Atento Reports Fiscal 2018 Fourth-Quarter Results Highlighted by Continued Sequential Margin Expansion in Brazil

($ in millions except EPS)

Q4 2018

Q4 2017

FY 2018

FY 2017

Income Statement

Revenue

421.8

478.3

+4.4%

1,818.2

1,921.3

EBITDA ⁽¹⁾

39.0

46.1

-8.2%

184.8

196.9

+2.2%

   EBITDA Margin

9.2%

9.6%

-0.4 p.p.

10.2%

10.2%

-0.1 p.p.

Adjusted EBITDA ⁽¹⁾

39.0

55.1

-24.7%

184.8

221.0

-9.2%

   Adjusted EBITDA Margin

9.2%

11.5%

-2.3 p.p.

10.2%

11.5%

-1.3 p.p.

Net Income ⁽²⁾

15.0

n.m.

20.5

(13.6)

n.m.

Recurring Net Income ⁽²⁾

15.7

15.9

-42.4%

57.2

55.2

24.6%

Earnings Per Share ⁽²⁾

$0.20

($0.12)

n.m.

$0.28

($0.18)

n.m.

Recurring Earnings Per Share ⁽²⁾

$0.21

$0.21

-42.3%

$0.77

$0.75

+24.7%

Cashflow, Debt and Leverage

Free Cash Flow ⁽³⁾

45.2

26.3

88.8

81.0

Cash and Cash Equivalents

133.5

141.8

Net Debt

326.2

344.5

Leverage (x)

1.8x

1.6x

($ in millions)

Q4 2018

Q4 2017

CCY
growth

FY 2018

FY 2017

CCY
growth

Brazil Region

Revenue

213.2

224.5

+11.4%

877.7

944.8

+5.9%

Adjusted EBITDA

29.5

29.6

14.4%

99.4

124.7

-10.6%

Adjusted EBITDA Margin

13.9%

13.2%

0.7 p.p.

11.3%

13.2%

-1.9 p.p.

Operating Income/(loss)

4.1

N.M.

1.4

13.7

-88.5%

Americas Region

Revenue

150.6

200.6

-5.7%

708.7

758.0

3.5%

Adjusted EBITDA

6.7

20.6

-66.6%

73.5

83.5

-8.9%

Adjusted EBITDA Margin

4.5%

10.3%

-5.8 p.p.

10.4%

11.0%

-0.6 p.p.

Operating Income/(loss)

7.3

3.1

N.M.

13.9

8.6

-53.4%

EMEA Region

Revenue

59.8

56.5

+9.3%

240.9

223.4

+2.7%

Adjusted EBITDA

2.8

3.2

-18.9%

19.5

14.8

+16.5%

Adjusted EBITDA Margin

4.7%

5.6%

-0.9 p.p.

8.1%

6.6%

+1.5 p.p.

Operating Income/(loss)

(1.4)

(1.2)

+27.1%

-

(13.6)

N.M.

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

For the year ended December 31,

For the three months
ended December 31,

($ in millions)

2016

2017

2018

2017

2018

Profit/(loss) from continuing operations

3.4

(13.6)

20.5

(8.9)

15.0

Net finance expense

107.8

93.5

55.6

24.7

(4.2)

Income tax expense

5.2

12.5

13.4

4.3

4.6

Depreciation and amortization

97.3

104.4

95.2

26.0

23.6

EBITDA (non-GAAP) (unaudited)

213.7

196.9

184.8

46.1

39.0

Restructuring costs ^(a)

33.7

16.8

-

6.5

-

Site relocation costs ^(b)

9.3

-

-

-

-

Contingent Value Instrument ^(c)

(41.7)

-

-

-

-

Other ^(d)

6.9

7.3

-

2.5

-

Total non-recurring items ^(*)

8.2

24.1

-

9.0

-

Adjusted EBITDA (non-GAAP) (unaudited)

221.9

221.0

184.8

55.1

39.0

(*) 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 can be summarized as demonstrated below:

a) 

Restructuring costs primarily included restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs for the year ended December 31, 2016 are compounded of two main concepts: i) investments to lower our variable cost structure, which is mostly labor and ii) investments to drive a more sustainable lower-cost and competitive operating model. Both were direct response to the exceptional and severe adverse macroeconomic conditions in key markets such as Spain, Argentina, Brazil, Mexico and Puerto Rico, which drove significant declines in volume. The restructuring program carried out in 2017 to adjust the indirect costs structure has been finalized in the fourth quarter of 2017. In 2018 we did not have any restructuring costs.
Restructuring costs for the three months and year ended December 31, 2017, primarily relate to the costs to adapt 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 in the year ended December 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. Site relocation costs incurred for the year ended December 31, 2016 are related to the 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. We have not invested in this program for the three months and year ended December 31, 2017 and 2018 as it was completed in 2016.

c)

On November 8, 2016 the CVI nominal value of ARS666.8 million, or $135.6 million, was terminated. As a result, during the fourth quarter we recognized a gain of $41.7 million in "Other gains" representing the principle amount of the CVI.

d)

Other non-recurring items for three months and year ended December 31, 2016 refer mainly to other costs with the sale of Morocco operation related to the accrual of the reserve in amount of $3.1 million as guarantee to the buyer for potential indemnity related to eventual liability assessed from the period before the sale. Other non-recurring items for three months and year ended December 31, 2017, mainly refer to consulting and other non-recurring costs. In 2018 we did not have any other non-recurring items.

Reconciliation of Adjusted Earnings to profit/(loss):

For the year ended December
31,

For the three
months ended
December 31,

($ in millions)

2016

2017

2018

2017

2018

Profit/(loss) for the period

3.4

(13.6)

20.5

(8.9)

15.0

Amortization of acquisition related intangible assets ^(a)

24.2

22.4

21.2

5.6

5.1

Restructuring costs ^{(b) (*)}

33.7

16.8

-

6.5

-

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

9.3

-

-

-

-

Other ^{(d) (*)}

6.9

7.3

-

2.5

-

Change in fair value of financial instruments ^(e)

(0.7)

(0.2)

-

(2.9)

-

Net foreign exchange gain/(loss)

21.1

23.4

28.8

19.3

(2.3)

Contingent Value Instrument ^(f)

(26.2)

-

-

-

-

Financial non-recurring ^(g)

-

17.7

-

-

-

Depreciation non-recurring ^(h)

-

2.8

-

-

-

Tax effect ⁽ⁱ⁾

(23.5)

(18.2)

(11.3)

(5.2)

(1.6)

Total of add-backs

44.8

72.0

38.7

25.8

1.2

Adjusted Earnings (non-GAAP) (unaudited) (j)

48.2

58.4

59.1

16.9

16.2

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

0.65

0.79

0.80

0.23

0.22

Adjusted Earnings attributable to Owners of the parent (non-
GAAP) (unaudited)

48.1

55.2

57.2

15.9

15.7

Adjusted Earnings per share attributable to Owners of the
parent (in U.S. dollars) (j) (unaudited)

0.65

0.75

0.77

0.21

0.21

(*) 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 can be summarized as demonstrated below:

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 primarily included restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs for the year ended December 31, 2016 are compounded of two main concepts: i) investments to lower our variable cost structure, which is mostly labor and ii) investments to drive a more sustainable lower-cost and competitive operating model. Both were direct response to the exceptional and severe adverse macroeconomic conditions in key markets such as Spain, Argentina, Brazil, Mexico and Puerto Rico, which drove significant declines in volume. The restructuring program carried out in 2017 to adjust the indirect costs structure has been finalized in the fourth quarter of 2017. In 2018 we did not have any restructuring costs.
Restructuring costs for the three months and year ended December 31, 2017, primarily relate to the costs to adapt 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 in the year ended December 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. Site relocation costs incurred for the year ended December 31, 2016 are related to the 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. We have not invested in this program for the three months and year ended December 31, 2017 and 2018 as it was completed in 2016.

d) 

Other non-recurring items for three months and year ended December 31, 2016 refer mainly to other costs with the sale of Morocco operation related to the accrual of the reserve in amount of $3.1 million as guarantee to the buyer for potential indemnity related to eventual liability assessed from the period before the sale. Other non-recurring items for three months and year ended December 31, 2017, mainly refer to consulting and other non-recurring costs. In 2018 we did not have any other non-recurring items.

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 statements of operations and for comparability, and those adjustments are added back to calculate Adjusted Earnings. In 2018 the loss is related to negative mark-to-market adjustments on certain hedge instruments and the amount was reclassified to finance costs.

f)

On November 8, 2016 the CVI nominal value of ARS666.8 million, or $135.6 million, was terminated. As a result, during the fourth quarter we recognized a gain of $41.7 million in "Other gains" representing the principle amount of the CVI.

g) 

Financial non-recurring relates to the costs incurred in the debt refinance process occurred in August 2017, which includes: (i) 2020 Senior Secured Notes call premium of $11.1 million and amortization of issuance costs of $4.9 million; (ii) Brazilian debentures due 2019 penalty fee of $0.7 million and remaining balance of the issuance cost of $1.0 million. In 2018 we did not have any non-recurring financial expenses.

h) 

Non-recurring depreciation relates to the provision for accelerated depreciation of fixed assets in Puerto Rico and Mexico, due to the natural disasters. In 2018 we did not have any non-recurring depreciation.

i) 

The tax effect represents the impact of the taxable adjustments based on tax nominal rate by country. For the year ended December 31, 2016, 2017 and 2018, the effective tax rate after moving non-recurring items was 37.3%, 34.4% and 30.5%, respectively. For the three months ended December 31, 2017 and 2018, the effective tax rate after moving non-recurring items was 36.0% and 31.4%, respectively.

j)

(**) Adjusted Earnings per share is calculated based on the weighted average number of ordinary shares outstanding (that exclude the treasury shares) of 73,909,056 as of December 31, 2016 and 2017 and 73,841,447 for three months ended December 31,2018, respectively.

As of December 31,

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

2016

2017

2018

Cash and cash equivalents

194.0

141.8

133.5

Debt:

   Senior Secured Notes

303.3

398.3

400.0

   Brazilian Debentures

156.6

21.1

14.7

   BNDES

71.4

50.4

24.0

   Finance Lease Payables

3.6

10.5

5.5

   Other Borrowings

-

6.0

15.5

Total Debt

534.9

486.3

459.8

Net Debt with third parties ⁽¹⁾ (unaudited)

340.9

344.5

326.2

  Adjusted EBITDA LTM ⁽²⁾ (non-GAAP) (unaudited)

221.9

221.0

184.8

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

1,6x

1.6x

1.8x

1)

2)

Adjusted EBITDA LTM (Last Twelve Months) is defined as EBITDA adjusted to exclude restructuring costs, site relocation costs and other items not related to our core results of operations.

Consolidated Statements of Operations for the Year Ended December 31, 2016, 2017 and 2018

($ in millions, except percentage changes)

For the year ended
December 31,

Change
(%)

Change
excluding
FX (%)

For the
year ended
December
31,

Change
(%)

Change
excluding
FX (%)

2016 ^(*)

2017

2018

Revenue

1,757.5

1,921.3

9.3

5.1

1,818.2

(5.4)

4.3

Other operating income

5.8

16.4

N.M.

N.M.

18.8

14.1

35.5

Other gains and own work capitalized ⁽¹⁾

41.8

0.4

(99.1)

(99.2)

0.2

(51.7)

(46.6)

Operating expenses:

Supplies

(65.6)

(74.9)

14.2

10.1

(70.8)

(5.5)

6.6

Employee benefit expenses

(1,309.9)

(1,429.1)

9.1

5.0

(1,365.2)

(4.5)

5.4

Depreciation

(46.4)

(49.2)

6.1

0.8

(36.6)

(25.7)

(19.8)

Amortization

(50.9)

(55.2)

8.4

3.3

(58.7)

6.3

15.6

Changes in trade provisions

(1.9)

(0.6)

(67.0)

(68.5)

(1.0)

64.3

102.2

Other operating expenses

(214.0)

(236.6)

10.6

5.3

(215.3)

(9.0)

0.5

Total operating expenses

(1,688.7)

(1,845.7)

9.3

5.0

(1,747.6)

(5.3)

4.4

Operating profit

116.4

92.4

(20.6)

(25.4)

89.5

(3.2)

5.9

Finance income ⁽³⁾

7.2

7.9

9.1

2.5

18.8

139.8

18.2

Finance costs ⁽¹⁾

(59.2)

(78.1)

32.0

28.1

(45.6)

(41.6)

(40.6)

Change in fair value of financial instruments

0.7

0.2

(67.2)

(66.0)

-

(100.0)

(100.0)

Net foreign exchange loss ⁽¹⁾

(56.5)

(23.4)

(58.5)

(61.6)

(28.8)

23.1

43.8

Net finance expense

(107.8)

(93.5)

(13.3)

(17.8)

(55.6)

(40.5)

(25.7)

Profit/(loss) before income tax

8.6

(1.0)

(112.0)

(110.1)

33.9

N.M.

N.M.

Income tax expense

(5.2)

(12.5)

141.0

144.1

(13.4)

7.0

11.9

Profit/(loss) from continuing operations

3.4

(13.6)

N.M.

N.M.

20.5

N.M.

N.M.

Discontinued operations:

Profit/(loss) from discontinued operations

(3.2)

-

(100.0)

(100.0)

-

N.M.

N.M.

Profit/(loss) for the year

0.2

(13.6)

N.M.

N.M.

20.5

N.M.

N.M.

Profit/(loss) attributable to:

Owners of the parent

0.1

(16.8)

N.M.

N.M.

18.5

N.M.

N.M.

Non-controlling interest

0.1

3.2

N.M.

N.M.

1.9

(39.6)

(26.5)

Profit/(loss) for the year

0.2

(13.6)

N.M.

N.M.

20.5

N.M.

N.M.

Other financial data:

EBITDA ⁽²⁾ (unaudited)

213.7

196.9

(7.9)

(13.0)

184.8

(6.2)

2.2

Adjusted EBITDA ⁽²⁾ (unaudited)

221.9

221.0

(0.4)

(4.7)

184.8

(16.4)

(9.2)

(1) The year ended December 31, 2016 contains the impacts of the CVI termination. The reversal of the principal amount of $41.7 million was recognized in "Other gains and own work capitalized", the interest reversal of $19.9 million was recognized in "Finance costs" and the loss of $35.4 million on the conversion of Argentine pesos to U.S. dollars was recognized in "Net foreign exchange loss".

(2) For the reconciliation of these non-GAAP measures to the closest comparable IFRS measure, see section "Summary Consolidated Historical Financial Information - Reconciliation of EBITDA and Adjusted EBITDA to profit/(loss)".

(3) The year ended December 31, 2018 contains a positive impact of $10,7 million due to the application of the IAS 29 Financial Reporting in Hyperinflationary Economies in Argentina. This impact is mainly explained by the effects of monetary correction of the goodwill generated on December 1, 2012 from the acquisition of the Customer Relationship Management ("CRM") business from Telefónica, S.A;

(*) Exclude discontinued operations - Morocco.

N.M. means not meaningful

Consolidated Statements of Operations for the Three Months Ended December 31, 2017 and 2018

($ in millions, except percentage changes)

For the three months ended
December 31,

Change (%)

Change
excluding FX
(%)

2017

2018

Revenue 

478.3

421.8

(11.8)

4.4

Other operating income

2.6

4.2

64.5

72.2

Other gains and own work capitalized ⁽¹⁾

0.3

0.2

(48.4)

(40.7)

Operating expenses:

Supplies

(19.8)

(16.6)

(16.4)

(2.0)

Employee benefit expenses

(359.1)

(318.9)

(11.2)

6.1

Depreciation

(11.9)

(4.7)

(60.3)

(55.8)

Amortization

(14.1)

(18.8)

33.5

52.8

Changes in trade provisions

(0.6)

(0.6)

1.7

16.7

Other operating expenses

(55.6)

(51.1)

(8.0)

10.0

Total operating expenses

(461.1)

(410.8)

(10.9)

6.0

Operating profit

20.1

15.4

(23.2)

(22.1)

Finance income ⁽²⁾

1.8

16.7

N.M.

N.M.

Finance costs

(10.1)

(14.7)

45.3

37.6

Change in fair value of financial instruments

2.9

-

(100.0)

(100.0)

Net foreign exchange loss

(19.3)

2.3

N.M.

N.M.

Net finance expense

(24.7)

4.2

N.M.

N.M.

(Loss)/profit before income tax

(4.6)

19.6

N.M.

N.M.

Income tax expense

(4.3)

(4.6)

6.7

22.7

(Loss)/profit for the period

(8.9)

15.0

N.M.

N.M.

(Loss)/profit attributable to:

Owners of the parent

(9.9)

14.6

N.M.

N.M.

Non-controlling interest

1.0

0.5

(49.0)

(40.4)

(Loss)/profit for the period

(8.9)

15.0

N.M.

N.M.

Other financial data:

EBITDA ⁽¹⁾ (unaudited)

46.1

39.0

(15.5)

(8.2)

Adjusted EBITDA ⁽¹⁾ (unaudited)

55.1

39.0

(29.3)

(24.7)

(1) For the reconciliation of these non-GAAP measures to the closest comparable IFRS measure, see section "Summary Consolidated Historical Financial Information - Reconciliation of EBITDA and Adjusted EBITDA to profit/(loss)".

(2) The year ended December 31, 2018 contains a positive one off impact of $10,7 million due to the application of the IAS 29 Financial Reporting in Hyperinflationary Economies in Argentina. This impact is mainly explained by the effects of monetary correction of the goodwill generated on December 1, 2012 from the acquisition of the Customer Relationship Management ("CRM") business from Telefónica, S.A;

N.M. means not meaningful

ATENTO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2017 and 2018

(In thousands of U.S. dollars, unless otherwise indicated)

December 31,

ASSETS

2017

2018

NON-CURRENT ASSETS

764,127

716,886

Intangible assets

230,104

211,202

Goodwill

153,144

154,989

Property, plant and equipment

152,195

123,940

Non-current financial assets

90,076

95,531

Trade and other receivables

21,677

19,148

Other non-current financial assets

60,222

65,070

Derivative financial instruments

8,177

11,313

Other taxes receivable

7,282

6,061

Deferred tax assets

131,326

125,163

CURRENT ASSETS

566,178

496,467

Trade and other receivables

410,534

342,075

Trade and other receivables

388,565

315,654

Current income tax receivable

21,969

26,421

Other taxes receivable

12,072

19,975

Other current financial assets

1,810

891

Cash and cash equivalents

141,762

133,526

TOTAL ASSETS

1,330,305

1,213,353

ATENTO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2017 and 2018

(In thousands of U.S. dollars, unless otherwise indicated)

December 31,

EQUITY AND LIABILITIES

2017

2018

TOTAL EQUITY

377,839

340,092

EQUITY ATTRIBUTABLE TO:

NON-CONTROLLING INTEREST

9,476

8,541

OWNERS OF THE PARENT COMPANY

368,363

331,551

Share capital

48

49

Reserve for acquisition of non-controlling interest

(23,531)

(23,531)

Share premium

639,435

615,288

Treasury shares

-

(8,178)

Retained losses

(94,535)

(16,325)

Translation differences

(170,063)

(257,122)

Hedge accounting effects

9,594

8,404

Stock-based compensation

7,415

12,966

NON-CURRENT LIABILITIES

582,870

528,869

Deferred tax liabilities

43,942

30,221

Debt with third parties

439,731

408,426

Derivative financial instruments

5,140

682

Provisions and contingencies

61,186

51,174

Non-trade payables

8,094

14,391

Option for the acquisition of non-controlling interest

23,752

20,830

Other taxes payable

1,025

3,145

CURRENT LIABILITIES

369,596

344,392

Debt with third parties

46,560

51,342

Derivative financial instruments

1,212

-

Trade and other payables

302,756

274,000

Trade payables

94,078

76,912

Income tax payables

8,058

10,615

Other taxes payables

86,166

78,511

Other non-trade payables

114,454

107,962

Provisions and contingencies

19,068

19,050

TOTAL EQUITY AND LIABILITIES

1,330,305

1,213,353

For the three months
ended December 31,

For the year ended
December 31,

($ in millions)

2018

2017

2018

2017

Operating Cash Flow ⁽¹⁾

55.7

57.0

150.4

162.7

Cash Capex ⁽²⁾

-2.8

-25.0

-41.2

-61.2

Income Tax Paid

-7.8

-5.7

-20.4

-20.6

Free Cash Flow before interest and acquisitions

45.2

26.3

88.8

81.0

Acquisitions

0.0

-1.5

0.0

-29.8

Net Financial Expenses ⁽³⁾

-4.2

-8.1

-48.8

-27.5

Free Cash Flow (FCF)

41.0

16.7

40.0

23.7