Earnings Transcript for ATTO - Q4 Fiscal Year 2020

Operator: Good morning, and welcome to Atento's Fourth Quarter and Full Year 2020 Results Conference Call. Today's call is being recorded [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Shay Chor, Corporate Treasurer and Investor Relations Director for Atento. Please go ahead.

Shay Chor: Thank you, and welcome, everyone, to our fiscal fourth quarter and full year 2020 earnings conference call. Here with us for today's call are Carlos López-Abadía, Atento's Chief Executive Officer; and José de Azevedo, Chief Financial Officer. Following a review of Atento's financial and operating results, we will open the call for your questions. Please turn to Slide 2. Before proceeding, please note that certain comments made on this call will contain financial information that has been prepared under international financial reporting standards. In addition, this call may contain information that constitutes 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 regulator, and we invite you to read the complete disclosure included here on the second slide of our earnings call 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 and constant currency basis. I will now turn the call over to Carlos.

Carlos López-Abadía: Thank you, Shay, and good morning and good afternoon to all of you. 2020 has been a year full of challenges for all of us, but also a year of many accomplishments. We have finished Q4 with strong results, exiting the year with a significant upward trend. We have grown EBITDA 23% in 2020 despite the impact of the crisis and the Brazilian real devaluation, exiting Q4 with improvements across the board in revenue, cash flow and margin. Last year has been defined for many of us by the impact of the COVID pandemic. At Atento, it meant to reorganize our operations to ensure the safety of our employees, maintain the service to our clients and secure the financial strength of the company. We deployed more than 80,000 employees to work safely at home and restructure our center operations to ensure that the services that needed to be provided in secure locations have performed safely and efficiently. Taking care of our people is at the core of our culture, as evidenced by the numerous awards we received. During the year, we have deployed a completely new platform to support work at home. This is a new service modality, which is now part of our standard service portfolio. We expect Atento@home services to continue to be very attractive to our clients well beyond the current health crisis. When we manage the pandemic, we have not slowed down our transformation. We have accelerated the transformation of our sales, leading to an 18% year-on-year growth. More importantly is the quality of those sales with an improvement of 10 percentage points in contribution margin. We also continue to make progress in high-growth verticals and the U.S. market, where we showed 100% and 43% growth in Q4, respectively. We also continue to develop our relationship with Telefónica. Despite the high growth and focus on new markets and sectors, Telefónica remains a very important client. We continue to gain share of wallet with Telefónica, while winning new contracts, both in traditional and next-generation services. We have also improved our delivery, achieving cost savings of more than $80 million, while restructuring our operations on at home. This has been done while improving quality. We have achieved in 2020 the highest NPS and customer sat scores in the history of Atento. We have continued to advance our innovation transformation. Our next-generation services portfolio has reached 50% of our total sales. Our commitment to invest in innovation has led to becoming the first company in our sector to get ISO innovation management certification. In addition to our innovation work internally and with established partners, we have launched Atento Next, a space for agile start-ups to work with us in key areas such as artificial intelligence, analytics for brand activation on social networks. We have also improved our financial strength, successfully refinancing our long-term debt until 2026, fully hedging both interest and principal. We've also produced record operating cash flow in a year when liquidity in the face of the uncertainty for pandemic was paramount. Finally, but not less importantly, we have changed our governance and shareholder structure. We have welcomed a new set of world-class investors to our shareholder community and expanded the number of independent directors in our Board to 5 out of 8. Our progress in 2020 has been recognized by the market with improving stock and debt performance, but also by industry analysts and clients. Gartner has placed us at the top of the global leaders quadrant. Frost & Sullivan has ranked us as the leader in innovation in Latin America. And Everest has recognized us as one of the companies showing fastest improvement globally last year. A successful 2020 and a strong exit rate makes us see 2021 with optimism. To be clear, the pandemic is still in full force, particularly in some of our key markets. But we are today in a much better position to manage than we were at the beginning of 2020. I'm happy to report recent significant wins, such as an additional 4,000-seat contract in Brazil, and an important win helping the state of Maryland manage the vaccine rollout. Thus, we're confident to continue delivering improved results in all fronts, growing top line, expanding EBITDA and continuing to deleverage the balance sheet. 2021 will bring us its own challenges. Some of those we know and some we may not know yet. But with a transformation plan already showing results and having successfully navigated the historical challenges of 2020, while continuing our transformation, gives us confidence on a very positive outlook for the future. Thank you very much. José?

José de Azevedo: Thank you, Carlos, and good day, everyone. I will start by presenting to you in more detail how we are progressing in terms of revenues and EBITDA, breaking it down by regions. We recorded growth in all the regions during the fourth quarter, especially in Brazil, that grew 5.5% and in EMEA that grew 7.1%, mainly driven by multisector. EBITDA in the quarter reached $53.5 million. But the highlights of this slide that I want you to focus on are the EBITDA margins. On the right side, as you can see, we ended the quarter with a consolidated EBITDA margin of 14.5%, an increase of 9.5 percentage points compared to the same quarter last year. All regions are performing very well with high profitability across the board. Brazil margin was 18.4%, the highest since we implemented the Three Horizon Plan while America reached a 14.7% margin comparing to a negative margin last year and EMEA 16.1%. I will detail the reasons for this performance during this presentation. The results to date from implementing the plan give us confidence that we will continue to deliver positive results and achieve our EBITDA margin guidance of between 12.5% and 13.5% for 2021 and between 14% and 15% at the end of '22. Here, you can see the same information, but the year. What I'd like to highlight here is that we delivered $161 million EBITDA which is a 23% growth in constant currency. Even more impressive, on a reported basis, we were able to deliver a 5% increase in EBITDA, despite the pandemic and the devaluation of major currencies in Latin America, especially the 30% devaluation of the Brazilian real during the period. Our EBITDA margin was 11.5% in the year, a 2.4 percentage point increase versus 2019. This is a result of our strategic plan, which prioritized top line growth driven by multisector, and increased the penetration in the U.S. that is reinforced by operational efficiencies which I will detail in the next 2 slides. Our Three Horizon Plan has been driving the improvements in revenue mix. In the last 2 years, we were able to accelerate the diversification to multisector with an increase of 7 percentage points in these revenues as a percentage of the total after a stability around 60%. We ended the year with 68.2% of revenues coming from multisector as we further penetrate fast-growing vertical search as born-digital, media, tech, e-commerce and health care. These verticals not only grow faster, but also allow us to sell more next-generation services that have better margins. While we double the revenues with these verticals as a percentage of total, telcos and financials are more mature verticals and tend to grow more slowly or even decrease. On the other hand, Telefónica revenues now represents 31.8% of total revenues. Even though they are lower year-over-year, they are without any doubts a much heavier revenue mix. As Carlos already explained, we have been able to reshape our relationship with Telefónica, exploring new avenues of partnership, including new programs added early this year that will already be reflected in the first semester results. As we move on with our strategy of revenue diversification, we expect Telefónica revenues to represent between 25% and 30% of our consolidated revenues to the end of 2022 with increased profitability. I'm happy to report that as we had promised, we delivered nearly $85 million in cost savings in 2021 as a result of rightsizing the company, the zero-based budgeting that we are gradually implementing and expect to be full functional by mid-2021. This was a model that allowed us to reduce the number of sites and the shared service structure that allowed us to reduce our SG&A expenses across our entire operating footprint. The most important takeaway from this slide is that $60 million out of the $85 million annualized cost savings is structural OpEx reduction that will be carried forward to 2021. Therefore, the margin improvement in 2020 was a direct result of the efficiencies we delivered and will remain in place in 2021. From 2022 on, the improvement will come mainly from the ramp-up of the new client programs, especially as Atento conquers more clients in the fast-growing verticals and high-margin markets such as U.S. 2020 was an important milestone in our turnaround process. And this slide attests to the achievements. As a result of the various initiatives implemented in every aspect of operation from EBITDA to working capital, we were able to generate $74 million in operating cash flow, $34 million in the fourth quarter alone. In terms of free cash flow, we generated $40 million in 2020, compared to a negative $65 million in 2019, which represents an increase of $105 million in the period. This is a result of not only the high EBITDA in the period, but also the positive impact from the changes in the way how we manage our working capital, notably from the efforts to improve DSO that ended the year at 60 days. It also reflects our enhanced collections effort to recover overdue receivables. The stricter control of working capital will provide greater stability in our cash flow moving forward with much less volatile free cash flow and stable around $50 million per year for the next 2 years. We ended the period with a cash balance of $209 million, including the $60 million of drawn revolvers. While we expect to repay these revolvers throughout 2021, it will essentially depend on how the pandemic and our cash flow evolve. Last but not least, we are also pleased to report that we solved uncertainty related to our capital structure, as we just concluded the debt refinancing last month. Despite being concluded in February 2021, the process was indeed kicked off in September last year. We issued a new $500 million senior secured notes that will mature in February 2026, increasing the average life of our debt from 1.5 years to 4.5 years. The book was oversubscribed by 6x and as such is a testament that investors recognized we have delivered on our turnaround story in Q3 and Q4. Keeping our commitments with investors, these new notes are hedged with a principal hedge for 3 years and coupons until maturity. The instrument mainly consists of cross-currency swaps in Brazilian real, Peruvian soles and euros. As a reference, the BRL cost is approximately 180% of CDI, equivalent to 3.5% per year with the current CDI as compared to the BRL cost of 7% per year of the previous bond. Net debt went down 13% compared to the last year, totaling $580 million and reflecting the strong free cash flow generation in 2020. This combined with a higher EBITDA led Q4 net leverage to decrease 0.7x, which is a remarkable result considering the challenging environment from the pandemic and the effect of the 30% devaluation of the Brazilian real on our EBITDA. We are starting 2021 with no relevant debt maturity in the next 5 years with operational efficiency that will be carried out to 2021, and with a much more profitable operation that will allow us to continue to deleverage our balance sheet and deliver on our 2022 target of between 2 to 2.5x. We believe that these key element aligns the interest of all stakeholders and we expect is one of the most important catalyst for our shares to continue the very strong momentum we have seen in the last 10 months. Thank you all for your interest in Atento. We believe there is much more to come in the next years ahead. And we are committed to deliver superior value to our shareholders.

Operator: [Operator Instructions] And our first question today will come from Vincent Colicchio with Barrington Research.

Vincent Colicchio: Yes. So Carlos, nice quarter. I'm curious, do you think the refinancing of your debt will improve your standing with some customers now that you're in a better financial position?

Carlos López-Abadía: Thanks. I think on the margin, yes, I think the refinancing, I think, is very important for the company as a whole, but I think probably more for investors to make sure that everybody understands that we have a solid capital structure. Some customers are sophisticated enough to look into these things. So that would -- obviously would impact positively. But I think it's mostly an investor and management and board type of issue. We feel, as José has said and I mentioned, we -- for us, this has been a milestone because we resolved this issue for -- until 2026, plus we've done it in very good conditions, including the hedging of the capital and -- sorry, the principal and the interest, which was not the case before. So we feel, from a financial perspective, much stronger from this perspective.

Vincent Colicchio: Thinking about the business model, once we get past the pandemic, do you have any sense for what portion of your clients would be okay keeping things at home? We've heard from some other contact center players that security and quality of the technology makes them want to go back into the office at some point. So just what does the mix look like longer term? Any thoughts on that?

Carlos López-Abadía: Sure. That's a very good question. It's one that a lot of people are asking, including ourselves. Let me tell you what I know, and let me tell you the boundaries of what we don't know, right? The work at home is not going to go away, that I can tell you. And it's something that is going to continue to be in crescendo. Why do I say this because this is one of the things that this -- the current pandemic has accelerated and crystallized. In other words, things that were already happening in society. So things that are not necessarily unique to the pandemic, but the pandemic has accelerated. So from that perspective, it will continue. The trend will continue in that direction. That's clear to us. What will happen after the pandemic, whether it -- there is a little dip down and then to resume the upward trend? I think that probably will be the case. But the attractiveness of the work at home, I think it's crystal clear for all the participants, right, for company employees and most importantly, customers. The customers gives the -- gives resiliency in a distributed workforce or base. It gives you the ability to recruit much more broadly, particularly as you're looking for specific skill sets that now you don't have to look for them concentrated around a very small geographical area. So a lot of benefits there for customers. Employees love it. We ran a lot of surveys, and it's absolutely loved by employees. And for us, although it's an investment in the short term. So there's some costs associated with doing this at scale. In the long term, it provides also more flexibility for us as an employer and a provider, but also potentially cost savings. We have plans that we have different scenarios in terms of what will we do, and what centers we could reduce or consolidate depending on different scenarios. Exact number, yes, nobody knows. It's going to depend on the market, but I can tell you with certainty that at least with conviction that the trend is clearly in that direction.

Operator: [Operator Instructions] And I would now like to turn the conference over to Mr. Shay Chor for any questions received via the webcast.

Shay Chor: Thanks, Col. So we have a question here on dividend policy and share buyback for '21 and '22. What are the shareholders' view about it? And what are the priorities of the company's capital allocation for the next 2 years?

Carlos López-Abadía: Sure. Specifically on dividends and share buybacks, there's no plans for dividends at this time. The Board has authorized us to have extended the authorization for buybacks, which we will continue to use adequately. But I will repeat what I probably said in every time that the question came up, the priority -- our priority is to invest in growth and in the transformation of the company. Those are the critical uses of cash. Our policy is to make sure that we invest in the long-term value of the company, not any particular quarter or year. So with that in mind and with those priorities for the use of cash, we have in the past used the authorization to do a limited stock buybacks, and we will continue to do so. But again, first and foremost, use of cash is the growth and the investment in the company.

Shay Chor: As a follow-up question on the same theme here on the shareholder and the lockup period as probably they have slightly over 1.5 years of lockup. Do you have any sense of what we've been talking to them? And do you have any sense of their plans once the lockup is over?

Carlos López-Abadía: Well, I mean, probably you have to direct that question to the shareholders. As far as you're asking my sense of it, I don't have any sense of urgency from them whatsoever or whatever that's worth. But as to the intentions of any shareholder, I would not want to presume to know so I would be like the host to them. But in terms of their communications to the management of the company or indication, there's no -- I don't have any sense of urgency or definitely not any particular pressure from the shareholders.

Shay Chor: One question here on cash flow. Can you help us navigating through your '21 cash flow expectations? And assuming that the CapEx is around $60 million and your interest costs will be higher because of the debt refinancing, can you explain to us and run us through the cash flow, so we can understand those moving parts?

Carlos López-Abadía: As you probably, José is already -- I can see it is basically something I want to direct to him and you, Shay. It sounds very specific. So I don't want to put my foot in my mouth. José?

José de Azevedo: Yes. Only to clarify, it's a fact that we will have more interest this year because we have a high interest rate. But if we invest $60 million, our expectations is to have a free cash flow of between USD 5 million and USD 10 million end of the year.

Shay Chor: Yes. I will just add there to help people understanding on those numbers. So obviously, EBITDA depends on each one of you and how you do your model, but you can assume around, as José mentioned, $60 million in CapEx; then we have around $15 million, 1-5, in working capital headwind; $15 million, 1-5, in taxes; and then the interest which should be around $45 million or $50 million. So this is pretty much -- and then you do your own EBITDA assumption. That's how we get to around $5 million to $10 million of free cash flow. I've got a question here on seasonality and people trying to understand if they annualize Q4, then EBITDA margin looks -- your guidance looks conservative in all aspects, in terms of EBITDA margin looks conservative, in terms of leverage looks conservative. So can you walk us on how you got -- the rationale behind the guidance that you provided in light of your good results in Q4.

Carlos López-Abadía: Sure. So not the first time I hear this question. So let me separate into seasonality and how we build the guidance. Seasonality we have -- I mean if you look at the history of this company, you can see clearly the seasonality. Q4 is traditionally a high quarter, while Q1 is traditionally a low quarter. That difference was much more pronounced if you go back in history. One of the things that this management team has done is, hey, look, we understand there's certain unavoidable factors of seasonality, but we can improve how we start the year in Q1. We have an easier job in the rest of the year. So we're looking closely. And if you look at how we have improved, the Q1-to-Q1 improvement is what we look at. So we're trying to decrease that seasonality effect between Q4 and Q1. But there is a seasonality effect. So multiplying Q4 by 4 is probably giving you the wrong numbers. Having said that, take a look at us and see how we do in Q1 to Q1. Our aim and our expectation is to continue to improve that every year. How do we construct the guidance? It looks conservative to you. Well, look, can we do better than that? Can we do much better? We certainly can, right? A number of circumstances this year, any year in some of the markets where we operate, Latin America, for example, in any year, but particularly this year, are there potential or announced on the downside? For sure, there are. We think we can manage them? Of course, we can. What we're trying to give you is a range that -- that fundamentally builds our credibility with you. I promised from day 1 that the intention of this management team is to prove to you improvement quarter after quarter after quarter year after year. We don't expect to earn the credibility of an investor by having 1 quarter, 1 year or -- and a very high guidance. We expect to earn that comfort and confidence of the investor base by delivering quarter after quarter year after year. And part of that is giving you a guidance that, that we have a high confidence of making it. Could we do better? Of course, we can. But this is the range where we feel very confident to deliver to you.

Shay Chor: Okay. Col, do you have questions over the phone before we continue with the questions over the webcast here?

Operator: We do. And our first question will come from Beltran Palazuelo with Santalucia.

Beltran Barroso: I would like to congratulate all of you and the employees of Atento for very hard work and, let's say, very positive results. I have maybe 2 questions, maybe regarding the CapEx and where you're allocating the CapEx. If you could give us more profile, let's see. The profile for the year, you gave mid-single-digit constant currency growth. If you could talk a little bit about the clients you're bringing to Atento and actual clients that you're growing with them. Is it possible that maybe in the back end of the year, this constant currency growth is higher? And then the second question is regarding the strength, everybody is seeing the strength of the company and the possible free cash flow generation that this company has generated and can generate maybe about maybe value-added acquisitions, what are you seeing in the market? What do you think can add Atento to keep improving the relationships with its actual clients?

Carlos López-Abadía: Okay. Nice to hear from you Beltran. Thank you for your questions. Let me try and if I forget some part of the question, please, please remind me. I'm also going to ask José and Shay to comment also as well in the whole thing, but particularly any specifics on the CapEx and cash flow. In terms of CapEx, the -- José and Shay will give you more specifics. But one thing to keep in mind that we're still trying to be very conservative and very prudent because we're not done with the health crisis worldwide by a long stretch of imagination as you all know. We all have great hopes and expectations for the year, but we're still managing in a very complex environment. We're trying to be prudent, prudent in many ways, prudent with the forecast, prudent with the way we have constructed our budget and prudent how we make disbursements of different types, costs and CapEx. So we're being prudent with CapEx. Having said that, I told you that I feel very optimistic about 2021. I think the signs, the sales in Q4 and the way we've started the year seems to indicate that we have a lot of potential in 2021. So if things materialize better than the budget, for sure, we will invest more in growth and potentially in transformation, increasing some of that CapEx expenditure. But we're giving you what the -- changes I have given you is what we have in the budget, what we have in the plan, and it's a prudent -- prudent plan that if we exceed, it will be for very good reasons, we'll be very happy to explain to you, if that happens. Second part on M&A and acquisitions, nothing specific in the horizon. We have based, as you know, our transformation on organic transformation. What do I mean by that? I fully believe that to do the kind of transformation we are executing in Atento, we have to change every fiber of the company. We discussed many times. We have initiatives in sales, in operations, cost, management of the back office. We talked about also the capital structure, pretty much touch everything we do. But particularly, let me emphasize innovation, right? Innovation is key. We have made a lot of progress in that area in terms of new services, next-generation services, the way we operate internally. And that requires changing everything that you do. Innovation is not something that you do Monday, Wednesday, Friday, but you don't do it Tuesday, Thursday, it's something you do every day. It has to be part of everything that you do. It has to be part of the way you think, the way every employee thinks and operates. You cannot do that by bolting on a number of acquisitions. You can't, right? That's not to say that you cannot accelerate or buy some very specific skill set or very specific technology that you need to complement that organic transformation. So that's the way we look at in mind. We don't have anything in the radar at the moment. But I don't discount it, but I want to tell you that our focus is the plan that I described to you. And quite frankly, that the results that we have so far give us the confidence that we're on the right track. Did I miss any part, Beltran?

Beltran Barroso: No. Thank you very much for your answer, and the -- and for the hard work of you and all the team, all the support from [indiscernible] working harder.

Carlos López-Abadía: Thank you, Beltran. José and Shay, anything you want to add?

José de Azevedo: Yes. On Capex, only, if I can tell is only from the $60 million that we talk about, it's -- $45 million is for maintenance. And the difference, the $15 million is for new contracts that we expect basically that -- and the high amount of maintenance is another internal movement in terms of digital that we need because we have our -- big part of our IT still on-premise, and we have a big opportunity to move to cloud, inclusive to save more money in the future.

Shay Chor: Yes. And I -- the only thing I'll add here, Beltran, is that when we look into the growth CapEx we aim with project that -- with minimum return on invested capital of 30%, and the average payback that we look at is around 12 months, just to help you understand the growth CapEx.

Operator: And our next question will come from Akshay Shah with Kyma.

Akshay Shah: I'd echo a little bit of what Beltran just said. I mean I would applaud the management team and the new shareholders for the performance in what has clearly been a tough year. And look, I mean, you look at the numbers for Q4. I think the company is unrecognizable from 2 years ago under the previous ownership. So lots of credit for that. I've got a series of questions. So maybe I'll just put them forward 1 at a time. As you look at your Telefónica versus multisector mix evolving and maybe use Brazil just because that's why it seems to be most progressed, Telefónica is now getting down to plus or minus 20%, 22%. What is the narrative -- what that multisector business looks like looking out, right? Because for too long, I think people have viewed Atento as a CX business supplying into the telecom industry, and obviously, that narrative, as evidenced by Brazil, seems to be evolving quite rapidly. So maybe a question for Carlos. Carlos, how would you define that narrative for an investor with a sort of 5-year view looking out -- looking at that multisector business?

Carlos López-Abadía: Sure. So two things. Let me answer that quantitatively and qualitatively. So our expectation is that Telefónica weight in the portfolio will continue to decline. Having said that, and you heard in my prepared remarks that Telefónica will continue to be a very important client. I mean we thought that, in fact, is a client that we cherish in many ways, not because of the size, but the length and the type of relationship, relationship that continues to improve. We have increased our wallet share of Telefónica. And we consistently get the feedback from Telefónica that tell us we are consistently their best provider. We strive to continue to be in that position, right? So let me be clear about that. Now the evolution of that business will depend a lot on choices that Telefónica might make about internalizing some services or the growth or the direction of the Telefónica business, and that's normal. What I can tell you is on the other side, in multisector, we continue to grow at significantly higher than the market rates. And we foresee to continue to do that on an ongoing basis. Also qualitatively, what is that multisector? As you know, Akshay, we discussed this a few times. We made a bit of a shift a couple of years ago. We decided to focus a bit less on the traditional sectors of this industry, the traditional banking and the telecom and focus much more in other sectors, sector where we saw not only more growth but also more interest in the advanced services that we're moving towards. We call some of those companies, born-digital companies, includes media, includes technology companies and so on. So we have had a lot of growth in those segments. The growth in those segments probably is -- I mentioned, for example, that we -- the growth in next-generation services being 50% of what we sell today. One of the beauties of moving into high-growth segments is that you may start with a $1 million contract, but that tends to grow with your clients as long as you do a good job, which we do and we intend to continue doing. So I expect -- and you should expect our multisector to continue growing at or better than that market rate and the focus to continue to be on those higher growth, more digital industry sectors that we have focused. As I said before, when you create a plan, it's a bit of a theory, right? You need to be tested in practice. This is one of those aspects of our initial plan, which has proven to be very successful. So we will continue to pursue it. Did that answer your question, Akshay?

Akshay Shah: Perfectly, Carlos. The next one might be for José, but really, on a similar vein, as the business has evolved, how would you describe and define your cost base looking out. You had the pandemic impact your WAHA model. But also presumably, these multisector clients need a different sort of service from your traditional legacy telecom clients. So what I'm trying to get to is the cost base also getting more flexible as the top line evolves.

José de Azevedo: Yes. Can I answer, Carlos?

Carlos López-Abadía: Of course, you can, this is directed to you, so you know...

José de Azevedo: Okay. Perfect. No, Akshay, thank you for your question. First of all, our cost structure still this year with a bit of mix. Yes, because we -- as you know, we have done a lot of efforts in terms of cost reductions or operational improvements as Carlos like it, the name. But in fact, ongoing basis, for the future OpEx, we can consider less $60 million. Even we have -- with the new products, we will have another type of needs if I can say. For example, we need more technology to attend these kind of clients, the new clients. Of course, but these amounts should be allocated -- almost of this amount should be allocated more in terms of CapEx. That is why we insist that's -- the CapEx that we spent -- or spent in the last 2 years or 3 years was less. And when you compare against our peers, we can see that we spent less, yes. But that will be -- in the future, our needs, it will be more for the new clients in terms of CapEx. In terms of costs, as I mentioned, we have ongoing plus $60 million in terms of OpEx, still mixed with some extra costs that we still maintain in terms of -- because the pandemic. Yes, we have some amounts there that we have to maintain. In the future, we can adjust these costs, of course. But for example, we have to invest to close some sites, for example, yes, that is why we still work on the structure. In fact, today, what we have is less USD 60 million in terms of OPX. Ongoing basis, with the new technologies, we expect to invest more, a bit more in terms of Capex, not direct in the OpEx. And the OpEx, we can adjust more for sure because with the new technologies, maybe we'll need less people to operate. Yes, that is the future, but not for this year. Yes, I think that is more ongoing basis for 2022, 2023.

Akshay Shah: Very helpful. And 1 final question. Obviously, predominantly, local currency business with local currency costs, I applaud your decision to -- firstly, congrats on getting the high-yield refinancing done and then hedge it into local currencies. Could you spend a minute just talking about the nature of that hedge? I know you said 180% of CDI. But if CDI goes up by 1 percentage point, does your cost go up by 180 basis points [indiscernible]? And then secondly, how you think through that local currency exposure also in terms of your equity? Does it still make sense to be a dollar reporting company?

Carlos López-Abadía: I think this 1 particular hedging is for you guys.

Shay Chor: Yes. So let me take the hedging one. So actually, we -- when we started to look into the alternative that we had to do the BRL hedge, we had obviously 3 alternatives, right? We had pre-fixed, and then we would have the entire curve from here until the maturity on a fixed basis. We had a CDI-plus alternative, and we had a percentage of CDI alternatives, all of them have -- they have pros and cons, right? The pros of what we did is that if we believe that the rates are not going up as the curve is implying now, it gets cheaper than doing a predetermined cost. So just to give you an idea, the predetermined cost for doing principal plus interest on the BRL would be close to 13 -- between 12% and 13%. And the way we did it with the percentage of CDI, 180%, and you're right, that's exactly 180% of the CDI. So CDI is now 2%. We paid 3.5% of interest. If CDI goes to 5%, we pay 180% of 5%, right? So as simple as that. Now from our -- the math that we did, the CDI can go up to 7%. 7% is the breakeven between if we did the pre -- the fixed or the floating as we did. So 7% is a breakeven. The difference is that the way we did it, we pay way less in the first 2 or 3 years. And as our expectation is always to refinance the debt 2 years ahead of maturity, we thought it would be better to do savings on the interest in the first 2 or 3 years and then we'll see how it evolves for the remainder of the debt.

Akshay Shah: Very clear. There was a second part.

Shay Chor: And on your second part, maybe Carlos can talk about it and José, if -- what are plans if we thought about doing listing in a different place than U.S. or doing reporting in BRL and other currency instead of U.S. dollars, I think this is the nature of the question.

Carlos López-Abadía: Look, as you know, actually, we have discussed on many occasions the benefits and the -- of being listed in the U.S., being listed in other places or being a private company for that matter. No plans, no specific plans in the near future to do any revoke. So the -- sorry, delisting, what was the other part of your question?

Akshay Shah: No, it wasn't a delisting question necessarily. It was not a delisting question. It was more a question around the company is now out and out, a local currency, Latin American exposure, right, especially after the dollar debt has been hedged. So is there any thinking to representing that more clearly through your financial statements, right, in the form of a Brazil listing or just continue to remain on the NYC, but just reporting real. I just think it's -- as a dollar investor, I am consciously taking Brazil [indiscernible], right? And I think it's just how you end up representing that in your financial statement, that's all.

Carlos López-Abadía: Yes. No. Okay. I understand. Is there a clear way to represent if -- happy to take any suggestions. There was one, I think, that would occur to us, we would. Of course, there are. As you know, there are certain financial regulations that we have to abide by. But in terms of could we do something in addition to, we will consider any suggestions that you may have. I mean we opt for transparency and trying to communicate the best possible way the performance of the company. In terms of the intrinsics of the market, we operate at the market that we operate, they have some positives and some challenges. Foreign exchange for a U.S. dollar investor as most of you or all of you are is clearly one of the challenges. We talked about the hedging for the debt and other instruments. We also have a very balanced -- I think it's called -- I hesitate to use the technical word, another word is immunization. We try to balance inflows and outflows within the same currency. So we're fairly balanced from that perspective. In addition to that, more strategically, you may have noticed that some of our hard currency markets are experiencing significant growth. I put a lot of emphasis -- particularly in the U.S. we had a very good growth quarter in EMEA as well. But I put a particular emphasis on the U.S., which is performing very well for us. 2020 has been a very good year of growth and improvement in the U.S. market, and we see 2021 to continue on that trend. So in terms of long trend of the company, we see that also the intrinsics to be better from that perspective. I realize there's not -- I'm not answering a question of how to represent or disclose. But what to me is even more important to improve the stability with respect to foreign exchange of the company cash flows.

Akshay Shah: A very helpful, Carlos. And once again, look, we applaud everything you have accomplished in your 2 years, everything José has accomplished in 1 year. So keep up the good work.

Carlos López-Abadía: Thank you, Akshay.

Operator: [Operator Instructions] I'd like to turn the conference back over to Shay for any questions over the webcast.

Shay Chor: Thank you, Col. So we have 2 questions here on Telefónica. One is about the -- any discussions on the renewal of the MSA with Telefónica? And the second question is there are some news out there for a while now that Telefónica could be selling its business in Latin America, what would you expect the impact would be?

Carlos López-Abadía: Let me take the last first. This is not in question. I mean Telefónica made some announcements in terms of how they were restructuring their portfolio and where they put their priorities. That situation has not changed. So number one, Telefónica is putting a lot of priority on our biggest markets with them, which happen to be Spain and Brazil. Second, the way -- we're not particularly worried about the rest of the Telefónica portfolio from the perspective of what Telefónica may or may not do in terms of partnering, selling or whatever they choose to do without or keeping at that rest of the portfolio for a variety of reasons, and -- but the number one reason is we base our business with Telefónica on the same basis that we do with anybody else, which is we strive to earn the business that we have with our clients every day. The day that you have to depend on an obligation to buy from you is the day that things start going the wrong way. That's the way we have performed with everyone, and that's the way we perform with Telefónica. We continue to win. I think I mentioned that in my prepared remarks. We continue to win business with Telefónica and the business continues to be across the board in traditional and next-generation services. And all those new contracts that we win with them, we win them and consistently get the feedback from them that we win them not because of any MSA, but because we happen to be the best provider in that area, in that market, in that -- those set of services. That is the way to manage any business, Telefónica or anybody else. So from that perspective, I'm not worried either in the, what we want to call, I think Telefónica across the eastern markets versus Brazil or Spain, not worried at all. Do we have discussions on renewal of the MSA? We had that several and that may happen again. But again, to me, the day that you have to depend on -- on an obligation to buy, to sell to a customer, that's the day that you have to be worried, you have to be seriously worried about that business. So we base everything that we do on earning the business with our customers.

Shay Chor: Carlos. Next one, we get -- we have a question on our U.S. business, split in 2 questions. First is growth seems very strong. What is the EBITDA margin that we are extracting in the U.S. versus the rest of the regions? And the second question on the U.S. is how is the pipeline looking? You mentioned a new win on Maryland, state of Maryland, how is the pipeline looking?

Carlos López-Abadía: Let me start last first. Pipeline is looking very good. As I mentioned a second ago, we expect to continue to grow the fast pace in the U.S. So I'm very pleased with what we see out there. We're highly ambitious, but we will continue to pushing ourselves there even further. In terms of the margins, I'll give you the actual answer compared to the rest is high. It is at the top of our range of margins. So it's -- U.S. is an attractive market for a variety of reasons. One of them is we can -- we are focusing -- not only we're focusing on the right verticals, but it's a market that demands higher quality, more innovation, and when you actually deliver those and you can deliver significant value, you can also get significant margin. So the EBITDA margins there are at the top of range.

Shay Chor: Okay. Next one is on COVID. Especially in Brazil, we are seeing a lot of news about potential lockdowns in Brazil. What is your expectations of the impact that our resurgence of COVID in Brazil would be -- could do on revenues, on the cost side. Can you elaborate on this?

Carlos López-Abadía: It's hard to say, right? They -- I will tell you what -- as usual, I will tell you what we know and the limits of what we know. The situation in the country, well, I'll let José and Shay to comment, they live there. I get the reports and it's a tough situation. It's a tough situation where there's a lot of cases and the health care system is strained to say the least. So at the human level, I'm worried. The -- from the perspective of the business, as I told you, again, it's very difficult to predict. I think humanity as a whole has never been in -- I shouldn't say never. Humanity as a whole has not been recently, in the last 100 years, in a situation like this, so hard to predict. But what I can tell you is that we are in a much better position to manage the crisis than we were this time last year. We know much more about the crisis, the consequences, the impacts, the transmission, et cetera. We have reconfigured our business. We have a very large proportion of our employees, more than 80,000 worldwide, working from home. Now let's recognize that working from home doesn't necessarily mean that you're free of risk. You still have the significant risk or the risks that you have in home, right? But definitely improves the situation. And we have much, much, much better controls, protocols in the centers, social distance, hygiene, disinfections, protocols to detect any early signs or problems. So it's not perfect by any stretch of the imagination. We all live in a risky world, but we're in a much better position than we were in 2020. The broader risk of the economy, what would happen to the economy of Brazil and other countries in the months ahead. Again, probably many of you on this call are in as good or better position to make the projections for the different economies. There is some uncertainty there. But one thing I would tell you is that -- and particularly in Brazil, we did have in Q2 a significant impact, not only in revenue, but we could see the impact on sales, et cetera. Brazil is recovering very well in terms of pipeline and sales. So the business there seems to be -- not just us adapting to the new normal, but the economy as a whole. So business seems to be doing well. Having said all that, and with all my optimism, you have to temper that with the fact that humanity has never been through this in the last 100 years, right? So you have to be cautious. So very optimistic, but cautious. I'll let José and Shay, how you see Brazil? I don't want to characterize it secondhand.

José de Azevedo: Yes. No. Brazil, it's a tough situation. We have all regions in Brazil with a red flag. It means inclusive In São Paulo, we will start lockdown after Saturday and real -- the expectation needs to be in lockdown the next 2 weeks minimum, yes. But the big situation here is exactly the vaccine because these guys don't have any planning before for buying vaccines and steps to organize between the regions. Hence that is our main impact, if I can say it, because it's an uncertainty to live in this way. Yes, it's not easy. In our case, as a company here, we have an advantage because we are considered essential service. It means we can still operating. And with the quantity of people that we have work from home, I think that will not affect a lot of our business. We still maintain the same measures that we started 1 year ago. It means in terms of masks, in terms of alcohol, in terms of tests, and the one we're still doing the same in Atento. That is why I can tell that it will be ongoing. Yes. Our expectation is to end that faster as we can, but unfortunately, will continue during this year. But again, in terms of operation, I don't think so that we have a lot of extra issues.

Shay Chor: Okay. Carlos, in your prepared remarks, you talked about technology Atento Next, and we've seen, in recent years, a lot of platforms as a service, cloud communication offerings, how do you see the technology affecting Atento for good and bad? Can you elaborate how you plan to leverage on technology to continue improving the business?

Carlos López-Abadía: Technology, depending on where -- in any business, by the way, depending on what side of the road you are, it's your enemy or your friend. For us, in Atento, we absolutely see it as our friend. We -- I've talked about quite a bit our next-generation services, et cetera. But perhaps at some point we should do a specific monographic on technology and the innovation at Atento. Today, there's very few, if any, service in which we don't put a lot more technology than we did literally a couple of years ago. So even traditional services, we're introducing a lot of technology, a lot of analytics, artificial intelligence, automation to support what the agents do. In many cases, we have a large percentage of the transactions that we manage -- are managed in a completely automated way through AI, chat bots, through web front ends or apps. But even in the many cases where we actually have agents and actually may even look as a more traditional service, we've added a lot of technology, and we continue to do so. That allows us to do a number of things to manage better service, to provide additional capabilities to our customers to make the work more efficient. We could do more with these agents and on and on and on. Thanks to some of these innovations that we have been able to manage very effectively 80,000 employees working from home. We've introduced a lot of tools very rapidly. And when I talk about having a platform, we have now a permanent platform that includes not only technology, but the supporting technology, but our methods, process that allows us to manage the whole value chain, the whole process from recruiting to hiring, to training, to delivering the service, the whole process in a digital way. And all that is thanks to technology, which will continue to have a very significant and increasing positive impact for us in Atento.

Shay Chor: Okay, next question. Do you measure churn, and this is the indicator that you follow, how you compare churn with the new client wins? Can you elaborate on that?

Carlos López-Abadía: We do. We do measure churn. How do we compare it with no client wins? Well, we have a number of internal metrics, not only in the absolute value of those components. But very importantly, the quality, you've heard me talking about the quality of sales. We also look at the quality of different contracts, wins and churn. Some of the metrics that we use, I think that I mentioned to you, contribution margin, for example, right? I talked to you about certain contracts that we discontinued because we were not getting the margins that we're looking for. Contribution margin of -- I mentioned to you how we measure new sales and how they are significantly higher at 10 percentage points, higher contribution margin. So we look at those quality metrics. But also, we look at other quality metrics such as maybe less easy to communicate, but very important for us, which is some of the terms and conditions of the contract, the technology content for our prior answer. We were looking for places where we can deploy more innovation and technology content. So those are metrics that we use as well to look at the quality not only in sales, and perhaps I talked about it more around sales, but also in terms of churn. So we look at absolute numbers. I consistently shared those with you in terms of the growth of different sectors and so on. But also the quality of the revenue is very important for us.

Shay Chor: Okay, one question here on -- can you talk about your -- the mid-single-digit growth profile, how are you seeing the different verticals born-digital. Is health care growing? I know that health care is one of the largest outsources in the U.S. Is something replicable in Latin America? How do you see that?

Carlos López-Abadía: Sure. A lot of the little high-growth sectors and companies tend to translate very well worldwide. Again, a bounding on the technology topic. Technology is not a country specific, as you very well know. Technology and a lot of the innovations that have technology behind them tend to be global in nature. Now they may be introduced in 1 country before others, but tend to be global in nature. So pretty much all the comments that I've made regarding different sectors, different industries tend to apply generally across the board, and it's very applicable to the different countries. That's one of the reasons, for example, that I mentioned Atento Next. And the work we're doing there, we started as -- we started many things in Brazil and then we're extending it to all the countries. I talked a lot about what the work that we do in the U.S. The wins in the U.S. tend to be, for us, have some strategic value in addition to the dollar figure. They tend to be in the new sectors. 100% of the U.S. growth is multisector and particularly in the high-growth sectors that we talked about, it tends to have more innovation and more technology content, which is also very good in terms of having credentials in different sectors and with different technologies and with different partners that we can take to other parts of all the countries in our portfolio. So very synergistic across the board. But if you think that a lot of these trends are pretty much global, you probably won't be very far from [indiscernible].

Shay Chor: Okay. We have some follow-up questions on the free cash flow. And so I'll take that directly, Carlos. And the question is, can you clarify on the EBITDA, you mentioned -- you have a guidance of 12.5% to 13.5%. So if I do that or if I look at consensus, we're talking about around $180 million, $190 million in EBITDA. So I'm not able to reconcile with your $5 million or $10 million free cash flow so -- and my apologies on that, just to make clear, the $180 million or $190 million that you're considering on EBITDA, that is IFRS 16. So remember, we have to take out around $45 million, give or take on the leasing expenses. So that is how we get to the $5 million to $10 million in free cash flow. Another question, just quickly, on the average cost of debt. It has been around 7%, the effective cost of debt in the last year or so. And this is pretty much all the questions we have here on the web. We don't know, Col, if you have any questions over the phone. If not, we can just go back to Carlos for his closing remarks.

Operator: And currently, at this time, I'm seeing no further question.

Carlos López-Abadía: Okay. Very good. So no big closing remarks, to thank you all of you for your attention and for your time and for the very good questions that we've been getting. So thank you very much, and wish you a great day.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.