Atento S.A. (NYSE:ATTO) Q2 2022 Earnings Conference Call August 4, 2022 8:30 AM ET
Company Participants
Hernan van Waveren – Investor Relations
Carlos López-Abadía – Chief Executive Officer
Sergio Passos – Chief Financial Officer
Conference Call Participants
Vincent Colicchio – Barrington Research
Antonio Manzano – Santalucia
Beltran Palazuelo – DLTV
Operator
Good morning and welcome to Atento’s Second Quarter 2022 Results Conference Call. Today’s call is being recorded. All participants will be in listen-only mode. [Operator Instructions]
I would now like to turn the conference over to Mr. Hernan van Waveren, Investor Relations Director for Atento. Please go ahead.
Hernan van Waveren
Thank you, operator and welcome everyone to our fiscal first second 2022 earnings call to discuss Atento’s financial and operating results. Here with us for today’s call are Carlos López-Abadía, Atento’s Chief Executive Officer; and Sergio Passos, Chief Financial Officer. Following a 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 risks and uncertainties. Certain results may differ materially from those in the forward-looking statements as a result of various factors.
We encourage you to review our publicly available disclosure documents filed with the relevant securities regulators. And we invite you to 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 be advised 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 López-Abadía
Thank you, Hernan and good morning, ladies and gentlemen. As you have seen in our press release, although we know that our first half of 2022 was going to be difficult, it has proven to be more challenging than what we anticipated when we last spoke with you. We believe, however, that we have seen the worst, we do anticipate a solid improvement month-to-month and quarter-to-quarter for the rest of the year based on a strong June and July sales and current demand levels for our services.
Let me cover briefly our Q2 results, the main challenges that we faced and which of those challenges have been addressed and which still remain. I also want to cover the reasons we project improving performance levels from this point on and to set expectations for the rest of the year.
On Q2 results, we saw a significant decrease in EBITDA year-on-year due to reduced volumes in several markets, lower sales early in the year and significantly higher cost inflation. The lower EBITDA, however, includes severance costs associated with reducing our cost structure further, including the consolidation of our regional restructuring with annual cost savings that will accrue in Q3, Q4 and beyond.
Also, the year-on-year comparison wasn’t favorable because we’ve benefited from some one-off positive effects last year, particularly COVID-related work. But even accounting for one-off costs of the structural measures and one-off upsides that we experienced last year, we still had a residual effect of inflation and reduced business in the other 25%, not where we wanted to be nor where we expect it to be at this point.
On the other hand, our focus on cash management and generation has yielded excellent results, enabling us to finish the quarter with a strong cash position that allows us to comfortably meet our debt obligations. This result is not only due to a more efficient cost structure, but also to significantly better working capital management process.
Now, what do we see from here and what is our level of confidence? Let’s take a look at our key challenges in the first half, slowing business environment and inflation. Macroeconomic uncertainties do remain, but this lower sales environment that we saw earlier in the year has improved steadily and significantly in the months of June and July.
We generated record sales in June, our second best month on record followed closely by a strong July and with a solid pipeline for the rest of the year, which puts us on track to achieve another consecutive annual sales record. These sales have been growing hard currency component at 60% versus 37% in Q2 last year.
We feel that this sales organization we are building with new account management structure, as well as new channels and partnership is proving is worth. Inflation is high across our markets. And although we have been negatively impacted by inflation this year, we are on track to meet or exceed the levels of inflation pass-through that we achieved last year. And we will accrue the larger part of this benefit in the second half of this year.
Additionally, the cost structure improvements that we made in the first half of the year should result in over 25 million of annualized cost savings improving our second half performance beyond the measures we’ve taken to improve sales and mitigate inflation. That’s said, even with higher sales, lower costs, and inflation mitigation, we do face uncertain macroeconomic conditions. This leads us to revise our annual guidance to flat revenue growth and EBITDA margin between 1.5% to 12.5% and a leverage ratio between 3.0x and 3.5x.
Although we have revised our guidance downward, we still forecast a healthy exit rate at the end of the year with a better cost structure, placing us on a course for a much better cash flow and leverage into 2023.
Let me introduce our newly appointed CFO, Sergio Passos, who will expand on these points. Sergio?
Sergio Passos
Well, thank you, Carlos. First of all, thank you all for participating in our presentation for the Q2 earnings. It is a pleasure for me to stay here with you and present that to you for the first time. I’ll start with the highlights for the quarter. From the finance KPIs, we basically had a revenue reduction of around 4% if we compare Q2 2022 to Q2 2021. That reduction mainly come for mainly three business.
The first one is COVID-related program that we had in the U.S., a very, very important and big one that at the end, as you know, volumes reduced pretty close to zero now. So, that’s a huge change on the volumes. We had the outsourcing regulation in Mexico that took out a relevant portion of our Mexican business. So, we need to reduce volumes again. And we also had some volume reductions built in the U.S. and in Brazil with some clients that we do see volumes or adjusted our wallet share.
For example, in Brazil, in some cases, we had the reductions from clients that we had a very, very high wallet share with them, doing the cyber matter and then they decided to, let’s say, adjust that wallet share. So, those were the main negative impacts on revenue. Those were partially offset by inflation through, which we are ahead of our plan. Just as an example, in Q1, we mentioned that we were around 60% of our inflation in Brazil.
We’ve passed it through prices. We are pleased to tell that we are now at 80% and we project to be better when we reach Q3 and Q4, which is a much better situation than we had in prior years. So, that was revenue. On the EBITDA portion, main impact was revenue driven. So, a part of the [indiscernible] come at the end rolled directly to EBITDA.
On top of the revenue portion, we do have some inflation impacts on that because as you know inflation pass through, we keep passing throughout the year and inflation in most of the jurisdictions that we operate happens very early in the year. So, we had a negative impact on that. We also had some one-time events in terms of costs that we decided to accelerate our cost program.
I’m going to talk a little bit about that in the next slides, but we decided to accelerate and speed up that. So, we had some severance payments, some insurance, and some site rationalization costs, for example, because of Brazil, you closed three sites. And that in the beginning is a cost, but at the end, it becomes a positive impact for us at the end. Margin EBITDA is a result of those two. So, we are down by 5.4% this quarter.
From the cash flow, the most important part is that we do have a positive cash flow this quarter, compared to a very negative cash flow in Q1 and also a negative cash flow in Q2 of last year. So, in both cases, we are in a much better situation in terms of cash, mainly driven, and we’re going to talk about that later, mainly driven by working capital and a strict control on CapEx.
Again, as we always tell all of the market every time, not jeopardizing any growth opportunities. So, everything that is an investment that we need to grow, we continue making that. On the finance costs, we basically have three main items. The biggest one is a non-cash impact, which is good. So, [46] [ph] is balance sheet and P&L conversion, no cash effect. Then we have financed costs that is bond and hedge. And another good news that we have is that, due to the depreciation of [KIs] [ph] we basically have a positive impact on the mark to market of the hedge or the cross curve swap we had and the upside is around $11 billion on that.
To be noted too is, we are paying $42 million on bond and hedge payment as we anticipated $20 million for the bond and $22 million for the hedge. We paid the rest of the hedge, actually, and we’re going pay early for the next week, the bond. So, those two disbursement that we have in the very short-term period. This basically the same revenue and EBITDA provision that we just went through, mainly on the consolidated, opening a little bit in the regions.
In the case of Brazil, we had a negative 7% revenue and that is driven by Telefónica, you notice that Telefónica in Americas is the same, not as hard as in case of Brazil, but also reduced. California implemented a very, very strong cost control in there from their side, which ends up by reducing our volumes. So, Telefónica is [indiscernible] in Brazil, the 3.8% relates to some of the share of wallet that we lost.
In Americas, reduction by 5% of Multisector is basically related to that. Some volumes we lost with clients, but the main one is that COVID-related deal that I mentioned. In EMEA, positive growth in Multisector and in Telefónica, part of that in the case of Telefónica is because we won. They had three vendors. They decided to keep two, and the third volume mainly come to us.
So, we had a positive volume impact on that. In EMEA, the Multisector is basically closed a good contract in the insurance business, which help us on the Multisector. Looking at EBITDA, in the case of Brazil again, volumes played a significant role in the EBITDA reduction, but also the site rationalization costs, some severance, as you know, every time that we reduce a problem, we not only have the revenue reduction, which reduced our EBITDA, but we also had severance included on that. And that’s mainly what happened in Brazil and in Americas.
Volume went down. We had a direct volume impact on EBITDA plus severances and now site shutdown and some of the cost reduction will help us in the future. In the case of EMEA, the main impact on EBITDA, is a mix change. We had a balance between onshore and offshore of Telefónica in EMEA. And most of – they increased the onshore portion and they decreased the offshore portion. And the offshore portion is exactly where we do have the biggest margin.
So that mix changes a bit, and it ended up with a lower EBITDA [on that] [ph]. The good news is that Telefónica already asked this for some additional volume in the offshore portion. So, we expect that that needs change will keep getting back into Q3 and Q4.
On the cash, which I think is a very important message that we would like to give the markets is that this is basically the bridge between our EBITDA, our reported EBITDA that you saw to the free cash flow. So, walking that through, we basically have a positive 5 million of free cash flow and positive 8 million in operating cash flow, main drivers are changing working capital in CapEx.
Working capital, we’ve been doing a very huge streamlining in the process, since the program is executed to the billing and collection and we have partial results this quarter. We expect that to come more in the future quarters. In the CapEx, we are, as I mentioned, making a very strict control on that. We are investing everything that relates to new businesses, to innovation, to everything that supports a company to grow in the future, but we are eliminating part of the maintenance CapEx debt in return in the future.
The good part of that is that as we continue to have agents at home and we will continue to have because some clients are okay with that, we had some additional capacity in our sites that we could do two things and the two of them are good. We’re rationalizing them as we did in some sites in Brazil. So, closing at some of the sites will help. The second one is that having additional capacity available, the investment needed for growth and operation is much lower than it was in the past.
So, in that moment, we do believe that we are in a very good position for growth. We can grow significantly our revenue base [Technical Difficulty] SG&A and investment costs. Capital structure, we discussed most of that, so basically on that we do have some – we have the bond. We have the Super Senior with [IGB] [ph], and we do have some smaller credit lines, which we are working in towards a way of, let’s say, making it longer.
So, that’s one of the actions that we are taking. And but at the end, we do have a hundred million paying all of the 43. And our leverage went up. As you know, leverage, we had last 12 months, which includes Q4, the very, very bad Q4 due to the cyber event in Brazil. When we reached year end, that will be out. So, we are just estimating that the 5.3 we had today would be excluding that cyber effect at 3.8. So, we believe that we’re going to be much better in the future in terms of ramp or of leverage.
Equity Bridge, we already discussed a little bit brief. I think that the main message is that hedge was positive by 11 million and the main negative impact on that was a non-cash of exchange variation. Most of the 100, actually more than the $131 million of negative equity that we have is non-cash effect, basically the hedge mark-to-market in the past, almost 150 now, plus all of those exchange variation. So, although equity is negative, it’s mainly non-cash.
On the cost reduction, pretty quick. I already mentioned one of the examples is the reduction from five regions to three regions that we communicated a while ago. And that is, of course, we could save a lot of people on that because we can unite most of the management structure in those regions. And on top of that, other functions that we are searching for a way of having more productivity on that.
So, we are eliminating more than 700 positions, which will bring us a positive impact or a cost reduction of $10 million in 2022. On top of that, adjusting a lot of vendors and shrinking the number of vendors in making more, let’s say, increasing procurement processes on that, and we expect to have the 7 million savings [again during 2022] [ph].
So, [summing] [ph] all of that we are talking about something in the range between 15 and 17 with actions already executed as of July and that would be on a full-year basis, $25 million. So, that’s what will help us on 2023 onwards. So, we believe that our cost structure is much more optimized for the second half and entering 2023 in a much better position.
Now hedge, I thought that we always talk about hedge and it is a concern of everyone, including us, but we never actually talked about hedge in one of our earnings calls. So, I thought it would be a good idea to do that pretty quick. We don’t have a lot of time for that, but anyway, I’m 100% available for a one-to-one with any of you that would like to have a deeper understanding on that.
We basically closed our bond early 2021, we hedged, and this is, this table reflects exactly the original hedged figures. We had a 100% of our coupons hedged and 80% of our principal. Although we always say that we are pretty close to 30% of strong currency. So that range between [100% to 70%] [ph] will be very, very optimal, but we hedge at 100%.
Three currencies, Brazilian Reais’, Peruvian Soles, and euros. Peruvian Soles and euros, we did it. It’s a very straightforward fixate rates cross currency swap, so very simple one. And in the case of Brazilian Reais’, it would be too expensive. So, at the time, the decision was to link that on a [positive sit] [ph] to the CDI, which is interest rates in Brazil. At the end, what happened is that looking at the graph to the right, you can see that the red dotted line was the forward. CDI rates when we had the hedge, and the blue solid line is where it is today.
So, we expect that that to be in a range of between 6 to 7 and now it’s between 14 to 12. So, it almost doubled. So, the cost at the end impacted us a lot. On top of the left graph, which is the dollars that the expectation was to be, let’s say, higher than it is actually today. So, at the end, both sides didn’t help us in any way in terms of hedging. That’s why looking at the table, the first one, you can see that the cost of the hedge for August is the $22 million that I mentioned that we just paid yesterday. And the forecast is for overall the mark to market for that is in the range of $150 million.
What we are doing to make it better, we are doing one-by- one evaluation in all of those and every time that we have an opportunity to improve the hedge position we are taking it. So, we won’t the [Europe] [ph] portion because it was very positive to us and still having most of the coupons already hedged. And we’ve restructured a little bit the [indiscernible] taking out the pretty strong [indiscernible].
We are evaluating that better. And one of the actions that we already saw identified because it was positive, and executed, but not in Q2, that’s why you’re not seeing this in this table, was the online of the Peruvian Soles that we did too. So, we are now at 70% although here it’s higher, we are now at 70% of the coupon hedged, which is pretty much in-line with our non-strong currency situations.
So, that’s basically the hedge available anytime if anybody would like to have a better discussion. We [fall] [ph] of that and what Carlos also mentioned, we did a full scale evaluation on our clients making sure that we understand their projections on volumes. And the result of that coming revenue projections, expectation of sales, and all of the costs that we accelerated for – to collect future benefits on that. We are in a position that we need to change our guidance.
So, revenue guidance that was mid-single-digits is now as we expect that to be flat. Part of that revenue, of course, if we reduce revenue, it rose to EBITDA. And if we sum all of the costs, some of the increased inflation that we had, we are adjusting our EBITDA guidance to 11.5% to 12%, so that’s the range that we believe. And the outcome on the leverage portion is between 3% and 3.5% times EBITDA. So, this is our updated guidance to the market.
So, that’s what we would like to share with you. Thank you very much. Very pleased to be here with all of you. And now, Hernan, getting back to you for Q&A session. Thank you very much.
Question-and-Answer Session
Operator
Thank you. We will now begin our question-and-answer session. [Operator Instructions] I’d like to turn the call over to Mr. Hernan van Waveren for questions received via the webcast. Please go ahead.
Hernan van Waveren
Thank you, Carlos. Thank you, Sergio. So, our first question comes from our webcast. Can you please expand on your CapEx reduction? And can it jeopardize your growth capabilities?
Carlos López-Abadía
I think I can barely hear you, Hernan, but can you repeat the question?
Hernan van Waveren
Sure. I’ll repeat the question. Can you please expand on your CapEx reductions? And can it jeopardize your growth capabilities?
Carlos López-Abadía
Very good question. The answer is, no. We are not reducing CapEx for growth. We want to maintain the growth and we want to take every available opportunity that we can have to grow in a profitable manner. We also would not jeopardize in innovation and the investments that we’re making that are going to make our company stronger. I mentioned to you, in Q1, that we did accelerate investments in cyber for very obvious reasons.
We took a lot of those costs early in the year. We continue to invest in innovation. In many cases, those innovations pay for themselves such as new capabilities that we have to further automate our hiring process, for example, our [indiscernible] technology, etcetera. We’re taking a very judicious approach to CapEx under the current market environment. And we’re also taking advantage of a couple of things.
One that I mentioned, which is the automation in many cases based for itself saving us cost, but also perhaps the impact of work at home has had already on the industry at least on Atento, may not be as large as some people speculate to be, but it has had an impact. So, it has allowed us to, also to consolidate and spend less in CapEx that we would have done otherwise. So, we’re taking a judicious approach. We’re taking advantage of site consolidation and work at home, but we’re not jeopardizing growth or innovation.
Hernan van Waveren
Thank you, Carlos. I have another question from our webcast, Atento had a healthy exit rate in March, we are now sensing a change in the tone to a more challenging one. Can you help us understand what happened and what are you doing to mitigate the deteriorating macroeconomic scenario?
Carlos López-Abadía
Very good question and most relevant one. Well, first of all, I would say that we did have an improving situation during Q1, particularly had a very good March, perhaps, this is one more lesson that a couple of data points do not make a trend, but indeed, we had that situation at the end of March. And a very good set of prospects in sales and revenue.
Unfortunately, a number of things happen. One is the some of those sales got delayed, pushed back, the good news, The bad news is they got delayed and pushed back, but the good news is that we’ve seen those sales ramping up now later, but nevertheless, we’ve seen a good movement of sales.
What happened on the sales side also happened on the base revenue side. We did have some companies having lower volume forecast, but some key customers. One of them I can mention because probably all of you know is GameStop, very large customer of ours. Yes, we were seeing the decline, but the decline accelerated as our own customers having difficulties are being more conservative in their business and business expansion.
So that accelerated in Q2. Now, on the silver lining on the plus side, we quickly saw these and we started taking action. First, to manage and preserve cash to make sure that we meet our obligations with a comfortable margin, which we’ve seen that we’ve done effectively. Second, we improved our cost position, which as I mentioned, has artificially impacted. We take a lot of costs associated with that in Q2, but it’s going to put us in a better position to handle potential for the downsize of the economy.
So, we’re reaping the benefits of those cost actions in Q3, Q4 and beyond because the bulk of these costs are happened to they are associated with the structural changes. Some of them that we – they were in the works, I think Sergio and I mentioned, the consolidation of regions and other additional ones that we take in. We try to take the approach to cost that trying to take the cost actions that are going to benefit in the long-term, not just in the short-term.
So, if there’s a silver lining, is that it has aggregated those actions. So, the key question here is how confident we are. It’s a very relevant question that you, all of you are probably asking, we ask ourselves the same question. And the answer is, we’ve taken a much more conservative approach to revenue, volumes and sales, irrespective of the two very good months that we had and the prospects that we have for the immediate Q3 sales and then Q4, but also because of the actions that we’ve taken, it gives us more margin to play with if the economy tends to or accelerate the down trend.
So, it’s a more conservative forecast. Is it foolproof, do things happen differently? Of course, with any forecasts. And it’s very difficult to get these things right in the face of extraordinary events. And I’m frequently reminded by some people that many other people have – we’re not the only company that got it wrong. A lot of companies have gotten wrong. The depth or the speed at which the markets deteriorated. That doesn’t make it any better or doesn’t make me feel any better at all. It’s just the fact that these things are complicated, but we feel that we have a more conservative forecast and we have more wiggle room based on the actions that we’ve taken already.
Hernan van Waveren
Thank you, Carlos. So, I’ll take advantage to ask another question from our webcast. Can you provide some color on what you mean by healthy rate expected at year end?
Carlos López-Abadía
Sure. 15%. We’re targeting to exceed 15% EBITDA margin.
Hernan van Waveren
Thank you. As tech companies are slowing down their investments and controlling their costs, do you see your volume from these companies coming down?
Carlos López-Abadía
Can you repeat that, Hernan?
Hernan van Waveren
Yes. Sure. As tech companies are slowing down their investments and controlling their costs, do you see some volumes from these companies coming down?
Carlos López-Abadía
Sure. You know, one, I mentioned, because we can mention the name is GameStop, but quite a number of them. I’m not going to say all of them, but quite a number of them have decreased volumes. So, I think in general, we’ve seen that happening across the board. Now, some are growing. I mentioned in my previous call, some sectors that our activity in growth and that’s obviously positive and hopeful sign, but as I said, regarding the forecast, I’m trying to take a more conservative view. Hopefully, it’s overly conservative. Time will tell.
Hernan van Waveren
Thank you, Carlos. So operator, if you would like to open the microphone for questions.
Operator
Absolutely. Our first question today comes from Vincent Colicchio with Barrington Research. Please go ahead.
Vincent Colicchio
Yes. Good morning, Carlos. Question is, the wallet share declines in Brazil, was that – to what extent was that tied to company impacted from the cybersecurity attack, shifting more work than you had expected?
Carlos López-Abadía
I think in an indirect way, some are. But first of all, let me clarify. From a wallet share decline, we haven’t seen more than what we forecasted. And those customers that we saw that there were some risk because we had a very large dependency on us. 85% in some lines of work that they would diversify. That has not exceeded our expectations in terms of impact. In fact, it’s been a bit less.
Brazil has been an indirect impact. Clearly, we know that it was very difficult to sell in Q4 when you’re in the middle of cyberattack. It’s kind of hard to do and that hurts you a lot because as you know very well, Vincent, you know, if you sell something in Q4, it produces revenue every quarter of the next year.
If you sell something in the Q4 of this year, it only produces very little in this year. So, Q4 is very important for the revenues of the year. So that we know. Also, we probably underestimated the pace of the pickup in Q1, Q2 in Brazil. In fact, I don’t know if I’m happy or sad to say that the last four major customers that, you know, had – some of them call it, quarantine, you know, you want to, you know, to allow us to participate in new sales, and an amount of time or sequence that’s happening after the cyberattack.
The last one has, we’re now able to continue to sell and grow in those customers. So, that’s been – it’s been more of that indirect impact of inability to – or slowness of growth in Brazil more than customers, either disappearing, which didn’t happen and or they decrease of the volumes directly associated with the cyberattack. That part, we did – one thing that we did forecast accurately, it was the ramp up after that that we underestimated how much how much hard it was going to be.
Operator
Thank you. And our next question today comes from Antonio Manzano with Santalucia. Please go ahead.
Antonio Manzano
Hello. Good morning, everyone. Hello, Carlos. Hello, Sergio, Hernan. Thank you very much for taking my questions. I’ll ask two if I may. First, if my math is correct, the new guidance would imply around 4.5% year-on-year revenue growth in the second half of the year, and the EBITDA margin on both revenues of at least 14% for the whole of the second half. How comfortable are you with those figures in the current environment? And then my second question is on cash generation. You have indicated in the past that cash generation for the year would be between 0 million and 10 million? What do you expect from working capital in the second half of the year? Are you still standing by the 0 million to 10 million indication? Thank you very much.
Carlos López-Abadía
Antonio, I apologize. The speaker we are having is horrendous. I could only understand – I think I understood the general meaning of the questions. Not sure I got the numbers, but in any case, as luck would have it, I think I’m going to hopefully Sergio has a better speaker and could understand and address that. The one part I did understand is about how confident we are about some numbers that I couldn’t hear very well. And I gave you my the best answer I could a few minutes ago. Right?
We think we have a much more conservative view of forecast and how the economy is going to turn out. We also have a more – taking more cost and cash actions to make sure that we have more margin to play with. And from that perspective, we will feel more confident. But – and I think that applies to each one, every one of the numbers. And since I couldn’t hear the numbers. And in any case, probably the question was more for Sergio than for me. You know, let me pass the rest to Sergio.
Sergio Passos
Yes, Carlos. Yeah. What we believe is that, well, first, as Carlos mentioned, revenue, we have very good prospects. Well, usually our business is seasonal, so we always have volumes that increase quarter-over-quarter. So, we expect that the baseline will continue to increase not as hard as in the past, but will continue to increase. And we are very confident on the last numbers of new sales as Carlos mentioned in June and July.
That will make our revenue for the second half much higher or much better than what we had in the first half. Combined it with the cost reduction that we did, overall, we see in our forecast, as Carlos mentioned, a conservative one that EBITDA margins will increase significantly reaching something in the range of [50 plus] [ph], let’s say, later in the year. But at the end, to your later question, considering everything that we had in the first half, combined with the second half, we expect our free cash flow generation that was in the range of 0 to plus 10 to be in the minus 20 to minus 10.
So, the same way we reduced our revenue projections, we reduced our free cash flow generation. We do have projections to continue on the strong work that we are doing in working capital, so continue. The change or the benefit we have in Q2 is not a one-time event. It’s a process driven change, which we believe will come in Q3 and Q4 too. So, we do expect to have a need to a positive working capital. And the CapEx portion also is something that is more structured than [indiscernible] because we have some available capacity.
With that, even with the growth, we will need to invest that much and we are being very selective on that. So, those two impacts will continue to be seen in the second half of the year, but at the end, combining H1 with H2 and the new guidance we need to redo. So, we expect to have cash flow between minus 20 and minus 10, which is already in our cash projection.
So, as I mentioned, we paid part and we paid in the [next day’s] [ph], all of our debts and hedge disbursement that we need and we continue to go through all of our cash projects for the future. They are already there, but in this range now minus 20 to minus 10.
Antonio Manzano
Thank you very much.
Hernan van Waveren
Thank you. So, next question comes from our webcast. Regarding the credit lines, you have 75 million maturity by year-end 2023. Are you working on extending these as mentioned on the call? Are you anticipating rolling 100% of these or more or less? Where are you in the process?
Carlos López-Abadía
Sergio?
Sergio Passos
Yeah. Actually, we are we are working with both scenarios. So, we are working with [renewing them all] [ph] as we managed to do throughout the entire 2022. So, we had several small credit lines that were expired during 2022 and we managed to renew them. We have a few that’s still pending because of timing, but we are renewing them. So, first, yes, we are working hard to renew them all and succeeded as of today.
The second one is that we are continuing to evaluate a way of instead of having small credit lines with shorter-term, work on a bigger one with the longer-term so that we could shift from a more shorter-term credit lines to a medium to longer-term on that. This is under a valuation. So, we are structuring that alternative.
We don’t have anything, let’s say, close it yet that we can communicate to you, but we are working in both cases. In anyway, we are very confident that with our cash situation without any additional need for credit facilities because we are – the main disbursement is fast now. We can call it. We don’t anticipate to have any significant increase on that. So, we are very comfortable with that throughout the year.
Hernan van Waveren
Thank you, Sergio. Another question from our webcast. Any updates or any color you can share on the strategic transactions?
Carlos López-Abadía
My answer to that is the same as always. M&A is one of the data mentioned that all companies and attempt to [indiscernible] have to create shareholder value and this is something that we always look at. And it’s an important dimension. But we will only comment when we have on anything specific when we have to do something specific to comment on. So, same answer as I gave you before. We don’t, as a policy and as a matter of fact, we don’t comment on ongoing activities or rumors, so that will continue to be answer.
Antonio Manzano
Thank you, Carlos. One last question from our webcast. Could you give us some color on the type of clients that are growing their volumes, industry size?
Carlos López-Abadía
Well, we’ve seen sectors that will not surprise you growing volumes such as travel, particularly the last couple of months. Anyone that has been traveling in Europe or elsewhere probably is not surprised. Energy was one of the sectors that also had significant activity earlier in the year.
Those are probably the ones that come to mind first. Despite the fact that technology probably is not as bullish as it was a year ago, still continues to be a key sector and continues to provide opportunities for us – perhaps it is not as buoyant as it was a year ago, but it’s still very strong and we expect it to continue for a long-time to be an engine for growth.
Hernan van Waveren
Thank you, Carlos. Operator, if you can open the microphone for the people that are joining through the phone.
Operator
Absolutely. Our next question comes from Beltran Palazuelo with DLTV. Please go ahead.
Beltran Palazuelo
Hello. Good morning, everyone. Good morning, Hernan, Sergio and Carlos. Regarding, you mentioned, do you expect the EBITDA margin to end the year over [15%] [ph] run rate with all the cost cutting you just mentioned? Regarding 2023, with all these measures, let’s say volumes, were to stay or they weren’t [indiscernible] what exactly are you more or less expecting for 2023? And then free cash flow generation, what is – regarding the cost of the hedge, what cash do you expect to generate positive or negative for next year?
Carlos López-Abadía
Thank you, Beltran. Again, I apologize for the bad sound that we have. I think I got most of your question. So, we haven’t put, first of all, we have not developed detailed forecast for 2023, but let me tell you in general terms, given the plan that we are and we expect to be, as I mentioned, we expect to – it’s not just hyperbole that I say that expect to finish the year stronger with a strong exit rate, not just the rate, but the measures that we’ve taken fundamentally and a vast majority of them make sure we’re taking are not just to reduce cost or get a better cost position in the short-term, but actually make fundamental changes in the company.
As I also mentioned, we continue to make the investments in the transformation of the company. One thing I did not mention, but I’ll mention now is, when we pay a lot of attention to sales figures, if you’re trying to, you’re trying to maintain a portfolio of customers, you need much less sales than if you’re trying to change the customer base to different sectors, different geographies, different services, and we’re doing that with transforming the company.
That’s why we’ve been – continued to build the sales machine that perhaps we didn’t need as much as before, but we do need it now, which is the engine that allows us to organically change the company. So, that continues to be a continued investment and continued progress for us. So, if you put all those things together, now we do get the exit rate that we’re targeting with the cost structure that we continue to improve, and investment is that we have continued to make despite the – bit more frugal on the use of CapEx. We do expect to have to enter 2023 in a much better position.
Now, obviously, we’ll have to see what the world economy looks like next year from an inflation perspective and from a growth perspective, but we definitely as a company will continue to be stronger and will come out of 2022 stronger into 2023, but perhaps the – what you were looking for, which was a specific forecast for 2023, we have not developed those with the specific numbers yet.
Sergio Passos
If I can just add Carlos, one important thing is that as I mentioned, as we had some available capacity in our sites and we are working towards our let’s say, supporting organization, making them very lean. We can consider that we are able to grow significantly our revenue base without any cost increase. So, we are talking about growing revenue in a range between 10% to 20% basically with quite a few costs, meaning quite a few increase in site costs, increase it personnel costs because we have the structure there.
The processes are much better than they were a couple of years ago. So, on the projections that everybody should do, including us, we should consider that our cost basis was built in a way that we are much better for the future. Of course, we always know if you look back. Exiting rates is not the starting rate of next year because we had inflation. We had several. So, but 15% as, let’s say, a departing or starting point for 2023 is a very good one for us, considering all of the [tax history] [ph].
Beltran Palazuelo
Yeah. No, good point, Sergio on the – clearly, this year, we didn’t start the year with the strongest of all positions given our exit on Q4, but that puts into perspective what I mean by having a better cost structure to going forward into 2023. Thanks.
Hernan van Waveren
Thank you, Carlos. Thank you, Sergio. We have a question from our webcast. If I tend to pursue new lines of credits, would these be unsecured? How much covenant capacity do you have to do more secured debt?
Carlos López-Abadía
We do have capacity to do senior secure debt, and then we’ll tell how to approach that. Clearly, one question that probably is in the mind of some people is given the pricing we stock and our debt, clearly, we’re looking at options to improve, to add value to shareholders and also to improve our financing structure.
Hernan van Waveren
Thank you, Carlos. Another question from our webcast. With regards to digital capabilities you’re building, could you provide examples of new key services that you have been developing?
Carlos López-Abadía
Sure. I probably have neglected talking about that aspect. It’s something that is always ongoing in the background is something that is part of our transformation. Clearly, when we have other events that are perhaps more in the forefront of our minds, you know we speak more about those. But that continues to go on and we’ll continue next quarter and next quarter and any and every year of a company like Atento that wants to be a leader in this industry.
We have started. We have now clients in the content moderation business, which we didn’t have before. We have also started clients in multilingual. We talked about it before and now we are delivering on that. We have business that I mentioned in the past that we’re going to start on in technology, particularly taking advantage of some projects like [RPA technology] [ph] that we deliver projects for some customers.
Now, we started to do this on a more structured way and ongoing basis with others. All of these are in [incipient businesses] [ph]. They’re not large, but they are small, but they are growing and they have very high margins, particularly the ones on technology. They’re not making a big impact today on the overall numbers of Atento, but as I always say, we’re building the Atento for the future, not this quarter or next quarter, but for the long-term.
I may have mentioned other use of technologies such as, for example, the automation as well. We take more than a million just in one country, we take more than one million calls fully automated using artificial intelligence, no humans involved. Those are examples of things that we do in technology. Many of those are relatively recent. And as I said, insipient businesses that we will continue to nurture.
Some of them will grow enormously, some of them will not, but the essence of innovation is keep on trying new things and keep on advancing for the benefit of our customers and the building of Atento.
Hernan van Waveren
Thank you, Carlos. Thank you, Sergio. It ends the call for today.
Carlos López-Abadía
No important remarks, only the way I started, it’s been – we knew H1 was going to be very difficult. We just didn’t know how difficult it was going to be. We feel as I’ve said and I’ve answered to some of you, how confident are we that now things are going to change. We’re very confident things are going to improve quarter-on-quarter-on-quarter. No question about how much and how confident we are about our forecast.
We have a more conservative forecast. We’ve taken significant action to also preserve our forecast in preserving cash flow, preserving and building a better cost position. We’ve taken some of those costs in Q2, but we believe that the impact of that in the rest of the year and for the future is going to be very important and very positive for Atento. So, thank you very much.
Operator
Thank you. Ladies and gentlemen, this concludes today’s presentation. We thank you all for attending today’s presentation. You may now disconnect your lines.
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