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8-K - FORM 8-K - WEST CORPd36784d8k.htm

Exhibit 99.1

 

LOGO

 

West Corporation    AT THE COMPANY:

11808 Miracle Hills Drive

Omaha, NE 68154

  

 

David Pleiss

Investor Relations

   (402) 963-1500
   dmpleiss@west.com

West Corporation Reports Second Quarter 2015 Results

Company Declares Quarterly Dividend and Updates 2015 Guidance

OMAHA, NE, August 3, 2015 – West Corporation (NASDAQ:WSTC), a leading provider of technology-enabled communication services, today announced its second quarter 2015 results.

Key Quarterly Highlights:

 

Unaudited, in millions except per share amounts    Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     % Change     2015     2014     % Change  

Revenue

   $ 571.9      $ 552.3        3.5   $ 1,137.4      $ 1,087.5        4.6

Adjusted EBITDA from Continuing Operations1

     170.7        164.6        3.7     339.8        323.7        5.0

EBITDA from Continuing Operations1

     163.6        160.9        1.7     325.7        316.0        3.1

Adjusted Operating Income1

     140.0        132.6        5.5     274.1        262.6        4.4

Operating Income

     116.4        115.6        0.8     227.1        229.8        -1.1

Adjusted Income from Continuing Operations1

     67.3        58.4        15.2     134.2        113.5        18.2

Income from Continuing Operations

     49.2        44.5        10.5     97.9        86.6        13.0

Adjusted Earnings per Share from Continuing Operations - Diluted1

     0.79        0.68        16.2     1.56        1.33        17.3

Earnings per Share from Continuing Operations - Diluted

     0.58        0.52        11.5     1.14        1.01        12.9

Free Cash Flow from Continuing Operating Activities1,2

     69.6        72.4        -3.9     91.7        118.0        -22.3

Cash Flows from Continuing Operating Activities

     98.1        106.5        -7.8     156.5        184.3        -15.1

Cash Flows used in Continuing Investing Activities

     (45.3     (377.4     -88.0     (83.7     (408.8     -79.5

Cash Flows from (used in) Continuing Financing Activities

     (56.3     167.5        NM        (290.7     144.7        NM   

“West delivered revenue growth and improved earnings during the second quarter, highlighted by 16 percent growth in adjusted earnings per share, despite headwinds from foreign currency translation, as demand for our expanding service offerings continues to resonate in the market,” said Tom Barker, chairman and chief executive officer of West Corporation. “During the quarter, we completed our second successful secondary common stock offering of the year, which has resulted in an increase in our float, higher trading volume and a broader institutional shareholder base.”

Dividend

The Company today also announced a $0.225 per common share dividend. The dividend is payable September 3, 2015 to shareholders of record as of the close of business on August 24, 2015.


Operating Results Reflect Previous Divestiture

As previously disclosed, on March 3, 2015, the Company completed the sale of several of its agent-based services businesses. The operating results for the businesses that were sold have been reflected as discontinued operations in the Company’s consolidated financial statements for all periods presented. Unless otherwise noted, the Company has presented herein its operating results from continuing operations, which excludes discontinued operations.

Consolidated Operating Results

For the second quarter of 2015, revenue was $571.9 million compared to $552.3 million for the same quarter of the previous year, an increase of 3.5 percent. Organic revenue growth was 2.4 percent for the quarter. Revenue from acquired entities3 was $26.2 million during the second quarter of 2015, contributing 4.7 percent to the Company’s growth. The Company’s revenue growth rate was partially offset by 3.6 percent from the impact of foreign currency exchange rates and a previously disclosed client loss. Details of the Company’s revenue growth are presented in the statements of operations below.

Adjusted EBITDA1 for the second quarter of 2015 was $170.7 million compared to $164.6 million for the second quarter of 2014, an increase of 3.7 percent. Foreign currency exchange rates negatively impacted adjusted EBITDA by approximately $4.7 million in the second quarter of 2015. Adjusted EBITDA margin was 29.8 percent for the second quarter of 2015, consistent with the year ago quarter. EBITDA1 was $163.6 million in the second quarter of 2015 compared to $160.9 million in the second quarter of 2014, an increase of 1.7 percent.

Adjusted income from continuing operations1 was $67.3 million in the second quarter of 2015 compared to $58.4 million for the second quarter of 2014, an increase of 15.2 percent. Income from continuing operations increased 10.5 percent to $49.2 million in the second quarter of 2015 compared to $44.5 million in the same quarter of 2014. This increase was primarily due to the reduction in interest expense as a result of the Company’s debt refinancing in 2014.

Balance Sheet, Cash Flow and Liquidity

At June 30, 2015, West Corporation had cash and cash equivalents totaling $158.5 million and working capital of $265.3 million. Interest expense was $38.6 million during the second quarter of 2015 compared to $48.4 million during the comparable period the prior year, as a result of the previously mentioned debt refinancing.

The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities4, was 4.82x at June 30, 2015.

Cash flows from continuing operating activities were $98.1 million for the second quarter of 2015 compared to $106.5 million in the same period of 2014. Tax payments related to the divestiture gain

 

 

1  See Reconciliation of Non-GAAP Financial Measures below.
2 Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.
3 Revenue from acquired entities includes SchoolMessenger after April 21, 2014, Health Advocate after June 13, 2014, 911 Enable after September 2, 2014, SchoolReach after November 3, 2014 and SharpSchool after June 1, 2015.
4 Based on loan covenants. Covenant leverage ratio is debt net of cash and excludes accounts receivable securitization debt.

 

NM: Not Meaningful

 

2


and the timing of interest payments drove the reduction in cash flows from operations for the most recent quarter. Free cash flow1, 2 decreased 3.9 percent to $69.6 million in the second quarter of 2015 compared to $72.4 million in the second quarter of 2014. This decrease was due to the reduction in cash flows from operating activities described above slightly offset by a decrease in capital expenditures. During the second quarter of 2015, the Company invested $28.6 million, or 5.0 percent of revenue, in capital expenditures primarily for software and computer equipment.

“We generated nearly $100 million of cash from operations in the quarter, further expanding our ability to continue to deploy capital into attractive projects,” said Jan Madsen, chief financial officer of West Corporation. “During the quarter, we put our capital to work as we completed the acquisition of SharpSchool, further expanding our attractive suite of solutions for the education market, and repurchased one million shares of our common stock, while continuing to return cash to shareholders through our dividend.”

Secondary Offering and Share Repurchase

On June 24, 2015, the Company completed an underwritten public offering of 7,000,000 shares of common stock by certain of its existing stockholders at a public offering price of $30.75 per share. The Company did not receive any proceeds from the offering by the selling stockholders. Concurrent with the closing of the offering, West repurchased 1,000,000 shares of common stock from the selling stockholders at approximately $30.36 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions, for a total of approximately $30.4 million. On July 22, 2015, the underwriter purchased 200,000 additional shares at $30.75 per share pursuant to a partial exercise of its purchase option.

Acquisition

Effective June 1, 2015, the Company completed the acquisition of substantially all of the assets of Intrafinity, Inc., doing business as SharpSchool, a leading provider of website and content management system (CMS) software-as-a-service solutions for the K-12 education market. The purchase price was approximately $17.2 million and was funded with cash on hand. SharpSchool will be integrated into West’s SchoolMessenger business.

Updated Guidance

The Company has updated its 2015 guidance to reflect actual results for the first half of the year and current expectations for the remainder of the year in the table below. The Company has reduced revenue guidance primarily due to the following two factors:

 

    The change in foreign currency exchange rates between the original guidance provided in January and current rates. In January, the Company expected foreign currency exchange rates to negatively impact 2015 revenue by approximately $32 million. The Company now expects foreign currency exchange rates to negatively impact 2015 revenue by approximately $42 million.

 

    The loss of a client in the Company’s Telecom Services operating segment. This client has made the decision to consolidate its business with a single network provider. The Company expects this loss to negatively impact second half 2015 revenue by approximately $15 million. The client expects the transition to begin in the third quarter of 2015 and be completed by November 2015.

 

3


Due to year-to-date results and share buybacks, the Company has adjusted its share count and raised its earnings per share, adjusted net income and adjusted earnings per share guidance ranges. The Company has also adjusted its leverage ratio guidance based on year-to-date uses of cash for share repurchases and the repayment of its revolving trade accounts receivable financing facility.

 

In millions except per share and leverage ratio    Original
2015 Guidance
   Updated
2015 Guidance
   Reaffirmed
2015 Guidance

Consolidated Revenue

   $2,295 - $2,340    $2,275 - $2,310   

Adjusted Operating Income

   $536 - $560       $536 - $560

Operating Income

   $445 - $470       $445 - $470

Adjusted EBITDA

   $680 - $703       $680 - $703

EBITDA

   $653 - $678       $653 - $678

Adjusted Net Income

   $257 - $267    $259 - $267   

Net Income

   $190 - $200       $190 - $200

Adjusted Earnings per Share - Diluted

   $2.96 - $3.08    $3.02 - $3.12   

Earnings per Share - Diluted

   $2.20 - $2.31    $2.22 - $2.33   

Cash Flows from Operations

   $420 - $460       $420 - $460

Capital Expenditures

   $150 - $170       $150 - $170

Free Cash Flow

   $270 - $300       $270 - $300

Net Debt to pro forma Adjusted EBITDA ratio

   4.30x - 4.50x    4.55x - 4.75x   

Full year average diluted share count

   86.6 - 86.8    85.5 - 85.7   

“While we are disappointed in having to reduce our revenue guidance range due to the difficult exchange rate environment and the loss of a telecom services client, we are pleased that the strength of the West model allows us to maintain and raise our full year guidance on our other operating metrics,” continued Barker.

Conference Call

The Company will hold a conference call to discuss these topics on Tuesday, August 4, 2015 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 unified communication services, public safety services, interactive services such as automated notifications, carrier services and 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.

 

4


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 2015 guidance and other statements concerning the Company’s prospects 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 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; 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.

 

5


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)

 

     Three Months Ended June 30,  
     2015      2014           2015  
     Actual      Actual     % Change     Adjusted (1)  

Revenue

   $ 571,891       $ 552,319        3.5   $ 571,891   

Cost of services

     245,266         239,695        2.3     245,266   

Selling, general and administrative expenses

     210,192         197,063        6.7     186,633   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     116,433         115,561        0.8     139,992   

Interest expense, net

     38,433         48,361        -20.5     33,426   

Other expense (income), net

     100         (2,473     NM        100   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations before tax

     77,900         69,673        11.8     106,466   

Income tax expense attributed to continuing operations

     28,677         25,146        14.0     39,193   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     49,223         44,527        10.5     67,273   

Income from discontinued operations, net of income taxes

     358         3,232        -88.9     376   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 49,581       $ 47,759        3.8   $ 67,649   
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

         

Basic

     83,394         83,953          83,394   

Diluted

     85,592         85,398          85,592   

Earnings per share - Basic:

         

Continuing operations

   $ 0.59       $ 0.53        11.3   $ 0.81   

Discontinued operations

     0.00         0.04        NM        0.00   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Earnings Per Share - Basic

   $ 0.59       $ 0.57        3.5   $ 0.81   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share - Diluted:

         

Continuing operations

   $ 0.58       $ 0.52        11.5   $ 0.79   

Discontinued operations

     0.00         0.04        NM        0.00   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Earnings Per Share - Diluted

   $ 0.58       $ 0.56        3.6   $ 0.79   
  

 

 

    

 

 

   

 

 

   

 

 

 

SELECTED FINANCIAL DATA:

 

     2Q15 vs.      Contribution  
     2Q14      to Rev. Growth  

Key Factors Affecting Revenue Growth:

     

Revenue from acquired entities3

   $ 26,182         4.7

Revenue from previously disclosed lost client

     (9,300      -1.7

Estimated impact of foreign currency exchange rates

     (10,378      -1.9

Organic growth, net

     13,068         2.4
  

 

 

    

 

 

 

Total Revenue Growth

   $ 19,572         3.5
  

 

 

    

 

 

 

 

     2Q15      2Q14      % Change  

Depreciation and Amortization:

        

Depreciation

   $ 27,092       $ 26,219         3.3

Amortization - SG&A

     16,441         13,346         23.2

Amortization - COS

     3,209         3,034         5.8

Amortization - Deferred financing costs

     5,007         4,880         2.6
  

 

 

    

 

 

    

 

 

 

Total depreciation and amortization

   $ 51,749       $ 47,479         9.0
  

 

 

    

 

 

    

 

 

 

Share-based Compensation

   $ 5,982       $ 2,537         135.8

 

6


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)

 

     Six Months Ended June 30,  
     2015     2014           2015  
     Actual     Actual     % Change     Adjusted (1)  

Revenue

   $ 1,137,381      $ 1,087,459        4.6   $ 1,137,381   

Cost of services

     484,967        465,206        4.2     484,967   

Selling, general and administrative expenses

     425,288        392,502        8.4     378,289   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     227,126        229,751        -1.1     274,125   

Interest expense, net

     77,275        97,337        -20.6     67,266   

Other expense (income), net

     (3,739     (3,226     NM        (3,739
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before tax

     153,590        135,640        13.2     210,598   

Income tax expense attributed to continuing operations

     55,733        49,016        13.7     76,421   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     97,857        86,624        13.0     134,177   

Income from discontinued operations, net of income taxes

     32,224        7,413        334.7     33,460   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 130,081      $ 94,037        38.3   $ 167,637   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     83,758        83,879          83,758   

Diluted

     85,920        85,312          85,920   

Earnings per share - Basic:

        

Continuing operations

   $ 1.17      $ 1.03        13.6   $ 1.60   

Discontinued operations

     0.38        0.09        322.2     0.40   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Earnings Per Share - Basic

   $ 1.55      $ 1.12        38.4   $ 2.00   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share - Diluted:

        

Continuing operations

   $ 1.14      $ 1.01        12.9   $ 1.56   

Discontinued operations

     0.37        0.09        311.1     0.39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Earnings Per Share - Diluted

   $ 1.51      $ 1.10        37.3   $ 1.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

SELECTED FINANCIAL DATA:

 

     2Q15 YTD vs.
2Q14 YTD
     Contribution
to Rev. Growth
 

Key Factors Affecting Revenue Growth:

     

Revenue from acquired entities3

   $ 61,366         5.6

Revenue from previously disclosed lost client

     (19,500      -1.8

Estimated impact of foreign currency exchange rates

     (20,334      -1.9

Organic growth, net

     28,390         2.6
  

 

 

    

 

 

 

Total Revenue Growth

   $ 49,922         4.6
  

 

 

    

 

 

 

 

     2Q15 YTD      2Q14 YTD      % Change  

Depreciation and Amortization:

        

Depreciation

   $ 54,194       $ 51,351         5.5

Amortization - SG&A

     32,967         25,161         31.0

Amortization - COS

     6,502         5,917         9.9

Amortization - Deferred financing costs

     10,009         9,754         2.6
  

 

 

    

 

 

    

 

 

 

Total depreciation and amortization

   $ 103,672       $ 92,183         12.5
  

 

 

    

 

 

    

 

 

 

Share-based Compensation

   $ 11,411       $ 6,147         85.6

 

7


WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

 

     June 30,     December 31,     %  
     2015     2014     Change  

Assets:

      

Current assets:

      

Cash and cash equivalents

   $ 158,492      $ 115,061        37.7

Trust and restricted cash

     20,134        18,573        8.4

Accounts receivable, net

     375,939        355,625        5.7

Prepaid assets

     50,264        45,242        11.1

Deferred expenses

     62,593        65,317        -4.2

Other current assets

     36,152        30,575        18.2

Assets held for sale

     17,524        304,605        -94.2
  

 

 

   

 

 

   

 

 

 

Total current assets

     721,098        934,998        -22.9

Property and Equipment:

      

Property and equipment

     1,047,698        1,045,769        0.2

Accumulated depreciation and amortization

     (723,234     (695,739     4.0
  

 

 

   

 

 

   

 

 

 

Net property and equipment

     324,464        350,030        -7.3

Goodwill

     1,881,074        1,884,920        -0.2

Intangible assets

     364,488        388,166        -6.1

Other assets

     258,750        259,961        -0.5
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,549,874      $ 3,818,075        -7.0
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Deficit:

      

Current Liabilities:

      

Accounts payable

   $ 87,162      $ 91,353        -4.6

Deferred revenue

     141,368        144,413        -2.1

Accrued expenses

     216,945        228,424        -5.0

Current maturities of long-term debt

     10,310        16,246        -36.5

Liabilities held for sale

     —          84,788        NM   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     455,785        565,224        -19.4

Long-term obligations

     3,447,230        3,642,540        -5.4

Deferred income taxes

     90,904        96,632        -5.9

Other long-term liabilities

     181,877        173,320        4.9
  

 

 

   

 

 

   

 

 

 

Total liabilities

     4,175,796        4,477,716        -6.7

Stockholders’ Deficit:

      

Common stock

     85        84        1.2

Additional paid-in capital

     2,179,545        2,155,864        1.1

Retained deficit

     (2,681,063     (2,772,775     -3.3

Accumulated other comprehensive loss

     (59,224     (37,506     57.9

Treasury stock at cost

     (65,265     (5,308     NM   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

     (625,922     (659,641     -5.1
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 3,549,874      $ 3,818,075        -7.0
  

 

 

   

 

 

   

 

 

 

 

8


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 acquisitions 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 from operating income.

Reconciliation of Adjusted Operating Income from Operating Income

Unaudited, in thousands

 

     Three Months Ended June 30,  
     2015      2014      % Change  

Operating income

   $ 116,433       $ 115,561         0.8

Amortization of acquired intangible assets

     16,441         13,346      

Share-based compensation

     5,982         2,537      

Secondary equity offering expense

     334         —        

M&A and acquisition-related costs

     802         1,188      
  

 

 

    

 

 

    

 

 

 

Adjusted operating income

   $ 139,992       $ 132,632         5.5
  

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30,  
     2015      2014      % Change  

Operating income

   $ 227,126       $ 229,751         -1.1

Amortization of acquired intangible assets

     32,967         25,161      

Share-based compensation

     11,411         6,147      

Secondary equity offering expense

     1,041         —        

M&A and acquisition-related costs

     1,580         1,514      
  

 

 

    

 

 

    

 

 

 

Adjusted operating income

   $ 274,125       $ 262,573         4.4
  

 

 

    

 

 

    

 

 

 

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 bond redemption premiums, acquisitions 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 from net income.

 

9


Reconciliation of Adjusted Net Income from Net Income

Unaudited, in thousands except per share data

 

CONTINUING OPERATIONS    Three Months Ended June 30,  
     2015      2014      % Change  

Income from continuing operations

   $ 49,223       $ 44,527         10.5

Amortization of acquired intangible assets

     16,441         13,346      

Amortization of deferred financing costs

     5,007         4,880      

Share-based compensation

     5,982         2,537      

Secondary equity offering expense

     334         —        

M&A and acquisition-related costs

     802         1,188      
  

 

 

    

 

 

    

Pre-tax total

     28,566         21,951      

Income tax expense on adjustments

     10,516         8,063      
  

 

 

    

 

 

    

 

 

 

Adjusted net income from continuing operations

   $ 67,273       $ 58,415         15.2
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,592         85,398      

Adjusted EPS from continuing operations - diluted

   $ 0.79       $ 0.68         16.2
DISCONTINUED OPERATIONS    Three Months Ended June 30,  
     2015      2014      % Change  

Income from discontinued operations

   $ 358       $ 3,232         -88.9

Amortization of acquired intangible assets

     —           507      

Share-based compensation

     —           35      

M&A and acquisition-related costs

     30         208      
  

 

 

    

 

 

    

Pre-tax total

     30         750      

Income tax expense on adjustments

     12         364      
  

 

 

    

 

 

    

 

 

 

Adjusted net income from discontinued operations

   $ 376       $ 3,618         -89.6
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,592         85,398      

Adjusted EPS from discontinued operations - diluted

   $ 0.00       $ 0.04         NM   
CONSOLIDATED    Three Months Ended June 30,  
     2015      2014      % Change  

Net income

   $ 49,581       $ 47,759         3.8

Amortization of acquired intangible assets

     16,441         13,853      

Amortization of deferred financing costs

     5,007         4,880      

Share-based compensation

     5,982         2,572      

Secondary equity offering expense

     334         —        

M&A and acquisition-related costs

     832         1,396      
  

 

 

    

 

 

    

Pre-tax total

     28,596         22,701      

Income tax expense on adjustments

     10,528         8,428      
  

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 67,649       $ 62,032         9.1
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,592         85,398      

Adjusted EPS - diluted

   $ 0.79       $ 0.73         8.2

 

10


Reconciliation of Adjusted Net Income from Net Income

Unaudited, in thousands except per share data

 

CONTINUING OPERATIONS    Six Months Ended June 30,  
     2015      2014      % Change  

Income from continuing operations

   $ 97,857       $ 86,624         13.0

Amortization of acquired intangible assets

     32,967         25,161      

Amortization of deferred financing costs

     10,009         9,754      

Share-based compensation

     11,411         6,147      

Secondary equity offering expense

     1,041         —        

M&A and acquisition-related costs

     1,580         1,514      
  

 

 

    

 

 

    

Pre-tax total

     57,008         42,576      

Income tax expense on adjustments

     20,688         15,683      
  

 

 

    

 

 

    

 

 

 

Adjusted net income from continuing operations

   $ 134,177       $ 113,517         18.2
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,920         85,312      

Adjusted EPS from continuing operations - diluted

   $ 1.56       $ 1.33         17.3
DISCONTINUED OPERATIONS    Six Months Ended June 30,  
     2015      2014      % Change  

Income from discontinued operations

   $ 32,224       $ 7,413         334.7

Amortization of acquired intangible assets

     41         1,014      

Share-based compensation

     1,576         57      

M&A and acquisition-related costs

     386         208      
  

 

 

    

 

 

    

Pre-tax total

     2,003         1,279      

Income tax expense on adjustments

     767         598      
  

 

 

    

 

 

    

 

 

 

Adjusted net income from discontinued operations

   $ 33,460       $ 8,094         313.4
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,920         85,312      

Adjusted EPS from discontinued operations - diluted

   $ 0.39       $ 0.09         333.3
CONSOLIDATED    Six Months Ended June 30,  
     2015      2014      % Change  

Net income

   $ 130,081       $ 94,037         38.3

Amortization of acquired intangible assets

     33,008         26,175      

Amortization of deferred financing costs

     10,009         9,754      

Share-based compensation

     12,987         6,204      

Secondary equity offering expense

     1,041         —        

M&A and acquisition-related costs

     1,966         1,722      
  

 

 

    

 

 

    

Pre-tax total

     59,011         43,855      

Income tax expense on adjustments

     21,456         16,281      
  

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 167,636       $ 121,611         37.8
  

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     85,920         85,312      

Adjusted EPS - diluted

   $ 1.95       $ 1.43         36.4

 

11


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 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,  
     2015     2014      % Change     2015     2014      % Change  

Cash flows from operating activities

   $ 98,128      $ 106,478         -7.8   $ 156,524      $ 184,290         -15.1

Cash capital expenditures

     28,557        34,081         -16.2     64,864        66,329         -2.2
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Free cash flow

   $ 69,571      $ 72,397         -3.9   $ 91,660      $ 117,961         -22.3
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
DISCONTINUED OPERATIONS    Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014      % Change     2015     2014      % Change  

Cash flows from operating activities

   $ (1,683   $ 9,873         -117.0   $ (6,962   $ 17,539         -139.7

Cash capital expenditures

     —          5,825         NM        1,930        9,105         -78.8
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Free cash flow

   $ (1,683   $ 4,048         -141.6   $ (8,892   $ 8,434         -205.4
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
CONSOLIDATED    Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014      % Change     2015     2014      % Change  

Cash flows from operating activities

   $ 96,445      $ 116,351         -17.1   $ 149,562      $ 201,829         -25.9

Cash capital expenditures

     28,557        39,906         -28.4     66,794        75,434         -11.5
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Free cash flow

   $ 67,888      $ 76,445         -11.2   $ 82,768      $ 126,395         -34.5
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

12


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 “Adjusted EBITDA.” The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization 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, 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 operations 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. The Company utilizes this non-GAAP measure to make decisions about the use of resources, analyze performance and measure management’s performance with stated objectives. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operations and net income.

 

13


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,  
     2015     2014     2015     2014  

Cash flows from operating activities

   $ 98,128      $ 106,478      $ 156,524      $ 184,290   

Income tax expense

     28,677        25,146        55,733        49,016   

Deferred income tax benefit

     759        12,600        (2,202     9,769   

Interest expense and other financing charges

     38,941        48,643        78,478        97,936   

Provision for share-based compensation

     (5,982     (2,537     (11,411     (6,147

Amortization of deferred financing costs

     (5,007     (4,880     (10,009     (9,754

Other

     (4     (1     (220     (6

Changes in operating assets and liabilities, net of business acquisitions

     8,071        (24,534     58,838        (9,099
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     163,583        160,915        325,731        316,005   

Provision for share-based compensation

     5,982        2,537        11,411        6,147   

Secondary equity offering expense

     334        —          1,041        —     

M&A and acquisition-related costs

     802        1,188        1,580        1,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 170,701      $ 164,640      $ 339,763      $ 323,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from operating activities

   $ 98,128      $ 106,478      $ 156,524      $ 184,290   

Cash flows used in investing activities

   $ (45,318   $ (377,395   $ (83,721   $ (408,827

Cash flows from (used in) financing activities

   $ (56,260   $ 167,453      $ (290,742   $ 144,737   
DISCONTINUED OPERATIONS    Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

Cash flows from (used in) operating activities

   $ (1,683   $ 9,873      $ (6,962   $ 17,539   

Income tax expense

     193        3,053        20,010        6,508   

Deferred income tax benefit

     2,041        72        (2,293     (220

Provision for share-based compensation

     —          (35     (1,576     (57

Other

     —          —          29,596        —     

Changes in operating assets and liabilities, net of business acquisitions

     —          (2,398     13,500        (1,168
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     551        10,565        52,275        22,602   

Provision for share-based compensation

     —          35        1,576        57   

M&A and acquisition-related costs

     30        208        386        208   

Gain on sale of business

     —          —          (48,556     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 581      $ 10,808      $ 5,681      $ 22,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows (used in) from operating activities

   $ (1,683   $ 9,873      $ (6,962   $ 17,539   

Cash flows from (used in) investing activities

   $ 5,734      $ (5,460   $ 269,540      $ (9,402

Cash flows used in financing activities

   $ —        $ —        $ —        $ —     

 

14


Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, continued

 

CONSOLIDATED    Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

Cash flows from operating activities

   $ 96,445      $ 116,351      $ 149,562      $ 201,829   

Income tax expense

     28,870        28,199        75,743        55,524   

Deferred income tax benefit

     2,800        12,672        (4,495     9,549   

Interest expense and other financing charges

     38,941        48,643        78,478        97,936   

Provision for share-based compensation

     (5,982     (2,572     (12,987     (6,204

Amortization of deferred financing costs

     (5,007     (4,880     (10,009     (9,754

Other

     (4     (1     29,376        (6

Changes in operating assets and liabilities, net of business acquisitions

     8,071        (26,932     72,338        (10,267
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     164,134        171,480        378,006        338,607   

Provision for share-based compensation

     5,982        2,572        12,987        6,204   

Secondary equity offering expense

     334        —          1,041        —     

M&A and acquisition-related costs

     832        1,396        1,966        1,722   

Gain on sale of business

     —          —          (48,556     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 171,282      $ 175,448      $ 345,444      $ 346,533   
  

 

 

   

 

 

   

 

 

   

 

 

 

CONSOLIDATED

        

Cash flows from operating activities

   $ 96,445      $ 116,351      $ 149,562      $ 201,829   

Cash flows from (used in) investing activities

   $ (39,584   $ (382,855   $ 185,819      $ (418,229

Cash flows from (used in) financing activities

   $ (56,260   $ 167,453      $ (290,742   $ 144,737   

 

15


Reconciliation of EBITDA and Adjusted EBITDA from Net Income

Unaudited, in thousands

 

CONTINUING OPERATIONS    Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015     2014  

Income from continuing operations

   $ 49,223       $ 44,527       $ 97,857      $ 86,624   

Interest expense and other financing charges

     38,941         48,643         78,478        97,936   

Depreciation and amortization

     46,742         42,599         93,663        82,429   

Income tax expense

     28,677         25,146         55,733        49,016   
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     163,583         160,915         325,731        316,005   

Provision for share-based compensation

     5,982         2,537         11,411        6,147   

Secondary equity offering expense

     334         —           1,041        —     

M&A and acquisition-related costs

     802         1,188         1,580        1,514   
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 170,701       $ 164,640       $ 339,763      $ 323,666   
  

 

 

    

 

 

    

 

 

   

 

 

 
DISCONTINUED OPERATIONS    Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015     2014  

Income from discontinued operations

   $ 358       $ 3,232       $ 32,224      $ 7,413   

Depreciation and amortization

        4,280         41        8,681   

Income tax expense

     193         3,053         20,010        6,508   
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     551         10,565         52,275        22,602   

Provision for share-based compensation

     —           35         1,576        57   

M&A and acquisition-related costs

     30         208         386        208   

Gain on sale of business

     —           —           (48,556     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 581       $ 10,808       $ 5,681      $ 22,867   
  

 

 

    

 

 

    

 

 

   

 

 

 
CONSOLIDATED    Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015     2014  

Net income

   $ 49,581       $ 47,759       $ 130,081      $ 94,037   

Interest expense and other financing charges

     38,941         48,643         78,478        97,936   

Depreciation and amortization

     46,742         46,879         93,704        91,110   

Income tax expense

     28,870         28,199         75,743        55,524   
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     164,134         171,480         378,006        338,607   

Provision for share-based compensation

     5,982         2,572         12,987        6,204   

Secondary equity offering expense

     334         —           1,041        —     

M&A and acquisition-related costs

     832         1,396         1,966        1,722   

Gain on sale of business

     —           —           (48,556     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 171,282       $ 175,448       $ 345,444      $ 346,533   
  

 

 

    

 

 

    

 

 

   

 

 

 

###

 

16