Atento SA (ATTO) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Atento S.A. Fourth Quarter and Full Year 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, and welcome to our Fiscal 2017 Fourth Quarter and Full Year Earnings Call. With me today are Alejandro Reynal, our CEO; and Mauricio Montilha, Atento's Chief Financial Officer. Alejandro will begin with a brief review of our performance and strategy, and then Mauricio will review our quarterly results and guidance for fiscal 2018 in more detail. We will then open the call for questions. Following the Q&A session, Alejandro will have a few closing remarks.

Before proceeding, let me mention that certain comments made on this call will contain financial information that has been prepared on International Financial Reporting Standards. This financial is 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 information 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 at investors.atento.com. Please note that unless noted otherwise, all growth rates are on a year-over-year basis and constant currency.

Now let me turn the call over to Alejandro.

Thank you, Shay. Good morning, everybody, and thank you for joining us today.

Please turn to Page 4 on the presentation. We are pleased with our results in 2017. Once again, the execution of our strategy led to solid growth, increased revenue diversification and EPS expansion. Our company also completed a series of strategic investments that expanded our capabilities, increased our addressable market and accelerated the evolution of Atento's value offer into the digital age. As a result, we continue to be the partner of choice for customer experience solutions in Latin America, where we held a commanding market leadership of 17%, a leadership position way ahead of any other player operating in the region and one we are extending with the delivery of digital solutions for customer engagement.

Focusing on the financial results. 2017 delivered a return to growth for Atento. Overall, consolidated revenues were up 5.7% in the quarter and 5.1% for the full year. Our Multisector clients continued to be a solid growth engine for Atento across regions and industries. Multisector revenues grew 8.6% in the quarter and 10.9% in 2017. Multisector revenue has been fueled by our continued strong commercial activity across different segments and regions. Particularly, we delivered solid growth in Americas, especially in Argentina, Chile and Colombia.

Telefónica revenues were, as expected, stable in the fourth quarter. We continue to leverage our relationship with Telefónica and the extended master service agreement.

We also continue to pursue our evolution beyond our core CRM/BPO offering into higher value-added solutions. In 2017, we accelerated this through expanded capabilities with the acquisition of Interfile, among others. As a result, the mix from higher value-added solutions was up 120 basis points, up to 26.5% in the year, reaching a new record in our company's history.

Adjusted EBITDA margins were 11.5% in the fourth quarter and the full year, in line with the guidance we provided for 2017. Recurring EPS presented an expansion of 11.4% in the fourth quarter and 14.8% in the full year. Our disciplined capital allocation led to a free cash flow before interest and acquisitions of approximately USD 26 million in the quarter and USD 81 million in the year. We delivered above 36% cash conversion in the full year, in line with our guidance. Net debt remains stable at USD 345 million, with net leverage 1.6x in December 2017.

To conclude these financial highlights, I would like to introduce our 2018 fiscal guidance which Mauricio will discuss with more details later. We expect again to deliver growth of 3% to 6% in constant currency, fueled once again by our Multisector business. We expect EBITDA margin to be in the range of 11% to 12% for the year.

Turning to Page 5. Let me focus now on some important developments for our company in 2017 that contributed to these solid results and laid down the foundation for future growth for Atento. As you know, 2 fundamental components of our growth strategy are to be the partner of choice for customer experience solutions and to expand Atento's leadership position through digital offer. 2017 was an important year for us as we acquired new capabilities, expanding our value offer to address the evolving needs of our clients.

First and foremost in digital, the faster-growing segment in Latin America, we expanded our capabilities to address the entire customer life cycle. In June 2017, we launched Atento Digital, integrating all our existing digital assets and combining with the capabilities of Keepcon. Our digital offer now integrates digital sales tools, artificial intelligence, automation of front- and back-office customer processes, analytics and an omnichannel platform to enhance our clients' customer experience. More specifically, our digital customer experience solution increases automation and reduces response times while driving customer satisfaction and cost savings. It combines a semantic engine to manage the first point of contact with the customer with an omnichannel platform to respond to demands via bots or human agents. In the case of social networks, we can predict and optimize the management of customer demands by understanding the content circulating in social media in terms of both meaning and sentiment.

In the back-office segment, we are leveraging the acquisition of Interfile to enhance our capabilities in business process automation and higher value-added solutions social credit management. Most recently, our strategic partnership with the consultant firm FALCONI has increased our consulting capabilities in this area and accelerated Atento's entrance in the business process transformation segment.

Since our acquisition of Interfile last year, we are seeing increasing demand from our clients, particularly in the financial services sector for the combined solutions of Atento and Interfile. We are very excited by the opportunity that our client relationships in this sector open up for further penetration of these solutions in Brazil and the expansion into other markets of our footprint.

Finally, in 2017, we advanced significantly the integration of R Brasil into an end-to-end collections offering. Atento has now a unique offering for this dynamic market encompassing all stages of the collection as well as 100% digital or branded digital and voice solutions. By executing [of -- for] this strategy, we were able to have a robust commercial performance and therefore delivered a solid growth in the Multisector segment in 2017.

As mentioned before, we successfully maintained our leadership position in the CRM/BPO market in Latin America with a 17% market share, and we estimate we ended with over 11% market share in the Latin America digital market. Moreover, we saw a confirmation of the significant opportunities we foresee in existing and new clients across our footprint and sectors, with ongoing acceleration in non-Telefónica telcos in Brazil and Spain as well as increasing penetration in fast-growing verticals like health care, retail or consumer electronics. A great example of our expansion into other verticals is our commercial relationship with Samsung in Brazil. We have become their partner of choice for customer management services. We now solely outsource all Samsung's Tier 1 and Tier 2 support for a complete end-to-end solution that incorporates digital and voice channels. The solution manages both front- and back-office transactions.

The clear concept wins of our successful growth strategy is the ongoing diversification of our revenues which reached historical levels in 2017. The remarkable progress we have experienced in this area over the last 3 years evidences our company's commitment to match our clients' transformation processes and to provide the best customer experience in the digital world. Our goal is to continue to lead this path since we see significant opportunities ahead in higher value-added solutions and digital.

Please turn to Page 6. The 2017 results and the evolution of our value offer made us more confident in our ability to deliver profitable growth in the short and midterm. Along these lines, let me update you on 4 main aspects of our midterm growth strategy:

We believe our offer is a strong component for our growth equation as well as our ability to generate value for our clients in an environment impacted by digital technologies. We will continue evolving our offer along 3 axes: First, double down on higher value-added solutions with a strong industry focus. This means that we want to go deeper into our clients' customer value chain with customized end-to-end solutions; accelerate digital solutions across the customer life cycle, becoming the strategic partner for digital CRM processes; and last, strengthen our process consulting capabilities to provide unique business transformation solutions.

From a geographic perspective, we will strengthen our leadership position in Latin America, one of the fastest-growing CRM/BPO markets in the world, a market which presents significant growth for outsourcing penetration and the first to see a general recovery of consumer indexes and growth of its middle class, fueling consumer expenditure and demand for customer-intensive industries. Our geographic strategy implies also achieving a meaningful presence in the U.S. Nearshore segment, aligned with Atento's leadership position in the LatAm market.

The continued diversification of the client base is one more key element of our profitable growth strategy. We believe the 2017 acceleration with non-Telefónica telcos is a result of the significant white spaces we still have in this segment. Outside telcos, our expanded capabilities will continue to help us gain share with financial services while increasing presence in other fast-growing segments. Although telco and financial services will remain the key drivers for growth, we are very optimistic about our opportunities with fast-growing sectors such as health care, retail, travel and hospitality or consumer electronics, where outsourcing is just starting.

Finally, on top of healthy organic growth, we are committed with our strategy to expand capabilities and address markets via selected acquisitions and strategic partnerships. We will also leverage our unique expertise and deliver a platform to take advantage of carve-out opportunities in attractive clients and sectors.

Please turn now to Slide 7. Following a couple of years of negative economic performance in Latin America, we expect a favorable macro outlook and positive business and consumer sentiment to prevail over political uncertainties in some countries in the region. Economic agencies expect the 2018 GDP growth in Latin America of 2% versus 0.9% in 2017, while markets like Brazil are seeing the return to growth of main consumer indicators following 2 years of a strong contraction. These macro tailwinds, combined with a stable regulatory framework for outsourcing of services, will fuel the growth of the Latin America CRM/BPO market expected to grow at a 5.4% in 2018.

In terms of Atento's geographies, in Brazil, we will continue to strengthen our market leadership with higher value-added solutions and a digital offering to be the key growth drivers with Multisector clients. In Americas, we expect solid growth performance in Argentina and U.S. Nearshore to compensate impact of macro uncertainties in Mexico. In EMEA, we shall continue to experience strong Multisector growth and increased penetration of our digital offering.

From a client perspective, we believe clients will remain focused on managing their cost base while driving digitalization. We should continue to see solid growth in Multisector, reaching approximately 65% of total revenues by year-end, with the majority of growth coming from non-Telefónica telcos and financial services, while we accelerate penetration and outsourcing of services in other high-growth sectors mentioned before. We expect the Telefónica business to remain stable during the year considering the trend we saw in 2017. We will continue to leverage our commercial relationship and long-term agreements as preferred partners for Telefónica.

In summary, before I hand it over to Mauricio, let me say that we feel very good about what we have achieved in 2017 and how it positions us for growth in 2018 and beyond. Our markets have faced some headwinds in recent years but we have navigated them successfully, consolidating our market leadership and expanding our capabilities to remain the partner of choice for customer experience solutions in Latin America and now also in the digital age. We are convinced that 2018 will be another year of great progress for us, with a more favorable macro environment and the consolidation of new capabilities supporting revenue growth. We remain very excited by the prospects for the business. We will continue to be the reference partner for the CRM/BPO needs of our clients, and we will continue to invest in evolving value offer to extend our market leadership into the digital age.

Now let me turn over to Mauricio.

Thank you, Alejandro. As a reminder, I'll be referring to growth rates on a constant currency and year-over-year basis unless noted otherwise.

Please turn to Slide 9. In the fiscal 2017, we delivered a balanced set of results. The positive revenue growth trend during the year continued in the fourth quarter of '17. Consolidated revenues grew by 5.7% in the quarter, reflecting good performance in the Americas region and strong growth by Multisector clients. In the full year of '17, revenues increased by 5.1%, within the guidance range.

Growth in our Multisector business continued to accelerate of a healthy 8.6% in the quarter and 10.9% in the full year of '17, driven by new service and new client wins in our regions.

We also made progress in our diversification strategy. The strong performance in the quarter brought the mix of revenue from Multisector clients to 61.5%, an increase of 150 basis points, helping us to end full year '17 with an increase of 350 basis points to 61%.

Revenue mix from higher added -- value-added solutions, while flat at 26.4% in the fourth quarter, was up 120 basis points to 26.5% in the full year. Meanwhile, Telefónica revenues continued to present stability, both in the quarter and the full year.

Adjusted EBITDA totaled $55.1 million and $21 -- $221 million in the fourth quarter and in the full year, respectively. Adjusted EBITDA margin was 11.5% both in the fourth quarter and the full year, which drops over previous period explained by softer volumes from specific clients and a strong comparison base in Q4 2016, especially in Brazil and Spain. As with revenues, full year adjusted EBITDA margin was in line with guidance.

As mentioned in the third quarter, our business in Mexico and Puerto Rico were affected by the natural disasters in September with a negative impact of $8.9 million in revenues in the fourth quarter. Excluding this one-off nonrecurring impact, revenues would have grown 8.4%.

In the fourth quarter, recurring net income attributable to owners of the parent company reached $15.9 million with EPS growth of 11.4% to $0.21. And the full year recurring net income totaled $5 -- $55.2 million with strong EPS growth of 14.8% to $0.75.

On a reported basis, net income in the fourth quarter of '17 was affected by noncash negative impact of $19.3 million in foreign exchange fluctuation over intercompany loans. On the other hand, 2016 fourth quarter reported bottom line was positively impacted by $26.2 million related to the CVI termination as a result of the MSA renegotiation with Telefónica.

Please turn to Slide 10. Looking at our segments, revenues in Brazil presented solid growth throughout the year, up 2.9% in the fourth quarter and 6.3% in the full year. Revenues from Multisector increased by 3.1% in the fourth quarter and 10.5% in the full year '17, fueled by back-office solutions mainly. We have seen slow baseline volumes expansion, below what we would expect from the gradual economic recovery, but we have been able to more than compensate that with continued robust commercial activity.

The mix of revenue from Multisector clients increased another 20 basis points to 6.9 -- 69.2% in the fourth quarter and 260 basis points in full year of '17 to 69.1%.

Adjusted EBITDA totaled $29.6 million in the fourth quarter with the margins of 13.2%, impacted by lower volumes from specific clients, mainly financial service, combined with strong comparison base in Q4 2016. In the full year, adjusted EBITDA reached $124.7 million and adjusted EBITDA margin stood at 13.2%.

Please turn to Slide 11. Looking at the Americas regions, we delivered strong 14.9% revenue growth in the quarter and 6.1% in the full year on the back of significant Multisector growth of 19.5% in the quarter and 12% in the full year. Revenue growth was fueled by new client wins and volume increase, particularly in Argentina, Colombia, Chile and U.S. Nearshore. Multisector continued to increase as a percent of revenues up to -- up 230 bps to 59% in the fourth quarter and 300 basis points to 58.0% in the full year. Telefónica revenues rose by 8.9% in the quarter, reflecting positive results in Argentina, Chile and Colombia but were stable in the year.

Adjusted EBITDA was $20.6 million in the quarter with adjusted EBITDA margin of 10.3% while full year adjusted EBITDA was $83.5 million, implying margins of 11%. Lower margins both in the quarter and full year reflect strong revenue expansion from telcos which has lower-margin levels.

Please turn to Slide 12. Revenue in EMEA decreased 6.1% in the quarter and 1.9% in the full year '17, as a result of a drop in Telefónica revenue of 14.9% and 5.9%, respectively. This drop in Telefónica is explained by the exceptionally higher prices in Q4 '16 that were adjusted throughout '17 to more normalized levels.

Revenues from Multisector increased 9.6% in the quarter and 5.4% in the full year, supported by new contracts and client wins, especially non-Telefónica telco. As a percent of revenue, Multisector increased 580 basis points to 41.8% in the quarter and 250 basis points to 37.8% in full year. Adjusted EBITDA totaled $3.2 million in the quarter with an adjusted EBITDA margin of 5.7%.

Please turn to Slide 13. Looking at the cash flow and capital structure, operating cash flow totaled 57 point -- $57 million in the quarter and $162.7 million in the full year, while free cash flow before interest and acquisitions was $26.3 million and $81 million, respectively.

We maintained our rigorous working capital focus and capital allocation discipline, allowing us to deliver cash conversion of 47.7% in the quarter and 36.6% in the full year, in line with guidance.

Cash CapEx in '17 totaled 3.2% of revenues, lower than 3.8% in 2016 as we initiated 2017 with above-average spare capacity. Perhaps more significantly, the positive cash generation in full year '17, even after investing $29.8 million in acquisitions, allowed us to return capital to shareholders, paying $25 million in our first-ever dividend on November 28 of '17.

As of December 31, '17, we had cash and cash equivalents -- equivalent of $142 million and revolving credit facilities of $104 million, out of which $99 million were undrawn, implying total liquidity of $241 million.

Total net debt with third parties was $344.5 million, and adjusted last 12 months EBITDA to net debt ratio with third parties was 1.6x compared to 1.5x in both Q3 '17 and Q4 '16.

Please turn to Page 15. Before we open the call for Q&A, let me formally introduce our fiscal 2018 guidance. We expect a favorable macro environment combined with stable regulatory frameworks to support growth in '18 and compensates for potential political uncertainties arising from presidential elections in Colombia, Mexico and Brazil.

We expect revenue growth in the range of 3% to 6% to be driven by Multisector clients. We will continue to pursue a solid commercial activity as a way to protect from eventual softness in baseline volumes, particularly in Brazil where volume growth has been below what we could expect given the country's gradual economic recovery.

Relative to margins, adjusted EBITDA margin should remain stable in '18, between 11% to 12% as we expect no relevant nonrecurring adjustment and -- we expect no relevant nonrecurring adjustments in '18.

The debt refinance concluded in Q3 '17 should provide around $15 million reduction in net interest expense in 2018. The effective tax rate for '18 should be between 35% to 38%, and we expect another year of strong cash conversion in the range of 35% to 40%.

Given the challenge we have seen during the fourth quarter of '17, we believe it is important to highlight some short-term trends. In line with historical seasonality, which did not occur in '17, we expect Q1 and Q2 '18 revenues to be more towards the bottom of the guided range. Regarding profitability, we expect seasonally lower adjusted EBITDA margins below guidance in Q1 and Q2. This guidance assumes no change in the current operating environment, capital structure or exchange rates movements on the translation for our financial statements into U.S. dollars, except where noted.

Now we would like to turn the call over to the operator to take questions from the audience. Operator?

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

So my first question, Americas was incredibly strong, accelerating nicely to 15%. And am I right, it would have been about 20% growth without the Mexico/Puerto Rico hurricane? And then really, the question is, is that level of growth sustainable? Like that -- I mean, that was so good.

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

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

Yes. I mean, in Brazil, I would say there's a lot of good things happening with general macros and also some other things that we are doing in the commercial end and also on the solutions end. I alluded to this program that we won with Samsung in Brazil. We now became the sole provider to Samsung services in Brazil, and this equates to 1,200 agents that we have in a dedicated site to them. So I think there's a lot of good things happening in the commercial end. I would say first that the comparable of third quarter versus third quarter last year was favorable to us because third quarter '16, actually, revenues came down. So from that perspective was a good comp for us. Fourth quarter, slightly tougher, although I would say that primarily what we saw in the fourth quarter is that even though general terms that the macro seems to be recovering, we're still not seeing that panning out in some of our key clients, in particular in the financial sector. Volumes driven by financial service clients still soft. I think in terms of the aggressiveness of commercial campaigns driving more customer acquisition, we're not seeing that yet. So from that perspective, it was softer than expected. Also, typically end of the year, we see a lot of the impacts of commercial campaigns close to holidays and we didn't see that in this year. We continue to be very active on the commercial front in Brazil. We have a commanding lead in the Brazilian market. Actually, we were analyzing our estimates on market share for Brazil in 2017, and we actually gained market share in Brazil. So the commercial performance is good. I think we probably see it more as a potential upside down the road that when we are starting to see the macroeconomic reflect on volumes, we should be benefiting from that.

Yes. Okay. Well, that's very helpful. And I guess just the last one and maybe for Mauricio, just the use of cash flow in 2018, it seems like the way you're guiding is for something pretty similar to '17, probably a little better, maybe $80 million to $90 million, just mix of kind of dividend, debt paydown, et cetera.

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

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

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

Thanks, Cesar. We are being more prudent on Brazil for 2018. I mean, the truth is that we have tailwinds, as you said, in terms of macros being better. And we feel optimistic about certain countries in our footprint such as Argentina, as I mentioned. But we didn't see the recoup in volumes that we expected in the fourth quarter in Brazil. So we are being more cautious in terms of the developments for '18. Again, I think there's a lot of things that are happening our way in Brazil. Like I said before, we continue to lead the market. We are strongly pushing the solutions business, acquiring companies, reaching partnerships. So I think there's a lot of positive things that we are doing to make sure that we sustain the lead but also drive growth in that market. But we have a more cautious view based on what we saw in the fourth quarter.

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

Yes, we don't see any immediate impact for us there. The measure was supposed to be voted in the Brazilian Congress. We've done, as in prior occasions through the association of call centers in Brazil, a fair amount of lobbying to make sure that we keep the benefit. So we understand that our sector is seen favorably. So to an extent, we don't see -- from that perspective, we don't see a risk for us at this stage. Again, the measure hasn't been voted. If it's voted, then it's positive to us in the sense that we keep the benefit. That will be a plus for us because we wouldn't have that risk anymore. But again, I mean, this was supposed to be voted in recent weeks, hasn't happened, so we are keeping a close eye on it. But the good thing is that the Brazilian Congress understands the amount of employment we generate and they're very favorable of maintaining the benefit for our sector.

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

Alejandro, your digital business continues to grow nicely. I'm curious, to what extent is that business providing some headwind in terms of replacing existing labor-intensive businesses as contracts expire? Could you give us some color on that?

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

(technical difficulty)

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

Yes, apologies, we are here but we are in a building and there's just an evacuation order here. So apologies. We're going to mute. Shay, perhaps you can take the question and if we can come back, we'll come back.

No problem. Can you just redo the question?

Yes, yes. I was -- your digital business, I'm curious, is it creating a headwind on revenue in terms of replacing some existing labor-intensive contracts?

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

And then on the U.S. Nearshore business, I know that you'd like to improve the growth or momentum there. Are you seeing a better pipeline given the wage inflation in the U.S.? And also related, I'm curious if you're still looking into acquisitions in that side and if we may see something here in the next year or 2.

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

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

The what, sorry, Telefónica you said?

The FALCONI relationship.

FALCONI. Shay, let me take this. We are here, and again, apologies, there's been a fire alarm. We are in Boston taking the call at main office and there's been a fire alarm. So for now we can't stay here. So we'll hold and take calls again, we'll hand over to Shay.

Yes, Vince, I mean, the FALCONI relationship is helping. I think one of the things that they do well is mapping out basically back-office processes of clients. And with that relationship, what we are doing now is that using them at the front end to do the mapping of the processes and us providing the solution through Interfile. We haven't closed yet a specific commercial transaction with them, but the fact is that we have a pipeline of potential business that we have developed together with FALCONI, and it seems promising. We -- they are addressing less traditional segments, therefore, no telcos, no financial services, with this consulting approach. The truth is that some of the regulation in Brazil is facilitating companies to have a deeper look in terms of more outsourcing and, therefore, looking into back-office activities to be outsourced. And clearly, this partnership is helping out for that.

(Operator Instructions) Our next question comes from the line of Susana Salaru with Itau.

We have actually 2 questions here. First, if you guys could elaborate a bit more what will be the key levers for margin expansion or margin stability this year that's implied in the guidance. And the second one, if you could comment a bit how is Telefónica revenues in -- how was Telefónica revenue in 2007 (sic) [2017] when compared to the baseline of the margin agreement.

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

Perfect. Clear. And on the second question? Hello?

I'm here. I'm here. This is Shay.

Shay, I don't know if you got the second question, the baseline of MSA revenues last year compared to what was actually realized.

On Telefónica? Yes, Telefónica has been pretty -- when we did the MSA renegotiation in 2016, we -- the idea was to bring Telefónica volumes to a more realistic level. So -- and that's why we are seeing Telefónica revenues more stable, although on a country by country can vary, especially on a quarterly basis because the MSA looks into annual volumes and revenue, so on a quarterly basis can be more volatile. But when you look for the entire year, it should be more stable as it has been. So it can go up 2%, it will go down 2%, but it will be in that range. So it's pretty much in line with -- what's happening is pretty much in line with what we would expect and what's in the MSA.

Susana, I'm back here. And just apologies, we have been cleared from the fire alarm so that's why I put the mute button alarm. In terms of Telefónica, yes, I mean, it's what Shay mentioned. We did the reset in 2016, in October '16. We are way ahead of the financial for that reset. And as you may recall, in '16, we said that you could use the raise of fourth quarter 2016 as a base for '17. It has been the case. Actually, on a quarter -- fourth quarter versus fourth quarter, '17 versus '16, revenues from Telefónica have slightly increased. So therefore, revenues have remained stable. We continue to have a very close relationship with them, manage the master service agreement through steering committees. I think it's interesting to see, for example, the case of Brazil with Vivo. Vivo has been driving customer service automation and digitalization. We are helping them on that end. But at the end of the day, we have not experienced such a big decrease in revenues coming out of Vivo in Brazil. What we have been able to do there is gain market share in particular segments. So we have increased our share of spend in the customer service segment. And we are now doing more back office and collections work for them. So I think the dialogue with Telefónica is very positive and constructive from the perspective of identifying new avenues for growth and new avenues to maintain a stable revenue base. The pressure from them in terms of using the cost base and all of that in '18 will continue. We will support them in addressing that and also in looking into more avenues to digitalize. But at the end of the day, we have the master service agreement as a base. And we actively work with them in identifying areas of business that can maintain the base stable.

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

I have 2 questions. The first one is regarding interest rate payments. When I see a capital structure, everybody sees how the capital structure is. We see that nearly $400 million is a bond with $24.5 million in interest. But when I go to the net interest expense, we see it's $40 million to $45 million. So seeing the position of cash and seeing how this company generates cash, when do you think expenses that can be paid down? I know that it has a maturity, but is it in the head of the management team to prepay it in order to get the net interest expense near $24.5 million? My second question is margins. Thinking with a long-term view, when do you think margins in Americas segment and Brazil segment can reach where they were in 2014? Is it a matter of months, quarters? Or do you think it's more like 2, 3 years from now until we reach the margins that we had in 2014?

It's Mauricio speaking. I'll take the -- first, on the interest. As you said that we -- our CapEx structure -- or the main vehicle of our capital structure now is the bond, it's $400 million. However, we have other debts in our capital structure. Some remaining debentures in Brazil with Itau Bank, and also we do have also some BNDES financing there. As well as something that goes into our interest is that we -- for several clients, we have comfort letters or credit letters from the banks that's supporting the contracts as required. In several markets, these are the norms. So the interest rates included the $400 million, plus BNDES, some Itau -- some leases that we have, plus some other instruments we have in terms of the guarantees. In terms of prepayment, just to -- the bond actually is a non-call 2 years. So there's no possibility to prepay anything on the bond in the first 2 years. So only could be a consideration after, I would say, September of 2020, up to there is no callable. As well some of the other instruments we have, BNDES and Itau, also they are noncallable at this point. Eventually BNDES, but the rates we have BNDES are so favorable that it doesn't make sense for us to call those loans. In terms of the other question -- can you repeat the other question?

On the margin.

On the margin, on the midterm. Sorry for that. I was confused with another question I heard before. On the margins, we believe in the midterm, we're going to start seeing margins raising. As Alejandro mentioned, we -- not only for the guidance already given has some uncertainty, particularly on the recovery bonds in Brazil and consequences, some leverage we will have with that. Although this business doesn't have a lot of leverage, the current volumes, baseline volumes are below what we expected, so we have some deleverage in terms of costs that's not helping. So we see that this year as we're going to make more progress as well with digital, as Shay mentioned before on the digital side, we are making a lot of progress but it's still not material when you look at the total revenue we have. So we see that is the more midterm where we're going to see a more robust margin improvement for the business.

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

Thank you, everybody, for your questions. And again, apologies for the noise due to the fire alarm.

Before we finish, let me recap the main points of today's presentation. 2017 can be summarized by top line growth, strong EPS expansion and the achievement of important milestones for our company. Our expanded capabilities and value offer allowed us to deliver top line growth fueled by solid commercial activity, while profitability was in line with our guidance. We continue to generate a sound cash flow aligned with our strategy to deliver sustainable and profitable growth and returning capital to shareholders.

I would like to highlight that the Board of Directors approved our dividend policy, along with the first dividend payment ever in November 2017. Debt refinance led to higher financial flexibility and reduced interest expenses. And finally, the secondary offer concluded in November 2017, which boosted shares liquidity, leading to a more diversified investor base.

For 2018, we will be focused on profitable growth and cash generation. The favorable macro environment with stable regulatory framework will continue to support outsourcing of services. Revenue growth should come from Multisector clients focused on higher value-added solutions and our digital platform. Cash flow generation is expected to remain solid, supporting our growth initiatives.

Thank you again, and I'm looking forward to our next interaction. Goodbye.

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.