, we already saw $8 million in the first quarter, which would be the absolute amount for the 3 quarters.

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [25]

--------------------------------------------------------------------------------

Yes, I think, you can find that in our disclosure, $25 million to $35 million range for the 2019.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Our next question is from [Adele Gosbee] with [Sema Capital].

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

So obviously, I understand you guys are not giving any guidance on the cash, but looking at what you've been -- what we're talking about, about 160 -- sorry, $1.65 billion, $1.70 billion of revenue, 10% margin after the operating leases, your guidance on CapEx, we know what your interest costs. I mean, this business should be delivering some cash. I don't want to put a number on this, but that would -- based on those numbers, there should be a relevant amount of cash that will be free cash flow that will be delivered throughout the year based on that guidance. You've got already $78 million of cash. The tap on the [indiscernible] in April should also free up some cash because looking at the use of proceeds, there should be some free cash on that and you've got some good liquidity. So I guess, my question is, how is -- what's the thinking in terms of using that cash and is the share buyback still a current topic in your list?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [28]

--------------------------------------------------------------------------------

This is Carlos. Let me address that. Our (technical difficulty) short term but also in the long term is to invest in the interim growth of the company. (technical difficulty) cost improvements and restructuring, some of that is going to be on the future of the business in digital and new services. That's always going to be our top priority for investments. Now I'm not averse to stock buybacks, particularly at the prices that we have today, but we will always prioritize first the investments in the long-term future of the company.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Alvaro Lewis with BG Valores.

--------------------------------------------------------------------------------

Alvaro Lewis, [30]

--------------------------------------------------------------------------------

Thank you for all the information provided. Can you comment -- already, you say that the re-tap was used for paying some borrowings in Brazil and in Mexico. There are some $40 million that, can you comment what was used for? And also, can you comment if we -- when do you expect to have a positive free cash flow in your guidance?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [31]

--------------------------------------------------------------------------------

Thanks. Let me -- but I think, it was not very clear line. I think your first question is the meaning of the usage of the bond issuance, and I couldn't quite understand the second part. Could you repeat?

--------------------------------------------------------------------------------

Alvaro Lewis, [32]

--------------------------------------------------------------------------------

The second part is when you estimate to have a free cash flow positive?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [33]

--------------------------------------------------------------------------------

Okay. Let me address the first part and I will ask Mauricio to address the second part. The remaining of the bond is going to be for all the general uses of the business. Very specifically, we mentioned that we have a number of areas where we want to invest. So clearly, it will go to those. To reiterate some opportunity that we have to be more efficient in the way we provide our services to our customers, some restructuring costs associated with that and also investments in the, what I view as the -- in the future of the company, the new services and digital, the acceleration of our capabilities in that area.

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [34]

--------------------------------------------------------------------------------

Regarding the cash flow question, as we said, we don't provide guidance for the cash flow. However, if you look historically, you see that we have also reported seasonality in cash flow, typically, we have a Q1 that's negative, particularly because with our anticipation of the revenues or the collections in last part of the year, given in Latin America, where most of the country we faced are the seller. So this is a typical thing happen in the industry as well we have a lower profitability in the first quarter of the year. Because we've increased the valuations and then we've moved the price. So we have 2 net-tax income but generally speaking, in this business, in Latin America, where most of the entire of operations are, we have negative Q1 but slightly positive or somewhat negative in Q2. But based on the year, and then we have a positive Q3 and a very strong Q4. So if you look at historical -- historically, this is the trend. This year, we probably follow the same trend, with the caveat that we are making the upfront investments, as Carlos mentioned, into rightsizing the business and investing in some areas that will impact also the cash flow in Q2 and Q3 on top of the normal seasonality.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Diego Aragão with Goldman Sachs.

--------------------------------------------------------------------------------

Matheus Nascimento, Goldman Sachs Group Inc., Research Division - Associate [36]

--------------------------------------------------------------------------------

This is Matheus here. I have a question regarding the top line guidance. At this point, which market in your view represent the largest downside risk to your numbers, and at the same time, which one represent the main opportunity to deliver improvements in terms of growth?

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [37]

--------------------------------------------------------------------------------

Thanks, Diego. In terms of the size of the opportunity, clearly, I have to go with the -- with our largest market, which is the sale, that's the easy answer to your question. In terms of growth, we see opportunities to grow in all the markets this year, our growth is going to be subdued. But I see the opportunity on a going forward basis across all markets, particularly in the new half, as I believe we are in a -- at a transition point, at an inflection point in our industry where the changes of technology are going to dictate the opportunities going forward, the industries you are seeing in the next few years is going to be significantly different from what we've seen before and the opportunities to grow in the new areas are going to be tremendous. And that is where we want to build the basis for Atento.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Daniel Federle with Crédit Suisse.

--------------------------------------------------------------------------------

Daniel Federle, Crédit Suisse AG, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

My question is regarding the guidance. I understand that the positive effects from the IFRS 16 will be bigger than the one-off costs expected for the year. So in an apples-to-apples basis, I understand that the EBITDA margin in the new guidance is lower than the guidance for the past year. So I would like to understand exactly why the company is expecting a reduction in the EBITDA margin in apples-to-apples basis for the year? That's my question.

--------------------------------------------------------------------------------

Mauricio Teles Montilha, Atento S.A. - CFO [40]

--------------------------------------------------------------------------------

Daniel, Mauricio speaking. We, as you see in Q1, there are some trends this year that particularly you see in Americas, for example, where the less, I would say, less complex volumes of the voice product, they're going down and when we have those volumes down, we have the ability to adjust our cost base because of new volumes, however, it takes some time. So like we have seen in the first part of the year, as we guided when we disclosed Q4 results, we see some depressive results as we have lower volumes on more simple voice programs. And we have the cost to adjust those volumes. And that's I'll say happened in America. In the case of Brazil, although Brazil is growing, as you see, we have a strong pipeline in Brazil that's more than offsetting those strengths in Brazil. But the fact that some of those volumes declined in more simple and less complex call, they also take some cost to adjust the business to the new reality. As we have several locations, this is not -- we don't grow exactly in the same location where we lose volumes. So this brings some pressure on margins. So that's why basically, I think, this is most important reason why we see a likely decline on apples-to-apples profitability this year versus last year when we exclude the investments in the transformation of certain cost and the IFRS impact those.

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [41]

--------------------------------------------------------------------------------

This is Carlos. Let me add to that. Let me put this in management terms, from my perspective. The main -- there's 2 main reasons that we have some one-off is that the main reason quite honestly is execution. You may have noticed that I put up a synthesis on operational improvement. We have the opportunity and the need to improve the way we execute on our operations. So lot of the details that Mauricio shared with you is just examples of execution. We have a lot of changes, we have volume decreases in some traditional business, while we're having growth that more than compensates for that volume decrease in traditional in the new areas of business. That is good news because we want to grow where the future is and we are. And we're growing faster than the decline of the traditional business. Having said that, that also requires the ability to execute to that moving resources, changing assets, consolidating centers, acquiring new talent, et cetera, et cetera. So our ability to adjust to that has not been up to par, and that's one of the reasons I am focusing, the company's focusing our efforts and our investments in operational improvement first and foremost. We see the opportunity for growth. We are already seeing the growth in the right places, but we need to execute and we need to change the company to serve the new markets and the new customers fast enough to take advantage of the opportunity and reflect that in the profitability of our results. We're not there yet, but we'll get there.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Carlos for closing remarks.

--------------------------------------------------------------------------------

Carlos López-Abadía, Atento S.A. - CEO & Director [43]

--------------------------------------------------------------------------------

Thank you very much. Thank you for being with us today, and thank you for your questions. I will look forward to seeing many of you or all of you in our investor conference in September, we'd love to get into to a lot of detail that many of you have been asking for in terms of our long-term plans and particularly, technology, digital and new services for Atento. Thanks, again.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.