Atento S.A.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Greetings, and welcome to the Atento SA Third Quarter 2017 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A 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 sir, you may begin.

[Shay Chor:]

Thank you, Operator. Please turn to page two. Welcome to our fiscal 2017 third quarter earnings call. 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 mention that certain comments made on this call will contain financial information that has been prepared in 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 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 basis and constant-currency. In addition, our revenue growth rates for our consolidated results in EMEA segment exclude the impact of our divestiture of Morocco, which occurred in our third quarter fiscal 2016. Now, let me turn the call over to Alejandro.

[Alejandro Reynal:]

Thank you, Shay, and good morning, everybody, and thank you for joining us today. Please turn to page four. Our results this quarter yet again are evidence of our progress against our long term strategy. We delivered solid operating and financial results in the third quarter. We experienced significant improvement in top line growth, adjusted EBITDA margins are in line with our full year guidance, and we continue to improve our cash flow. In the third quarter, revenues increased 9% driven by strong revenue growth of 15% from multi-sector clients. We experienced broad based gains in multi-sector in all our regions, which resulted in an improvement in our revenue mix of 420 basis points to 62%. Revenues from Telefonica were stable year-over-year. In addition, our revenue mix from higher value added solutions increased by 230 basis points to a new company record of 27%. Adjusted EBITDA margins were 11.9% in the quarter, while our year-to-date margins of 11.5% are in line again with our full year guidance. In the quarter, adjusted earnings per share increased by $0.20 to $0.24, while year-to-date presented a growth of 12.8% to $0.53. We also delivered a solid free cash flow generation. Our free cash flow before interest, and acquisitions totaled $48 million. In the quarter, an 80% free cash conversion. On September 18th, we completed the refinancing of our debt with the issuance of $400 million senior secured notes during 2022. We continue to estimate a reduction of interest expense of $10 million to $15 million per annum after 2018. Our net leverage in the third quarter reduced to one-times high -- from one-times high in the third quarter of 2016. As a result of our improved financial flexibility and ongoing commitments to maximizing shareholder value, I am proud to announce the Board's approval of Atento’s dividend policy and declaration of Atento’s first dividend payment of $25 million or $0.34 per share declared on October 31st; a new and important milestone in our trajectory as a listed company. Overall, we continue to drive an optimal balance of growth, profitability and liquidity that provides us with the confidence to reaffirm our full-year outlook for revenue growth of 5% to 8% and adjusted EBITDA margin between 11% and 12%. Please turn to page five. Now, I like to remind you of Atento’s long-term growth strategy and our progress to-date, since it provides the framework for the solid core performance, our continued market leadership in Latin America and our confidence in the business, moving forward. As you know, we have articulated our growth story around three main initiatives. Consolidating our leadership in the Core Voice services, continuing growth into higher value added solutions and accelerated profitable growth with the mainstream digital offering. In our first focus area, there remain significant white space opportunities with assisting our new clients across our footprint, especially non-Telefonica telcos and financial services. Telcos and financial services are key verticals as they make up roughly three cores of the CRM sales market in Latin America. We also remain focused on capturing business opportunities in Brazil, particularly following signs of macroeconomic recovery and the opportunities that divide from the regulatory environment, which will likely push further outsourcing in the mid-term. As a reminder, Brazil accounts for 40% of the total Latin America CRM market and Atento enjoys a clear leadership position in the country with 25% market share well ahead of its closest competitor. The focus area which continues is to go into higher value-add solutions. We are providing customizable solutions to our clients through integration of our vertical expertise and core services. We are also leveraging this in acquisition and the strategic partnerships to expand our capabilities. The core focus area is accelerating profitable growth with mainstream digital offering. While digital is just 10% of the market penetration in Latin America is accelerating and growing faster than Voice with the consolidation of new digital technologies. Atento has recently integrated all its digital access to form a new business unit, Atento Digital, as a way to strengthen and accelerate our growing focus on digital services. Please turn to page six. As a result of our reckless execution to deliver on each of these initiatives, Atento remains well positioned to grow its market share. We are a clear leader in the Core Voice service segment. However, as an example of the growth potential that Atento still has, non-Telefonica telcos, financial services and other vertical, were responsible for more than 10,000 new workstations won year-to-date. More significantly, almost half of these workstations came from new clients. Specifically, in the telecommunications vertical, we have won more than 4,000 workstations for non-Telefonica telco clients, year-to-date. Our expertise continues to makes us a reliable partner for Telcos as evidenced by these wins. In parallel, our Telefonica business was stable in the quarter as we continued to win business with more than 400 workstations additions in the quarter. We continue to address ongoing opportunities in the financial services vertical where we have 26% share of $2.5 billion market. In the quarter, we won over 400 workstations. We also continue to see opportunities for growth in other industry verticals where outsourcing is less penetrated, such as utilities, consumer goods, healthcare, technology, among others. During the quarter, we added 1,300 new workstations coming from these vertical. Please turn to page seven. We remain focused on expanding our high value added solutions penetration, specifically for the financial sector, focusing on credit management and end-to-end collection solutions. Our recent acquisitions and partnerships have enhanced our capabilities, including the acquisitions of R Brasil and Interfile, and our recently announced relationship with the management consulting FALCONI. We're very excited about the opportunities that our alliance with FALCONI will bring to our clients in Brazil and the Latin America region. We are both leaders in our respective fields. And now are combined our uniqueness and expertise to deliver clients greater efficiency through the optimization and outsourcing of their business processes. FALCONI and Atento share some ambition, which is to generate value and competitive advantage for companies operating in highly competitive and digitalized environments. We are convinced that our partnerships will expand both, company's addressable markets and bring new opportunities to our clients. Please turn to slide eight. We have reached, during the quarter a new milestone of our mix of revenue coming from higher value added solutions, which increased by 230 basis points to a new company record of 27%. Since 2015, we have been driving consistent expansion of higher value added solutions portfolio. Quarter-on-quarter, we keep enhancing Atento's value offered to evolving to the leading provider of higher value added customer experience solutions for companies in our region. Please turn to slide nine. In line with market growth trends and client needs, we are evolving our core service offering into a complete digital portfolio. As mentioned before, we have recently launched Atento Digital, a new business unit integrating all the digital artists we have in our company that fosters development of services to support our clients with digital transformations. By leveraging our capabilities in this area, we have developed a robust client base and a pipeline for digital transistors, which makes us the leader in Latin America. Please turn to slide 10. With Atento Digital, we are also leveraging partnerships to accelerate our execution and enhance our value preposition. Along these lines, our announced strategic partnership with Keepcon further expands our digital capabilities. We are now able to manage in real-time customer engagements with social media enable monitoring of customer sentiment and drive automation. We have also significantly expanded the artificial intelligence capabilities of Atento’s omnichannel platform. Overall, Keepcon allows us to provide a differentiated digital customer experience generating increased satisfaction for our early customers. Now, in summary, before I hand it over to Mauricio, let me say that I'm very pleased with the resource we have achieved in the third quarter and the progress we've made year-to-date. And I remain confident in our ability to deliver solid top line growth in 2017, reflected in our reaffirmed guidance for the year. Our strategy is to deliver above market growth, reinforced by excitement about the prospects of our business. And our ability to strengthen our position as the leading customer experience solutions player in our markets. I will now turn it to Mauricio who will walk through the financials in greater detail. Mauricio?

[Mauricio Montilha:]

Thank you, Alejandro. Please turn to slide number 12. 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 in discontinued operations and the revenue growth rates for our consolidated and EMEA results have been adjusted to reflect this. We continue to present a positive revenue momentum with solid top line growth and stable margins, and its ability has benefits from our enhancement capital structure for the recent debts refinancing. Looking at our consolidated results, revenue increased by 9%, driven by 15.3% strong growth in multi-sector business, which experienced broad based gains in our regions stated by new service and new clients needs. Our diversification strategy continues to progress well as revenues from multi sector clients increased 420 basis points to 62% while revenues from Telefonica remaining stable in the quarter. Our mix of revenue from higher value added solutions increased 230 basis points to a record of 27% in the quarter. As we had significant new client wins in the period with addition of around 1,800 workstations, mainly from financial service and other clients. Margins are in line with our full-year guidance, 2017 guidance, down 170 basis points to 11.9% but an improvement of 80 basis points versus Q2 of '17. The decline year-over-year reflect the ramp-up in new clients, lower margin the renewals of basic surplus specific clients that will take some time to be recovered, and adjustment to new lower volumes levels, particularly with Telefonica in some countries. Adjusted EPS increased by 20% in the third quarter to $0.24. On a year-to-date basis, EPS increased by 12.8% to $0.53 driven mostly by the decline in net interest expenses due to acceleration in prepayment of Brazilian debentures in the first half of '17, and the debt refinance concluding on August '17. Our free cash flow before interest and acquisition was positive $48 million, in line with seasonality, reducing our leverage to 1.5 times compared to 1.9 times in the same period of 2016 and 1.8 times in second quarter. Please turn to slide 13. Looking at our segments, in Brazil, we are encouraged by improving growth profile as declines in GDP continues to moderate and consumer confidence strengthens. Revenues increased at 11.4%, driven by strong 18.3% growth in multi-sector, which includes the recent acquisitions. Revenues from Telefonica decreased at 1.8% versus prior period, driven by volume reductions. We continue to make significant progress with our revenue diversification. Our revenues from multi-sector clients increased 410 basis points to 69.9%, while the mix of higher value solutions reached at 37.5% of revenues. Adjusted EBITDA margin declined 230 basis points to 12.9%, while year-to-date margins of 13.2% declined 90 basis points versus last year. The decline in margin was mainly driven by wrap up from newly acquired clientele service and lower margins in the renewable basic service for some specific clients that will take some time to be recovered. Please turn to slide 14. America has resumed growth with an increase of 10.4%. Revenues from multi-sector grew 14% supported by new client wins and volume increases in Argentina, Columbia, Chile and our U.S. Nearshore business. And Telefonica grew 5.6%, reflecting positive results in Argentina, Chile, and Columbia. As a percentage of revenues, multi-sector increased at 220 basis points to 58.8% and our mix of higher value added solutions reached historical high of 18% of revenues, up 570 basis points compared to prior period. Adjusted EBITDA for Americas’ margin decreased 160 basis points to 11.9% as we continue to ramp up new contracts won in Columbia, Chile and U.S. Nearshore business, offset by value adjustments in some clients, particularly in Mexico. Please turn to slide 15. In EMEA, revenues from multi-sector reached 38.7% from 36.5%, and our mix of revenue from higher value added solutions remained stable at 11%. Revenue in EMEA decreased 4.2% in Q3 of '17, driven by 1.4% growth in multi-sector, reflecting new client wins offset by 7.3% decrease in revenues from Telefonica, particularly driven by lower volumes in Spain. Adjusted EBITDA margin was 6.4% in the quarter, reflecting sequential volume reduction in Spain. Please turn to slide 16. In the quarter, operating cash flow was positive $66 million with free cash flow before interest and acquisitions reaching $48 million as a result of core focus on disciplined capital allocation, improving returns and [effective] working capital management. We continue to have financial flexibility with positive cash flows generation and low leverage of 1.5 times. As Alejandro mentioned, we are pleased about the declaration of first dividends payment in the total amount of $25 million, implying $0.34 per share and a dividend yield of 22.8%. We expect dividends to be paid on November 28th to shareholders of record as of November 10th and share view trade ex-dividend on November 9th. Please turn to page 17. Before we open the call up for Q&A, I would like to reaffirm our guidance for fiscal '17 with some important highlights. The earthquakes in Mexico and the hurricane in Puerto Rico impacted our operations. In Mexico, our Puebla and Yuketen sites were unable to provide service for 10 days and our gradual leap being restored. In Puerto Rico, distorts are very impacted the island with the infrastructures and our operations are expected to take longer to resume. While the impact in the third quarter revenues and EPS were [elicit], we estimate the impact in revenues during fourth quarter to be in the range of $8 million to $10 million with the impact on EPS between $0.03 to $0.05. In Brazil, we do not expect normal seasonality of revenue increasing Q4 due to its low economic recovery in the country. Therefore, we’re assuming revenue growth and EBITDA margin for fiscal 2017 to be to in the mid to low range of our guidance. Now, I would like to turn the call over to the operator and take the questions from the audience.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session [Operator Instructions]. Thank you. Our first question is coming from the line of Valder Nogueira with Santander. Please proceed with your question. It appears he has us on hold. We’ll move on to our next question, which is coming from the line of Dave Koning with Robert W. Baird. Please proceed with your question.

[Dave Koning:]

I guess in terms of my question, so you talked about the lower part of -- the low to mid part of your guidance range for the year that would still suggest pretty good growth in Q4 though. I think still around the high-single digits. Is that what you’re thinking? And if not, what would cause a little more slowness in Q4?

[Alejandro Reynal:]

You want to take the questions, Mauricio?

[Mauricio Montilha:]

I think, the growth rates what we are having in the third quarter, they really refer to the business, the run rates of new contract. The only, I'll say set back in the fourth quarter, is related to the operations in Puerto Rico and Mexico primarily. So the growth rates in Q4 will be very healthy as you can do the math. It would be healthier if it was not for the lack of operation -- the full operation in Puerto Rico and the ramp of operation in Mexico. But we'll be, I’ll say, given we are keeping the guidance we will continue to be very solid.

[Dave Koning:]

And then I guess secondly the EBITDA margin, year-to-date are right at the midpoint of your range, right around 11.5% year-to-date. Usually Q4 is a pretty good margin quarter. Do you expect that to continue to be seasonally strong or does some of the storm impacts and stuff caused a little bit of margin pressure in Q4 as well?

[Alejandro Reynal:]

I think, I would -- what we commented we keep, as we're going to lose some revenue, there's some deleverage in the Q4. The fact that we have lower revenue but we consider some fixed costs. So there'll not, I would say, seasonality as also mentioned this for Brazil for Q4, we will not be so skewed for Q4 as has been -- and I would say, normal years giving I'll say the negative impact of lower leverage using lower volumes from particularly those two countries.

[Dave Koning:]

And then finally what's the normalized debt expense going to be in the future? I know in the -- I think usually it's been around $15 million a quarter or so, but now with the new financing, what's the quarterly run rate in the future?

[Alejandro Reynal:]

What we said, if you think what will be the normalized -- with the new debt refinance, probably is going to be $15 million to $18 million below the regular annualized number we have in 2017. So if you do the math, you think our cost of debt prior to refinance, the new cost of debt is at least $15 million to $18 million a year lower than this year.

[Dave Koning:]

So maybe 12 million a quarter for financing expense in the future?

[Alejandro Reynal:]

Okay.

[Operator:]

Thank you. Our next question is coming from the line of Valder Nogueira with Santander. Please proceed with your question.

[Valder Nogueira:]

First question is this is a very interesting opportunity with FALCONI. Can you share with us more detail on these relationships? What type of remuneration you have agreed with them, if that's public that's my first question?

[Alejandro Reynal:]

It's a very good partnership or alliance what we have been able to come up with FALCONI. And I think it's driven by a mutual need. One other things for certain types of projects, which I think it's interesting because it speaks about how we are evolving in terms of the traditional BPO company to more of a higher value add company. And then in some cases, we've been facing competitors such as Accenture in some of the projects. And as you know, Accenture has the two sides they have the consulting capabilities and also in some cases the execution capabilities. So in discussions with FALCONI what we figure out is that they come with very strong management consulting on strategically in process consulting. And of course we have a very strong execution -- in the execution of the outsourcing opportunities. So therefore, we decided to join forces and address projects that require process transformation and require both the consulting and the execution part. I mean it's interesting is that a lot of these projects right now in Brazil are outside the traditional segments of telcos and financial services. So you’re seeing a lot of this in retailers and other sectors which are mix of the traditional ones. So we are very excited about this alliance. In terms of more specific terms for the different projects, we’ll take a look at on a project-by-project basis. I think the nature, in distinguishing nature of the projects vary depending on the type of work that it's going to be contracted. So we have set out a flexible economic model so that we can take a look at it in each of the project that we work together. But again, I think the most important things that the partnership attract us an opportunity which I think strengthens both sides, both FALCONI and us.

[Valder Nogueira:]

I agree and extremely well regarded and it's completely out of the box as part of consulting for -- especially for Brazilian companies. But does these relations goes beyond Brazil?

[Alejandro Reynal:]

Yes, we want to be very focused and initially work on Brazilian scope. But they have operations to Latin America as we do, and we have talk about potentially approaching certain projects in the Mexican market. So yes, I mean, initial focus is Brazil but we just hope beyond Brazil.

[Valder Nogueira:]

And my second question is any update on the payroll taxation discussions in Brazil?

[Alejandro Reynal:]

Yes, no particular of that. You know that now there is a new measure being this cost, we are -- last discussions we were excluded as a sector from the payroll tax increase that measure expired. So discussions are happening again. We’re making the same arguments as this is a sector that generates the important. So we are confident that the arguments will defer again and we have good chances to be excluded, but it's early to tell. I mean the process just started just informing the commission and it will be discussed. So I think it's hard to tell how this is going to evolve. But like I said, I mean, I think last time we were able to exclude out first and we’re going to do with the same arguments as congress and we hope and expect that the outcome will be the same.

[Operator:]

Thank you. Our next question is coming from the line of Victor Coutinho with Itau BBA. Please proceed with your question.

[Victor Coutinho:]

First question, could you elaborate on the higher labor contingencies that affected Brazil margins. And as our second question, could you give us an update on the M&A strategy and pipeline, now that R Brasil and Interfile has been consolidated?

[Alejandro Reynal:]

Let me take the second first and then Mauricio can address the first one on the labor liability. I think what we've done and I think it's a nice story to tell, because we've been able to form a series of partnerships and complete list of acquisitions that at the end of the day expand the product offer that we have for our clients. So we just spoke about Falconi, which is one of the consulting and we recently closed the acquisition of Interfile, which basically extends our portfolio of solutions in credit management, which has become more back office related type of processes for banks. Last year, we finalized the acquisition of R Brasil, which is more in the field of M2M collections and again, mainly for financial services. And just recently we finalized a partnership with Keepcom, which addresses the digital segment and enable us to manage now the digital interactions with customers primarily through text. So I think besides the core offering of Atento now we have an expanded portfolio of solutions. This has been, I would say, very well received from our clients when you look at, for example, in the case of Interfile. They had already a pipeline of potential commercial clients. This pipeline has been expanded after the acquisition, shipping for R Brasil after the acquisition the pipeline of potential clients has expanded. And I think it's very interesting what is happening with Keepcom, because as digital is an area that is in the need of many of our clients, you have to expand the dialogue with them and we have already working projects with a series of telecoms in the digital space. So I would say that as a result of these acquisitions and partnerships, we have not only been able to increase the pipeline but also solidify our value proposition to our clients. In terms of future plans, whatever we do in the field of M&A would be more in the line of capability building. So whatever things we can do to continue to expand our capabilities in higher value add solutions, we will pursue. And as well whatever capabilities we need to expand our digital offer in our Atento Digital business unit, we will also do. So we're very much focused on addressing growth and potential increase in our product offer through acquisitions and partnerships.

[Mauricio Montilha:]

Just to tackle the part of your question on the contingencies, we have just to step back we look at labor contingency in Brazil versus our competitors and also versus large products in Brazil. Atento in a very, I would say, it is in a very good position when compared for any measure by the number labor clients, by the number of employees or in relation to turnover so and so forth. But we saw, in the recent months particularly beginning this year, the legal process has speed it up. So I would say that we have, I would say, a surge in terms of finalization of some of the labor with amounts slightly above what we had accrued, particularly giving long spend cases. And as you know, we shut down sites in the last two years in areas that were much more expensive. In some case where, I would say the, that just was much more favorable to employees and we had more issues related to labor claims. And those situations -- they've been resolved in court right now and this has been, I would say, an upsurge in the cost versus the accrual normally. But we don’t see this trend, the labor -- I'll say, the labor contingence or the labor case are continue to coming up, aligning with the turnover that's the major driver. Of course it continues, I would say, GDP or economic constraints continues high unemployment force more people, assimilate more people to try to find one, if they lost their job. I would say that we don’t see a major implication for the future on this, particularly as I said as we shared now a lot of sites in the last two years, there has been a catch up on the legal process finalizing process on that. And I'll say worst economic conditions. We saw surge, likely surge in the number of the case as a percentage of our turnover but also we saw finalization of the old case, particularly in areas that we left. With somewhat favorable results outcome from the employees and we do expect in accruals. It’s not a major issue it probably when we look at the future, it won't change dramatically or cost related to those expense. But there is one or two quarters with a little higher expense than we plan it.

[Operator:]

Thank you [Operator Instructions]. Our next question is coming from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.

[Vincent Colicchio:]

I've got a couple of questions. Brazil, the margins continue to be relatively well and I know you’re ramping up on new business. What are your thoughts on when we might we see that improve?

[Alejandro Reynal:]

Vincent, let me take the question and perhaps and Mauricio can also fill in. I think the positive on Brazil is that the pipeline of new business is very strong. As a matter of fact, we as part of the work stations we mentioned we had a very important deal that will just materialize in the first quarter and we’re going to see the ramp-up in the fourth quarter and that will become the key provider to a lead technology company in the region out of Brazil, consolidating all the other providers that were offering this service. So it's a very big important project for us but again it's going to come with implementation cost. So the thing about regionalization cost is that there’s an ongoing pipeline of activity that we are materializing and therefore has -- is cost. The contrary I mean as you can see we continuously improve although this quarter in Brazil was not as high as entire quarters. The percentage of business coming from higher value add solutions, we had an 80 basis point increase versus last year, which to an extent helps margins, but in this particular quarter the improvement was not as high so therefore doesn’t have a material impact. So I think those -- the beneficial cost is a headwinds and also there's ongoing set of negotiations with the specific clients that sometimes also are headwinds in terms of the margins. Again, the view is that going into 2018 again given the seasonality of the Brazilian and Latin America business, but they should be stabilizing.

[Vincent Colicchio:]

I see that you continue to see nice growth on value added solutions in Brazil. Wondering if you're seeing any impact yet on the pipeline from the change in regulations?

[Alejandro Reynal:]

Yes, the evolution in Brazil -- and I would say extent as well in American solutions was very good in the quarter and in Brazil, as I mentioned, 480 basis points expansion in solutions in Americas. We also had a very nice expansion in solutions. So I think I just want to make a point that we’re expanding our solution offered, not only for Brazil but to other countries as well. In terms of the new regulations, I think this is a very good point because in the quarter, we haven't seen an impact of that. I don’t foresee any impact in fourth quarter this year either. But there's a couple of discussions we are having with clients as we speak in terms of potential carve-outs of internal call centers, and the main driver for these potential carve outs has been the changes in regulation in terms of the outsourcing law. So we continue to engage as the pipeline strengthens in terms of opportunity to carve out assets as a result of the new outsourcing law. Nothing that has materialized yet but we hope that for '18 we'll be able to materialize one of these deals. And again, interesting part of this carve out is that they are outside the traditional system. So the companies that we're talking to are not in the telco or financial services, these are different sectors that we are addressing, which also would have nice business mix to the revenue, if materialized; so probably more for '18 than for this year where we might see one of these deals as a result of new regulation materializing.

[Vincent Colicchio:]

And then on the digital side, you're talking about better pipeline. I'm just curious if you could give us more color on what you think you have today that some of your -- some of the bigger peers competitors are lacking on digital side?

[Alejandro Reynal:]

I think what's going on in the digital space is that if you think about the traditional product offers, so customer service, sales, collections, back office, all of that is migrating to a digital environment. So what we are building from a product point of view we've been able to file solutions for digital sales, digital customer service, digital collections, digital back office. And I think this partnership with Keepcom is fairly unique in the region as early on was that they're doing what they're doing in Latin America. So Keepcon basically help us address the digital customer service. And at the end of the day, what their platform and they’re working on exclusive basis with their partner, what their platform enable us is to manage real time customer interactions, primarily through text. So we are been able to manage social media transactions amongst other big transactions. We are like -- but if you’re only managing those transactions, it's also been providing analytics on those transactions back to our clients and then also been able to address some of those in an automated way, which is the beginning of artificial intelligence, because those transactions have been answered in quarter-on-quarter in an intelligent way. And again, I would say that this is fairly unique in the region right now. When we partner with them, we didn’t see the capabilities anywhere else. And we have been successfully, and they have as well, offering these solutions in the digital customer space to telco clients primarily. So they've implied being automation and the self serve and some of these big transaction managements. In telcos we are of course a big partner to Telefonica helping them on that space, and now are in the process of addressing other telcos and then eventually migrating into financial services. This, to be honest, I mean has changed the dialogue with our clients, because everybody is thinking about digital transformation and how to address that. And the fact that we have a digital platform to address part of the challenge is it's been very successful. And so we’re very happy and encouraged by the progress, and I'm really excited about the process for next year in this particular area.

[Operator:]

Thank you. Our next question is coming from the line of Cesar Medina with Morgan Stanley. Please proceed with your question.

[Cesar Medina:]

Thanks so much for your time and your call, great quarter. Quick question generally to confirm something that Mauricio was saying the debt refining, the savings on an annual basis, I understood for the call that it was around $15 million to $8 million lower per year. But on the presentation, it’s just 10 to 15. I just wanted to confirm that?

[Mauricio Montilha:]

It’s $10 million to $15 million versus this year. I was using run rate number that was for the year was fully completed with the other structure. You’re right it’s $10 million to $15 million [indiscernible] for the audiences…

[Cesar Medina:]

So then the second question, I wanted to have more clarity in terms of what type of activity. I mean now that you’ve commented on these before, what type of dividend policy should we expect going forward for 2018?

[Mauricio Montilha:]

I'll take that question. When we put together the dividend policy, as you know, dividend policy will be considered as circumstance at the moment. We also are looking at what is the norm and to practicing the industry. And finally, we as our capital allocation strategy has not changed, we’ll continue to fund growth and to take the opportunities there are large opportunities ahead of us in the markets we operate. So having said that, if you look at the industry what we are benchmarking our comps, teletech, conversions, tele performance sites, so the large CRM/BPO players, I would say that they typically they are 25% to 30%, 35% of recurring net income, as policy. If you look at depending on year our competitors are between 1%, 1.5% to 1.8% or 2% yields, so I would say that probability that our policy will fall within the range as we've been seeing our competitors. And on a year-by-year basis, we also depend and as I said on the capital allocation strategy that we are facing in the market at that point in time.

[Cesar Medina:]

So basically it's closing the gap with the years, like 25%, 30% of our payout ratio?

[Mauricio Montilha:]

Yes, depends on the year. And as I said, that has been the range of our competitors. Sometimes if you look at our comps, they're below that, sometimes they're ahead of growth, depends on the [surplus]. But there has been, I would say, the regular average range in the last two to three years our competitors. And we will try to stay on the range unless the markets or [indiscernible] are different or you have much opportunities to invest or not, but this will happen every year we're going to do this and have a good board and take a decision on that.

[Operator:]

Thank you [Operator Instructions]. We do have a follow-up question coming from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.

[Vincent Colicchio:]

Just one big picture question, maybe you guys can give us your thoughts on the economic outlook for your bigger -- Latin markets, Brazil, Argentina, and Mexico, maybe over the next few quarters?

[Alejandro Reynal:]

I'll give you my view and Mauricio feel free to add your thoughts. I think, I mean overall, I would say that this year has been much more constructive than last year and for sure I mean from a stability point of view and from an exchange point of view. Brazil, I think, it's in a mild recovery. We are seeing some improvement in consumer expenditure and investment. The truth is that when you look at our client base, we're growing it with, mainly with new client and in services. The existing base of our business has remained stable last year was declining. So I think from that perspective is good because it's relatively stable with puts and takes depending on the client, but we're seeing the growth is with new business less with the existing business. So that tells me that there's recovery, but it's not a strong recovery at this stage. And we foresee -- everybody is predicting a better year next year granted there're some actions in Brazil. So I guess our view is the recovery will continue but it will be a very good recovery. In the case of Argentina, we're doing well. The part of the recovery in revenue growth we're seeing in Americas is coming from Argentina. We are encouraged by some of the structural measures that have been taken and by how the economy is progressing. So we see some leading indicators that are positive and therefore we're starting to see that materialize in our activity and approach. So for Argentina, I think we have a good and optimistic view going into next year. Mexico mix view. Mexico this year, although the economy is not doing bad, some of the areas that impact us, which are consumption and investment, have not done extremely well because initially in Mexico the relationship with U.S. and now next year there are relationships in Mexican markets, we've seen investments for companies by our clients and not as high as perhaps in prior years, and thinking up nice to private consumption. And again Mexico will go through elections next year. So Mexico, we don’t see that's a concern for sure. But probably out of the three that I've spoken, the Brazil, Argentina and Mexico. Mexico really is one in where we’re seeing a very mild to slow training in the economy. Certainly in Argentina for us so far very good and hopefully will keep that way; Brazil okay, and looking relatively stable; and Mexico, probably out of the one that is being slower for us.

[Operator:]

Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Reynal for any additional or concluding comments.

[Alejandro Reynal:]

Thanks. Well, if there are no more questions, thanks everybody. Just a brief recap, as I mentioned at the beginning, we’re very happy with the third quarter results, which were driven by the strong growth in revenues, mainly from multi-sector across all regions, as well as the significant improvement we have in revenue mix and particularly coming from higher value add solutions. Adjusted earnings percentage a solid growth in the quarter, reflecting good operating performance and the lower interest expense from the debt refinance. Also an area that we feel very good about is there’s some cash flow generation in the quarter. And as we discuss, our decision to becoming the first dividend payment which is the reflection of our commitment to disciplined capital allocation, the confidence in the outlook of the business and the strength of our balance sheet. Also as discussed we have to remain our guidance for 2017, which is important. I'm very confident to conclude our ability to deliver profitable above market growth, further increased our leadership position in Latin America, and continues to be the reference partner for the CRM/BPO needs of other clients. Thank you very much for your attention today, and we look forward to our next interaction.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.