Atento S.A.
Q4 2017 Earnings Call Transcript

Published: 20 Mar 2018

[Operator:]

Greetings and welcome to the Atento SA Fourth Quarter and Full Year 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, and welcome to our fiscal 2017 fourth quarter and full year earnings call. With me today are Alejandro Reynal, our CEO; 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 quarterly results and guidance for fiscal 2018 in more detail. We'll then open the call for questions. Following the Q&A session, 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 information 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. 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 4 on the presentation. We are pleased with our results in 2017. Once again, the execution of our strategy led to solid growth, increased revenue diversification and EPS expansion. Our Company also completed a series of strategic investments that expanded our capabilities, increased our addressable market and accelerated the evolution of our Atento’s value offer into the digital age. As a result, we continue to be the partner of choice for customer experienced solutions in Latin America where we held a commanding market leadership of 17%. A leadership position, we are ahead of any other player operating in the region, and one we are extending with the delivery of digital solutions for customer engagement. Focusing on the financial results, 2017 delivered a return to growth for Atento. Overall, consolidated revenues were up 5.7% in the quarter and 5.1% for the full year. Our Multisector clients continued to be a solid growth engine for Atento across regions and industries. Multisector revenues grew 8.6% in the quarter and 10.9% in 2017. Multisector revenue has been fueled by our continued strong commercial activity across different segment and regions particularly we delivered solid growth in America especially in Argentina, Chile and Columbia. Telefonica revenues were as expected, stable in the fourth quarter. We continued to leverage our relationship with Telefonica and the extended master service agreement. We also continue to pursue our evolution vision our core CRM BPO offering into higher value added solutions. In 2017, we accelerated these through expanded capabilities with the acquisition of Interfile among others. As a result, the mix from higher value added solutions was up 120 basis points up to 26.5% in the year, reaching a new record in our Company’s history. Adjusted EBITDA margins were 11.5% in the fourth quarter and the full year in line with the guidance we provided for 2017. Recurring EPS presented on expansion of 11.4% in the fourth quarter and 14.8% in the full year. Our discipline capital allocation led to a free cash flow before interests and acquisitions of approximately $26 million in the quarter and $81 million in the year. We delivered about 36% cash conversion in the full-year in line with our guidance. Net debt remained stable at $345 million with net leverage 1.6 times in December 2017. To conclude these financial highlights, I would like to introduce our 2018 fiscal guidance, which Mauricio will discuss with more details later. We expect again to deliver growth of 3% to 6% in constant currency, fueled once again by our Multisector business. We expect EBITDA margin to be in the range of 11% to 12% for the year. Turning to Page 5. Let me focus now on some important developments for our company in 2017 that contributed to these solid results and laid down the foundation for the future growth for Atento. As you know, two fundamental components of our growth strategy are to be the part of choice for customer experience solutions and to expand Atento’s leadership position through digital offer. 2017 was an important year for us as we acquired new capabilities, expanding our value offer to address the evolving needs of our clients. First and foremost, in digital, the fastest growing sector in Latin America, we expanded our capabilities to address the entire customer lifecycle. In June 2017, we launched Atento Digital, integrating all our existing digital assets and combining with the capabilities of Keepcon. Our digital offer now integrates digital sales tools, artificial intelligence, automation up-front and back-office customer processes, analytics and omni-channel platform to enhance our clients’ customer experience. More specifically, our digital customer experience solution increases automation and reduces response times while driving customer satisfaction and cost savings. It combines a semantic engine to manage the first point of contact with the customer with an omni-channel platform to respond to demands via bots or human agents. In the case of social networks, we can predict and optimize the management of customer demand by understanding the content circulating in the social media in terms of both medium and sentiment. In the rack of this segment, we are leveraging the acquisition of Interfile to enhance our capabilities in business process automation and higher value-added solutions such as credit management. Most recently, our strategic partnership with the consultant firm FALCONI has increased our consulting capabilities in this area and accelerated Atento’s entrance in the business process transformation segment. Since our acquisition of Interfile last year, we are seeing increasing demand from our clients, particularly in the financial services sector for the combined solutions of Atento and Interfile. We are very excited by the opportunities that our client relationships in this sector open up for further penetration of these solutions in Brazil and the expansion into other markets of our footprint. Finally, in 2017, we advanced significantly the integration of our Brazil into an end-to-end collection offering. Atento has now a unique offering for this dynamic market encompassing all stages of the collection as well as 100% digital or blended digital and voice solutions. By executing upon this strategy, we were able to have a robust commercial performance and therefore deliver a solid growth in the Multisector segment in 2017. As mentioned before, we successfully maintained our leadership position in the CRM BPO market in Latin America with a 17% market share and we estimate we ended with over 11% market share in the Latin America digital market. Moreover, we saw a confirmation of significant opportunities we foresee in existing and new clients across our footprint and sectors. With ongoing acceleration in non-Telefónica telcos in Brazil and Spain as well as increasing penetration in fast-growing verticals like healthcare, retail or consumer electronics. A great example of our expansion into other verticals is our commercial relationship with the Samsung in Brazil. We have become their partner of choice for customer management services. We now solely outsource all Samsung’s Tier 1 and Tier 2 support for a complete end-to-end solution that incorporates digital and voice channels. The solution manages both front and back office transactions. A clear concept of our successful growth strategy is the ongoing diversification of our revenues, which reached historical levels in 2017. The remarkable progress we have experienced in this area over the last three years evidences our company’s commitment to match our client’s transformation processes and to provide the best customer experience in the digital world. Our goal is to continue to lead this path since we see significant opportunities ahead in higher value added solutions and digital. Please turn to Page 6, the 2017 results and the evolution of our value offer made us more confident in our ability to deliver profitable growth in the short and midterm. Along these lines, let me update you on four main aspects of our midterm growth strategy. We believe our offer is a strong component for our growth equation as well as our ability to generate value for our clients in an environment impacted by digital technologies. We will continue evolving our offer along three access. First, double down entire value-added solutions with a strong industry focus. This means that we want to go deeper into our clients’ customer value-chain with customized end to end solutions. Accelerate digital solutions across the customer lifecycle becoming the strategic partner for digital CRM processes and last strengthen our process consulting capabilities to provide unique business transformation solutions. From the geographic perspective, we will strengthen our leadership position in Latin America, one of the fastest growing CRM BPO markets in the world. The market which presents significant room for outsourcing penetration and at first to see a general recover of consumer indexes and growth of its middle class, fueling consumer expenditure and demand for customer intensive industries. Our geographic strategy implies also achieving a meaningful presence in the U.S. Nearshore segment aligned with Atento's leadership position in the LATAM markets. The continued diversification of the client base is one more key element of our profitable growth strategy. We believe the 2017 acceleration with non-Telefonica telcos is a result of the significant wide spaces we still have in this segment. Outside telcos, our expanded capabilities will continue to help us gain, share with financial services while increasing presence in other fast growing segments. Although, telco and financial services will remain the key drivers for growth, we are very optimistic about our opportunities with fast-growing sectors such as healthcare, retail, travel and hospitality or consumer electronics where outsourcing is just starting. Finally, on top of healthcare value growth, we are committed with our strategy to expand capabilities and address markets via selected acquisitions and strategic partnerships. We will also leverage our unique expertise and delivery platform to take advantage of carve out opportunities in attractive clients and sectors. Please turn now to Slide 7. Following a couple of years of negative economic performance in Latin America, we expect a favorable macro outlook and positive business and consumer sentiment to prevail over political uncertainties in some countries in the region. Economic agencies expect the 2018 GDP growth in Latin America of 2% versus 0.9% in 2017. While markets like Brazil are seeing the return to growth of main consumer indicators following two years of strong contraction. This macro tailwinds combined with a stable regulatory framework for outsourcing of services will fuel the growth of a Latin American CRM BPO market expected to grow at a 5.4% in 2018. In terms of Atento's geographies in Brazil we will continue to strengthen our market leadership with higher value added solutions and a digital offering to be the key growth drivers with Multisector clients. In Americas we expect solid growth performance in Argentina and U.S. Nearshore to compensate impact of macro uncertainties in Mexico. In EMEA, we shall continue to experience strong Multisector growth and increase penetration of our digital offering. From a client perspective, we believe clients will remain focused on managing the cost base while driving digitalization. We should continue to see solid growth in Multisector reaching approximately 65% of total revenues by year end with the majority of growth coming from non-Telefonica telcos and financial services, while we accelerate penetration and outsourcing of services in other high-growth sectors mentioned before. We expect the Telefonica business to remain stable during the year consolidating the trend we saw in 2017. We will continue to leverage our commercial relationship and long-term agreements as preferred partners for Telefonica. In summary before I hand it over to Mauricio, let me say that we feel very good about what we have achieved in 2017 and how it positions us for growth in 2018 and beyond. Our markets have face some headwinds in recent years, but we have navigated them successfully. Consolidating our market leadership and expanding our capabilities to remain the partner of choice for customer experience solutions in Latin America, now also in the digital age. We are convinced that 2018 will be another year of great progress for us. We have more favorable macro environment and the consolidation of new capabilities supporting revenue growth. We remain very excited by the prospects for the business. We will continue to be the reference partner for the CRM BPO needs of our clients and we will continue to invest in the evolving value offer to extend our market leadership into the digital age. Now let me turn over to Mauricio.

[Mauricio Montilha:]

Thank you, Alejandro. As a reminder, I’ll be referring to growth rates on a constant currency and year-over-year basis, unless noted otherwise. Please turn to Slide 9. In the fiscal 2017, we delivered a balanced set of results. The positive revenue growth trends during the year continued in the fourth quarter of 2017. Consolidated revenues grew by 5.7% in the quarter, reflecting good performance in the Americas region and a strong growth by Multisector client. In the full year of 2017, revenues increased by 5.1% within the guidance range. Growth in our Multisector business continued to accelerate of a healthy 8.6% in the quarter and 10.9% in the full year of 2017, driven by new service and new clients win in our regions. We also made progress in our diversification strategy, the strong performance in the quarter brought the mix of revenue for Multisector clients to 61.5%, an increase of 150 basis points, helping us to end full year 2017 with an increase of 350 basis points to 61%. Revenue mix on the higher value-added solutions while flat at 26.4% in the fourth quarter was up 120 basis points to 26.5% in the full year. Meanwhile, Telefonica revenues continue to present stability both in the quarter and in full year. Adjusted EBITDA totaled $55.1 million and $221 million in the fourth quarter and in the full year respectively. Adjusted EBITDA margin was 11.5% both in the fourth quarter and the full year, which drops over previous period expanded by softer volumes on a specific client and a strong comparison basis in Q4 2016, especially in Brazil and Spain. As with revenues, full year adjusted EBITDA margin was in line with guidance. As mentioned in the third quarter, our businesses in Mexico and Puerto Rico were affected by the natural disasters in September with a negative impact of $8.9 million in revenues in the fourth quarter. Excluding this, one-off no recurring impacts, revenues will have grown 8.4% and the fourth quarter recurring income attributable to owners of the parent company, reached $15.9 million, with EPS growth of 11.4% to $0.21. In the full year, recurring net income totaled $55.2 million with strong EPS growth of 14.8% to $0.75. On a reported basis, net income in the fourth quarter of 17 was affected by non-cash negative impact of 19.3 million in foreign exchange fluctuation over intercompany loans. On the other hand, 2016 fourth quarter reported bottom line was positively impacted by $26.2 million related to the CVI termination as a result of the MSA renegotiation with Telefonica. Please turn to Slide 10. Look at our segments, revenues in Brazil presented solid growth throughout the year of 2.9% in the fourth quarter and 6.3% in the full-year, revenues from Multisector increased by 3.1% in the fourth quarter and 10.5% in the full-year of 2017, fueled by back-office solutions mainly. We have seen the low baseline volumes expansion. The low what we would expect from the gradual economic recovery, but we have been able to more than compensate that with continued robust commercial activity. The mix of revenue from Multisector clients increased another 20 basis points to 69.2% in the fourth quarter and 260 basis points in full-year of 2017 to 69.1%. Adjusted EBITDA totaled $29.6 million in the fourth quarter with the margins of 13.2% impacted by lower volumes from specific clients, mainly financial services, combined with strong comparison base in Q4 2016. In the full-year, adjusted EBITDA reached $124.7 million and adjusted EBITDA margin stood at 13.2%. Please turn to Slide 11. Look at the Americas regions. We delivered strong 14.9% revenue growth in the quarter and 6.1% in the full-year on the back of significant Multisector growth of 19.5% in the quarter and 12% in the full-year. Revenue growth was fueled by new client wins and volume increases particularly in Argentina, Colombia, Chile and U.S. Nearshore. Multisector continues to increase as percent of revenues up to -- up 230 basis points to 59% in the fourth quarter and 300 basis points to 58.0% in the full-year. Telefonica revenues rose by 8.9% in the quarter, reflecting positive results in Argentina, Chile and Colombia, but were stable in the year. Adjusted EBITDA was $20.6 million in the quarter with adjusted EBITDA margin of 10.3% while for year adjusted EBITDA was $83.5 million implying margins of about 11%. Lower margins both in the quarter and full-year reflects strong revenue expansion from Telcos which has lower margin levels. Please turn to Slide 12. Revenue in EMEA decreased 6.1% in the quarter and 1.9% in the full-year of 2017 as a result of a drop in Telefonica revenue of 14.9% and 5.9% respectively. The drop in Telefonica is explained by the exceptionally higher prices in Q4 2016 that were adjusted throughout 2017 to a more normalized levels. Revenues from Multisector increased 9.6% in the quarter and 5.4% in the full-year, supported by new contracts and client wins, especially in non-Telefonica telcos. As a percent of revenue, Multisector increases 580 basis points to 41.8% in the quarter and 250 basis points to 37.8% in full year. Adjusted EBITDA totaled 3.2 million in the quarter with an adjusted EBITDA margin of 5.7%. Please turn to Slide 13. Looking at the cash flow and CapEx structure, operating cash flow totaled 57 million in the quarter and a 162.7 million in full year, while our free cash flow before interest and acquisitions was 26.3 million and a 1.1 million respectively. We maintain our rigorous working capital focused on capital allocation discipline allowing us to deliver cash conversion of 47.7 in the quarter and 36.6% in the full year, in line with guidance. Cash CapEx in ’17 totaled 3.2% of revenue, lower than 3.8% in 2016 as we initiated 2017 with above average spare capacity. Perhaps more significantly, the positive cash generation full year ’17 even after investing $29.8 million in acquisitions allow us to return capital to shareholders, paying $25 million in our first ever dividend on November 28, 2017. As of December 31, 2017, we had cash and cash equivalents of 142 million and revolving credit facilities of 104 million, out of which 99 million were undrawn, implying total liquidity of 241 million. Total net debt with third parties was 344.5 million and adjusted last 12 Months EBITDA to net debt ratio with third parties was 1.6 times compared to 1.5 times in both Q3 '17 and Q4 '16. Please turn to Page 15. Before we open the call for Q&A, let me formally introduce our fiscal 2018 guidance. We expect a favorable market environment combined with stable regulatory frameworks to should support growth in '18 and compensate for potential political uncertainties arising from presidential elections in Colombia, Mexico and Brazil. We expect revenue growth in the range of 3% to 6% to be driven by Multisector clients. We will continue to pursue a solid commercial activity as a way to protect from eventual softness in baseline volumes particularly in Brazil where volume growth has been below what we could expect given the country's gradual economic recovery. Relative to margins, adjusted EBITDA margin should remain stable in '18 between 11% to 12%, as we expect no relevant non-recurring adjustment, and we expect no relevant non-recurring adjustment in '18. The debt refinance concluded in Q3 ’17 should provide around 15 million of reduction in net interest expense in 2018. The effective tax rate for ’18 should be between 35% to 38%, and we expect a year of strong cash conversion in the range of 35% to 40%. Given the challenge we have seen during the fourth quarter of ’17, we believe it’s important to highlight some short-term trends. In line with historical seasonality which did not occur in '17, we expect Q1 and Q2 '18 revenues to be more towards the bottom of the guided range. Regarding profitability, we expect seasonally lower adjusted EBITDA margins below guidance in Q1 and Q2. This guidance assumes no change in the current operating environment, CapEx structure or exchange rates movements on the translation for our financial statements into U.S. dollars except where noted. Now, we'd like to turn the call over to the operator to take questions from the audience. Operator?

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from line of Dave Koning with Robert W. Baird. Please proceed with your question.

[Dave Koning:]

So, my first question, Americas was incredibly strong accelerating nicely to 15%, and am I right it would've been about 20% growth without the Mexico, Puerto Rico hurricane and in that really the question is. Is that level of growth sustainable, like that I mean it was so good?

[Alejandro Reynal:]

Thanks for the question, Dave. Yes, I mean I think one of the impacts we had in the quarter were the situations we had in Mexico and Puerto Rico with the natural disasters where we had the true impact of the September effects on the fourth quarter and we pointed what those were. And, yes, if you add those revenues into the fourth quarter numbers in America, revenue would have been higher. In terms of what is driving that, we are having a particularly strong performance in Argentina, we're seeing that the good development in terms of the economic indicators is reflecting in increased volumes and therefore driving the need of our services, the increasing credit as well that is driving certain solutions that we provide to the Argentina market. So, overall Argentina has been a driver, U.S. Nearshore as well has been a driver for the growth. In terms of whether 20% is the norm, I would say no, I mean that's on the high end probably benefited from a comparable, lower comparable in fourth quarter '16. But again, I think it has been a strong quarter for Americas, not only because of Multisector which grew versus last year, but also Telefonica grew in Americas. So I think that's also important to point out.

[Dave Koning:]

And then Brazil kind of had that, the opposite Multisector decelerated a lot from 18% growth to 3. What happened really there with that deceleration? And is that Brazil really supposed to grow kind of lower single digits now in 2018?

[Alejandro Reynal:]

Yes, I mean in Brazil I would say, there's a lot of good things happening with general macros and also some of the things that we're doing in the commercial end and also on the solutions end. I alluded to this program that we won with the Samsung in Brazil, we now became the sole provider to Samsung services in Brazil and this equates to 1,200 agents that we have in the dedicated site. So I think that’s a lot of good things happened in the commercial end. And I would say first the comparable of third quarter versus third quarter last year was favorable to us because third quarter 2016 actually revenues came down. So from that perspective was a good come for us and fourth quarter slighter tougher, although I would say that primarily what we saw in the fourth quarter is that even though general terms, the macro seems to be recovering, we're still not seeing that panning out in some of our key clients, in particular in the financial sector. The volumes driven by financial service client is still soft. I think in terms of the aggressiveness of commercial campaigns driving more customer acquisition, we're not seeing that yet. So, from that perspective, it was softer than expected. Also typically at the end of year, we see a lot of the impacts of commercial campaigns close to holidays and we didn’t see that in this year. We continue to be very active on the commercial front in the field. We have a commanding leading in the Brazil market, actually we were analyzing our estimates on market share for Brazil in 2017, and we actually gain market share in Brazil. So, the commercial performance is good and I think we probably see it more as a potential upside under growth that when we’re starting to see the macroeconomic reflect on volumes, we should be benefiting from that.

[Dave Koning:]

Okay, well that’s very helpful and I guess just the last one and maybe for Mauricio. Just the use of cash flow in 2018, it seems like the way you are guiding, it's for something pretty similar to 2017 probably a little better and maybe 80 million to 90 million. Just mix of kind of dividend that pay down et cetera?

[Mauricio Montilha:]

Yes, it's pretty similar. I think when you look at the metrics in terms of cash flow conversion, working capital, I think we made some improvement over the years, so we are in very stable market basis today with CapEx as well, we have been working on the improving CapEx through procurement. And so, I would say that it will be a good year and we expect to be good year within the parameters we have for the business, and we see also in our comps in terms of cash flow. So, this will allow us to continue to pursue other opportunities for growth for example. As Alejandro mentioned on select M&A and carve outs and we’ll continue to allow the Company to execute the dividend policy as well.

[Operator:]

Our next question comes from the line of Cesar Medina with Morgan Stanley. Please proceed with your question.

[Cesar Medina:]

My question is related to guidance. This year you highlight 5% for 2017 constant currency growth and that is like includes like impact from the hurricane and earthquake in Mexico et cetera. But nonetheless, this 5% is at the end of your guidance for 2018 where arguably you're not going to have these natural disasters and you have much more stronger GDP growth in Brazil? So what is holding back that guidance? What are things that could go wrong and could go high, make the results for 2018 higher than what you’re guiding currently in revenues? That’s the first question.

[Alejandro Reynal:]

Thanks, Cesar. We are being more prudent on Brazil for 2018, I mean, the truth is that we have tailwind, as you said, in terms of macro is being better, and we feel optimistic about certain countries in our footprint such as Argentina as I mentioned. But we didn’t see the recouping volumes that we expected in the fourth quarter in Brazil. So, we’re being more cautious in terms of the developments for 2018. Again, I think there’s a lot of things that are happening our way in Brazil, like I said before we’ve continued to lead the market, we are strongly pushing the solutions business, acquiring companies reaching partnerships. So I think there’s a lot of positive things that we are doing to make sure that we sustain the lead, but also tried growth in that market. So we have a more cautious view based on what we saw in the fourth quarter.

[Cesar Medina:]

Okay. And then the second question, and I know you did this on the time, but any news regarding the payroll taxes in this country, I mean, after they did the -- what do you call pension reform et cetera. Could we see something on like removal of the exemptions on taxes for you?

[Alejandro Reynal:]

Yes, we don’t see any immediate impact for us there. The measure was supposed to be voted in the Brazilian Congress without -- as seen in prior association through the association of call centers in Brazil for amount of lobbying to make sure that we keep the benefit. So, we understand that our sector is seen favorably. So to an extent, we don’t see -- from our perspective, we don’t see a risk for us at this stage. Again, the measure hasn’t been voted if it’s voted and it’s positive to us in sense that we keep the benefit that will be a plus for us because we would -- don't have that risk anymore. And, but again, I mean this was supposed to be voted in recent weeks, it hasn’t happened. So, we are keeping a close eye on it. But the good thing is that Brazilian Congress understands the amount of employment we generate under very favorable of maintaining the benefit for our sector.

[Operator:]

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

[Vincent Colicchio:]

Yes. Alejandro. Your digital business continues to grow nicely. I’m curious to what extent is that business providing some headwinds in terms of replacing, existing the labor intensive business as the country expire? Can you give us some color on that?

[Alejandro Reynal:]

Yes, for sure. I mean, I think at the end of the day our business like any orders is very nuance in terms of, it has many different impacts on top line growth. So I think as I said before I mean we have certain countries that are doing well, others that we are less optimistic because of what we see that what we see happening in the market [Technical Difficulty].

[Shay Chor:]

This is Shay. We are here. Let me see what happened with Alejandro's monitor.

[Alejandro Reynal:]

Yes, apologies. We are here, but we are in a building and there is just an evacuation on order here, so apologies and we are going to mute. Shay, perhaps you can take the question and we can comeback -- we’ll comeback.

[Shay Chor:]

No problem, can you just repeat the question?

[Vincent Colicchiowith:]

Yes, I was -- your visual business, I am curious. Is it creating a headwind on revenue in terms of replacing some existing labor intensive contracts?

[Alejandro Reynal:]

Well, we are seeing as it’s happening, I don’t think that it’s easier at this point to have a clear view on the speed that it’s going to happen. As we've been saying we expect and we are starting to understand what’s the economic and the impact from that kind of a migration, but it’s still very early for us to actually found the table and say, what are the impacts. We need a couple of quarters, and again as Alejandro mentioned, we are doing and having all the products in our portfolio ready for this kind of migration. And it’s happening, but we still need a couple of quarters to really have a better sense on the speed and where we are going.

[Vincent Colicchiowith:]

And then on the U.S. Nearshore business I know that you’d like to improve the growth momentum there. Are you seeing a better pipeline given the wage inflation in the U.S.? And also I am curious, if you are still looking at acquisitions in that site and we may see something here the next year or soon?

[Alejandro Reynal:]

We always take a look into acquisitions as they show up. Our acquisition for us has been very opportunistic so far, more in products and portfolio solutions and services rather than geography. So very likely that geography is a next step. The U.S. Nearshore although has been growing. It’s going over still a small base. Our expectations are actually that were a couple of years ago that we’ll be growing faster than we are, but we are now seeing some acceleration. The difficulties we have is that -- and this is something we have been investing a lot in the recent months is, we are less known than our U.S. competitors, the global competitors that have presence in the U.S. both in the U.S. Nearshore and in the U.S. Onshore. So, we'll take look into acquisitions, if they are available in order to accelerate this growth.

[Vincent Colicchiowith:]

And the FALCONI relationship, is that relationship helping you get into new verticals and new back office activities? What does that look like?

[Shay Chor:]

Do what sorry, Telefonica you said?

[Unidentified Analyst:]

The FALCONI relationship.

[Alejandro Reynal:]

So, let me tell you this. We are here and again apologies, if there's been a high alarm, we're in Boston, taking the call at main office and there's been a fire alarm, so for now we can stay here. So we'll hold and if they call us again, we'll hand over to Shay. Yes, I mean the FALCONI relationship is helping. I think one of the things that they do well is mapping out basically back office processes of clients. And with that relationship what we're doing now is using them as a front end to do the mapping of the processes and also providing the solutions through Interfile. We haven't closed here the specific commercial transaction with them, but the fact is that we have a pipeline of potential business that we have developed together with FALCONI and it seems promising. We're there addressing less traditional segments therefore no Telcos or financial services with this consulting approach. The truth is that some of the regulation in Brazil is facilitating companies to have a deeper look in terms of more outsourcing and therefore looking to back office activities to be outsourced. And clearly this partnership is helping out for that.

[Operator:]

[Operator Instructions] Our next question comes from the line of Susannah Slough with Etal. Please proceed with your question.

[Susannah Slough:]

We have actually two questions here. First, if you guys could elaborate a bit more, what would be the key levers for margin expansion or margin stability this year that's implying the guidance? And the second one, if you could comment a bit how is Telefonica revenues in -- how was Telefonica revenues 2017 when compared to the baseline of the master agreement?

[Alejandro Reynal:]

First on the margins, clearly, one element is a solution business. And as Vince was asking the question, it does reduce revenues in certain categories because at the end of the day we're automate it and digitalize it, and from that perspective, it does become a headwind. But clearly it’s a tailwind from margins perspective I mean a lot of these services that we provide in the solutions landscape but also on the digital space they come at a better margin profile. We're seeing that flow for example a lot of the back office outsourcing we have been doing through the Interfile acquisition. They come at a much better margin than the traditional business and same thing for digital. So clearly that's one lever, and the truth is that solutions still represented 26% of our business so it's not materially relevant yet to change the needle, but we feel that strategically that's the right direction and we will continue pursuing the development of solutions to drive margin expansion. The other thing that clearly helps the margin expansion and is the other lever that we are working on this, continue to grow the Multisector business, but grow the Multisector business outside the traditional segments. What I mean by this is that for example the Samsung deal that we won last year comes at very attractive margins versus that has more traditional business in the Telco space. So one way to drive margin expansion is again for us and we have this very well addressing our strategic plan is Multisector growth and Multisector growing is specific segment. And lastly, other lever is continued to drive the U.S. Nearshore. There it continues to be a margin differential from the labor arbitrage we're doing in Latin America by servicing U.S. clients and this clearly is also a tailwind going forward for us. Again, this still remains a small percentage of the business, but it's an important part.

[Susannah Slough:]

Now, if you've got the second question the base line of MSA revenues last year compared to what was actually realized?

[Shay Chor:]

On Telefonica, yes, Telefonica has been pretty -- when we did the MSA renegotiations in 2016, we -- the idea was to bring Telefonica volumes to more realistic level. So -- and that’s we think Telefonica revenues more stable although on a country by country can vary especially on a quarterly because the MSA will seem to an annual volumes in revenue. So on a quarterly basis can be more volatile, but when we look for the entire year, it should be more stabilize it has been. So it can grow up 2%, it can be down 2%, but it's really will be in that range. So it's pretty much in line with -- what’s happening pretty much in line what we would expect and what’s in the MSA.

[Susannah Slough:]

Okay.

[Alejandro Reynal:]

Susannah, I am back here. Just apologies, we have been clear from the fire alarm so, that’s why I put mute button to the alarm.

[Susannah Slough:]

No problem.

[Alejandro Reynal:]

In terms of Telefonica, yes, I mean what Shay mentioned. We did the reset in 2016, in October of 2016. We are way ahead of the financial for that rest and as you might recall in 2016, we said that you could use the ways of fourth quarter 2016 as the ways for 2017. It has been the case, actually on a quarter -- fourth quarter versus fourth quarter 2017 versus 2016. Revenues from Telefonica have slightly increased, so therefore revenues have remained stable. We continue to have a very close relationship within managed the master service agreement through sheering committees. I think it's interesting to see for example in case of Brazil with Vivo. Vivo has been driving customer service automation and digitalization. We are helping them on that end. But at the end of the day, we have not experienced such a big decrease in revenues coming out Vivo in Brazil. What we have been able to do there is gain market share in particular segments. So we’ve increased our share of spend in the customer service segment and we’re now doing more back-office and collections work for them. So I think the dialogue with Telefonica is very positive and constructive from the perspective of identifying new avenues for growth and new avenues to maintain a stable revenue base. The pressure from them in terms of using the cost base and all of that in '18 will continue. We’ll support them in addressing that and also looking into more avenues to digitalize. But at the end of the day, we have the master service agreement asset base and we actively work with them in identifying new areas of business that can maintain the base stable.

[Operator:]

Our next question comes from the line of Belpren Palazzo with Santa Lucia [ph]. Please proceed with your question.

[Unidentified Analyst:]

I have two questions. The first one is regarding the interest rate payments. When I see a capital structure, everybody sees how the capital structure is. We see that nearly $400 million is the bond with $24.5 million in interest, plus then when I go to the net interest expense, we see its $40 million to $45 million. So seeing the position of cash and seeing now this company generates cash, when do you think the expansion of that can be down, I know that it has a maturity, but is it in ahead of the management team to be prepared to get the net interest expansion, $24.5 million? My second question is margins, thinking for the long-term view, when do you think margins in the Americas segment and Brazil segment can reach where they were in 2014. Is it matter of months and quarters or do you think it’s more like two, three years from now until we reach the margins that we have in 2014?

[Mauricio Montilha:]

Mauricio is speaking. I will take the first on the interest. As you said, our CapEx structure or the main reason for our capital structure now is the bond that’s $400 million. However, we have other debt in our capital structure. Some remaining debentures in Brazil with Itau Bank, and also we do have also some BNDES financing there. As well something that goes into our net interest is that we for several clients, we have comfort letters or credit letter on banks that supporting the contracts as required, in several markets these are the norms. So, the interest rates included for $400 million plus BNDES some Itau -- some leases that as we have plus, some other instruments we have in terms of guarantees. In terms of prepayment just to -- the bond actually is on-call two years. So, there is no possibility of repay anything on the bond in the first two years. So, only we -- it could be a consideration after I would say September of 2020, up to there is non-callable as well some of the other instruments we have BNDES and Itau also they're non-callable at this point. Eventually BNDES, but the rates we have BNDES are so favorable that doesn’t make sense for us to call those loans. And in terms of your other question -- can you repeat your other question? I was -- on the margin, on the mid-term, so sorry for that. I was confused with another question. On the margins, we believe on the midterm, we are going to start seeing margins raising. As Alejandro mentioned, we not only for the guidance for the given some uncertainty particularly on the recovery volumes in Brazil and consequences some leverage we will have with that. Although, this business has a low average, current volumes, baseline volumes would be below we expected, so we have some deleverage in terms of cost, that is now healthy. So we see that’s this year as we’re going to make more progress as well, with digital as I mentioned before on the digital side, we are making a lot of progress but it’s still non-material when you look at the total revenue we have, so we see that is a more midterm where we are going to see a more robust margin improvements for the business.

[Operator:]

[Operator Instructions] Mr. Reynal, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

[Alejandro Reynal:]

Thank you everybody for your questions and again apologies for the noise due to the fire alarm. Before we finish, let me recap the main points of today’s presentation. 2017 can be summarized by top line growth, strong EPS expansion, and the achievement of important milestones for our company. Our expanded capabilities and value offer allowed us to deliver top line growth fuelled by solid commercial activity, while profitability was in line with our guidance. We continue to generate strong cash flow aligned with our strategy to deliver sustainable and profitable growth and returning to capital to shareholders. I would like to highlight that the Board of Directors approved our dividend policy along with the first dividend payment ever in November 2017. That refinance led to higher financial flexibility and reduced interest expenses. And finally the secondary offer concluded in November 2017 which bolstered shares liquidity even to a more diversified investor base. For 2018 we will focus on profitable growth and cash generation. The favorable market environment with favorable voluntarily framework will continue to support outsourcing our services. Revenue growth should come from Multisector clients, focused on higher value added solutions and our digital platform. Cash flow generation is expected to remain solid supporting our growth initiatives. Thank you again and I am looking forward to our next interaction. Good bye.

[Operator:]

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