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8-K - 8-K - WEST CORPd769621d8k.htm

Exhibit 99.1

 

LOGO

 

West Corporation    AT THE COMPANY:   
11808 Miracle Hills Drive    David Pleiss   
Omaha, NE 68154    Investor Relations   
   (402) 963-1500   
   dmpleiss@west.com   

West Corporation Reports Second Quarter 2014 Results

and Declares Quarterly Dividend

Company Updates 2014 Guidance

OMAHA, NE, July 31, 2014 – West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its second quarter 2014 results.

Key Quarterly Highlights:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
Unaudited, in millions except per share    2014     2013     % Change     2014     2013     % Change  

Consolidated Revenue

   $ 691.1      $ 672.7        2.7   $ 1,367.2      $ 1,332.9        2.6

Platform-based Revenue1

     506.6        494.9        2.4     1,001.7        976.4        2.6

Adjusted EBITDA2

     175.4        180.7        -2.9     346.5        351.3        -1.3

EBITDA2

     171.5        178.5        -4.0     338.6        317.5        6.7

Adjusted Operating Income2

     139.7        150.8        -7.4     277.9        289.7        -4.1

Operating Income

     121.9        134.7        -9.5     243.8        228.0        6.9

Adjusted Net Income2

     62.0        60.7        2.2     121.6        105.5        15.3

Net Income

     47.8        43.7        9.4     94.0        46.7        101.3

Adjusted Earnings per Share - Diluted2

     0.73        0.71        2.8     1.43        1.40        2.1

Earnings per Share - Diluted

     0.56        0.51        9.8     1.10        0.62        77.4

Free Cash Flow2,3

     76.4        69.0        10.8     126.4        134.1        -5.8

Cash Flows from Operations

     116.4        95.0        22.5     201.8        193.7        4.2

Cash Flows used in Investing

     (382.9     (27.0     NM        (418.2     (61.0     NM   

Cash Flows from (used in) Financing

     167.5        (503.3     NM        144.7        (93.7     NM   

“We delivered another quarter of growth in revenue, earnings per share and cash from operations, while closing two strategic acquisitions that will help drive future growth,” said Tom Barker, chairman and chief executive officer of West Corporation. “We also took a number of steps to reduce our interest expense which will contribute to further improvement in profitability next year.”

 

 

1  Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.
2  See Reconciliation of Non-GAAP Financial Measures below.
3  Free cash flow is calculated as cash flows from operations less cash capital expenditures.

NM: Not Meaningful


Dividend

The Company today also announced a $0.225 per common share quarterly dividend. The dividend is payable on August 21, 2014 to shareholders of record as of the close of business on August 11, 2014.

Consolidated Operating Results

For the second quarter of 2014, revenue was $691.1 million compared to $672.7 million for the same quarter of 2013, an increase of 2.7 percent. Revenue from acquired entities4 was $8.8 million during the second quarter of 2014. The Company’s platform-based businesses1 had revenue of $506.6 million in the second quarter of 2014, an increase of 2.4 percent over the same quarter of the previous year. Revenue from agent services1 increased 4.2 percent in the second quarter of 2014 to $188.9 million compared to $181.2 million in the second quarter of 2013.

The Unified Communications segment had revenue of $411.9 million in the second quarter of 2014, an increase of 0.8 percent compared to the same quarter of the previous year. The increase in Unified Communications revenue included $4.7 million from SchoolMessenger. The Communication Services segment had revenue of $294.9 million in the second quarter of 2014, an increase of 8.7 percent compared to the second quarter of 2013. The increase in Communication Services revenue included $4.1 million from Health Advocate.

Adjusted EBITDA2 for the second quarter of 2014 was $175.4 million compared to $180.7 million for the second quarter of 2013. EBITDA2 was $171.5 million in the second quarter of 2014 compared to $178.5 million in the same quarter of the previous year. The decrease in EBITDA and adjusted EBITDA was due, in part, to a one-time benefit in the second quarter of 2013.

Adjusted operating income2 for the second quarter of 2014 was $139.7 million, or 20.2 percent of revenue, compared to $150.8 million, or 22.4 percent of revenue in the same quarter of 2013, a decrease of 7.4 percent. Operating income was $121.9 million in the second quarter of 2014 compared to $134.7 million in the second quarter of 2013, a decrease of 9.5 percent. This decrease was primarily due to acquisition costs, the impact of foreign currency fluctuations and mark-to-market benefit plan costs in the second quarter of 2014 and a one-time benefit in the second quarter of 2013.

Adjusted net income2 was $62.0 million in the second quarter of 2014, an increase of 2.2 percent from the same quarter of 2013. Net income increased to $47.8 million in the second quarter of 2014 from $43.7 million in the same quarter of 2013. The improvement in profitability was driven primarily by lower interest expense resulting from deleveraging and lower cost of debt.

 

 

1  Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.
2  See Reconciliation of Non-GAAP Financial Measures below.
4  Revenue from acquired entities includes SchoolMessenger in the Unified Communications segment after April 21, 2014 and Health Advocate in the Communications Services segment after June 13, 2014.

 

2


Balance Sheet, Cash Flow and Liquidity

At June 30, 2014, West Corporation had cash and cash equivalents totaling $159.7 million and working capital of $264.3 million. Net interest expense was $48.4 million during the three months ended June 30, 2014 compared to $57.2 million during the comparable period the prior year.

The Company’s net debt to adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities5, was 4.59x at June 30, 2014.

On July 1, 2014, the Company issued $1.0 billion aggregate principal amount of 5.375 percent notes due 2022 (the “2022 Senior Notes”). A portion of the net proceeds from the 2022 Senior Notes was used to repurchase, pursuant to a tender offer, $270.8 million aggregate principal amount of the 8.625 percent Senior Notes due 2018 (the “2018 Senior Notes”) and $200.0 million aggregate principal amount of the 7.875 percent Senior Notes due 2019 (the “2019 Senior Notes”). The aggregate repurchase price for the 2018 Senior Notes was $298.7 million including accrued interest of $10.8 million and tender offer premium of $17.1 million. The aggregate repurchase price for the 2019 Senior Notes was $215.3 million including accrued interest of $2.0 million and tender offer premium of $13.3 million. The Company also used a portion of the net proceeds from the 2022 Senior Notes to repay a portion of the senior secured term loan facility due 2018. The total aggregate principal amount repaid on the senior secured term loan facility due 2018 was $250.0 million. On July 17, 2014, the Company redeemed the remaining $229.2 million aggregate principal amount of the 2018 Senior Notes. The aggregate purchase price for these 2018 Senior Notes was $242.9 million including accrued interest of $0.1 million, a redemption premium of $9.9 million and a make whole premium of $3.7 million.

“The completion of the bond offering and the changes to the credit agreement have improved West’s capital structure,” said Paul Mendlik, CFO. “We were able to replace current long-term debt with extended maturities and a significantly more attractive rate, saving us approximately $38 million in annual cash interest expense. The full impact of these changes will be realized starting next year.”

During the second quarter of 2014, the Company invested $40.4 million, or 5.8 percent of revenue, in capital expenditures primarily for software, computer equipment, the consolidation of data centers and expansion of the Company’s network infrastructure.

 

 

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

 

3


Acquisitions

On April 21, 2014, the Company completed the acquisition of Reliance Holding, Inc., doing business as SchoolMessenger, a leading provider of notification and mobile communication solutions for the K-12 education market. The purchase price was approximately $76.5 million and was funded with cash on hand. Results from SchoolMessenger after April 21, 2014 are included in the Company’s Unified Communications operating segment.

On June 13, 2014, the Company completed the acquisition of Health Advocate, Inc., a leading provider of healthcare advocacy services. The purchase price was approximately $265.4 million and was funded with cash on hand and use of the Company’s revolving trade accounts receivable financing facility. Results from Health Advocate after June 13, 2014 are included in the Company’s Communication Services operating segment.

Updated 2014 Guidance

The Company had originally provided 2014 guidance with the release of its fourth quarter 2013 results on January 30, 2014. A portion of the original guidance was updated on June 16, 2014 to include the expected results from the acquisitions of SchoolMessenger and Health Advocate. That update has not changed and is included in the table below. The acquisitions are expected to result in higher revenue and adjusted EBITDA. The impact of increased amortization from these acquisitions is expected to result in slightly lower operating income.

The Company has updated a portion of its 2014 guidance today to include its revised expectations for the remainder of 2014 and the impact of its recent debt refinancing. The refinancing is expected to result in a net decrease in net income of approximately $42 million and diluted earnings per share of approximately $0.49 in 2014 due to accelerated bond amortization, and bond redemption, tender offer and make-whole premiums. This decrease is net of interest savings of approximately $9 million.

Interest savings and add-backs for amortization related to acquisitions and accelerated bond amortization, and bond redemption, tender offer, and make-whole premiums on the called bonds are expected to result in slightly higher adjusted net income and adjusted diluted earnings per share. Cash flows from operations are expected to increase mainly due to the tax benefits of the refinancing transactions.

The updated guidance below assumes no additional acquisitions or changes in the current operating environment.

 

4


In millions except per share and leverage ratio    Original
2014 Guidance
   Updated
2014 Guidance

Consolidated Revenue

   $2,700 - $2,755    $2,775 - $2,820

Platform-based Revenue1

   $2,000 - $2,033    $2,010 - $2,035

Agent-based Revenue1

   $710 - $730    $780 - $800

Adjusted EBITDA2

   $690 - $719    $705 - $730

EBITDA2

   $677 - $706    $677 - $706

Adjusted Operating Income2

   $547 - $576    $547 - $576

Operating Income

   $488 - $517    $480 - $510

Adjusted Net Income2

   $232 - $247    $245 - $260

Net Income

   $185 - $200    $140 - $155

Adjusted Earnings per Share - Diluted2

   $2.72 - $2.89    $2.87 - $3.04

Earnings per Share - Diluted

   $2.17 - $2.34    $1.64 - $1.81

Cash Flows from Operations

   $375 - $400    $415 - $435

Capital Expenditures

   $140 - $160    $170 - $190

Free Cash Flow2,3

   $225 - $250    $230 - $260

Net Debt to pro forma Adjusted EBITDA ratio5

   4.4x - 4.5x    4.55x - 4.70x

Full year average diluted share count

   85.3 - 85.5    85.3 - 85.5

 

1  Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.
2  See Reconciliation of Non-GAAP Financial Measures below.
3  Free cash flow is calculated as cash flows from operations less cash capital expenditures.
5  Based on loan covenants. Covenant leverage ratio is net of cash and excludes accounts receivable securitization debt.

 

5


Conference Call

The Company will hold a conference call to discuss these topics on Friday, August 1, 2014 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 (Nasdaq:WSTC) is a global provider of communication and network infrastructure solutions. West helps manage or support essential enterprise communications with services that include conferencing and collaboration, public safety services, IP communications, interactive services such as automated notifications, large-scale agent services and telecom 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. The statements contained in the updated 2014 guidance are forward-looking statements. 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 industries; 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; future

 

6


impairments of our substantial goodwill, intangible assets, or other long-lived assets; and West’s ability to recover consumer receivables on behalf of its clients. 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; the 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.

 

7


WEST CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited, in thousands except selected per share and operating data)  
     Three Months Ended June 30,  
     2014     2013           2014  
     Actual     Actual     % Change     Adjusted (3)  

Revenue

   $ 691,063      $ 672,695        2.7   $ 691,063   

Cost of services

     330,368        311,939        5.9     330,368   

Selling, general and administrative expenses

     238,781        226,018        5.6     220,960   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     121,914        134,738        -9.5     139,735   

Interest expense, net

     48,351        57,190        -15.5     43,471   

Subordinated debt call premium and accelerated amortization of deferred financing costs

     —          6,603        NM        —     

Other expense (income), net

     (2,395     1,077        NM        (2,395
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before tax

     75,958        69,868        8.7     98,659   

Income tax

     28,199        26,200        7.6     36,627   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 47,759      $ 43,668        9.4   $ 62,032   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     83,953        83,524          83,953   

Diluted

     85,398        84,943          85,398   

Earnings per share:

        

Basic

   $ 0.57      $ 0.52        9.6   $ 0.74   

Diluted

   $ 0.56      $ 0.51        9.8   $ 0.73   

SELECTED SEGMENT DATA:

        

Revenue:

        

Unified Communications

   $ 411,900      $ 408,448        0.8  

Communication Services

     294,938        271,400        8.7  

Intersegment eliminations

     (15,775     (7,153     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 691,063      $ 672,695        2.7  
  

 

 

   

 

 

   

 

 

   

Depreciation:

        

Unified Communications

   $ 19,329      $ 17,512        10.4  

Communication Services

     10,663        10,458        2.0  
  

 

 

   

 

 

   

 

 

   

Total

   $ 29,992      $ 27,970        7.2  
  

 

 

   

 

 

   

 

 

   

Amortization:

        

Unified Communications - SG&A

   $ 7,376      $ 6,703        10.0  

Communication Services - COS

     3,034        2,506        21.1  

Communication Services - SG&A

     6,477        7,244        -10.6  

Corporate - deferred financing costs

     4,880        4,524        7.9  

Corporate - accelerated amortization of deferred financing costs

     —          6,603        NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 21,767      $ 27,580        -21.1  
  

 

 

   

 

 

   

 

 

   

Share-based Compensation

        

Unified Communications

   $ 1,453      $ 1,058        37.3  

Communication Services

     1,119        802        39.5  
  

 

 

   

 

 

   

 

 

   

Total

   $ 2,572      $ 1,860        38.3  
  

 

 

   

 

 

   

 

 

   

Cost of services:

        

Unified Communications

   $ 177,495      $ 168,553        5.3  

Communication Services

     166,229        149,209        11.4  

Intersegment eliminations

     (13,356     (5,823     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 330,368      $ 311,939        5.9  
  

 

 

   

 

 

   

 

 

   

Selling, general and administrative expenses:

        

Unified Communications

   $ 138,080      $ 126,739        8.9  

Communication Services

     103,120        100,609        2.5  

Intersegment eliminations

     (2,419     (1,330     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 238,781      $ 226,018        5.6  
  

 

 

   

 

 

   

 

 

   

Operating income:

        

Unified Communications

   $ 96,325      $ 113,156        -14.9   $ 105,946   

Communication Services

     25,589        21,582        18.6     33,789   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 121,914      $ 134,738        -9.5   $ 139,735   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin:

        

Unified Communications

     23.4     27.7       25.7

Communication Services

     8.7     8.0       11.5
  

 

 

   

 

 

     

 

 

 

Total

     17.6     20.0       20.2
  

 

 

   

 

 

     

 

 

 

SELECTED OPERATING DATA1:

        

Revenue from platform-based services

   $ 506,598      $ 494,934        2.4  

Revenue from agent services

   $ 188,903      $ 181,211        4.2  

 

1  Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.

 

8


WEST CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited, in thousands except selected per share and operating data)  
     Six Months Ended June 30,  
     2014     2013           2014  
     Actual     Actual     % Change     Adjusted (3)  

Revenue

   $ 1,367,215      $ 1,332,919        2.6   $ 1,367,215   

Cost of services

     647,050        621,006        4.2     647,050   

Selling, general and administrative expenses

     476,394        483,885        -1.5     442,293   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     243,771        228,028        6.9     277,872   

Interest expense, net

     97,317        130,068        -25.2     87,563   

Subordinated debt call premium and accelerated amortization of deferred financing costs

     —          23,105        NM        —     

Other expense (income), net

     (3,107     99        NM        (3,107
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before tax

     149,561        74,756        100.1     193,416   

Income tax

     55,524        28,033        98.1     71,805   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 94,037      $ 46,723        101.3   $ 121,611   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     83,879        73,716          83,879   

Diluted

     85,312        75,151          85,312   

Earnings per share:

        

Basic

   $ 1.12      $ 0.63        77.8   $ 1.45   

Diluted

   $ 1.10      $ 0.62        77.4   $ 1.43   

SELECTED SEGMENT DATA:

        

Revenue:

        

Unified Communications

   $ 816,817      $ 803,502        1.7  

Communication Services

     580,359        540,569        7.4  

Intersegment eliminations

     (29,961     (11,152     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 1,367,215      $ 1,332,919        2.6  
  

 

 

   

 

 

   

 

 

   

Depreciation:

        

Unified Communications

   $ 38,210      $ 34,882        9.5  

Communication Services

     20,808        20,895        -0.4  
  

 

 

   

 

 

   

 

 

   

Total

   $ 59,018      $ 55,777        5.8  
  

 

 

   

 

 

   

 

 

   

Amortization:

        

Unified Communications - SG&A

   $ 13,522      $ 13,422        0.7  

Communication Services - COS

     5,917        5,095        16.1  

Communication Services - SG&A

     12,653        14,486        -12.7  

Corporate - deferred financing costs

     9,754        9,178        6.3  

Corporate - accelerated amortization of deferred financing costs

     —          6,603        NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 41,846      $ 48,784        -14.2  
  

 

 

   

 

 

   

 

 

   

Share-based Compensation

        

Unified Communications

   $ 3,490      $ 2,846        22.6  

Communication Services

     2,714        2,204        23.1  
  

 

 

   

 

 

   

 

 

   

Total

   $ 6,204      $ 5,050        22.9  
  

 

 

   

 

 

   

 

 

   

Cost of services:

        

Unified Communications

   $ 344,515      $ 332,106        3.7  

Communication Services

     328,919        297,636        10.5  

Intersegment eliminations

     (26,384     (8,736     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 647,050      $ 621,006        4.2  
  

 

 

   

 

 

   

 

 

   

Selling, general and administrative expenses:

        

Unified Communications

   $ 275,282      $ 277,274        -0.7  

Communication Services

     204,689        209,027        -2.1  

Intersegment eliminations

     (3,577     (2,416     NM     
  

 

 

   

 

 

   

 

 

   

Total

   $ 476,394      $ 483,885        -1.5  
  

 

 

   

 

 

   

 

 

   

Operating income:

        

Unified Communications

   $ 197,020      $ 194,122        1.5   $ 214,947   

Communication Services

     46,751        33,906        37.9     62,925   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 243,771      $ 228,028        6.9   $ 277,872   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin:

        

Unified Communications

     24.1     24.2       26.3

Communication Services

     8.1     6.3       10.8
  

 

 

   

 

 

     

 

 

 

Total

     17.8     17.1       20.3
  

 

 

   

 

 

     

 

 

 

SELECTED OPERATING DATA1:

        

Revenue from platform-based services

   $ 1,001,728      $ 976,372        2.6  

Revenue from agent services

   $ 373,173      $ 363,100        2.8  

 

1  Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.

 

9


WEST CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited, in thousands)  
     June 30,     December 31,     %  
     2014     2013     Change  

Current assets:

      

Cash and cash equivalents

   $ 159,701      $ 230,041        -30.6

Trust and restricted cash

     22,549        21,679        4.0

Accounts receivable, net

     467,938        450,189        3.9

Deferred income taxes receivable

     3,401        —          NM   

Prepaid assets

     58,644        36,032        62.8

Other current assets

     86,430        83,629        3.3
  

 

 

   

 

 

   

 

 

 

Total current assets

     798,663        821,570        -2.8

Net property and equipment

     375,362        364,765        2.9

Goodwill

     2,037,730        1,823,921        11.7

Other assets

     664,198        476,008        39.5
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,875,953      $ 3,486,264        11.2
  

 

 

   

 

 

   

 

 

 

Current liabilities

   $ 534,315      $ 457,642        16.8

Long-term obligations

     3,686,593        3,513,470        4.9

Other liabilities

     327,785        255,324        28.4
  

 

 

   

 

 

   

 

 

 

Total liabilities

     4,548,693        4,226,436        7.6

Stockholders’ deficit

     (672,740     (740,172     9.1
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 3,875,953      $ 3,486,264        11.2
  

 

 

   

 

 

   

 

 

 

 

10


Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income Reconciliation

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 IPO-related expenses, expenses terminated in connection with the IPO, M&A and acquisition-related costs and certain non-cash items. 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 to operating income.

 

Reconciliation of Adjusted Operating Income from Operating Income  
Unaudited, in thousands  
     Three Months Ended June 30,  
     2014      2013      % Change  

Operating income

   $ 121,914       $ 134,738         -9.5

Amortization of acquired intangible assets

     13,853         13,947      

Share-based compensation

     2,572         1,860      

M&A and acquisition related costs

     1,396         282      
  

 

 

    

 

 

    

 

 

 

Adjusted operating income

   $ 139,735       $ 150,827         -7.4
  

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30,  
     2014      2013      % Change  

Operating income

   $ 243,771       $ 228,028         6.9

Amortization of acquired intangible assets

     26,175         27,908      

Share-based compensation

     6,204         5,050      

Sponsor management/termination fee

     —           25,000      

IPO bonus

     —           2,975      

M&A and acquisition related costs

     1,722         751      
  

 

 

    

 

 

    

 

 

 

Adjusted operating income

   $ 277,872       $ 289,712         -4.1
  

 

 

    

 

 

    

 

 

 

 

11


Adjusted Net Income and Adjusted Earnings per Share Reconciliation

Adjusted net income 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 IPO-related expenses, expenses terminated in connection with the IPO, bond redemption premiums, M&A and acquisition related costs and certain non-cash items.

Adjusted net income 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, as presented, may not be comparable to similarly titled measures of other companies.

Set forth below is a reconciliation of adjusted net income to net income.

 

Reconciliation of Adjusted Net Income from Net Income  
Unaudited, in thousands except per share  
     Three Months Ended June 30,  
     2014      2013      % Change  

Net income

   $ 47,759       $ 43,668         9.4

Amortization of acquired intangible assets

     13,853         13,947      

Amortization of deferred financing costs

     4,880         4,524      

Accelerated amortization of deferred financing costs

     —           6,603      

Share-based compensation

     2,572         1,860      

M&A and acquisition related costs

     1,396         282      
  

 

 

    

 

 

    

Pre-tax total

     22,701         27,216      

Income tax expense on adjustments

     8,428         10,206      
  

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 62,032       $ 60,678         2.2
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,398         84,943      

Adjusted EPS - diluted

   $ 0.73       $ 0.71         2.8
     Six Months Ended June 30,  
     2014      2013      % Change  

Net income

   $ 94,037       $ 46,723         101.3

Amortization of acquired intangible assets

     26,175         27,908      

Amortization of deferred financing costs

     9,754         9,178      

Accelerated amortization of deferred financing costs

     —           6,603      

Share-based compensation

     6,204         5,050      

Sponsor management/termination fee

     —           25,000      

IPO bonus

     —           2,975      

Subordinated debt call premium

     —           16,502      

M&A and acquisition related costs

     1,722         751      
  

 

 

    

 

 

    

Pre-tax total

     43,855         93,967      

Income tax expense on adjustments

     16,281         35,238      
  

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 121,611       $ 105,452         15.3
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,312         75,151      

Adjusted EPS - diluted

   $ 1.43       $ 1.40         2.1

 

12


Free Cash Flow Reconciliation

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 operations 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 operations 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 to cash flows from operations.

 

Reconciliation of Free Cash Flow from Operating Cash Flow  
Unaudited, in thousands                     
     Three Months Ended June 30,  
     2014      2013      % Change  

Cash flows from operations

   $ 116,351       $ 94,998         22.5

Cash capital expenditures

     39,906         25,985         53.6
  

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 76,445       $ 69,013         10.8
  

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30,  
     2014      2013      % Change  

Cash flows from operations

   $ 201,829       $ 193,664         4.2

Cash capital expenditures

     75,434         59,527         26.7
  

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 126,395       $ 134,137         -5.8
  

 

 

    

 

 

    

 

 

 

EBITDA and Adjusted EBITDA Reconciliation

The common definition of EBITDA is “earnings before interest expense, taxes, depreciation and amortization.” In evaluating liquidity and performance, the Company uses earnings before interest expense, share based compensation, taxes, depreciation and amortization, M&A and acquisition-related costs and one-time IPO-related expenses, or “adjusted EBITDA.” EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP. EBITDA and adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations or other income or cash flows data prepared in accordance with GAAP. EBITDA and adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. EBITDA and adjusted EBITDA are used by certain investors as measures to assess the Company’s ability to service debt. Adjusted EBITDA is also used in the Company’s debt covenants, although the precise adjustments used to calculate adjusted EBITDA included in the Company’s credit facility and indentures vary in certain respects among such agreements and from those presented below. Certain adjustments to adjusted EBITDA were excluded from the calculations below consistent with the adjustments made for adjusted operating income and adjusted net income. Set forth below is a reconciliation of EBITDA and adjusted EBITDA to cash flows from operations and net income.

 

13


Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow  
Unaudited, in thousands                         
     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Cash flows from operating activities

   $ 116,351      $ 94,998      $ 201,829      $ 193,664   

Income tax expense

     28,199        26,200        55,524        28,033   

Deferred income tax benefit (expense)

     12,672        (4,664     9,549        (9,007

Interest expense and other financing charges

     48,643        64,249        97,936        153,943   

Provision for share-based compensation

     (2,572     (1,860     (6,204     (5,050

Amortization of deferred financing costs

     (4,880     (4,524     (9,754     (9,178

Accelerated amortization of deferred financing costs

     —          (6,603     —          (6,603

Other

     (1     (10     (6     (37

Changes in operating assets and liabilities, net of business acquisitions

     (26,932     10,754        (10,267     (28,286
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     171,480        178,540        338,607        317,479   

Provision for share-based compensation

     2,572        1,860        6,204        5,050   

Sponsor management/termination fee

     —          —          —          25,000   

IPO bonus

     —          —          —          2,975   

M&A and acquisition related costs

     1,396        282        1,722        751   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 175,448      $ 180,682      $ 346,533      $ 351,255   
  

 

 

   

 

 

   

 

 

   

 

 

 
Reconciliation of EBITDA and Adjusted EBITDA from Net Income  
Unaudited, in thousands  
     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Net income

   $ 47,759      $ 43,668      $ 94,037      $ 46,723   

Interest expense and other financing charges

     48,643        64,249        97,936        153,943   

Depreciation and amortization

     46,879        44,423        91,110        88,780   

Income tax expense

     28,199        26,200        55,524        28,033   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     171,480        178,540        338,607        317,479   

Provision for share-based compensation

     2,572        1,860        6,204        5,050   

Sponsor management/termination fee

     —          —          —          25,000   

IPO bonus

     —          —          —          2,975   

M&A and acquisition related costs

     1,396        282        1,722        751   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 175,448      $ 180,682      $ 346,533      $ 351,255   
  

 

 

   

 

 

   

 

 

   

 

 

 
Unaudited, in thousands                         
     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Cash flows from operating activities

   $ 116,351      $ 94,998      $ 201,829      $ 193,664   

Cash flows used in investing activities

   $ (382,855   $ (27,039   $ (418,229   $ (61,002

Cash flows from (used in) financing activities

   $ 167,453      $ (503,274   $ 144,737      $ (93,693

###

 

14