WSTC
$23.37
West
($.63)
(2.63%)
Earnings Details
3rd Quarter September 2016
Tuesday, November 01, 2016 8:01:20 PM
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Summary

West Misses

West (WSTC) reported 3rd Quarter September 2016 earnings of $0.76 per share on revenue of $571.4 million. The consensus earnings estimate was $0.76 per share on revenue of $578.7 million. The Earnings Whisper number was $0.78 per share. Revenue fell 0.5% compared to the same quarter a year ago.

West Corp provides technology-enabled communication services. Its offers solutions including unified communications services, safety services & interactive services including automated notifications, and telecom services.

Results
Reported Earnings
$0.76
Earnings Whisper
$0.78
Consensus Estimate
$0.76
Reported Revenue
$571.4 Mil
Revenue Estimate
$578.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

West Corporation Reports Third Quarter 2016 Results

West Corporation (WSTC), a global provider of communication and network infrastructure services, today announced its third quarter 2016 results.

Select Financial Information
Unaudited, in millions except per share amounts
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
% Change
2016
2015
% Change
Revenue
$
571.4
$
574.4
-0.5
%
$
1,724.6
$
1,711.8
0.7
%
Operating Income
109.5
124.4
-11.9 %
341.5
351.5
-2.8
%
Income from Continuing Operations
47.5
50.7
-6.3
%
125.1
148.6
-15.8 %
Earnings per Share from Continuing Operations - Diluted
0.56
0.60
-6.7
%
1.48
1.74
-14.9 %
Cash Flows from Continuing Operating Activities
104.1
126.7
-17.8 %
301.6
283.2
6.5
%
Cash Flows used in Continuing Investing Activities
(24.5
)
(30.1 )
-18.6 %
(67.1
)
(113.8
)
-41.1 %
Cash Flows used in Continuing Financing Activities
(111.0 )
(74.0 )
49.9
%
(223.5
)
(364.8
)
-38.7 %
Select Non-GAAP Financial Information
Unaudited, in millions except per share amounts
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
% Change
2016
2015
% Change
EBITDA from Continuing Operations
$
158.5
$
165.5
-4.3
%
$
488.9
$
491.3
-0.5
%
Adjusted EBITDA from Continuing Operations
165.3
171.3
-3.5
%
499.2
511.1
-2.3
%
Adjusted Operating Income
133.3
146.6
-9.1
%
402.1
420.8
-4.4
%
Adjusted Income from Continuing Operations
64.3
68.1
-5.6
%
193.7
202.3
-4.2
%
Adjusted Earnings per Share from Continuing Operations - Diluted
0.76
0.80
-5.0
%
2.29
2.36
-3.0
%
Free Cash Flow from Continuing Operating Activities
78.7
95.4
-17.5 %
202.3
187.0
8.2
%

"Our non-conferencing businesses grew 5.3 percent, with particularly strong results in our UCaaS, healthcare advocacy and interactive services businesses," said Tom Barker, chairman and chief executive officer. "Conferencing revenue declined in the third quarter driving our consolidated revenue down 0.5 percent. Our adjusted organic revenue growth was 1 percent. We expect to finish the year with revenue and adjusted earnings per share within our original guidance ranges, albeit the low end, despite the decrease in conferencing revenue."

Dividend

The Company today also announced a $0.225 per common share dividend. The dividend is payable on November 23, 2016 to shareholders of record as of the close of business on November 14, 2016.

Operating Results

For the third quarter of 2016, revenue was $571.4 million compared to $574.4 million for the same quarter of the previous year, a decrease of 0.5 percent. Revenue from acquired entitieswas $6.5 million during the third quarter of 2016. The Company had strong growth in its Unified Communications as a Services ("UCaaS"), healthcare advocacy and Interactive Services businesses. The Company’s revenue was negatively impacted by $5.3 million from foreign currency exchange rate fluctuations and by $10.3 million from a lost Telecom Services client previously disclosed in 2015. Adjusted organic growth for the third quarter was 1.0 percent. Details of the Company’s revenue growth are presented in the selected financial data table below.

The Unified Communications Services segment had revenue of $352.4 million in the third quarter of 2016, a 3.7 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $10.3 million from the previously disclosed lost Telecom Services client, $5.3 million from the impact of foreign currency exchange rates and a decline in conferencing revenue, partially offset by growth in the UCaaS business and $2.1 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth for the Unified Communications Services segment was flat for the third quarter of 2016.

During the third quarter, the Company had lower than expected revenue from its automated conferencing business, with July being the weakest month of the quarter. Conferencing clients also used fewer operator assisted calls and add-on services such as call recording and transcription in the third quarter.

Revenue in the Company’s UCaaS line of business was up over 25 percent on an organic basis in the third quarter compared to the same quarter last year. This growth was partially due to higher than expected equipment sales during the quarter.

The Safety Services segment had revenue of $75.1 million in the third quarter of 2016, an increase of 1.7 percent from the third quarter of 2015. The increase in revenue was primarily due to clients adopting new technologies, partially offset by price compression and lower equipment sales compared to the same quarter last year.

The Interactive Services segment had revenue of $76.4 million in the third quarter of 2016, 12.0 percent higher than the same quarter last year. This increase included $4.4 million from the acquisitions of ClientTell and Synrevoice. Adjusted organic revenue growth for the Interactive Services segment was 5.5 percent for the third quarter of 2016. Organic revenue growth was primarily due to new clients and increased volumes from existing clients.

The Specialized Agent Services segment had revenue of $70.3 million in the third quarter of 2016, an increase of 3.0 percent compared to the same quarter of the previous year. The increase in revenue was primarily due to double-digit revenue growth in the healthcare advocacy business, partially offset by slower than historical recoveries in the cost management services business.

Operating income was $109.5 million in the third quarter of 2016 compared to $124.4 million in the third quarter of 2015, a decrease of 11.9 percent. This decrease was primarily due to a decline in minute growth as well as price compression in the conferencing and collaboration business, an increase in SG&A expenses related to acquisitions and higher labor-related costs, partially offset by cost savings initiatives. Adjusted operating income was $133.3 million in the third quarter of 2016 compared to $146.6 million in the third quarter of 2015. Adjusted operating income as a percentage of revenue was 23.3 percent in the third quarter of 2016 compared to 25.5 percent in the same quarter of 2015.

Income from continuing operations decreased 6.3 percent to $47.5 million in the third quarter of 2016 compared to $50.7 million in the same quarter of 2015. Adjusted income from continuing operations was $64.3 million in the third quarter of 2016, a decrease of 5.6 percent from the same quarter of 2015.

EBITDA was $158.5 million in the third quarter of 2016 compared to $165.5 million in the third quarter of 2015. Adjusted EBITDA for the third quarter of 2016 was $165.3 million compared to $171.3 million for the third quarter of 2015, a decrease of 3.5 percent. Adjusted EBITDA margin was 29 percent for the third quarter of 2016, compared to 30 percent for the third quarter of 2015.

Balance Sheet, Cash Flow and Liquidity

At September 30, 2016, West Corporation had cash and cash equivalents totaling $191.3 million and working capital of $228.5 million. Interest expense and other financing charges were $38.2 million during the third quarter of 2016 compared to $38.6 million during the comparable period of the prior year.

"During the third quarter, we repaid $91.3 million of debt, bringing the total for the year to $123.2 million, consistent with our guidance at the beginning of the year. This drove our debt covenant leverage ratio down to the lowest level since our IPO," said Jan Madsen, chief financial officer.

The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities, was 4.46x at September 30, 2016, down from 4.68x at December 31, 2015.

Cash flows from operations were $104.1 million for the third quarter of 2016 compared to $126.7 million in the same period of 2015, a decrease of 17.8 percent. Free cash flow decreased 17.5 percent to $78.7 million in the third quarter of 2016 compared to $95.4 million in the third quarter of 2015. This decrease was primarily from timing differences in cash interest and working capital variances, partially offset by lower cash taxes.

During the third quarter of 2016, the Company invested $25.4 million, or 4.5 percent of revenue, in capital expenditures.

Exploration of Financial and Strategic Alternatives

West also announced today the commencement of a process to explore the Company’s range of financial and strategic alternatives, including, but not limited to, the sale or separation of one or more of its operating businesses, or a sale of the Company. West has retained Centerview Partners LLC as its financial advisor and Sidley Austin LLP as its legal advisor in connection with the analysis.

Mr. Barker added: "We are excited about our portfolio of industry-leading assets, both individually and as a component of our overall strategy. At the same time, as part of our ongoing evaluation of our portfolio of assets, we have decided to engage advisors to help us evaluate possible alternatives and strategies to maximize long-term shareholder value."

No decision has been made to enter into any transaction. There can be no assurance that this exploration will result in any transaction being announced or consummated or, if a transaction does occur, the terms or timing thereof. The Company does not intend to discuss or disclose further developments during this process unless and until the Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.

Conference Call

The Company will hold a conference call to discuss these topics on Wednesday, November 2, 2016 at 8:00 AM Eastern Time (7:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company’s website at www.west.com.

About West Corporation

West Corporation (WSTC) is a global provider of communication and network infrastructure services. West helps its clients more effectively communicate, collaborate and connect with their audiences through a diverse portfolio of solutions that include unified communications services, safety services, interactive services such as automated notifications, telecom services and specialized agent services.

For 30 years, West has provided reliable, high-quality voice and data services. West has sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information, please call 1-800-841-9000 or visit www.west.com.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "continue" or similar terminology. These statements reflect only West’s current expectations and are not guarantees of future performance or results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, the strategic alternatives available to the Company and the ability to execute on strategic alternatives, competition in West’s highly competitive markets; increases in the cost of voice and data services or significant interruptions in these services; West’s ability to keep pace with its clients’ needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West’s clients; the non-exclusive nature of West’s client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West’s businesses; West’s ability to protect its proprietary information or technology; service interruptions to West’s data and operation centers; West’s ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West’s ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; and future impairments of our substantial goodwill, intangible assets, or other long-lived assets. In addition, West is subject to risks related to its level of indebtedness. Such risks include West’s ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West’s ability to comply with covenants contained in its debt instruments; West’s ability to obtain additional financing; the incurrence of significant additional indebtedness by West and its subsidiaries; and the ability of West’s lenders to fulfill their lending commitments. West is also subject to other risk factors described in documents filed by the Company with the United States Securities and Exchange Commission.

These forward-looking statements speak only as of the date on which the statements were made. West undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except per share data)
Three Months Ended Sept. 30,
2016
2015
% Change
Revenue
$
571,407
$
574,448
-0.5
%
Cost of services
247,817
246,337
0.6
%
Selling, general and administrative expenses
214,091
203,757
5.1
%
Operating income
109,499
124,354
-11.9 %
Interest expense, net
36,794
38,382
-4.1
%
Accelerated amortization of deferred financing costs
1,234
-
NM
Other expense (income), net
(445
)
6,322
NM
Income from continuing operations before tax
71,916
79,650
-9.7
%
Income tax expense attributed to continuing operations
24,381
28,931
-15.7 %
Income from continuing operations
47,535
50,719
-6.3
%
Income from discontinued operations, net of income taxes
-
(1,235
)
NM
Net income
$
47,535
$
49,484
-3.9
%
Weighted average shares outstanding:
Basic
82,870
82,931
Diluted
84,607
84,834
Earnings (loss) per share - Basic:
Continuing operations
$
0.57
$
0.61
-6.6
%
Discontinued operations
-
(0.01
)
NM
Total Earnings Per Share - Basic
$
0.57
$
0.60
-5.0
%
Earnings (loss) per share - Diluted:
Continuing operations
$
0.56
$
0.60
-6.7
%
Discontinued operations
-
(0.01
)
NM
Total Earnings Per Share - Diluted*
$
0.56
$
0.58
-3.4
%
*Does not foot due to rounding
SELECTED SEGMENT FINANCIAL DATA:
Three Months Ended Sept. 30,
2016
2015
% Change
Revenue:
Unified Communications Services
$
352,377
$
365,822
-3.7
%
Safety Services
75,061
73,812
1.7
%
Interactive Services
76,439
68,237
12.0
%
Specialized Agent Services
70,255
68,196
3.0
%
Intersegment eliminations
(2,725
)
(1,619
)
NM
Total
$
571,407
$
574,448
-0.5
%
Depreciation:
Unified Communications Services
$
17,407
$
17,477
-0.4
%
Safety Services
4,008
4,448
-9.9
%
Interactive Services
4,087
3,652
11.9
%
Specialized Agent Services
3,009
2,160
39.3
%
Total
$
28,511
$
27,737
2.8
%
Amortization:
Unified Communications Services - SG&A
$
3,319
$
3,257
1.9
%
Safety Services - SG&A
3,559
4,468
-20.3 %
Safety Services - COS
3,035
3,002
1.1
%
Interactive Services - SG&A
5,317
4,018
32.3
%
Specialized Agent Services - SG&A
4,594
4,770
-3.7
%
Deferred financing costs
2,455
5,008
-51.0 %
Total
$
22,279
$
24,523
-9.2
%
Share-based compensation:
Unified Communications Services
$
3,435
$
3,006
14.3
%
Safety Services
976
854
14.3
%
Interactive Services
614
538
14.1
%
Specialized Agent Services
1,063
976
8.9
%
Total
$
6,088
$
5,374
13.3
%
Cost of services:
Unified Communications Services
$
171,168
$
168,737
1.4
%
Safety Services
24,921
28,118
-11.4 %
Interactive Services
16,838
15,968
5.4
%
Specialized Agent Services
36,366
34,239
6.2
%
Intersegment eliminations
(1,476
)
(725
)
NM
Total
$
247,817
$
246,337
0.6
%
Selling, general and administrative expenses:
Unified Communications Services
$
101,803
$
101,253
0.5
%
Safety Services
32,992
35,446
-6.9
%
Interactive Services
49,804
46,049
8.2
%
Specialized Agent Services
29,517
27,215
8.5
%
Corporate Other
1,224
(5,312
)
NM
Intersegment eliminations
(1,249
)
(894
)
NM
Total
$
214,091
$
203,757
5.1
%
Operating income:
Unified Communications Services
$
79,406
$
95,832
-17.1 %
Safety Services
17,148
10,248
67.3
%
Interactive Services
9,797
6,220
57.5
%
Specialized Agent Services
4,372
6,742
-35.2 %
Corporate Other
(1,224
)
5,312
NM
Total
$
109,499
$
124,354
-11.9 %
Operating margin:
Unified Communications Services
22.5
%
26.2
%
Safety Services
22.8
%
13.9
%
Interactive Services
12.8
%
9.1
%
Specialized Agent Services
6.2
%
9.9
%
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except per share data)
Nine Months Ended Sept. 30,
2016
2015
% Change
Revenue
$
1,724,583
$
1,711,829
0.7
%
Cost of services
738,255
731,304
1.0
%
Selling, general and administrative expenses
644,804
629,045
2.5
%
Operating income
341,524
351,480
-2.8
%
Interest expense, net
112,989
115,657
-2.3
%
Accelerated amortization of deferred financing costs
36,469
-
NM
Other expense (income), net
(619
)
2,583
NM
Income from continuing operations before tax
192,685
233,240
-17.4 %
Income tax expense attributed to continuing operations
67,616
84,664
-20.1 %
Income from continuing operations
125,069
148,576
-15.8 %
Income from discontinued operations, net of income taxes
-
30,989
NM
Net income
$
125,069
$
179,565
-30.3 %
Weighted average shares outstanding:
Basic
82,873
83,479
Diluted
84,486
85,554
Earnings per share - Basic:
Continuing operations
$
1.51
$
1.78
-15.2 %
Discontinued operations
-
0.37
NM
Total Earnings Per Share - Basic
$
1.51
$
2.15
-29.8 %
Earnings per share - Diluted:
Continuing operations
$
1.48
$
1.74
-14.9 %
Discontinued operations
-
0.36
NM
Total Earnings Per Share - Diluted
$
1.48
$
2.10
-29.5 %
SELECTED SEGMENT FINANCIAL DATA:
Nine Months Ended Sept. 30,
2016
2015
% Change
Revenue:
Unified Communications Services
$
1,085,248
$
1,109,931
-2.2
%
Safety Services
220,648
208,528
5.8
%
Interactive Services
221,400
194,332
13.9
%
Specialized Agent Services
206,128
203,840
1.1
%
Intersegment eliminations
(8,841
)
(4,802
)
NM
Total
$
1,724,583
$
1,711,829
0.7
%
Depreciation:
Unified Communications Services
$
52,243
$
52,050
0.4
%
Safety Services
13,057
13,814
-5.5
%
Interactive Services
12,030
10,408
15.6
%
Specialized Agent Services
8,639
5,659
52.7
%
Total
$
85,969
$
81,931
4.9
%
Amortization:
Unified Communications Services - SG&A
$
10,090
$
9,794
3.0
%
Safety Services - SG&A
10,514
13,618
-22.8 %
Safety Services - COS
9,683
9,504
1.9
%
Interactive Services - SG&A
15,699
11,698
34.2
%
Specialized Agent Services - SG&A
13,782
14,370
-4.1
%
Deferred financing costs
46,508
15,017
209.7 %
Total
$
106,276
$
74,001
43.6
%
Share-based compensation:
Unified Communications Services
$
11,256
$
9,711
15.9
%
Safety Services
3,196
2,730
17.1
%
Interactive Services
1,995
1,721
15.9
%
Specialized Agent Services
3,482
2,623
32.7
%
Total
$
19,929
$
16,785
18.7
%
Cost of services:
Unified Communications Services
$
511,015
$
510,179
0.2
%
Safety Services
78,925
81,301
-2.9
%
Interactive Services
49,908
43,199
15.5
%
Specialized Agent Services
103,277
98,272
5.1
%
Intersegment eliminations
(4,870
)
(1,647
)
NM
Total
$
738,255
$
731,304
1.0
%
Selling, general and administrative expenses:
Unified Communications Services
$
316,997
$
310,084
2.2
%
Safety Services
103,731
110,523
-6.1
%
Interactive Services
149,929
132,709
13.0
%
Specialized Agent Services
91,055
81,299
12.0
%
Corporate Other
(12,937
)
(2,415
)
NM
Intersegment eliminations
(3,971
)
(3,155
)
NM
Total
$
644,804
$
629,045
2.5
%
Operating income:
Unified Communications Services
$
257,236
$
289,668
-11.2 %
Safety Services
37,992
16,704
127.4 %
Interactive Services
21,563
18,424
17.0
%
Specialized Agent Services
11,796
24,269
-51.4 %
Corporate Other
12,937
2,415
NM
Total
$
341,524
$
351,480
-2.8
%
Operating margin:
Unified Communications Services
23.7
%
26.1
%
Safety Services
17.2
%
8.0
%
Interactive Services
9.7
%
9.5
%
Specialized Agent Services
5.7
%
11.9
%
Total
19.8
%
20.5
%
WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30,
December 31,
%
2016
2015
Change
Assets:
Current assets:
Cash and cash equivalents
$
191,317
$
182,338
4.9
%
Trust and restricted cash
16,398
19,829
-17.3 %
Accounts receivable, net
388,165
373,087
4.0
%
Income taxes receivable
-
19,332
NM
Prepaid assets
45,976
43,093
6.7
%
Deferred expenses
49,515
65,781
-24.7 %
Other current assets
29,800
22,040
35.2
%
Assets held for sale
-
17,672
NM
Total current assets
721,171
743,172
-3.0
%
Property and Equipment:
Property and equipment
1,114,214
1,053,678
5.7
%
Accumulated depreciation and amortization
(780,039
)
(718,834
)
8.5
%
Net property and equipment
334,175
334,844
-0.2
%
Goodwill
1,920,742
1,915,690
0.3
%
Intangible assets, net
325,262
370,021
-12.1 %
Other assets
175,990
191,490
-8.1
%
Total assets
$
3,477,340
$
3,555,217
-2.2
%
Liabilities and Stockholders’ Deficit:
Current Liabilities:
Accounts payable
$
71,682
$
92,935
-22.9 %
Deferred revenue
165,147
161,828
2.1
%
Accrued expenses
220,202
219,234
0.4
%
Current maturities of long-term debt
35,675
24,375
46.4
%
Total current liabilities
492,706
498,372
-1.1
%
Long-term obligations
3,203,575
3,318,688
-3.5
%
Deferred income taxes
97,335
104,222
-6.6
%
Other long-term liabilities
174,675
186,073
-6.1
%
Total liabilities
3,968,291
4,107,355
-3.4
%
Stockholders’ Deficit:
Common stock
86
85
1.2
%
Additional paid-in capital
2,215,695
2,193,193
1.0
%
Retained deficit
(2,539,651 )
(2,607,415 )
-2.6
%
Accumulated other comprehensive loss
(79,855
)
(72,736
)
9.8
%
Treasury stock at cost
(87,226
)
(65,265
)
33.6
%
Total stockholders’ deficit
(490,951
)
(552,138
)
-11.1 %
Total liabilities and stockholders’ deficit $
3,477,340
$
3,555,217
-2.2
%

Reconciliation of Non-GAAP Financial Measures

<span style="text-decoration: underline;" data-mce-style="text-decoration: underline;">Adjusted Operating Income Reconciliation</span>

Adjusted operating income is not a measure of financial performance under generally accepted accounting principles ("GAAP"). The Company believes adjusted operating income provides a relevant measure of operating profitability and a useful basis for evaluating the ongoing operations of the Company. Adjusted operating income is used by the Company to assess operating income before the impact of acquisitions and acquisition-related costs and certain non-cash items. Adjusted operating income is used by the Company as a benchmark for performance and compensation by certain executives. Adjusted operating income should not be considered in isolation or as a substitute for operating income or other profitability data prepared in accordance with GAAP. Adjusted operating income, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of adjusted operating income from operating income.

Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
Three Months Ended Sept. 30,
Consolidated:
2016
2015
% Change
Operating income
$
109,499
$ 124,354
-11.9 %
Amortization of acquired intangible assets
16,789
16,513
1.7
%
Share-based compensation
6,088
5,374
13.3
%
Gain on sale of real estate
(115
)
-
NM
M&A and acquisition-related costs
997
397
151.1 %
Adjusted operating income
$
133,258
$ 146,638
-9.1
%
Adjusted operating income margin
23.3
%
25.5
%
Unified Communications Services:
Operating income
$
79,406
$ 95,832
-17.1 %
Amortization of acquired intangible assets
3,319
3,257
1.9
%
Share-based compensation
3,435
3,006
14.3
%
M&A and acquisition-related costs
434
2
NM
Adjusted operating income
$
86,594
$ 102,097
-15.2 %
Adjusted operating income margin
24.6
%
27.9
%
Safety Services:
Operating income
$
17,148
$ 10,248
67.3
%
Amortization of acquired intangible assets
3,559
4,468
-20.3 %
Share-based compensation
976
854
14.3
%
Adjusted operating income
$
21,683
$ 15,570
39.3
%
Adjusted operating income margin
28.9
%
21.1
%
Interactive Services:
Operating income
$
9,797
$ 6,220
57.5
%
Amortization of acquired intangible assets
5,317
4,018
32.3
%
Share-based compensation
614
538
14.1
%
M&A and acquisition-related costs
563
396
42.2
%
Adjusted operating income
$
16,291
$ 11,172
45.8
%
Adjusted operating income margin
21.3
%
16.4
%
Specialized Agent Services:
Operating income
$
4,372
$ 6,742
-35.2 %
Amortization of acquired intangible assets
4,594
4,770
-3.7
%
Share-based compensation
1,063
976
8.9
%
Adjusted operating income
$
10,029
$ 12,488
-19.7 %
Adjusted operating income margin
14.3
%
18.3
%
Corporate Other:
Operating income (loss)
$
(1,224
)
$ 5,312
Gain on sale of real estate
(115
)
-
M&A and acquisition-related costs
-
(1
)
Adjusted operating income (loss)
$
(1,339
)
$ 5,311
Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
Nine Months Ended Sept. 30,
Consolidated:
2016
2015
% Change
Operating income
$
341,524
$ 351,480
-2.8
%
Amortization of acquired intangible assets
50,085
49,480
1.2
%
Share-based compensation
19,929
16,785
18.7
%
Secondary equity offering expense
-
1,041
NM
Gain on sale of real estate
(12,963 )
-
NM
M&A and acquisition-related costs
3,486
1,977
76.3
%
Adjusted operating income
$
402,061
$ 420,763
-4.4
%
Adjusted operating income margin
23.3
%
24.6
%
Unified Communications Services:
Operating income
$
257,236
$ 289,668
-11.2 %
Amortization of acquired intangible assets
10,090
9,794
3.0
%
Share-based compensation
11,256
9,711
15.9
%
Secondary equity offering expense
-
247
NM
M&A and acquisition-related costs
1,312
2
NM
Adjusted operating income
$
279,894
$ 309,422
-9.5
%
Adjusted operating income margin
25.8
%
27.9
%
Safety Services:
Operating income
$
37,992
$ 16,704
127.4 %
Amortization of acquired intangible assets
10,514
13,618
-22.8 %
Share-based compensation
3,196
2,730
17.1
%
Secondary equity offering expense
-
78
NM
Adjusted operating income
$
51,702
$ 33,130
56.1
%
Adjusted operating income margin
23.4
%
15.9
%
Interactive Services:
Operating income
$
21,563
$ 18,424
17.0
%
Amortization of acquired intangible assets
15,699
11,698
34.2
%
Share-based compensation
1,995
1,721
15.9
%
Secondary equity offering expense
-
35
NM
M&A and acquisition-related costs
2,174
1,741
24.9
%
Adjusted operating income
$
41,431
$ 33,619
23.2
%
Adjusted operating income margin
18.7
%
17.3
%
Specialized Agent Services:
Operating income
$
11,796
$ 24,269
-51.4 %
Amortization of acquired intangible assets
13,782
14,370
-4.1
%
Share-based compensation
3,482
2,623
32.7
%
Secondary equity offering expense
-
50
NM
M&A and acquisition-related costs
-
150
NM
Adjusted operating income
$
29,060
$ 41,462
-29.9 %
Adjusted operating income margin
14.1
%
20.3
%
Corporate Other:
Operating income
$
12,937
$ 2,415
Secondary equity offering expense
-
631
Gain on sale of real estate
(12,963 )
-
M&A and acquisition-related costs
-
84
Adjusted operating income (loss)
$
(26
)
$ 3,130

<span style="text-decoration: underline;" data-mce-style="text-decoration: underline;">Adjusted Net Income, Adjusted Income from Continuing Operations and Adjusted Earnings per Share Reconciliation</span>

Adjusted net income, adjusted income from continuing operations and adjusted earnings per share (EPS) are non-GAAP measures. The Company believes these measures provide a useful indication of profitability and basis for assessing the operations of the Company without the impact of bond redemption premiums, acquisitions and acquisition-related costs and certain non-cash items. Adjusted net income and adjusted income from continuing operations should not be considered in isolation or as a substitute for net income or other profitability metrics prepared in accordance with GAAP. Adjusted net income and adjusted income from continuing operations, as presented, may not be comparable to similarly titled measures of other companies. The Company utilizes these non-GAAP measures to make decisions about the use of resources, analyze performance, measure management’s performance with stated objectives and compensate management relative to the achievement of such objectives. Set forth below is a reconciliation of adjusted income from continuing operations from income from continuing operations and adjusted net income from net income.

Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops
and Adjusted Net Income from Net Income
Unaudited, in thousands except per share data
CONTINUING OPERATIONS
Three Months Ended Sept. 30,
2016
2015
% Change
Income from continuing operations
$
47,535
$ 50,719
-6.3
%
Amortization of acquired intangible assets
16,789
16,513
Amortization of deferred financing costs
2,455
5,008
Share-based compensation
6,088
5,374
Gain on sale of real estate
(115
)
-
M&A and acquisition-related costs
881
397
Pre-tax total
26,098
27,292
Income tax expense on adjustments
9,343
9,912
Adjusted income from continuing operations
$
64,290
$ 68,099
-5.6
%
Diluted shares outstanding
84,607
84,834
Adjusted EPS from continuing operations - diluted
$
0.76
$ 0.80
-5.0
%
DISCONTINUED OPERATIONS
Three Months Ended Sept. 30,
2016
2015
Income from discontinued operations
$
-
$ (1,235 )
Adjusted income from discontinued operations
$
-
$ (1,235 )
Diluted shares outstanding
84,607
84,834
Adjusted EPS from discontinued operations - diluted $
0.00
$ (0.01
)
CONSOLIDATED
Three Months Ended Sept. 30,
2016
2015
% Change
Net income
$
47,535
$ 49,484
-3.9
%
Amortization of acquired intangible assets
16,789
16,513
Amortization of deferred financing costs
2,455
5,008
Share-based compensation
6,088
5,374
Gain on sale of real estate
(115
)
-
M&A and acquisition-related costs
881
397
Pre-tax total
26,098
27,292
Income tax expense on adjustments
9,343
9,912
Adjusted net income
$
64,290
$ 66,864
-3.8
%
Diluted shares outstanding
84,607
84,834
Adjusted EPS - diluted
$
0.76
$ 0.79
-3.8
%
Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops
and Adjusted Net Income from Net Income
Unaudited, in thousands except per share data
CONTINUING OPERATIONS
Nine Months Ended Sept. 30,
2016
2015
% Change
Income from continuing operations
$
125,069
$ 148,576
-15.8
%
Amortization of acquired intangible assets
50,085
49,480
Amortization of deferred financing costs
46,508
15,017
Share-based compensation
19,929
16,785
Secondary equity offering expense
-
1,041
Gain on sale of real estate
(12,963 )
-
M&A and acquisition-related costs
3,370
1,977
Pre-tax total
106,929
84,300
Income tax expense on adjustments
38,281
30,601
Adjusted income from continuing operations
$
193,717
$ 202,275
-4.2
%
Diluted shares outstanding
84,486
85,554
Adjusted EPS from continuing operations - diluted
$
2.29
$ 2.36
-3.0
%
DISCONTINUED OPERATIONS
Nine Months Ended Sept. 30,
2016
2015
Income from discontinued operations
$
-
$ 30,989
Amortization of acquired intangible assets
-
41
Share-based compensation
-
1,576
M&A and acquisition-related costs
-
386
Pre-tax total
-
2,003
Income tax benefit on adjustments
-
767
Adjusted income from discontinued operations
$
-
$ 32,225
Diluted shares outstanding
84,486
85,554
Adjusted EPS from discontinued operations - diluted $
0.00
$ 0.38
CONSOLIDATED
Nine Months Ended Sept. 30,
2016
2015
% Change
Net income
$
125,069
$ 179,565
-30.3
%
Amortization of acquired intangible assets
50,085
49,521
Amortization of deferred financing costs
46,508
15,017
Share-based compensation
19,929
18,361
Secondary equity offering expense
-
1,041
Gain on sale of real estate
(12,963 )
-
M&A and acquisition-related costs
3,370
2,363
Pre-tax total
106,929
86,303
Income tax expense on adjustments
38,281
31,368
Adjusted net income
$
193,717
$ 234,500
-17.4
%
Diluted shares outstanding
84,486
85,554
Adjusted EPS - diluted
$
2.29
$ 2.74
-16.4
%

<span style="text-decoration: underline;" data-mce-style="text-decoration: underline;">Free Cash Flow Reconciliation</span>

The Company believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Company’s ability to fund its activities, including the financing of acquisitions, debt service, stock repurchases and distribution of earnings to shareholders. Free cash flow is calculated as cash flows from operating activities less cash capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Free cash flow should not be considered in isolation or as a substitute for cash flows from operating activities or other liquidity measures prepared in accordance with GAAP. Free cash flow, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of free cash flow from cash flows from operating activities.

Reconciliation of Free Cash Flow from Operating Cash Flow
Unaudited, in thousands
CONTINUING OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
% Change
2016
2015
% Change
Cash flows from operating activities
$
104,115
$
126,697
-17.8 %
$
301,602
$
283,221
6.5
%
Cash capital expenditures
25,439
31,319
-18.8 %
99,303
96,182
3.2
%
Free cash flow
$
78,676
$
95,378
-17.5 %
$
202,299
$
187,039
8.2
%
DISCONTINUED OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Cash flows from (used in) operating activities $
-
$
(1,235
)
$
-
$
(8,197
)
Cash capital expenditures
-
-
-
1,930
Free cash flow
$
-
$
(1,235
)
$
-
$
(10,127 )
CONSOLIDATED
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
% Change
2016
2015
% Change
Cash flows from operating activities
$
104,115
$
125,462
-17.0 %
$
301,602
$
275,024
9.7
%
Cash capital expenditures
25,439
31,319
-18.8 %
99,303
98,112
1.2
%
Free cash flow
$
78,676
$
94,143
-16.4 %
$
202,299
$
176,912
14.4 %

<span style="text-decoration: underline;" data-mce-style="text-decoration: underline;">EBITDA and Adjusted EBITDA Reconciliation</span>

The common definition of EBITDA is "Earnings Before Interest Expense, Taxes, Depreciation and Amortization." In evaluating liquidity and performance, the Company uses "Adjusted EBITDA." The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization, gain on assets held for sale and transaction costs. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. Although the Company uses Adjusted EBITDA as a measure of its liquidity and performance, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate the business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operating activities or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here as the Company understands investors use it as a measure of its historical ability to service debt and compliance with covenants in its senior credit facilities. Further, Adjusted EBITDA is presented here as the Company uses it to measure its performance and to conduct and evaluate its business during its regular review of operating results for the periods presented. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operating activities and net income.

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow
Unaudited, in thousands
CONTINUING OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Cash flows from operating activities
$
104,115
$
126,697
$
301,602
$
283,221
Income tax expense
24,381
28,931
67,616
84,664
Deferred income tax expense
11,628
8,160
15,383
5,958
Interest expense and other financing charges
38,223
38,642
150,475
117,120
Provision for share-based compensation
(6,088
)
(5,374
)
(19,929
)
(16,785
)
Amortization of deferred financing costs
(2,455
)
(5,008
)
(46,508
)
(15,017
)
Gain on sale of real estate
115
-
12,963
-
Other
(304
)
(4
)
(1,190
)
(224
)
Changes in operating assets and liabilities,
net of business acquisitions
(11,141
)
(26,500 )
8,485
32,338
EBITDA
158,474
165,544
488,897
491,275
Provision for share-based compensation
6,088
5,374
19,929
16,785
Secondary equity offering expense
-
-
-
1,041
M&A and acquisition-related costs
881
397
3,370
1,977
Gain on sale of real estate
(115
)
-
(12,963
)
-
Adjusted EBITDA
$
165,328
$
171,315
$
499,233
$
511,078
Cash flows from operating activities
$
104,115
$
126,697
$
301,602
$
283,221
Cash flows used in investing activities
$
(24,483
)
$
(30,061 )
$
(67,067
)
$
(113,782 )
Cash flows used in financing activities
$
(110,989 )
$
(74,048 )
$
(223,535 )
$
(364,790 )
DISCONTINUED OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Cash flows from operating activities
$
-
$
(1,235
)
$
-
$
(8,197
)
Income tax expense
-
(665
)
-
19,345
Deferred income tax expense
-
-
-
(2,293
)
Provision for share-based compensation
-
-
-
(1,576
)
Other
-
-
-
29,596
Changes in operating assets and liabilities,
net of business acquisitions
-
-
-
13,500
EBITDA
-
(1,900
)
-
50,375
Provision for share-based compensation
-
-
-
1,576
M&A and acquisition-related costs
-
-
-
386
Gain on sale of business
-
-
-
(46,656
)
Adjusted EBITDA
$
-
$
(1,900
)
$
-
$
5,681
Cash flows used in operating activities
$
-
$
(1,235
)
$
-
$
(8,197
)
Cash flows from investing activities
$
-
$
6,275
$
-
$
275,815
Cash flows used in financing activities
$
-
$
-
$
-
$
-
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.
CONSOLIDATED
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Cash flows from operating activities
$
104,115
$
125,462
$
301,602
$
275,024
Income tax expense
24,381
28,266
67,616
104,009
Deferred income tax expense
11,628
8,160
15,383
3,665
Interest expense and other financing charges
38,223
38,642
150,475
117,120
Provision for share-based compensation
(6,088
)
(5,374
)
(19,929
)
(18,361
)
Amortization of deferred financing costs
(2,455
)
(5,008
)
(46,508
)
(15,017
)
Gain on sale of real estate
115
-
12,963
-
Other
(304
)
(4
)
(1,190
)
29,372
Changes in operating assets and liabilities,
net of business acquisitions
(11,141
)
(26,500 )
8,485
45,838
EBITDA
158,474
163,644
488,897
541,650
Provision for share-based compensation
6,088
5,374
19,929
18,361
Secondary equity offering expense
-
-
-
1,041
M&A and acquisition-related costs
881
397
3,370
2,363
(Gain) loss on sale of business and real estate
(115
)
1,900
(12,963
)
(46,656
)
Adjusted EBITDA
$
165,328
$
171,315
$
499,233
$
516,759
CONSOLIDATED
Cash flows from operating activities
$
104,115
$
125,462
$
301,602
$
275,024
Cash flows from (used in) investing activities
$
(24,483
)
$
(23,786 )
$
(67,067
)
$
162,033
Cash flows used in financing activities
$
(110,989 )
$
(74,048 )
$
(223,535 )
$
(364,790 )
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
CONTINUING OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Income from continuing operations
$
47,535
$
50,719
$
125,069
$
148,576
Interest expense and other financing charges
38,223
38,642
150,475
117,120
Depreciation and amortization
48,335
47,252
145,737
140,915
Income tax expense
24,381
28,931
67,616
84,664
EBITDA
158,474
165,544
488,897
491,275
Provision for share-based compensation
6,088
5,374
19,929
16,785
Secondary equity offering expense
-
-
-
1,041
M&A and acquisition-related costs
881
397
3,370
1,977
Gain on sale of real estate
(115
)
-
(12,963 )
-
Adjusted EBITDA
$
165,328
$
171,315
$
499,233
$
511,078
DISCONTINUED OPERATIONS
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Income from discontinued operations
$
-
$
(1,235
)
$
-
$
30,989
Depreciation and amortization
-
-
-
41
Income tax expense
-
(665
)
-
19,345
EBITDA
-
(1,900
)
-
50,375
Provision for share-based compensation
-
-
-
1,576
M&A and acquisition-related costs
-
-
-
386
Gain on sale of business
-
-
-
(46,656 )
Adjusted EBITDA
$
-
$
(1,900
)
$
-
$
5,681
CONSOLIDATED
Three Months Ended Sept. 30,
Nine Months Ended Sept. 30,
2016
2015
2016
2015
Net income
$
47,535
$
49,484
$
125,069
$
179,565
Interest expense and other financing charges
38,223
38,642
150,475
117,120
Depreciation and amortization
48,335
47,252
145,737
140,956
Income tax expense
24,381
28,266
67,616
104,009
EBITDA
158,474
163,644
488,897
541,650
Provision for share-based compensation
6,088
5,374
19,929
18,361
Secondary equity offering expense
-
-
-
1,041
M&A and acquisition-related costs
881
397
3,370
2,363
(Gain) loss on sale of business and real estate
(115
)
1,900
(12,963 )
(46,656 )
Adjusted EBITDA
$
165,328
$
171,315
$
499,233
$
516,759

See Reconciliation of Non-GAAP Financial Measures below.

Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.

Revenue growth attributable to acquired entities includes Magnetic North, ClientTell and Synrevoice.

Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.

Adjusted organic revenue growth is provided on the Selected Financial Data tables and excludes revenue from acquired entities, revenue from previously disclosed lost clients and the estimated impact of foreign currency exchange rates. The Company believes adjusted organic revenue growth provides a useful measure of growth in its ongoing business.

NM: Not Meaningful

AT THE COMPANY:
Dave Pleiss
Investor Relations
West Corporation
(402) 963-1500
DMPleiss@west.com

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