Atento Reports Fiscal 2020 Second Quarter Results

Rhea-AI Summary

Atento S.A. (NYSE: ATTO) reported Q2 2020 results, revealing a 12.1% revenue decline to $314.5 million due to Covid-19 impacts. Despite this, run-rate EBITDA surged 31.9% year-over-year, with a margin of 14.3%. The company maintains financial liquidity with cash reserves of $207.2 million and Free Cash Flow of $44.1 million. A new cost-saving program targets $80 million in annual savings. However, Net Income fell to -$18.3 million from -$6.8 million, reflecting ongoing challenges. The reverse share split was executed to comply with NYSE rules.

Positive

• Run-rate EBITDA increased 31.9% YoY, with margin expanding 360 bps to 14.3%.
• Cash position rose to $207.2 million, enhancing liquidity.
• Free Cash Flow improved to $44.1 million, doubling operating cash flow.
• New cost-saving program expected to yield $80 million in annual savings.

Negative

• Total revenue decreased by 12.1% YoY, primarily due to reduced revenues from Telefónica.
• Net Income dropped to -$18.3 million, a significant decline from -$6.8 million YoY.
• Consolidated total EBITDA fell 33% YoY to $22.2 million, with EBITDA margin down to 7.1%.

NEW YORK, Aug. 5, 2020 /PRNewswire/ -- Atento S.A. (NYSE: ATTO) ("Atento" or the "Company"), the largest provider of customer-relationship management and business-process outsourcing services in Latin America, and among the top five providers globally, today announced its second quarter operating and financial results for the period ending June 30, 2020. All comparisons in this announcement are year-over-year (YoY) and in constant-currency (CCY), unless noted otherwise, and may differ from the corresponding 6-K filing due to certain intra-group eliminations.

Q2 2020 highlights

Rapid Covid-19 response continues protecting stakeholders and improves delivery capacity to 97.5% 60% of agents working from home, with call centers operating safely at full operating capacity Approximately 80% of agents are now recruited, onboarded and initially trained online Company continues helping assure continuity of essential services, through remote and secure customer services Strong Recovery Intra-Quarter with Three Horizon Plan delivering growth via targeted fast-growing verticals Higher sales to Born-Digital, Tech and Media & Entertainment companies; 20 new clients, including US companies Multisector sales up 5.2% YoY and 7.7% YTD, twice the rate of the market, with mix increasing 540 bps to 68.2% of total revenue in 6M 2020 Run-rate EBITDA increases 31.9% YoY and 35.8% YTD, with corresponding margin expanding 330 bps to 14.7% in Q2 and 360 bps to 14.3% YTD Cash position rises to $207.2 million, strengthening financial liquidity Cash position increases 9.0% (ex revolvers) vs June 30, 2019 on working capital improvements Free Cash Flow of $44.1 million, with $51.0 million in Operating Cash Flow Leverage under control, even under adverse operating and FX scenarios, with Net Debt-to-EBITDA at 4.0x Operational improvements accelerated under New Cost Savings program New program targets $80 million in annual savings, with $47 million already implemented Further reduction of cost structure through right-sizing of operations, as well as implementation of shared services,  ZBB and WAHA model New shareholders fully incorporated into Atento team Significant support of Three Horizon Plan Near-term priorities are reducing cost structure, refinancing debt and improving capital structure to unlock value for equity holders

 

Summarized Financials

($ in millions except EPS)	Q2 2020	Q2 2019	CCY Growth (1)	YTD 2020	YTD 2019	CCY Growth (1)
Income Statement
Revenue	314.5	441.1	-12.1%	689.9	877.8	-7.3%
EBITDA (2)	22.2	42.6	-33.0%	63.0	84.5	-10.2%
EBITDA Margin	7.1%	9.6%	-2.6 p.p.	9.1%	9.6%	-0.5 p.p.
Net Income (3)	(18.3)	(6.8)	N.M	(25.8)	(52.2)	48.5%
Recurring Net Income (2)	(10.2)	(7.0)	N.M	(13.4)	(12.5)	40.6%
Earnings Per Share (EPS) ((2) (3)	($0.26)	($0.09)	N.M	($0.36)	($0.71)	47.7%
Recurring Earnings Per Share  (2)	($0.14)	($0.09)	N.M	($0.19)	($0.16)	45.6%
Earnings Per Share in the reverse split basis ((2) (3) (5))	($1.30)	($0.47)	N.M	($1.82)	($3.58)	47.7%
Recurring EPS in the reverse split basis (2) (5)	($0.72)	($0.47)	N.M	($0.95)	($0.81)	45.6%
Cash flow, Debt and Leverage
Net Cash Used In Operating Activities	53.4	26.5		57.7	(13.3)
Cash and Cash Equivalents	207.2	116.6
Net Debt (4)	525.9	571.5
Net Leverage (4)	4.0x	3.3x

 

(1)	Unless otherwise noted, all results are for Q2 2020; all revenue growth rates are on a constant currency basis, year-over-year.
(2)	EBITDA, Recurring Net Income/Recurring Earnings per Share (EPS) are Non-GAAP measures.
(3)	Reported Net Income and Earnings per Share (EPS) include the impact of non-cash foreign exchange gains/losses on intercompany balances.
(4)	Includes IFRS 16 impact in Net Debt and Leverage
(5)	Earnings per share and Recurring Earnings per share in the reverse split basis is calculated by applying the ratio of conversion of 5.027090466672970 used in the reverse split  into the previous weighted average number of ordinary shares outstanding

Message from the CEO and CFO

Carlos López-Abadía, Atento's Chief Executive Officer, commented, "Results in this quarter showed significant and progressive improvement. We exited the quarter with run-rate EBITDA and volume levels consistent with those in June 2019, with the severe impact of the Covid-19 pandemic now behind us. Despite substantially weak operational and economic conditions earlier in the quarter, we continued winning new clients, including leading US brands, in the high-growth Born-Digital and Tech verticals and, more recently, in the Media & Entertainment industry. Clients in these and other higher margin sectors drove Atento's Multisector revenues 5.2% higher, helping extend our run-rate EBITDA growth with a 29% year-on-year increase, with the corresponding margin expanding 360 basis points to 14.3% on a six-month basis. These clients have been beneficiaries of shifts in spending patterns during the pandemic, many of which are likely to be permanent changes.

At the same time, we continued improving working capital - doubling operating cash flow and generating $44.1 million in free cash flow during the quarter - and launched a new expense reduction program to substantially reduce Atento's cost structure. This includes rightsizing more of our operations, by shifting more of them to the WAHA model.

Economic conditions will undoubtedly remain challenging for the rest of the year, as the scope, duration and impact of the pandemic remains largely unknown. Nevertheless, we are confident in our ability to effectively address new challenges, as well as seize opportunities, with over half of the committed and collaborative employees who make up One Atento either working from home or at safe, reconfigured call centers. Given Atento's recovering volumes, renewed sales growth, improving run-rate profitability, sound financial liquidity, as well as our Company's stronger shareholder and board structures, we expect to continue advancing our Three Horizon transformation plan to achieve consistently higher levels of profitable growth."

José Azevedo, Atento's Chief Financial Officer said, "Stronger management of our working capital combined with drawing down Atento's remaining credit lines substantially reinforced financial liquidity while we drove operating and free cash flow markedly higher during the second quarter.

At the same time, we have been implementing a new cost savings program to augment and accelerate operational improvements under the Three Horizon Plan. We are successfully reducing fixed and variable costs, including administrative expenses, to reduce Atento's cost structure and drive operating leverage as economic and business environments improve in our markets. Our current efforts to become more cost efficient, combined with a zero based budgeting system that will be fully effective by year-end, are expected to result in $80 million of annualized cost savings beginning next year, of which $47 million has already been achieved on a run-rate basis.

Under our two-pronged financial strategy, we are now turning more of our attention toward capital efficiency. We have begun the process to refinance the $500 million 2022 bond, with the aim of improving Atento's capital structure in a way that will better align it with our ambitious growth strategy and help unlock more shareholder value."

Second Quarter Consolidated Financial Results

Atento's financial liquidity strengthened further during the second quarter, with cash and cash equivalents increasing 27.2% sequentially to $207.2 million, while the Three Horizon Plan drove underlying performance levels higher. Continued improvements in working capital led to strong Free Cash Flow of $44.1 million in the quarter. Due to the Company's rapid response to disruptions caused by the Covid-19 pandemic, delivery capacity has increased to 97.5%, with most call centers operational and 60% of agents working under the WAHA¹ model.

Multisector sales increased 5.2% to $218.0 million, despite an adverse economic and business environment during April and May, evidencing the effectiveness of Atento's Three Horizon Plan. The increase in consolidated Multisector revenue during the quarter was driven by an 11.2% increase in Brazil, Atento's flagship operation, while a 54% increase in US Multisector sales helped offset a decline in this category in Argentina and Peru,  resulting in a 1.6% decrease for the Americas. Like Brazil, EMEA multisector revenues also continued to expand, rising 3.2% in the quarter.

Consolidated total revenue declined 12.1% to $314.5 million, mainly reflecting lower revenues from Telefónica (TEF). TEF revenues decreased 38.0% due to a combination of (i) the discontinuation of unprofitable programs in Brazil since the fourth quarter of 2019; and (ii) lower volumes due to Covid-19's impact in all regions during April and part of May. Based on recent demand, the Company expects volumes to recover to pre-pandemic levels during the second half of 2020.

Atento's total EBITDA in Q2 2020 decreased 33% year-on-year to $22.2 million, with the corresponding margin contracting 260 basis points to 7.1%. Of this amount, $14.8 million, or 70%, was generated in June, when volumes reached near normal levels. On a run-rate basis, excluding the impact of Covid-19, total EBITDA increased 31.9% compared to normalized EBITDA in second quarter 2019.  On a six-month basis, the run rate EBITDA margin expanded 360 basis points to 14.3%. The underlying improvement in the Company's EBITDA was due to continued improvements in the client and service mix as well as to additional operational improvements under a new cost reduction program, which targets $80 million in annualized savings, with $47 million of these savings measures already in effect as of June 30.

Recurring Net Income decreased from a $7.0 million loss in Q2 2019 to $10.2 loss in Q2 2020, with recurring EPS of -$0.14 in the latter quarter. Excluding the impact of Covid-19 and costs related to drawing down credit lines, Recurring EPS was +$0.15 in Q2 2020.

Segment Reporting

Brazil

($ in millions)	Q2 2020	Q2 2019	CCY growth	YTD 2020	YTD 2019	CCY growth
Brazil Region
Revenue	135.2	210.4	-11.9%	307.3	428.7	-9.2%
Adjusted EBITDA	10.6	26.5	-45.2%	35.0	54.3	-18.0%
Adjusted EBITDA Margin	7.8%	12.6%	-4.8 p.p.	11.4%	12.7%	-1.3 p.p.
Operating Income/(loss)	(8.0)	(2.9)	N.M	(16.2)	(8.9)	129.8%

In Brazil, Multisector sales increased 11.2% YoY, while TEF sales decreased 51.5%, leading to an 11.9% decrease in total revenues.

On a year-to-date basis, Multisector sales as a percentage of Brazil's total revenue expanded 680 basis points, primarily due to higher sales to Born-Digital clients acquired during 2019 and new clients in 2020. Among new clients this year is Riot Games, a US-based company that develops and publishes popular video games, such as League of Legends. In May, Atento  signed a partnership agreement with Riot Games to provide services to Brazilian game players. Atento was selected because of its ability to create Customer Experience environments consistent with Riot Games' culture and to hire, manage and maintain CX specialists with appropriate profiles and gaming experience.

The decrease in TEF sales in Brazil during the second quarter was mainly due to the discontinuation of unprofitable programs since the fourth quarter of 2019 and to the pandemic's impact on volumes, mostly during April and part of May, as the company decided to focus its delivery capacity to the Multisector clients.

Brazil's reported EBITDA decreased 45.2% to $10.6 million, with the EBITDA margin contracting 480 basis points to 7.8%, mainly due to the Covid-19 impact.

Americas Region

($ in millions)	Q2 2020	Q2 2019	CCY growth	YTD 2020	YTD 2019	CCY growth
Americas Region
Revenue	129.9	171.8	-11.4%	277.3	333.5	-5.2%
Adjusted EBITDA	14.5	18.6	-10.7%	28.2	32.7	-5.2%
Adjusted EBITDA Margin	11.2%	10.8%	0.3 p.p.	10.2%	9.8%	0.4 p.p.
Operating Income/(loss)	(0.3)	0.4	N.M	(7.1)	(7.2)	24.6%

Second quarter Americas revenue decreased 11.4% to $129.9 million. In total, Multisector sales decreased 1.6% during the quarter, with an above 50% growth in US Multisector clients helping offset lower volumes in Peru and Argentina, countries with stricter lockdown rules and highly impacted by Covid-19. As a percentage of the region's revenue, Multisector sales expanded 360 basis points, compared to the first six months of 2019. Lower volumes resulting from the pandemic also mainly accounted for the 31.7% decrease in TEF revenues in the region.

Reported EBITDA in the Americas decreased 10.7% to $14.5 million on lower volumes during the second quarter, while the corresponding margin expanded 30 basis points to 11.2%, despite the impact of Covid-19, due to a better revenue mix and cost management.

EMEA Region

($ in millions)	Q2 2020	Q2 2019	CCY growth	YTD 2020	YTD 2019	CCY growth
EMEA Region
Revenue	50.5	61.2	-15.7%	108.0	123.3	-10.2%
Adjusted EBITDA	(0.3)	5.5	N.M	3.5	11.8	-69.8%
Adjusted EBITDA Margin	-0.5%	9.0%	-9.5 p.p.	3.2%	9.6%	-6.4 p.p.
Operating Income/(loss)	(3.4)	4.2	N.M	(3.9)	0.2	N.M

Multisector sales continued to expand in the region, with the 3.2% growth in the quarter helping to further diversify revenues. On a six-month basis, Multisector sales expanded 840 basis points year-over-year to 48.3% of EMEA revenue. TEF sales were impacted by lower volumes, mainly due to Covid-19, leading to a 28.1% decrease, resulting in a 15.7% year-over-year decline in the region's overall revenue.

EMEA's second quarter EBITDA decreased to slightly below the breakeven point, from $5.5 million in the same quarter of last year. At the end of the quarter, the region's EBITDA margin was negative 0.5% versus a positive 9.0% in the comparable 2019 period, mostly due to the impact of Covid-19.

Cash Flow and Capital Structure

($ in millions)	Q2 2020	Q2 2019	YTD 2020	YTD 2019
Consolidated Cash Flow Statement
Net Cash (used in) from Operating activities	53.4	26.5	57.7	-13.3
Net Cash used in Investing activities	-7.3	-21.4	-18.6	-38.1
Net Cash provided by Financing activities	-1.6	32.0	57.2	33.8
Net (increase/decrease) in cash and cash equivalents	44.5	37.1	96.3	-17.5

Additional operational improvements under the transformation plan further enhanced Atento's working capital, resulting in  higher operating and free cash flows, with the former increasing twofold to $51.1 million and the latter turning positive to $44.1 million in the second quarter. During the quarter, the Company obtained another $10 million in one-off overdue collections, bringing the total to $30 million year-to-date. During the first six months of the year, Atento's DSO were reduced by approximately 4 days, while DPO improved by circa 13 days, due to strengthened collections and procurement policies.

Cash capex was equivalent to 2.7% of revenues during the first six months of 2020, and includes costs associated with shifting a portion of Atento's call center employees to the WAHA model. Owing to the impact of the Covid-19 pandemic on Atento's markets, all non-essential capital expenditures remained suspended mainly in April and May.

At June 30, 2020, cash and cash equivalents totaled $207.2 million, up 9.0% when excluding drawdowns of $80 million from existing credit lines during the first six months of 2020. Net debt was $525.9 million, which includes $129.6 million related to IFRS16. Atento's total debt has an average maturity of 2.1 years and an average LTM cost of 7.0%. At the end of the second quarter, the LTM net debt-to-EBITDA ratio was 4.0 times, which is a controllable level due to the Company's strong financial liquidity and the normalization of EBITDA generation in June. The Company has initiated the process to refinance the $500 million 2022 bond, with the aim of extending the maturity of the debt and improving Atento's capital structure.

($ in millions) as of June 30, 2020	Maturity	Interest Rate	Outstanding Balance 2Q20
Indebtness
Senior Secured Notes	2022	6.125%	503.8
Super Senior Credit Facility	2020	5.223%	50.7
Other Credit Facilities	2020	CDI + 2.40%	35.9
Other borrowings and leases	2023	Variable	12.4
BNDES (BRL)	2022	TJLP + 2.0%	0.7
Debt with third parties			603.5
Leasing (IFRS16)			129.6
Gross Debt (third parties + IFRS16)			733.1
Cash and Cash Equivalents			207.2
Net Debt			525.9

Update On Covid-19 Response: Company Continues Effectively Executing Transformation Plan and Preparing to Capture Post-crisis Market Opportunities

As a socially responsible company, Atento remains fully committed to helping ensure that its remote and secure customer services remain available to people and businesses in the 13 countries where it operates. This commitment includes maintaining robust health and safety protocols and measures to protect employees at Atento facilities, to help ensure business continuity for the duration of the Covid-19 pandemic.

Currently, Atento has over 64,000 work-at-home agents (WAHA), or approximately 60% of its call center employees. For agents working at Atento call centers, most of which are operational, individual workstations are still kept at safe distances and personal work equipment (individual headset, keyboard, mouse, etc.) remains available. With operating capacity at 97.5%, the Company has a broad capacity to meet the needs of all clients. The transition to a WAHA model was facilitated by the digital transformation process underway, since 2019, under Atento's Three Horizon Transformation Plan, which has included re-skilling as well as digital recruiting, onboarding and training.

This model as well as other enhanced digital capabilities are also allowing the Company to capture medium- and long-term CRM and BPO opportunities arising from dramatic shifts in consumer behaviors and related changes being implemented by emerging and established companies seeking to attract and retain more customers in Latin America, the US and Europe. The growing strength of Atento's digital capabilities, evolving portfolio of Next Generation Services and journey orchestration, coupled with accelerated operational improvements that are resulting in a more competitive cost structure, are allowing the Company to continue leading Next Generation Customer Experience in the future.

Share Repurchase Program

Under a $30 million 12-month share buyback program approved by Atento's Board of Directors earlier in the year, the Company purchased $0.4 million of shares during the second quarter.

Reverse Share Split

On July 28, 2020, Atento announced that the Company's shareholders had approved the conversion of the entire share capital of 75,406,357 ordinary shares into 15,000,000 ordinary shares, without nominal value, using a conversion ratio of 5.027090466672970, effective after trading hours on July 29, 2020. Atento's ordinary shares started trading on a split-adjusted basis on the NYSE at the open of trading on July 30, 2020.

The Company proposed to effect the reverse share split in response to a notification received from the NYSE that its ordinary shares did not meet the minimum price threshold average closing price of $1.00 per share over a consecutive 30-trading day period. Although Atento's ordinary shares had resumed trading above this threshold, the reverse share split is intended to provide a structural solution to allow the Company to remain compliant with NYSE's listing rules.

Awards and Recognitions

Atento was recognized recently by the Everest Group as one of the leading companies in Customer Experience Management in its annual PEAK Matrix® Assessment 2020. Among Major Contenders, Atento was the only company rated a Star Performer, a title conferred to providers that demonstrate the most improvement over time on the Matrix. Atento stood out for promoting a culture of co-innovation, offering integrated multi-channel capabilities based on Artificial Intelligence, IoT (Internet of Things) and RPA (Robotic Process Automation), among other digital strengths, and for building an increasingly satisfying customer experience. The Star Performer rating reflects the competitiveness of Atento's offerings in the CRM/BPO market, where companies increasingly expect their service providers to exhibit proactiveness and drive innovation.

Conference Call

The Company will host a conference call and webcast on Thursday, August 6, 2020 at 11:00 am ET to discuss its financial results. The conference call can be accessed by dialing: USA: +1 (412) 717-9627; UK: (+44) 20 3795 9972; Brazil: (+55) 11 3181-8565; or Spain: (+34) 91 038 9593. It can also be accessed by web phone  (Click here)  No passcode is required. Individuals who dial in will be asked to identify themselves and their affiliations. The live webcast of the conference call will be available on Atento's Investor Relations website at investors.atento.com. A web-based archive of the conference call will also be available at the above website.

About Atento

Atento is the largest provider of customer relationship management and business process outsourcing (CRM BPO) services in Latin America, and among the top five providers globally, based on revenues. Atento is also a leading provider of nearshoring CRM/BPO services to companies that carry out their activities in the United States. Since 1999, the company has developed its business model in 13 countries where it employs 150,000 people. Atento has over 400 clients to whom it offers a wide range of CRM/BPO services through multiple channels. Atento's clients are mostly leading multinational corporations in sectors such as telecommunications, banking and financial services, health, retail and public administrations, among others. In 2019, Atento was named one of the World's 25 Best Multinational Workplaces and one of the Best Multinationals to Work for in Latin America by Great Place to Work®. Atento is also the world's first CRM company to be ISO 56002 certified in Innovation Management. Atento's shares trade under the symbol ATTO on the New York Stock Exchange (NYSE). For more information visit www.atento.com.

Investor Relations  Shay Chor  + 55 11 3293-5926 shay.chor@atento.com

Investor Relations   Fernando Schneider + 55 11 3779-8119 fernando.schneider@atento.com

Media Relations  Pablo Sánchez Pérez +34 670031347 pablo.sanchez@atento.com

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "continue" or similar terminology. These statements reflect only Atento's current expectations and are not guarantees of future performance or results. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential impacts of the Covid-19 pandemic on our business operations, financial results and financial position and on the world economy. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition in Atento's highly competitive industries; increases in the cost of voice and data services or significant interruptions in these services; Atento's ability to keep pace with its clients' needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; the effects of global economic trends on the businesses of Atento's clients; the non-exclusive nature of Atento's client contracts and the absence of revenue commitments; security and privacy breaches of the systems Atento uses to protect personal data; the cost of pending and future litigation; the cost of defending Atento against intellectual property infringement claims; extensive regulation affecting many of Atento's businesses; Atento's ability to protect its proprietary information or technology; service interruptions to Atento's data and operation centers; Atento's ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where Atento operates; changes in foreign exchange rates; Atento's ability to complete future acquisitions and integrate or achieve the objectives of its recent and future acquisitions; future impairments of our substantial goodwill, intangible assets, or other long-lived assets; and Atento's ability to recover consumer receivables on behalf of its clients. In addition, Atento is subject to risks related to its level of indebtedness. Such risks include Atento's ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; Atento's ability to comply with covenants contained in its debt instruments; the ability to obtain additional financing; the incurrence of significant additional indebtedness by Atento and its subsidiaries; and the ability of Atento's lenders to fulfill their lending commitments. Atento is also subject to other risk factors described in documents filed by the company with the United States Securities and Exchange Commission. 

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

¹ Work-at-Home Agent

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SOURCE Atento S.A.

FAQ

What are Atento's Q2 2020 earnings results?

Atento reported a Q2 2020 revenue of $314.5 million, a 12.1% decrease YoY, with a net loss of $18.3 million.

How did Atento's EBITDA perform in Q2 2020?

Atento's run-rate EBITDA increased 31.9% year-over-year to $22.2 million, with a margin of 14.3%.

What is the cash position of Atento as of Q2 2020?

As of Q2 2020, Atento's cash and cash equivalents stood at $207.2 million.

Did Atento implement a reverse share split recently?

Yes, Atento executed a reverse share split on July 29, 2020, to comply with NYSE listing rules.

What is Atento's strategy for cost savings?

Atento has launched a new program targeting $80 million in annual savings, with $47 million already implemented.