Breakdown: Heavy Debt Pushes Atento to New Lows

Atento, one of Latin America’s largest providers of CRM and BPO services, announced its delisting from the New York Stock Exchange (NYSE) in late July 2023, after its market capitalization fell below US$15 million over a 30-day period.

Atento’s delisting is the culmination of several years of mounting debt, but also of a series of macroeconomic pressures and market shifts. In that context, should other BPO firms be concerned about their own financial health?

Falling out of favor: Atento’s shares suffered a nosedive between May 2 and May 23 of 2022, continuing a steady fall up until its delisting from Wall Street.

• Company stock was valued at US$4.98 per share as 2023 opened. By July 3 of 2023, stock price had fallen to US$0.54 per share, a 89% decline. 
• The last price recorded for Atento’s stock in the NYSE (for July 21, 2023) was US$0.47.
• In its last public quarterly report (Q3 2022), Atento registered a loss per share for 2022 (YTD) of US$5.58

What happened?: Analysts point to Atento’s inability to handle its growing debt as a major factor behind the loss of trust by investors. The perception of the company’s financial position was worsened by an increasingly challenging macroeconomic landscape. 

In January 2023, Fitch Ratings downgraded Atento’s credit rating from B- to CCC, which points to a “very high level of default risk”. 

• Fitch cited “deteriorating liquidity”,“weak operating performance” (EBITDA) and “weak FCF [free cash flow] prospects” as the main factors for the downgrade. 
  • FCF prospects were particularly affected by climbing interest rates. Fitch stated that it expected company FCF to be “negative in 2023 and 2024 unless interest rates decline quickly”. 
  • Rates in Brazil, Atento’s biggest market, stood at 13.75% in July 2023. At the time the downgrade was announced, Fitch expected rates to remain above 11% even as 2023 closes.
• Atento faced stiff competition from both BPO and IT services providers, as well as the challenge of transforming its “declining traditional voice revenue” into “more value-added services”, Fitch pointed out.

“The weakening of the CX market and concerns over the company’s debt level both negatively impacted the stock,”commented Vincent Colicchio, a former analyst of Atento’s market performance and current Managing Director at Barrington Research Associates. 

• “If the demand situation was better it would clearly help ease the financial pressures on the company,” Colicchio added.

The burden of debt: Atento’s total debt climbed from US$543.9 million in 2016 to US$715.6 million as of Q3 2022. 

• A major jump in reported debt occurred between 2018 (US$459.8 million) and 2019 ($US720.6 million).
• Atento attributed this jump to new International Financial Reporting Standard (IFRS) norms which force public companies to report lease liabilities as part of their debt. Leases were the company’s second largest source of debt, representing 21% of total debt. 
• Net debt ratio increased from 2.8 in Q3 2021 to 6.1 in Q3 2022.

Crumbling operations: Atento’s EBITDA fell from US$213.7 million in 2016 to US$145 million in 2021. 

• EBITDA accumulated through the Q1-Q3 of 2022 was US$101 million, a 27% decrease compared to the same period of 2021. 
• At the close of Q3 2022, the company reported losses in its number of workstations (-9%), delivery centers (-5%) and headcount (-11%). Most losses were registered in Brazil.

Catching up: Atento is months-deep into a financial restructuring process started in June 2023. According to the company, its NYSE delisting was contemplated within this process.

• As of August 31 2023, Atento had been able to obtain US$37 million in financing. Originally, it aimed for US$30 million. 
• The company assured that, despite the delisting, business operations would not be disrupted and that its shares can still be traded over-the-counter.

NSAM’s Take:  Atento is going through a rough patch, but we don’t see the ship sinking, even under the burden of its debt and all the macroeconomic headwinds. Demand for CX/BPO is expected grow, and Latin America keeps commanding attention from Northamerican and European clients.

Nevertheless, Atento’s fall in Wall Street should serve as a cautionary tale for BPO firms of all sizes who believe that they can coast on the back of strong demand alone. Competition is getting stiffer, and market players are scrambling to be the preferred partners for tech innovation. 

Atento has a portfolio of digitally-oriented products, but that’s not enough to distinguish itself from its competition, which includes giants in the business as well as smaller, “boutique” firms that are proving themselves nimble and adaptable enough to contend. 

Everyone will have to step up their game in the coming couple of years.