WSTC
$22.01
West
($.55)
(2.44%)
Earnings Details
2nd Quarter June 2016
Monday, August 01, 2016 4:15:22 PM
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Summary

West (WSTC) Recent Earnings

West (WSTC) reported 2nd Quarter June 2016 earnings of $0.73 per share on revenue of $582.4 million. The consensus earnings estimate was $0.71 per share. Revenue grew 1.8% on a year-over-year basis.

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
$0.73
Earnings Whisper
-
Consensus Estimate
$0.71
Reported Revenue
$582.4 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

West Corporation Reports Second Quarter 2016 Results

West Corporation (WSTC), a leading provider of technology-enabled communication services, today announced its second quarter 2016 results.

Key Quarterly Highlights:

-- Revenue grew 1.8 percent; Adjusted organic revenue grew 3.8 percent

Cash flows from continuing operating activities grew 40.1 percent; Free cash flow grew 43.6 percent

-- Refinanced over half of debt portfolio

-- Sold real estate related to divested businesses

"The second quarter was very productive and significant for West Corporation," said Tom Barker, chairman and chief executive officer. "We refinanced approximately $1.9 billion of long-term debt and closed on the sale of the real estate associated with the divested agent-based businesses. We also had strong revenue growth in the Safety Services and Interactive Services segments."

Select Financial Information
Unaudited, in millions except per share amounts
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
% Change
2016
2015
% Change
Revenue
$
582.4
$
571.9
1.8
%
$
1,153.2
$
1,137.4
1.4
%
Operating Income
123.1
116.4
5.7
%
232.0
227.1
2.2
%
Income from Continuing Operations
33.0
49.2
-33.0 %
77.5
97.9
-20.8 %
Earnings per Share from Continuing Operations - Diluted
0.39
0.58
-32.8 %
0.92
1.14
-19.3 %
Cash Flows from Continuing Operating Activities
137.4
98.1
40.1
%
197.5
156.5
26.2
%
Cash Flows used in Continuing Investing Activities
(3.1
)
(45.3 )
-93.1 %
(42.6
)
(83.7
)
-49.1 %
Cash Flows used in Continuing Financing Activities
(42.3 )
(56.3 )
-24.8 %
(112.5
)
(290.7
)
-61.3 %
Select Non-GAAP Financial Information
Unaudited, in millions except per share amounts
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
% Change
2016
2015
% Change
EBITDA from Continuing Operations
173.5
163.6
6.1
%
330.4
325.7
1.4
%
Adjusted EBITDA from Continuing Operations
168.3
170.7
-1.4
%
333.9
339.8
-1.7
%
Adjusted Operating Income
134.7
140.0
-3.8
%
268.8
274.1
-1.9
%
Adjusted Income from Continuing Operations
65.6
67.3
-2.6
%
129.4
134.2
-3.5
%
Adjusted Earnings per Share from Continuing Operations - Diluted
0.78
0.79
-1.3
%
1.53
1.56
-1.9
%
Free Cash Flow from Continuing Operating Activities
99.9
69.6
43.6
%
123.6
91.7
34.9
%

Dividend

The Company today also announced a $0.225 per common share dividend. The dividend is payable on September 1, 2016, to shareholders of record as of the close of business on August 22, 2016.

Operating Results

For the second quarter of 2016, revenue was $582.4 million compared to $571.9 million for the same quarter of the previous year, an increase of 1.8 percent. Revenue from acquired entitieswas $7.1 million during the second quarter of 2016. The Company’s revenue was negatively impacted by $2.4 million from foreign currency exchange rate fluctuations and by $16.0 million from a lost Telecom Services client previously disclosed in 2015. Adjusted organic growth for the second quarter was 3.8 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 $370.2 million in the second quarter of 2016, a 1.2 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $16.0 million from the previously disclosed lost Telecom Services client and $2.4 million from the impact of foreign currency exchange rates, partially offset by $2.2 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth for the Unified Communications Services segment was 3.1 percent for the second quarter of 2016.

The Safety Services segment had revenue of $74.4 million in the second quarter of 2016, an increase of 12.5 percent from the second quarter of 2015. The increase in revenue was primarily due to clients adopting new technologies, partially offset by price compression.

The Interactive Services segment had revenue of $73.2 million in the second quarter of 2016, 15.1 percent higher than the same quarter last year. This increase included $4.9 million from the acquisitions of SharpSchool, ClientTell and Synrevoice. Adjusted organic revenue growth for the Interactive Services segment was 7.4 percent for the second quarter of 2016. Organic revenue growth was primarily due to new clients in the education market and increased volumes from existing clients.

The Specialized Agent Services segment had revenue of $67.5 million in the second quarter of 2016, a decrease of 1.6 percent compared to the same quarter of the previous year. The revenue shortfall in this segment was primarily driven by slower than historical recoveries in the cost management business and delayed program implementations due to challenging labor markets in the revenue generation business, offset by double-digit revenue growth in the healthcare advocacy business.

Operating income was $123.1 million in the second quarter of 2016 compared to $116.4 million in the second quarter of 2015, an increase of 5.7 percent. This increase was primarily due to the gain on the sale of the real estate associated with the Company’s divested agent-based businesses. Adjusted operating income was $134.7 million in the second quarter of 2016 compared to $140.0 million in the second quarter of 2015. Adjusted operating income as a percentage of revenue was 23.1 percent in the second quarter of 2016 compared to 24.5 percent in the same quarter of 2015.

Income from continuing operations decreased 33.0 percent to $33.0 million in the second quarter of 2016 compared to $49.2 million in the same quarter of 2015. This decrease was primarily due to $35.2 million of accelerated amortization of deferred financing costs related to the Company’s debt refinancing in the second quarter of 2016, partially offset by a $12.8 million gain on the sale of real estate associated with the Company’s divested agent-based businesses. The net impact on income from continuing operations from the accelerated amortization and sale of real estate was a reduction of $14.3 million. Adjusted income from continuing operations was $65.6 million in the second quarter of 2016, a decrease of 2.6 percent from the same quarter of 2015.

EBITDA was $173.5 million in the second quarter of 2016 compared to $163.6 million in the second quarter of 2015. This increase includes $12.8 million gain on the sale of real estate associated with the Company’s divested agent-based businesses. Adjusted EBITDA for the second quarter of 2016 was $168.3 million compared to $170.7 million for the second quarter of 2015, a decrease of 1.4 percent.

Balance Sheet, Cash Flow and Liquidity

At June 30, 2016, West Corporation had cash and cash equivalents totaling $223.4 million and working capital of $269.5 million. Interest expense and other financing charges were $73.3 million during the second quarter of 2016 compared to $38.9 million during the comparable period of the prior year. The increase in financing charges was primarily due to $35.2 million of accelerated amortization of deferred financing costs related to the Company’s debt refinancing in the second quarter of 2016.

The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities, was 4.47x at June 30, 2016.

Cash flows from operations were $137.4 million for the second quarter of 2016 compared to $98.1 million in the same period of 2015, an increase of 40.1 percent. Free cash flow increased 43.6 percent to $99.9 million in the second quarter of 2016 compared to $69.6 million in the second quarter of 2015. This growth was driven by improvements in working capital partially offset by a decrease in income from continuing operations and slightly higher days sales outstanding compared to the first quarter of 2015.

"Our second quarter cash flows were strong and in-line with our expectations," said Jan Madsen, chief financial officer. "During the quarter, we closed on the sale of real estate related to our divested agent-based businesses. The after-tax cash proceeds of the sale were approximately $32 million."

During the second quarter of 2016, the Company invested $37.5 million, or 6.4 percent of revenue, in capital expenditures, primarily for software and computer equipment.

Debt Refinancing

During the second quarter of 2016, the Company successfully refinanced over half of its long-term debt. Approximately $1.9 billion of long-term debt and $300 million of revolver capacity previously scheduled to mature in 2018 and 2019 has been extended to 2021-2023.

On July 26, 2016, the Company entered into two 5-year interest rate swaps, a 1-month LIBOR swap and a 3-month LIBOR swap, both with a beginning notional of $275 million. The 1-month LIBOR swap is effective immediately and the 3-month LIBOR swap has a one year forward starting date.

As a result of the refinancing and hedges, the Company’s floating rate debt as a percentage of total debt decreased from 70 percent at March 31, 2016 to 50 percent today and is expected to decrease to 42 percent when the delayed start swap becomes effective.

"I am very pleased with the result of our debt refinancing. We were able to achieve our goals of extending our maturities, reducing risk by increasing the fixed portion of our debt and maintaining a very attractive priced cost of debt," said Madsen. "Due to the accelerated amortization expense resulting from our debt refinancing and the sale of the real estate associated with the divested agent-based businesses, we now expect income from continuing operations to be $14 million lower than previous guidance with a corresponding decrease in diluted earnings per share from continuing operations and operating income and EBITDA are expected to be $12 million higher than previous guidance. We continue to be on track to achieve our other guidance metrics for the year."

Conference Call

The Company will hold a conference call to discuss these topics on Tuesday, August 2, 2016 at 11:00 AM Eastern Time (10:00 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 technology-enabled communication services. West helps manage or support essential enterprise communications with services that include unified communications services, safety services, interactive services such as automated notifications, telecom services and specialty agent services.

For over 25 years, West has provided reliable, high-quality, voice and data services. West serves clients in a variety of industries including telecommunications, retail, financial services, public safety, technology and healthcare. West has a global organization with sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information on West Corporation, 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, 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 June 30,
2016
2015
% Change
Revenue
$
582,397
$
571,891
1.8
%
Cost of services
249,426
245,266
1.7
%
Selling, general and administrative expenses
209,870
210,192
-0.2
%
Operating income
123,101
116,433
5.7
%
Interest expense, net
37,712
38,433
-1.9
%
Accelerated amortization of deferred financing costs
35,235
-
NM
Other expense (income), net
(1,214
)
100
NM
Income from continuing operations before tax
51,368
77,900
-34.1 %
Income tax expense attributed to continuing operations
18,389
28,677
-35.9 %
Income from continuing operations
32,979
49,223
-33.0 %
Income from discontinued operations, net of income taxes
-
358
-
Net income
$
32,979
$
49,581
-33.5 %
Weighted average shares outstanding:
Basic
82,598
83,394
Diluted
84,281
85,592
Earnings per share - Basic:
Continuing operations
$
0.40
$
0.59
-32.2 %
Discontinued operations
0.00
0.00
-
Total Earnings Per Share - Basic
$
0.40
$
0.59
-32.2 %
Earnings per share - Diluted:
Continuing operations
$
0.39
$
0.58
-32.8 %
Discontinued operations
0.00
0.00
-
Total Earnings Per Share - Diluted
$
0.39
$
0.58
-32.8 %
SELECTED SEGMENT FINANCIAL DATA:
Three Months Ended June 30,
2016
2015
% Change
Revenue:
Unified Communications Services
$
370,158
$
374,651
-1.2
%
Safety Services
74,423
66,138
12.5
%
Interactive Services
73,232
63,628
15.1
%
Specialized Agent Services
67,495
68,566
-1.6
%
Intersegment eliminations
(2,911
)
(1,092
)
NM
Total
$
582,397
$
571,891
1.8
%
Depreciation:
Unified Communications Services
$
17,293
$
17,344
-0.3
%
Safety Services
4,495
4,499
-0.1
%
Interactive Services
4,023
3,397
18.4
%
Specialized Agent Services
2,846
1,852
53.7
%
Total
$
28,657
$
27,092
5.8
%
Amortization:
Unified Communications Services - SG&A
$
3,378
$
3,282
2.9
%
Safety Services - SG&A
3,572
4,501
-20.6 %
Safety Services - COS
3,379
3,209
5.3
%
Interactive Services - SG&A
5,327
3,885
37.1
%
Specialized Agent Services - SG&A
4,594
4,773
-3.8
%
Deferred financing costs
39,144
5,007
681.8 %
Total
$
59,394
$
24,657
140.9 %
Share-based compensation:
Unified Communications Services
$
3,493
$
3,434
1.7
%
Safety Services
993
957
3.8
%
Interactive Services
620
602
3.0
%
Specialized Agent Services
1,069
989
8.1
%
Total
$
6,175
$
5,982
3.2
%
Cost of services:
Unified Communications Services
$
173,651
$
173,127
0.3
%
Safety Services
26,689
26,678
0.0
%
Interactive Services
16,918
13,569
24.7
%
Specialized Agent Services
33,760
32,462
4.0
%
Intersegment eliminations
(1,592
)
(570
)
NM
Total
$
249,426
$
245,266
1.7
%
Selling, general and administrative expenses:
Unified Communications Services
$
107,745
$
102,566
5.0
%
Safety Services
35,863
36,206
-0.9
%
Interactive Services
50,356
43,429
16.0
%
Specialized Agent Services
30,829
27,112
13.7
%
Corporate Other
(13,604 )
1,401
NM
Intersegment eliminations
(1,319
)
(522
)
152.7 %
Total
$
209,870
$
210,192
-0.2
%
Operating income:
Unified Communications Services
$
88,762
$
98,958
-10.3 %
Safety Services
11,871
3,254
264.8 %
Interactive Services
5,958
6,630
-10.1 %
Specialized Agent Services
2,906
8,992
-67.7 %
Corporate Other
13,604
(1,401
)
NM
Total
$
123,101
$
116,433
5.7
%
Operating margin:
Unified Communications Services
24.0
%
26.4
%
Safety Services
16.0
%
4.9
%
Interactive Services
8.1
%
10.4
%
Specialized Agent Services
4.3
%
13.1
%
Total
21.1
%
20.4
%
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except per share data)
Six Months Ended June 30,
2016
2015
% Change
Revenue
$
1,153,176
$
1,137,381
1.4
%
Cost of services
490,438
484,967
1.1
%
Selling, general and administrative expenses
430,713
425,288
1.3
%
Operating income
232,025
227,126
2.2
%
Interest expense, net
76,195
77,275
-1.4
%
Accelerated amortization of deferred financing costs
35,235
-
NM
Other expense (income), net
(174
)
(3,739
)
NM
Income from continuing operations before tax
120,769
153,590
-21.4 %
Income tax expense attributed to continuing operations
43,235
55,733
-22.4 %
Income from continuing operations
77,534
97,857
-20.8 %
Income from discontinued operations, net of income taxes
-
32,224
-
Net income
$
77,534
$
130,081
-40.4 %
Weighted average shares outstanding:
Basic
82,874
83,758
Diluted
84,425
85,920
Earnings per share - Basic:
Continuing operations
$
0.94
$
1.17
-19.7 %
Discontinued operations
0.00
0.38
-
Total Earnings Per Share - Basic
$
0.94
$
1.55
-39.4 %
Earnings per share - Diluted:
Continuing operations
$
0.92
$
1.14
-19.3 %
Discontinued operations
0.00
0.37
-
Total Earnings Per Share - Diluted
$
0.92
$
1.51
-39.1 %
SELECTED SEGMENT FINANCIAL DATA:
Six Months Ended June 30,
2016
2015
% Change
Revenue:
Unified Communications Services
$
732,871
$
744,109
-1.5
%
Safety Services
145,587
134,716
8.1
%
Interactive Services
144,961
126,095
15.0
%
Specialized Agent Services
135,873
135,644
0.2
%
Intersegment eliminations
(6,116
)
(3,183
)
NM
Total
$
1,153,176
$
1,137,381
1.4
%
Depreciation:
Unified Communications Services
$
34,836
$
34,573
0.8
%
Safety Services
9,049
9,366
-3.4
%
Interactive Services
7,943
6,756
17.6
%
Specialized Agent Services
5,630
3,499
60.9
%
Total
$
57,458
$
54,194
6.0
%
Amortization:
Unified Communications Services - SG&A
$
6,771
$
6,537
3.6
%
Safety Services - SG&A
6,955
9,150
-24.0 %
Safety Services - COS
6,648
6,502
2.2
%
Interactive Services - SG&A
10,382
7,680
35.2
%
Specialized Agent Services - SG&A
9,188
9,600
-4.3
%
Deferred financing costs
44,053
10,009
340.1 %
Total
$
83,997
$
49,478
69.8
%
Share-based compensation:
Unified Communications Services
$
7,821
$
6,705
16.6
%
Safety Services
2,220
1,876
18.3
%
Interactive Services
1,381
1,183
16.7
%
Specialized Agent Services
2,419
1,647
46.9
%
Total
$
13,841
$
11,411
21.3
%
Cost of services:
Unified Communications Services
$
339,847
$
341,442
-0.5
%
Safety Services
54,004
53,183
1.5
%
Interactive Services
33,070
27,231
21.4
%
Specialized Agent Services
66,911
64,033
4.5
%
Intersegment eliminations
(3,394
)
(922
)
NM
Total
$
490,438
$
484,967
1.1
%
Selling, general and administrative expenses:
Unified Communications Services
$
215,194
$
208,831
3.0
%
Safety Services
70,739
75,077
-5.8
%
Interactive Services
100,125
86,660
15.5
%
Specialized Agent Services
61,538
54,084
13.8
%
Corporate Other
(14,161
)
2,897
NM
Intersegment eliminations
(2,722
)
(2,261
)
20.4
%
Total
$
430,713
$
425,288
1.3
%
Operating income:
Unified Communications Services
$
177,830
$
193,836
-8.3
%
Safety Services
20,844
6,456
222.9 %
Interactive Services
11,766
12,204
-3.6
%
Specialized Agent Services
7,424
17,527
-57.6 %
Corporate Other
14,161
(2,897
)
NM
Total
$
232,025
$
227,126
2.2
%
Operating margin:
Unified Communications Services
24.3
%
26.0
%
Safety Services
14.3
%
4.8
%
Interactive Services
8.1
%
9.7
%
Specialized Agent Services
5.5
%
12.9
%
Total
20.1
%
20.0
%
WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30,
December 31,
%
2016
2015
Change
Assets:
Current assets:
Cash and cash equivalents
$
223,415
$
182,338
22.5
%
Trust and restricted cash
17,205
19,829
-13.2 %
Accounts receivable, net
392,164
373,087
5.1
%
Income taxes receivable
-
19,332
NM
Prepaid assets
52,279
43,093
21.3
%
Deferred expenses
54,130
65,781
-17.7 %
Other current assets
27,020
22,040
22.6
%
Assets held for sale
-
17,672
NM
Total current assets
766,213
743,172
3.1
%
Property and Equipment:
Property and equipment
1,096,009
1,053,678
4.0
%
Accumulated depreciation and amortization
(757,383
)
(718,834
)
5.4
%
Net property and equipment
338,626
334,844
1.1
%
Goodwill
1,920,707
1,915,690
0.3
%
Intangible assets, net
342,739
370,021
-7.4
%
Other assets
178,316
191,490
-6.9
%
Total assets
$
3,546,601
$
3,555,217
-0.2
%
Liabilities and Stockholders’ Deficit:
Current Liabilities:
Accounts payable
$
78,513
$
92,935
-15.5 %
Deferred revenue
152,397
161,828
-5.8
%
Accrued expenses
227,867
219,234
3.9
%
Current maturities of long-term debt
37,918
24,375
55.6
%
Total current liabilities
496,695
498,372
-0.3
%
Long-term obligations
3,290,940
3,318,688
-0.8
%
Deferred income taxes
103,062
104,222
-1.1
%
Other long-term liabilities
178,336
186,073
-4.2
%
Total liabilities
4,069,033
4,107,355
-0.9
%
Stockholders’ Deficit:
Common stock
86
85
1.2
%
Additional paid-in capital
2,210,910
2,193,193
0.8
%
Retained deficit
(2,568,068 )
(2,607,415 )
-1.5
%
Accumulated other comprehensive loss
(78,134
)
(72,736
)
7.4
%
Treasury stock at cost
(87,226
)
(65,265
)
33.6
%
Total stockholders’ deficit
(522,432
)
(552,138
)
-5.4
%
Total liabilities and stockholders’ deficit $
3,546,601
$
3,555,217
-0.2
%

Reconciliation of Non-GAAP Financial Measures

<span data-mce-style="text-decoration: underline;" 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 June 30,
Consolidated:
2016
2015
% Change
Operating income
$
123,101
$ 116,433
5.7
%
Amortization of acquired intangible assets
16,871
16,441
2.6
%
Share-based compensation
6,175
5,982
3.2
%
Secondary equity offering expense
-
334
NM
Gain on sale of real estate
(12,848 )
-
NM
M&A and acquisition-related costs
1,401
802
74.7
%
Adjusted operating income
$
134,700
$ 139,992
-3.8
%
Adjusted operating income margin
23.1
%
24.5
%
Unified Communications Services:
Operating income
$
88,762
$ 98,958
-10.3 %
Amortization of acquired intangible assets
3,378
3,282
2.9
%
Share-based compensation
3,493
3,434
1.7
%
Secondary equity offering expense
-
201
NM
M&A and acquisition-related costs
387
-
Adjusted operating income
$
96,020
$ 105,875
-9.3
%
Adjusted operating income margin
25.9
%
28.3
%
Safety Services:
Operating income
$
11,871
$ 3,254
264.8 %
Amortization of acquired intangible assets
3,572
4,501
-20.6 %
Share-based compensation
993
957
3.8
%
Secondary equity offering expense
-
64
NM
Adjusted operating income
$
16,436
$ 8,776
87.3
%
Adjusted operating income margin
22.1
%
13.3
%
Interactive Services:
Operating income
$
5,958
$ 6,630
-10.1 %
Amortization of acquired intangible assets
5,327
3,885
37.1
%
Share-based compensation
620
602
3.0
%
Secondary equity offering expense
-
29
NM
M&A and acquisition-related costs
1,059
717
47.7
%
Adjusted operating income
$
12,964
$ 11,863
9.3
%
Adjusted operating income margin
17.7
%
18.6
%
Specialized Agent Services:
Operating income
$
2,906
$ 8,992
-67.7 %
Amortization of acquired intangible assets
4,594
4,773
-3.8
%
Share-based compensation
1,069
989
8.1
%
Secondary equity offering expense
-
40
NM
Adjusted operating income
$
8,569
$ 14,794
-42.1 %
Adjusted operating income margin
12.7
%
21.6
%
Corporate Other:
Operating income (loss)
$
13,604
$ (1,401
)
Secondary equity offering expense
-
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
(45
)
85
Adjusted operating income (loss)
$
711
$ (1,316
)
Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
Six Months Ended June 30,
Consolidated:
2016
2015
% Change
Operating income
$
232,025
$ 227,126
2.2
%
Amortization of acquired intangible assets
33,296
32,967
1.0
%
Share-based compensation
13,841
11,411
21.3
%
Secondary equity offering expense
-
1,041
NM
Gain on sale of real estate
(12,848 )
-
NM
M&A and acquisition-related costs
2,489
1,580
57.5
%
Adjusted operating income
$
268,803
$ 274,125
-1.9
%
Adjusted operating income margin
23.3
%
24.1
%
Unified Communications Services:
Operating income
$
177,830
$ 193,836
-8.3
%
Amortization of acquired intangible assets
6,771
6,537
3.6
%
Share-based compensation
7,821
6,705
16.6
%
Secondary equity offering expense
-
247
NM
M&A and acquisition-related costs
878
-
NM
Adjusted operating income
$
193,300
$ 207,325
-6.8
%
Adjusted operating income margin
26.4
%
27.9
%
Safety Services:
Operating income
$
20,844
$ 6,456
222.9 %
Amortization of acquired intangible assets
6,955
9,150
-24.0 %
Share-based compensation
2,220
1,876
18.3
%
Secondary equity offering expense
-
78
NM
Adjusted operating income
$
30,019
$ 17,560
71.0
%
Adjusted operating income margin
20.6
%
13.0
%
Interactive Services:
Operating income
$
11,766
$ 12,204
-3.6
%
Amortization of acquired intangible assets
10,382
7,680
35.2
%
Share-based compensation
1,381
1,183
16.7
%
Secondary equity offering expense
-
35
NM
M&A and acquisition-related costs
1,611
1,345
19.8
%
Adjusted operating income
$
25,140
$ 22,447
12.0
%
Adjusted operating income margin
17.3
%
17.8
%
Specialized Agent Services:
Operating income
$
7,424
$ 17,527
-57.6 %
Amortization of acquired intangible assets
9,188
9,600
-4.3
%
Share-based compensation
2,419
1,647
46.9
%
Secondary equity offering expense
-
50
NM
M&A and acquisition-related costs
-
150
NM
Adjusted operating income
$
19,031
$ 28,974
-34.3 %
Adjusted operating income margin
14.0
%
21.4
%
Corporate Other:
Operating income (loss)
$
14,161
$ (2,897
)
Secondary equity offering expense
-
631
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
-
85
Adjusted operating income (loss)
$
1,313
$ (2,181
)

<span data-mce-style="text-decoration: underline;" 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 June 30,
2016
2015
% Change
Income from continuing operations
$
32,979
$ 49,223
-33.0
%
Amortization of acquired intangible assets
16,871
16,441
Amortization of deferred financing costs
39,144
5,007
Share-based compensation
6,175
5,982
Secondary equity offering expense
-
334
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
1,401
802
Pre-tax total
50,743
28,566
Income tax expense on adjustments
18,166
10,516
Adjusted income from continuing operations
$
65,556
$ 67,273
-2.6
%
Diluted shares outstanding
84,281
85,592
Adjusted EPS from continuing operations - diluted
$
0.78
$ 0.79
-1.3
%
DISCONTINUED OPERATIONS
Three Months Ended June 30,
2016
2015
Income from discontinued operations
$
-
$ 358
Amortization of acquired intangible assets
-
-
Share-based compensation
-
-
M&A and acquisition-related costs
-
30
Pre-tax total
-
30
Income tax benefit on adjustments
-
12
Adjusted income from discontinued operations
$
-
$ 376
Diluted shares outstanding
84,281
85,592
Adjusted EPS from discontinued operations - diluted $
0.00
$ 0.00
CONSOLIDATED
Three Months Ended June 30,
2016
2015
% Change
Net income
$
32,979
$ 49,581
-33.5
%
Amortization of acquired intangible assets
16,871
16,441
Amortization of deferred financing costs
39,144
5,007
Share-based compensation
6,175
5,982
Secondary equity offering expense
-
334
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
1,401
832
Pre-tax total
50,743
28,596
Income tax expense on adjustments
18,166
10,528
Adjusted net income
$
65,556
$ 67,649
-3.1
%
Diluted shares outstanding
84,281
85,592
Adjusted EPS - diluted
$
0.78
$ 0.79
-1.3
%
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
Six Months Ended June 30,
2016
2015
% Change
Income from continuing operations
$
77,534
$ 97,857
-20.8
%
Amortization of acquired intangible assets
33,296
32,967
Amortization of deferred financing costs
44,053
10,009
Share-based compensation
13,841
11,411
Secondary equity offering expense
-
1,041
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
2,489
1,580
Pre-tax total
80,831
57,008
Income tax expense on adjustments
28,937
20,688
Adjusted income from continuing operations
$
129,428
$ 134,177
-3.5
%
Diluted shares outstanding
84,425
85,920
Adjusted EPS from continuing operations - diluted
$
1.53
$ 1.56
-1.9
%
DISCONTINUED OPERATIONS
Six Months Ended June 30,
2016
2015
Income from discontinued operations
$
-
$ 32,224
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
$
-
$ 33,460
Diluted shares outstanding
84,425
85,920
Adjusted EPS from discontinued operations - diluted $
0.00
$ 0.39
CONSOLIDATED
Six Months Ended June 30,
2016
2015
% Change
Net income
$
77,534
$ 130,081
-40.4
%
Amortization of acquired intangible assets
33,296
33,008
Amortization of deferred financing costs
44,053
10,009
Share-based compensation
13,841
12,987
Secondary equity offering expense
-
1,041
Gain on sale of real estate
(12,848 )
-
M&A and acquisition-related costs
2,489
1,966
Pre-tax total
80,831
59,011
Income tax expense on adjustments
28,937
21,456
Adjusted net income
$
129,428
$ 167,636
-22.8
%
Diluted shares outstanding
84,425
85,920
Adjusted EPS - diluted
$
1.53
$ 1.95
-21.5
%

<span data-mce-style="text-decoration: underline;" 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 June 30,
Six Months Ended June 30,
2016
2015
% Change
2016
2015
% Change
Cash flows from operating activities
$
137,433
$
98,128
40.1 %
$
197,485
$
156,524
26.2 %
Cash capital expenditures
37,507
28,557
31.3 %
73,864
64,864
13.9 %
Free cash flow
$
99,926
$
69,571
43.6 %
$
123,621
$
91,660
34.9 %
DISCONTINUED OPERATIONS
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Cash flows from (used in) operating activities $
-
$
(1,683 )
$
-
$
(6,962
)
Cash capital expenditures
-
-
-
1,930
Free cash flow
$
-
$
(1,683 )
$
-
$
(8,892
)
CONSOLIDATED
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
% Change
2016
2015
% Change
Cash flows from operating activities
$
137,433
$
96,445
42.5 %
$
197,485
$
149,562
32.0 %
Cash capital expenditures
37,507
28,557
31.3 %
73,864
66,794
10.6 %
Free cash flow
$
99,926
$
67,888
47.2 %
$
123,621
$
82,768
49.4 %

<span data-mce-style="text-decoration: underline;" 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 June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Cash flows from operating activities
$
137,433
$
98,128
$
197,485
$
156,524
Income tax expense
18,389
28,677
43,235
55,733
Deferred income tax expense
6,132
759
3,755
(2,202
)
Interest expense and other financing charges
73,267
38,941
112,252
78,478
Provision for share-based compensation
(6,175
)
(5,982
)
(13,841
)
(11,411
)
Amortization of deferred financing costs
(39,144 )
(5,007
)
(44,053
)
(10,009
)
Gain on sale of real estate
12,848
-
12,848
-
Other
(712
)
(4
)
(886
)
(220
)
Changes in operating assets and liabilities,
net of business acquisitions
(28,496 )
8,071
19,628
58,838
EBITDA
173,542
163,583
330,423
325,731
Provision for share-based compensation
6,175
5,982
13,841
11,411
Secondary equity offering expense
-
334
-
1,041
M&A and acquisition-related costs
1,401
802
2,489
1,580
Gain on sale of real estate
(12,848 )
-
(12,848
)
-
Adjusted EBITDA
$
168,270
$
170,701
$
333,905
$
339,763
Cash flows from operating activities
$
137,433
$
98,128
$
197,485
$
156,524
Cash flows used in investing activities
$
(3,124
)
$
(45,318 )
$
(42,584
)
$
(83,721
)
Cash flows used in financing activities
$
(42,301 )
$
(56,260 )
$
(112,546 )
$
(290,742 )
DISCONTINUED OPERATIONS
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Cash flows from operating activities
$
-
$
(1,683
)
$
-
$
(6,962
)
Income tax expense
-
193
-
20,010
Deferred income tax expense
-
2,041
-
(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
-
551
-
52,275
Provision for share-based compensation
-
-
-
1,576
M&A and acquisition-related costs
-
30
-
386
Gain on sale of business
-
-
-
(48,556
)
Adjusted EBITDA
$
-
$
581
$
-
$
5,681
Cash flows used in operating activities
$
-
$
(1,683
)
$
-
$
(6,962
)
Cash flows from investing activities
$
-
$
5,734
$
-
$
269,540
Cash flows used in financing activities
$
-
$
-
$
-
$
-
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.
CONSOLIDATED
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Cash flows from operating activities
$
137,433
$
96,445
$
197,485
$
149,562
Income tax expense
18,389
28,870
43,235
75,743
Deferred income tax expense
6,132
2,800
3,755
(4,495
)
Interest expense and other financing charges
73,267
38,941
112,252
78,478
Provision for share-based compensation
(6,175
)
(5,982
)
(13,841
)
(12,987
)
Amortization of deferred financing costs
(39,144 )
(5,007
)
(44,053
)
(10,009
)
Gain on sale of real estate
12,848
-
12,848
-
Other
(712
)
(4
)
(886
)
29,376
Changes in operating assets and liabilities,
net of business acquisitions
(28,496 )
8,071
19,628
72,338
EBITDA
173,542
164,134
330,423
378,006
Provision for share-based compensation
6,175
5,982
13,841
12,987
Secondary equity offering expense
-
334
-
1,041
M&A and acquisition-related costs
1,401
832
2,489
1,966
Gain on sale of business
-
-
-
(48,556
)
Gain on sale of real estate
(12,848 )
-
(12,848
)
-
Adjusted EBITDA
$
168,270
$
171,282
$
333,905
$
345,444
CONSOLIDATED
Cash flows from operating activities
$
137,433
$
96,445
$
197,485
$
149,562
Cash flows from (used in) investing activities $
(3,124
)
$
(39,584 )
$
(42,584
)
$
185,819
Cash flows used in financing activities
$
(42,301 )
$
(56,260 )
$
(112,546 )
$
(290,742 )
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
CONTINUING OPERATIONS
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Income from continuing operations
$
32,979
$
49,223
$
77,534
$
97,857
Interest expense and other financing charges
73,267
38,941
112,252
78,478
Depreciation and amortization
48,907
46,742
97,402
93,663
Income tax expense
18,389
28,677
43,235
55,733
EBITDA
173,542
163,583
330,423
325,731
Provision for share-based compensation
6,175
5,982
13,841
11,411
Secondary equity offering expense
-
334
-
1,041
M&A and acquisition-related costs
1,401
802
2,489
1,580
Gain on sale of real estate
(12,848 )
-
(12,848 )
-
Adjusted EBITDA
$
168,270
$
170,701
$
333,905
$
339,763
DISCONTINUED OPERATIONS
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Income from discontinued operations
$
-
$
358
$
-
$
32,224
Depreciation and amortization
-
-
-
41
Income tax expense
-
193
-
20,010
EBITDA
-
551
-
52,275
Provision for share-based compensation
-
-
-
1,576
M&A and acquisition-related costs
-
30
-
386
Gain on sale of business
-
-
-
(48,556 )
Adjusted EBITDA
$
-
$
581
$
-
$
5,681
CONSOLIDATED
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Net income
$
32,979
$
49,581
$
77,534
$
130,081
Interest expense and other financing charges
73,267
38,941
112,252
78,478
Depreciation and amortization
48,907
46,742
97,402
93,704
Income tax expense
18,389
28,870
43,235
75,743
EBITDA
173,542
164,134
330,423
378,006
Provision for share-based compensation
6,175
5,982
13,841
12,987
Secondary equity offering expense
-
334
-
1,041
M&A and acquisition-related costs
1,401
832
2,489
1,966
Gain on sale of business
-
-
-
(48,556 )
Gain on sale of real estate
(12,848 )
-
(12,848 )
-
Adjusted EBITDA
$
168,270
$
171,282
$
333,905
$
345,444

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 SharpSchool, 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 the Company’s ongoing business.

NM: Not Meaningful

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

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