Atento S.A.
Q2 2017 Earnings Call Transcript

Published: 15 Aug 2017

[Operator:]

Greetings. And welcome to the Atento Second Quarter 2017 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shay Chor, Corporate Treasurer and Investor Relations Director. Thank you, you may begin.

[Shay Chor:]

Thank you, operator. Please turn to page two. Welcome to our 2017 fiscal second quarter earnings call. I have with me today are Alejandro Reynal, Atento's Chief Executive Officer; and Mauricio Montilha, Atento's Chief Financial Officer. Alejandro will begin with a brief review of our performance and strategy, and then Mauricio will review our financial results and guidance for fiscal 2017 in more detail. Afterwards, we'll open the call for questions. Following Q&A, Alejandro will have a few closing remarks. Before proceeding, let me just mention that certain comments made on this call will contain financial information that has been prepared under International Financial Reporting Standards. This financial information is un-audited. In addition, this call may contain announcements that constitute forward-looking statements, which are not guarantees of 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 in the second page of our earnings presentation. Our public filings 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. In addition, our revenue growth rates for our consolidated results in EMEA segment exclude the impact of our divestiture of Morocco, which occurred in the third quarter of fiscal 2017. Now, let me turn the call over to Alejandro.

[Alejandro Reynal:]

Thank you, Shay, and good morning, everyone. Thank you for joining us today. Please turn to page 4. I am glad to share with you that we continue to deliver solid top line growth with stable margins while enhancing our capital structure through the recently completed debt refinancing. Revenues increased 2.4% in the quarter, driven by a strong growth in multi sector mainly driven by Brazil and the Americas regions. We saw a very solid revenue growth of 8.5% for multi sector clients mainly in Brazil which represented a revenue growth of 11.2%. Also positive in the quarter, our mix of revenue from higher value ad solutions increased by 330 basis points to 26.3%. Revenues from Telefonica are stable in key markets, aligned with first quarter 2017 volumes and their revised master service agreement targets. Following our growth strategy, ongoing focus on CRM/BPO digital services, we launched our new Atento digital platform, a newly created global business integrating all the company's digital assets to generate additional value for clients and drive growth across verticals and geographies. We have also signed a strategic partnership and acquisition of a minority stake in Keepcon, a leading provider of technology-based solutions for monitoring and analysis interactions through natural language processing, artificial intelligence, and analytics. Our adjusted EBITDA margins were 11.1% in the quarter while our year-to-date margins were 11.3%, in line with our full year guidance driven by our continuous focus on disciplined management of our operations and an improved business mix. Adjusted earnings per share in the second quarter were flat at $0.13. On a year-to-date basis, adjusted EPS increased by $0.04. We have concluded our debt refinancing with issuance of new $400 million senior secured notes due in 2022. The enhanced capital structure will lead to higher flexibility and lower cost of debt. More specifically, we estimate debt refinance to reduce interest expenses by $10 million to $15 million per annum as of 2018. With our performance through the first half of the year, we are revising our guidance for 2017, highlighted by an improved revenue growth of 5% to 8% compared to 1% to 5% in the previous guidance. Please turn to page 5. We continue to be very focused on executing our growth strategy which consists of consolidating our leadership in the Core Voice business, continuing to grow into higher value add solutions, and accelerating mainstream digital offer. A few particular accomplishments in the quarter include

[Mauricio Montilha:]

Thank you, Alejandro. Please turn to slide number 9. As a reminder, I will be referring to growth rates on a constant currency and year-over-year basis, unless noted otherwise. In addition, as a result of our divestiture of Morocco in September of 2016, this business is now in discontinued operations and the revenue growth rates for consolidated and EMEA results have been adjusted to reflect it. We continue to present a positive revenue momentum with solid top line growth and stable margins, while we enhanced our capital structure through our debt refinancing Looking at our consolidated results, revenue increased by 2.4% driven by Brazil and Americas, with broad based gains of 8.5% in our multisector business, aided by new service and new client wins in our regions. Our diversification strategy continues to progress well. The mix of revenue from multisector clients increased 3.9 percentage points 60.5%. Revenues for Telefonica remained stable sequentially and decreases 5.8% year-over-year driven by volume reduction primarily in Brazil, Mexico and Argentina. The mix of revenue for higher value-add solutions increased to 3.3 percentage point to 26.3% in the quarter. As we had significant new clients win in the period with addition of around 5,000 new workstations, mainly from financial service and other clients. Our margins remained stable in Q2 versus a last quarter, while decreases 1 percentage point versus last year, reflecting the run pop up new services and clients and adjustments to cost structure to lower one level particularly to Telefonica softness in some geographies. Adjusted EPS was flat to $0.13 and on a year-to-date basis increased by $0.04 driven mostly by lower net interest expense which was partially offset by higher effective tax rate. Our free cash flow before interest and acquisition was a positive $15.4 million and we continue to de-leverage even after investing in add-on acquisition taking all leverage to 1.8x versus 2x in the same period of 2016. Please turn to slide 10 where we are going to start looking at our segment. In Brazil, we are encouraged by the improving growth profile, the clients and GDP continue to moderate and consumer confidence strengthened. Revenue increased 5.8% driven by strong 11.2% growth in multisector. Revenues from Telefonica were stable versus Q1 2017 and Q4 2016, and declined at 4.4% versus last year. We continue to make significant progress with revenue diversification. Our mix of revenue for multisector increased to 3.3 percentage point to 68.8%, while the mix of higher value-added solutions reached at 36.3% of revenues. Adjusted EBITDA margin declined by 1.1 percentage point to 12.3% while year-to-date margins of 13.4% remained stable versus last year. The decline in margins was mainly driven by the ramp up from new only acquired client and service. Please turn to slide 11. On Americas, the revenues from multisector grew 6.5% supported by growth in Argentina, Colombia, Chile and our US Nearshore business. Offset by 8.1% decline at Telefonica on the back of late volume reduction in Mexico and Argentina. As a percentage of revenues, multisector increased 3.7% percentage point to 57.6%. Our mix for higher value-added solutions reached at historical high of 17.5% revenues, up 5.2 percentage point compared to the prior year period. In the quarter, we won 2,700 workstations with approximately 60% coming from new clients. Adjusted EBITDA margin decreased to 120 basis points to 11.7% as we continue to ramp up new contracts in Argentina, Colombia and Chile and continue to experience adjustment in volume from Telefonica in Mexico and Argentina. Please turn to slide 12. In EMEA, revenues from multisector reached at 35.7%, up 70 basis points and our mix of revenue for higher value-added solutions increased 2 percentage points to 12.2%. Revenue decreases 2.0% as multisector revenue relatively stable in second quarter. And Telefonica presented 3% decrease in revenues. And we now believe they have reached a normalizing level. Adjusted EBITDA margin increased to 70 base points to 6.9% driven by improved business mix and ongoing cost reduction activities. Please turn to slide 13.Now looking at cash flow. In the quarter, operating cash flow was positive $30 million, which free cash flow before interest and acquisitions reaching $15.4 million. This implies the cash conversion as a percentage of adjusted EBITDA stood at 29.4%. Year-to-date our cash conversion remains in line with business seasonality and has been a key element supporting for the new investment in organic and in organic growth opportunities. Please turn to page 14. On August 10, we concluded the issuance of $400 million new senior secured notes at 6.125% due in 2022. The proceeds combined with the $45 million gains from market-to-market of the hedge related for the previous bond, we are being used to redeem 7.375% 2020 and the Brazilian debentures due 2019. In addition, we have increased our Revolver Credit Facility of $105 million versus $57 million previously. We do expect to benefit of the lower cost for debt to kick in during fourth quarter of 2017. On a normalized basis interest expense should drop by $10 million to $15 million per year versus the 2017 revised guidance. This enhances capital structure we will further increase of financial flexibility allowing us to continue to capture growth opportunities. Please turn to page 15. Before we open the call for the Q&A, let me revised our guidance for fiscal 2017. Considering the following assumptions, in line with strong commercial activity impact our recent acquisitions and the signs of stabilization we incorporating in our key market, we are increasing the expectation of our revenue growth to 5% to 8% versus to 1% to 5% in the previous guidance. Our adjusted EBITDA margin in the range of 11% to 12% remains unchanged as a result of the ramp of new service and client. Important to highlight is the margin for the second half of 2017 are trended to the high end of the range. The reduction in net interest expense guidance reflects the impact of the debt refinancing kicking during the fourth quarter of 2017. We expect an effective tax rate of approximately 39%, still below 2016 level. The increase versus the previous guidance reflects likely higher than expected non deductive expenses and geography mix. Our guidance does not assume first any major change in the current operating tax or regulatory environment. Second, change in the capital structure or exchange rates moving on the translation of our financial statement into US dollar. And finally new acquisitions. Now I'll like to turn the call over to the operator and take questions from the audience.

[Operator:]

[Operator Instructions] Thank you. Our first question comes from a line of Dave Koning with Robert W. Baird. Please proceed with your question.

[Dave Koning:]

Yes, hey, guys. Congrats. And I guess my first question it seems like with the raised guidance, clearly you’re feeling pretty good about trends. I am wondering maybe which geo specifically have caused you to raise the guidance. You obviously called out Brazil and Americas being good. Are those really the source of why you are raising guidance, and maybe a little bit just on Telefonica and non-Telefonica too, are both participating in the above kind of expected growth?

[Alejandro Reynal:]

Hi, Dave. How are you? This is Alejandro. Good to hear from you and thanks very much. We are indeed very happy with the quarter, and specifically the view on top line. If I look at the business that we have won in the first quarter and the second quarter of this year, we are back at probably 2015 levels in terms of the number of workstations and number of business won. Therefore, what we are seeing is a very strong commercial wins materializing in the first quarter and the second quarter. Therefore it does give us confidence in terms of the run rate going into the second part of the year. This is -- and mostly organic growth, so therefore even if you strip out the acquisitions, we would be ahead of the guidance. And then of course you have the impact of the acquisitions that we’ve done that at the end of the day they are not that material in revenue, they are more strategic because some of the capabilities that they add to the business, but of course they also add to the top line. So therefore looking into what happened in first quarter was business won and looking into what happened in the second quarter with also the amount of business won, we felt confident in going forward and revising the guidance for the year, which by the way also provides us with a nice run rate going into 2018. In terms of the Telefonica and non-Telefonica, I'd say that of course most of the growth is coming from the non -Telefonica business and you are seeing in the quarter high-single digit growth rates in Brazil. We are getting double-digit growth rates in multisector, so therefore a lot of the top line growth has been driven by that. The good thing about Telefonica is that it remains stable versus what we said it would be, actually, when we commented on the fourth quarter results last year. At that point in time, we said that numbers from Telefonica will remain stable through the quarters and that has been the case. So therefore the declines that we saw in 2016 versus 2015, we are not seeing that anymore and we see a much more stable business. So we are happy with that as well because it does provide us nice improvement in terms of the business mix. Therefore, reducing concentration on Telefonica even further, nice top line growth as well, but also business with Telefonica that is relatively stable going forward.

[Dave Koning:]

Great. And so Telefonica -- do you actually think it could be pretty stable even into 2018 and 2019 just based on kind of trend you are seeing today and just how the contract works?

[Alejandro Reynal:]

Yes. We did perform the reset of MSA target last year that contemplates the business activity going forward. The truth is that in the original MSA and the revised target, that has implied reduction on a per year basis. But what we do see is a much more stable business going forward. I am not seeing the decline that we saw in the prior years.

[Dave Koning:]

Yes, that's great. And then just a couple, a quick one too for Mauricio. One is just the interest expense savings, the $10 million to $15 million annualized that basically starts in kind of basically, right so you'll get some benefit, a partial year benefit to the rest of this year right?

[Mauricio Montilha:]

Hi, Dave. Yes, actually in Q3 is there is no major benefit given when we are doing and also some of the interest rates that changed, but the biggest benefit I starting in Q4 this year. It's going to be in March in Q3, but Q4 is really we have the full extent of the benefit.

[Dave Koning:]

Got you. And then just the last one, on the tax rate I think you said 39% this year which is a little higher than before. Is that a one time thing that and so that you'll get it back to the 30% to 35% range or whatever in the future?

[Mauricio Montilha:]

We actually -- typically first part of the year, we have a little bit of higher tax rate when we -- because there is -- low in EBITDA and profitability, and the end of the second part of year is better as well, but this is a little bit more in the midterm given the geographies we operate, and some tax changes we have particularly in Spain and other areas as well as some benefits we have from the goodwill amortization of acquisitions, so this is pretty much I'd say more the normalized level moving forward.

[Operator:]

Our next question comes from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.

[Vincent Colicchio:]

Yes. I guess this is for Alejandro or Mauricio. Your Brazilian margins were down 190 basis points sequentially, and I realize it's on a ramp up of new business. When should we expect that to recover going forward?

[Alejandro Reynal:]

Hi, Vincent. This is Alejandro. Yes, there were -- and I think this is a good point as well from a perspective that as you've seen from the numbers and from the guidance going forward we are experiencing higher growth than the original guidance, therefore we are coping with that which normally in this business implies a reduction in terms of the margins. So with regards to the Brazilian business, we are ramping some of that business, we did some of the ramp up in the second quarter. Some of that continues in the third quarter, and I'd say that fourth quarter should be normalized. So most of the business won first quarter, second quarter has been ramping up in second and third quarters this year. So fourth quarter should be normalized.

[Vincent Colicchio:]

Then a strategic question, the two digital platforms, to what extent is that meaningfully improving your client interaction and is it helped your pipeline as well?

[Alejandro Reynal:]

Yes. I think we've done two things on digital end. The first we launched a new brand which is Atento Digital, the fact that we have through the company a lot of digital development that they were in the different countries in where we operate. So we consolidated all those assets on the one brand Atento Digital and now going forward all the development we've done worldwide centralized theme that we have in Brazil. So with that we are leveraging our current expertise in that and therefore leveraging more commercial opportunities. The second thing we did is strategic partnership with Keepcon which they are in a very specific area which is basically text analytics and that's a completely new area for us. They are the leaders in Latin America, no other competitors has that capability. So I think that's -- we see us in a truly differential for our work commercial efforts. So matter of fact they've already worked with some of the leading Telco players in the region, analyzing and ultimately some of the text section of Telco received. So what we are doing now as part of the commercial effort is train our commercial team and across sell that into our existing clients. So, yes, I think the two digital efforts that we are pursuing the consolidation of our current assets plus the partnership with Keepcon will definitely provide increased commercial opportunities going forward.

[Vincent Colicchio:]

And then are there any regulatory headwinds on the horizon with any governments or any verticals in any of your major market that we should be aware of?

[Alejandro Reynal:]

No. Not specifically. The one that we follow the closest is any development in Brazil but since last time we spoke there hasn't been in any relevant regulatory developments, there was discussion in Congress about the payroll tax but that ended being revoked because wasn't voted in Congress. So in the short term we don't foresee any impact because of that. So therefore at this stage there are no other major regulatory issues in Brazil or in other categories.

[Operator:]

Our next question comes from the line of Scott Murray with Corey and Capital. Please proceed with your question.

[Scott Murray:]

Good morning, guys. And great quarter, love the growth way above the industry. And Alejandro can you maybe talk a little bit more about your digital strategy and whether you might be considering video and text and other attributes as you see more and more of the millennial generation coming into marketplace.

[Alejandro Reynal:]

Thanks for the question, Scott. Yes, with regards to the digital strategy, I think the first thing that we are doing is looking at all the different actions we have with customers of our clients. So therefore if you think about the end to end value chain of the products that we provide meaning customer service, sales, technical support, back office collections, now these -- they all have a digital component so what we are looking into is not only provide a service offering which we do now but also have a digital component into all of those services that we provide. To that extent the partnership we did with Keepcon falls within the customer service if you want to think it that way. And what they do is basically all the texturing section, and what I mean texturing section i.e. social media, its email, its chat, its sms they can manage those transactions via natural language processing so therefore they can provide ultimate response to the customers in a natural way. And they can also create analytics of the different types of interactions with providing intelligence to our clients. So they have I would say beginning of an artificial intelligence platform. So I think from a customer service perspective we are covered from the text point of view. One thing that we are analyzing is voice to text conversion and be able to leverage this platform to also analyzed voice transaction so I think that will be very powerful from the customer serving perspective. One thing we also have -- this is more from our current offering, it's -- we have enabled a lot of our customer service delivery to have click to chat, video paid abilities, chat put so we are partnering with different companies to be able to provide those services as well. So I think we are -- we have very clear digital strategy which as I mentioned at the beginning implies making the value chain and the products that we already provide to our clients and making sure that we have a digital offering for each of those. Another example would be the platform we acquired last year through our Brazil, they are in the collection space but there is a lot of collection that we are doing they are in digital platforms. So we are able to collect through web and/or through mobile devices. That would be another example of enable a service that typically has been done through voice which is a collection work, been able to do that through an online channels and digital. So therefore our view is that eventually we'll have a complete into an offering that kind of address all the different products that we offer right now through a digital offering.

[Scott Murray:]

That's terrific. Did you expect your capital spending to go down over time as it would seem that the digital offering you would be more of a cloud or SaaS type of environment where you would not have to be buying large gear and licenses et cetera from the typical CRM providers then?

[Mauricio Montilha:]

That's correct. And I'll just make a comment and perhaps Mauricio can also comment here. But as a matter of fact our CapEx has been going down. And lot of these digital on the taken they are done through partnerships so they don't require at the end of the day big capital expenditures. And also they provide as you said they are on the cloud, so they will use also the amount of how well that you need to or you required to be able to provide those, so yes I mean I think this is good not only from the customer perspective but also from an investment point of view.

[Scott Murray:]

All right, thank you very much. You really would seem to be leading industry on that front.

[Mauricio Montilha:]

So other comment, Mauricio speaking, Alejandro completely right on that. What we -- when you compare comparable service, this is very clear on the digital we have much less capital employ we need less space as more productive. For Atento though we see this happened a bit later because we still have a lot of growth coming from company that done outsourcing the region so there is few -- we still lot to gain in terms of volume in coming years on the typical contact center or back office or solutions that we not bring -- all of that effect to be completed, when digital gets really significant part of our business to be a bit little later in mid term and we going to start seeing that impact of reducing capital expenditure but there is a lot to grow we still in under penetrated market, I'll say more traditional or even back office activity.

[Operator:]

Our next question comes from a line of Leonardo Olmos with Santander. Please proceed with your question.

[Leonardo Olmos:]

Hello, everyone. We've noticed on the results that you have good performance on Argentina, Colombia, Chile, and US Nearshore. You also commented on the Mexico and Argentina. However, Spain, the growth was not so strong and the regions continues to reduce, our question here is do you have any new geography they are intend into grow to? Or if you don't, do you have any current geography on Americas or EMEA that you are intended to invest more or to have a higher growth than the average. Thank you.

[Alejandro Reynal:]

Thank you, Leo, for the question. As far as geographic expansion, at this stage for us our view is to continue first priority to double done in the countries where we are. That includes Spain as well so Spain and Americas including Brazil. The only -- and we look at the adjacencies is whether we are able to make sense at some point in time to have a stronger presence in the US to leverage our US Nearshore business and we continually assess opportunities in that arena. But in terms of pure geographies, our intent continues to be double done in the countries where we are. I'd say that in terms of investments not in particular market, if you look at the countries where we are -- in Latin America we are -- I'd say happy in all of those meaning Brazil is doing well. We will continue to invest in Brazil. Mexico, we remain optimistic about the mid term prospects. Argentina is the same. Colombia and Peru they have been good market to us. We will continue to invest on those. So I think there is no particular country that we would say we are going to invest more. It is more very much client driven and what opportunities come up and how do we continue to interest based on that. With regards to Spain, I'd say that the numbers are good from the perspective that margins expanded and there has been trend that we've seen over the last quarter. So from that perspective we are happy with that. And perhaps the first quarter in terms of top line, what I'd say is that there prior quarters the business with Telefonica is much more stable. So we are not seeing big, big clients as we saw in prior quarters. And with multisector is relatively stable versus the first quarter. And first quarter was a very good quarter in terms of commercial activity. So we are also happy with results. In Spain, the management is doing a great job and we continue to see positive development in that market going forward as well as in the rest of the countries in Americas and Brazil.

[Leonardo Olmos:]

Okay. Can I do a follow up very quickly on the higher value-added services? Do you see any space to sell specific sector in US Nearshore or that's not the current focus you have on that geography?

[Alejandro Reynal:]

Yes, good question, Leo. I'd say that the truth is that for the US Nearshore and for the type of business that we see most of the higher value-added services they stay on shoring the US. So typically -- and this is not shall you would expect that to be the case what is offshore into lower cost locations tend to be services that are probably lower value added. The advantage to also that we can provide also is lower cost therefore the margin component of those is attractive but in terms of us been able to provide higher value-added solutions in a Nearshore environment is more difficult. That for also we see more in the countries where we are present and where there is big opportunities to continue to cross sell more and more services and solution to our existing client base. So I'd say that our focus is more on the countries we are versus the US Nearshore for the high value-added solutions.

[Operator:]

Our next question comes from a line of Luis Adaime with Newfoundland. Please proceed with your question.

[Luis Adaime:]

Hi, good morning, everyone. I was just wondering if you could please provide more color on the values that you have paid in M&A acquisition for the past maybe 12 months as the transaction value usually aren't disclosed but if you could just have an idea of how much have you acquired in the market and maybe perhaps if there is any budget or an idea of how much you are intending or leaving aside for M&A for the next year or so.

[Alejandro Reynal:]

Sure. Thanks Luis for the question. Good to hear from you as well. Let me hand this one to Mauricio.

[Mauricio Montilha:]

Hi, Luis. Thanks for your question. We in the quarter as you've seen in our numbers, I think it's 20.7 we spend in acquisition, this is related to the Interfile we published in the 6-K and also some acquisitions or contractor right with some clients we have long term contracts. If you -- and the Interfile is a majority stake and we have couple of years in put in call options to at least three years we are going to stay together with a majority stake and then we can take over to remaining piece of that. Last year also if you go back when we did acquisition of RBrasil. I think when we published was about $8 million that we spent in acquisition last year was a significant almost I think we've already published about 80% of us taking in the RBrasil company. So that's all from last year to this year. And so if you look further for it's going to be minimal cash out related to those acquisitions including this merge that we are taking on Keepcon. I think that's -- in terms of -- the way we look at acquisitions, we tend not to put a cap or a number on that. Actually we as Alejandro mentioned we are -- we look acquisitions as a more either bring us capabilities that we don't have or like we did with late collection of segment that we didn't lay before like we are doing with Interfile to strengthening our presence on the financial sector back office or automation of backup of financial sector, it's a huge segment. And Keepcon that's really brought a new capability particularly on the social media with text handling and all text and brings in analytics and marketing side to our client. We continue to look for opportunities like those one and not only in terms of products and service we can provide with the different technology and approach but also verticals. So there are some verticals in Latin America. They are not as developed as in the US or European market like healthcare or education so those are areas that we continue to look at. And as Alejandro mentioned we continue to take a look an opportunity to accelerate the growth in US Nearshore market. But there is no -- to be very honest, we don't have a plan to say how much money we are going to spend. It would really depend on how we can make a move on that direction if you can be accretive to our business moving forward. And it can be complimentary. I think the Q was complimentary .We have relationships with all blue-chip clients in Latin America. We are leaders in all the markets so we have significant asset we can leverage with new service and product as well we eventually can get all their assets like capabilities on three particularly either product and service who can help us to move more to digital or compliment offering, verticals that are under developed in the region that we can take the leadership earlier than any competitor or US Nearshore how we can accelerate and we are clearly focus on how we can accelerate the growth. It's $2.5 billion market we have 2% to 3% market share. We think that naturally we should be able to take10% of share in near term. So we continue to look for alternative but there are no budget limitations. We will be on a case by case basis. The smaller ones we can handle with our cash flow. If there is something medium or the larger and that we require different financial structure to do that.

[Luis Adaime:]

Great, thank you. A second question on inflation and the path through negotiations. We would be seeing record low level of inflation in Brazil but at the same time in Mexico high inflation than or than higher than usually inflation. How is that playing out and specifically in Brazil what is that implicate for maybe margins for next year and the recovering demand that you are seeing, did they have any impact on the margin negotiations or on the path through negotiations.

[Alejandro Reynal:]

Sure. Thanks for the question, Luis. Mauricio, you want to take this one as well.

[Mauricio Montilha:]

Sure. I will do that. I think you touched a very good point Luis. We are very happy to be honest to you, we are happy that inflation is going down in Brazil drastic differently because this is one typical is one of the margin pressures we have although we've dealing with their farewell in the less couple of years but lowering inflation means lower tension with our clients, means that we can really focus on the right things that really develop the business with them. So but let me give you on perspective. In the case of Brazil we typically cash two third of the inflation, let say the de-nominification to prices and the rest we've been able to manage with our clients either to change service level or total productivity or also get more volumes with better margin service or great new propositions like the added value service to keep margins flat and even with dramatic situations like we had inflation in the last couple of years. If you look at Brazil trends, Brazil has been very successful in managing that well. I think the prospect that the 12 month inflation that we'll have to pass through the salaries in January, February, March next year or second quarter next year as well is very positive because it brings -- if we continue to improve these find different ways it brings much of less margin pressure to Brazil in years to come. This year we are passing the past year inflation. So this year we are on track of this two thirds typical in Brazil and as you know first part of the year we have the sale increase and then we have the price increase coming in little bit in Q2 and maybe Q3 is coming to four so, that's typically what impacts our analysis but I'd say that we are on track this year pretty much a same trend but we are very happy that for next year I'd say that is a harder that's much easier to manage versus two years ago that was 11% or 6% something this year. And this is a very beneficial to our business generally speaking. Moving forward it will be very helpful to keep your margins where they are or you can increase as we evolve as a business or service provider.

[Operator:]

Our next question is a follow up question from Scott Murray with Tillium. Please proceed with your question.

[Scott Murray:]

Thanks for taking my second call, guys. Wondering if you might comment on the macro environment in Brazil? If I think back when you took your company public and obviously in the US you report in United States dollars not real, real took a major hit and now it seems to down stock and if you look at US currency the business has done extremely well up 9% -10% which is significantly above the market. But just kind of what you are seeing in the macro market down in Brazil and what type of things you might expect there over the next year or so.

[Alejandro Reynal:]

Yes, Scott, let me take this question. I mean definitely 2017 has been a much better year than 2016 in terms of the macros for Brazil. I'd say that the year started very well because all the analysts projections and from a macro point we were positive and move in kind of that then some political stability has happened since the first quarter till now so that reduced to an extent some of the optimism. What we see from the business point of view is that, again confirms that much better than last year in terms demand. From a business point of view with the existing client base and lot of the declines in volumes that we saw 2016 versus 2015 has stabilized. Keep in mind that Brazil came from a very tough years of a deep recession. Now this year growth looks flattish. So from that perspective the declines in demand that we saw from an existing client base are stabilized and we don't see any major drops again compared to previous history. And the business we've seen the copies the level of commercial activity. Therefore when you add throughout relatively stable in existing client base, there is a win that we have articulated in the market plus some of the M&A activity that also sum up to a good run rate growing into the second part of the year and into 2018. Of course, I mean as you said I mean when you look into and to be fair we have always looking to the business in constant currency as we look at the business from an operational point of view and we will continue to do that. Now the currencies have been very beneficial to us in these last two quarters particularly in Brazil. When you look at the growth in actual, the numbers are very, very good in terms of growth. So to a lot of extent that is in benefit to us this year. I think the important thing is that so far the business environment looks much more stable. We hope I know there is still some instability more from the political front that the situation will continue to be serious right now and therefore if that proves to be the case, we will have nice a run rate going into 2018. And there is of course next year that's an election year in Brazil so who knows what will happen then. But I think the important thing is that we haven't seen the declines that we saw in business and it seems like some of the commercial activity is back to normal and we are winning business and doing well. So we have a cautiously optimistic view on Brazil and the prospects going forward.

[Operator:]

We have no further questions at this time. Mr. Reynal, I'd now like to turn the floor back over to you for closing comments.

[Alejandro Reynal:]

Thanks very much. And thanks everybody for your questions. Just very briefly, as I said I mean we delivered a very strong top line growth. We have stable margins in the quarter considering that the investments we've done in growth. So we are happy with the strategy that we are focusing. And we will continue to pursue it as we believe this will continue to leading broad based gain in all the regions. We are also confident in our ability to continue growing based on the existing and new planned business. Investments we are making in our strategic growth pillars and the enhanced capabilities. One important point that we highlighted as well is that the enhanced capital structure through the refinancing will be accretive to EPS and cash generation aligned with our focused in adding value to shareholders. And lastly, given the recent signs of recovery and reflecting our performance in the second quarter, we revised our guidance for full year 2017 highlighted by the improved revenue growth. Thank you again for your attention today. And look forward to our next interaction. Have a great week.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your line at this time. Thank you for your participation. And have a wonderful day.