Atento SA (ATTO) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Atento Second Quarter 2017 Earnings Results Conference Call. (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.

Thank you, operator.

Please turn to Page 2. Welcome to our 2017 fiscal second quarter earnings call. I have with me today Alejandro Reynal, Atento's Chief Executive Officer; and Mauricio Montilha, Atento's Chief Financial Officer. Alejandro will begin with a brief review of our performance and strategy, and then Mauricio will review our financial results and guidance for fiscal 2017 in more detail. Afterwards, we will open the call for questions. Following Q&A, Alejandro will have a few closing remarks.

Before proceeding, let me just mention that certain comments made on this call will contain financial information that has been prepared under International Financial Reporting Standards. This financial information is unaudited.

In addition, this call may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risks and uncertainties. Certain results may differ materially from those in the forward-looking statements as a result of various factors. We encourage you to review our publicly available disclosure documents filed with the relevant security 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 in investors.atento.com. Please note that unless noted otherwise, all growth rates are on a year-over-year and constant-currency basis. In addition, our revenue growth rates for our consolidated results in EMEA segment exclude the impact of our divestiture of Morocco, which occurred in our third quarter fiscal 2016.

Now let me turn the call over to Alejandro.

Thank you, Shay, and good morning, everybody. Thank you for joining us today. Please turn to Page 4.

I am glad to share with you that we continue to deliver solid top line growth with stable margins while enhancing our capital structures through the recently completed debt refinancing.

Revenues increased 2.4% in the quarter, driven by a strong growth in multisector, mainly driven by Brazil and the Americas regions. We saw the very solid revenue growth of 8.5% for multisector clients, mainly in Brazil, which represented a revenue growth of 11.2%.

Also positive in the quarter, our mix of revenue from higher value-add solutions increased by 330 basis points to 26.3%.

Revenues from Telefonica are stable in key markets, aligned with first quarter 2017 volumes and their revised master service agreement parties.

Following our growth strategy and ongoing focus on CRM/BPO digital services, we launched our new Atento digital platform, a newly created global business integrating all the company's digital assets to generate additional value for clients and drive growth across verticals and geographies.

We have also signed a strategic partnership and acquisition of a minority stake in Keepcon, a leading provider of technology-based solutions for monitoring and analysis interactions through natural language processing, artificial intelligence and analytics.

Our adjusted EBITDA margins were 11.1% in the quarter, while our year-to-date margins were 11.3%, are in line with our full year guidance, driven by our continuous focus on disciplined management of our operations and an improved business mix.

Adjusted earnings per share in the second quarter were flat at $0.13. On a year-to-date basis, adjusted EPS increased by $0.04.

We have concluded our debt refinancing with the issuance of a new USD 400 million senior secured notes due in 2022. The enhanced capital structure will lead to higher flexibility and lower cost of debt. More specifically, we estimate the debt refinance to reduce interest expenses by USD 10 million to USD 15 million per annum as of 2018.

With our performance through the first half of the year, we are revising our guidance for 2017, highlighted by an improved revenue growth of 5% to 8% compared to 1% to 5% in the previous guidance.

Please turn to Page 5. We continue to be very focused on executing our growth strategy, which consists of consolidating our leadership in the core voice business, continuing to grow into higher value-add solutions and accelerating the mainstream digital offer.

A few particular accomplishments in the quarter include: first, in the telecommunications vertical, we won over 2,400 workstations from non-Telefonica telco clients. Our expertise continues to make us a reliable partner for telcos as evidenced by these wins.

Our Telefonica business was stable in the quarter as we continue to win business with more than 600 new workstations additions in the second quarter of 2017.

We also continue to expect ongoing opportunities in the financial services vertical, where we have a 22% share of a USD 2.5 billion market.

In the quarter, we won over 750 workstations, with 35% of these coming from new clients. We remain very well positioned to capture share through our expanded capabilities in the collections through the acquisition of R Brasil and in back office [credit origination] through the acquisition of Interfile. The combination of Atento and Interfile creates the leading provider of credit origination solutions in the Latin America market with a fully integrated BPO platform to deliver end-to-end solutions for financial services.

We also see opportunities for growth in other industry verticals, where outsourcing is less penetrated, such as utilities, consumer goods, health care, technology, among others.

During the quarter, we added 1,200 new workstations in this vertical.

On the U.S. nearshore business, we won a new client from the technology sector. [This segment] continues to be a tremendous opportunity for Atento, given the strong competitive position we have.

Also, as I said earlier, during the second quarter, we launched our new digital global business unit, which is in line with our ongoing focus on CRM and BPO digital services. This business unit, based in Brazil, consolidates all the digital solutions that we currently provide to our clients plus integrates all our development capabilities in this area to continue to grow our digital offer.

We have also recently announced a partnership with Keepcon, which will further expand our digital capabilities and allow us to provide a differentiated digital customer experience, particularly to telcos and financial services. Keepcon focuses on managing customer interactions, primarily via text, through natural language processing capabilities and analytics.

Moving to Slide 6. We have been delivering a solid revenue evolution, reflecting our consistent growth strategy execution. This reaffirms our view that we are on the right path. Our revenue from multisector has shown a strong growth of 27% since first quarter 2015 in a difficult macro environment and where the combined GDP for the region has been negative.

Regarding Telefonica, revenues has stabilized back to early 2015 levels. Furthermore, I would like to point out that we have been driving consistent expansion of our higher value-add solution portfolio, which had a 10% CAGR since the beginning of 2015.

Please move to Slide 7. We believe that our leadership position and strategy execution will lead to future sustained growth. We will continue to focus on addressing the opportunities we see in the market in our core business as outsourcing penetration continues to grow in the region, expanding the portfolio of high value-add solutions to address additional areas of spend and satisfy our client needs and, finally, developing a mainstream digital offer. To this end, we will continue to explore opportunities to add capabilities to Atento. The enhanced capabilities through the recent acquisitions of R Brasil, Interfile and Keepcon have proved to be of great value in growing into higher value-add solutions on digital.

In summary, and before I hand it over to Mauricio, let me say that I feel very good about what we have achieved in the quarter, and I remain very confident in our ability to deliver solid top line growth in 2017, reflected in the revised revenue guidance for the year. I also remain very excited about the prospects for the business as the leading customer experience solutions company in our markets.

I will now turn it over to Mauricio, who will walk you through the financial results in greater detail.

Mauricio?

Thank you, Alejandro. Please turn to Slide 9. As a reminder, I'll be referring to growth rates on a constant-currency and year-over-year basis, unless noted otherwise. In addition, as a result of our divestiture of Morocco in September of 2016, this business is now in discontinued operations and the revenue growth rates for our consolidated and EMEA results have been adjusted to reflect this.

We continue to present a positive revenue momentum with solid top line growth and stable margins while we enhanced our capital structure through our debt refinancing.

Looking at our consolidated results, revenue increased by 2.4%, driven by Brazil and Americas with broad-based gains of 8.5% in our multisector business, aided by new service and new client wins in our regions.

Our diversification strategy continues to progress well. The mix of revenue from multisector clients increased 3.9 percentage points to 60.5%. Revenues from Telefonica remained stable sequentially and decreased 5.8% year-over-year, driven by volume reduction primarily in Brazil, Mexico and Argentina. The mix of revenue from higher value-added solutions increased 3.3 percentage points to 26.3% in the quarter as we had significant new client wins in the period with the addition of around 5,000 new workstations, mainly from financial service and other clients.

Our margins remained stable in Q2 versus the last quarter, while decreased 1 percentage point versus last year, reflecting the ramp-up of new service and clients and adjustments to cost structure to lower volume levels particularly due to Telefonica's softness in some geographies.

Adjusted EPS was flat to $0.13 and on a year-over-year -- on a year-to-date basis, increased by $0.04, driven mostly by lower net interest expense, which was partially offset by higher effective tax rates.

Our free cash flow before interest and acquisition was a positive $15.4 million, and we continue to deleverage even after investing in add-on acquisitions, taking our leverage to 1.8x versus 2x in the same period of 2016.

Please turn to Slide 10, where we're going to start looking at our segments.

In Brazil, we are encouraged by the improving growth profile, declines in GDP continue to moderate and consumer confidence strengthens. Revenue increased 5.8%, driven by strong 11.2% growth in multisector. Revenues from Telefonica were stable versus Q1 2017 and Q4 2016 and declined 4.4% versus last year.

We continue to make significant progress with our revenue diversification. Our mix of revenue from multisector clients increased 3.3 percentage points to 68.8%, while the mix of higher value-added solutions reached 36.3% of revenues. Adjusted EBITDA margin declined by 1.1 percentage points to 12.3%, while year-to-date margins of 13.4% remained stable versus last year. The decline in margins was mainly driven by ramp-up of -- from newly acquired clients and service.

Please turn to Slide 11. On America, the revenues from multisector grew 6.5%, supported by growth in Argentina, Colombia, Chile and our U.S. nearshore business, offset by 8.1% decline at Telefonica on the back of late-2016 volume reductions in Mexico and Argentina. As a percent of the revenues, multisector increased 3.7 percentage points to 57.6%. Our mix from higher value-added solutions reached a historical high of 17.5% of revenues, up 5.2 percentage points compared to the prior year period.

In the quarter, we won 2,700 workstations, with approximately 60% coming from new clients.

Adjusted EBITDA margin decreased 120 basis points to 11.7% as we continue to ramp up new contracts won in Argentina, Colombia and Chile and continued to experience adjustment in volume from Telefonica in Mexico and Argentina.

Please turn to Slide 12. In EMEA, revenues from multisector reached 35.7%, up 70 basis points, and our mix of revenue for higher value-add solutions increased 2 percentage points to 12.2%. Revenues decreased 2.0% as multisector revenue remained relatively stable in the second quarter. And Telefonica presented a 3% decrease in revenues. And we now believe that has reached a normalized level.

Adjusted EBITDA margin increased 70 basis points to 6.9%, driven by improvement in business mix and ongoing cost-reduction activities.

Please turn to Slide 13. Now looking at cash flow. In the quarter, operating cash flow was positive $30 million, with free cash flow before interest and acquisitions reaching $15.4 million. This implies that cash conversion as a percent of adjusted EBITDA stood at 29.4%. Year-to-date, our cash conversion remains in line with business seasonality and has been a key element supporting further investments in organic and inorganic growth opportunities.

Please turn to Page 14. On August 10, we concluded the issuance of $400 million new senior secured notes at 6.125% due in 2022. The proceeds, combined with the $45 million gains from market-to-market of the hedges related to the previous bond will be used to redeem the 7.375% 2020 notes and the Brazilian debentures due in 2019.

In addition, we have increased our revolving credit facility to $105 million versus $57 million previously. We do expect the benefits of the lower cost of the debt to kick in during fourth quarter of '17. On a normalized basis, interest expense should drop by $10 million to $15 million per year versus the 2017 revised guidance. This enhanced capital structure will further increase our financial flexibility, allowing us to continue to capture growth opportunities.

Please turn to Page 15. Before we open the call up for the Q&A, let me revise our guidance for fiscal 2017 considering the following assumptions: In line with strong commercial activities, impact of recent acquisitions and the signs of stabilization and recovery in our key markets, we are increasing the expectation of revenue growth to 5% to 8% versus 1% to 5% in the previous guidance.

Our adjusted EBITDA margin in the range of 11% to 12% remains unchanged as a result of the ramp-up of new service and clients. Important to highlight that the margins for the second half of 2017 are trending to the high end of the range.

The reduction in interest expense guidance reflects the impact of the debt refinancing kicking during the fourth quarter of 2017. We expect an effective tax rate of approximately 39%, still below 2016 level. The increase versus the previous guidance reflects slightly higher-than-expected nondeductible expenses and geographic mix.

Our guidance does not assume: first, any major change in the current operating, tax or regulatory environment; second, change in the capital structure or exchange-rates movements on the translation of our financial statement into U.S. dollar; and finally, new acquisitions.

Now I would like to turn the call over to the operator and take questions from the audience.

(Operator Instructions) Our first question comes from the line of Dave Koning with Robert W. Baird.

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

Dave, this is Alejandro, good to hear from you, and thank you very much. We're indeed very happy with the quarter, specifically, the view on top line. The -- if I look at the business that we have won in the first quarter and the second quarter of this year, we are back at probably 2015 levels in terms of the number of workstations and the number of business won. Therefore, what we're seeing is a very strong commercial wins materializing in the first quarter and the second quarter. Therefore, it does give us confidence in terms of the run rate going into the second part of the year. This is mostly organic growth. So therefore, even if you strip out the acquisitions, we would be ahead of the guidance. And then, of course, you have the impact of the acquisitions that we've done. Even though they are not material in revenue, they are more strategic because of the capabilities that they add to the business. But of course, they also add to the top line. So therefore, looking into what happened in the first quarter with business won and looking into what happened in the second quarter, with also the amount of business won, we feel confident in going forward and revising the guidance for the year, which by the way also provide us with a nice run rate going into 2018. In terms of the Telefonica, non-Telefonica, I would say that, of course, most of the growth is coming from the non-Telefonica business, and you are seeing in the quarter high single-digit growth rates in Brazil. We are getting double digit growth rates in multisector. So therefore, a lot of the top line growth has been driven by that. The good thing about Telefonica is that it remains stable versus what we said it would be, actually, when we commented on the fourth quarter results last year. At that point in time, we said those numbers from Telefonica will remain stable through the quarters, and that has been the case. So therefore, the decline that we saw in '16 versus '15, we're not seeing that anymore, and we see a much more stable business. So we are happy with that as well, because it does provide us a nice improvement in terms of the business mix, therefore, reducing concentration on Telefonica even further, nice top line growth as well, but also a business with Telefonica that is relatively stable going forward.

Great. And so Telefonica, do you actually think it could be pretty stable even into '18 and '19 just based on kind of transitioning today and just how the contract works?

Yes. We did perform the reset of the MSA targets last year that contemplates the business activity going forward. The (inaudible) services that into a digital MSA in the revised target, that has an implied reduction on a per-year basis. But what we do see is a much more stable business going forward. I'm not seeing the declines that we saw in the prior years.

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

David, yes, actually in Q3, there's no major benefit given when we are [billing] and also some of the interest rates that changed. But the biggest benefit is starting in Q4 this year. (inaudible) [March] and then Q3, but Q4 is really we have the full extent of the benefit.

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

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

(Operator Instructions) Our next question comes from the line of Vincent Colicchio with Barrington Research.

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

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

And then a strategic question. The digital platform, to what extent is that meaningfully improving your client interaction? And has it helped your pipeline as of yet?

Yes. I think we've done 2 things on the digital end. First, we launched a new brand, which is Atento Digital. The fact is that we have, through the company, a lot of digital developments that they were in the different countries in where we operate. So we consolidated all those assets under one brand, Atento Digital. And now, going forward, all the development is going to be done as well by a centralized team that we have in Brazil. So with that, we are leveraging our current expertise in that and, therefore, leveraging more commercial opportunities. The second thing we did is started this partnership with Keepcon, which they are in a very specific area, which is basically in text analytics, and that's a completely new area for us. They are the leaders in Latin America, no other competitor to us have that capability. So I think that's -- we see it as truly differential for our commercial efforts. As a matter of fact, they already worked with some of the leading telco players in the region, analyzing and automating some of the tax transactions that telcos receive. So what we're doing now, as part of the commercial efforts, is train our commercial team and cross-sell that into our existing clients. So yes, I think on the 2 digital efforts that we're pursuing, the consolidation of our current assets through the partnership with Keepcon would definitely provide increased commercial opportunities going forward.

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

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

And our next question comes from the line of Scott Murray with Trillium Capital.

Can you maybe talk a little bit more about your digital strategy and whether you might be considering video and text and other attributes as you see more and more of the millennial generation coming into marketplace?

Thanks for the question, Scott. Yes, with regards to the digital strategy, I think the first thing that we're doing is looking at all the different interactions we have with the customers of our clients. So therefore, you think about the end-to-end value chain of the products that we provide, meaning customer service, sales, technical support, back office, collections, now they all have a digital component. So what we're looking into is not only provide a service offering, which we do now, but also have a digital component into all of those services that we provide. To that extent, the partnership we did with Keepcon falls within the customer service, if you now think it that way. And what they do is basically all the text transactions, and what I mean by text transactions, that is social media, it's email, it's chat, it's SMS, they can manage those transactions via natural language processes, so therefore, they can provide automated response to their customers in a natural way and they can also create analytics of the different types of interactions so that we can provide intelligence to our clients. So they have a, I would say, beginnings of an artificial intelligence platform. So I think from the customer service perspective, we are covered from the text point of view. One thing that we're analyzing is voice-to-text conversion and be able to leverage this platform to also analyze voice transactions. So I think that would be very powerful from the customer service perspective. One thing we also have -- this is more from our current offering, it's -- we have enabled a lot of our customer service delivery to have click to chat, video capabilities, chat bots, so we are partnering with different companies to be able to provide those services as well. So I think we are -- we have a very clear digital strategy, which as I mentioned at the beginning, implies mimicking the value chain and the products that we already provide to our clients and making sure that we have a digital offering for each of those. Another example would be the platform we acquired last year through R Brasil, they are in the collections space. But nowadays, a lot of their collections that we're doing, they are in digital platforms. So we're able to collect through the web and/or through mobile devices. That would be another example of enabling a service that typically has been done through voice, which is a collections work. We've been able to do that through an online channels and digital. So therefore, our view is that eventually, we will have a complete into an offering that can address all the different products that we'd offer right now through a digital offering.

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

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

(inaudible) seemed to be leading industry on that front.

Yes. Just another comment, Mauricio speaking. Alejandro is completely right on that. What we -- when you compare comparable service, this is very clear. On the digital, we have much less capital employed, we need less space, it's more productive. For Atento though, we see this happen a bit later because we still have a lot of growth coming from a company that don't outsource in the region. So there is still -- there's still a lot to gain in terms of volume in the coming years from the typical contact center or back office or solutions that we will not bring that -- we will not allow the effect to be seen completely. While when digital gets really a significant part of our business to be -- a bit later in the midterm, we can start seeing that impact on reduced CapEx expenditure. But there's a lot to grow. We're still in an underpenetrated market in the, well I'd say, more traditional and even back-office activities.

Our next question comes from the line of Leonardo Olmos with Santander.

We've noticed on the results that you have good performance in Argentina, Colombia, Chile, U.S. Nearshore. You also commented on Mexico and Argentina. Our -- however, Spain, the growth was not so strong, and the region continues to reduce. Our question here is, do you have any new geography that you're intending to grow to? Or if you don't, do you have any current geography in Americas or EMEA that you are intending to invest more or to have a higher growth than the average?

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

Okay. Can I do a follow up very quickly? On the higher-value added services, do you see any space to sell to some specific sector in U.S. nearshore? Or that's not the current focus you have on that geography?

Yes. Good question, Leo. I would say that the truth is that for the U.S. nearshore and for the type of business that we see, most of the higher value-add services, they stay onshore in the U.S. So typically -- and this is natural, you would expect that to be the case, what gets offshore into lower-cost locations and to me, services that are probably lower value added. The advantage to us is that we can provide those at a lower cost, therefore, the margin component of those is attractive. But in terms of us being able to provide higher value-add solutions in a nearshore environment is more difficult. That for us, we see it more in the countries in where we are present, in where there's big opportunities to consider to cross-sell more and more services and solutions to our existing client base. So I would say that our focus is more on the countries in where we are versus the U.S. nearshore for the higher value-add solutions.

Our next question comes from the line of Luis Adaime with Newfoundland.

I was just wondering if you could please provide more color on the values that you have paid in M&A and acquisitions for the past, maybe 12 months as the transaction values usually aren't disclosed. But if we could just have an idea of how much you have acquired in the market? And maybe perhaps if there is any -- a budget or an idea of how much you're intending or leaving aside for M&A for the next year or so?

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

Luis, thanks for your question. We, in the quarter, as you've seen in our numbers, I think it's $28.7 million in -- we spent in acquisition. This is related to the Interfile that we published in the 6-K and also some acquisitions or contractor rights with some clients that we have a long-term contracts. If you -- this and the Interfile was a majority stake, and we have a couple of years and put in call options to at least 3 years, we're going to stay together with the majority stake. And then we can take over the remaining piece of that. Last year, we also -- if you go back when we did the acquisition of R Brasil, I think, when we published, it was about $8 million that we spent in acquisition. Last year, was a -- actually, we already published about 80% of stake in the R Brasil company. So we -- that's all from last year to this year. And so from -- if you look further for the year, there's going to be a minimal cash-out related to those acquisitions, including this small stake we are taking on Keepcon. I think that's -- in terms of the way we look at acquisitions, we tend not to put a cap or a number on that. Actually, we, as Alejandro mentioned, we look at acquisitions as more either bringing us capabilities that we don't have or like we did with late collections, a segment that we didn't play before, like we are doing with Interfile. So strengthening our presence on the financial sector back office or the automation of the back office of the financial sectors, it's a huge segment and Keepcon that really bring in new capabilities, particularly on the social media with text handling, text and bringing analytics and marketing [styles] to our clients. We continue to look for opportunities like these -- those ones and not only in terms of products or service that we can provide with the different technologies' approach but also verticals. So there are some verticals in Latin America, they're not as developed as in the U.S. or European market, like health care or education. So those are areas that we continue to take a look, and as Alejandro mentioned, we continue to take a look in opportunities to accelerate the growth in the U.S. nearshore market. But there's no, to be very honest, we don't have a plan, let's say how much money we're going to spend. It's really dependent on how can we make a move on that direction, if it can be accretive to our business moving forward and it can be complementary. I think the keyword for us is complementary. We have relationships with all blue-chip clients in Latin America. We are leaders in all the markets. So we have a significant asset we can leverage in the region within new services and products. As well, we eventually can get other assets like capabilities on those 3, particularly either products and service who can help us to move more to digital or complementary offerings, verticals that are underdeveloped in the region that we can take the leadership position earlier than any competitor. Or the -- U.S. nearshore, how can we accelerate and that we are clearly focused -- how can we accelerate the growth, it's a $2.5 billion market we have 2% to 3% market share. We think that naturally, we should be able to take a 10% of share in midterm. So we continue to look for alternative for that. But there's no budget limitation. We will be on a case-by-case basis. The smaller ones, we can handle with our own cash flow. If there's something medium or a bit larger, we'll require a different financial structure to do that.

Great. And a second question on inflation and the pass-through negotiations. Would we see record-low levels of inflation in Brazil but at the same time, in Mexico, high inflation than -- or higher-than-usual inflation. How is that playing out? And specifically in Brazil, what does it implicate for maybe margins for next year? And the recovering demand that you're seeing, is it having any impact on the margin negotiations or on the pass-through negotiations?

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

Sure, I will do that. I think, you touched a very good point, Luis. We are very happy. To be honest to you, we are very happy that inflation's going down in Brazil significantly. Because this is one typically is one of the margin pressures we have. Although we've been dealing with them very well in the last couple of years. But lower inflation means lower tension with our clients. It means that we can really focus on -- on the right things that really develop the business within. So -- but let me give you one perspective. In the case of Brazil, we typically pass 2/3 of the inflation. Let's say, the [efficiency] to prices and the rest, we're being able to manage with our clients, either to change service level or improve productivity or also get more volumes with better margin service or create new propositions like the added-value service to keep our margins flat. And even with dramatic situations like we had inflation in the last couple of years, if you look at Brazil trends, Brazil has been very successful and managing very well. I think the prospect that the 12-months inflation that we will have to pass to the salaries in January, February or March next year or the second quarter next year as well, is very positive because it brings -- if we continue to improve, there's [5] different ways, it brings much of less margin pressure to Brazil in years to come. This year, we are passing the past year inflation. So this year, we are on track of this 2/3 rule typical in Brazil. And as you know, first part of the year, we have the salary increase and then we have the price increase coming a little bit in Q2 and main in Q3 and some in Q4. So that's typically what impacts seasonality. But I would say that we are on track this year pretty much the same trend, but we are very happy that for next year, I would say that it's a hurdle that's much easier to manage versus 2 years ago, that was 11% or 6 something this year. And this is very beneficial to our business, generally speaking. Moving forward, they will be very helpful to keep margins where they are or even increase as we evolve the business as a service provider.

(Operator Instructions) Our next question is a follow-up question from Scott Murray with Trillium.

I wonder if you might comment on the macro environment in Brazil. If I think back when you took your company public, obviously, and in the U.S., you report in the United States dollars and not reals, and real took a major hit. And now it seemed to bounce back. And if you look at U.S. currency, the business has done extremely well, up 9%, 10%, which is significantly above the market. But just kind of what you're seeing in the macro market down in Brazil? And what type of things you might expect there over the next year or so?

Yes, Scott, let me take this question. I think that definitely '17 has been a much better year than '16 in terms of the macros for Brazil. I would say that the year started very well because all the analysts' projections and from a macro point of view were very positive, and we were counting at that. Then some political stability has happened since the first quarter until now. So that reduced to an extent some of the optimism. What we see from the business point of view is that, again, confirms that much greater than last year in terms of demands. From a business point of view, with the existing client base, a lot of the declines in volumes that we saw '16 versus '15 have stabilized. Keep in mind that Brazil came from 2 very tough years of a deep recession. Now, this year, growth looks flattish. So from that perspective, the declines in demand that we saw from the existing client base have stabilized and we don't see any major drops again compared to the previous history. And the piece that we've seen be copies the level of commercial activity. Therefore, when you add the 2 up, relatively stable existing client base, plus the wins that we've articulated in the market, plus some of the M&A activity, that all sums up to a good run rate going into the second part of the year or into 2018. Of course, I mean, as you said, I mean when you look into -- and to be fair, we have always looked into the business in constant currency as we look at the business from an operational point of view, and we will continue to do that. But the currencies have been very beneficial to us in these last 2 quarters, particularly in Brazil. When you look at the growth in actuals, the numbers are very, very good in terms of growth rates. So to that extent that has been a benefit to us this year. I think the important thing is that, so far as the business environment looks much more stable. We hope, I don't know, there's still some instability more from the political front that the situation will continue to be as it is right now. And therefore, if that proves to be the case, we'll have a nice run rate going into 2018. And then, of course, I feel there's a lot next year in here and Brazil, so who knows what will happen then. But I think the important thing is that we haven't -- we're not seeing the decline that we saw in business, and it seems like some of the commercial activity is back to normal, and where we are in business and doing well. So we have a cautiously optimistic view on Brazil and the prospects going forward.

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

Thanks very much. And thanks, everybody, for your questions. Just very briefly, as I said, I mean, we delivered a very strong top line growth with stable margins in the quarter considering the investments we've done in growth. So we're happy with the strategy that we're focusing, and we will continue to pursue it as we believe this will continue to lead into (inaudible) gains in other regions.

We're also confident in our ability to continue growing based on the existing and new clients business, investments we're making in our strategic growth pillars and the enhanced capabilities. An important point that we highlighted as well is that the enhanced capital structure through the debt refinancing will be accretive to EPS and cash generation aligned with our focus in adding value to shareholders.

And lastly, given the recent signs of recovery and reflecting our performance in the second quarter, we revised our guidance for full year 2017, highlighted by the improved revenue growth.

Thank you again for your attention today and look forward to our next interaction. Have a great week.

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.