F-1 1 d717215df1.htm FORM F-1 Form F-1
Table of Contents

As filed with the Securities and Exchange Commission on May 1, 2014

No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Atento S.A.

(Exact name of registrant as specified in its charter)

 

Luxembourg   4813   N/A

(State or other jurisdiction of incorporation

or organization)

 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer Identification No.)

Da Vinci Building

4 rue Lou Hemmer

L-1748 Luxembourg Findel

Grand Duchy of Luxembourg

+352 26 78 60 1

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Corporation Service Company

1180 Avenue of the Americas

Suite 210

New York, New York 10036

(212) 299-5600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Joshua N. Korff, Esq.

Christopher A. Kitchen, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

Arthur D. Robinson, Esq.

Jaime Mercado, Esq.

Juan Francisco Méndez, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

  Proposed Maximum Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee(2)

Ordinary shares, nominal value €1.00 per ordinary share

  $300,000,000   $38,640

 

 

(1) Includes ordinary shares that the underwriters may purchase pursuant to the option to purchase additional shares.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities act of 1933, as amended.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell nor is it soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

 

Subject to Completion, dated May 1, 2014

PROSPECTUS

 

LOGO

Atento S.A.

             Ordinary Shares

 

 

This is the initial public offering of ordinary shares of Atento S.A., a public limited liability company (société anonyme) organized and existing under the laws of the Grand Duchy of Luxembourg. We are offering             ordinary shares to be sold in this offering, and the selling shareholder identified in this prospectus is offering an additional              ordinary shares. We will not receive any proceeds from the sale of the ordinary shares offered by the selling shareholder.

 

 

Prior to this offering, there has been no public market for our ordinary shares. We anticipate that the initial public offering price per ordinary share will be between $         and $        . We plan to file an application to list our ordinary shares on the New York Stock Exchange under the symbol “                    .”

 

 

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 20 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

      

Per Share

      

Total

 

Public offering price

       $                       $               

Underwriting discounts and commissions

       $                       $               

Proceeds, before expenses, to us

       $                       $               

Proceeds, before expenses, to the selling shareholder

       $                       $               

The underwriters have a 30-day option to purchase up to              additional ordinary shares from us and the selling shareholder at the initial public offering price, less underwriting discounts and commissions to cover over-allotments, if any.

The underwriters expect to deliver the ordinary shares against payment in New York, New York on or about                     , 2014.

 

 

 

Morgan Stanley    Credit Suisse   Itaú BBA

 

BofA Merrill Lynch   Bradesco BBI   BTG Pactual   Goldman, Sachs & Co.   Santander

The date of this prospectus is                     , 2014.


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1   

Risk Factors

     20   

Forward-Looking Statements

     42   

Use of Proceeds

     44   

Dividend Policy

     45   

Capitalization

     46   

Dilution

     48   

Selected Historical Financial Information

     50   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     59   

Business

     96   

Industry Overview

     124   

Management

     132   

Principal and Selling Shareholders

     139   
 

 

 

You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on our behalf. Neither we, the selling shareholder nor the underwriters or their affiliates have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the selling shareholder are, and the underwriters and their affiliates are not, offering to sell these securities in any jurisdiction where their offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of when this prospectus is delivered or when any particular sale of the ordinary shares occurs. Our business, financial condition, results of operations and prospects may have changed since that date.

MARKET AND INDUSTRY DATA

Market data and certain industry forecast data used in this prospectus were obtained from market research, publicly available information and industry publications and organizations, including, among others, Frost & Sullivan and IDC. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Market research, while we believe it to be reliable and accurately extracted by us for the purposes of this prospectus, has not been independently verified. This prospectus also contains statements regarding our industry and our relative competitive position in the industry that are not based on published statistical data or information obtained from independent third parties, but are internal estimates based on our experience and our own investigation of market conditions. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Risk Factors” and “Forward-Looking Statements.”

TRADEMARKS AND TRADE NAMES

This prospectus includes our trademarks as “Atento”, which are protected under applicable intellectual property laws and are the property of the Company or our subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners.

 

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Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

BASIS OF PRESENTATION AND OTHER INFORMATION

Except where the context otherwise requires or where otherwise indicated, the terms “Atento,” “we,” “us,” “our,” the “Company” and “our business” refer to Atento S.A. (“Issuer”), a company incorporated under the laws of Luxembourg on March 5, 2014, together with the entities that will become its consolidated subsidiaries prior to completion of this offering.

“AIT Group” refers to Atento Inversiones Teleservicios S.A.U. and its subsidiaries (including Atento Venezuela, S.A. and Teleatención de Venezuela, C.A.) as held by Telefónica, S.A (together with its consolidated subsidiaries, “Telefónica” or the “Telefónica Group”) prior to the Acquisition. “Atento Group” refers to the direct and indirect subsidiaries and assets of Atento Inversiones y Teleservicios, S.A.U. (excluding Atento Venezuela, S.A. and Teleatención de Venezuela, C.A.) that were acquired indirectly by funds affiliated with Bain Capital Partners, LLC (“Bain Capital”) on December 12, 2012 (the “Acquisition”) through Atalaya Luxco Midco S.à r.l. (the “Successor”) and certain of its affiliates. Use of the term “Predecessor” refers to the Atento Group prior to the Acquisition, and use of the term “Successor” or “Midco” refers to the Atento Group subsequent to the Acquisition.

In this prospectus, all references to “U.S. dollar” and “$” are to the lawful currency of the United States and all references to “euro” or “€” are to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time. In addition, all references to Brazilian Reais (BRL), Mexican Peso (MXN), Chilean Peso (CLP), Argentinean Peso (ARS), Colombian Peso (COP) and Peruvian Nuevos Soles (PEN) are to the lawful currencies of Brazil, Mexico, Chile, Argentina, Colombia and Peru, respectively.

The following table shows the exchange rates of U.S. dollars to these currencies for the years and dates indicated as reported by the relevant central banks of the European Union and each country as applicable.

 

     2011      2012      2013      As of  
     Average      December 31,      Average      December 31,      Average      December 31,      April 22, 2014  

Euro (EUR)

     0.76         0.77         0.78         0.76         0.75         0.73         0.72   

Brazil (BRL)

     1.67         1.88         1.95         2.04         2.16         2.34         2.25   

Mexico (MXN)

     12.44         13.95         13.16         12.97         12.77         13.08         13.05   

Colombia (COP)

     1,847.53         1,942.70         1,797.34         1,768.23         1,869.31         1,926.83         1,921.04   

Chile (CLP)

     483.70         519.20         486.37         479.96         495.40         524.61         555.9   

Peru (PEN)

     2.75         2.70         2.64         2.55         2.70         2.80         2.78   

Argentina (ARS)

     4.13         4.30         4.55         4.92         5.48         6.52         7.99   

PRESENTATION OF FINANCIAL INFORMATION

We present our historic financial information under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of the financial statements or financial information included in this prospectus has been prepared in accordance with generally accepted accounting principles in the United States of America.

Predecessor Financial Statements

We have historically conducted our business through the Atento Group, or the Predecessor, up to the date of the Acquisition, and subsequent to the Acquisition, through Midco, or the Successor. Although the Acquisition was completed on December 12, 2012, for accounting purposes the Atento Group has been incorporated into the Successor’s operations since December 1, 2012.

 

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The financial statements of the Predecessor included elsewhere in this prospectus are the audited combined carve-out financial statements of the Atento Group as of and for the year ended December 31, 2011 and as of and for the eleven-month period ended November 30, 2012 (the “Predecessor financial statements”). The Predecessor financial statements are presented on a combined carve-out basis from the AIT Group’s historical consolidated financial statements, based on the historical results of operations, cash flows, assets and liabilities of the Predecessor acquired by the Successor and that are part of its consolidated group after the Acquisition. We believe that the assumptions and estimates used in preparation of the Predecessor financial statements are reasonable. However, the Predecessor financial statements do not necessarily reflect what the Predecessor’s financial position, results of operations or cash flows would have been if the Predecessor had operated as a separate entity during the periods presented. As a result, historical financial information is not necessarily indicative of the Predecessor’s future results of operations, financial position or cash flows. See Note 2 to the Predecessor financial statements.

Successor Financial Statements

The financial statements of the Successor included elsewhere in this prospectus are the audited consolidated financial statements of Midco as of and for the one-month period ended December 31, 2012 and as of and for the year ended December 31, 2013 (the “Successor financial statements”). We have accounted for the Acquisition in the Successor financial statements using the acquisition method, by which we have recognized and measured the identifiable assets acquired and identifiable liabilities and contingent liabilities assumed at fair value at the acquisition date. The difference between the consideration paid and the fair value of the identifiable assets acquired and identifiable liabilities and contingent liabilities assumed has been recorded as goodwill. As a consequence, the assets and liabilities recognized in the financial statements of the Successor and their corresponding impact in income and expenses changed significantly as compared to the Predecessor financial statements.

Aggregated 2012 Financial Information

In addition, we also present in this prospectus unaudited non-IFRS aggregated financial information for the year ended December 31, 2012 (the “Aggregated 2012 Financial Information”). The Aggregated 2012 Financial Information is derived by adding together the corresponding data from the audited Predecessor financial statements for the period from January 1, 2012 to November 30, 2012 and the corresponding data from the audited Successor financial statements for the period from December 1, 2012 to December 31, 2012, appearing elsewhere in this prospectus (each prepared under IFRS as issued by the IASB). This presentation of the Aggregated 2012 Financial Information is for illustrative purposes only, is not presented in accordance with IFRS, and is not necessarily comparable to previous or subsequent periods, or indicative of results expected in any future period (including as a result of the effects of the Acquisition).

Rounding

Certain numerical figures set out in this prospectus, including financial data presented in millions or thousands and percentages, have been subject to rounding adjustments, and, as a result, the totals of the data in this prospectus may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Selected Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are calculated using the numerical data in the financial statements of the Predecessor or the Successor, or the tabular presentation of other data (subject to rounding) contained in this prospectus, as applicable, and not using the numerical data in the narrative description thereof.

Reorganization Transaction

Prior to completion of this offering we will engage in the Reorganization Transaction described in “Prospectus Summary—The Reorganization Transaction” pursuant to which Midco will become a wholly owned

 

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subsidiary of the Issuer, a newly formed holding company incorporated under the laws of Luxembourg with nominal assets and liabilities for the purpose of facilitating the offering contemplated hereby, and which will not have conducted any operations prior to the completion of this offering. Following the Reorganization Transaction and this offering, our financial statements will present the results of operations of the Issuer. The financial statements of the Issuer will be presented in substantially the same manner as the Successor financial statements prior to this offering, as adjusted for the Reorganization Transaction. Upon consummation, the Reorganization Transaction will be reflected retroactively in the Issuer’s earnings per share calculations.

NON-GAAP FINANCIAL MEASURES

This prospectus contains financial measures and ratios, including EBITDA, Adjusted EBITDA, Adjusted Earnings/(Loss), Free Cash Flow, Adjusted Free Cash Flow and Net Debt with Third Parties, that are not required by, or presented in accordance with IFRS. We refer to these measures as “non-GAAP financial measures”. For a definition of how these financial measures are calculated, see the section entitled “Selected Historical Financial Information” elsewhere in this prospectus.

We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. We also use these measures internally to establish forecasts, budgets and operational goals to manage and monitor our business, as well as evaluating our underlying historical performance. The non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. Non-GAAP financial measures and ratios are not measurements of our performance, financial condition or liquidity under IFRS and should not be considered as alternatives to operating profit or profit or as alternatives to cash flow from operating, investing or financing activities for the period, or any other performance measures, derived in accordance with IFRS or any other generally accepted accounting principles.

In our discussion of operating results, we have excluded the impact of fluctuations in foreign currency exchange rates by providing and explaining changes in constant currency, which is a non-GAAP financial measure. We believe changes in constant currency provides valuable supplemental information regarding our results of operations. We calculate changes in constant currency by converting our current period local currency financial information using the prior period foreign currency average exchange rates and comparing these adjusted amounts to our prior period reported results. This calculation may differ from similarly titled measures used by others and, accordingly, the changes in constant currency are not meant to substitute for changes in recorded amounts presented in conformity with IFRS nor should such amounts be considered in isolation.

 

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PROSPECTUS SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus and the financial statements. Some of the statements in this prospectus constitute forward-looking statements. See “Forward-Looking Statements.”

Except where the context otherwise requires or where otherwise indicated, the terms “Atento,” “we,” “us,” “our,” the “Company” and “our business” refer to Atento S.A. (“Issuer”), a company incorporated under the laws of Luxembourg on March 5, 2014, together with the entities that will become its consolidated subsidiaries prior to completion of this offering.

“Atento Group” refers to the direct and indirect subsidiaries and assets of Atento Inversiones y Teleservicios, S.A.U., excluding Atento Venezuela, S.A. and Teleatención de Venezuela, C.A., that were acquired indirectly by funds affiliated with Bain Capital Partners, LLC (“Bain Capital”) on December 12, 2012 (the “Acquisition”) by Atalaya Luxco Midco S.à r.l. (“Midco”) and certain of its affiliates. Use of the term “Predecessor” refers to the Atento Group prior to the Acquisition and use of the terms “Successor” or “Midco” refers to the Atento Group subsequent to the Acquisition. “Telefónica” and “Telefónica Group” refer to Telefónica, S.A and its consolidated subsidiaries.

Our Company

We are the leading provider of end-to-end, multi-channel customer relationship management and business process outsourcing (“CRM BPO”) services and solutions in Latin America and Spain, and among the top three providers globally, based on revenues. Our business was founded in 1999 as the CRM BPO provider to the Telefónica Group. Since then, we have significantly diversified our client base, and subsequent to the Acquisition in December 2012, we became an independent company.

Leadership Position in Latin America. As the largest provider of CRM BPO solutions in Latin America, we hold #1 or #2 market shares in most of the countries where we operate, based on revenues. From 2009 to 2012, we expanded our CRM BPO market leadership position in Latin America overall from 19.1% to 20.1% and increased our market share in Brazil from 23.3% to 25.2%, based on revenue. We have achieved our leadership position over our 15-year history through our dedicated focus on superior client service, our scaled and reliable technology and operational platform, a deep understanding of our clients’ diverse local needs and our highly engaged employee base. Given its growth outlook, Latin America is one of the most attractive CRM BPO markets globally and we believe we are distinctly positioned as one of the few scale operators in the region.

Industry Leading, Innovative End-to-End CRM BPO Solutions. By optimizing our clients’ relationships with their customers, we believe we enhance our clients’ brand recognition and customer loyalty, which drive their competitive advantage and strengthen their long-term growth and profitability. We are evolving from offering individual CRM BPO services to providing end-to-end CRM BPO solutions tailored to our clients’ needs in order to improve the experience of their customers. We offer a comprehensive portfolio of customizable, yet scalable, solutions that comprise front-end and back-end services ranging from sales, applications processing, customer care and credit management. Our services and solutions are delivered across multiple channels including digital (SMS, e-mail, chats, social media and apps, among others) and voice, and are enabled by process design, technology and intelligence functions. In 2013, CRM BPO solutions and individual services comprised approximately 36% and 64% of our revenues in Brazil, respectively.

Our CRM BPO solutions are delivered through our technology-enabled, multi-channel platform. As our clients’ customers become more connected and widely broadcast their experiences across a variety of digital

 

 

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channels, we believe the quality of their customer experience is having a significant impact on our clients’ brand loyalty and overall business performance. Our multi-channel platform integrates direct customer outreach through digital, voice or in person channels allowing us to engage with customers through multiple channels of interaction. As our clients’ customers increasingly transition towards digital communication, we have evolved and invested in our digital channel capabilities.

Our CRM BPO solutions further integrate us into the strategic objectives of our clients, often leading to closer, more resilient client relationships. For example, for a global insurance client, we provide a comprehensive solution for insurance claims management encompassing (i) specialized processes including back office, sales, customer care, credit management and technical support, (ii) a customized communication channel strategy throughout the customer’s lifecycle, (iii) workload, mobility software and communication tools and (iv) data and analytics, resulting in 25,000 monthly claims analyzed and approximately $8 million of annual savings.

 

LOGO

Long-standing Client Relationships Across a Variety of Industries. We work with market leaders in sectors such as telecommunications, financial services and multi-sector, which for us comprises the consumer goods, services, public administration, pay TV, healthcare, transportation, technology and media industries. In 2013, approximately 52% of our revenue was derived from sales to telecommunications, 35% to financial services and 13% to multi-sector clients. Since our founding in 1999, we have significantly diversified our sectors and client base to over 450 separate clients resulting in non-Telefónica revenue accounting for 51.5% in 2013 compared to approximately 10% of the revenue of AIT Group in 1999. In 2013, 85.3% of our non-Telefónica revenue was generated from clients with whom we have had relationships for five or more years. Illustrative of our high customer satisfaction, in 2011, 2012 and 2013, our client retention rates were 97.9%, 98.5% and 99.3%, respectively.

Highly Engaged Employees. Our approximately 155,000 employees are critical to our ability to deliver best-in-class customer service. We believe our distinctive culture and strong values ensure that our employees are highly engaged customer specialists. We strategically implement collaborative and proprietary training processes and firm-wide methodologies to recruit, train and retain one of the largest workforces in Latin America. We strive to attract, develop and reward high-performing people and to provide our employees with an attractive career path that incentivizes them to engage in achieving or exceeding our clients’ business objectives. In 2013, we were named one of the top 25 multinationals globally to work for by the Great Place to Work Institute and the only CRM BPO company in the industry to receive this distinction.

 

 

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Scalable and Reliable Technology and Operational Platform. We have a flexible, scalable and reliable technology platform that enables us to deliver customizable services and solutions for our clients. The three key components of our technology strategy are (i) scalable and secure infrastructure, which includes data centers, telephony and other systems, to support and automate our services, (ii) applications, including systems, analytics and intelligence tools that enhance and optimize our solution offerings and (iii) our technology organization. Our technology strategy is focused on supporting growth, driving innovation and generating operational efficiency. In 2013, our technology platform handled transactions across 89 delivery centers operating 24/7 with less than 0.06% unscheduled systems downtime. We are committed to the highest standards of quality and have implemented programs to certify all of our processes as UNE-ISO 9001 and COPC, and we use Six Sigma to ensure continuous improvement.

Strong Relationship with Telefónica Underpinned by Long-term MSA. We believe we contribute to the Telefónica Group as an integral part of its CRM BPO operations. Currently, we serve 29 companies of the Telefónica Group under more than 150 arm’s-length contracts. Since becoming an independent company in December 2012, our relationship with the Telefónica Group is governed by our master services agreement (the “MSA”). The MSA requires the Telefónica Group companies to meet pre-agreed minimum annual revenue commitments to us through 2021. The MSA commitment is meant to be a minimum commitment, rather than a target or budget. In case of shortfalls in these revenue commitments, Telefónica will be required to compensate us.

Broad Scope of Operations. We operate in 15 countries worldwide and organize our business into the following three geographic markets: (i) Brazil, (ii) Americas, ex-Brazil (“Americas”) and (iii) Europe, Middle East and Africa, which consists of our operations in Spain, Czech Republic and Morocco (“EMEA”). For the year ended December 31, 2013, Brazil accounted for 51.5% of our revenue and 52.6% of our Adjusted EBITDA; Americas accounted for 33.0% of our revenue and 38.7% of our Adjusted EBITDA; EMEA accounted for 15.5% of our revenue and 8.7% of our Adjusted EBITDA (in each case, before holding company level revenue and expenses and consolidation adjustments).

For the years ended December 31, 2012 and 2013, our revenue grew by 6.7% and 7.5% and our Adjusted EBITDA grew by 21.5% and 16.9%, respectively, on a constant foreign exchange rate basis. Our revenue for the year ended December 31, 2013 was $2,341.1 million and our Adjusted EBITDA was $295.1 million.

MARKET OPPORTUNITY

CRM BPO has historically been the largest segment within the broader business process outsourcing (“BPO”) market based on revenue, and includes services such as customer care, retention, acquisition, technical support, help desk services, credit management, sales, marketing and back-office functions.

Market Size and Growth. According to IDC, global spending on CRM BPO solutions is expected to grow at a compound annual growth rate (“CAGR”) of 5.8% from $57.9 billion in 2012 to $76.8 billion in 2017. Our operations are primarily focused in Latin America, which is the fastest growing CRM BPO market in the world with a market size of $10.7 billion in 2012, according to Frost & Sullivan. The Latin American market is expected to continue its strong growth with revenues forecasted to increase at a CAGR of 9.9% for the period from 2012 to 2017, and spending totaling $17.1 billion by 2017. The Latin American market is driven mainly by domestic demand, which accounted for over 78% of the market in 2012. Brazil, the largest CRM BPO market in Latin America, is expected to grow at a CAGR of 8.5% from 2012 to 2017, while smaller CRM BPO markets such as Colombia and Peru are expected to grow at a CAGR of 16.2% and 14.7%, respectively, according to multiple studies published by Frost & Sullivan.

Key Trends in the Latin American CRM BPO Market

There are a number of trends driving growth in the Latin American CRM BPO market and we believe our market position will allow us to differentiate ourselves and capitalize on this growth.

 

 

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Large CRM BPO Market with Sustained Demand Growth Driven by an Emerging Middle Class. The scale and growth of Latin America’s economies present a large market opportunity. Latin American GDP has grown significantly faster than global GDP in recent years and is expected to continue to grow at attractive rates. According to EIU, Latin American GDP grew at an average annual rate of 3.5% from 2006-2012 compared to 2.1% globally. This growth is supported by an expanding middle class, which is expected to grow from approximately 29% of the population in 2009 to approximately 42% by the year 2030, according to data from The World Bank.

As a result, customer experience-intensive industries, such as insurance and banking, which have historically been underpenetrated in Latin America, have experienced high volume growth, resulting in increased demand for CRM BPO services. For example, the addressable banking market in Brazil continues to grow, with approximately 61% of the population 15 years or older engaging in banking activities in 2013 compared to only approximately 40% in 2007, according to Euromonitor. Total insurance premiums paid in Brazil grew at a CAGR of approximately 18% from 2007 to 2013, according to the Ernst & Young Latin America Insurance Outlook published in 2014.

Lastly, according to Frost & Sullivan, in 2013, call center seat penetration in Latin America significantly lagged the United States, and we believe that this gap will continue to drive long-term growth for our industry in the region.

2013 Call center seats / ‘000s population

 

LOGO

 

Source: Frost & Sullivan and International Monetary Fund.
Note: Includes in-house and outsourced seats.

Continued Trend for Further Outsourcing of CRM BPO Operations. As of 2013, 32.4% of domestic CRM BPO operations in Latin America were outsourced to third party providers, based on number of agent seats, compared to 27.1% in 2007, according to Frost & Sullivan. In the context of high growth in CRM BPO volumes, we believe the value proposition for further outsourcing is compelling and enables our clients to (i) focus on their core capabilities, (ii) generate cost efficiencies, (iii) increase customer satisfaction, (iv) reduce the time-to-market for new products and services and (v) redeploy capital used in internal processes. Given these factors, we expect outsourcing penetration in our markets to continue to grow in the future.

Limited Number of Large Scale Operators in Latin America. Very few companies operate large-scale operations across the entire Latin American region. Most companies operate in only one or two Latin American countries, or within multiple markets with more limited scale as compared to Atento. Establishing large scale operations in Latin America presents challenges due to specific country dynamics in the region and the complexity of managing a large and dynamic workforce. The presence of local players with established long-term positions in certain countries also results in specific industry dynamics. For example, in 2012 in Brazil, the top three providers of CRM BPO services in aggregate accounted for 60.8% of the market, whereas in North America the top three providers in aggregate had just a 16.2% share, according to Frost & Sullivan.

 

 

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North America’s Continued Off-Shoring Trend. We view North America as a growth opportunity as U.S.-based businesses continue to off-shore call center services to other geographies, with 37.4% of the market off-shored in 2012, and 43.4% expected to be off-shored by 2017, according to Frost & Sullivan. Among off-shoring options, U.S. clients increasingly choose to near-shore to Latin America to eliminate challenging time zone differences that might be experienced when off-shoring to India or the Philippines.

The growth in off-shore services by fulfillment market is led by Latin America with an expected 10.5% CAGR from 2012 to 2017, followed by the Philippines (8.7%), India (5.6%) and other regions (3.4%). As the leading growth outlet, Latin America currently accounts for 19.3% of the North American off-shore market, and is expected to grow to 22.3% by 2017, accounting for $2.7 billion of off-shored revenue, according to Frost & Sullivan.

OUR STRATEGY

Our mission is to help make our clients successful by ensuring the best experience for their customers. Our goal is to significantly outperform the expected market growth by being our clients’ partner of choice for customer experience solutions. We strive to deliver growth by leveraging our platform and our people as the key enablers of superior services and solutions for our clients. To this end, we are focused on optimizing our operations and inspiring our people to deliver excellent service to our clients, and our clients’ customers.

These are the pillars of our strategy and the specific initiatives by which we aim to achieve them:

 

LOGO

Transformational Growth

Our three main initiatives to generate higher growth than the overall market are:

Aggressively Grow Our Client Base. We believe we can win new client relationships, either from competitors or as potential clients outsource their in-house operations. In particular, the telecommunications sector, where we already have deep industry knowledge due to our long-history with Telefónica, presents us with an opportunity to increase our market share now that we are a stand-alone company. We have already started providing services to other telecommunications companies in Latin America, such as Claro (part of the América Móvil Group), and we are focused on growing these new relationships to scale.

To reinforce this strategic priority, we have significantly invested in our sales teams and established separate new business acquisition areas with enhanced commercial capabilities and tools.

 

 

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Develop and Deliver CRM BPO Solutions. By leveraging our existing infrastructure and deep client and process knowledge, we are able to deliver increasingly complex solutions and value-added services to our clients through multiple channels. Over time we have diversified and expanded our services, increasing their complexity and developing customized end-to-end solutions such as smart collections, B2B (business-to-business) efficient sales, insurance management, credit management and other CRM BPO processes. Our revenue from these solutions has grown faster than our overall revenues.

As of December 31, 2013, we served a large and diverse base of over 450 separate clients. We believe we can further penetrate these existing relationships by increasing the solutions we provide. We have successfully expanded our service and solution offerings in the past and believe this is a continued growth opportunity, as we are one of the few providers that can deliver an integrated and broad set of CRM BPO solutions to a large and increasingly sophisticated client base.

In order to support this initiative, we are establishing Centers of Excellence in Brazil and Mexico, which will serve as global solutions hubs that integrate all functional areas needed to provide regions with a common portfolio of end-to-end solutions for local adoption and final commercialization. The centers are focused on (i) identifying and developing new end-to-end solutions, (ii) delivering those solutions through specific sales models and tools and detailed expansion plans and (iii) delivering excellent customer experience through a continuous improvement model. Our objective is to develop a repeatable, innovative and shareable portfolio of integrated solutions and distribute those across industries and geographies.

Additionally, we are focused on upgrading our commercial capabilities, expanding and constantly improving our consultative sales model, and enhancing our sales teams’ skills to understand and develop a customized solution for each client’s needs. This model is particularly well-suited for the Latin American market, where clients often have limited experience with outsourcing compared to clients in more mature markets, and benefit from our expertise in designing optimized solutions for their needs in a diverse set of industries.

Further Penetrate U.S. Near-Shore. The market for providing outsourcing services to U.S. clients from Latin America is a sizable and fast-growing opportunity as (i) companies in the United States seek to balance outsourcing services across different geographies, generally favoring locations with better cultural fit and proximity to their operations, while minimizing time zone differences (in particular when compared to India and the Philippines), (ii) Latin America becomes a more cost competitive location and (iii) the talent pool in the region grows, with more people with strong English-language skills.

We believe we have a significant opportunity to serve U.S. clients who choose to outsource to Latin America. We believe we are well-positioned for this opportunity given our strong track-record and experience with near-shore and off-shore solutions, our significant scale and infrastructure in the region and our deep industry expertise, in particular in telecommunications and financial services. We have significant operational experience and established domestic market positions in countries where near-shore operations are established, such as Mexico, Guatemala, El Salvador and Colombia, which differentiates us from other off-shore CRM BPO providers.

To pursue this opportunity, in 2013, we formed a dedicated business unit with its own infrastructure to exclusively serve the U.S. market which, as of April 2014, has more than 450 workstations servicing five clients. We believe our strong relationships with multi-national clients throughout Latin America, such as BBVA Group and Santander, position us well to also serve their off-shoring needs in the United States.

 

 

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Best-in-Class Operations

We have made significant investments in infrastructure, proprietary technologies, management and development processes that capitalize on our extensive experience managing large and globalized operations. Our operational excellence strategy is supported by the following five key global initiatives:

Enhance Productivity of Our Operations. We are focused on a variety of initiatives to enhance agent productivity, including:

 

    Improving the uniformity of key performance indicators (“KPIs”) for operational productivity;

 

    Using statistical analysis and enhanced forecasting methodology to optimize staffing levels; and

 

    Establishing Operational Command Centers to implement analytical tools and standardized performance metrics.

Continued Investment in Our IT Platform. Our technology strategy is focused on (i) delivering a cost-efficient and reliable IT infrastructure to meet the needs of existing clients and support margin expansion, (ii) enhancing our ability to add capacity rapidly with a highly variable cost structure for new business, (iii) developing new products and solutions that can be rapidly scaled and rolled out across geographies, (iv) providing standard operational tools and processes to enable the best experience to our clients’ customers and (v) establishing common platforms that facilitate centralization of core IT services. Technology initiatives to capture benefits of scale, standardization, and consolidation are managed globally, with full accountability by project leaders to continuously optimize our operations and innovate client solutions.

One Procurement. We are strengthening our centralized procurement decision model in order to lower costs and streamline supplier relationships. Our “Global Deal Delivered Locally” strategy allows us to work with vendors to reach global contracts, while still allowing purchase decisions to be handled locally. For example, by sourcing agent headsets as part of a global contract, we were able to achieve significant savings across all of our geographies, ranging from 5% to 82% of net unit headset costs. We are continuing to deploy this procurement strategy across our business, including in our procurement of infrastructure, technology, telecom and professional services, to reduce operating costs and improve margins.

Operations HR Effectiveness. Our business model is constantly focused on improving operations HR effectiveness, developing our people and reducing turnover, driving both performance and reduction in costs. We have an employee base of approximately 155,000 individuals. Recruiting, selecting and training talent is a key factor in the successful delivery of our CRM BPO services and solutions. We have adopted an end-to-end approach, with a number of global initiatives under way that are designed to diversify our candidate sourcing (e.g. social media), refine agent selection methods focused on better fit to reduce turnover, and improve training to develop the best talent. We are also continually aligning HR processes and incentive plans to foster talent retention.

Competitive Site Footprint. We continue to relocate a portion of our delivery centers from tier 1 to tier 2 cities, resulting in lower lease and wage expenses through reduced turnover and absenteeism. Additionally, the relocation of delivery centers also allows us to access and attract new and larger pools of talent in locations where Atento is considered a reference employer. We have completed several successful site transfers in Brazil, Colombia and Argentina. In Brazil, the percentage of total workstations located in tier 2 cities increased from 43.7% in 2011 to 49.5% in 2013. Currently, we are planning to move more than 1,000 workstations in Brazil to tier 2 cities and we expect the program to be substantially completed by 2015. As demand for our services and solutions grows and their complexity continues to increase, we continue to evaluate and adjust our site footprint to create the most competitive combination of quality of service and cost effectiveness.

 

 

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Inspiring People

We believe that our people are a key enabler to our business model and a strategic pillar to our competitive advantage. We have created, and constantly reinforce, a culture that we believe is unique in the industry.

Distinct Culture and Values. We believe our distinctive culture and strong values ensure our employees are highly capable and committed customer specialists in the industry. Our operational policies encourage collaboration and entrepreneurship, emphasize trust, passion and integrity, and commitment to our clients. We believe we can deliver growth and outstanding customer experiences through inspired, committed people who share our vision and are guided by our values. We constantly reinforce our core values with working groups, surveys, and leadership assessment processes that focus on upholding our core values and result in specific development plans.

Alignment with Client Goals. We have developed processes to identify talent (both internally and externally), created individual development plans and designed incentive plans that foster a work environment that aligns our teams with client objectives and our goals, including efficiency objectives, financial targets and client and employee satisfaction metrics. Furthermore, we continuously reassess our talent pool and seek professionals in the services industry to complement our strengths and capabilities. Given our focus on developing our people, we believe we empower our teams and give them the opportunities and tools to act like owners, committed to delivering excellence and achieving superior performance.

High Performance Organization. We have implemented a new operating model that integrates the corporate organization globally, allowing us to capture the benefits of scale, standardization and sharing of best practices. The corporate organization is integrated globally but strategically segmented into different operating regions. This ensures that corporate functions remain close to their businesses and clients, utilize a deeper understanding of the local industry levers, and are committed to the successful implementation of the initiatives on a regional level. We believe that this new organizational structure will foster agility and simplicity, while ensuring that corporate leaders are focused on coordinating, communicating and pursuing new solutions and innovation, with full accountability on the results.

OUR COMPETITIVE STRENGTHS

We benefit from the following key competitive strengths in our business:

Category Leader in a Large Market with Long-term Secular Growth Trends

We are currently the leading provider of CRM BPO services and solutions in Latin America and among the top three providers globally, based on revenue. In 2012, we were the leading provider of outsourced CRM BPO services in the rapidly growing Latin American market overall with a 20.1% market share by revenue, compared to 19.1% in 2009. In addition, we were the leading provider of outsourced CRM BPO services by market share based on revenue in 2012 in Peru (38.4%), Spain (22.3%), Argentina (22.0%), Chile (19.6%) and Mexico (15.9%), and the second largest in Brazil (25.2%), according to data published by Frost & Sullivan (except for Spain, which refers to market share data for 2011).

 

 

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Atento 2012 Market Share and Position by Country

 

LOGO

 

Source: Frost & Sullivan.
Note: Spain market share as of 2011.

Comprehensive, Customizable Suite of CRM BPO Solutions across Multiple Channels

We believe that our position as an end-to-end provider of CRM BPO solutions is a key factor for our share gain in recent years, and will be a driver of our expected outperformance. As we continue to evolve towards customized client solutions and variable pricing structures, we seek to create a mutually beneficial partnership and increase our share of wallet with our clients. We intend to develop and expand our portfolio of customized end-to-end solutions as we continue to leverage our deep knowledge of our clients’ outsourcing needs.

In the context of the continuing evolution and proliferation of digital communication technologies and devices, we are focused on and continue to invest in research and development to anticipate the changing habits of customers and how our clients ultimately engage with them across a growing array of communication channels including SMS, e-mail, chats, social media and apps, among others.

Long-standing, Blue-Chip Client Relationships in Multiple Industries

Our long-standing, blue-chip client base across a variety of industries includes Telefónica Group, BBVA Group, Itaú, Bradesco, Santander McDonald’s and Carrefour, among others. Our clients include leaders and innovators in their respective industries who demand best-in-class service from their outsourcing partners. By growing and partnering with them over the long-term, we have expanded the scope of our services and solutions while helping them deliver their brand promise. We believe that alignment to our clients’ success is critical and that it drives our local managers to add value and innovate, with their incentives aligned with the client’s success. We believe that this approach has allowed us to develop and nurture longstanding relationships with existing clients which have provided us with stable revenue year-to-year. In 2013, 85.3% of our revenue (excluding Telefónica) came from clients we have served for more than five years. Illustrative of our high customer satisfaction, in 2011, 2012 and 2013, our client retention rates were 97.9%, 98.5% and 99.3%, respectively.

Additionally, we believe it is costly and presents risks for our clients to switch a large number of workstations to competitors due to the potential disruption caused to the client’s customers, the extensive employee training required and the level of process integration between the client and CRM BPO provider.

Value Added Partner with Differentiated Technology Platform

We have a scalable and reliable technology platform that we believe is a significant competitive differentiator. Our technology platform allows us to be a value-added partner to clients by providing upfront

 

 

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customer engagement process design, hosting and managing numerous customer management environments, offering multi-channel commmunication delivery and sophisticated data and analytics, which provide deep insights into each interaction with a client’s customer. In 2013, our technology platform handled transactions across 89 delivery centers operating 24 hours a day, 365 days a year with less than 0.06% unscheduled systems downtime.

Focus on HR Management to Deliver Superior Customer Experiences

We believe employee satisfaction is a key differentiator in maintaining and growing a high performance organization to deliver a superior customer experience. We leverage our distinctive culture and values as well as our deep understanding of regional cultural intricacies to create a work environment that aligns client objectives with employee incentives and commitment. We believe well-trained, highly-committed customer specialists, who are rewarded for results, enhance performance in our clients’ CRM operations. In 2013, we were named one of the top 25 companies to work for according to Great Place to Work Institute’s ranking of the World’s Best Multinational Workplaces, putting us alongside companies such as Google, Microsoft and The Coca-Cola Company. Furthermore, we have received the most country-level Great Place to Work prizes in the CRM BPO industry. Because our solutions are delivered through our approximately 155,000 employees, we believe that our high levels of demonstrated employee satisfaction enable us to deliver a differentiated customer experience compared to our competitors and clients’ in-house operations.

Additionally, we have a proprietary training system, the Atenea Program, which allows us to identify our clients’ needs and determine which hard and soft skills need to be incorporated and reinforced in the training and assessment plans of our workforce. In 2013, our employees received more than 13 million hours of training, which we believe gives us a specialized employee base to deliver a best-in-class customer experience.

Highly Experienced and Motivated Management Team

We benefit from the significant experience and knowledge of our management team. We inherited experienced, motivated local talent, with many members of our senior management having played an instrumental role in growing and establishing us as a global leader in the years prior to the Acquisition. Most of our operational managers have worked with us for over ten years, which has allowed us to accumulate valuable operational experience and deep vertical expertise, while building and maintaining close relationships with our key clients. As part of our transition to a standalone company, we complemented our management team with a new Chief Financial Officer, Chief Technology Officer, Chief Commercial Officer and Chief Procurement Officer to build a truly world class management team. This team is fully committed to building upon our market leadership and driving our transformational growth.

OUR HISTORY AND CORPORATE STRUCTURE

The Atento business was founded in 1999 in Madrid, Spain. Bain Capital acquired the Atento Group from Telefónica on December 12, 2012 pursuant to the terms of a purchase agreement (the “SPA”) dated as of October 11, 2012, among Atento Luxco 1 S.A. (“Atento Luxco”) and certain of its affiliates, and Telefónica.

The Issuer was incorporated on March 5, 2014 as a Luxembourg public limited liability company (société anonyme). It is registered with the Luxembourg Registry of Trade and Companies under number B.185.761. Its registered office is located at 4 rue Lou Hemmer, L-1748 Luxembourg Findel, Grand Duchy of Luxembourg, telephone number +352 26 78 60 1.

Our principal executive offices are located at C/Quintanavides, N. 17—2 Planta, 28050 Las Tablas, Madrid, Spain. Our website can be found at www.atento.com. Information on, or accessible through, our website is not part of and is not incorporated by reference in this prospectus, and you should rely only on the information contained in this prospectus when making a decision as to whether to invest in our ordinary shares.

 

 

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The Reorganization Transaction

The Issuer was formed as a subsidiary of Atalaya Luxco Topco S.C.A. (“Topco”). Prior to the completion of this offering, Topco will contribute all of its debt interests in Atalaya Luxco Midco S.à r.l. (“Midco”), including the outstanding preferred equity certificates (“PECs”) issued by Midco to Topco which indirectly owns all of the voting equity interests in the Atento Group, to Midco (upon which such debt interest will be extinguished by operation of law) and will subsequently transfer all of its equity interests in Midco to the Issuer and as a result, Midco will become a direct subsidiary of the Issuer. We refer to the foregoing transactions as the “Reorganization Transaction.”

Following completion of this offering, Topco will, directly or indirectly, own approximately     % of the Company’s outstanding ordinary shares, or     % if the underwriters’ option to purchase additional shares is fully exercised. Bain Capital will continue to control Topco and, as a result, will be able to have a significant influence on fundamental and significant corporate matters and transactions. See “Risk Factors—Risks Related to Our Ordinary Shares and this Offering—Control by Bain Capital could adversely affect our other shareholders.”

Corporate Structure

The following chart summarizes our corporate ownership structure immediately following the consummation of this offering. Note 3(t) to the Successor financial statements included elsewhere in this prospectus provides a complete listing of the subsidiaries of the Successor, including their name, country of incorporation or residence, and portion of ownership interest or voting power held, if applicable.

 

LOGO

 

 

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RISKS ASSOCIATED WITH OUR COMPANY

Investing in our ordinary shares involves a significant degree of risk. See “Risk Factors” beginning on page 20 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares. These risks include among others:

 

    The CRM BPO market is very competitive.

 

    Telefónica, certain of its affiliates and a few other major clients account for a significant portion of our revenue and any loss of a large portion of business from these clients could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

    A substantial portion of our revenue, operations and investments are located in Latin America and we are therefore exposed to risks inherent in operating and investing in the region.

 

    Any deterioration in global market and economic conditions and, in particular in the telecommunications and financial services industries from which we generate most of our revenue, may adversely affect our business, financial condition, results of operations and prospects.

 

    We are a Luxembourg public limited liability company (“société anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.

 

    Control by Bain Capital could adversely affect our other shareholders.

 

    Our existing debt may affect our flexibility in operating and developing our business and our ability to satisfy our obligations.

 

 

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THE OFFERING

The following is a brief summary of the terms of this offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. For a more complete description of our ordinary shares, see “Description of Share Capital” in this prospectus.

 

Issuer

   Atento S.A.

Ordinary Shares Offered:

  

By us

                ordinary shares.

By the Selling Shareholder

                ordinary shares.

Total

                ordinary shares.

Option to Purchase Additional Shares

   We and the selling shareholder have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of                      and                      additional ordinary shares, respectively.
Ordinary Shares to be Outstanding After This Offering   


                     ordinary shares (or                      if the underwriters exercise their option to purchase additional shares in full).

Use of Proceeds

   We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $                     million, or $                     million if the underwriters exercise their option to purchase additional shares in full, assuming the ordinary shares are offered at $         per ordinary share, the midpoint of the price range set forth on the cover of this prospectus.
   We will not receive any proceeds from the sale of ordinary shares by the selling shareholder.
   We intend to use the net proceeds from the sale of ordinary shares by us in this offering to repay a portion of our €110.0 million vendor loan note issued to an affiliate of Telefónica (the “Vendor Loan Note”) and to pay fees and expenses incurred in connection with this offering, including payments to affiliates of Bain Capital. We will use any remaining net proceeds from this offering for general corporate purposes. See “Use of Proceeds” and “Description of Certain Indebtedness.”

Dividend Policy

   Although we expect to be well capitalized following the Reorganization Transaction prior to the completion of this offering and we have sufficient liquidity, our ability to pay dividends on our ordinary shares is limited in the near-term by the indenture governing our existing 7.375% Senior Secured Notes due 2020 (the “Senior Secured Notes”), the BRL915 million

 

 

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   non-convertible, secured debentures due 2019 (the “Brazilian Debentures”), the Vendor Loan Note and our Contingent Value Instruments (“CVIs”), and may be further restricted by the terms of any of our future debt or preferred securities. See “Description of Certain Indebtedness.” To the extent we are in a position under our debt documentation to pay cash dividends, we will endeavor to pay cash dividends to our shareholders. However, any future determinations relating to our dividend policies will be made at the discretion of our board of directors and will depend on various factors. See “Dividend Policy.”

Lock-up Agreements

   We, our directors, executive officers, all of our existing shareholders, option holders and Topco, have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any of our shares or similar securities for 180 days after the date of this prospectus. See “Underwriting.”

Listing

   We plan to apply to list our shares on the New York Stock Exchange under the symbol “        .”

Risk Factors

   See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.

The number of shares to be issued and outstanding after this offering is based on                      ordinary shares issued and outstanding as of                     , 2014 and excludes                      ordinary shares reserved for future issuance under our share-based compensation plans.

Except as otherwise indicated, all information in this prospectus:

 

    assumes an initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus; and

 

    assumes no exercise of the underwriters’ option to purchase additional shares.

 

 

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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION

The following tables present summary historical consolidated financial information for the periods and as of the dates indicated and should be read in conjunction with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Historical Financial Information” and the financial statements included elsewhere in this prospectus.

We have historically conducted our business through the Predecessor up to November 30, 2012, and subsequent to the Acquisition, through the Successor, and therefore our historical financial statements present the results of operations of Predecessor and Successor, respectively. Prior to completion of this offering we will implement the Reorganization Transaction pursuant to which the Successor will become a wholly-owned subsidiary of the Issuer, a newly formed holding company incorporated under the laws of Luxembourg with nominal assets and liabilities for the purpose of facilitating the offering contemplated hereby, and which will not have conducted any operations prior to the completion of this offering. Following the Reorganization Transaction and this offering, our financial statements will present the results of operations of the Issuer. The consolidated financial statements of the Issuer will be substantially the same as the consolidated financial statements of the Successor prior to this offering, as adjusted for the Reorganization Transaction. Upon consummation, the Reorganization Transaction will be reflected retroactively in the Issuer’s earnings per share calculations. See “—The Reorganization Transaction.”

The following sets forth summary historical financial data of the Atento Group. We prepare our financial statements in accordance with IFRS as issued by the IASB. As a result of the Acquisition, we applied acquisition accounting whereby the purchase price paid was allocated to the acquired assets and assumed liabilities at fair value. Our financial reporting periods presented in the table below are as follows:

 

    Solely for purposes of the summary historical financial information in this section, the Predecessor period refers to the year ended December 31, 2011 and the period from January 1, 2012 through November 30, 2012 and reflects the combined carve-out results of operations of the Predecessor.

 

    The Successor period reflects the consolidated results of operations of the Successor, which includes the effects of acquisition accounting for the one month period from December 1, 2012 to December 31, 2012 and for the year ended December 31, 2013.

The summary combined carve-out historical financial information as of and for the year ended December 31, 2011, as of November 30, 2012 and for the period from January 1, 2012 to November 30, 2012 presented below were derived from the Predecessor financial statements included elsewhere in this prospectus.

The summary consolidated historical financial information as of December 31, 2012 and for the period from December 1, 2012 to December 31, 2012 and as of and for the year ended December 31, 2013 presented below were derived from the Successor financial statements included elsewhere in this prospectus.

Historical results for any prior period are not necessarily indicative of results expected in any future period.

 

 

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The unaudited Aggregated 2012 Financial Information set forth below is derived by adding together the corresponding data from the audited Predecessor financial statements for the period from January 1, 2012 to November 30, 2012, to the corresponding data from the audited Successor financial statements for the period from December 1, 2012 to December 31, 2012, appearing elsewhere in this prospectus, each prepared under IFRS as issued by the IASB. This presentation of the Aggregated 2012 Financial Information is for illustrative purposes only, is not presented in accordance with IFRS, and is not necessarily comparable to previous or subsequent periods, or indicative of results expected in any future period (including as a result of the effects of the Acquisition).

 

    Predecessor              Successor     Non-IFRS
Aggregated
                Successor              
    As of and
for the year
ended
December 31,

2011
    As of and
for the
period
from Jan 1
– Nov 30,

2012
             As of and
for the
period
from Dec
1 – Dec
31,

2012
    For the year
ended
December 31,

2012
(unaudited)
    Change
%
    Change
excluding
FX

%
    As of and for
the year
ended
December 31,

2013
    Change
%
    Change
excluding
FX

%
 
($ in millions other
than share and per
share data)
                     

Income statement data:

                       

Revenue

    2,417.3        2,125.9              190.9        2,316.8        (4.2     6.7        2,341.1        1.0        7.5   

Operating profit/(loss)

    155.6        163.8              (42.4     121.4        (22.0     (10.3     105.0        (13.5     (1.2

Profit for the period/(loss)

    90.3        90.2              (56.6     33.6        (62.8     (47.0     (4.0     (111.9     (90.8

Profit/(loss) for the period from continuing operations

    89.6        90.2              (56.6     33.6        (62.5     (46.5     (4.0     (111.9     (90.8

Profit/(loss) attributable to equity holders

    87.9        89.7              (56.6     33.1        (62.3     (46.0     (4.0     (112.1     (90.6

Earnings per share—basic and diluted

    n/a        n/a              (28.31     n/a        n/a        n/a        (2.02     n/a        n/a   

Weighted average number of shares outstanding—basic and diluted

    n/a        n/a              2,000,000        n/a        n/a        n/a        2,000,000        n/a        n/a   

Balance sheet data:

                       

Total assets

    1,224.6        1,263.8              1,961.0        n/a        n/a        n/a        1,842.2        n/a        n/a   

Total share capital

    n/a        n/a              2.6        n/a        n/a        n/a        2.6        n/a        n/a   

Invested equity/equity

    631.2        670.1              (32.7 )(a)      n/a        n/a        n/a        (134.0 )(a)      n/a        n/a   

 

(a) Since the Successor was created on December 1, 2012, as of December 31, 2012 and 2013, the Atento Group presents negative equity primarily due to the effects of the Acquisition as a result of which equity has been negatively impacted by the costs incurred in connection with the Acquisition and by integration related costs associated to the change in ownership. Equity adjusted for the Reorganization Transaction including the capitalization of the PECs would be $385.6 million as of December 31, 2013. See “Capitalization” and Note 2(d) to the Successor financial statements included elsewhere in this prospectus.

 

 

 

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    Predecessor          Successor     Non-IFRS
Aggregated
                Successor              
    As of and for
the year

ended
December 31,

2011
    Period from
Jan 1

–  Nov 30,
2012
         Period from
Dec 1

– Dec 31,
2012
    Year ended
December 31,

2012
    Change
%
    Change
excluding
FX

%
    As of and for
the year

ended
December 31,

2013
    Change
%
    Change
excluding
FX

%
 
($ in millions)                       

Other financial data (unaudited):

                     

EBITDA(1)

    234.1        241.9            (34.9     207.0        (11.6     (0.1     234.0        13.0        22.9   

Adjusted EBITDA(1)

    246.9        235.9            32.2        268.1        8.6        21.5        295.1        10.1        16.9   

Adjusted Earnings / (Loss)(2)

    97.5        86.2            (8.9     77.3        n/a        n/a        97.5        n/a        n/a   

Free Cash Flow(3)

    (25.0     86.7            (96.7     (10.0     n/a        n/a        (3.4     n/a        n/a   

Adjusted Free Cash Flow(4)

    41.0        140.8            (29.7     111.1        n/a        n/a        126.1        n/a        n/a   

Net Debt with Third Parties(5)

    23.4        5.1            620.2        620.2        n/a        n/a        637.7        n/a        n/a   

 

(1) In considering the financial performance of the business and as a management tool in business decision making, our management analyzes the financial performance measures of EBITDA and Adjusted EBITDA at a company and operating segment level. EBITDA is defined as profit/(loss) for the period from continuing operations before net finance costs, income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude Acquisition and integration related costs, restructuring costs, sponsor management fees, asset impairments, site relocation costs, financing fees and other items which are not related to our core results of operations. EBITDA and Adjusted EBITDA are not measures defined by IFRS. The most directly comparable IFRS measure to EBITDA and Adjusted EBITDA is profit / (loss) for the period from continuing operations.

We believe EBITDA and Adjusted EBITDA, as defined above, are useful metrics for investors to understand our results of operations and profitability because they permit investors to evaluate our recurring profitability from underlying operating activities. We also use these measures internally to establish forecasts, budgets and operational goals to manage and monitor our business, as well as evaluating our underlying historical performance. We believe EBITDA facilitates operating performance comparisons between periods and among other companies in industries similar to ours because it removes the effect of variation in capital structures, taxation, and non-cash depreciation and amortization charges, which may differ between companies for reasons unrelated to operating performance. We believe Adjusted EBITDA better reflects our underlying operating performance because it excludes the impact of items which are not related to our core results of operations.

EBITDA and Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present EBITDA-related performance measures when reporting their results.

EBITDA and Adjusted EBITDA have limitations as analytical tools. These measures are not presentations made in accordance with IFRS, are not measures of financial condition or liquidity and should not be considered in isolation or as alternatives to profit or loss for the period from continuing operations or other measures determined in accordance with IFRS. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies.

See “Selected Historical Financial Information” for a reconciliation of profit/(loss) for the period from continuing operations to EBITDA and Adjusted EBITDA.

 

(2)

In considering our financial performance, our management analyzes the performance measure of Adjusted Earnings/(Loss). Adjusted Earnings/(Loss) is defined as profit/(loss) for the period from continuing operations adjusted for Acquisition and integration related costs, amortization of Acquisition related

 

 

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  intangible assets, restructuring costs, sponsor management fees, assets impairments, site relocation costs, financing fees, PECs interest expense, other and tax effects. Adjusted Earnings/(Loss) is not a measure defined by IFRS. The most directly comparable IFRS measure to Adjusted Earnings/(Loss) is our profit/(loss) for the period from continuing operations.

We believe Adjusted Earnings/(Loss), as defined above, is useful to investors and is used by our management for measuring profitability because it represents a group measure of performance which excludes the impact of certain non-cash charges and other charges not associated with the underlying operating performance of the business, while including the effect of items that we believe affect shareholder value and in-year return, such as income tax expense and net finance costs.

Management expects to use Adjusted Earnings/(Loss) to (i) provide senior management a monthly report of our operating results that is prepared on an adjusted earnings basis; (ii) prepare strategic plans and annual budgets on an adjusted earnings basis; and (iii) review senior management’s annual compensation, in part, using adjusted performance measures.

Adjusted Earnings/(Loss) is defined to exclude items that are not related to our core results of operations. Adjusted Earnings/(Loss) measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an adjusted earnings related performance measure when reporting their results.

Adjusted Earnings/(Loss) has limitations as an analytical tool. Adjusted Earnings/(Loss) is neither a presentation made in accordance with IFRS nor a measure of financial condition or liquidity, and should not be considered in isolation or as an alternative to profit or loss for the period from continuing operations or other measures determined in accordance with IFRS. Adjusted Earnings/(Loss) is not necessarily comparable to similarly titled measures used by other companies.

See “Selected Historical Financial Information” for a reconciliation of our Adjusted Earnings/(Loss) to our profit/(loss) for the period from continuing operations.

 

(3) Our management uses Free Cash Flow to assess the liquidity of the Company and cash flow generation of our operating subsidiaries. We define Free Cash Flow as net cash flows from operating activities less capital expenditures for the period. We believe that Free Cash Flow is useful to investors because it adjusts our operating cash flow by the capital that is spent to continue and improve business operations.

Free Cash Flow has limitations as an analytical tool. Free Cash Flow is not a measure defined by IFRS and should not be considered in isolation from, or as an alternative to, cash flow from operating activities or other measures as determined in accordance with IFRS. Additionally, Free Cash Flow does not represent the residual cash flow available for discretionary expenditures as it does not incorporate certain cash payments, including payments made on finance lease obligations or cash payments for business acquisitions. Free Cash Flow is not necessarily comparable to similarly titled measures used by other companies.

 

(4) Our management expects to use Adjusted Free Cash Flow to assess the liquidity of the Company. We define Adjusted Free Cash Flow as cash flows from operating activities less capital expenditures, adjusted for net interest paid and taxes paid, the capital expenditure of the acquisition of the directory business from Telefónica in 2011, and the cash component of the Acquisition and integration related costs, restructuring costs, sponsor management fees, financing fees and other. We believe that Adjusted Free Cash Flow is useful to investors because it reflects our underlying cash flow generation adjusted for items that are not related to our core results of operations and neutralizes any changes in our capital structure.

Adjusted Free Cash Flow has limitations as an analytical tool. Adjusted Free Cash Flow is not a measure defined by IFRS and should not be considered in isolation from, or as an alternative to, cash flow from operating activities or other measures determined in accordance with IFRS.

 

 

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See “Selected Historical Financial Information” for a reconciliation of our cash flow from operating activities for the period to our Free Cash Flow and Adjusted Free Cash Flow for the periods presented.

 

(5) In considering our financial condition, our management analyzes Net Debt with Third Parties, which is defined as Total debt less cash, cash equivalents and short-term deposits and non-current payables to Group companies (which represent the PECs). The PECs are classified as our subordinated debt relating to our other present and future obligations, and they will be capitalized in connection with this offering. Net Debt with Third Parties is not a measure defined by IFRS.

Net Debt with Third Parties has limitations as an analytical tool. Net Debt with Third Parties is neither a measure defined by or presented in accordance with IFRS nor a measure of financial performance, and should not be considered in isolation or as an alternative financial measure determined in accordance with IFRS. Net Debt with Third Parties is not necessarily comparable to similarly titled measures used by other companies.

See “Selected Historical Financial Information” for a reconciliation of Total debt to Net Debt with Third Parties utilizing IFRS reported balances obtained from the audited financial statements included elsewhere in this prospectus. Total debt is the most directly comparable financial measure under IFRS for the periods presented.

 

 

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RISK FACTORS

This offering and an investment in our ordinary shares involve a significant degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase our ordinary shares. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose all or part of your investment in our ordinary shares.

Risks Related to Our Business

The CRM BPO market is very competitive.

Our industry is very competitive, and we expect competition to remain intense from a number of sources in the future. In 2013, the top three CRM BPO companies, including us, represented approximately 12% of the global CRM BPO solutions market, based on company filings, IDC and our estimates. We believe that the principal competitive factors in the markets in which we operate are service quality, price, the ability to add value to a client’s business and industry expertise. We face competition primarily from CRM BPO companies and IT services companies. In addition, the trend toward off-shore outsourcing, international expansion by foreign and domestic competitors and continuing technological changes may result in new and different competitors entering our markets. These competitors may include entrants from the communications, software and data networking industries or entrants in geographical locations with lower costs than those in which we operate.

Some of these existing and future competitors may have greater financial, human and other resources, longer operating histories, greater technological expertise and more established relationships in the industries that we currently serve or may serve in the future. In addition, some of our competitors may enter into strategic or commercial relationships among themselves or with larger, more established companies in order to increase their ability to address customer needs and reduce operating costs, or enter into similar arrangements with potential clients. Further, trends of consolidation in our industry and among CRM BPO competitors may result in new competitors with greater scale, a broader footprint, better technologies and price efficiencies attractive to our clients. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could result in reduced operating profit margins which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Telefónica, certain of its affiliates and a few other major clients account for a significant portion of our revenue and any loss of a large portion of business from these clients could have a material adverse effect on our business, financial condition, results of operations and prospects.

We have derived and believe that we will continue to derive a significant portion of our revenue from companies within the Telefónica Group and a few other major client groups. For the years ended December 31, 2011, 2012 and 2013, we generated 51.1%, 50.0% and 48.5%, respectively, of our revenue from the services provided to the Telefónica Group. Our contracts with Telefónica Group companies in Brazil and Spain comprised approximately 66.3% of our revenue from the Telefónica Group for the year ended December 31, 2013. Our fifteen largest client groups (including the Telefónica Group) on a consolidated basis accounted for a total of 83.1% of our revenue for the year ended December 31, 2013.

We are party to the MSA with Telefónica for the provision of certain CRM BPO services to Telefónica Group companies which governs the services agreements entered with the Telefónica Group companies. The MSA has a remaining term of approximately eight years. As of December 31, 2013, 29 companies within the Telefónica Group were a party to more than 150 arm’s-length contracts with us. While our service contracts with the Telefónica Group companies have traditionally been renewed, there can be no assurance that such contracts

 

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will be renewed upon their expiration. In addition, there can be no assurance that the MSA will be renewed upon its expiration. Furthermore, the MSA or any other agreement with any of the Telefónica Group companies may be amended in a manner adverse to us or terminated early.

In addition, there can be no assurance that the volume of work to be performed by us for the various Telefónica Group companies will not vary significantly from year to year in the aggregate, particularly since we are not the exclusive outsourcing provider for the Telefónica Group. As a consequence, our revenue or margins from the Telefónica Group may decrease in the future. A number of factors other than the price and quality of our work and the services we provide could result in the loss or reduction of business from Telefónica Group companies, and we cannot predict the timing or occurrence of any such event. For example, a Telefónica Group company may demand price reductions, increased quality standards, change its CRM BPO strategy, or under certain circumstances transfer some or all of the work and services we currently provide to Telefónica in-house.

The loss of a significant part of our revenue derived from these clients, in particular the Telefónica Group, as a result of the occurrence of one or more of the above events would have a material adverse effect on our business, financial condition, results of operations and prospects.

A substantial portion of our revenue, operations and investments are located in Latin America and we are therefore exposed to risks inherent in operating and investing in the region.

For the year ended December 31, 2013, we derived 33.0% of our revenue from Americas and 51.5% from Brazil. We intend to continue to develop and expand our facilities in the Americas and Brazil. Our operations and investments in the Americas and Brazil are subject to various risks related to the economic, political and social conditions of the countries in which we operate, including risks related to the following:

 

    inconsistent regulations, licensing and legal requirements may increase our cost of operations as we endeavor to comply with myriad of laws that differ from one country to another in an unpredictable and adverse manner;

 

    currencies may be devalued or may depreciate or currency restrictions or other restraints on transfer of funds may be imposed;

 

    the effects of inflation and currency depreciation and fluctuation may require certain of our subsidiaries to undertake a mandatory recapitalization;

 

    governments may expropriate or nationalize assets or increase their participation in companies;

 

    governments may impose burdensome regulations, taxes or tariffs;

 

    political changes may lead to changes in the business environments in which we operate; and

 

    economic downturns, political instability and civil disturbances may negatively affect our operations.

Any deterioration in global market and economic conditions, especially in Latin America, and, in particular in the telecommunications and financial services industries from which we generate most of our revenue, may adversely affect our business, financial condition, results of operations and prospects.

Global market and economic conditions, including in Latin America, in the past several years have presented volatility and increasing risk perception, with tighter credit conditions and recession or slow growth in most major economies continuing into 2014. Our results of operations are affected directly by the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets that they serve. Many of our clients’ industries are especially vulnerable to any crisis in the financial and credit markets or economic downturn. A substantial portion of our clients are concentrated in the telecommunications and financial services industries which were especially vulnerable to the global financial

 

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crisis and economic downturn that began in 2008. For the year ended December 31, 2013, 51.7% of our revenue was derived from clients in the telecommunications industry. During the same period, clients in the financial services industry (including insurance) contributed 35.2% to our revenue. Our business and future growth largely depend on continued demand for our services from clients in these industries.

As our business has grown, we have become increasingly exposed to adverse changes in general global economic conditions, which may result in reductions in spending by our clients and their customers. Global economic concerns such as the varying pace of global economic recovery continue to create uncertainty and unpredictability and may have an adverse effect on the cost and availability of credit, leading to decreased spending by businesses. Any deterioration of general economic conditions, or weak economic performance in the economies of the countries in which we operate, in particular in Brazil and Americas where, for the years ended December 31, 2011, 2012 and 2013, 83.6%, 83.7% and 84.5% of our revenue (in each case, before holding company level revenue and consolidation adjustments), respectively, was generated and in our key markets such as the telecommunications and financial services industries where, for the year ended December 31, 2013, 86.9% of our revenue was generated, may have a material adverse effect on our business, financial condition, results of operations and prospects.

We may fail to attract and retain enough sufficiently trained employees at our service delivery centers to support our operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The CRM BPO industry relies on large numbers of trained employees at service centers, and our success depends to a significant extent on our ability to attract, hire, train and retain employees. The CRM BPO industry, including us, experiences high employee turnover. On average in 2013, we experienced monthly turnover rates of 7.8% of our overall operations personnel (we include both permanent and temporary employees, counting each from his or her first day of employment with us) requiring us to continuously hire and train new employees, particularly in Latin America, where there is significant competition for trained employees with the skills necessary to perform the services we offer to our clients. In addition, we compete for employees, not only with other companies in our industry, but also with companies in other industries and in many locations where we operate there is a limited number of properly trained employees. Increased competition for these employees, in the CRM BPO industry or otherwise, could have an adverse effect on our business. Additionally, a significant increase in the turnover rate among trained employees could increase our costs and decrease our operating profit margins.

In addition, our ability to maintain and renew existing engagements, obtain new business and increase our margins will depend, in large part, on our ability to attract, train and retain employees with skills that enable us to keep pace with growing demands for outsourcing, evolving industry standards, new technology applications and changing client preferences. Our failure to attract, train and retain personnel with the experience and skills necessary to fulfill the needs of our existing and future clients or to assimilate new employees successfully into our operations could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our profitability will suffer if we are not able to maintain our pricing or control or adjust costs to the level of our activity.

Our profit margin, and therefore our profitability, is largely a function of our level of activity and the rates we are able to recover for our services. If we are unable to maintain the pricing for our services or an appropriate seat utilization rate, without corresponding cost reductions, our profitability will suffer. The pricing and levels of activity we are able to achieve are affected by a number of factors, including our clients’ perceptions of our ability to add value through our services, the length of time it takes for volume of new clients to ramp up, competition, introduction of new services or products by us or our competitors, our ability to accurately estimate, attain and sustain revenue from client contracts, margins and cash flows over increasingly longer contract periods and general economic and political conditions.

 

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Our profitability is also a function of our ability to control our costs and improve our efficiency. As we increase the number of our employees and execute our strategies for growth, we may not be able to manage the significantly larger and more geographically diverse workforce that may result, which could adversely affect our ability to control our costs or improve our efficiency. Further, because there is no certainty that our business will grow at the rate that we anticipate, we may incur expenses for the increased capacity for a significant period of time without a corresponding growth in our revenues.

If our clients decide to enter or further expand their own CRM BPO businesses in the future or current trends towards providing CRM BPO services and/or outsourcing activities are reversed, it may materially adversely affect our business, results of operations, financial condition and prospects.

None of our current agreements with our clients prevents them from competing with us in our CRM BPO business and none of our clients have entered into any non-compete agreements with us. Our current clients may seek to provide CRM BPO services similar to those we provide. Some clients conduct CRM BPO services for other parts of their own businesses and for third parties. Any decision by our key clients to enter into or further expand their CRM BPO business activities in the future could cause us to lose valuable clients and suppliers and may materially adversely affect our business, financial condition, results of operations and prospects.

Moreover, we have based our strategy of future growth on certain assumptions regarding our industry, legal framework, services and future demand in the market for such services. However, the trend to outsource business processes may not continue and could be reversed by factors beyond our control, including negative perceptions attached to outsourcing activities or government regulations against outsourcing activities. Current or prospective clients may elect to perform such services in-house to avoid negative perceptions that may be associated with using an off-shore provider. Political opposition to CRM BPO or outsourcing activities may also arise in certain countries if there is a perception that CRM BPO or outsourcing activities has a negative effect on employment opportunities.

In addition, our business may be adversely affected by potential new laws and regulations prohibiting or limiting outsourcing of certain core business activities of our clients in key jurisdictions in which we conduct our business, such as in Brazil. The introduction of such laws and regulations or the change in interpretation of existing laws and regulations could adversely affect our business, financial condition, results of operations and prospects.

The consolidation of the potential users of CRM BPO services may adversely affect our business, financial condition, results of operations and prospects.

Consolidation of the potential users of CRM BPO services may decrease the number of clients who contract our services. Any significant reduction in or elimination of the use of the services we provide as a result of consolidation would result in reduced net revenue to us and could harm our business. Such consolidation may encourage clients to apply increasing pressure on us to lower the prices we charge for our services, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our operating results may fluctuate from one quarter to the next due to various factors including seasonality.

Our operating results may differ significantly from quarter to quarter and our business may be affected by factors such as: client losses, the timing of new contracts and of new product or service offerings, termination of existing contracts, variations in the volume of business from clients resulting from changes in our clients’ operations or the onset of certain parts of the year, such as the summer vacation period in our geographically diverse markets and the year-end holiday season in Latin America, the business decisions of our clients regarding the use of our services, start-up costs, delays or difficulties in expanding our operational facilities and infrastructure, changes to our revenue mix or to our pricing structure or that of our competitors, inaccurate estimates of resources and time required to complete ongoing projects, currency fluctuation and seasonal changes in the operations of our clients.

 

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We typically generate less revenue in the first quarter of the year than in the second quarter as our clients generally spend less after the year-end holiday season. We have also found that our revenue increases in the last quarter of the year, particularly in November and December when our business benefits from the increased activity of our clients and their customers, who generally spend more money and are otherwise more active during the year-end holiday season. These seasonal effects also cause differences in revenue and income among the various quarters of any financial year, which means that the individual quarters of a year should not be directly compared with each other or used to predict annual financial results.

In addition, the sales cycle for our services, typically from six to 12 months (from the date the contract is entered into until the beginning of the provision of services), and the internal budget and approval processes of our prospective clients, make it difficult to predict the timing of new client engagements. Also, we recognize revenue only upon actual provision of the contracted services and when the criteria for recognition are achieved. The financial benefit of gaining a new client may not be realized at the intended time due to delays in the implementation of our services or due to an increase in the start-up costs required in building our infrastructure. These factors may make it difficult for us to prepare accurate internal financial forecasts or replace anticipated revenue that is not received as a result of these delays.

Our key clients have significant leverage over our business relationships, upon which we are dependent.

We are dependent upon the business relationships we have developed with our clients. Our service contracts generally allow our clients to modify such relationships and our commensurate level of work. Typically, the initial term of our service contracts is one to two years. Generally, our specific service contracts provide for early termination, in some cases without cause, by either party, provided 30 to 90 days prior written notice is given. Clients may also unilaterally reduce the use and number of services under our contracts without penalty. The termination or reduction in services by a substantial percentage or a significant reduction in the price of these contracts could adversely affect our business and reduce our margins. The revenue generated from our fifteen largest client groups (including Telefónica Group companies) for the year ended December 31, 2013 represented 83.1% of our revenue. Excluding revenue generated from the Telefónica Group, our next 15 largest client groups for the year ended December 31, 2013 represented in aggregate 35.0% of our revenue. In addition, a contract termination or significant reduction in the services contracted to us by a major client could result in a higher than expected number of unassigned employees, which would increase our employee benefits expenses associated with terminating employees. We may not be able to replace any major client that elects to terminate or not to renew its contract with us, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

We may face difficulties as we expand our operations into countries in which we have no prior operating experience.

We may expand our global footprint in order to maintain an appropriate cost structure and meet our clients’ delivery needs. This may involve expanding into countries other than those in which we currently operate and where we have less familiarity with local procedures. It may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. As we expand our business into new countries we may encounter economic, regulatory, personnel, technological and other difficulties that increase our expenses or delay our ability to start up our operations or become profitable in such countries. This may affect our relationships with our clients and could have an adverse effect on our business, financial condition, results of operations and prospects.

Our success depends on our key employees.

Our success depends on the continued service and performance of our executive officers and other key personnel in each of our business units, including our structure personnel. There is competition for experienced senior management and personnel with expertise in the CRM BPO industry, and we may not be able to retain our

 

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key personnel or recruit skilled personnel with appropriate qualifications and experience. Although we have entered into employment contracts with our executive officers, it may not be possible to require specific performance under a contract for personal services and in any event these agreements do not ensure the continued service of these executive officers. The loss of key members of our personnel, particularly to competitors, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Increases in employee benefits expenses as well as changes to labor laws could reduce our profit margin.

Employee benefits expenses accounted for $1,701.9 million in 2011, $1,609.5 million in 2012 and $1,643.5 million in 2013, representing 70.4%, 69.5% and 70.2%, respectively, of our revenue in those years.

Employee salaries and benefits expenses in many of the countries in which we operate, principally in Latin America, have increased during the periods under review as a result of economic growth, increased demand for CRM BPO services and increased competition for trained employees such as employees at our service delivery centers in Latin America. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Principal Income Statement Items—Total Operating Expenses.”

We will attempt to control such costs as we add capacity in locations where we consider wage levels of skilled personnel to be satisfactory, but we may not be successful in doing so. We may need to increase salaries more significantly and rapidly than in previous periods in an effort to remain competitive, which may have a material adverse effect on our business, financial condition, results of operations, profit margins and prospects. In addition, we may need to increase employee compensation more than in previous periods to remain competitive in attracting the quantity and quality of employees that our business requires. Wage increases or other expenses related to the termination of our employees may reduce our profit margins and have a material adverse effect on our cash flows, business, financial condition, results of operations and prospects. If we expand our operations into new jurisdictions, we may be subject to increased operating costs, including higher employee benefits expenses in these new jurisdictions relative to our current operating costs, which could have a negative effect on our profit margin.

Furthermore, most of the countries in which we operate have labor laws which protect the interests of workers, including statutorily mandated minimum wage increases, legislation that imposes financial obligations on employers and laws governing the employment of workers. These labor laws in one or more of the key jurisdictions in which we operate, particularly Brazil, may be modified in the future in a way that is detrimental to our business. Any increase in the stringency of these labor laws, continued increases in statutory minimum wages and increasing labor costs in the jurisdictions in which we operate, may make it more difficult for us to discharge employees, or cost-effectively downsize our operations, both of which would likely reduce our profit margins and have a material adverse effect on our business, financial condition, results of operations and prospects.

If we experience challenges with respect to labor relations, our overall operating costs and profitability could be adversely affected and our reputation could be harmed.

While we believe we have good relations with our employees, any work disruptions or collective labor actions may have an adverse impact on our services. Approximately 80% of our workforce is under collective bargaining agreements. Collective bargaining agreements are generally renegotiated every one to three years with the principal labor unions in seven of the countries in which we operate. If these labor negotiations are not successful or we otherwise fail to maintain good relations with employees, we could suffer a strike or other significant work stoppage or other form of industrial action, which could have a material adverse effect on our business, financial condition, results of operations and prospects and harm our reputation.

 

 

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We have a long selling cycle for our CRM BPO services that requires significant funds and management resources, and a long implementation cycle that requires significant resource commitments.

We have a long selling cycle for our CRM BPO services, which requires significant investment of capital, resources and time by both our clients and us. Before committing to use our services, potential clients require us to expend substantial time and resources educating them as to the value of our services and assessing the feasibility of integrating our systems and processes with theirs. Our clients then evaluate our services before deciding whether to use them. Therefore, our selling cycle, which generally ranges from six to 12 months, is subject to many risks and delays over which we have little or no control, including our clients’ decision to choose alternatives to our services (such as other providers or in-house offshore resources) and the timing of our clients’ budget cycles and approval processes.

Implementing our services involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may also experience delays in obtaining internal approvals or delays associated with technology or system implementations, thereby delaying further the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Natural events, wars, terrorist attacks and other acts of violence involving any of the countries in which we or our clients have operations could adversely affect our operations and client confidence.

Natural events (such as floods and earthquakes), terrorist attacks and other acts of violence or war may adversely disrupt our operations, lead to economic weakness in the countries in which they occur and affect worldwide financial markets, and could potentially lead to economic recession, which could have a material adverse effect on our business, financial condition, results of operations and prospects. These events could adversely affect our clients’ levels of business activity and precipitate sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our people and to our business operations around the world.

We may have difficulty controlling our growth and updating our internal operational and financial systems.

Since our founding in 1999, and particularly from 2004, we have experienced rapid growth and significantly expanded our operations in key regions and client industries. Our number of workstations increased from 73,249 in 2011, to 77,062 in 2012 and 78,188 in 2013. The average number of employees (excluding internships) increased from 147,042 for the year ended December 31, 2011 to 150,248 for the year ended December 31, 2012 to 155,832 for the year ended December 31, 2013.

This rapid growth places significant demands on our management and financial and operational resources. In order to manage growth effectively, we must recruit new employees and implement and improve operational systems, procedures and internal controls on a timely basis. In addition, we need to update our existing internal accounting, financial and cost control systems to ensure that we can access all necessary financial information in line with the increasing demands of our business. If we fail to implement these systems, procedures and controls or update these systems on a timely basis, we may not be able to service our clients’ needs, hire and retain new employees, pursue new business, complete future acquisitions or operate our business effectively. Failure to effectively transfer new client business to our delivery centers, properly budget transfer costs, accurately estimate operational costs associated with new contracts or access financial, accounting or cost control information in a timely fashion could result in delays in executing client contracts, trigger service level penalties or cause our profit margins not to meet our expectations. Any inability to control such growth or update our systems could materially adversely affect our business, financial condition, results of operations and prospects.

 

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If we are unable to fund our working capital requirements and new investments, our business, financial condition, results of operations and prospects could be adversely affected.

The CRM BPO industry is characterized by high working capital requirements and the need to make new investments in operating sites and employee resources to meet the requirements of our clients. Similar to our competitors in this industry, we incur significant start-up costs related to investments in infrastructure to provide our services and the hiring and training of employees, such expenses being historically incurred before revenue is generated.

In addition, we are exposed to adverse changes in our main clients’ payment policies, which could have a material adverse impact on our ability to fund our working capital needs. During the years ended December 31, 2011, 2012 and 2013, our average days sales outstanding (“DSO”) was approximately 69 days. If our key clients implement policies which extend the payment terms of our invoices, our working capital levels could be adversely affected and our finance costs may increase. As a result, under the service contracts we entered into since that time, the provisions relating to the time by which Telefónica must satisfy its payment obligations to us was extended. Our working capital was $309.0 million and $385.9 million as of December 31, 2012 and December 31, 2013, respectively. If we are unable to fund our working capital requirements, access financing at competitive prices or make investments to meet the expanding business of our existing and potential new clients, our business, financial condition, results of operations and prospects could be adversely affected.

Fluctuations in, or devaluation of, the local currencies in the countries in which we operate against the U.S. dollar could have a material adverse effect on our business, financial condition, results of operations and prospects.

As of December 31, 2013, 98.0% of our revenue was generated in countries that use currencies other than the U.S. dollar, mostly the local currencies of the Latin American countries in which we operate (particularly, currencies such as the Brazilian real, the Mexican peso, the Chilean peso and the Argentinean peso). Both Brazil and Mexico have experienced inflation and volatility in the past and some Latin American countries have recently been classified as hyperinflationary economies. While inflation may not have a significant effect on the profit and loss of a local subsidiary itself, depreciation of the local currency against the U.S. dollar would reduce the value of the dividends payable to us from our operating companies. We report our financial results in U.S. dollars and our results of operations would be adversely affected if these local currencies depreciate significantly against the U.S. dollar, which may also affect the comparability of our financial results from period to period, as we convert our subsidiaries’ statements of financial position into U.S. dollars from local currencies at the period-end exchange rate, and income and cash flow statements at average exchange rates for the year. Conversely, where we provide off-shore services to U.S. clients and our revenue is earned in U.S. dollars, an appreciation in the currency of the country in which the services are provided could result in an increase in our costs in proportion to the revenue we earn for those services. The exchange rates between these local currencies and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future. For the years ended December 31, 2011, 2012 and 2013, these fluctuations had a significant effect on our results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Results of Operations—Impact of Foreign Currency Translation.”

In addition, future government action, including interest rate decreases, changes in monetary policy or intervention in the exchange markets and other government action to adjust the value of the local currency may trigger inflationary increases. For example, governmental measures to control inflation may include maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. As a result, interest rates may fluctuate significantly. Furthermore, losses incurred based on the exchange rate used may be exacerbated if regulatory restrictions are imposed when these currencies are converted into U.S. dollars.

The occurrence of such fluctuations, devaluations or other currency risks could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian political and economic conditions, could adversely impact our business, financial condition, results of operations and prospects.

In the year ended December 31, 2013, revenue from our operations in Brazil accounted for 51.5% of our revenue and EBITDA from our operations in Brazil accounted for 51.9% of our EBITDA (in each case, before holding company level revenue and, expenses and consolidation adjustments).

Historically, the Brazilian government has frequently intervened in the Brazilian economy and occasionally made drastic changes in policy and regulations. The Brazilian government’s actions to control inflation and implement macroeconomic policies have in the past often involved wage and price controls, currency devaluations, capital controls and limits on imports, among other things. Our business, financial condition, results of operations and prospects may be adversely affected by changes in policies or regulations, or by other factors such as:

 

    devaluations and other currency fluctuations;

 

    inflation rates;

 

    interest rates;

 

    liquidity of domestic capital and lending markets;

 

    energy shortages;

 

    exchange controls and restrictions on remittances abroad (such as those that were briefly imposed in 1989 and early 1990);

 

    monetary policy;

 

    minimum wage policy;

 

    tax policy; and

 

    other political, diplomatic, social and economic developments in or affecting Brazil.

In addition, the President of Brazil has considerable power to determine governmental policies and actions that relate to the Brazilian economy and that could consequently affect our business, financial condition and results of operations. We cannot predict what policies may be implemented by the Brazilian federal or state governments and whether these policies will negatively affect our business, financial condition, results of operations and prospects.

The Brazilian government regularly implements changes to tax regimes that may increase our and our clients’ tax burdens. These changes include modifications in the rate of assessments, non-renewal of existing tax relief, such as the Plano Brasil Maior which is expected to expire by the end of 2014 and, on occasion, enactment of temporary taxes the proceeds of which are earmarked for designated governmental purposes. Increases in our overall tax burden could negatively affect our overall financial performance and profitability.

The Brazilian currency has been devalued frequently over the past four decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (such as daily adjustments), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies.

In the past, Brazil’s economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of persons or entities, Brazilian or foreign, to convert Brazilian currency into any foreign currency. The government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy could prevent or restrict our access to other currencies to meet our financial obligations and our ability to pay dividends out of our Brazilian activities.

 

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Uncertainty over whether possible changes in policies or rules affecting these or other factors may contribute to economic uncertainties in Brazil, which could adversely affect our business, financial condition, results of operation and prospects.

Adverse decisions of the Superior Labor Court or other labor authorities in Brazil with respect to the legality of outsourcing of certain activities that we provide could have a material adverse impact on our business, financial condition, results of operations and prospects.

There is no legislation in Brazil regulating outsourcing activities. The judicial system has been discussing this issue in light of the precedent “Súmula No. 331” of Brazil’s Superior Labor Court (TST), which does not authorize outsourcing of core business activities. The Superior Labor Court of Brazil (TST) has been issuing rulings that stipulated that call center activities are core business and cannot be outsourced for telecommunication companies. On the other hand, the Brazilian Telecommunications General Act (Lei Geral de Telecomunicação), or the “Act”, explicitly allows the outsourcing of certain activities by telecommunications companies. Subsequently, several companies in the telecommunications sector in Brazil have filed appeals with the Brazilian Federal Supreme Court, based on the ground that Labor Court decisions are inconsistent with the provisions of the Act. At issue in certain of these cases is also whether the Act is constitutional. To date, no ruling has been issued on these appeals filed with the Brazilian Federal Supreme Court and we cannot predict when any such ruling would be issued nor what the final outcome of such cases will be. In addition, there is currently a bill under consideration at the Brazilian Congress to pass a law that would permit and regulate the outsourcing business in Brazil generally. We cannot assure you that such bill will eventually be approved and become law in Brazil or that, if approved, will not be less favorable to our operations.

It is possible that our clients in other industries could be subject to future similar adverse decisions of Brazilian labor courts relating to the interpretation of Súmula 331 and the legality of outsourcing activities. Further adverse decisions of these courts, whether in the telecommunications industry or other industries, with respect to the scope of activities that are permitted to be outsourced, or an adverse decision by the Brazilian Federal Supreme Court in any of the appeals described above, may inhibit or prevent our existing and potential new clients from outsourcing activities. In addition, our service contracts generally require us to indemnify our clients for certain labor-related claims against them by our employees and consequently, future adverse decisions could have a material adverse effect on our business, financial condition, results of operations and prospects.

Argentina has undergone significant political, social and economic instability in the past several years, and if such instability continues or worsens, our Argentine operations could be materially adversely affected.

In 2013, our operations in Argentina accounted for 8.5% of our revenue and 7.6% of our EBITDA (in each case, before holding company level revenue and expenses and consolidation adjustments).

Political and Currency Risk. Over the past several years, the Argentine economy has experienced a severe recession, as well as a political and social crisis, and the abandonment of the U.S. dollar/Argentine peso parity in January 2002 that led to the significant depreciation of the Argentine peso against major international currencies. Depending on the relative impact of other variables affecting our operations, including technological changes, inflation, gross domestic product (“GDP”) growth, and regulatory changes, continued the depreciation of the Argentine peso may have a negative impact on our Argentine business. For example, in 2013, the Argentine peso depreciated approximately 25% against the U.S. dollar.

Since the abandonment of the U.S. dollar/Argentine peso parity, the Argentine government has implemented measures attempting to address its effects, regain access to financial markets, restore liquidity to the financial system, reduce unemployment and stimulate the economy. Although general political, economic and social conditions in Argentina have improved since 2003, significant uncertainties remain regarding the country’s

 

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economic and political future. There have been a number of negative economic and political developments since 2008 that have increased the level of uncertainty. The country has been experiencing high inflation in recent years and there can be no assurance that Argentina will not experience another recession, higher inflation, devaluation, unemployment and social unrest in the future. Argentine government measures concerning the economy, including measures related to inflation, interest rates, foreign exchange controls and currency exchange rates have had and may continue to have a material adverse effect on private sector entities, including our Argentine operations.

Restrictions on Transfer of Funds. Under current foreign exchange regulations, there are restrictions on the transfer of funds into and from Argentina. In October 2011, the Argentine government introduced additional restrictions in connection with the transfer of funds. These measures oblige oil, gas and mining companies to repatriate 100% of their foreign currency earnings; insurance companies to sell all their foreign assets and repatriate the proceeds, and require official approval to buy U.S. dollars, which approval is contingent on previous tax declarations proving the necessary income. There can be no assurance that the Argentine government will not impose new restrictions on the transfer of funds from Argentina. Transfers of U.S. dollars out of Argentina are subject to prior government approval and are therefore subject to the political and fiscal situation at the time such transfer request is made. The possibility that the government further restricts, either directly or indirectly, the transfer of dividends from local companies to their foreign shareholders should not be ruled out. If we are unable to repatriate funds from Argentina for whatever reason, we will not be able to use the cash flow from our Argentine operations to finance our operating requirements elsewhere or to satisfy our debt obligations.

In addition, there are restrictions on the transfer of funds into Argentina. Specifically, there are minimum repayment terms and a mandatory one year deposit requirement for funds transferred into Argentina in connection with indebtedness owed to non-Argentine residents, certain portfolio investments made by non-Argentine residents and the repatriation of funds by Argentine residents exceeding $2.0 million per month. Certain transactions are exempt from the mandatory one year deposit requirement, including foreign loans to finance imports and exports, loans to the non-financial sector with an average term of at least two years (including principal and interest payments) if such funds are used exclusively for investments in non-financial assets, direct investments from non-residents and financing obtained to repay foreign financial debt when the proceeds of the loan are used to repay such foreign debt, in compliance with their corporate purpose, by multilateral and bilateral credit institutions and official credit agencies. There can be no assurance that these restrictions will not affect our ability to finance our operations in Argentina.

We may seek to acquire suitable companies in the future and if we cannot find suitable targets or cannot integrate these companies properly into our business after acquiring them, it could have a material adverse effect on our business, results of operations, financial condition and prospects.

While we have grown almost exclusively organically, we may in the future pursue transactions, including acquisitions of complementary businesses, to expand our product offerings and geographic presence as part of our business strategy. These transactions could be material to our financial condition and results of operations. We may not complete future transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the expected benefits of any acquisition or investments. Other companies may compete with us for these strategic opportunities. We also could experience negative effects on our results of operations and financial condition from Acquisition related charges, amortization of intangible assets and asset impairment charges, and other issues that could arise in connection with, or as a result of, the acquisition of the acquired company, including regulatory or compliance issues that could exist for an acquired company or business and potential adverse short-term effects on results of operations through increased costs or otherwise. These effects, individually or in the aggregate, could cause a deterioration of our credit profile and result in reduced availability of credit to us or in increased borrowing costs and interest expense in the future. Additionally, the inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness. Furthermore, we may not be able to integrate effectively such future acquisitions into our

 

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operations and may not obtain the profitability we expect from such acquisitions. Any such risks related to future acquisitions could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our ability to provide our services depends in part upon the quality and reliability of the facilities, machinery and equipment provided by our technology and telecommunications providers, our reliance on a limited number of suppliers of such technology and the services and products of our clients.

The success of our business depends in part on our ability to provide high quality and reliable services, which in part depends upon the proper functioning of facilities, machinery and equipment (including appropriate hardware and software and technological applications) provided by third parties and our reliance on a limited number of suppliers of such technology, and is, therefore, beyond our control.

We also depend on the communication services provided by local communication companies in the countries in which we operate, and any significant disruptions in these services would adversely affect our business. If these or other third party providers fail to maintain their equipment properly or fail to provide proper services in a timely or reliable manner our clients may experience service interruptions. If interruptions adversely affect our services or the perceived quality and reliability of our services, we may lose client relationships or be forced to make significant unplanned investments in the purchase of additional equipment from other providers to ensure that we can continue to provide high quality and reliable services to our clients. In addition, if one or more of the limited number of suppliers of our technology could not deliver or provide us with the requisite technology on a timely basis, our clients could suffer further interruptions. Any such interruptions may have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, in some areas of our business, we depend upon the quality and reliability of the services and products of our clients which we help to sell to their end customers. If the services and products we provide to our clients experience technical difficulties, we may have a harder time selling these services and products to other clients, which may have an adverse effect on our business, financial condition, results of operations and prospects.

Our business depends in part on our capacity to invest in technology as it develops and substantial increases in the costs of technology and telecommunications services which we rely on from third parties could have a material adverse effect on our business, financial condition, results of operations and prospects.

The CRM BPO industry in which we operate is subject to the periodic introduction of new technology which often can enable us to service our clients more efficiently and cost effectively. Our business is partly linked to our ability to recognize these new technological innovations from industry leading providers of such technology and to apply these technological innovations to our business. See “Business—Technology and Operations.” If we do not recognize the importance of a particular new technology to our business in a timely manner or are not committed to investing in and developing such new technology and applying these technologies to our business, our current products and services may be less attractive to existing and new clients, and we may lose market share to competitors who have recognized these trends and invested in such technology. There can be no assurance that we will have sufficient capacity or capital to meet these challenges. Any such failure to recognize the importance of such technology or a decision not to invest and develop such technology that keeps pace with evolving industry standards and changing client demands could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, any increases in the cost of telecommunications services and products provided by third parties, including telecommunications equipment, software, IT products and related IT services and call center workstations have a direct effect on our operating costs. The cost of telecommunications services is subject to a number of factors, including changes in regulations and the telecommunications market as well as competitive factors, for example, the concentration and bargaining power of technology and telecommunications suppliers,

 

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most of which are beyond our control or which we cannot predict. The increase in the costs of these essential services and products could have a material adverse effect on our business, financial condition, results of operations and prospects.

If our services do not comply with the quality standards required by our clients or we are in breach of our obligations under our agreements with our clients, our clients may assert claims for reduced payments to us or substantial damages against us, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Most of our contracts with clients contain service level and performance requirements, including requirements relating to the quality of our services and the timing and quality of responses to the client’s inquiries. In some cases, the quality of services that we provide is measured by quality assurance indicators and surveys which are based in part on the results of direct monitoring by our clients of interactions between our employees and their customers. Failure to consistently meet service requirements of a customer or errors made by our employees in the course of delivering services to customers could disrupt our client’s business and result in a reduction in revenue or a claim for substantial damages against us. For example, some of our agreements stipulate standards of service that, if not met by us, would result in lower payments to us. We also enter into variable pricing arrangements with certain clients and the quality of services provided may be a component of the calculation of the total amounts received from such clients under these arrangements.

In addition, in connection with our service contracts, certain representations may be made, including representations relating to the quality of our services, the ability of our associates and our project management techniques. A failure or inability to meet these requirements or a breach of such representations could seriously damage our reputation and affect our ability to attract new business or result in a claim for damages against us, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our business operations are subject to various regulations and the amendment of these regulations or enactment of new regulations could require us to make additional expenditures, restrict our business operations or expose us to significant fines or penalties in the case of non-compliance with such regulations.

Our business operations must be conducted in accordance with a number of sometimes conflicting government regulations, including but not limited to, data protection laws and consumer laws, as well as trade restrictions and sanctions, tariffs, taxation, data privacy and labor relations.

Under data protection laws, we are typically required to manage, utilize and store sensitive or confidential customer data in connection with the services we provide. Under the terms of our client contracts, we represent that we will keep such information strictly confidential. Furthermore, we are subject to local data protection laws, consumer laws and/or “do not call list” regulations in most of the countries in which we operate, all of which may require us to make additional expenditures to ensure compliance with these regulations. We also believe that we will be subject to additional laws and regulations in the future that may be stricter than those currently in force to protect consumers and end users. We seek to implement measures to protect sensitive and confidential customer data in accordance with client contracts and data protection laws and consumer laws. If any person, including any of our employees, penetrates our network security or otherwise mismanages or misappropriates sensitive or confidential customer data, we could be subject to significant fines for breaching privacy or data protection and consumer laws or lawsuits from our clients or their customers for breaching contractual confidentiality provisions which could result in negative publicity, legal liability, loss of clients and damage to our reputation, each of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, our insurance coverage for breaches or mismanagement of such data may not be sufficient to cover one or more large claims against us and our insurers may disclaim coverage as to any future claims.

 

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In addition, our business operations may be impacted if current regulations are made stricter or more broadly applied or if new regulations are adopted. Violations of these regulations could impact our reputation and result in financial liability, criminal prosecution, unfavorable publicity, restrictions on our ability to process information and breach of our contractual commitments. Any broadening of current regulations or the introduction of new regulations may require us to make additional expenditures, restrict our business operations or expose us to significant fines or penalties. Any such violations or changes in regulations could, as a result, have a material adverse effect on our business, financial condition, results of operations and prospects.

Damage or disruptions to our key technology systems and facilities either through events beyond or within our control that adversely affect our clients’ businesses, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our key technology systems and facilities may be damaged in natural disasters such as earthquakes or fires or subject to damage or compromise from human error, technical disruptions, power failure, computer glitches and viruses, telecommunications failures, adverse weather conditions and other unforeseen events, all of which are beyond our control or through bad service or poor performance which are within our control. Such events may cause disruptions to information systems, electrical power and telephone service for sustained periods. Any significant failure, damage or destruction of our equipment or systems, or any major disruptions to basic infrastructure such as power and telecommunications systems in the locations in which we operate, could impede our ability to provide services to our clients and thus adversely affect their businesses, have a negative impact on our reputation and may cause us to incur substantial additional expenses to repair or replace damaged equipment or facilities.

While we currently have property damage insurance in force, our insurance coverage may not be sufficient to guarantee costs of repairing the damage caused from such disruptive events and such events may not be covered under our policies. Prolonged disruption of our services, even if due to events beyond our control could also entitle our clients to terminate their contracts with us, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

Tax matters, new legislation and actions by taxing authorities may have an adverse effect on our operations, effective tax rate and financial condition.

We may not be able to predict our future tax liabilities due to the international nature of our operations, as we are subject to the complex and varying tax laws and rules of several foreign jurisdictions. Our results of operations and financial condition could be adversely affected if tax contingencies are resolved adversely or if we become subject to increased levels of taxation.

We are also subject to income taxes in the United States and numerous other foreign jurisdictions. Our tax expense and cash tax liability in the future could be adversely affected by numerous factors, including, but not limited to, changes in tax laws, regulations, accounting principles or interpretations and the potential adverse outcome of tax examinations and pending tax-related litigation. Changes in the valuation of deferred tax assets and liabilities, which may result from a decline in our profitability or changes in tax rates or legislation, could have a material adverse effect on our tax expense. The governments of foreign jurisdictions from which we deliver services may assert that certain of our clients have a “permanent establishment” in such foreign jurisdictions by reason of the activities we perform on their behalf, particularly those clients that exercise control over or have substantial dependency on our services. Such an assertion could affect the size and scope of the services requested by such clients in the future.

Transfer pricing regulations to which we are subject require that any transaction among us and our subsidiaries be on arm’s-length terms. If the applicable tax authorities were to determine that the transactions among us and our subsidiaries do not meet arms’ length criteria, we may incur increased tax liability, including accrued interest and penalties. Such increase on our tax expenses would reduce our profitability and cash flows.

 

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Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems or otherwise, could expose us to protracted and costly litigation and cause us to lose clients.

We are typically required to collect and store sensitive data in connection with our services, including names, addresses, social security numbers, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. As the complexity of information infrastructure continuous to grow, the potential risk of security breaches and cyber-attacks increases. Such breaches can lead to shutdowns or system interruptions, and potential unauthorized disclosure of sensitive or confidential information. We are also subject to numerous laws and regulations designed to protect this information. Laws and regulations that impact our business are increasing in complexity, change frequently, and at times conflict among the various jurisdictions where we do business.

In addition, many of our service agreements with our clients do not include any limitation on our liability to clients with respect to breaches of our obligation to keep the information we receive confidential. We take precautions to protect confidential client and customer data. However, if any person, including any of our employees, gains unauthorized access or penetrates our network security or otherwise mismanages or misappropriates sensitive data or violates our established data and information security controls, we could be subject to significant liability to our clients or their customers for breaching contractual confidentiality provisions or privacy laws, including legal proceedings, monitory damages, significant remediation costs and regulatory enforcement actions. Penetration of the network security of our data centers could have a negative impact on our reputation, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our results of operations could be adversely affected if we are unable to maintain effective internal controls.

Any internal and disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must consider the benefits of controls relative to their costs. Inherent limitations within a control system include the realities that judgments in decision—making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by individuals acting alone or in collusion with others to override controls. Accordingly, because of the inherent limitations in the design of a cost effective control system, misstatements due to error or fraud may occur and may not always be prevented or timely detected. If we are unable to assert that our internal controls over financial reporting are effective now or in the future, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

We are a party to a number of labor disputes resulting from our operations in Brazil.

As of December 31, 2013, Atento Brasil, S.A. (“Atento Brazil”) was party to approximately 8,610 labor disputes initiated by our employees or former employees for various reasons, such as dismissals or disputes over employment conditions. The total amount of these claims amounted to $110.1 million, of which $71.9 million related to claims that have been classified as probable by our internal and external lawyers, $34.6 million classified as possible and $3.6 million classified as remote. In connection with such disputes, Atento Brasil and its affiliates have, in accordance with local laws, deposited $48.7 million with the Brazilian courts as security for claims made by employees or former employees (the “Judicial Deposits”). In addition, considering the levels of litigation in Brazil and our historical experience with these types of claims, as of December 31, 2013, we have recognized $71.9 million of provisions. We are also a party to various labor disputes and potential disputes in other jurisdictions in which we operate, including Argentina and Mexico. If our provisions for such claims are insufficient or the claims against us rise significantly in the future, this could have a material adverse effect on our business, financial condition, results of operations and prospects. See “Business—Legal Proceedings.”

 

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Our existing debt may affect our flexibility in operating and developing our business and our ability to satisfy our obligations.

As of December 31, 2013, we had total indebtedness of $1,370.8 million. Our level of indebtedness may have significant negative effects on our future operations, including:

 

    impairing our ability to obtain additional financing in the future (or to obtain such financing on acceptable terms) for working capital, capital expenditures, acquisitions or other important needs;

 

    requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on our indebtedness, which could impair our liquidity and reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other important needs;

 

    increasing the possibility of an event of default under the financial and operating covenants contained in our debt instruments; and

 

    limiting our ability to adjust to rapidly changing conditions in the industry, reducing our ability to withstand competitive pressures and making us more vulnerable to a downturn in general economic conditions or business than our competitors with less debt.

If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that any such refinancing would be possible or that any additional financing could be obtained. Our inability to obtain such refinancing or financing may have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, several of our financing arrangements contain a number of covenants and restrictions including limits on our ability and our subsidiaries’ ability to incur additional debt, pay dividends and make certain investments. Complying with these covenants may cause us to take actions that make it more difficult to successfully execute our business strategy and we may face competition from companies not subject to such restrictions. Moreover, our failure to comply with these covenants could result in an event of default or refusal by our creditors to renew certain of our loans.

Risks Related to Investment in a Luxembourg Company

We are a Luxembourg public limited liability company (“société anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.

We are organized under the laws of the Grand Duchy of Luxembourg. Most of our assets are located outside the United States. Furthermore, some of our directors and officers named in this prospectus reside outside the United States and most of their assets are located outside the United States. As a result, investors may find it difficult to effect service of process within the United States upon us or these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Luxembourg law, furthermore, does not recognize a shareholder’s right to bring a derivative action on behalf of the Company.

As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will

 

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not automatically recognize and enforce a final judgment rendered by a U.S. court. The enforceability in Luxembourg courts of judgments entered by U.S. courts will depend upon the conditions set forth in the Luxembourg procedural code, which may include the following:

 

    the judgment of the U.S. court is enforceable (exécutoire) in the United States;

 

    the U.S. court had full jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);

 

    the U.S. court has applied to the dispute the substantive law designated by the Luxembourg conflict of law rules (although some first instance decisions rendered in Luxembourg—which have not been confirmed by the Court of Appeal—no longer apply this condition);

 

    the judgment of the U.S. court must not have been obtained by fraud, but in compliance with its own procedural rules and in particular the rights of the defendant; and

 

    the judgment of the U.S. court does not contravene Luxembourg international public policy.

Our directors and officers, past and present, are entitled to indemnification from us to the fullest extent permitted by Luxembourg law against liability and all expenses reasonably incurred or paid by him in connection with any losses or liabilities, claim, action, suit or proceeding in which he is involved by virtue of his being or having been a director or officer and against amounts paid or incurred by him in the settlement thereof, subject to limited exceptions. To the extent allowed by law, the rights and obligations among us and any of our current or former directors and officers will be governed exclusively by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities as directors or officers. Although there is doubt as to whether U.S. courts would enforce such a provision in an action brought in the United States under U.S. securities laws, such provision could make enforcing judgments obtained outside Luxembourg more difficult to enforce against our assets in Luxembourg or in jurisdictions that would apply Luxembourg law.

Our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

Our corporate affairs are governed by our articles of association and by the laws governing public limited liability companies organized under the laws of the Grand Duchy of Luxembourg. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority shareholders as state corporation laws in the United States. Therefore, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers or our principal shareholders than they would as shareholders of a corporation incorporated in the United States. See “Comparison of Shareholder Rights” for a discussion of differences between Luxembourg and Delaware corporate law.

You may not be able to participate in equity offerings, and you may not receive any value for rights that we may grant.

Pursuant to Luxembourg law on commercial companies, dated August 10, 1915, as amended (the “Luxembourg Corporate Law”), existing shareholders are generally entitled to pre-emptive subscription rights in the event of capital increases and issues of shares against cash contributions. However, prior to the completion of this offering, our articles of association will provide that pre-emptive subscription rights can be limited, waived or cancelled until                     ,      and the general meeting of our shareholders may renew, expand or amend such authorization. “Description of Share Capital—Pre-emptive Rights.”

 

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Luxembourg insolvency laws may offer our shareholders less protection than they would have under U.S. insolvency laws.

As a company organized under the laws of the Grand Duchy of Luxembourg and with its registered office in Luxembourg, we are subject to Luxembourg insolvency laws in the event any insolvency proceedings are initiated against us including, amount other things, Council Regulation (EC) No. 1346/2000 of May 29, 2000 on insolvency proceedings. Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.

Risks Related to Our Ordinary Shares and this Offering

Control by Bain Capital could adversely affect our other shareholders.

When this offering is completed, Bain Capital will control Topco and Topco, will own, directly or indirectly, approximately     % of our ordinary shares, assuming no exercise of the underwriters’ option to purchase additional ordinary shares in this offering. As a result, Bain Capital will have a continuing ability to control our board of directors and to exercise significant influence over our affairs for the foreseeable future, including controlling the election of directors and significant corporate transactions, such as a merger or other sale of our Company or our assets.

In addition, because we are a foreign private issuer, we will not be subject to the independence requirements of the New York Stock Exchange that require that our board of directors be comprised of a majority of independent directors, that we have a compensation committee comprised solely of independent directors and that we have a nominating and governance committee comprised solely of independent directors.

This concentrated control by Bain Capital will limit the ability of other shareholders to influence corporate matters and, as a result, we may take actions that our other shareholders do not view as beneficial. For example, this concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our ordinary shares to decline or prevent our shareholders from realizing a premium over the market price for their ordinary shares.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our ordinary shares.

The New York Stock Exchange listing rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, while we intend to comply with these requirements within the permitted phase-in periods, we are permitted to follow home country practice in lieu of the above requirements. Luxembourg law, the law of our home country, does not require that a majority of our board consist of independent directors or the implementation of a nominating and corporate governance committee, and our board may thus in the future not include, or include fewer, independent directors than would be required if we were subject to the New York Stock Exchange listing rules, or they may decide that it is in our interest not to have a compensation committee or nominating and corporate governance committee, or have such committees governed by practices that would not comply with New York Stock Exchange listing rules. Since a majority of our board of directors may not consist of independent directors if we decide to rely on the foreign private issuer exemption to the New York Stock

 

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Exchange listing rules, our board’s approach may, therefore, be different from that of a board with a majority of independent directors, and as a result, the management oversight of our Company could, in the future, be more limited than if we were subject to the New York Stock Exchange listing rules.

Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as companies that are not foreign private issuers whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. As a result, our shareholders may not have access to information they deem important, which may result in our shares being less attractive to investors.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ordinary shares.

Based on the anticipated market price of our ordinary shares in this offering and expected price of our ordinary shares following this offering, and the composition of our income, assets and operations, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Material Tax Considerations—Material United States Federal Income Tax Considerations”) holds our ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Material Tax Considerations—Material United States Federal Income Tax Considerations—Potential Application of Passive Foreign Investment Company Provisions.”

There has been no prior public market for our ordinary shares, and an active trading market may not develop or be sustained.

Prior to this offering, there has been no public market for our ordinary shares. We cannot predict the extent to which a trading market for our ordinary shares will develop or how liquid that market might become. An active trading market for our ordinary shares may never develop or may not be sustained, which could adversely affect your ability to sell your ordinary shares and the market price of your ordinary shares. Also, if you purchase ordinary shares in this offering, you will pay a price that was not established in public trading markets. The initial public offering price for the ordinary shares will be determined by negotiations between us, the selling shareholder and the underwriters and does not purport to be indicative of prices at which our ordinary shares will trade upon completion of this offering. Consequently, you may not be able to sell your ordinary shares above the initial public offering price and may suffer a loss on your investment.

The market price of our ordinary shares may be volatile and may trade at prices below the initial public offering price.

The stock market in general, and the market for equities of newly-public companies in particular, have been highly volatile. As a result, the market price of our ordinary shares is likely to be similarly volatile, and investors in our ordinary shares may experience a decrease, which could be substantial, in the value of their ordinary shares, including decreases unrelated to our operating performance or prospects, or a complete loss of their investment. The price of our ordinary shares could be subject to wide fluctuations in response to a number of factors, including those listed elsewhere in this “Risk Factors” section and others such as:

 

    variations in our operating performance and the performance of our competitors;

 

    actual or anticipated fluctuations in our quarterly or annual operating results;

 

    changes in our revenues or earnings estimates or recommendations by securities analysts;

 

    publication of research reports by securities analysts about us or our competitors or our industry;

 

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    our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

    additions or departures of key personnel;

 

    strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

    announcement of technological innovations by us or our competitors;

 

    the passage of legislation, changes in interpretations of laws or other regulatory events or developments affecting us;

 

    speculation in the press or investment community;

 

    changes in accounting principles;

 

    terrorist acts, acts of war or periods of widespread civil unrest;

 

    changes in general market and economic conditions;

 

    changes or trends in our industry;

 

    investors’ perception of our prospects; and

 

    adverse resolution of any new or pending litigation against us.

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle or defend litigation.

A total of          or         % of our total outstanding ordinary shares after the offering are restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of ordinary shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our ordinary shares.

The market price of our ordinary shares could decline as a result of sales of a large number of our ordinary shares in the market after this offering, and the perception that these sales could occur may also depress the market price of our ordinary shares. We will have          ordinary shares outstanding after this offering. Of these shares,          ordinary shares sold in this offering will be freely tradable in the United States, except for any ordinary shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act.

The holders of          outstanding ordinary shares have agreed with the underwriters, subject to a number of exceptions, not to dispose of or hedge any of their ordinary shares during the 180-day period beginning on the date of this prospectus, except with the prior written consent of the representatives of the underwriters in this offering. After the expiration of the 180-day restricted period, these ordinary shares, may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from U.S. registration, including, in the case of ordinary shares held by affiliates, compliance with the volume restrictions of Rule 144.

Upon completion of this offering, the holders of ordinary shares, or         % of our outstanding ordinary shares as of                     , 2014, will be entitled, under contracts providing for registration rights, to require us to register our ordinary shares owned by them with the SEC. Upon effectiveness of any registration statement, subject to lock-up agreements with the representatives of the underwriters, those ordinary shares will be available for immediate resale in the United States in the open market.

 

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Sales of our ordinary shares as restrictions expire or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales, or the perception that such sales could occur, also could cause the market price for our ordinary shares to fall and make it more difficult for you to sell our ordinary shares.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value of their ordinary shares.

The initial public offering price of our ordinary shares in this offering is considerably more than the net tangible book value per ordinary share. Purchasers in this offering will suffer immediate dilution of $         per ordinary share of pro forma net tangible book value, based on the sale of ordinary shares to be sold in this offering at an assumed initial public offering price of $         per ordinary share (the mid-point of the price range set forth on the cover of this prospectus). See “Dilution.”

After the completion of this offering, we may not pay any dividends. Accordingly, investors may only realize future gains on their investments if the price of their ordinary shares increases, which may never occur.

Though we currently intend to pay dividends after the completion of this offering, any such determination to pay dividends will be at the discretion of our board directors. The payment of cash distributions on ordinary shares is restricted under the terms of our Senior Secured Notes, Brazilian Debentures, the Vendor Loan Note and our CVIs. In addition, because we are a holding company, our ability to make any distributions on ordinary shares may be limited by restrictions on our ability to obtain sufficient funds from subsidiaries, including restrictions under the terms of our Senior Secured Notes, Brazilian Debentures, the Vendor Loan Note and our CVIs. Furthermore, under the laws of Luxembourg, we are able to make distributions only to the extent that we have profits available and distributable reserves. Accordingly, investors may only realize future gains on their investments if the price of their ordinary shares increases, which may never occur. See “Dividend Policy.”

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our ordinary shares or if our operating results do not meet their expectations, the price of our ordinary shares could decline.

The market price of our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price of our ordinary shares or its trading volume to decline. Moreover, if one or more of the analysts who cover our Company downgrade our ordinary shares or if our operating results or prospects do not meet their expectations, the market price of our ordinary shares could decline.

Future equity issuances may dilute the holdings of ordinary shareholders and could materially affect the market price of our ordinary shares.

We may in the future decide to offer additional equity to raise capital or for other purposes. Any such additional offering could reduce the proportionate ownership and voting interests of holders of our ordinary shares, as well as our earnings per ordinary share and net asset value per ordinary share. Future sales of substantial amounts of our ordinary shares in the public market, whether by us or by our existing shareholders, or the perception that sales could occur, may adversely affect the market price of our shares, which could decline significantly.

We will incur increased costs as a result of becoming a public company.

As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002 and the Dodd Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the New York Stock

 

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Exchange. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation.

Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 will require significant expenditures and effort by management, and if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, the market price of our ordinary shares could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related rules and regulations and beginning with our Annual Report on Form 20-F for the year ending December 31, 2015, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. The rules governing the standards that must be met for management to assess our internal controls over financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal controls over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal controls over financial reporting.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our operating results do not meet their expectations, the price of our shares could decline.

The market price of our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price of our shares or its trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our shares or if our operating results or prospects do not meet their expectations, the market price of our shares could decline.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including but not limited to:

 

    the competitiveness of the CRM BPO market;

 

    the loss of one or more of our major clients, a small number of which account for a significant portion of our revenue, in particular Telefónica;

 

    risks associated with operating in Latin America, where a significant proportion of our revenue is derived and where a large number of our employees are based;

 

    our clients deciding to enter or further expand their own CRM BPO businesses in the future;

 

    any deterioration in global markets and general economic conditions, in particular in Latin America and in the telecommunications and the financial services industries from which we derive most of our revenue;

 

    increases in employee benefits expenses, changes to labor laws and labor relations;

 

    failure to attract and retain enough sufficiently trained employees at our service delivery centers to support our operations;

 

    inability to maintain our pricing and level of activity and control our costs;

 

    consolidation of potential users of CRM BPO services;

 

    the reversal of current trends towards CRM BPO solutions;

 

    fluctuations of our operating results from one quarter to the next due to various factors including seasonality;

 

    the significant leverage our clients have over our business relationships;

 

    the departure of key personnel or challenges with respect to labor relations;

 

    the long selling and implementation cycle for CRM BPO services;

 

    difficulty controlling our growth and updating our internal operational and financial systems as a result of our increased size;

 

    an inability to fund our working capital requirements and new investments;

 

    fluctuations in, or devaluation of, the local currencies in the countries in which we operate against our reporting currency, the euro;

 

    current political and economic volatility, particularly in Brazil, Mexico, Argentina and Europe;

 

    our ability to acquire and integrate companies that complement our business;

 

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    the quality and reliability of the technology provided by our technology and telecommunications providers, our reliance on a limited number of suppliers of such technology and the services and products of our clients;

 

    our ability to invest in and implement new technologies;

 

    disruptions or interruptions in our client relationships;

 

    actions of the Brazilian, EU, Spanish, Argentinian, Mexican and other governments and their respective regulatory agencies, including adverse competition law rulings and the introduction of new regulations that could require us to make additional expenditures;

 

    damage or disruptions to our key technology systems or the quality and reliability of the technology provided by technology telecommunications providers;

 

    an increase in the cost of telecommunications services and other services on which we and our industry rely;

 

    an actual or perceived failure to comply with data protection regulations, in particular any actual or perceived failure to ensure secure transmission of sensitive or confidential customer data through our networks;

 

    the effect of labor disputes on our business; and

 

    other risk factors listed in the section of this prospectus entitled “Risk Factors.”

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

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USE OF PROCEEDS

We estimate based upon an assumed initial public offering price of $         per ordinary share, the midpoint of the price range set forth on the cover of this prospectus, that we will receive net proceeds from the offering of approximately $                 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of our ordinary shares by the selling shareholder, including any ordinary shares sold by the selling shareholder in connection with the exercise of the underwriters’ option to purchase additional ordinary shares.

We intend to use the net proceeds from the sale of ordinary shares by us in this offering to repay a portion of our Vendor Loan Note and to pay fees and expenses incurred in connection with this offering, including payments to affiliates of Bain Capital. We will use any remaining net proceeds from this offering for general corporate purposes.

A $1.00 increase or decrease in the assumed initial public offering price of $         per ordinary share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds we receive from this offering by          approximately $         million, assuming the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same.

 

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DIVIDEND POLICY

Although we expect to be well capitalized following the Reorganization Transaction prior to the completion of this offering and we have sufficient liquidity, our ability to pay dividends on our ordinary shares is limited in the near-term by the indenture governing our Senior Secured Notes, the Brazilian Debentures, the Vendor Loan Note and our CVIs, and may be further restricted by the terms of any of our future debt or preferred securities. In addition, under Luxembourg law, at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our issued share capital. If the legal reserve subsequently falls below the 10% threshold, 5% of net profits again must be allocated toward the reserve until such reserve returns to the 10% threshold. If the legal reserve exceeds 10% of our issued share capital, the legal reserve may be reduced. The legal reserve is not available for distribution. Additionally, because we are a holding company, our ability to pay dividends on our ordinary shares is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. See “Description of Certain Indebtedness.”

Any future determination to pay dividends will be at the discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our board of directors deems relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2013, on:

 

    an actual basis;

 

    an actual basis, as adjusted to give effect to the Reorganization Transaction prior to the completion of this offering; and

 

    a pro forma as adjusted basis to give effect to the offering and the use of proceeds hereof.

You should read the following table in conjunction with the sections entitled “Use of Proceeds,” “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Predecessor financial statements and the Successor financial statements included elsewhere in this prospectus.

 

     As of December 31, 2013  
     Actual     As
Adjusted(1)
     Pro
Forma(2)
 
($ in millions)                    

Cash and cash equivalents

   $ 213.5      $ 213.5       $     
  

 

 

   

 

 

    

 

 

 

Debt:

       

7.375% Senior Secured Notes due 2020(3)

     297.7        297.7      

Brazilian Debentures(4)

     345.9        345.9      

Vendor Loan Note(5)

     151.7        151.7      

Contingent Value Instruments(6)

     43.4        43.4      

Revolving Credit Facility(7)

                 

Preferred Equity Certificates

     519.6             

Finance lease payables

     11.9        11.9      

Other borrowings

     0.6        0.6      
  

 

 

   

 

 

    

 

 

 

Total debt(8)

     1,370.8        851.2      
  

 

 

   

 

 

    

 

 

 

Total equity

     (134.0     385.6      
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 1,236.8      $ 1,236.8       $                
  

 

 

   

 

 

    

 

 

 

 

(1) This column represents the total capitalization as adjusted for the Reorganization Transaction, which will occur prior to the completion of this offering. See “Prospectus Summary—The Reorganization Transaction.”
(2) A $1.00 increase or decrease in the assumed initial public offering price of $         per ordinary share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds from this offering available to us and correspondingly increase or decrease the amount of additional paid-in capital, total equity and total capitalization by approximately $         million, assuming the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. See “Use of Proceeds.”
(3) Represents the principal amount of $300 million minus $11.7 million of capitalized transaction costs plus $9.3 million of accrued interest. It does not include the fair value of derivative financial liabilities related to the Senior Secured Notes, which was $16.0 million as of December 31, 2013.
(4) Represents the principal amount of BRL 915 million minus net capitalized transaction costs of BRL 12.3 million, minus early prepayments of BRL 98.0 million, plus accrued interest of BRL 5.5 million, which results in an outstanding amount of BRL 810.2 million; as of December 31, 2013, at an exchange rate of BRL 2.3426 to $1.00. As of April 22, 2014, the exchange rate was BRL 2.2449 to $1.00.

 

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(5) Represents the €110.0 million outstanding aggregate principal amount of the Vendor Loan Note, at the exchange rate of €0.7251 to US$1.00. As of December 31, 2013, the Vendor Loan Note had accrued interest of $0.4 million. As of April 22, 2014, the exchange rate was €0.72 to $1.00.
(6) Represents the fair value registered amount of ARS 666.8 million CVIs, at the exchange rate of ARS 6.5210 to $1.00. As of April 22, 2014, the exchange rate was ARS 7.99 to $1.00.
(7) As of December 31, 2013, we had no amounts outstanding on the Revolving Credit Facility.
(8) Total debt includes $17.1 million of current borrowings.

 

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DILUTION

Our net tangible book value as of                     , 2014, before giving effect to the sale of              ordinary shares offered in this offering, was approximately $        , or approximately $         per ordinary share. Net tangible book value per share represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of ordinary shares outstanding at                     , 2014, prior to the sale of              ordinary shares offered in this offering. Dilution in net tangible book value per ordinary share represents the difference between the amount per ordinary share paid by investors in this offering and the pro forma net tangible book value per ordinary share outstanding immediately after this offering.

After giving effect to the sale of              ordinary shares in this offering, based upon an assumed initial public offering price of              per ordinary share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering, our pro forma net tangible book value as of                     , 2014 would have been approximately $             million, or $         per ordinary share. This represents an immediate increase in net tangible book value of $         per ordinary share, to existing shareholders and immediate dilution of $         per share to new investors purchasing ordinary shares in this offering at the assumed initial public offering price.

The following table illustrates this dilution in net tangible book value per ordinary share to new investors:

 

Assumed initial public offering price per ordinary share

   $                

Net tangible book value per ordinary share as of                     , 2014

   $     

Increase in pro forma net tangible book value per ordinary share attributable to this offering

   $     

Pro forma net tangible book value per ordinary share as of                     , 2014 (after giving effect to this offering)

   $     

Dilution per ordinary share to new investors(1)

   $     

 

(1) Dilution is determined by subtracting pro forma net tangible book value per ordinary share after giving effect to the offering from the assumed initial public offering price paid by a new investor.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per ordinary share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) our pro forma net tangible book value by $         million, or $         per ordinary share, and the dilution in net tangible book value per share to investors in this offering by $         per ordinary share, assuming that the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same. The as adjusted information is illustrative only and, following the completion of this offering, will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The following table summarizes, as of                     , 2014, on a pro forma basis, the number of ordinary shares purchased from us, the aggregate cash consideration paid to us and the average price per ordinary share paid to us by existing shareholders and to be paid by new investors purchasing ordinary shares from us in this offering. The table assumes an initial public offering price of $         per ordinary share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number    Percentage     Amount      Percentage    

Existing shareholders

               $                         $            

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

               $                         $            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

 

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A $1.00 increase (decrease) in the assumed initial public offering price of $         per ordinary share would increase (decrease) the total consideration paid by investors participating in this offering by $         million, or increase (decrease) the percent of total consideration paid by investors participating in this offering by     %, assuming that the number of ordinary shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Except as otherwise indicated, the discussion and tables above assume no exercise of any outstanding options and no sale of              ordinary shares by the selling shareholder. The sale of              ordinary shares to be sold by the selling shareholder in this offering will reduce the number of shares held by existing shareholders to         , or     % of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to         , or     % of the total shares outstanding. In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of ordinary shares held by existing shareholders will be further reduced to             , or     % of the total number of ordinary shares to be outstanding upon the closing of this offering, and the number of ordinary shares held by investors participating in this offering will be further increased to              ordinary shares or     % of the total number of ordinary shares to be outstanding upon the closing of this offering.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following selected financial information should be read in conjunction with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this prospectus.

We have historically conducted our business through the Predecessor up to November 30, 2012, and subsequent to the Acquisition, through the Successor, and therefore our historical financial statements present the results of operations of Predecessor and Successor, respectively. Prior to completion of this offering we will implement the Reorganization Transaction pursuant to which the Successor will become a wholly-owned subsidiary of the Issuer, a newly formed holding company incorporated under the laws of Luxembourg with nominal assets and liabilities for the purpose of facilitating the offering contemplated hereby, and which will not have conducted any operations prior to the completion of this offering. Following the Reorganization Transaction and this offering, our financial statements will present the results of operations of the Issuer. The consolidated financial statements of the Issuer will be substantially the same as the consolidated financial statements of the Successor prior to this offering, as adjusted for the Reorganization Transaction. Upon consummation, the Reorganization Transaction will be reflected retroactively in the Issuer’s earnings per share calculations. See “Prospectus Summary—The Reorganization Transaction.”

The following sets forth selected historical financial data of the Atento Group. We prepare our financial statements in accordance with IFRS as issued by the IASB. As a result of the Acquisition, we applied acquisition accounting whereby the purchase price paid was allocated to the acquired assets and assumed liabilities at fair value. Our financial reporting periods presented in the table below are as follows:

 

    Solely for purposes of the selected historical financial information in this section, the Predecessor period refers to the years ended December 31, 2009, 2010 and 2011 and the period from January 1, 2012 through November 30, 2012 and reflects the combined carve-out results of operations of the Predecessor.

 

    The Successor period reflects the consolidated results of operations of the Successor, which includes the effects of acquisition accounting for the one month period from December 1, 2012 to December 31, 2012 and for the year ended December 31, 2013.

The selected combined carve-out historical financial information as of and for the years ended December 31, 2009 and 2010, which has been prepared in accordance with IFRS as issued by the IASB, is derived from the unaudited accounting records of the Predecessor and is not included in the financial statements that are included elsewhere in this prospectus.

The selected combined carve-out historical financial information as of and for the year ended December 31, 2011, as of November 30, 2012 and for the period from January 1, 2012 to November 30, 2012 presented below were derived from the Predecessor financial statements included elsewhere in this prospectus.

The selected consolidated historical financial information as of December 31, 2012 and for the period from December 1, 2012 to December 31, 2012 and as of and for the year ended December 31, 2013 presented below were derived from the Successor financial statements included elsewhere in this prospectus.

Historical results for any prior period are not necessarily indicative of results expected in any future period.

 

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The unaudited Aggregated 2012 Financial Information set forth below is derived by adding together the corresponding data from the audited Predecessor financial statements for the period from January 1, 2012 to November 30, 2012, to the corresponding data from the audited Successor financial statements for the period from December 1, 2012 to December 31, 2012, appearing elsewhere in this prospectus, each prepared under IFRS as issued by the IASB. This presentation of the Aggregated 2012 Financial Information is for illustrative purposes only, is not presented in accordance with IFRS, and is not necessarily comparable to previous or subsequent periods, or indicative of results expected in any future period (including as a result of the effects of the Acquisition).

 

    Predecessor              Successor     Non-IFRS
Aggregated
    Successor  

($ in millions other than share and
per share data)

  As of and for the year ended
December 31,
    As of and for
the period
from Jan 1 –
Nov 30,

2012
             As of and for
the period
from Dec 1 –
Dec 31,

2012
    For the year
ended
December 31,

2012
(unaudited)
    As of and for
the year
ended
December 31,

2013
 
  2009
(unaudited)
    2010
(unaudited)
    2011                   

Income statement data:

                   

Revenue

    1,731.6        2,128.8        2,417.3        2,125.9              190.9        2,316.8        2,341.1   

Operating profit / (loss)

    155.9        183.4        155.6        163.8              (42.4     121.4        105.0   

Profit / (loss) for the period

    95.9        112.2        90.3        90.2              (56.6     33.6        (4.0

Profit / (loss) for the period from continuing operations

    95.9        112.2        89.6        90.2              (56.6     33.6        (4.0

Profit / (loss) attributable to equity holders

    95.9        111.1        87.9        89.7              (56.6     33.1        (4.0

Earnings per share—basic and diluted

    n/a        n/a        n/a        n/a              (28.31     n/a        (2.02

Weighted average number of shares outstanding—basic and diluted

    n/a        n/a        n/a        n/a              2,000,000        n/a        2,000,000   

Balance sheet data:

                   

Total assets

    969.4        1,152.6        1,224.6        1,263.8              1,961.0        n/a        1,842.2   

Total share capital

    n/a        n/a        n/a        n/a              2.6        n/a        2.6   

Invested equity/equity

    517.6        658.2        631.2        670.1              (32.7 )(a)      n/a        (134.0 )(a) 

 

 

(a) Since the Successor was created on December 1, 2012, as of December 31, 2012 and 2013, the Atento Group presents negative equity primarily due to the effects of the Acquisition as a result of which equity has been negatively impacted by the costs incurred in connection with the Acquisition and by integration related costs associated to the change in ownership. Equity adjusted for the Reorganization Transaction, including the capitalization of the PECs, would be $385.6 million as of December 31, 2013. See “Capitalization” and Note 2(d) to the Successor financial statements included elsewhere in this prospectus.

 

    Predecessor              Successor     Non-IFRS
Aggregated
    Successor  

($ in millions other than share and per share data)

  As of and for
the year ended
December 31,

2011
    Period from
Jan 1 –
Nov 30,

2012
             Period from
Dec 1 –
Dec 31,

2012
    Year ended
December 31,

2012
    As of and for
the year ended
December 31,

2013
 
             

Other financial data (unaudited):

               

EBITDA(1)

    234.1        241.9              (34.9     207.0        234.0   

Adjusted EBITDA(1)

    246.9        235.9              32.2        268.1        295.1   

Adjusted Earnings / (Loss)(2)

    97.5        86.2              (8.9     77.3        97.5   

Free Cash Flow(3)

    (25.0     86.7              (96.7     (10.0     (3.4

Adjusted Free Cash Flow(4)

    41.0        140.8              (29.7     111.1        126.1   

Net Debt with Third Parties(5)

    23.4        5.1              620.2        620.2        637.7   

 

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(1) In considering the financial performance of the business and as a management tool in business decision making, our management analyzes the financial performance measures of EBITDA and Adjusted EBITDA at a company and operating segment level. EBITDA is defined as profit/(loss) for the period from continuing operations before net finance costs, income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude Acquisition and integration related costs, restructuring costs, sponsor management fees, asset impairments, site relocation costs, financing fees and other items which are not related to our core results of operations. EBITDA and Adjusted EBITDA are not measures defined by IFRS. The most directly comparable IFRS measure to EBITDA and Adjusted EBITDA is profit / (loss) for the period from continuing operations.

We believe EBITDA and Adjusted EBITDA, as defined above, are useful metrics for investors to understand our results of operations and profitability because they permit investors to evaluate our recurring profitability from underlying operating activities. We also use these measures internally to establish forecasts, budgets and operational goals to manage and monitor our business, as well as evaluating our underlying historical performance. We believe EBITDA facilitates operating performance comparisons between periods and among other companies in industries similar to ours because it removes the effect of variation in capital structures, taxation, and non-cash depreciation and amortization charges, which may differ between companies for reasons unrelated to operating performance. We believe Adjusted EBITDA better reflects our underlying operating performance because it excludes the impact of items that are not related to our core results of operations.

EBITDA and Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present EBITDA-related performance measures when reporting their results.

EBITDA and Adjusted EBITDA have limitations as analytical tools. These measures are not presentations made in accordance with IFRS, are not measures of financial condition or liquidity and should not be considered in isolation or as alternatives to profit or loss for the period from continuing operations or other measures determined in accordance with IFRS. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies.

The following table reconciles our EBITDA and Adjusted EBITDA to profit/(loss) for the period from continuing operations:

 

    Predecessor              Successor     Non-IFRS
Aggregated
    Successor  
    Year ended
December 31,

2011
    Period from
Jan 1 – Nov 30,

2012
             Period from
Dec 1 – Dec 31,

2012
    Year ended
December 31,

2012
(unaudited)
    Year ended
December 31,

2013
 
($ in millions)                   

Profit / (Loss) for the period from continuing operations

    89.6        90.2              (56.6     33.6        (4.0

Net finance expense

    11.1        12.9              6.0        19.0        100.7   

Income tax expense

    54.9        60.7              8.1        68.8        8.3   

Depreciation and amortization

    78.5        78.1              7.5        85.6        129.0   

EBITDA (non-GAAP) (unaudited)

    234.1        241.9              (34.9     207.0        234.0   

Acquisition and integration related costs(a)

           0.2              62.4        62.6        29.3   

Restructuring costs(b)

    8.0        3.9              4.7        8.6        12.8   

Sponsor management fees(c)

                                      9.1   

 

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    Predecessor              Successor     Non-IFRS
Aggregated
    Successor  
    Year ended
December 31,

2011
    Period from
Jan 1 – Nov 30,

2012
             Period from
Dec 1 – Dec 31,

2012
    Year ended
December 31,

2012
(unaudited)
    Year ended
December 31,

2013
 
($ in millions)                   

Asset impairments(d)

    8.6                                     

Site relocation costs(e)

           1.7              0.7        2.4        1.8   

Financing fees(f)

                                      6.1   

Other(g)

    (3.8     (11.8           (0.6     (12.4     2.0   

Adjusted EBITDA (non-GAAP) (unaudited)

    246.9        235.9              32.2        268.1        295.1   

 

  (a)   Acquisition and integration related costs incurred in 2012 and 2013 primarily include costs associated with the Acquisition. Approximately all of the $62.6 million in expenses in 2012 directly related to the Acquisition and integration related costs (banking, advisory, legal fees, etc.). In 2013, of the $29.3 million in expenses, $27.9 million relates to professional fees incurred to establish Atento as a standalone group not affiliated with Telefónica. These projects mainly relate to the improvement of financial and cash flow reporting ($5.9 million), full strategy review including growth implementation plan and operational set-up with a leading consulting firm ($14.7 million), improving the efficiency in procurement ($4.8 million) and headhunting fees related primarily to strengthening the senior management team post-Acquisition ($1.4 million). We expect these projects to be completed by the end of 2014.
  (b)   Restructuring costs incurred in 2011, 2012 and 2013 primarily include a number of restructuring activities and other personnel costs that were not related to our core result of operations. Restructuring costs in 2011 primarily relate to costs incurred in connection with the termination of certain members of our executive committee. Restructuring costs in 2012 primarily represent costs incurred in Chile related to the implementation of the new service delivery model with Telefónica which impacted the profile of certain operations personnel and other restructuring costs for certain changes to the executive team in EMEA and Americas. In 2013, $8.6 million of our restructuring costs were related to the relocation of corporate headquarters and severance payments directly related to the Acquisition. In addition, in 2013, we incurred restructuring costs in Spain of $1.5 million (relating to restructuring expenses incurred as a consequence of significant reduction in activity levels as a result of adverse market conditions in Spain) and in Chile of $1.4 million (relating to restructuring expenses incurred as a consequence of the implementation of a new service delivery model with Telefónica).
  (c)   Sponsor management fees represent the annual advisory fee of affiliates of Bain Capital expensed during the periods presented. These fees are expected to cease following the offering. See “Certain Relationships and Related Party Transactions—Bain Capital Consulting Services Agreement and Transaction Services Agreement.”
  (d)   Asset impairment incurred in 2011 is the impairment of the Caribú Project, an intangible asset acquired in 2009 from Telefónica, which represents the right to be the exclusive supplier of customer analysis for 12 Telefónica subsidiaries in Latin America.
  (e)   Site relocation costs incurred in 2012 and 2013 primarily include costs associated with our current strategic initiative of relocating call centers from tier 1 cities to tier 2 cities in Brazil which we expect will be substantially completed by 2015. See “Summary—Our Strategy—Best-in-Class Operations—Competitive Site Footprint.”
  (f)   Financing fees primarily relate to professional fees incurred in 2013 in connection with the issuance of the Senior Secured Notes the proceeds of which were used to finance the Acquisition and to pay financial advisory fees.
  (g)  

Other includes expense accruals, reversal of expense accruals or income accruals which are not related to our core results of operations. In 2011, the other amount primarily relates to the gain from the sale of the BNH site in Brazil, amounting to $3.6 million. In 2012, the other amount primarily relates to a release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of

 

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  the collective bargain agreement negotiation in Spain. In 2013, the other amount primarily relates to various other consulting expenses, the largest component of which is $0.5 million relating to projects for inventory control in Brazil.

 

(2) In considering our financial performance, our management analyzes the performance measure of Adjusted Earnings/(Loss). Adjusted Earnings/(Loss) is defined as profit/(loss) for the period from continuing operations adjusted for Acquisition and integration related costs, amortization of Acquisition related intangible assets, restructuring costs, sponsor management fees, assets impairments, site relocation costs, financing fees, PECs interest expense, other and tax effects. Adjusted Earnings/(Loss) is not a measure defined by IFRS. The most directly comparable IFRS measure to Adjusted Earnings/(Loss) is our profit/(loss) for the period from continuing operations.

We believe Adjusted Earnings/(Loss), as defined above, is useful to investors and is used by our management to measure profitability because it represents a group measure of performance which excludes the impact of certain non-cash charges and other charges not associated with the underlying operating performance of the business, while including the effect of items that we believe affect shareholder value and in-year return, such as income tax expense and net finance costs.

Management expects to use Adjusted Earnings/(Loss) to (i) provide senior management a monthly report of our operating results that is prepared on an adjusted earnings basis; (ii) prepare strategic plans and annual budgets on an adjusted earnings basis; and (iii) review senior management’s annual compensation, in part, using adjusted performance measures.

Adjusted Earnings/(Loss) is defined to exclude items which are not related to our core results of operations. Adjusted Earnings/(Loss) measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an adjusted earnings related performance measure when reporting their results.

Adjusted Earnings/(Loss) has limitations as an analytical tool. Adjusted Earnings/(Loss) is neither a presentation made in accordance with IFRS nor a measure of financial condition or liquidity and should not be considered in isolation or as an alternative to profit or loss for the period from continuing operations or other measures determined in accordance with IFRS. Adjusted Earnings/(Loss) is not necessarily comparable to similarly titled measures used by other companies.

 

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The following table reconciles our Adjusted Earnings/(Loss) to our profit/(loss) for the period from continuing operations:

 

    Predecessor              Successor     Non-IFRS
Aggregated
    Successor  
    Year ended
December 31,

2011
    Period from
Jan 1 – Nov 30,

2012
             Period from
Dec 1 – Dec 31,

2012
    Year ended
December 31,

2012
(unaudited)
    Year ended
December 31,

2013
 
($ in millions)                   

Profit / (Loss) for the period from continuing operations

    89.6        90.2              (56.6     33.6        (4.0

Acquisition and integration related costs(a)

           0.2              62.4        62.6        29.3   

Amortization of Acquisition related intangible assets(b)

                        0.0        0.0        40.7   

Restructuring costs(c)

    8.0        3.9              4.7        8.6        12.8   

Sponsor management fees(d)

                                      9.1   

Asset impairments(e)

    8.6                                     

Site relocation costs(f)

           1.7              0.7        2.4        1.8   

Financing fees(g)

                                      6.1   

PECs interest expense(h)

                        1.9        1.9        25.7   

Other(i)

    (3.8     (11.8           (0.6     (12.4     2.0   

Tax effect(j)

    (4.9     2.0              (21.4     (19.4     (26.0

Adjusted Earnings / (Loss) (non-GAAP) (unaudited)

    97.5        86.2              (8.9     77.3        97.5   

 

  (a)   Acquisition and integration related costs incurred in 2012 and 2013 primarily include costs associated with the Acquisition. Approximately all of the $62.6 million in expenses in 2012 directly related to the Acquisition and integration related costs (banking, advisory, legal fees, etc.). In 2013, of the $29.3 million in expenses, $27.9 million relates to professional fees incurred to establish Atento as a standalone group not affiliated with Telefónica. These projects mainly relate to the improvement of financial and cash flow reporting ($5.9 million), full strategy review including growth implementation plan and operational set-up with a leading consulting firm ($14.7 million), improving the efficiency in procurement ($4.8 million) and headhunting fees related primarily to strengthening the senior management team post-Acquisition ($1.4 million). We expect these projects to be completed by the end of 2014.
  (b)   Amortization of Acquisition related intangible assets represents the amortization expense of intangible assets resulting from the Acquisition and has been adjusted to eliminate the impact of the amortization arising from the Acquisition which is not in the ordinary course of our daily operations and distorts comparison with peers and results for prior periods. Such intangible assets primarily include contractual relationships with customers, for which the useful life has been estimated at primarily nine years.
  (c)   Restructuring costs incurred in 2011, 2012 and 2013 primarily include a number of restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs in 2011 primarily relate to costs incurred in connection with the termination of certain members of our executive committee. Restructuring costs in 2012 primarily represent costs incurred in Chile related to the implementation of the new service delivery model with Telefónica which impacted the profile of certain operations personnel and other restructuring costs for certain changes to the executive team in EMEA and Americas. In 2013, $8.6 million of our restructuring costs was related to the relocation of corporate headquarters and severance payments directly related to the Acquisition. In addition, in 2013, we incurred restructuring costs in Spain of $1.5 million (relating to restructuring expenses incurred as a consequence of significant reduction in activity levels as a result of adverse market conditions in Spain) and in Chile of $1.4 million (relating to restructuring expenses incurred as a consequence of the implementation of a new service delivery model with Telefónica).

 

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  (d)   Sponsor management fees represent the annual advisory fee of affiliates of Bain Capital expensed during the periods presented. These fees are expected to cease following the offering. See “Certain Relationships and Related Party Transactions—Bain Capital Consulting Services Agreement and Transaction Services Agreement”.
  (e)   Asset impairment incurred in 2011 is the impairment of the Caribú Project, an intangible asset acquired in 2009 from Telefónica, which represents the right to be the exclusive supplier of customer analysis for 12 Telefónica subsidiaries in Latin America.
  (f)   Site relocation costs incurred in 2012 and 2013 primarily include costs associated with our current strategic initiative of relocating call centers from tier 1 cities to tier 2 cities in Brazil which we expect will be substantially completed by 2015. See “Summary—Our Strategy—Best-in-Class Operations—Competitive Site Footprint.”
  (g)   Financing fees primarily relate to professional fees incurred in 2013 in connection with the issuance of the Senior Secured Notes, the proceeds of which were used to finance the Acquisition and to pay financial advisory fees.
  (h)   PECs Interest expense represents accrued interest on the preferred equity certificates that will be capitalized prior to this offering.
  (i)   Other includes expense accruals, reversal of expense accruals or income accruals which are not related to our core results of operations. In 2011, the other amount primarily relates to the gain from the sale of the BNH site in Brazil, amounting to $3.6 million. In 2012, the other amount primarily relates to a release of an employee benefits accrual of $11.3 million following the better-than-expected outcome of the collective bargain agreement negotiation in Spain. In 2013, the other amount primarily relates to various other consulting expenses, the largest component of which is $0.5 million relating to projects for inventory control in Brazil.
  (j)   The tax effect represents the tax impact of the total non-GAAP adjustments based on a tax rate of 38% for 2011, 33% for the period from January 1, 2012 to November 30, 2012, 31% for the period from December 1, 2012 to December 31, 2012 and 30% for 2013. Amortization of Acquisition related intangible assets is not impacted by the tax effect.

 

(3) Our management uses Free Cash Flow to assess the liquidity of the Company and cash flow generation of our operating subsidiaries. We define Free Cash Flow as net cash flows from operating activities less capital expenditures for the period. We believe that Free Cash Flow is useful to investors because it adjusts our operating cash flow by the capital that is spent to continue and improve business operations.

Free Cash Flow has limitations as an analytical tool. Free Cash Flow is not a measure defined by IFRS and should not be considered in isolation from, or as an alternative to, cash flow from operating activities or other measures as determined in accordance with IFRS. Additionally, Free Cash Flow does not represent the residual cash flow available for discretionary expenditures as it does not incorporate certain cash payments, including payments made on finance lease obligations or cash payments for business acquisitions. Free Cash Flow is not necessarily comparable to similarly titled measures used by other companies.

 

(4) Our management expects to use Adjusted Free Cash Flow to assess our liquidity. We define Adjusted Free Cash Flow as cash flows from operating activities less capital expenditures, adjusted for net interest paid and taxes paid, the capital expenditure of the acquisition of the directory business from Telefónica in 2011, and the cash component of the Acquisition and integration related costs, restructuring costs, sponsor management fees, financing fees and other. We believe that Adjusted Free Cash Flow is useful to investors because it reflects our underlying cash flow generation adjusted for items that are not related to our core results of operations and neutralizes any changes in our capital structure.

Adjusted Free Cash Flow has limitations as an analytical tool. Adjusted Free Cash Flow is not a measure defined by IFRS and should not be considered in isolation from, or as an alternative to, cash flow from operating activities or other measures determined in accordance with IFRS.

 

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The following table reconciles our Free Cash Flow and Adjusted Free Cash Flow to our cash flow from operating activities for the periods presented:

 

    Predecessor              Successor     Non-IFRS Aggregated     Successor  
    Year ended
December 31,

2011
    Period from
Jan 1 – Nov 30,

2012
             Period from
Dec 1 – Dec 31,

2012
    Year ended
December 31,

2012
(unaudited)
    Year ended
December 31,

2013
 
($ in millions)                   

Net cash flow from operating activities

    116.6        163.6              (68.3     95.3        99.6   

Capital expenditures

    (141.6     (76.9           (28.4     (105.3     (103.0

Free Cash Flow (non-GAAP) (unaudited)

    (25.0     86.7              (96.7     (10.0     (3.4

Net interest paid

    0.3        2.1              0.8        2.9        57.8   

Taxes paid

    34.3        50.7              6.5        57.2        30.8   

Acquisition of directory business(a)

    25.1                                     

Acquisition and integration related costs(b)

                        59.7        59.7        28.2   

Restructuring costs(c)

    4.7        2.2                     2.2        0.7   

Sponsor management fees(d)

                                      8.9   

Financing fees(e)

                                      3.9   

Other(f)

    1.6        (0.9                  (0.9     (0.8

Adjusted Free Cash Flow (non-GAAP) (unaudited)

    41.0        140.8              (29.7     111.1        126.1   

 

  (a)   On September 30, 2011, Atento Teleservicios España, S.A.U. and Telefónica de España S.A.U. agreed to buy and sell, respectively, the business related to the 11822, 11825 and 1212 telephone information services for $48.6 million. The amount paid was allocated to intangible assets ($25.1 million), and is recorded under capital expenditures, goodwill ($31.0 million), offset by deferred tax liabilities ($7.5 million).
  (b)   Acquisition and integration related costs incurred in 2012 and 2013 primarily include costs associated with the Acquisition. Approximately all of the $62.6 million in expenses in 2012 directly related to the Acquisition and integration related costs (banking, advisory, legal fees, etc.). In 2013, of the $29.3 million in expenses, $27.9 million relates to professional fees incurred to establish Atento as a standalone group not affiliated with Telefónica. These projects mainly relate to the improvement of financial and cash flow reporting ($5.9 million), full strategy review including growth implementation plan and operational setup with a leading consulting firm ($14.7 million), improving the efficiency in procurement ($4.8 million) and headhunting fees related primarily to strengthening the senior management team post-Acquisition ($1.4 million). We expect these projects to be completed by the end of 2014.
  (c)   Restructuring costs incurred in 2011, 2012 and 2013 primarily include a number of restructuring activities and other personnel costs that were not related to our core results of operations. Restructuring costs in 2011 primarily relate to costs incurred in connection with the termination of certain members of our executive committee. Restructuring costs in 2012 primarily represent costs incurred in Chile related to the implementation of the new service delivery model with Telefónica which impacted the profile of certain operations personnel and other restructuring costs for certain changes to the executive team in EMEA and Americas. In 2013, $8.6 million of our restructuring costs was related to the relocation of corporate headquarters and severance payments directly related to the Acquisition. In addition, in 2013, we incurred restructuring costs in Spain of $1.5 million (relating to restructuring expenses incurred as a consequence of significant reduction in activity levels as a result of adverse market conditions in Spain) and in Chile of $1.4 million (relating to restructuring expenses incurred as a consequence of the implementation of a new service delivery model with Telefónica).

 

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  (d)   Sponsor management fees represent the annual advisory fee of affiliates of Bain Capital expensed during the periods presented. These fees are expected to cease following the offering. See “Certain Relationships and Related Party Transactions—Bain Capital Consulting Services Agreement and Transaction Services Agreement”.
  (e)   Financing fees primarily relate to professional fees incurred in 2013 in connection with the issuance of the Senior Secured Notes the proceeds of which were used to finance the Acquisition and to pay financial advisory fees.
  (f)   Other includes expense accruals, reversal of expense accruals or income accruals which are not related to our core results of operations. In 2011, the other amount primarily relates to the gain from the sale of the BNH site in Brazil, amounting to $3.6 million. In 2012, the other amount primarily relates to a release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargain agreement negotiation in Spain. In 2013, the other amount primarily relates to various other consulting expenses, the largest component of which is $0.5 million relating to projects for inventory control in Brazil.

 

(5) In considering our financial condition, our management analyzes Net Debt with Third Parties, which is defined as Total debt less cash, cash equivalents and short-term deposits and non-current payables to Group companies (which represent the PECs). The PECs are classified as our subordinated debt relating to our other present and future obligations, and they will be capitalized in connection with this offering. Net Debt with Third Parties is not a measure defined by IFRS.

Net Debt with Third Parties has limitations as an analytical tool. Net Debt with Third Parties is neither a measure defined by or presented in accordance with IFRS nor a measure of financial performance and should not be considered in isolation or as an alternative financial measure determined in accordance with IFRS. Net Debt with Third Parties is not necessarily comparable to similarly titled measures used by other companies.

The following table sets forth the reconciliation of Total debt to Net Debt with Third Parties utilizing IFRS reported balances obtained from the audited financial statements included elsewhere in this prospectus. Total debt is the most directly comparable financial measure under IFRS for the periods presented.

 

    Predecessor              Successor  
    As of
December 31,
    As of
November 30,
             As of
December 31,
    As of
December 31,
 
($ in millions)   2011     2012              2012     2013  

Interest bearing debt (borrowings)

    127.0        88.4              849.2        851.2   

Non-current payables to Group companies

                        471.6        519.6   

Total debt

    127.0        88.4              1,320.8        1,370.8   

Non-current payables to Group companies (PECs)

                        (471.6     (519.6

Cash, cash equivalents and short-term deposits

    (103.6     (83.3           (229.0     (213.5

Net Debt with Third Parties (non-GAAP) (unaudited)

    23.4        5.1              620.2        637.7   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The historical financial statements included elsewhere in this prospectus, which are the subject of the following discussion and analysis, are the Predecessor financial statements and the Successor financial statements. We have historically conducted our business through the Predecessor up to November 30, 2012 and, subsequent to the Acquisition, through the Successor and therefore, our historical financial statements present the results of operations of the Predecessor and Successor. Prior to the completion of this offering, the Successor will become the Issuer’s wholly-owned subsidiary, whereby the historical financial statements of the Successor and the Predecessor will become the historical financial statements of the Issuer.

The following discussion and analysis of our financial condition and the results of operations is based upon and should be read in conjunction with the Predecessor financial statements and the Successor financial statements and the related notes included in this prospectus. The Predecessor financial statements and the Successor financial statements have been prepared in accordance with IFRS as issued by the IASB, which may differ in material respects from generally accepted accounting principles in other jurisdictions, including the United States. The following discussion includes forward-looking statements. Our actual results could differ materially from those that are discussed in these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly under “Forward-Looking Statements” and “Risk Factors.”

Overview

We are the leading provider of end-to-end, multi-channel CRM BPO services and solutions in Latin America and Spain, and among the top three providers, globally based on revenues. Our tailored CRM BPO solutions are designed to enhance each of our clients’ ability to deliver a high-quality product by creating a best-in-class experience for their customers, enabling our clients to focus on operating their core businesses. We utilize our industry domain and customer care operations expertise, combined with a consultative approach, to offer superior and scalable solutions across the entire customer care value chain, customized for each individual client’s needs and sophistications.

We offer a comprehensive portfolio of customizable, yet scalable, solutions that comprise front-end and back-end services ranging from sales, applications processing, customer care and credit management. From our suite of products and value-added services, we derive embedded and integrated industry-tailored solutions for a large and diverse group of multi-national companies. Our solutions to our base of over 450 clients are delivered by approximately 155,000 of our highly engaged customer care specialists and facilitated by our best-in-class technology infrastructure and multi-channel delivery platform. We believe we bring a differentiated combination of scale, customer transaction processing capacity and industry expertise to our clients’ customer care operations, which allow us to provide higher-quality customer care services more cost-effectively than our clients could deliver on their own.

Basis of Preparation

We prepare our financial statements in accordance with IFRS as issued by the IASB. As a result of the Acquisition, we applied acquisition accounting whereby the purchase price paid was allocated to the acquired assets and assumed liabilities at fair value. See Note 2 to the Successor financial statements for further detail. Our financial reporting periods presented herein are as follows:

 

    The Predecessor period refers to the year ended December 31, 2011 and the period from January 1, 2012 through November 30, 2012 and reflects the combined carve-out results of operations of the Predecessor.

 

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    The Successor period reflects the consolidated results of operations of the Successor, which includes the effects of acquisition accounting, for the period from December 1, 2012 to December 31, 2012 and for the year ended December 31, 2013.

The results of operations for the year ended December 31, 2011 and for the period from January 1, 2012 to November 30, 2012 presented herein were derived from our audited Predecessor financial statements and related notes thereto included elsewhere in this prospectus. The results of operations for the period from December 1, 2012 to December 31, 2012 and for the year ended December 31, 2013 presented herein were derived from our audited Successor financial statements and related notes thereto included elsewhere in this prospectus.

The unaudited Aggregated 2012 Financial Information is derived by adding together the corresponding data from the Predecessor financial statements for the period from January 1, 2012 to November 30, 2012 and the corresponding data from the Successor financial statements for the period from December 1, 2012 to December 31, 2012 appearing elsewhere in this prospectus. This presentation of our unaudited Aggregated 2012 Financial Information is for illustrative purposes only, is not presented in accordance with IFRS, and is not necessarily comparable to previous or subsequent periods, or indicative of results expected in any future period.

Segments

We offer our CRM BPO services to clients primarily in Latin America and EMEA. Our business is comprised of three geographic operating segments:

 

    Brazil;

 

    Americas, which includes the activities carried out by the various Spanish-speaking companies in Mexico, Central and South America (excluding Brazil). It also includes operations in the United States; and

 

    EMEA (Europe, Middle East and Africa), which consists of our operations in Spain, the Czech Republic and Morocco.

See Note 23 to the Successor financial statements and Note 20 to the Predecessor financial statements for additional information on our segment results.

Key Factors Affecting Results of Operations

We believe that the following factors have significantly affected our results of operations for the years ended December 31, 2011, 2012 and 2013.

Macroeconomic Trends

Latin America

A substantial proportion of our business is carried out in Latin America. In the Latin America region, which includes our operating segments in Brazil and the Americas, we generated 83.6%, 83.7% and 84.5% of our revenue (in each case, before holding company level revenue and consolidation adjustments) for the years ended December 31, 2011, 2012 and 2013, respectively. As a result, our financial condition and results of operations are significantly influenced by macroeconomic developments in Latin America. See “Risk Factors—Risks Relating to our Business—A substantial portion of our revenue, operations and investments are located in Latin America and we are therefore exposed to risks inherent in operating and investing in the region.” In recent years, macroeconomic conditions have tended to be favorable in many of the countries in the region, including growth in GDP, purchasing power, a growing middle class and relatively stable currency exchange rates and inflation. Based on data from the Economist Intelligence Unit (“EIU”), we believe that these positive macroeconomic trends in Latin America will continue over the long term and lead to increased demand for our services.

 

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The table below sets forth the GDP, GDP growth, population growth, consumer price inflation and unemployment for the periods and countries indicated.

 

     Brazil     Mexico     Argentina(1)     Chile     Colombia     Peru  

GDP (US$ in billions at 2005 constant prices)

            

2011

   $ 1,126      $ 990      $ 276      $ 157      $ 195      $ 120   

2012

     1,138        1,027        282        165        203        127   

2013

     1,164        1,040        295        172        212        134   

GDP growth (year-over-year)

            

2011

     2.7     4.0     8.9     5.8     6.6     6.9

2012

     1.0        3.7        1.9        5.4        4.2        6.3   

2013

     2.3        1.3        4.9        4.1        4.3        5.2   

Population growth (year-over-year)

            

2011

     1.0     1.2     0.9     0.9     1.3     1.3

2012

     0.9        1.0        0.9        0.9        1.3        1.3   

2013

     0.9        1.1        0.9        0.9        1.3        1.3   

Consumer price inflation (year-over-year)

            

2011

     6.6     3.4     24.4     3.3     3.4     3.4

2012

     5.4        4.1        25.3        3.0        3.2        3.7   

2013

     6.2        3.8        20.7        1.9        2.0        2.8   

Unemployment

            

2011

     6.0     5.2     7.2     6.6     10.8     7.9

2012

     5.5        5.0        7.2        6.1        10.4        5.2   

2013

     5.4        4.9        7.1        5.7        9.7        5.5   

 

Source: Economist Intelligence Unit (“EIU”).
(1) EIU sources Argentina data from PriceStat due to widespread concerns over reliability of official data series.

 

     Brazil      Mexico      Argentina      Chile      Colombia      Peru  

End of period U.S. dollar exchange rate

                 

2011

     1.88         13.95         4.30         519.20         1,942.70         2.70   

2012

     2.04         12.97         4.92         479.96         1,768.23         2.55   

2013

     2.34         13.08         6.52         524.61         1,926.83         2.80   

 

Source: As reported by the relevant central bank of each country.

EMEA

The remainder of our business is carried out in EMEA. In EMEA, which consists primarily of our operations in Spain, we generated 16.4%, 16.3% and 15.5% of our revenue (in each case, before holding company level revenue and consolidation adjustments) for the years ended December 31, 2011, 2012 and 2013, respectively. As a result, our financial condition and results of operations are influenced by macroeconomic developments in Europe, and more specifically Spain. According to EIU, Spain’s real GDP declined at a CAGR of 0.9% from 2010 to 2013 and unemployment rose from 20.1% to 26.4% during the same period. However, based on data from EIU, we believe that these adverse macro-economic conditions will begin to recover in 2014.

Impact of Foreign Currency Translation

As we have operations in countries with different currencies, foreign currency fluctuations have had an impact on our results of operations. Nevertheless, we benefit from the fact that the majority of the revenue we

 

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collect in each country in which we have operations is principally denominated in the same currency as the operating expenses we incur in that country, providing us with a natural hedge. For the years ended December 31, 2011, 2012 and 2013, 94.1%, 94.3% and 95.4%, respectively, of the revenue we collected in each country in which we have operations was denominated in the same currency as the operating expenses we incurred in earning this revenue. Our indebtedness is either denominated in local currency or in the case of indebtedness denominated in U.S. dollars, hedged in local currencies. See “Description of Certain Indebtedness” and “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk.” While we face foreign currency translation risk for the purposes of preparing our consolidated financial statements, the impact on operating profit, profit for the period, cash flows, EBITDA and dividends is mitigated, to a certain degree, by our ability to match the above percentages of revenue with expenses in the same local currencies.

The main impact of foreign currency fluctuations on us can be summarized as follows:

 

    Translation differences (impact on the statements of changes in equity and cash flows). For the year ended December 31, 2013, 98.0% of our revenue was generated in non-U.S. dollar currency countries. As such, we are affected by variations in exchange rates resulting from the conversion of the financial statements of our subsidiaries operating in currencies other than the U.S. dollar through the consolidation process. For the purposes of preparing our financial statements, we convert our subsidiaries’ financial statements as follows: statements of financial position are translated into U.S. dollars from local currencies at the period-end exchange rate, shareholders’ equity is translated at historical exchange rates prevailing on the transaction date and income and cash flow statements are translated at average exchange rates for the period.

 

    Foreign exchange differences (impact on income statements and statements of cash flow). This includes losses or profits generated by the changing value of non-functional currency monetary assets and liabilities due to exchange rate variations.

 

    Year-on-year growth. The year-on-year variation in exchange rates directly impacts our growth. Reported revenue growth in 2013 was 1.0%, whereas excluding the impact of fluctuations in foreign exchange, revenue increased by 7.5% compared to 2012. Reported revenue decreased by 4.2% in 2012, whereas excluding the impact of foreign exchange, revenue increased by 6.7% compared to 2011.

In the discussion below of our results of operations, we have provided certain comparisons on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our results of operations into U.S. dollars for the period using the average exchange rate of the prior period and comparing these adjusted amounts to our prior period reported results. We refer to such comparisons as being made on a “constant currency basis” or as “excluding the impact of foreign exchange.” This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with IFRS nor should such amounts be considered in isolation. Moreover, constant currency presentations are not necessarily indicative of historical or future results of operations. Currency fluctuations affect general economic and business conditions, including, for example, a country’s inflation and international trade competitiveness and, as a result, a company’s performance cannot be evaluated solely on the basis of a constant currency presentation.

Client Relationship with Telefónica

Telefónica, a leading global telecommunications company and our owner prior to the Acquisition, and its various affiliates, has been our most important client in terms of revenue, and we currently anticipate that they will continue to be our most important client in the near future. Since 1999, when Telefónica contributed approximately 90% of the revenue of the AIT Group, we have pursued the diversification of our client base such

 

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that the revenue from Telefónica Group companies was 51.1%, 50.0% and 48.5% in the years ended December 31, 2011, 2012 and 2013, respectively, as revenue from non-Telefónica customers has grown faster than revenue from Telefónica.

Our service agreements with Telefónica Group companies remained in effect following the consummation of the Acquisition, and we entered into the MSA, a new framework agreement that replaced our prior framework agreement with Telefónica which has a term that ends on December 31, 2021. The MSA requires the Telefónica Group companies to meet pre-agreed minimum annual revenue commitments in the jurisdictions in which we currently conduct business (other than Argentina). See “Business—Our Clients—Development of Client Base” for a brief discussion of the material terms of the MSA. The MSA is not intended to affect the existing service contracts, which generally remain in effect in accordance with their terms (including their respective payment terms) and are renegotiated individually. See “Risk Factors—Risks Related to Our Business—Telefónica, certain of its affiliates and a few other major clients account for a significant portion of our revenue and any loss of a large portion of business from these clients could have a material adverse effect on our business, financial condition, results of operations and prospects.”

Fluctuations in our Operating Profit Margins

A number of factors have affected our operating profit margins during the periods discussed below, including, but not limited to, the following:

Increases in employee salaries resulting from inflation

Most of our service contracts with our clients provide for pricing adjustments that result from changes in macroeconomic conditions (e.g., increases or decreases in the consumer price index of an applicable jurisdiction) that allow us to pass on the inflationary effects of increases in employee salaries directly to our clients. However, when salary levels of our employees increase, we may not be able to fully pass on these increases to our clients or do so on a timely basis, which tends to depress our operating profit margins if we cannot offset these increases in employee salaries above inflationary levels or generate sufficient operating efficiency gains.

Increase in amortization expenses

In connection with the Acquisition, we have recognized $383.3 million of additional intangible assets in 2012 as part of the allocation of the purchase price to the acquired assets and assumed liabilities. These intangible assets, which represent our client relationships with Telefónica and with other clients, generally have useful lives estimated to be nine years. The amortization of these intangible assets had a negative impact of $40.7 million on our operating profit for the year ended December 31, 2013, as compared to an immaterial amount in 2012 and none in 2011. During the period over which we will amortize these assets, assuming that there is no impairment in the future, there will be a continuing impact of the straight-line amortization of these assets on our operating profit margins.

Increased set-up costs driven by increased demand

A significant increase in demand in the market for CRM BPO services can directly result in an increase in employee benefits expenses which we incur to hire and train additional employees to meet increased demand. As these expenses for hiring and training our employees are typically incurred in an earlier period than the expected accrual of the related revenue from the increase in demand, it has the effect of causing temporary decreases in our operating profit margins.

Fluctuations in demand

Any significant fluctuation in the volume of services demanded by our clients would require us to adjust the number of employees to adapt to such changes in demand. As our business depends on maintaining and training

 

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large numbers of employees to service our clients’ business needs, we cannot terminate employees on short notice to respond to sudden or unexpected changes in demand, as rehiring and retraining employees at a later date would force us to incur additional expenses. Furthermore, any termination of our employees would also involve the incurrence of significant additional costs in the form of severance payments to comply with employment regulations in various jurisdictions in which we operate our business, all of which would have an adverse impact on our operating profit margins. However, the risk associated with fluctuations in demand may be partially mitigated by the long-term growth trends of the industry that we anticipate in Brazil and the Americas, as well as our focus on efficiencies in operating costs.

Effect of Operating Leases

We routinely lease call center facilities, buildings and equipment under operating leases in the regions in which we conduct our operations rather than purchase those buildings and equipment as some of our competitors do. Our operating lease expenses decreased from $138.0 million in 2011 to $124.6 million in 2012 and to $118.3 million in 2013, primarily as a result of the effect of foreign exchange fluctuation. As a percentage of revenue, such operating leases represented 5.7%, 5.4% and 5.1%, respectively. The number of workstations we use in our service delivery centers increased from 73,249 as of December 31, 2011 to 77,062 as of December 31, 2012 and 78,188 as of December 31, 2013. Since we lease all of our call center facilities, which increases our operating expenses and does not result in a depreciation expense, our EBITDA performance has historically differed from competitors who own their buildings and equipment, as related financings have generally resulted in higher depreciation expenses for those competitors and have increased such competitors’ EBITDA.

Seasonality

Our performance is subject to seasonal fluctuations. For each of the periods presented herein, our performance was lower in the first quarter of the year than in the remaining three quarters of the year. This is primarily due to the fact that (i) our clients generally spend less in the first quarter of the year after the year-end holiday season, (ii) the initial costs to train and hire new employees at new service delivery centers to provide additional services to our clients are usually incurred in the first quarter of the year, and (iii) statutorily mandated minimum wage and salary increases of operators, supervisors and coordinators in many of the countries in which we operate are generally implemented at the beginning of the first quarter of each year, whereas revenue increases related to inflationary adjustments and contracts negotiations generally take effect after the first quarter. We have also found that our revenue increases further in the last quarter of the year, especially in November and December, as the year-end holiday season begins and we have an increase in business activity resulting from the handling of holiday season promotions offered by our clients. These seasonal effects also cause differences in revenue and expenses among the various quarters of any financial year, which means that the individual quarters of a year should not be directly compared with each other or be used to predict annual financial results.

Significant Market Trends

We believe that the following significant market trends are the most important trends affecting our results of operations, and we believe these will continue to have a material impact on our results of operations in the future.

Continuing Trend For Further Outsourcing For CRM Services

In recent years, companies have increasingly sought to outsource certain non-core business activities, such as customer care services and sales functions, especially in the regions in which we have significant business operations, including Latin America. This trend towards outsourcing non-core business activities has, in our view, principally been driven by rising costs, competitive pressures and increased operational complexity, resulting in the need to outsource these non-core business activities to enable companies to focus on their core competencies. The penetration within individual clients in the market for CRM BPO services has increased significantly in recent years. We believe there are two main drivers of this increase in penetration: first, existing

 

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users of CRM BPO are outsourcing more of their CRM operations to specialist third party BPO providers; secondly, new clients are adopting third party solutions for these services as opposed to using in-house solutions, to take advantage of the labor arbitrage, specialist knowledge and cost efficiencies.

Growth in Our Business Directly Linked to Growth in the Businesses of Key Clients

We structure our contracts with our clients such that, while the price of our services is agreed, the volume of CRM BPO services we deliver during a particular period depends upon the performance of our clients’ business. As our current business is significantly exposed to the telecommunications and financial services sectors, our business is particularly dependent upon the continued growth of our clients’ business in those sectors. As a result, if the business of one of our key clients increases, resulting in the generation of more customer activity, our business also increases as that customer activity is outsourced to us. On the other hand, if the business of one of our key clients decreases resulting in a reduction of customer activity, our business also decreases, as less customer activity will be outsourced to us.

Development of End-to-end CRM BPO Solutions

The industry is experiencing a transition towards outsourcing more complex multi-channel end-to-end solutions, thus creating an opportunity for CRM BPO providers, including us, to up-sell and cross-sell our services. Our vertical industry expertise in telecommunications, financial services and multi-sector, allows us to develop tailored solutions for our clients, further embedding us into their value chain while delivering impactful business results and increasing our share of wallet. We have proactively diversified and expanded our solutions offering, increasing their sophistication and developing customized end-to-end solutions such as our smart collections, B2B Efficient sales, Insurance Management, Credit Management and other BPO processes. We expect the share of revenue from end-to-end CRM BPO solutions to increase going forward.

New Pricing Models for Our CRM BPO Services

We operate in a competitive industry which from time to time exhibits pressure on pricing for CRM BPO services. We believe that we have a strong track record in successful pricing negotiations with our clients by offering flexible pricing models with fixed pricing, variable pricing, and outcome-based pricing if certain performance indicators are achieved, depending on the type of CRM BPO services our clients purchase from us and their business objectives. We also believe that new contracts will increasingly be based on more outcome-based pricing and hybrid pricing models as means of making services more transparent and further driving demand for CRM BPO services. In addition, our service contracts with most of our key clients include inflation-based adjustments to offset adverse inflationary effects which (depending on the movements in the applicable consumer price indices (“CPIs”) of the countries in which our clients operate) will have the effect of increasing, if the CPI of an applicable jurisdiction increases, or decreasing, if the CPI decreases, the employee benefits expenses which we can pass onto our clients. We believe that our flexible pricing models allow us to maximize our revenue in a price competitive environment while maintaining the high quality of our CRM BPO services.

Potential Customers May be Reluctant to Change Their CRM BPO Service Provider

As companies begin to use the services of CRM BPO services providers more extensively as their businesses grow, they become more reliant on the CRM BPO services provider because the companies often expand the range and scope of the CRM BPO services which they use. For example, for the year ended December 31, 2013, 85.3% of our revenue was earned from client groups (excluding the Telefónica Group) that had been our clients for five or more years. Furthermore, for the years ended December 31, 2011, 2012 and 2013, our retention rates were 97.9%, 98.5% and 99.3%, respectively, based on revenue. We believe it is difficult for clients to switch a large number of workstations to competitors principally because of the following factors: (i) the extensive training required for the service provider’s employees; (ii) the level of process integration with

 

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the provider which can be time consuming and costly; and (iii) the potential disruption caused to the client’s users by introducing a new end-service provider. As a result, absent a compelling reason to change CRM BPO service provider, such as significant differences in quality or price, companies generally tend to stay with their CRM BPO services provider, making it difficult for another CRM BPO services provider to acquire the client’s work.

Description of Principal Income Statement Items

Revenue

Revenue is principally generated by providing CRM BPO services to our clients. Revenue is recognized on an accrual basis, accounting for the related amounts as the services are provided to the client, when the teleoperation occurs or when certain contact center consulting work is carried out. Invoicing schemes may be fixed, variable, hybrid or outcome-based, with the tendency to follow models where invoices are issued based on customer business indicators.

Other operating income

Other operating income includes grants received from governments and government entities in the countries in which we operate. To receive these grants, we must commit to employ persons from certain population segments or to operate our business in certain areas to generate employment opportunities in those areas. Other operating income also includes gains from the disposal of fixed assets and recoveries from insurance claims.

Total operating expenses

Our operating expenses consist principally of:

 

    Supplies. Supplies consist of costs principally incurred in the provision of our services to our clients, including telecommunications and technology services, as well as the costs of leasing workstations within service delivery centers owned by our clients.

 

    Employee benefit expense. Employee benefits expenses consist of the total remuneration paid to our employees and administrative and executive staff, including a base salary and additional compensation depending on the status of the employee (permanent or temporary), as well as employee termination costs.

 

    Depreciation and amortization. Depreciation and amortization consist of the recognition of a charge for all tangible and intangible assets with finite lives using the straight-line method over their useful life.

 

    Changes in trade provisions. Changes in trade provisions include the result of changes in the provision for bad debt.

 

    Other operating expenses. Other operating expenses consist of the costs of leasing facilities, buildings and computer workstations in our service delivery centers, installation and maintenance, professional services including consulting, legal and other professional advisory services fees, utilities, transportation, travel expenses, taxes (excluding corporate income tax), penalties, fines and contingencies and impairment of assets, among others.

Operating profit/(loss)

Operating profit/(loss) consists principally of revenue and other operating income less operating expenses.

 

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Finance income

Finance income consists principally of interest on cash surpluses, income from long-term monetary investments and gains on adjustment for fair value of financial instruments.

Finance costs

Finance costs consist principally of interest and other expenses paid on short- and long-term loans and borrowings, as well as interest and expenses on current account overdrafts and losses on adjustment for fair value of financial instruments.

Net foreign exchange gain/(loss)

Net foreign exchange gain/(loss) consists of gains and losses originating from currency exchange differences related to assets and liabilities denominated in foreign currencies.

Income tax expense

Income tax expense consists of the corporate income tax to be paid on our corporate profit, including deferred tax.

Profit/(Loss) for the period

Profit/(loss) for the period consists of total of profit/(loss) for the period from continuing operations and from discontinued operations.

 

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Results of Operations

The tables below set forth our historical results of operations, other financial data and the percentage change between the periods ended December 31, 2011, 2012 and 2013. Due to the Acquisition, the financial data for the Successor period may not be comparable to that of the Predecessor period presented in the accompanying table. Prior to the Acquisition, the Predecessor financial statements were prepared on a combined carve-out basis from the Atento business of Telefónica. See Note 2 to the Predecessor financial statements. The allocations in Predecessor periods were based upon various assumptions and estimates and actual results may differ from these allocations, assumptions and estimates. Accordingly, the Predecessor financial statements should not be relied upon as being representative of our financial position, results of operations or cash flows had we operated on a standalone basis.

 

    Predecessor    

 

 

 

  Successor  
          For the period from     For the year ended December 31,  
    For the year
ended
December 31,
2011
    January 1,
2012 to
November 30,
2012
             December 1,
2012 to
December 31,
2012
    2012
(Non-IFRS
Aggregated)
(unaudited)
    Change     Change
excluding
FX
    2013     Change     Change
excluding FX
 
($ in millions, except
percentage changes)
                                   (%)     (%)           (%)     (%)  

Revenue

    2,417.3        2,125.9              190.9        2,316.8        (4.2     6.7        2,341.1        1.0        7.5   

Other operating income

    7.2        1.9              1.8        3.7        (48.6     (44.4     4.4        18.9        21.6   

Own work capitalized

                                                    0.9        N.M.        N.M.   

Operating expenses:

                       

Supplies

    (129.8     (105.5           (8.4     (113.9     (12.2     (2.3     (115.3     1.2        6.8   

Employee benefit expense

    (1,701.9     (1,482.8           (126.7     (1,609.5     (5.4     5.1        (1,643.5     2.1        8.5   

Depreciation and amortization

    (78.5     (78.1           (7.5     (85.6     9.0        20.1        (129.0     50.7        57.0   

Changes in trade provisions

    (2.7     (13.9           2.8        (11.1     N.M.        N.M.        2.0        N.M.        N.M.   

Other operating expenses

    (356.0     (283.7           (95.3     (379.0     6.5        18.3        (355.6     (6.2     (0.6

Total operating expenses

    (2,268.9     (1,964.0           (235.1     (2,199.1     (3.1     7.7        (2,241.4     1.9        8.1   

Operating profit/(loss)

    155.6        163.8              (42.4     121.4        (22.0     (10.3     105.0        (13.5     (1.2

Finance income

    10.9        11.6              2.6        14.2        30.3        44.0        17.8        25.4        32.4   

Finance costs

    (19.2     (23.5           (8.7     (32.2     67.7        87.5        (135.1     N.M.        N.M.   

Net foreign exchange gain / (loss)

    (2.8     (1.0                  (1.0     (64.3     (50.0     16.6        N.M.        N.M.   

Net finance expense

    (11.1     (12.9           (6.0     (19.0     71.2        95.5        (100.7     N.M.        N.M.   

Profit/(loss) before tax

    144.5        150.9              (48.5     102.4        (29.1     (18.4     4.3        (95.8     (85.4

Income tax expense

    (54.9     (60.7           (8.1     (68.8     25.3        27.5        (8.3     (87.9     (82.7

Profit/(loss) for the period from continuing operations

    89.6        90.2              (56.6     33.6        (62.5     (46.5     (4.0     (111.9     (90.8

Profit after tax from discontinued operations

    0.7                                   N.M.        N.M.                        

Profit/(loss) for the period

    90.3        90.2              (56.6     33.6        (62.8     (47.0     (4.0     (111.9     (90.8

Non-controlling interests

    (2.4     (0.4                  (0.4     (83.3     N.M.                        

Profit/(loss) for the period attributable to equity holders of the parent

    87.9        89.7              (56.6     33.1        (62.3     (46.0     (4.0     (112.1     (90.6

Other financial data:

                       

EBITDA(1) (unaudited)

    234.1        241.9              (34.9     207.0        (11.6     (0.1     234.0        13.0        22.9   

Adjusted EBITDA(1) (unaudited)

    246.9        235.9              32.2        268.1        8.6        21.5        295.1        10.1        16.9   

 

 

(1) For a reconciliation to IFRS as issued by the IASB, see “Selected Historical Financial Information.”

 

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The following chart sets forth a breakdown of selected income statement items for the periods presented for our operations in Brazil, the Americas and EMEA.

 

    Predecessor         Successor  
          For the period from     For the year ended December 31,  
    For the year
ended
December 31,

2011
(Predecessor)
    January 1,
2012 to
November 30,

2012
(Predecessor)
         December 1,
2012 to
December 31,

2012
    2012
(Non-IFRS
Aggregated)
(unaudited)
    Change     Change
excluding
FX
    2013     Change     Change
excluding

FX
 
($ in millions, except percentage
changes)
                               (%)     (%)           (%)        

Revenue:

                     

Brazil

    1,343.1        1,116.8            96.3        1,213.1        (9.7     5.3        1,206.1        (0.6     9.6   

Americas

    679.2        662.1            64.1        726.2        6.9        11.3        772.7        6.4        11.6   

EMEA

    396.7        347.8            30.7        378.5        (4.6     3.2        363.1        (4.1     (7.0

Other and eliminations(2)

    (1.7     (0.8         (0.2     (1.0     (41.2     N.M.        (0.8     (20.0     N.M.   

Total Revenue

    2,417.3        2,125.9            190.9        2,316.8        (4.2     6.7        2,341.1        1.0        7.5   

Operating expense:

                     

Brazil

    (1,238.6     (1,025.4         (84.4     (1,109.8     (10.4     4.4        (1,113.6     0.3        10.6   

Americas

    (615.5     (602.6         (52.4     (655.0     6.4        10.4        (705.9     7.8        12.9   

EMEA

    (373.7     (319.3         (28.9     (348.2     (6.8     0.8        (365.2     4.9        1.7   

Other and eliminations(2)

    (41.1     (16.7         (69.4     (86.1     N.M.        N.M.        (56.7     (34.1     N.M.   

Total operating expenses

    (2,268.9     (1,964.0         (235.1     (2,199.1     (3.1     7.7        (2,241.4     1.9        8.1   

Operating profit/(loss):

                     

Brazil

    108.2        91.2            12.3        103.5        (4.3     11.9        94.8        (8.4     1.0   

Americas

    65.0        62.7            11.7        74.4        14.5        20.0        67.6        (9.1     (4.6

EMEA

    25.4        29.1            3.2        32.3        27.2        37.8        (0.1     (100.3     (100.3

Other and eliminations(2)

    (43.0     (19.2         (69.6     (88.8     N.M.        N.M.        (57.3     (35.5     N.M.   

Total operating profit/(loss)

    155.6        163.8            (42.4     121.4        (22.0     (10.3     105.0        (13.5     (1.2

Net finance expense:

                     

Brazil

    (4.9     (6.8         (2.6     (9.4     91.8        N.M.        (43.9     N.M.        N.M.   

Americas

    (4.8     (2.7         (2.7     (5.4     12.5        22.9        (3.9     (27.8     0.0   

EMEA

    (1.0     (1.4         (0.8     (2.2     N.M.        N.M.        (18.4     N.M.        N.M.   

Other and eliminations(2)

    (0.4     (2.0         (0.0     (2.0     N.M.        N.M.        (34.5     N.M.        N.M.   

Total net finance expense

    (11.1     (12.9         (6.0     (19.0     71.2        95.5        (100.7     N.M.        N.M.   

Income tax expense:

                     

Brazil

    (29.3     (25.9         27.5        1.6        N.M.        N.M.        (17.7     N.M.        N.M.   

Americas

    (16.0     (25.9         (0.2     (26.1     63.1        68.1        (19.3     (26.1     (23.0

EMEA

    (6.9     (8.2         (0.6     (8.8     27.5        39.1        7.8        N.M.        N.M.   

Other and eliminations(2)

    (2.7     (0.7         (34.8     (35.5     N.M.        N.M.        20.9        N.M.        N.M.   

Total income tax expense

    (54.9     (60.7         (8.1     (68.8     25.3        27.5        (8.3     (87.9     (82.7

Profit/(loss) for the period:

                     

Brazil

    74.1        58.6            37.3        95.9        29.4        54.1        33.2        (65.4     (61.8

Americas

    44.2        34.1            8.8        42.9        (2.9     2.3        44.4        3.5        6.1   

EMEA

    18.2        19.5            1.7        21.2        16.5        26.4        (10.7     N.M.        N.M.   

Other and eliminations(2)

    (46.2     (22.0         (104.4     (126.4     N.M.        N.M.        (70.9     (43.9     N.M.   

Total profit/(loss) for the period

    90.3        90.2            (56.6     33.6        (62.8     (47.0     (4.0     N.M.        (90.8

Other Financial Data:

                     

EBITDA(1):

                     

Brazil

    145.7        126.9            15.7        142.7        (2.1     14.4        150.7        5.6        16.5   

Americas

    95.1        92.2            14.5        106.7        12.2        17.1        115.3        8.1        11.7   

EMEA

    34.1        41.4            4.4        45.8        34.3        45.5        24.3        (46.9     (48.7

Other and eliminations(2)

    (40.7     (18.6         (69.6     (88.2     N.M.        N.M.        (56.3     (36.2     N.M.   

Total EBITDA (unaudited)

    234.1        241.9            (34.9     207.0        (11.6     (0.1     234.0        13.0        22.9   

Adjusted EBITDA(1):

                     

Brazil

    141.3        128.7            16.4        145.1        2.7        19.8        161.1        11.0        21.4   

Americas

    95.1        94.2            19.2        113.4        19.2        24.7        118.4        4.4        7.8   

EMEA

    32.9        31.4            3.9        35.3        7.3        16.1        26.7        (24.4     (26.6

Other and eliminations(2)

    (22.4     (18.4         (7.3     (25.7     14.7        N.M.        (11.1     (56.8     N.M.   

Total Adjusted EBITDA (unaudited)

    246.9        235.9            32.2        268.1        8.6        21.5        295.1        10.1        16.9   

 

(1) For a reconciliation to IFRS as issued by the IASB, see Note 20 to the Predecessor financial statements and Note 23 to the Successor financial statements.
(2) Includes holding company level revenue and expenses (such as corporate expenses and Acquisition related expenses), as applicable, as well as consolidation adjustments.

 

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Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue

Revenue increased by $24.3 million, or 1.0%, from $2,316.8 million for the year ended December 31, 2012 to $2,341.1 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, revenue increased by 7.5%. Excluding the impact of foreign exchange, revenue from Telefónica Group companies increased by 4.7%, driven primarily by strong performance in Brazil and the Americas, which was partially offset by adverse macro-economic conditions in Spain. Revenue from non-Telefónica clients increased by 10.3%, excluding the impact of foreign exchange, principally due to strong market growth in Brazil and the Americas and contract wins with existing and new customers.

The following chart sets forth a breakdown of revenue based on geographical region for the years ended December 31, 2012 and December 31, 2013 and as a percentage of total revenue and the percentage change between periods and net of foreign exchange effects.

 

     For the year ended December 31,  
     Non-IFRS
Aggregated

2012
(unaudited)
     2013
(Successor)
     Change     Change
excluding
FX
 
($ in millions, except percentage changes)          (%)            (%)      (%)     (%)  

Brazil

     1,213.1        52.4         1,206.1        51.5         (0.6     9.6   

Americas

     726.2        31.3         772.7        33.0         6.4        11.6   

EMEA

     378.5        16.3         363.1        15.5         (4.1     (7.0

Other and eliminations(1)

     (1.0             (0.8             (20.0     N.M.   

Total

     2,316.8        100         2,341.1        100         1.0        7.5   

 

(1) Includes holding company level revenues and consolidation adjustments.

Brazil

Revenue in Brazil for the years ended December 31, 2012 and December 31, 2013 was $1,213.1 million and $1,206.1 million, respectively. Revenue decreased in Brazil by $7.0 million, or 0.6%. Excluding the impact of foreign exchange, revenue increased by 9.6%. Excluding the impact of foreign exchange, revenue from Telefónica Group companies increased by 9.9%, principally due to increases in the price of our services, volume growth in existing services, and the introduction of new services. Revenue from non-Telefónica clients increased by 9.4%, excluding the impact of foreign exchange, principally attributable to price increases, volume growth in existing services, the introduction of new services, primarily in the financial sector, and new customers in the telecommunications and financial sectors.

Americas

Revenue in the Americas for the years ended December 31, 2012 and December 31, 2013 was $726.2 million and $772.7 million, respectively. Revenue increased in the Americas by $46.5 million, or 6.4%. Excluding the impact of foreign exchange, revenue increased by 11.6%. Excluding the impact of foreign exchange, revenue from Telefónica Group companies increased by 8.5%, with solid performance in most markets, which was partially offset by a decrease in revenue in Chile as a result of the implementation of a new service delivery model by Telefónica during 2012 and 2013. Excluding the impact of foreign exchange, revenue from non-Telefónica clients increased by 14.8% with a strong performance across all markets.

EMEA

Revenue in EMEA for the years ended December 31, 2012 and December 31, 2013 was $378.5 million and $363.1 million, respectively. Revenue decreased in EMEA by $15.4 million, or 4.1%. Excluding the impact of

 

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foreign exchange, revenue decreased by 7.0%. Excluding the impact of foreign exchange, revenue from Telefónica Group companies decreased by 10.8% principally due to a decrease in volume of sales in Spain, driven by adverse macro-economic conditions. Excluding the impact of foreign exchange, revenue from non-Telefónica clients increased by 1.7% driven by the expansion of multi-sector private clients.

Other operating income

Other operating income increased by $0.7 million, or 18.9%, from $3.7 million for the year ended December 31, 2012 to $4.4 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, other operating income increased by 21.6%, principally due to income derived from insurance recovery in Brazil.

Total operating expenses

Total operating expenses increased by $42.3 million, or 1.9%, from $2,199.1 million for the year ended December 31, 2012 to $2,241.4 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating expenses increased by 8.1%, principally due to increases in employee benefit expenses and to greater depreciation and amortization expense. As a percentage of revenue, operating expenses constituted 94.9% and 95.7% for the years ended December 31, 2012 and 2013, respectively.

The $42.3 million increase in operating expenses resulted from the following components:

Supplies: Supplies increased by $1.4 million, or 1.2%, from $113.9 million for the year ended December 31, 2012 to $115.3 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, supplies increased by 6.8%, principally as a result of general growth in our business. As a percentage of revenue, supplies constituted 4.9% for each of the years ended December 31, 2012 and 2013.

Employee benefits expenses: Employee benefits expenses increased by $34.0 million, or 2.1%, from $1,609.5 million for the year ended December 31, 2012 to $1,643.5 million for the year ended December 31, 2013. As a percentage of our revenue, employee benefits expenses constituted 69.5% and 70.2% for the years ended December 31, 2012 and December 31, 2013, respectively. Excluding the impact of foreign exchange, employee benefits expenses increased by 8.5%. Adjusting for restructuring expenses between 2013 and 2012 of $12.8 million and $8.6 million, respectively, and the positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain, employee benefits expenses increased by 7.5% in constant currency, which was broadly in line with the increase in revenue. This increase in employee benefits expenses was principally due to the growth of our business, as we increased the average number of employees from 150,248 in 2012 to 155,832 in 2013, or 3.7%, as well as higher wages.

Depreciation and amortization: Depreciation and amortization expense increased by $43.4 million, or 50.7%, from $85.6 million for the year ended December 31, 2012 to $129.0 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, depreciation and amortization increased by 57.0%, principally due to a $40.7 million increase in amortization charges derived from the recognition of customer relationship intangible assets in connection with the Acquisition.

Changes in trade provisions: Changes in trade provisions improved by $13.1 million, from a negative change of $11.1 million for the year ended December 31, 2012 to positive change of $2.0 million for the year ended December 31, 2013, principally due to improved collections on receivables we had previously impaired. As a percentage of revenue, changes in trade provisions constituted 0.5% and (0.1)% for the years ended December 31, 2012 and 2013, respectively.

Other operating expenses: Other operating expenses decreased by $23.4 million, or 6.2%, from $379.0 million for the year ended December 31, 2012 to $355.6 million for the year ended December 31, 2013.

 

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Excluding the impact of foreign exchange, other operating expenses decreased by 0.6%, principally due to (i) expenses recorded in 2012 related to the Acquisition, which amounted to $62.6 million and did not recur in 2013; (ii) general cost efficiencies and savings in most of the countries in which we operate; and (iii) which were partially offset by integration-related costs, including consultancy and professional fees, associated with the change of ownership of the Atento Group, amounting to $27.9 million. We had $124.6 million in expenses for operating leases for the year ended December 31, 2012 as compared to $118.3 million in expenses for operating leases for the year ended December 31, 2013. As a percentage of revenue, other operating expenses constituted 16.4% and 15.2% for the years ended December 31, 2012 and 2013, respectively.

Brazil

Total operating expenses in Brazil increased $3.8 million, or 0.3%, from $1,109.8 million for the year ended December 31, 2012 to $1,113.6 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating expenses in Brazil increased by 10.6%. Operating expenses as a percentage of revenue in Brazil increased from 91.5% to 92.3%. This increase was principally due to increased amortization charges derived from the recognition of customer relationship intangible assets in connection with the Acquisition by approximately $18.9 million or 1.6% of revenues.

Americas

Total operating expenses in the Americas increased $50.9 million, or 7.8%, from $655.0 million for the year ended December 31, 2012 to $705.9 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating expenses in the Americas increased by 12.9%. Operating expenses as a percentage of revenue increased in the Americas from 90.2% to 91.4%. The increase in operating expenses as a percentage of revenue in the Americas was principally due to an increase in the amortization charges of $12.2 million derived from the recognition of customer relationship intangible assets in connection with the Acquisition. This increase in 2013 was partially offset by severance payments of senior management in Mexico incurred in the amount of $2.2 million in 2012, which did not recur during 2013.

EMEA

Total operating expenses in EMEA increased by $17.0 million, or 4.9%, from $348.2 million for the year ended December 31, 2012 to $365.2 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating expenses in EMEA increased by 1.7%. Operating expenses as a percentage of revenue in EMEA increased from 92.0% to 100.6% as a result of declining revenues mainly in Spain with Telefónica and increase in amortization of intangibles of $9.5 million. Excluding this impact, operating expenses as a percentage of revenue in EMEA represented 98.0%.

Operating profit

Operating profit decreased by $16.4 million, or 13.5%, from $121.4 million for the year ended December 31, 2012 to $105.0 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating profit decreased by 1.2%. As a percentage of revenue, operating profit margin decreased from 5.2% for the year ended December 31, 2012 to 4.5% for the year ended December 31, 2013 primarily driven by the increased amortization charges derived from the recognition of customer relationship intangible assets in connection with the Acquisition for $40.7 million. Excluding this impact, operating profit margin would have increased to 6.2%, driven mainly by continued focus on reducing fixed costs and expenses recorded in 2012 related to the Acquisition which did not recur in 2013, partially offset by our integration costs in 2013.

Brazil

Operating profit in Brazil decreased by $8.7 million, or 8.4%, from $103.5 million for the year ended December 31, 2012 to $94.8 million for the year ended December 31, 2013. Excluding the impact of foreign

 

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exchange, operating profit increased by 1.0%. Operating profit margin in Brazil decreased from 8.5% for the year ended December 31, 2012 to 7.9% for the year ended December 31, 2013. The decrease in operating profit margin in Brazil was principally due to increased amortization charges associated with the customer portfolio intangible assets recognized in connection with the Acquisition. Excluding this impact, operating profit margin would have increased to 9.4% in 2013.

Americas

Operating profit in the Americas decreased by $6.8 million, or 9.1%, from $74.4 million for the year ended December 31, 2012 to $67.6 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating profit in the Americas decreased by 4.6%. Operating profit margin in the Americas decreased from 10.2% for the year ended December 31, 2012 to 8.7% for the year ended December 31, 2013. The decrease in operating profit margin in Americas was principally attributable to increased amortization charges associated with the customer portfolio intangible assets recognized in connection with the Acquisition. Excluding this impact, operating profit margin would have increased to 10.3% in 2013, in line with 2012 operating profit margin.

EMEA

Operating profit in EMEA decreased by $32.4 million, or 100.3%, from $32.3 million for the year ended December 31, 2012 to $(0.1) million for the year ended December 31, 2013. Excluding the impact of foreign exchange, operating profit decreased by 100.3%. Operating profit margin in EMEA decreased from 8.5% for the year ended December 31, 2012 to no margin for the year ended December 31, 2013. The decrease in operating profit in EMEA was principally due to the decrease in the volume of sales to Telefónica due to adverse macro-economic conditions in Spain and the increased amortization charges associated with the client portfolio intangible assets recognized in connection with the Acquisition. Excluding this impact, operating profit margin in 2013 would have decreased to 2.6%.

Finance income

Finance income increased by $3.6 million, or 25.4%, from $14.2 million for the year ended December 31, 2012 to $17.8 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, finance income increased by 32.4%. This increase is principally due to an increase in cash, deposits and short term investments.

Finance costs

Finance costs increased by $102.9 million, from $32.2 million for the year ended December 31, 2012 to $135.1 million for the year ended December 31, 2013. This increase is principally due to higher interest costs in connection with the Acquisition related financings and changes in fair value of hedge instruments.

Net foreign exchange gain/(loss)

Net foreign exchange gain/(loss) increased by $17.6 million, from a loss of $1.0 million for the year ended December 31, 2012 to a gain of $16.6 million for the year ended December 31, 2013. This increase is principally due to exchange gains from liabilities denominated in foreign currency held by certain intermediate holding companies as a result of the depreciation of these currencies against the U.S. dollar.

Income tax expense

Income tax expense for the years ended December 31, 2012 and December 31, 2013 was $68.8 million and $8.3 million, respectively, decreasing by $60.5 million, or 87.9%. Excluding the impact of foreign exchange,

 

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income tax expense decreased by 82.7% primarily as a result of the tax deductibility of goodwill amortization in Brazil and interest expenses. The aggregate effective tax rate in both 2013 and 2012 is distorted because of the contribution of losses in the holding companies to our profit before tax. Adjusting for this effect, the aggregate rate excluding the Group’s holding companies in 2013 is 30% compared to 33% for the year ended December 31, 2012.

Profit/(loss) for the period

Profit/(loss) for the years ended December 31, 2012 and December 31, 2013 was $33.6 million and $(4.0) million, respectively. Excluding the impact of foreign exchange, profit margin decreased from 1.5% in 2012 to 0.1% in 2013 as a result of the factors discussed above.

EBITDA and Adjusted EBITDA

EBITDA increased by $27.0 million, or 13.0%, from $207.0 million for the year ended December 31, 2012 to $234.0 million for the year ended December 31, 2013. Adjusted EBITDA increased by $27.0 million, or 10.1%, from $268.1 million for the year ended December 31, 2012 to $295.1 million for the year ended December 31, 2013. Additionally, the increase in EBITDA in 2013 is positively higher than in 2012, impacted by the decrease in Acquisition and integration related costs from $62.6 million in 2012 to $29.3 million in 2013. The difference between EBITDA and Adjusted EBITDA is due to the exclusion of items that are not related to our core results of operations. Adjusted EBITDA is defined as EBITDA adjusted to exclude Acquisition and integration related costs, restructuring costs, sponsor management fees, asset impairments, site relocation costs, financing fees, and other items which are not related to our core results of operations. See the “Selected Historical Financial Information” section for reconciliation of EBITDA and Adjusted EBITDA to profit/(loss).

Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA increased by 22.9% and 16.9%, respectively. The increase in EBITDA and Adjusted EBITDA is principally due to the growth in revenue and cost efficiencies in many of the countries in which we operate.

Brazil

EBITDA in Brazil increased by $8.0 million, or 5.6%, from $142.7 million for the year ended December 31, 2012 to $150.7 million for the year ended December 31, 2013. Adjusted EBITDA in Brazil increased by $16.0 million, or 11.0%, from $145.1 million for the year ended December 31, 2012 to $161.1 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA increased by 16.5% and 21.4%, respectively. The increase in EBITDA is principally due to the growth in revenue.

Americas

EBITDA in Americas increased by $8.6 million, or 8.1%, from $106.7 million for the year ended December 31, 2012 to $115.3 million for the year ended December 31, 2013. Adjusted EBITDA in Americas increased by $5.0 million, or 4.4%, from $113.4 million for the year ended December 31, 2012 to $118.4 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA increased by 11.7% and 7.8%, respectively. The increase in EBITDA and Adjusted EBITDA is principally due to the growth in revenue and cost efficiencies. Additionally, the growth in EBITDA in 2013 is positively influenced by the decrease in costs related to the Acquisition.

EMEA

EBITDA in EMEA decreased by $21.5 million, or 46.9%, from $45.8 million for the year ended December 31, 2012 to $24.3 million for the year ended December 31, 2013. Adjusted EBITDA in EMEA decreased by $8.6 million, or 24.4%, from $35.3 million for the year ended December 31, 2012 to $26.7 million for the year ended December 31, 2013. Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA decreased by 48.7% and 26.6%, respectively. The decrease in EBITDA is principally due to the

 

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positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain, which did not recur in 2013, as well as reduced work volume with Telefónica.

Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

Revenue

Revenue decreased by $100.5 million, or 4.2%, from $2,417.3 million for the year ended December 31, 2011 to $2,316.8 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, revenue increased by 6.7%. Excluding the impact of foreign exchange, revenue from Telefónica companies increased by 3.8%, driven primarily by solid performance in the Americas, partially offset by adverse economic conditions in Spain. Excluding the impact of foreign exchange, revenue from non-Telefónica clients increased by 9.7%, principally due to strong growth in Brazil and the full year impact of owning the directory business in Spain, acquired from Telefónica in September 2011.

The following chart sets forth a breakdown of revenue based on geographical region for the years ended December 31, 2011 and December 31, 2012 and as a percentage of revenue and the percentage change between those periods with and net of foreign exchange effects.

 

     For the year ended December 31,  
     2011
(Predecessor)
    Non-IFRS
Aggregated
2012
(unaudited)
     Change     Change
excluding
FX
 
($ in millions, except percentage changes)          (%)               (%)          (%)     (%)  

Brazil

     1,343.1        55.6        1,213.1        52.4         (9.7     5.3   

Americas

     679.2        28.1        726.2        31.3         6.9        11.3   

EMEA

     396.7        16.4        378.5        16.3         (4.6     3.2   

Other and eliminations(1)

     (1.7     (0.1     (1.0             (41.2     N.M.   

Total

     2,417.3        100        2,316.8        100         (4.2     6.7   

 

(1) Includes holding company level revenues and consolidation adjustments.

Brazil

Revenue in Brazil for the years ended December 31, 2011 and December 31, 2012 was $1,343.1 million and $1,213.1 million, respectively. Revenue decreased in Brazil by $130.0 million, or 9.7%. Excluding the foreign exchange impact, revenue increased by 5.3% over this period. Excluding the impact of foreign exchange, revenue from Telefónica companies decreased by 2.3%, principally due to price reductions in the fourth quarter of 2011 while under Telefónica ownership, which impacted results in 2012. Revenue from non-Telefónica clients, excluding the impact of foreign exchange, increased by 11.9% over this period, principally due to price increases, volume growth and the introduction of new services, primarily in the financial services sector.

Americas

Revenue in the Americas for the years ended December 31, 2011 and December 31, 2012 was $679.2 million and $726.2 million, respectively. Revenue increased in the Americas by $47.0 million, or 6.9%. Excluding the impact of foreign exchange, revenue increased by 11.3%. Excluding the impact of foreign exchange, revenue from Telefónica companies increased by 20.9% over this period with growth in most markets, except in Chile, which decreased primarily as a result of the implementation of a new service delivery model by Telefónica during 2012. Excluding the impact of foreign exchange, revenue from non-Telefónica clients increased by 2.8%.

 

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EMEA

Revenue in EMEA for the years ended December 31, 2011 and December 31, 2012 was $396.7 million and $378.5 million, respectively. Revenue decreased in EMEA by $18.2 million, or 4.6%. Excluding the foreign exchange impact, revenue increased by 3.2%. Excluding the foreign exchange impact, revenue from Telefónica companies decreased by 2.0% principally due to a decrease in volume of sales in Spain, driven by adverse macro-economic conditions. Revenue from non-Telefónica clients increased by 17.6%, excluding the impact of foreign exchange, principally due to the revenue impact of the directory business acquired from Telefónica in September 2011.

Other operating income

Other operating income decreased by $3.5 million, or 48.6%, from $7.2 million for the year ended December 31, 2011 to $3.7 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, other operating income decreased by 44.4%, principally due to income from the disposal of fixed assets in 2011 which did not recur in 2012.

Total operating expenses

Total operating expenses decreased by $69.8 million, or 3.1%, from $2,268.9 million for the year ended December 31, 2011 to $2,199.1 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating expenses increased by 7.7%. As a percentage of revenue, operating expenses constituted 93.9% and 94.9% for the year ended December 31, 2011 and 2012, respectively. This increase is principally due to expenses related to the Acquisition in 2012 of $62.6 million, partially offset by the positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain. Adjusting for both of these items operating expenses as a percentage of revenues would have constituted 92.7%, a decrease of 2.2%.

The $69.8 million decrease in operating expenses resulted from the following components:

Supplies: Supplies decreased by $15.9 million, or 12.2%, from $129.8 million for the year ended December 31, 2011 to $113.9 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, supplies decreased by 2.3%. This decrease is principally driven by declining costs of leasing workspaces at service delivery centers owned by our clients. As a percentage of revenue, supplies constituted 5.4% and 4.9% for the year ended December 31, 2011 and 2012, respectively.

Employee benefits expenses: Employee benefits expenses decreased by $92.4 million, or 5.4%, from $1,701.9 million for the year ended December 31, 2011 to $1,609.5 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, employee benefits expenses increased by 5.1%. This increase in employee benefits expenses was principally due to the growth of our business, as we increased the average number of employees from 147,042 to 150,248, or 2.2%, and wage inflation, partially offset by the benefit of Plano Brasil Maior tax exemption. This increase was partially offset by the positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain. As a percentage of our revenue, employee benefits expenses constituted 70.4% and 69.5% for the years ended December 31, 2011 and December 31, 2012.

Depreciation and amortization: Depreciation and amortization expense increased by $7.1 million, or 9.0%, from $78.5 million for the year ended December 31, 2011 to $85.6 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, depreciation and amortization increased by 20.1%, principally due to the full year impact of the acquisition of a directory business from Telefónica in September 2011, as well as additional investments.

Changes in trade provisions: Changes in trade provisions increased by $8.4 million, from a negative change of $2.7 million for the year ended December 31, 2011 to a negative change of $11.1 million for the year ended

 

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December 31, 2012. This increase was principally due to the introduction in connection with the Acquisition of a more conservative policy for impairment of trade receivables in 2012. As a percentage of revenue, changes in trade provisions constituted 0.1% and 0.5% for the year ended December 31, 2011 and 2012.

Other operating expenses: Other operating expenses increased by $23.0 million, or 6.5%, from $356.0 million for the year ended December 31, 2011 to $379.0 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, other operating expenses increased by 18.3%, principally due to expenses related to the Acquisition incurred in 2012 that amounted to $62.6 million, partially offset by the impairment in 2011 of the Caribú Project, an intangible asset acquired in 2009 as more fully described in Note 6 to the Predecessor financial statements. We had $138.0 million in expenses for operating leases for the year ended December 31, 2011 as compared to $124.6 million in expenses for operating leases for the year ended December 31, 2012. As a percentage of revenue, other operating expenses constituted 14.7% and 16.4% for the year ended December 31, 2011 and 2012. Excluding the impact of Acquisition costs incurred at the end of 2012, other operating expenses, as a percentage of revenue, constituted 13.7% for the year ended December 31, 2012.

Brazil

Total operating expenses in Brazil decreased $128.8 million, or 10.4%, from $1,238.6 million for the year ended December 31, 2011 to $1,109.8 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating expenses in Brazil increased by 4.4%, which was broadly in line with revenues. Operating expenses as a percentage of revenue decreased from 92.2% to 91.5%. The increase in operating expenses in Brazil was principally due to an increase in costs related to the growth of our business, which was primarily comprised of salaries and benefits expenses, telecommunication and rent and maintenance call center expenses, as well as improved customer mix and strong focus on costs.

Americas

Total operating expenses in the Americas increased $39.5 million, or 6.4%, from $615.5 million for the year ended December 31, 2011 to $655.0 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating expenses in the Americas increased by 10.4% in line with revenues. Operating expenses as a percentage of revenue decreased from 90.6% to 90.2%.

EMEA

Total operating expenses in EMEA decreased $25.5 million, or 6.8%, from $373.7 million for the year ended December 31, 2011 to $348.2 million for the year ended December 31, 2012. Operating expenses as a percentage of revenue decreased from 94.2% to 92.0%. Excluding the impact of foreign exchange, operating expenses in EMEA increased by 0.8%. The change in operating expenses in EMEA was attributable to the expansion of the business, which was offset by the positive impact of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain.

Operating profit

Operating profit decreased $34.2 million, or 22.0%, from $155.6 million for the year ended December 31, 2011 to $121.4 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating profit decreased by 10.3%. Operating profit margin decreased from 6.4% for the year ended December 31, 2011 to 5.2% for the year ended December 31, 2012. The decrease in operating profit for the period was principally due to expenses related to the Acquisition, which amounted to $62.6 million, partially offset by strong business performance in all of our segments, as well as the positive impact of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain. Excluding the impact of the Acquisition related expenses and the offset of the provision release, operating profit margin would be 7.5%.

 

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Brazil

Operating profit in Brazil decreased $4.7 million, or 4.3%, from $108.2 million for the year ended December 31, 2011 to $103.5 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating profit increased by 11.9% in 2012. Operating profit margin in Brazil increased from 8.1% for the year ended December 31, 2011 to 8.5% for the year ended December 31, 2012. The increase in operating profit in Brazil for the period was principally due to growth in our revenue, improved customer mix and strong focus on costs.

Americas

Operating profit in the Americas increased $9.4 million, or 14.5%, from $65.0 million for the year ended December 31, 2011 to $74.4 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating profit in Americas increased by 20.0% in 2012. Operating profit margin in the Americas increased from 9.6% for the year ended December 31, 2011 to 10.2% for the year ended December 31, 2012. The increase in operating profit in the Americas was principally due to the strong revenue growth.

EMEA

Operating profit in EMEA increased $6.9 million, or 27.2%, from $25.4 million for the year ended December 31, 2011 to $32.3 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, operating profit in EMEA increased by 37.8% in 2012. Operating profit margin in EMEA increased from 6.4% for the year ended December 31, 2011 to 8.5% for the year ended December 31, 2012. The increase in operating profit in EMEA for the period was principally due to the acquisition of a directory business from Telefónica in September 2011 and the positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better than expected outcome of the collective bargaining agreement negotiation in Spain. Excluding the impact of the provision release, the operating profit margin would be 5.5%.

Finance income

Finance income increased by $3.3 million, or 30.3%, from $10.9 million for the year ended December 31, 2011 to $14.2 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, finance income increased by 44.0%. This increase was principally due to an increase in cash, deposits and short term investments.

Finance costs

Finance costs increased by $13.0 million, or 67.7%, from $19.2 million for the year ended December 31, 2011 to $32.2 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, finance costs increased by 87.5%. The increase was principally due to higher interest payments made in respect to the syndicated loan agreement entered into by Atento in 2011 and associated interest rate swaps termination costs, and higher costs in connection with the new Acquisition related financing for the month of December 2012.

Net foreign exchange gain/(loss)

Net foreign exchange loss decreased by $1.8 million, or 64.3%, from a loss of $2.8 million for the year ended December 31, 2011 to a loss of $1.0 million for the year ended December 31, 2012. This improvement is principally due to the exchange gains originated by receivables denominated in foreign currency held by European subsidiaries and to the positive effect of the fluctuation of the Mexican Peso, partially offset by the negative effect of the fluctuation of the Argentinean Peso against the U.S. dollar.

Income tax expense

Income tax expense for the years ended December 31, 2011 and December 31, 2012 was $54.9 million and $68.8 million, respectively, increasing by $13.9 million, or 25.3%. Excluding the impact of foreign exchange,

 

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income tax increased by 27.5%. The aggregated effective tax rate of the year ended December 31, 2012 is distorted because of the contribution of losses in the holding companies to our profit before tax. Adjusting for this effect, the average effective tax rate for the year ended December 31, 2012, excluding this effect, was 33%, while the average effective tax rate of the year ended December 31, 2011 was 38%. The decrease was primarily due to the reduction of the non-deductible expenses.

Profit for the period

Profit for the years ended December 31, 2011 and December 31, 2012 was $90.3 million and $33.6 million, respectively. Excluding the impact of foreign exchange, profit margin decreased from 3.7% in 2011 to 1.9% in 2012 as a result of the factors discussed above.

EBITDA and Adjusted EBITDA

EBITDA decreased by $27.1 million, or 11.6%, from $234.1 million for the year ended December 31, 2011 to $207.0 million for the year ended December 31, 2012. Adjusted EBITDA increased by $21.2 million, or 8.6%, from $246.9 million for the year ended December 31, 2011 to $268.1 million for the year ended December 31, 2012. The increase in Adjusted EBITDA is principally due to cost efficiencies and revenue growth in the Americas. The difference between EBITDA and Adjusted EBITDA is due to exclusion of items that are not related to core operating results. The items excluded in the calculation of Adjusted EBITDA are Acquisition related costs, restructuring costs, assets impairments and other, and disposal of fixed assets. See “Selected Historical Financial Information” section for a reconciliation of EBITDA and Adjusted EBITDA to profit (loss). Excluding the impact of foreign exchange, EBITDA decreased by 0.1% and Adjusted EBITDA increased by 21.5%.

Brazil

EBITDA in Brazil decreased by $3.0 million, or 2.1%, from $145.7 million for the year ended December 31, 2011 to $142.7 million for the year ended December 31, 2012. Adjusted EBITDA in Brazil increased by $3.8 million, or 2.7%, from $141.3 million for the year ended December 31, 2011 to $145.1 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA increased by 14.4% and 19.8%, respectively. The increase in EBITDA is principally due to strong growth in our non-Telefónica client relationships and cost efficiencies.

Americas

EBITDA in Americas increased by $11.6 million, or 12.2%, from $95.1 million for the year ended December 31, 2011 to $106.7 million for the year ended December 31, 2012. Adjusted EBITDA in Americas increased by $18.3 million, or 19.2%, from $95.1 million for the year ended December 31, 2011 to $113.4 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, EBITDA and Adjusted EBITDA increased by 17.1% and 24.7%, respectively. The increase in EBITDA and Adjusted EBITDA was principally due to strong revenue growth due to increase in work volume within existing clients, including Telefónica, expansion of client portfolio, and new services offered to clients.

EMEA

EBITDA in EMEA increased by $11.7 million, or 34.3%, from $34.1 million for the year ended December 31, 2011 to $45.8 million for the year ended December 31, 2012. Adjusted EBITDA in EMEA increased by $2.4 million, or 7.3%, from $32.9 million for the year ended December 31, 2011 to $35.3 million for the year ended December 31, 2012. Excluding the impact of foreign exchange, EBITDA increased by 45.5% and Adjusted EBITDA increased by 16.1%. The increase in EBITDA is principally due to the positive impact in 2012 of the release of an employee benefit accrual of $11.3 million following the better-than-expected outcome of the collective bargaining agreement negotiation in Spain and the acquisition of a directory business from Telefónica in September 2011.

 

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Liquidity and Capital Resources

We fund our ongoing capital and working capital requirements through a combination of cash flows from our operating and financing activities. Based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing and financing activities, including funds available under the Revolving Credit Facility, will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. We have ample liquidity: as at December 31, 2013, the total amount of credit available to us was €50 million ($69 million) under our Revolving Credit Facility, which remains undrawn as at December 31, 2013. In addition, we had cash and cash equivalents (net of any outstanding bank overdrafts) of approximately $213.5 million as at December 31, 2013, of which $13.7 million is located in Argentina and subject to restrictions on our ability to transfer them out of the country.

However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, and other factors, many of which are beyond our control. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and such capital may not be available to us on acceptable terms, if at all.

Our cash flows from our operating, investing and financing activities may be impacted by, among other things, the global financial environment on our customers and the financial, foreign exchange, equity and credit markets, and rapid changes in the highly competitive market in which we operate.

Although we expect to fund our capital needs during 2014 with our available cash on hand and cash generated from our operating and financing activities, in the future, including the proceeds from this offering, we may have to incur additional debt or issue additional debt or equity securities from time to time. Capital available to CRM BPO service providers, whether raised through the issuance of debt or equity securities, may be limited. As a result, we may be unable to obtain sufficient financing terms satisfactory to management or at all.

Cash Flow

As at December 31, 2013, we had cash and cash equivalents (net of any outstanding bank overdrafts) of approximately $213.5 million. We believe that our current cash flow from operating activities and financing arrangements will provide us with sufficient liquidity to meet our working capital needs. See “Description of Certain Indebtedness.”

 

    Predecessor     Successor  
($ in millions)   For the year
ended
December 31,
2011
    January 1, 2012
to November 30,
2012
    December 1,
2012 to
December 31,

2012
    For the year
ended
December 31,
2012
(Non-IFRS
Aggregated)
(unaudited)
    For the year
ended
December 31,
2013
 

Cash provided by/(used in) operating activities

    116.6        163.6        (68.3     95.3        99.6   

Cash (used in) investing activities

    (134.6     (118.7     (846.1     (964.8     (123.4

Cash provided by/(used in) financing activities

    27.0        (75.0     1,109.6        1,034.6        31.2   

Effect of changes in exchanges rates

    (0.1     (2.2     5.1        2.9        5.8   

Net increase (decrease) in cash and cash equivalents

    8.8        (32.3     200.3        168.0        13.2   

 

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Cash Provided by Operating Activities

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net cash provided by operating activities was $99.6 million for the year ended December 31, 2013 compared to $95.3 million for the year ended December 31, 2012. Net cash provided by operating activities was stable as growth in the business was offset by higher interest payments in connection with certain debt facilities we entered into in 2012 in connection with the Acquisition.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net cash provided by operating activities was $95.3 million for the year ended December 31, 2012 compared to $116.6 million for the year ended December 31, 2011. The net cash provided by operating activities in 2011 was impacted by a negative change in working capital following Telefónica’s unification of its payment policies and terms (extending the payment cycle with respect to us) among providers belonging to Telefónica Group entities and external providers. The net cash provided by operating activities in 2012 was negatively impacted by the Acquisition costs.

Cash Used in Investing Activities

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net cash used in investing activities was $123.4 million for the year ended December 31, 2013 compared to $964.8 million for the year ended December 31, 2012. The decrease in 2013 is principally attributable to the impact in 2012 of the consideration paid to Telefónica in relation to the Acquisition for an amount of $795.4 million.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net cash used in investing activities was $964.8 million for the year ended December 31, 2012 compared to $134.6 million for the year ended December 31, 2011. The increase in net cash used in investing activities in 2012 was primarily attributable to the consideration paid to Telefónica in relation to the Acquisition. Net cash used in investing activities in 2011 was impacted by consideration paid related to the acquisition of a directory business from Telefónica in Spain in the amount of $48.6 million.

Cash Provided by Financing Activities

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net cash provided by financing activities was $31.2 million for the year ended December 31, 2013 compared to $1,034.6 million for the year ended December 31, 2012. The decrease in net cash provided by financing activities was primarily attributable to the impact of new debt facilities entered into in 2012 in relation to the Acquisition equaling $1,107.0 million.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net cash provided by financing activities was $1,034.6 million for the year ended December 31, 2012 compared to $27.0 million for the year ended December 31, 2011. The increase in 2012 in net cash provided by financing activities was primarily attributable to the impact of new debt facilities entered into in 2012 in relation to the Acquisition.

 

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Financing Arrangements

 

Description

   Currency    Maturity    Interest rate      Amount as of
December 31, 2013

($ in millions)
 

Senior Secured Notes(1)

   USD    2020      7.375%         297.7   

Brazilian Debentures(2)

   BRL    2019      CDI+3.7%         345.9   

Bank borrowings

   MAD    2016      6%         0.6   

CVIs(3)

   ARS    2022      N/A         43.4   

Vendor Loan Note(4)

   EUR    2022      5%         151.7   

Finance lease payables

   BRL, COP,
USD
   2018
    
6.32%-13.7%
  
     11.9   
  

 

  

 

  

 

 

    

 

 

 

Debt with Third Parties

              851.2   

PECs

   EUR    2042-2072      0%-8.0309%         519.6   
           

 

 

 

Total Debt

              1,370.8   

 

(1) Represents the principal amount of $300 million minus $11.7 million of capitalized transaction costs plus $9.3 million of accrued interest. It does not include the fair value of derivative financial liabilities related to the Senior Secured Notes, which was $16.0 million as of December 31, 2013.
(2) Represents the principal amount of BRL 915 million minus net capitalized transaction costs of BRL 12.3 million, minus early prepayments of BRL 98.0 million, plus accrued interest of BRL 5.5 million, which results in an outstanding amount of BRL 810.2 million as of December 31, 2013, at an exchange rate of BRL 2.3426 to US$1.00. As of April 22, 2014, the exchange rate was BRL 2.2449 to US$1.00.
(3) Represents the fair value registered amount of ARS 666.8 million CVIs at the exchange rate of ARS 6.5210 to US$1.00. As of April 22, 2014, the exchange rate was ARS 7.99 to US$1.00.
(4) Represents the €110.0 million outstanding aggregate principal amount of the Vendor Loan Note, at the exchange rate of €0.7251 to US$1.00. As of December 31, 2013, the Vendor Loan Note had accrued interest of $0.4 million. As of April 22, 2014, the exchange rate was €0.72 to US$1.00.

7.375% Senior Secured Notes Due 2020

On January 29, 2013, a subsidiary of the company, Atento Luxco, issued $300.0 million aggregate principal amount of Senior Secured Notes that mature on January 29, 2020. The Senior Secured Notes are senior secured obligations of Atento Luxco and are guaranteed on a senior secured first-priority basis by Atento Luxco and certain of its subsidiaries.

The indenture governing the Senior Secured Notes contains covenants that, among other things, restrict the ability of Atento Luxco and certain of its subsidiaries to: incur or guarantee additional indebtedness; pay dividends or make other distributions or redeem or repurchase capital stock; issue, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting certain subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. In addition, in certain circumstances, if Atento Luxco sells assets or experiences certain changes of control, it must offer to purchase the Senior Secured Notes.

For more information regarding the terms of the Senior Secured Notes, see “Description of Certain Indebtedness—7.375% Senior Secured Notes due 2020.”

Revolving Credit Facility

On January 28, 2013, Atento Luxco entered into a Super Senior Revolving Credit Facility (the “Revolving Credit Facility”), which provides for borrowings of up to €50 million ($69 million). The Revolving Credit

 

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Facility allows for borrowings in Euros, Mexican Pesos and U.S. dollars and includes borrowing capacity for letters of credit and ancillary facilities (including an overdraft, guarantee, bonding, documentary or stand-by letter of credit facility, a short term loan facility, a derivatives facility, and a foreign exchange facility). As at December 31, 2013, the Revolving Credit Facility remains undrawn.

The rate of interest under the Revolving Credit Facility is the percentage rate per annum which is the aggregate of (i) the applicable margin, (ii) EURIBOR or, in relation to any loan in a currency other than Euro, LIBOR or the applicable floating rate for Mexican Pesos and (iii) the mandatory cost (if any). The applicable margin is initially 4.50% per annum and is subject to a step-down based on a secured leverage ratio. In addition to paying interest on the outstanding principal amounts under the Revolving Credit Facility, we are required to pay a commitment fee of 40% of the applicable margin per annum in respect of the lenders unutilized commitments. The Revolving Credit Facility matures in July 2019.

For more information regarding the terms of the Revolving Credit Facility, see “Description of Certain Indebtedness—Revolving Credit Facility.”

Brazilian Debentures

On November 22, 2012, BC Brazilco Participações, S.A. (now merged with Atento Brasil, S.A.) (the “Brazilian Issuer”) entered into an indenture for the issuance of BRL 915 million (equivalent to approximately $365 million) of Brazilian Debentures due December 12, 2019. The Brazilian Debentures bear interest at a rate per annum equal to the average daily rate of the One Day “over extra-group”—DI—Interfinancial Deposits (as such rate is disclosed by Central de Custódia e de Liquidacào Financeira de Titulos (“CETIP”) in the daily release available on its web page (http://cetip.com.br)), plus a spread of 3.70%.

The Brazilian Debentures contain the following amortization schedule: December 11, 2015—7.26863%; December 11, 2016—15%; December 11, 2017—18%; December 11, 2018—21%; and December 11, 2019—28%.

On March 25, 2013 and June 11, 2013, the Brazilian Issuer prepaid, BRL 72 million and BRL 26 million, respectively (equivalent to approximately $36 million and $12 million, respectively). The outstanding balance at amortized cost after the early repayments as of December 31, 2013 is BRL 810.2 million ($345.9 million), including accrued interest.

The Brazilian Issuer must comply with the quarterly net financial debt/EBITDA ratio set out in the contract terms. The contract also sets out additional restrictions, including limitations on dividends, payments and distributions to shareholders and capacity to incur additional debt. We were in compliance with all covenants under the Brazilian Debentures at December 31, 2013.

For more information regarding the terms of the Brazilian Debentures, see “Description of Certain Indebtedness—Brazilian Debentures.”

Vendor Loan Note

On December 12, 2012, Midco issued the Vendor Loan Note for an aggregate principal amount of €110.0 million to an affiliate of Telefónica. The Vendor Loan Note has a scheduled maturity of December 12, 2022. Interest on the Vendor Loan Note accrues at a fixed rate of 5.00% per annum, and is payable annually in arrears. Interest on the Vendor Loan Note is payable in cash, if (i) no default (or similar event) is continuing or would arise under any financing documents of the Company, as defined in the agreement governing the Vendor Loan Note, as a result of such interest payment or any distribution or payment by a subsidiary to Midco to enable Midco to make the interest payment and (ii) the Company is able to lawfully upstream funds to Midco. Any interest that is not payable in cash is capitalized and added to the outstanding principal amount outstanding under

 

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the Vendor Loan Note. Interest is payable in cash only to the extent that the borrower has received upstream payments from its subsidiaries in excess of the lesser of (A) the expenses incurred during such interest period in connection with the operation of the Company plus management and advisory fees paid to Bain Capital or (B) €35.0 million (increased by 3% for each subsequent interest period on a compounding basis). Additionally, following the sale of at least 66.66% of the business and assets of the Company, Midco shall be required to use the proceeds of such sale to repay the Vendor Loan Note, subject to items (i) and (iii) above.

The Vendor Loan Note is expressed by its terms to be senior to any debt or equity claim of the shareholders of Midco and their affiliates, pari passu with trade payables of Midco and subordinated to any other indebtedness of Midco. The Vendor Loan Note contains certain restrictions on payments by Topco and its subsidiaries to Bain Capital and its affiliates during the term of the Vendor Loan Note that are triggered if the ratio of financial indebtedness (as defined therein) to EBITDA for Topco and its subsidiaries is greater than 2.5 to 1.0.

For more information regarding the terms of the Vendor Loan Note, see “Description of Certain Indebtedness—Vendor Loan Note.”

Contingent Value Instruments

In relation to the Acquisition, two of our indirect subsidiaries, Atalaya Luxco 2, S.à r.l., (formerly BC Luxco 2, S.à r.l.) and Atalaya Luxco 3, S.à r.l, (formerly BC Luxco 3, S.à r.l.), which own the Atento Group’s Argentinian subsidiaries, issued the Contingent Value Instruments to Atento Inversiones y Teleservicios, S.A. and Venturini S.A., which are Telefónica subsidiaries. The CVIs together have an aggregate par value of ARS 666.8 million (equivalent to approximately $102.3 million). The CVIs are the senior obligations of Atalaya Luxco 2, S.à r.l. and Atalaya Luxco 3, S.à r.l. only (and not any other members of the Company group) and are subject to mandatory (partial) repayment in the following scenarios: if in any financial year an Argentinian subsidiary has excess cash, being an amount equal to 90% of its cash in such financial year that is available to be lawfully distributed by such Argentinian subsidiary and can be settled without restriction, less: (1) the greater of: (A) a specified cash amount in respect of such Argentinian subsidiary as set out in each CVI; and (B) the amount that such Argentinian subsidiary needs in order to meet its financial obligations; and (2) an amount equal to (i) expenses incurred in distributing such excess cash (e.g. taxes and reasonable third party costs); (ii) a sale of all or substantially all of the shares or the assets of the Argentinian subsidiaries to a non-affiliated party; (iii) a sale of all or substantially all of the shares or the assets of Atento Luxco to a non-affiliated party; and (iv) a distribution, payment or repayment made by any Argentinian subsidiary to Atalaya Luxco 2, S.à r.l. or Atalaya Luxco 3, S.à r.l, in respect of the securities of such Argentinian subsidiary.

The CVIs do not accrue interest and are recognized at fair value. As of December 31, 2013, the fair value of the CVIs was $43.4 million. See Note 3(s) “Fair Value of Derivatives and CVI” to the Successor financial statements for additional information. Under the terms of each CVI, Atalaya Luxco 2, S.à r.l. and Atalaya Luxco 3, S.à r.l. have the right to off-set certain amounts specified in the SPA (in the circumstances specified in the SPA) against the outstanding balance under such CVI.

The obligations of Atalaya Luxco 2, S.à r.l. and Atalaya Luxco 3, S.à r.l. under each CVI will be extinguished on the earlier of: (i) the date on which the outstanding balance under such CVI is reduced to zero (in respect of repayment of outstanding debt or reduction of the outstanding balance pursuant to the terms and conditions of the CVIs); and (ii) December 12, 2022. During the term of the CVIs, the CVI holders have preferential purchase rights in the event the Argentinian subsidiaries are sold.

The obligations under the CVIs are not guaranteed by any subsidiary other than Atalaya Luxco 2, Atalaya Luxco 3 and its Argentinian subsidiaries.

For more information regarding the terms of the CVIs, see “Description of Certain Indebtedness—Contingent Value Instruments.”

 

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Preferred Equity Certificates

On December 3, 2012, in connection with the Acquisition, Midco authorized the issuance of three series of Preferred Equity Certificates (“Luxco PECs”), which were subscribed by Atento Luxco, totaling $519.6 million as of December 31, 2013. The terms of the Luxco PECs are as follows:

 

    Series 1: Midco authorized the issuance of 50,000,000,000 Series 1 PECs with a par value of €0.01 each. These Luxco PECs mature after 30 years, but may be withdrawn prior to this date in certain scenarios, and accrue interest of 8.0309%. As of December 31, 2013 and 2012, Midco has issued 23,580,000,000 Series 1 PECs for an aggregate amount of $325.2 million and $311.1 million, respectively. The resulting interest was capitalized on December 3, 2013 totalling approximately $26.1 million. The interest accrued at December 31, 2013 totaled approximately $2.2 million.

 

    Series 2: Midco authorized the issuance of 200,000 Series 2 PECs with a par value of €0.01 each. These Luxco PECs mature after 30 years, but may be withdrawn prior to this in certain scenarios. The yield is equal to the profit recognized for Luxembourg generally accepted accounting practice in connection with the “Specified Assets” (meaning the investment of the Company in the Luxco 1 Series 2 PECs, as defined), less any loss recognized in connection with the Specified Assets less a proportional amount of any direct expense borne by the Company during the Accrual Period in relation to the Specified Assets and less the losses of the Company in relation to the Specified Assets during the Accrual Period, including any such losses carried forward from previous Accrual Periods, such amount then divided by the number of Series 2 PECs outstanding at that time. As of December 31, 2013, Midco had issued 200,000 Series 2 PECs for an aggregate amount of $3 thousand.

 

    Series 3: Midco authorized the issuance of 25,000,000,000 Series 3 PECs with a par value of €0.01 each. These Luxco PECs mature after 60 years, but may be withdrawn prior to this in certain scenarios. The yield is equal to the “Specified Income” (meaning the sum of all income and capital gains derived by the Company from the Eligible Assets (investment by the Company in the shares of Atento Luxco) less losses of the Company carried forward less all other expenses of the Company connected to the investment in the Eligible Assets (as defined in the terms and conditions of the Series 3 PECs) for each accounting period comprised in such “Accrual Period” (as defined in the terms and conditions of the Series 3 PECs) divided by 365 (or if a leap year, 366) and, respectively in the case of each such number so ascertained, multiplied by the number of days of each such accounting period that comprised that Accrual Period, then divided by the number of Series 3 PECs outstanding at that time. As of December 31, 2013, Midco has issued 12,017,800,000 Series 3 PECs for an aggregate amount of $165.7 million.

Prior to completion of this offering, we expect to capitalize the Luxco PECs.

The Luxco PECs are classified as subordinated debt with respect to our other present and future obligations. The table below provides a summary of Luxco PECs principal balance and their movements in 2013:

 

($ in millions)

Luxco PECs

   Maturity      12/31/2012      Interest
capitalized
     Translation
differences
     Interest
accrued
     12/31/2013  

Series 1 PECs

     2042         311.1         26.1         14.5         2.2         353.9   

Series 2 PECs

     2042         0.0                                 0.0   

Series 3 PECs

     2072         158.6                 7.2                 165.7   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

        469.7         26.1         21.6         2.2         519.6   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Brazil BNDES Credit Facility

On February 3, 2014, Atento Brasil S.A. entered into a credit agreement with Banco Nacional de Desenvolvimento Econômico e Social—BNDES (“BNDES”) in an aggregate principal amount of BRL 300 million (the “BNDES Credit Facility”), equivalent to $124 million.

 

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The total amount of the BNDES Credit Facility is divided into 5 tranches in the following amounts and subject to the following interest rates:

 

    

Amount of Each
Tranche

  

Interest Rate

Tranche A

   BRL 182,330,000.00    Long Term Interest Rate (Taxa de Juros de Longo Prazo—TJLP) plus 2.5% per annum

Tranche B

   BRL 45,583,000.00    SELIC Rate plus 2.5% per annum

Tranche C

   BRL 64,704,000.00    4.0% per year

Tranche D

   BRL 5,296,000.00    6.0% per year

Tranche E

   BRL 2,048,000.00    Long Term Interest Rate (Taxa de Juros de Longo Prazo—TJLP)

The BNDES Credit Facility is to be repaid in 48 monthly installments. The first payment will be due on March 15, 2016 and the last payment will be due on February 15, 2020.

The BNDES Credit Facility contains covenants that restrict Atento Brasil S.A.’s ability to transfer, assign, charge or sell the intellectual property rights related to technology and products developed by Atento Brasil S.A. with the proceeds from the BNDES Credit Facility.

The BNDES Credit Facility contains customary events of default including the following: (i) reduction of the number of the employees of Atento Brasil S.A. without providing program support for outplacement, as training, job seeking assistance and obtaining pre-approval of BNDES, (ii) existence of an unfavorable court decision against the Company for the use of children as workforce, slavery or any environmental crimes and (iii) inclusion in the by-laws of Atento Brasil S.A. of any provision that restricts Atento Brasil S.A.’s ability to paying its obligations under the BNDES Credit Facility.

Other Loan Agreements

On June 28, 2011, Atento arranged a loan with Banco Sabadell for an amount of MAD21.2 million maturing on June 28, 2016 with an interest of 6%. As of December 31, 2013 the loan balance was 5.1 million dirhams ($0.6 million).

Finance Leases

The Company holds the following assets under finance leases:

 

     As of December 31,  
     2012      2013  
($ in millions)    Net
carrying
amount
of asset
     Net
carrying
amount
of asset
 

Finance leases

     

Plant and machinery

     0.5           

Furniture, tools and other tangible assets

     8.8         9.4   

Software

     1.3         0.0   

Other intangible assets

     3.5           
  

 

 

    

 

 

 

Total

     14.1         9.4   
  

 

 

    

 

 

 

The assets acquired under finance leases are located in Brazil, Uruguay, Colombia and Peru.

 

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The present value of future finance lease payments is as follows:

 

     As of December 31,  
($ in millions)    2012      2013  

Up to 1 year

     3.5         5.3   

Between 1 and 5 years

     5.2         6.5   
  

 

 

    

 

 

 

Total

     8.7         11.9   
  

 

 

    

 

 

 

Derivative Financial Instruments

For a description of our derivative financial instruments as of December 31, 2013, see Note 14 to the Successor financial statements. See also “—Quantitative and Qualitative Disclosure About Market Risks—Interest Rate Risk” and “—Foreign Currency Risk” for additional information on fair market value of certain of our derivative financial instruments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements other than operating leases and guarantees.

The following table shows the increase in the number of the customers performance guarantees we have provided to third parties as part of our ordinary course of business for the periods indicated. Of these guarantees, the majority relate to commercial purposes and rental activities, the bulk of the remaining guarantees relates to tax and labor-related procedures.

There has not been any material instance of a guarantee being drawn upon for the periods indicated, nor does management anticipate any liability as a result of a draw upon a guarantee in the future.

 

     Year ended December 31,  
($ in millions)    2011      2012      2013  

Financial, labor-related, tax and rental transactions

     113.2         94.8         97.4   

Contractual obligations

     32.7         55.9         135.8   

Other

     1.4         0.1         0.2   
  

 

 

    

 

 

    

 

 

 

Total

     147.3         150.8         233.4   
  

 

 

    

 

 

    

 

 

 

The change over time in the amount of the performance guarantees granted to third parties has been caused by an increase in guarantees we deliver to clients in connection with agreements under which we provide our services. See Note 22 to the Predecessor financial statements and Note 25(a) to the Successor financial statements for further information with respect to the guarantees for the periods indicated.

 

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Contractual Obligations

The following table presents our expected future cash outflows resulting from debt obligations, finance lease obligations, operating lease obligations and other long-term liabilities as of December 31, 2013.

 

     As of December 31, 2013  
     Payments due by period  
($ in millions) (unaudited)    Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Debt Obligations

     1,374.8         11.8         85.8         150.3         1,126.9   

Finance Lease Obligations

     11.9         5.3         5.3         1.3           

Operating Lease Obligations

     294.7         90.9         106.3         64.4         33.1   

Purchase Obligations

     270.8         269.8         1.0                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Obligations(1)

     1,952.2         377.8         198.4         216.0         1,160.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We also have other non-current liabilities totalling $102.4 million

Debt obligations are comprised of debentures and bonds, interest bearing loans and borrowings, CVIs (based on the fair value as of December 31, 2013; see Note 17 to the Successor financial statements), Vendor Loan Note and the PECs. The debentures and bonds balance consists of the Senior Secured Notes and the Brazilian debentures outstanding balance as of December 31, 2013.

The payables to group companies are comprised of the following: (i) three series of Preferred Equity Certificates issued by Midco and subscribed by Topco, totaling $517.4 million as of December 31, 2013 ($469.7 million in 2012); and (ii) interest accruing pending payment in the amount of $2.2 million as of December 31, 2013 ($1.9 million in 2012).

We enter into finance lease arrangements related to furniture, tools and other tangible assets. Our main increases in finance lease arrangements relate to equipment acquired in Colombia and Peru in order to improve and upgrade our infrastructure. Our assets acquired under finance leases are located in Brazil, Uruguay, Colombia and Peru.

The operating leases where we act as lessee are mainly on premises used as call centers. These leases have various termination dates, with the latest in 2023. There were no contingent payments on operating leases recognized in the consolidated income statements for the years ended December 31, 2013. Further, at December 31, 2013, the payment commitment for the early cancellation of these leases amounts to $147.9 million.

Purchase obligations include trade and other payables mainly related to suppliers and advances provided to personnel.

Capital Expenditures

Our business has significant capital expenditure requirements, including construction and initial fit-out of our service delivery centers, improvements and refurbishment of leased facilities for our service delivery centers, acquisition of various items of property, plant and equipment, mainly comprised of furniture, computer equipment and technology equipment, acquisition and upgrades of our software or specific customer’s software.

The funding of the majority of our capital expenditures is covered by existing cash and EBITDA generation.

 

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The table below sets forth our historic capital expenditures by segment for the years ended December 31, 2013, 2012 and 2011.

 

     Predecessor           Successor      Non-IFRS
Aggregated
     Successor  
     Year ended
December 31,

2011
     Period from
Jan 1 - Nov 30,

2012
          Period from
Dec 1 - Dec 31,

2012
     Year ended
December 31,

2012
(unaudited)
     Year ended
December 31,

2013
 
($ in millions)                    

Brazil

     52.6         55.4             10.3         65.7         63.2   

Americas

     37.2         11.4             12.3         23.7         31.8   

EMEA

     49.6         9.7             4.0         13.7         7.2   

Other and eliminations

     2.2         0.4             1.8         2.2         0.8   

Total capital expenditures

     141.6         76.9             28.4         105.3         103.0   

For 2014, we expect to incur in levels of capital expenditures broadly in line with the last two years, for purchases related to the items described above to support the growth of our business and regular maintenance capital expenditures.

We expect that our capital expenditures will increase in the future as our business continues to develop and expand.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with IFRS as issued by the IASB requires the use of certain assumptions and estimates that affect the amount of assets, liabilities, income, and expenses in our consolidated financial statements and accompanying notes. Some of the accounting policies applied in preparing our consolidated financial statements require our management to apply significant judgments in order to select the most appropriate assumptions for determining these estimates. These assumptions and estimates are based on our historical experience, the advice of consultants and experts, forecasts and other circumstances and expectations prevailing at year end, and our management’s evaluation of the global economic situation in the CRM BPO services segment, as well as the future outlook for the business. By virtue of their nature, these judgments are inherently subject to uncertainty, consequently, actual results could differ substantially from the estimates and assumptions used. Should this occur, the values of the related assets and liabilities would be adjusted accordingly. Our significant accounting policies, which may be affected by our estimates and assumptions, are discussed further in Note 3 to the Successor financial statements included in this prospectus.

Although these estimates were made on the basis of the best information available at each reporting date on the events analyzed, events that take place in the future might make it necessary to change these estimates in coming years. Changes in accounting estimates would be applied prospectively in accordance with the requirements of IAS 8, recognizing the effects of the change in estimates in the related consolidated statement of comprehensive income.

Summarized below are those of our accounting policies where management believes the nature of the estimates or assumptions involved is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.

Revenue Recognition

Revenue is recognized on the basis of the actual service provided as a percentage of the total service to be provided, when the revenues and costs of the services contract, as well as the stage of completion thereof, can be reliably estimated and it is probable that the related receivables will be recovered. Recognition of revenues on the basis of their stage of completion calls for the use of estimates relating to certain features of the service contracts such as costs of the contract, the period of realization and provisions in connection with the contract.

 

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We take account of our past experience and specific quantitative indicators for our estimates, in due consideration of the specific circumstances applicable to specific customers or contracts. In the event of circumstances that may have an effect on the revenue originally forecast, the costs or the stage of completion, estimates are revised accordingly. Revisions may affect the revenues and expenses recognized.

Acquisition Accounting

We account for our business acquisitions under the acquisition method of accounting. The consideration given for the acquisition of a subsidiary is understood to correspond to the fair value of the assets transferred, the liabilities assumed vis-à-vis the former owners of the acquiree, and any equity instruments therein issued by the Company. The consideration given includes the fair value of any asset or liability stemming from any contingent consideration agreement.

Any contingent consideration to be transferred by the Company is recognized at fair value at the acquisition date. Subsequent changes in the fair value of any contingent consideration deemed an asset or a liability are recognized in income or as a change in other comprehensive income, in accordance with IAS 39. Contingent consideration classified as equity is not remeasured, and any subsequent settlement thereof is also recognized in equity. Costs related with the acquisition are recognized as expenses in the year incurred.

Identifiable assets acquired and identifiable liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date.

Goodwill is initially measured as any excess of total consideration given over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is greater than the aggregate consideration transferred, the difference is recognized on the income statement.

Refer to Note 5 to the Successor financial statements for further discussion of the Acquisition.

Useful life of Property, Plant and Equipment and Intangible Assets

As of December 31, 2013, net property, plant and equipment totaled $231.6 million and net identifiable finite-lived intangible assets totaled $392.8 million. The accounting treatment of property, plant and equipment and intangible assets entails the use of estimates to determine their useful life for depreciation and amortization purposes. In determining useful life, it is necessary to estimate the level of use of assets as well as forecast technological trends in the assets. Assumptions regarding the level of use, the technological framework and the future development require a significant degree of judgment, bearing in mind that these aspects are rather difficult to foresee. The useful lives of intangible assets are assessed on a case-by-case basis to be either finite or indefinite. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful life and assessed for impairment whenever events or changes indicate that their carrying amount may not be recoverable. We have no assets with an indefinite useful life.

Changes in the level of use of assets or in their technological development could result in a modification of their useful lives and, consequently, in the associated depreciation or amortization.

Estimated Impairment of Goodwill

As at December 31, 2013, goodwill totaled $197.7 million; no impairment to goodwill was recognized in 2013, 2012 or 2011. We test goodwill for impairment annually, in accordance with the accounting policy described in Note 3(f) to the Predecessor and Note 3(h) to the Successor financial statements, respectively. Goodwill is subject to impairment testing as part of the cash-generating unit or the group of cash-generating units to which it has been allocated. The recoverable amounts of cash-generating units defined in order to identify potential impairment of goodwill are determined on the basis of value in use, applying five-year financial

 

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forecasts based on the our strategic plans, approved and reviewed by our management. These calculations entail the use of assumptions and estimates, and require a significant degree of judgment. The main variables considered in the sensitivity analyses are growth rates, discount rates using the weighted average cost of capital (WACC) and the key business variables.

Deferred Taxes

We assess the recoverability of deferred tax assets based on estimates of future earnings. The ability to recover these deferred amounts depends ultimately on our ability to generate taxable earnings over the period in which the deferred tax assets remain deductible. This analysis is based on the estimated timing of the reversal of deferred tax liabilities, as well as estimates of taxable earnings, which are sourced from internal projections and are continuously updated to reflect the latest trends.

The appropriate classification of tax assets and liabilities depends on a series of factors, including estimates as to the timing and realization of deferred tax assets and the projected tax payment schedule. Actual income tax receipts and payments could differ from the estimates made by us as a result of changes in tax legislation or unforeseen transactions that could affect tax balances.

We have recognized tax credits corresponding to loss carry-forwards since based on internal projections it is probable there will be future taxable profits against which they may be utilized.

We have capitalized our tax carry-forward losses based on our internal forecasts, considering probable to have enough future benefits to recover them.

Provisions

Provisions are recognized when we have a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. This obligation may be legal or constructive, deriving from, inter alia, regulations, contracts, customary practice or public commitments that lead third parties to reasonably expect that we will assume certain responsibilities. The amount of the provision is determined based on the best estimate of the outlay required to settle the obligation, bearing in mind all available information at the reporting date, including the opinions of independent advisors such as legal counsel or consultants.

No provision is recognized if the amount of liability cannot be estimated reliably. In such a case, the relevant information would be provided in the notes to the financial statements.

Given the uncertainties inherent in the estimates used to determine the amount of provisions, actual outflows of resources may differ from the amounts recognized originally on the basis of the estimates.

Fair Value of Derivatives

We use derivative financial instruments to mitigate risks, primarily derived from possible fluctuations in interest rates on loans received. Derivatives are recognized at the onset of the contract at fair value, subsequently re-measuring the fair value and adjusting as necessary at each reporting date.

The fair value of derivative financial instruments is calculated on the basis of observable market data available, either in respect of market prices or through the application of valuation techniques. The valuation techniques used to calculate the fair value of derivative financial instruments include the discounting of future cash flows associated with the instruments, applying assumptions based on market conditions at the valuation date or using prices established for similar instruments, among others. These estimates are based on available market information and appropriate valuation techniques. The fair values calculated could differ significantly if other market assumptions and/or estimation techniques were applied.

 

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Recent Accounting Pronouncements

We believe there are no relevant standards or relevant interpretations mandatory for the current accounting period that have not been applied.

Certain new standards, amendments and interpretations to existing standards have been published but are not mandatory for our 2013 financial statements. We have not early adopted these revisions to IFRS. Many of these updates are not applicable to us and have excluded from the discussion below:

 

    Amendments to IAS 32 ‘Financial Instruments: Presentation’ which specifies the requirements for offsetting financial instruments. To meet the new offsetting requirements in IAS 32, an entity’s right to set off must not be contingent on a future event and must be enforceable both in the normal course of business and in the event of default or insolvency of the entity and all counterparties. It is further specified that a gross settlement mechanism also complies with the offsetting requirements according to IAS 32, provided no major credit liquidity risks remain, and receivables and payables are processed in a single settlement step, making it equivalent to a net settlement. The new requirements shall be applied retrospectively for financial years beginning on or after January 1, 2014.

 

    IFRIC 21 ‘Levies’ which is an interpretation of IAS 37 ‘Provisions, contingent liabilities and contingent assets.’ IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a presentation obligation as a result of a past event (knows as an obligation event). The interpretation clarifies that the obligation event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy.

 

    IFRS 9 ‘Financial Instruments’ addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requirements financial assets to be classified into two measurement categories: those measured as at fair value and those measures at amortized cost. The determination is made at initial recognition the classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instruments. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recoded in other comprehensive income rather than the statement of operations, unless this creates an accounting mismatch.

 

    IFRS 14 ‘Regulatory Deferral Accounts’ permits an entity which is a first-time adopter of IFRS to continue to account, with some limited changes, for ‘regulatory deferral account balances’ in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and statement of profit or loss and other comprehensive income, and specific disclosures are required.

 

    Amendment to IAS 19 Revised ‘Employment Benefits’ related to contributions from employees or third parties that are linked to service. The amendment notes that if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the related service is rendered, instead of attributing the contributions to the periods of service. Examples of contributions that are independent of the number of years of service include those that are a fixed percentage of the employee’s salary, a fixed amount throughout the service period or dependent on the employee’s age. However, if the amount of the contributions is dependent on the number of years of service, an entity is required to attribute those contributions to periods of service using the same attribution method required by paragraph 70 of IAS 19 for the gross benefit (i.e. either using the plan’s contribution formula or on a straight-line basis). These changes are effective for annual periods beginning on or after July 1, 2014.

 

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The adoption of the pronouncements and amendments described above are not anticipated to have a material impact on our operations results and our financial position. See Note 2 to the Successor financial statements for further information on our basis of preparation of the consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risks

In the ordinary course of our business, we are exposed to a variety of market risks that are typical for the industry and sectors in which we operate. The principal market risks that affect our financial position, results of operations and prospects relate to foreign exchange. We do not enter into or deal in market sensitive instruments for trading or speculative purposes. Our overall risk management strategy focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. As part of our risk management strategy, we use derivatives to limit both interest and foreign currency risks on otherwise unhedged positions and to adapt our debt structure to market conditions. While management has adopted a number of mitigation strategies to limit our exposure to market related risks, we cannot assure you that any mitigation strategies will be effective or that we will not be materially adversely affected by such risks in future periods. See Note 4 to the Successor financial statements for additional information on market risk.

Country Risk

To manage or mitigate country risk, we repatriate the funds generated in Latin America that are not required for the pursuit of new, profitable business opportunities in the region and subject to the restrictions of our financing agreements. The capital structure of the Atento Group comprises two separate ring-fenced financings: (i) the Brazilian Debentures and (ii) the U.S.$300 million 7.375% Senior Secured Notes due 2020, together with the €50 million ($69 million) Revolving Credit Facility. The Brazilian term loan is denominated in Brazilian reais and our obligations are paid with cash flows from our Atento Brazil revenue in Brazilian reais. This creates a natural hedge for debt commitments eliminating any foreign exchange risk. In addition, in connection with the issuance of the Senior Secured Notes in U.S. dollars we entered into a series of cross currency swaps derivatives agreements, effectively hedging 90% of the related interest payments in Euros, Mexican Pesos, Colombian Pesos and Peruvian Soles, and 75% of the principal exposure in Euros and Mexican Pesos.

Argentinean subsidiaries are not party to these two separate ring-fenced financings, and we do not rely on cash flows from these operations to serve our debt commitments entered into in connection with the Acquisition.

Interest Rate Risk

Interest rate risk arises mainly as a result of changes in interest rates which affect: finance costs of debt bearing interest at variable rates (or short-term maturity debt expected to be renewed), as a result of fluctuations in interest rates, and the value of non-current liabilities that bear interest at fixed rates. Our exposure to interest rate risk arises principally from interest on our indebtedness. As of December 31, 2013, we had total consolidated indebtedness of approximately $1,370.8 million, of which approximately 43.2% (excluding CVIs and the PECs) bears interest at variable rates.

As of March 31, 2014, we have outstanding indebtedness of approximately $1,417.2 million pursuant to which we must make payments determined on the basis of variable interest rates, predominantly tied to the Brazilian CDI (Interbank Deposit Certificate) rate.

As of December 31, 2013, the estimated fair value of the interest rate hedging instruments related to the Brazilian Debentures totaled $15.6 million, which was recorded as a financial asset. Based on our total indebtedness of $1,370.8 million as of December 31, 2013 and not taking into account the impact of our interest rate hedging instruments referred to above, a 1% change in interest rates would impact our net interest expense by $3.8 million.

 

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Foreign Currency Risk

Our exposure to market risk arises principally from exchange rate risk. While the U.S. dollar is our reporting currency, approximately 98% of our revenue for the year ended December 31, 2013 was generated in local currencies other than the U.S. dollar. In addition to the U.S. dollar, we also generate significant revenues in Brazilian reais, Euros and Mexican pesos. The exchange rates among the U.S. dollar and these local currencies have changed substantially in recent years and may fluctuate substantially in the future. Our exchange rate risk arises from our local currency revenues, receivables and payables. We benefit to a certain degree from the fact that the revenue we collect in each country in which we have operations is generally denominated in the same currency as the majority of the expenses we incur in earning this revenue.

In accordance with our risk management policy, whenever we deem it appropriate, we manage foreign currency risk by using derivatives to hedge any debts incurred in currencies other than those of the countries where the companies taking on the debt are domiciled.

Upon closing of the Senior Secured Notes issued in U.S. dollars, we entered into cross-currency interest rate swaps pursuant to which we exchanged an amount of U.S. dollar equal to the face amount of the Senior Secured Notes for an amount of Euro, Mexican Pesos, Colombian Pesos and Peruvian Soles. On each interest payment date under the Senior Secured Notes, we receive from the applicable swap counterparty an amount in U.S. dollar equal to a semi-annual amount of interest at a rate per year equal to the interest rate payable on the Senior Secured Notes and calculated based on the amount of U.S. dollars initially exchanged by us under the currency swap and we will pay to the applicable swap counterparty an amount in the applicable other currency equal to a semi-annual amount of interest at a per annum rate equal to the benchmark floating rate for currency swaps for the applicable semi-annual period. Finally, on the maturity date of each currency swap, we will receive from the applicable swap counterparty U.S. dollars in an amount equal to the initial U.S. dollar exchange amount for such currency swap and will pay to the applicable swap counterparty the applicable other currency in an amount equal to the initial foreign currency exchange amount for such currency swap. As of December 31, 2013, the estimated net fair value of the interest rate hedge instruments related to the cross-currency swaps entered into to hedge the Senior Secured Notes totaled $13.3 million, of which $16.0 million was recorded as long-term financial debt and $2.7 was recorded as long-term financial assets.

Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of accounts receivable, cash and cash equivalents, and long-term financial assets. Our maximum exposure to credit risk on financial assets is the carrying amount of said assets. Our commercial credit risk management approach is based on continuous monitoring of the risk assumed and the financial resources necessary to manage our various units, in order to optimize the risk-reward relationship in the development and implementation of the business plans of our various units in their ordinary management. Accounts receivable are typically unsecured and are derived from revenue earned from clients primarily in Latin America and EMEA. Additionally, we carry out significant transactions with Telefónica Group. At December 31, 2013, accounts receivable due from Telefónica Group were $302.2 million.

Credit risk arising from cash and cash equivalents is managed by placing cash surpluses in high quality and highly liquid money-market assets. These placements are regulated by a master agreement revised annually on the basis of conditions prevailing in the markets and the countries where we operate. The master agreement establishes: (i) the maximum amounts to be invested per counterparty, based on their ratings (long- and short-term debt rating); (ii) the maximum period of the investment; and (iii) the instruments in which the surpluses may be invested.

 

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Liquidity Risk

We seek to match our debt maturity schedule to our capacity to generate cash flows to meet the payments falling due, factoring in a degree of cushion. In practice, this has meant that our average debt maturity must be longer than the length of time we require to generate cash flows to pay our debt (assuming that internal projections are met).

At December 31, 2013, the average term to maturity of our debt with third parties ($851.2 million) was 6.1 years. In addition, we had current assets of $770.8 million at such date, which includes cash and cash equivalents of $213.5 million, of which $13.7 million are located in Argentina and subject to restrictions on our ability to transfer them out of the country.

Capital Management

Our capital management goal is to determine the financial resources necessary to continue our recurring activities and maintain a capital structure that optimizes own and borrowed funds. Additionally, we set an optimal debt level in order to maintain a flexible and comfortable medium-term borrowing structure in order to carry out our routine activities under normal conditions and to address new opportunities for growth. We strive to maintain debt levels in line with forecasted future cash flows and with quantitative restrictions imposed under financing contracts.

In addition to these general guidelines, we take into account other considerations and specifics when determining our financial structure, such as country risk, tax efficiency and volatility in cash flow generation.

At the date of this prospectus, we are compliant with and other established in our financing contracts. In order to monitor our compliance with our financing contracts, we regularly monitor figures for net financial debt with third parties and EBITDA.

 

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BUSINESS

Our Company

We are the leading provider of end-to-end, multi-channel CRM BPO services and solutions in Latin America and Spain, and among the top three providers globally, based on revenues. Our business was founded in 1999 as the CRM BPO provider to the Telefónica Group. Since then, we have significantly diversified our client base, and subsequent to the Acquisition in December 2012, we became an independent company.

Leadership Position in Latin America. As the largest provider of CRM BPO solutions in Latin America, we hold #1 or #2 market shares in most of the countries where we operate, based on revenues. From 2009 to 2012, we expanded our CRM BPO market leadership position in Latin America overall from 19.1% to 20.1% and increased our market share in Brazil from 23.3% to 25.2%, based on revenue. We have achieved our leadership position over our 15-year history through our dedicated focus on superior client service, our scaled and reliable technology and operational platform, a deep understanding of our clients’ diverse local needs and our highly engaged employee base. Given its growth outlook, Latin America is one of the most attractive CRM BPO markets globally and we believe we are distinctly positioned as one of the few scale operators in the region.

Industry Leading, Innovative End-to-End CRM BPO Solutions. By optimizing our clients’ relationships with their customers, we believe we enhance our clients’ brand recognition and customer loyalty, which drive their competitive advantage and strengthen their long-term growth and profitability. We are evolving from offering individual CRM BPO services to providing end-to-end CRM BPO solutions tailored to our clients’ needs in order to improve the experience of their customers. We offer a comprehensive portfolio of customizable, yet scalable, solutions that comprise front-end and back-end services ranging from sales, applications processing, customer care and credit management. Our services and solutions are delivered across multiple channels including digital (SMS, e-mail, chats, social media and apps, among others) and voice, and are enabled by process design, technology and intelligence functions. In 2013, CRM BPO solutions and individual services comprised approximately 36% and 64% of our revenues in Brazil, respectively.

Our CRM BPO solutions are delivered through our technology-enabled, multi-channel platform. As our clients’ customers become more connected and widely broadcast their experiences across a variety of digital channels, we believe the quality of their customer experience is having a significant impact on our clients’ brand loyalty and overall business performance. Our multi-channel platform integrates direct customer outreach through digital, voice or in person channels allowing us to engage with customers through multiple channels of interaction. As our clients’ customers increasingly transition towards digital communication, we have evolved and invested in our digital channel capabilities.

Our CRM BPO solutions further integrate us into the strategic objectives of our clients, often leading to closer, more resilient client relationships. For example, for a global insurance client, we provide a comprehensive solution for insurance claims management encompassing (i) specialized processes including back office, sales, customer care, credit management and technical support, (ii) a customized communication channel strategy throughout the customer’s lifecycle, (iii) workload, mobility software and communication tools and (iv) data and analytics, resulting in 25,000 monthly claims analyzed and approximately $8 million of annual savings.

 

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LOGO

Long-standing Client Relationships Across a Variety of Industries. We work with market leaders in sectors such as telecommunications, financial services and multi-sector, which for us comprises the consumer goods, services, public administration, pay TV, healthcare, transportation, technology and media industries. In 2013, approximately 52% of our revenue was derived from sales to telecommunications, 35% to financial services and 13% to multi-sector clients. Since our founding in 1999, we have significantly diversified our sectors and client base to over 450 separate clients resulting in non-Telefónica revenue accounting for 51.5% in 2013 compared to approximately 10% of the revenue of AIT Group in 1999. In 2013, 85.3% of our non-Telefónica revenue was generated from clients with whom we have had relationships for five or more years. Illustrative of our high customer satisfaction, in 2011, 2012 and 2013, our client retention rates were 97.9%, 98.5% and 99.3%, respectively.

Highly Engaged Employees. Our approximately 155,000 employees are critical to our ability to deliver best-in-class customer service. We believe our distinctive culture and strong values ensure that our employees are highly engaged customer specialists. We strategically implement collaborative and proprietary training processes and firm-wide methodologies to recruit, train and retain one of the largest workforces in Latin America. We strive to attract, develop and reward high-performing people and to provide our employees with an attractive career path that incentivizes them to engage in achieving or exceeding our clients’ business objectives. In 2013, we were named one of the top 25 multinationals globally to work for by the Great Place to Work Institute and the only CRM BPO company in the industry to receive this distinction.

Scalable and Reliable Technology and Operational Platform. We have a flexible, scalable and reliable technology platform that enables us to deliver customizable services and solutions for our clients. The three key components of our technology strategy are (i) scalable and secure infrastructure, which includes data centers, telephony and other systems to support and automate our services, (ii) applications, including systems, analytics and intelligence tools that enhance and optimize our solution offerings and (iii) our technology organization. Our technology strategy is focused on supporting growth, driving innovation and generating operational efficiency. In 2013, our technology platform handled transactions across 89 delivery centers operating 24/7 with less than 0.06% unscheduled systems downtime. We are committed to the highest standards of quality and have implemented programs to certify all of our processes as UNE-ISO 9001 and COPC, and we use Six Sigma to ensure continuous improvement.

Strong Relationship with Telefónica Underpinned by Long-term MSA. We believe we contribute to the Telefónica Group as an integral part of its CRM BPO operations. Currently, we serve 29 companies of the Telefónica Group under more than 150 arm’s-length contracts. Since becoming an independent company in December 2012, our relationship with the Telefónica Group is governed by our MSA. The MSA requires the

 

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Telefónica Group companies to meet pre-agreed minimum annual revenue commitments to us through 2021. The MSA commitment is meant to be a minimum commitment, rather than a target or budget. In case of shortfalls in these revenue commitments, Telefónica will be required to compensate us.

Broad Scope of Operations. We operate in 15 countries worldwide and organize our business into the following three geographic markets: (i) Brazil, (ii) Americas, ex-Brazil (“Americas”) and (iii) EMEA. For the year ended December 31, 2013, Brazil accounted for 51.5% of our revenue and 52.6% of our Adjusted EBITDA; Americas accounted for 33.0% of our revenue and 38.7% of our Adjusted EBITDA; EMEA accounted for 15.5% of our revenue and 8.7% of our Adjusted EBITDA (in each case, before holding company level revenue and expenses and consolidation adjustments).

For the years ended December 31, 2012 and 2013, our revenue grew by 6.7% and 7.5% and our Adjusted EBITDA grew by 21.5% and 16.9%, respectively, on a constant foreign exchange rate basis. Our revenue for the year ended December 31, 2013 was $2,341.1 million and our Adjusted EBITDA was $295.1 million.

Market Opportunity

CRM BPO has historically been the largest segment within the broader BPO market based on revenue, and includes services such as customer care, retention, acquisition, technical support, help desk services, credit management, sales, marketing and back-office functions.

Market Size and Growth. According to IDC, global spending on CRM BPO solutions is expected to grow at a CAGR of 5.8% from $57.9 billion in 2012 to $76.8 billion in 2017. Our operations are primarily focused in Latin America, which is the fastest growing CRM BPO market in the world with a market size of $10.7 billion in 2012, according to Frost & Sullivan. The Latin American market is expected to continue its strong growth with revenues forecasted to increase at a CAGR of 9.9% for the period from 2012 to 2017, and spending totaling $17.1 billion by 2017. The Latin American market is driven mainly by domestic demand, which accounted for over 78% of the market in 2012. Brazil, the largest CRM BPO market in Latin America, is expected to grow at a CAGR of 8.5% from 2012 to 2017, while smaller CRM BPO markets such as Colombia and Peru are expected to grow at a CAGR of 16.2% and 14.7%, respectively, according to multiple studies published by Frost & Sullivan.

Key Trends in the Latin American CRM BPO Market

There are a number of trends driving growth in the Latin American CRM BPO market and we believe our market position will allow us to differentiate ourselves and capitalize on this growth.

Large CRM BPO Market with Sustained Demand Growth Driven by an Emerging Middle Class. The scale and growth of Latin America’s economies present a large market opportunity. Latin American GDP has grown significantly faster than global GDP in recent years and is expected to continue to grow at attractive rates. According to EIU, Latin American GDP grew at an average annual rate of 3.5% from 2006-2012 compared to 2.1% globally. This growth is supported by an expanding middle class, which is expected to grow from approximately 29% of the population in 2009 to approximately 42% by the year 2030, according to data from The World Bank.

As a result, customer experience-intensive industries, such as insurance and banking, which have historically been underpenetrated in Latin America, have experienced high volume growth, resulting in increased demand for CRM BPO services. For example, the addressable banking market in Brazil continues to grow, with approximately 61% of the population 15 years or older engaging in banking activities in 2013 compared to only approximately 40% in 2007, according to Euromonitor. Total insurance premiums paid in Brazil grew at a CAGR of approximately 18% from 2007 to 2013, according to the Ernst & Young Latin America Insurance Outlook published in 2014.

 

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We believe that the projected strong growth rates create an opportunity for less prevalent industries in Latin America to expand the number of dedicated agent seats. In 2013, only 51% of outsourced CRM BPO call center seats were utilized to provide services to end market verticals other than telecommunications, compared to 63% in the United States.

2013 CRM Agent Seat Breakdown by End Market Vertical

 

LOGO    LOGO

 

Source: Frost & Sullivan.
Note: “Other” includes Healthcare, Travel & Hospitality, Government, Education, and other industries.

Lastly, according to Frost & Sullivan, in 2013, call center seat penetration in Latin America significantly lagged the United States, and we believe that this gap will continue to drive long-term growth for our industry in the region.

2013 Call center seats / ‘000s population

 

LOGO

 

Source: Frost & Sullivan and International Monetary Fund.
Note: Includes in-house and outsourced seats.

Continued Trend for Further Outsourcing of CRM BPO Operations. As of 2013, 32.4% of domestic CRM BPO operations in Latin America were outsourced to third party providers, based on number of agent seats, compared to 27.1% in 2007, according to Frost & Sullivan. In the context of high growth in CRM BPO volumes, we believe the value proposition for further outsourcing is compelling and enables our clients to (i) focus on their core capabilities, (ii) generate cost efficiencies, (iii) increase customer satisfaction, (iv) reduce the time-to-market for new products and services and (v) redeploy capital used in internal processes. Given these factors, we expect outsourcing penetration in our markets to continue to grow in the future.

 

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Limited Number of Large Scale Operators in Latin America. Very few companies operate large-scale operations across the entire Latin American region. Most companies operate in only one or two Latin American countries, or within multiple markets with more limited scale as compared to Atento. Establishing large scale operations in Latin America presents challenges due to specific country dynamics in the region and the complexity of managing a large and dynamic workforce. The presence of local players with established long-term positions in certain countries also results in specific industry dynamics. For example, in 2012 in Brazil, the top three providers of CRM BPO services in aggregate accounted for 60.8% of the market, whereas in North America the top three providers in aggregate had just a 16.2% share, according to Frost & Sullivan.

North America’s Continued Off-Shoring Trend. We view North America as a growth opportunity as U.S.-based businesses continue to off-shore call center services to other geographies, with 37.4% of the market off-shored in 2012, and 43.4% expected to be off-shored by 2017, according to Frost & Sullivan. Among off-shoring options, U.S. clients increasingly choose to near-shore to Latin America to eliminate challenging time zone differences that might be experienced when off-shoring to India or the Philippines.

The growth in off-shore services by fulfillment market is led by Latin America with an expected 10.5% CAGR from 2012 to 2017, followed by the Philippines (8.7%), India (5.6%) and other regions (3.4%). As the leading growth outlet, Latin America currently accounts for 19.3% of the North American off-shore market, and is expected to grow to 22.3% by 2017, accounting for $2.7 billion of off-shored revenue, according to Frost & Sullivan.

Our Strategy

Our mission is to help make our clients successful by ensuring the best experience for their customers. Our goal is to significantly outperform the expected market growth by being our clients’ partner of choice for customer experience solutions. We strive to deliver growth by leveraging our platform and our people as the key enablers of superior services and solutions for our clients. To this end, we are focused on optimizing our operations and inspiring our people to deliver excellent service to our clients, and our clients’ customers.

These are the pillars of our strategy and the specific initiatives by which we aim to achieve them:

 

LOGO

 

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Transformational Growth

Our three main initiatives to generate higher growth than the overall market are:

Aggressively Grow Our Client Base. We believe we can win new client relationships, either from competitors or as potential clients outsource their in-house operations. In particular, the telecommunications sector, where we already have deep industry knowledge due to our long-history with Telefónica, presents us with an opportunity to increase our market share now that we are a stand-alone company. We have already started providing services to other telecommunications companies in Latin America, such as Claro (part of the América Móvil Group), and we are focused on growing these new relationships to scale.

To reinforce this strategic priority, we have significantly invested in our sales teams and established separate new business acquisition areas with enhanced commercial capabilities and tools.

Develop and Deliver CRM BPO Solutions. By leveraging our existing infrastructure and deep client and process knowledge, we are able to deliver increasingly complex solutions and value-added services to our clients through multiple channels. Over time we have diversified and expanded our services, increasing their complexity and developing customized end-to-end solutions such as smart collections, B2B (business-to-business) efficient sales, insurance management, credit management and other CRM BPO processes. Our revenue from these solutions has grown faster than our overall revenues.

As of December 31, 2013, we served a large and diverse base of over 450 separate clients. We believe we can further penetrate these existing relationships by increasing the solutions we provide. We have successfully expanded our service and solution offerings in the past and believe this is a continued growth opportunity, as we are one of the few providers that can deliver an integrated and broad set of CRM BPO solutions to a large and increasingly sophisticated client base.

In order to support this initiative, we are establishing Centers of Excellence in Brazil and Mexico, which will serve as global solutions hubs that integrate all functional areas needed to provide regions with a common portfolio of end-to-end solutions for local adoption and final commercialization. The centers are focused on (i) identifying and developing new end-to-end solutions, (ii) delivering those solutions through specific sales models and tools and detailed expansion plans and (iii) delivering excellent customer experience through a continuous improvement model. Our objective is to develop a repeatable, innovative and shareable portfolio of integrated solutions and distribute those across industries and geographies.

Additionally, we are focused on upgrading our commercial capabilities, expanding and constantly improving our consultative sales model, and enhancing our sales teams’ skills to understand and develop a customized solution for each client’s needs. This model is particularly well-suited for the Latin American market, where clients often have limited experience with outsourcing compared to clients in more mature markets, and benefit from our expertise in designing optimized solutions for their needs in a diverse set of industries.

Further Penetrate U.S. Near-Shore. The market for providing outsourcing services to U.S. clients from Latin America is a sizable and fast-growing opportunity as (i) companies in the United States seek to balance outsourcing services across different geographies, generally favoring locations with better cultural fit and proximity to their operations, while minimizing time zone differences (in particular when compared to India and the Philippines), (ii) Latin America becomes a more cost competitive location and (iii) the talent pool in the region grows, with more people with strong English-language skills.

We believe we have a significant opportunity to serve U.S. clients who choose to outsource to Latin America. We believe we are well-positioned for this opportunity given our strong track-record and experience

 

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with near-shore and off-shore solutions, our significant scale and infrastructure in the region and our deep industry expertise, in particular in telecommunications and financial services. We have significant operational experience and established domestic market positions in countries where near-shore operations are established, such as Mexico, Guatemala, El Salvador and Colombia, which differentiates us from other off-shore CRM BPO providers.

To pursue this opportunity, in 2013, we formed a dedicated business unit with its own infrastructure to exclusively serve the U.S. market which, as of April 2014, has more than 450 workstations servicing five clients. We believe our strong relationships with multi-national clients throughout Latin America, such as BBVA Group and Santander, position us well to also serve their off-shoring needs in the United States.

Best-in-Class Operations

We have made significant investments in infrastructure, proprietary technologies, management and development processes that capitalize on our extensive experience managing large and globalized operations. Our operational excellence strategy is supported by the following five key global initiatives:

Enhance Productivity of Our Operations. We are focused on a variety of initiatives to enhance agent productivity, including:

 

    Improving the uniformity of KPIs for operational productivity;

 

    Using statistical analysis and enhanced forecasting methodology to optimize staffing level; and

 

    Establishing Operational Command Centers to implement analytical tools and standardized performance metrics.

Continued Investment in Our IT Platform. Our technology strategy is focused on (i) delivering a cost-efficient and reliable IT infrastructure to meet the needs of existing clients and support margin expansion, (ii) enhancing our ability to add capacity rapidly with a highly variable cost structure for new business, (iii) developing new products and solutions that can be rapidly scaled and rolled out across geographies, (iv) providing standard operational tools and processes to enable the best experience to our clients’ customers, and (v) establishing common platforms that facilitate centralization of core IT services. Technology initiatives to capture benefits of scale, standardization, and consolidation are managed globally, with full accountability by project leaders to continuously optimize our operations and innovate client solutions.

One Procurement. We are strengthening our centralized procurement decision model in order to lower costs and streamline supplier relationships. Our “Global Deal Delivered Locally” strategy allows us to work with vendors to reach global contracts, while still allowing purchase decisions to be handled locally. For example, by sourcing agent headsets as part of a global contract, we were able to achieve significant savings across all of our geographies, ranging from 5% to 82% of net unit headset costs. We are continuing to deploy this procurement strategy across our business, including in our procurement of infrastructure, technology, telecom and professional services, to reduce operating costs and improve margins.

Operations HR Effectiveness. Our business model is constantly focused on improving operations HR effectiveness, developing our people and reducing turnover, driving both performance and reduction in costs. We have an employee base of approximately 155,000 individuals. Recruiting, selecting and training talent is a key factor in the successful delivery of our CRM BPO services and solutions. We have adopted an end-to-end approach, with a number of global initiatives under way that are designed to diversify our candidate sourcing (e.g. social media), refine agent selection methods focused on better fit to reduce turnover, and improve training to develop the best talent. We are also continually aligning HR processes and incentive plans to foster talent retention.

 

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Competitive Site Footprint. We continue to relocate a portion of our delivery centers from tier 1 to tier 2 cities, resulting in lower lease and wage expenses through reduced turnover and absenteeism. Additionally, the relocation of delivery centers also allows us to access and attract new and larger pools of talent in locations where Atento is considered a reference employer. We have completed several successful site transfers in Brazil, Colombia and Argentina. In Brazil, the percentage of total workstations located in tier 2 cities increased from 43.7% in 2011 to 49.5% in 2013. Currently, we are planning to move more than 1,000 workstations in Brazil to tier 2 cities and we expect the program to be substantially completed by 2015. As demand for our services and solutions grows and their complexity continues to increase, we continue to evaluate and adjust our site footprint to create the most competitive combination of quality of service and cost effectiveness.

Inspiring People

We believe that our people are a key enabler to our business model and a strategic pillar to our competitive advantage. We have created, and constantly reinforce, a culture that we believe is unique in the industry.

Distinct Culture and Values. We believe our distinctive culture and strong values ensure our employees are highly capable and committed customer specialists in the industry. Our operational policies encourage collaboration and entrepreneurship, emphasize trust, passion and integrity, and commitment to our clients. We believe we can deliver growth and outstanding customer experiences through inspired, committed people who share our vision and are guided by our values. We constantly reinforce our core values with working groups, surveys, and leadership assessment processes that focus on upholding our core values and result in specific development plans.

Alignment with Client Goals. We have developed processes to identify talent (both internally and externally), created individual development plans and designed incentive plans that foster a work environment that aligns our teams with client objectives and our goals, including efficiency objectives, financial targets and client and employee satisfaction metrics. Furthermore, we continuously reassess our talent pool and seek professionals in the services industry to complement our strengths and capabilities. Given our focus on developing our people, we believe we empower our teams and give them the opportunities and tools to act like owners, committed to delivering excellence and achieving superior performance.

High Performance Organization. We have implemented a new operating model that integrates the corporate organization globally, allowing us to capture the benefits of scale, standardization and sharing of best practices. The corporate organization is integrated globally but strategically segmented into different operating regions. This ensures that corporate functions remain close to their businesses and clients, utilize a deeper understanding of the local industry levers, and are committed to the successful implementation of the initiatives on a regional level. We believe that this new organizational structure will foster agility and simplicity, while ensuring that corporate leaders are focused on coordinating, communicating and pursuing new solutions and innovation, with full accountability on the results.

Our Competitive Strengths

We benefit from the following key competitive strengths in our business:

Category Leader in a Large Market with Long-term Secular Growth Trends

We are currently the leading provider of CRM BPO services and solutions in Latin America and among the top three providers globally, based on revenue. In 2012, we were the leading provider of outsourced CRM BPO services in the rapidly growing Latin American market overall with a 20.1% market share by revenue, compared to 19.1% in 2009. In addition, we were the leading provider of outsourced CRM BPO services by market share based on revenue in 2012 in Peru (38.4%), Spain (22.3%), Argentina (22.0%), Chile (19.6%) and Mexico (15.9%), and the second largest in Brazil (25.2%), according to data published by Frost & Sullivan (except for Spain, which refers to market share data for 2011).

 

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Atento 2012 Market Share and Position by Country

 

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Source: Frost & Sullivan.
Note: Spain market share as of 2011.

Comprehensive, Customizable Suite of CRM BPO Solutions across Multiple Channels

We believe that our position as an end-to-end provider of CRM BPO solutions is a key factor for our share gain in recent years, and will be a driver of our expected outperformance. As we conti