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Atento S.A. (NYSE:ATTO)
Q1 2019 Earnings Call
May 21, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to Atento First Quarter 2019 Results Conference Call. The call will begin with a prepared comments by management followed by a question-and-answer session. Today's call is being recorded. (Operator Instructions) I will now turn the call over to Shay Chor, Corporate Treasurer and Investor Relations Director for Atento. Please go ahead.

Shay Chor -- Corporate Treasurer and Investor Relations Director

Thank you, operator, and welcome everyone to our fiscal 2019 first quarter earnings conference call. Here with us for today's call are Carlos Lopez-Abadia, Atento's CEO; and Mauricio Montilha, Atento's CFO. Following the review of Atento's financial and operating results, we will open the call for your questions.

Before proceeding, please note that certain comments made on this call will contain financial information that has been prepared under International Financial Reporting Standards. In addition, this call may contain information that constitutes forward-looking statements, which are not guarantees of future performance and involve risk and uncertainties. Certain results may differ materially from those in the forward-looking statements as a result of various factors. We encourage you to review our publicly available disclosure documents filed with the relevant securities regulators and we invite you read the complete disclosure included here on the second slide of our earnings call presentation. Our public filings and earnings presentation can be found at investors.atento.com. Please note that unless noted otherwise all growth rates are on a year-over-year and constant currency basis.

I will now turn the call over to Carlos.

Carlos Lopez-Abadia -- Chief Executive Officer

Thank you, Shay, and good day, everyone. Thank you for joining us today. In my first earnings call back in March I covered my first impressions after joining Atento and my immediate priorities based on those impressions.

Before we discuss Atento's first quarter performance, I would like to provide an update on both the initial impressions and the progress made on the priorities I discussed with you then.

Beginning (ph) March was that Atento has great long-term opportunities based on its market leadership, strong brand, solid relationships with clients and employees, talent and better capabilities. After my first 100 days, those initiatives have been nothing but deepened and confirmed. Atento is a clear leader in Latin America with the potential of much more. My view for our initial priorities, although, it has evolved, it remains essentially unchanged. These priorities are; one, improve the operation of the business with a focus on profitability and reliability; two, accelerate the development and growth of our new services particularly in digital; and three, build the basis for long-term profitable growth.

As I anticipated in our previous call, I want to share with you today some of the actions that we are planning and in many cases already taking in order to execute on the first of those priorities, improving the operation of the business. We have conducted a thorough review of our operations, services portfolio, cost structure, and commercial and delivery effectiveness. As a result, we have identified a number of areas that need opportunity in 2019. We see the potential to achieve higher efficiencies in many of our support functions. We are already looking at our supply chain, technology, HR support and finance and accounting. We found opportunities to improve our service to clients, while lowering our cost to serve them though shared services and taking advantage of in and cross-country synergies.

We are also consolidating operations and restructuring to lower our cost where they can meaningfully improve with the recent investment. Another area of in need focus in order to improve our operations is governance, as well as performance management. We're implementing a more rigorous process and management system centered on high-impact areas such as budgeting and forecasting, a common governance and (inaudible) of the Company and that controls process and costs.

Although, we will focus our investor conference in September on our long-term plan specifically on new services and digital, I do want to very clearly set the stage with our view of the opportunity. The voice BPO market will continue to be with us for a long time, but there is an evolving fashion (ph). Voice services are still growing in many markets. While established voice customers are declining in volume, new entrants notably more of these companies are increasing the use of voice services. The nature of the services is changing, however. There is a clear move to high-value services as the lower value ones are being automated away.

In this environment, our focus is on high-value voice, back-office BPO and most importantly in Vivo, as well as automation of Atento's operations. We see significant growth in all these areas for the foreseeable future with attractive margins, commensurate with the value added to our clients. We're developing comprehensive plan to accelerate our capabilities and growth in these areas and now prepared to make the necessary investments to be a leader in the next-generation BPO. I'm looking forward to discussing this plan with all of you in September.

We are focusing on our operational improvement in next-generation services plans with a sense of urgency, spread by the conviction that we live at the turning point in our industry, which offers unprecedented opportunities to those we have a determination and agility to capture them. With that in mind, I want to share with you not just our plans, but some specific progress and some of our recent successes.

We continue to strengthen our relationships with key clients. We have renewed our contract with Vivo in Brazil, which encompasses all customer care activities for the B2B and B2C segments, offering to Vivo the implementation of innovations and automation to improve customer experience and generate efficiencies. While we are strengthening our relationship with Telefonica, we continue to grow in Multisector. We reached 62% of our revenue last quarter. We also won 18 new logos in Q1.

In the area of digital and higher value-added services, we're also making progress. We continue to grow our digital and value-added solutions faster than our base, including multiple digital sales, digital collections and digital customer care contracts won this quarter. We continue to gain traction with one of Vivo's clients providing value-added voice and omni-channel solutions with great links in the US and in Brazilian market.

In EMEA, we're launching several automation of high-value voice projects, one of which includes the deployment of our (inaudible) to process front office and back office customer service transactions. We believe it is imperative for the long-term success of Atento that we make the necessary investments in both the operational improvements and the acceleration of next-generation services and capabilities. As a result, we are incurring in a number of one-time costs in 2019 with many of those costs impacting us in the first three quarters.

Our recent $100 million bond issuance give us the financial flexibility to incur such costs. It also allows us to make investments in digital and solution capabilities such as acquiring the remaining stakes that we do not already own in Interfile and RBrasil. We're also reliant on operating cash flow, which we anticipate will normalize by the year-end.

As anticipated in our first call and reiterated today, 2019 will be a transition year for us. We need to make the necessary changes to set Atento in the path of sustainable profitable growth. We have a lot of work ahead of us and I expect the next three quarters to be difficult for us.

Our Q1 results and our forecast for the year reflect the trends and plans I outlined today. Our Q1 revenue grew, while traditional services declined. Thanks to higher growth in digital, higher value services and new clients. It is growth, but also the right type of growth. Our profit results, despite the fact that they include some extraordinary items highlight the recent following changes we are introducing. We expect the business to start improving in the second half of the year, expecting with many of the initiatives outlined today firmly in place, expecting us to begin 2020 in a profitable growth trajectory.

We are planning flat to slightly positive revenue growth for full year 2019, with most of the one-time extraordinary expenses being incurred in the first three quarters of the year. Including one-time charges and IFRS effects, we expect EBITDA margin to end the year between 11% to 12%. Excluding these effects, normalized EBITDA margin range would be between 9.5% and 10.5%.

Let me conclude the way I started, emphasizing my deepened conviction that Atento is a company with a great potential, while our market is at the digital inflection point. Now, we have the assets and the determination, not only to succeed, but to be a global leader. We are taking the necessary steps to strengthen Atento's operating and financial performance in order to build a solid foundation to capitalize on this market opportunity.

I will turn the call over to Mauricio to cover in more detail our results and forecast.

Mauricio Montilha -- Chief Financial Officer

Thank you, Carlos. Good morning, everyone. I'm glad to be here today to talk about our Q1 results. As Carlos mentioned, Q1 results were in line as anticipated and reflect the challenge and opportunities for Atento.

Revenues are up 2% to reflect strong growth with the new clients and service, more than offsetting (ph) decline in more traditional less complex voice volumes. Once again, Brazilian Multisector sales drove our revenue growth. Sales in Brazil increased just over 6%. We expect our revenues grew nearly 8.5% in Brazil and we're behind much of the 4.6% rise in the total Multisector sales, which accounted for 62.4% all of Atento's revenues at the end of the first quarter. Telefonica sales decreased a little more than 1% and the value-added solutions reached 27.9% of total revenues, a 290 basis points expansion.

Our profitability declined versus last year's quarter due to the lower volume and traditional low-value voice, as well as the one-time extraordinary events that Carlos highlighted, which we consider to be an investment to transform the business, in addition to improving our profit trajectory. Reported EBITDA decreased 2.8% to $42 million and includes a positive effect of $13.7 million related to the adoption of IFRS 16, a negative $8.1 million of one-offs related to rightsizing our America business and agreements with unions in Chile and Argentina. Excluding this cost and the IFRS effect, our EBITDA margin was 8.3%, which was also impacted by the increase in Brazil's minimum wage and the business environment in the America region, which remains challenging.

Earnings per share was a negative $0.61 mainly from a $0.51 impacting from a tax settlement in Spain, which was accounted for as a non-recurring impact. Therefore, while adjusting for this effect and other non-recurring impacts, recurring EPS was negative $0.06. Adjusting for the $8.1 million pre-tax extraordinary costs, recurring EPS would have been positive $0.01.

In the context of a global tax audit of the periods 2013 to 2016, Atento Spain signed a tax agreement with Spanish tax authorities. The criteria adopted by the tax administration was in connection with certain aspects, among others, of the deductibility of certain specific intercompany financing and operating expense originated during the acquisition of Atento Spain, which was different from the tax treatment applied by the company. As a result of this discrepancy, the amount of the tax credit carry-forward of the Spanish tax group, together with the corresponding effects in subsequent tax periods, was reduced in an amount equivalent to $37.8 million.

Free cash flow from before interest and acquisition was negative $38 million, in line with Q1 2018 and expected business seasonality. Net debt at the end of the quarter was $565 million, which includes a $175 million from IFRS 16. Excluding this reporting effect, the net debt was $390 million, with net leverage increasing to 2.4 times. This net leverage compared to 1.8 times in Q1 2018 and it reflects lower EBITDA from the adjustments we did in Q2 2018 and extraordinary costs incurred in Q1 2019. We expect net leverage to remain around Q1 2019 level in the short term, but improve toward year-end when both EBITDA and cash flow normalize.

As previously announced, we concluded the issuance of $100 million add-on amount toward 2022 senior secured notes, which will provide increased financial flexibility for the Company to invest in transforming the business.

Please turn to Slide 8. The strong growth in Brazil's Multisector sales mainly came from financial service companies, primarily the ramp up in volumes of the new clients that we acquired last year and which drove the mix 1.5 percentage points higher to 70.5% of our sales in this market. Brazil adjusted EBITDA margin expanded 160 basis points to 12.7% or 10.2% when excluding the one-offs and the effects of IFRS 16, a drop of almost 100 basis points like-for-like. This lower profitability is explained by the higher increase in wages, which was 4.6% in 2019 compared to 1.6% in 2018. This impact will be mostly recovered throughout the year, as we pass the higher cost of contractual prices.

Please turn to Slide 9. Moving to Americas, Argentina and Mexico business conditions continue to be challenging. While in Argentina, we are seeing a drop in volumes across the board. In Mexico, the conditions there have been impacting most of our volumes with financial service clients. Lower volumes in Peru, mainly at Telefonica, also impacted our Americas revenues and profitability with sales of Telefonica down 5.6%. Higher volume in Chile and Colombia partially offset by the challenging business climate in Mexico and Argentina resulted in mixed Multisector performance. As a percent of revenues, Multisector increased 1.9 percentage points to 61.5% of the total. The adjusted EBITDA margin decreased 230 basis points to 8.7% as the region accounted for the bulk of the extraordinary costs. Excluding this and the effects of IFRS 16, the margin would be 9.4%.

Please turn to Slide 10. Like Brazil, EMEA also made a healthy contribution to revenue growth. Sales increased just over 5% with growth in both Multisector and Telefonica. The 7.5% increase in Multisector sales reflected new client programs in the first quarter mostly in the utility sector. The mix of Multisector sales expanded nearly one percentage point to 39.7%. Telefonica sales rose nearly 4%. The region's adjusted EBITDA margin rose 240 basis points to 10.2%. However, excluding effects of IFRS 16, this would have been 8.1%, in line with expected normalized level of between 8% to 9%. This is stable profitability despite some topline growth reflects margin ramp-up of new contracts and the low utilization rates in certain client programs. The results in overcapacity will also be addressed in the coming quarters. As we always do, we would like to take the moment to acknowledge that our EMEA business was recognized as one of the best companies to work by Forbes and Great Place to Work.

Please turn to Slide 11. Free cash flow in addition to seasonal effects impact our EBITDA; our working capital was impacted by higher than expected revenue anticipation by our clients in the previous quarter as explained in our Q4 2018 earnings call. As a percent of revenues, cash CapEx was 3.8% compared to 2.7% in the first quarter of 2018 and in line with expectations for the year. During the quarter, we did not repurchase any shares. At this time, we believe that investing in the growth areas and transforming the business, as Carlos highlighted, is the best use of our shareholders' capital.

Please turn to Slide 12. At the end of the quarter, our cash position stood at $80 million which coupled with $68 million available to our revolving credit facility amounted to nearly $146 million implying liquidity. On the debt side, I would like to highlight the adoption of IFRS 16 increasing our total debt by $175 million. Excluding this effect, net debt at the end of the quarter was $390 million putting net leverage at 2.4 times. As I pointed in my opening remarks, the increasing leverage reflects lower EBITDA in the last 12 months as a result of the adjustments we did in Q2 2018 and the extraordinary costs incurred in Q1 2019. We expect net leverage to remain as this leverage is short-term, but improve toward year end when both the EBITDA and cash flow normalize.

Also on leverage, I'd like to mention that the rating agency has already been using a similar methodology regarding the impacts of IFRS 16 in our net debt and EBITDA. Therefore, we do not expect that the 3.5 times leverage (inaudible) IFRS will have any material impact in our ratings. As I noted earlier, we concluded in early April a $100 million retap on our 2022 bond, which will provide increase in financial flexibility for the Company to invest and transforming the business. The proceeds were used to refinance our $35 million debt in Brazil and also paying back approximately $25 million in revolving credit facility in Brazil and Mexico. We are also using part of the proceeds to acquire the remaining stakes in Interfile and RBrasil.

Please turn to Slide 13. Moving to 2019 guidance, we expect revenue growth to be flat to low single-digits. While we accelerate into digital, we continue to see drops in baseline volumes, especially (inaudible). On profitability, we expect EBITDA margin to be in the range of 11% to 12% including extraordinary events to transform the business and the effects of IFRS 16. While we expect that extraordinary cost will have a negative impact of $25 million to $35 million, we estimated the adoption of IFRS 16 will have a positive effect on approximately $55 million. As for the remainder of our guidance, we forecast 2019 interest expense of between $35 million and $40 million already reflecting the expenses we made to the bond retap. Consistent with first quarter, cash CapEx will be between 3.5% and 4.5% of revenues for the year. In terms of effective tax rate, we expect it to be in line with previous years around 35% of the recurring net income.

Finally, I would like to highlight that as happened in Q1 2019, we expect to continue increase extraordinary cost in the short-term to transform the business, mostly Q1 and Q3.

That concludes our prepared remarks. Operator, we are now ready to starting question-and-answer part of our call. Please open the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question is from Vitor Tomita with Itau BBA. Please proceed.

Vitor Tomita -- Itau BBA -- Analyst

Good morning, Carlos, Mauricio, Shay. Two questions on our side. First, if you could elaborate on how you view potential acquisition opportunities in addition to the remaining stakes in Interfile and RBrasil and if there's a specific type of target that you're looking for or any regions in which you could focus when looking for potential acquisitions? That's the first question. And the second is, if you could provide any views on free cash flow trends for the full year? Thank you.

Carlos Lopez-Abadia -- Chief Executive Officer

Vitor thank you for the question. This is Carlos. Let me address the first one on M&A and I'll ask Mauricio to answer your second one on free cash flow. Our approach to growth is fundamentally going to be around organic growth. We are -- so we have disclosed we are acquiring the rest of the shares that we own in Interfile and R Brasil. And we will look at things opportunistically particularly when we have an opportunity to acquire strategic assets of technology. But the going-forward basis significantly, the focus is going to be on organic growth not going both through acquisitions, again looking at things opportunistically particularly regarding strategic assets or technology or cash flows. Mauricio?

Mauricio Montilha -- Chief Financial Officer

Hi Vitor. We, as you know, we don't provide any guidance on the cash flow. Although as you all know, we as a company we've been targeting to have 30% free cash flow conversion EBITDA in this -- clearly this year it's going to be slightly lower given the facts we have those additional investments to transform the business. So I'll say before investments, we continue with our internal target that is around 30% and the investments will take another now as we already disclosed it in this call.

Vitor Tomita -- Itau BBA -- Analyst

Thank you. Perfect. Very clear. Thank you.

Operator

Our next question is from Dave Koning with Robert W. Baird. Please proceed.

Dave Koning -- Robert W. Baird -- Analyst

Yes. Hi, guys. Thank you. And I guess first of all, just when we think about the segments, I think Brazil and EMEA were both up mid single-digits in Q1 and Americas was down low single-digits. Is that kind of the pace; you talked a little bit about different paces throughout the year, but for the whole year, is that kind of the pace that you would expect each of those to grow?

Carlos Lopez-Abadia -- Chief Executive Officer

Let me take a crack at that and ask Mauricio to provide the additional detail. We see Brazil as in the path to recovery and I think EMEA as well has been improving results. We have some work to do in regions such as Americas, but I think at this point in time the guidance that we have provided is aggregate for the Company, not specifically to any particular market.

Dave Koning -- Robert W. Baird -- Analyst

Okay. Thank you. And then, secondly, D&A was $30 million or so in the quarter, historically, that's been more like $17 million. Is that $30 million, is that kind of the run rate that we'd expect going forward?

Mauricio Montilha -- Chief Financial Officer

Hi, Dave, Mauricio speaking. Yeah the increase is related to the IFRS change as you're going to see in the 6-K the IFRS impact in Q1 were about -- almost $13.7 million increase in EBITDA where in the other hand you have a $12 million increase in depreciation. So net-net and $5 million increase in the interest expense. So these are the numbers that are impacting Q1. So we'll look like for Q3, Q4, Q2 onwards for depreciation.

Dave Koning -- Robert W. Baird -- Analyst

Got it. So we should expect that $30 million or so to continue.

Mauricio Montilha -- Chief Financial Officer

Absolutely, yes.

Dave Koning -- Robert W. Baird -- Analyst

Okay. And then just one last quick one, just to make sure we're in the ballpark. I think if we put low single-digit constant currency and we get somewhere in the range of $1.65 billion to $1.7 billion of revenue, that's kind of what you're thinking at the current currency rates, right?

Mauricio Montilha -- Chief Financial Officer

Yes. It is just the market naturally resides there. So we don't know. We report Q1 we have the average rates for Q1. So thankfully today the rates have changed as well so in fact flat to zero and it could be somewhat in this ballpark number as you mentioned.

Dave Koning -- Robert W. Baird -- Analyst

Okay. Great. Well, thanks guys. Appreciate it.

Operator

Our next question is from Vincent Colicchio with Barrington Research. Please proceed.

Vincent Colicchio -- Barrington Research -- Analyst

Yes. One clarification on recent comments there. So currency rates don't change, the $1.65 billion to $1.7 billion is what you would expect the constant currency for the year, is that right?

Mauricio Montilha -- Chief Financial Officer

Yes, it's correct, Vincent, this is Mauricio speaking. Yes correct. I was just mentioning to Dave's question was about the dollar amount. The dollar will change, but the constant currency relatively will not change all over the year.

Vincent Colicchio -- Barrington Research -- Analyst

Okay. And what drove the strength in value-added solutions and should we expect that to continue throughout the year?

Carlos Lopez-Abadia -- Chief Executive Officer

This is Carlos. I think, we -- you should expect -- we definitely expect the value-added solutions to increase over time. That's where we are putting our emphasis. As I mentioned in my remarks, there's a number of areas of growth for us and for the industry as a whole. Voice, value-added BPO, front-end to back-end BPO and very specifically digital, is where we are putting our emphasis -- our effort and our investment. So my expectation is that we will grow there, not only this year but in the foreseeable future. That is where the industry is going. That's where we are going.

Vincent Colicchio -- Barrington Research -- Analyst

And the wage increases in Brazil, any sense for how much of that can be recovered from customers?

Mauricio Montilha -- Chief Financial Officer

Yes. This is Mauricio again. So we typically, as you know, we have in most of our complex in Brazil, we have a clause to press wage increase to practice. Typically, we recovered two-thirds of the wage increase in pricing. As well we do along the -- in the events of declines or so we have some recover already in Q2, very little in Q1 dividend in very few countries, have some events in Q1, but Q2 and Q3 and that's typically why seasonality of Brazil is really high and skewed toward Q4 as we saw last year. So we are expecting two-thirds of this will come to prices and one-third efficiency in the order adjustment to complex, we may succeed during the year.

Vincent Colicchio -- Barrington Research -- Analyst

Okay. Thank you, guys.

Operator

Our next question is from Rodrigo Villanueva with Bank of America Merrill Lynch. Please proceed.

Yes. Thank you. Good morning, Carlos, Mauricio and Shay. My question is related to the non-recurring expenses that you expect for 2019. I was wondering if you could quantify them and also to ask if you expect these non-recurring expenses to be spread throughout all the following three quarters or do you expect them to be mostly impacting results in the first half of the year? Thank you.

Carlos Lopez-Abadia -- Chief Executive Officer

Hi. This is Carlos. As I mentioned, we expect the bulk of that impact, the first three quarters, a big part of it, the first half of the year. So they are front-loaded. I apologize, can you repeat back the question of when the timing of expensing related part.

Operator

Yes. So basically just to quantify them. I mean, we already saw $8 million in the first quarter, which would be the absolute amount for the three quarters. Thank you.

Carlos Lopez-Abadia -- Chief Executive Officer

Yes. I think, you can find that in our disclosed with $25 million to $35 million range for the 2019.

Operator

Understood. Thank you very much.

Our next question is from (inaudible) Capital. Please proceed.

Unidentified Participant

Hi. Thank you very much for taking my question. So, obviously, I understand you guys are not giving any guidance on the cash, but look, what we're talking about, $1.65 billion, $1.70 billion of revenue, 10% margin after the operating leases, your guidance on CapEx, we know what's your interest cost. I mean, this business should be delivering some cash. I don't want to put a number on this, but based on those numbers, there should be a relevant amount of cash that will be free cash flow that will be delivered throughout the year, based on that guidance. You've got already $78 million of cash. The tap on the 2022 April should also free up some cash, because looking at the use of proceeds, there should be some free cash from that. And you've got some good liquidity. So, I guess, my question is, how -- what's the thinking in terms of using that cash? And is the share buyback still a current topic in your list?

Carlos Lopez-Abadia -- Chief Executive Officer

Yes. This is Carlos. Let me address that. Our strategy particularly short term, but also in the long term is to invest in the long term growth of the Company. (inaudible) cost improvements and restructuring, some of that is going to be on the future of the business in digital and new services. That's always going to be our top priority for investments. Now I'm not averse to stock buybacks, particularly at the prices where we have today, but we will always prioritize first the investments in the long-term future of the Company.

Unidentified Participant

Okay. Thank you very much.

Operator

(Operator Instructions) Our next question is from Alvaro Lewis with BG Valores. Please proceed.

Hello. Thank you for all the information provided. Can you comment -- already you say that the retap was used for paying some borrowings in Brazil and in Mexico. But there are some $40 million that can you comment was -- what was used for? And also, can you comment if we -- when do you expect to have a positive free cash flow in your guidance? Thank you.

Carlos Lopez-Abadia -- Chief Executive Officer

Thanks. Let me -- but, I think, it was not very clear line. I think your first question is the meaning of the usage of the bond issuance and I couldn't quite understand the second part. Could you repeat?

Operator

The second part is, when you estimate to have a free cash flow positive?

Carlos Lopez-Abadia -- Chief Executive Officer

Okay. Let me address the first part and I will ask Mauricio to address the second part. The remaining of the bond is going to be for all the general uses of the business. Very specifically, we mentioned that we have a number of areas where we want to invest. So, clearly, it will go to those. To reiterate some opportunities that we have to be more efficient in the way we provide our services to our customers, some restructuring costs associated with that and also investments in what I view as the in the future of the company, the new services and digital the acceleration of our capabilities in that area.

Mauricio Montilha -- Chief Financial Officer

Regarding the cash flow question, as we said, we don't provide guidance for the cash flow. However, if you look historically, you see that we have also reported seasonality in cash flow, typically we have a Q1 that's negative, particularly because with our anticipation of the revenues or the collections in last part of the year, given in Latin America, where most of the country we faced as a seller. So this is a typical thing happen in the industry.

As well, we have a lower profitability in the first quarter of the year, because we've increased the valuations and then we've moved the price. So we have two net tax income, but, generally speaking, in this business in Latin America, where most of the impact within our operations are, we have negative Q1, plus slightly positive or somewhat negative in Q2, but based on the year -- and then we have a positive Q3 and a very strong Q4.

So if you look, historically, this is the trend. This year, we probably follow the same trend with the caveat that we are making in the upfront investments, as Carlos mentioned, into rightsizing the business and investing in some areas that will impact also the cash flow in Q2 and Q3 on top of the normal seasonality.

Operator

Thank you.

(Operator Instructions) Our next question is from Diego Aragao with Goldman Sachs. Please proceed.

Matheus Nascimento -- Goldman Sachs -- Analyst

Hi good morning everyone. Thanks for taking my question. This is Matheus here. I have a question regarding the topline guidance. At this point, with market in your view represent the largest downside risk to your numbers and at the same time which one represent the main opportunity to deliver improvements in terms of growth? Thank you.

Carlos Lopez-Abadia -- Chief Executive Officer

Thanks, Matheus. In terms of the size of the opportunity clearly I have to go to with our largest market, which is the sale that's and we see -- answer to your question. In terms of growth we see opportunities to grow in all the markets this year our growth is going to be subdued. But I see the opportunity on a going forward basis across all markets particularly in the new half, as I believe we are at a transition point at an inflection point in our industry with the changes of technology are going to dictate the opportunities going forward the industries are going to see in the next few years is going to be significantly different from what we've seen before and the opportunities to grow in the new areas are going to be tremendous. And that is where we want to deal the basis for at Atento.

Matheus Nascimento -- Goldman Sachs -- Analyst

Thank you.

Operator

(Operator Instructions) Our next question is from Daniel Federle with Credit Suisse. Please proceed.

Daniel Federle -- Credit Suisse -- Analyst

Hi, good morning everyone. My question is regarding the guidance. I understand that the positive effects from the IFRS 16 will be bigger than the one-off costs expected for the year. So, in an apples-to-apples basis, I understand that the EBITDA margin in the new guidance is lower than the guidance for the past year. So I would like to understand exactly why the Company is expecting a reduction in the EBITDA margin in apples-to-apples basis for the year? That's my question. Thank you very much.

Mauricio Montilha -- Chief Financial Officer

Hi, Daniel, Mauricio speaking. We, as you see in Q1, reference trends this year that particularly you see in Americas for example where the less, I would say, less complex volumes of the voice product they're going down and when we have those volumes down, we have the ability to adjust our cost base because of new volumes; however, it takes some time. So like we have seen in the first part of the year as we guided when we disclosed Q4 results, we see some depressive results as we have lower volumes on more simple voice programs.

And we have the cost to adjust those volumes and that's I'll say happened in America. In the case of Brazil, although Brazil is growing, as you see we have a strong pipeline in Brazil that's more than offsetting those strengths in Brazil. But the fact that some of those volumes declined in a more simple than less complex calls, they also take some cost to adjust the business to the new reality.

As we have several locations this is not -- we don't grow exactly in the same location where we lose volumes. So this brings some pressure on margins. So that's why basically I think this is most important reason why we see a likely decline on apples-to-apples profitability this year versus last year when we exclude the investments in the transformation and extraordinary costs and the IFRS impact.

Carlos Lopez-Abadia -- Chief Executive Officer

This is Carlos. Let me add to that. Let me put this in management terms from my perspective. There's two main reasons that we have some one-off is that the main reason quite honestly is execution. You may have noticed that our core emphasis on operational improvement, we have the opportunity and the need to improve the way we execute on our operations.

So a lot of the details that Mauricio shared with you is just examples of execution. We have a lot of changes, we have volume decreases in some traditional business, while we're having growth that more than compensate for that volume decrease in traditional in the new areas of business. That is good news because we want to grow where the future is and we are. And we're growing faster than the decline of the traditional business.

Having said that that also requires the ability to execute to that moving resources, changing assets, consolidating centers, acquiring new talent, et cetera, et cetera. So our ability to adjust to that has not been up to par and that's one of the reasons I am focusing, the Company's focusing our efforts and our investments in operational improvement first and foremost. We see the opportunity for growth. We are already seeing the growth in the right places, but we need to execute the need to change the Company to serve the new markets and the new customers fast enough to take advantage of the opportunity and reflect that in the profitability of our results. We're not there yet, but we'll get there.

Daniel Federle -- Credit Suisse -- Analyst

Perfect. Very clear.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Carlos for closing remarks.

Carlos Lopez-Abadia -- Chief Executive Officer

Thank you very much. Thank you for being with us today and thank you for your questions. I will look forward to seeing many of you or all of you in our Investor Conference in September where we'd love to getting to a lot of detail that many of you have been asking for in terms of our long-term plans, and particularly, technology, digital, and new services for Atento. Thanks again.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.

Duration: 46 minutes

Call participants:

Shay Chor -- Corporate Treasurer and Investor Relations Director

Carlos Lopez-Abadia -- Chief Executive Officer

Mauricio Montilha -- Chief Financial Officer

Vitor Tomita -- Itau BBA -- Analyst

Dave Koning -- Robert W. Baird -- Analyst

Vincent Colicchio -- Barrington Research -- Analyst

Unidentified Participant

Matheus Nascimento -- Goldman Sachs -- Analyst

Daniel Federle -- Credit Suisse -- Analyst

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