WEST CORP - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - 8-K - WEST CORP	d124894d8k.htm

Exhibit 99.1

LOGO

West Corporation Reports Fourth Quarter and Full Year 2015 Results and Provides 2016 Guidance

Company Declares Quarterly Dividend, Expands Segment Reporting

OMAHA, NE, February 1, 2016 – West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its fourth quarter and full year 2015 results.

Key Quarterly Highlights:


*Unaudited, in millions except per share amounts*	Three Months Ended Dec. 31,									Year Ended Dec. 31,
	2015			2014			% Change			2015			2014			% Change
Revenue	$	568.4		$	562.9			1.0	%	$	2,280.3		$	2,218.6			2.8	%
Adjusted EBITDA from Continuing Operations¹		165.1			173.4			-4.8	%		676.1			668.3			1.2	%
EBITDA from Continuing Operations¹		158.0			167.0			-5.4	%		649.3			649.2			0.0	%
Adjusted Operating Income¹		131.0			141.2			-7.2	%		551.8			541.5			1.9	%
Operating Income		105.0			116.7			-10.1	%		456.5			461.4			-1.1	%
Adjusted Income from Continuing Operations¹		63.7			68.1			-6.5	%		265.9			247.2			7.5	%
Income from Continuing Operations		42.3			34.9			21.4	%		190.9			134.6			41.8	%
Adjusted Earnings per Share from Continuing Operations - Diluted¹		0.75			0.79			-5.1	%		3.11			2.89			7.6	%
Earnings per Share from Continuing Operations - Diluted		0.50			0.41			22.0	%		2.24			1.57			42.7	%
Free Cash Flow from Continuing Operating Activities^1,2		86.9			75.5			15.2	%		274.0			279.2			-1.9	%
Cash Flows from Continuing Operating Activities		127.5			106.9			19.3	%		410.8			409.5			0.3	%
Cash Flows used in Continuing Investing Activities		(118.7	)		(38.4	)		208.7	%		(232.4	)		(524.4	)		-55.7	%
Cash Flows used in Continuing Financing Activities		(23.5	)		(135.9	)		-82.7	%		(388.2	)		(25.0	)		NM

“2015 was an important year for West Corporation. We had strong cash flow generation and continued refining our portfolio of services. We divested several agent-based services businesses, made three acquisitions, refinanced our term loan, paid down debt and repurchased two million shares of stock. We believe these actions will enhance the growth of the Company going forward,” said Tom Barker, chairman and chief executive officer.

“The adjusted organic growth⁵ in our core business was 4.1 percent in the fourth quarter of 2015 and 3.3 percent for the year. With the expected growth in our non-conferencing businesses, we believe we will finish 2016 in a stronger growth position. As we move through the year, we will continue to focus on capital generation and deployment. In addition, in an effort to provide investors with enhanced visibility into how our underlying businesses are performing, we will now report results in four segments,” Mr. Barker continued.

Dividend

The Company today also announced a $0.225 per common share dividend. The dividend is payable on March 3, 2016, to shareholders of record as of the close of business on February 22, 2016.

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.

Change in Segment Reporting

During the fourth quarter of 2015, we implemented a revised organizational structure under which our reportable segments are as follows:

•

Unified Communications, including conferencing and collaboration services, unified communications services and telecom services;

•

Safety Services, including 9-1-1 network services, 9-1-1 telephony systems and services, 9-1-1 solutions for enterprise VoIP and UC and database management;

•

Interactive Services, including proactive notifications and mobility, IVR self-service, cloud contact center and professional services; and

•

Specialized Agent Services, including healthcare advocacy services, revenue generation and cost management services.

Consolidated Operating Results

For the fourth quarter of 2015, revenue was $568.4 million compared to $562.9 million for the same quarter of the previous year, an increase of 1.0 percent. Revenue from acquired entities³

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.

Revenue growth attributable to acquired entities for the fourth quarter of 2015 includes SchoolReach, SharpSchool, Magnetic North and ClientTell. Revenue growth attributable to acquired entities for the full year 2015 includes SchoolMessenger, Health Advocate, 911 Enable, SchoolReach, SharpSchool, Magnetic North and ClientTell.

⁴	Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.

⁵	Adjusted organic 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.

NM:	Not Meaningful

was $5.2 million during the fourth quarter of 2015, contributing 0.9 percent to the Company’s revenue growth. The Company’s revenue growth rate was negatively impacted by $22.7 million, or 4.0 percent, from the impact of foreign currency exchange rate fluctuations and two previously disclosed client losses. Adjusted organic growth⁵ for the fourth quarter was 4.1 percent.

For the year ended December 31, 2015, revenue was $2,280.3 million compared to $2,218.6 million for 2014, an increase of 2.8 percent. Revenue from acquired entities³ was $71.9 million during 2015, contributing 3.2 percent to the Company’s revenue growth. The Company’s revenue growth rate was partially offset by $84.0 million, or 3.8 percent, from the impact of foreign currency exchange rate fluctuations and two previously disclosed client losses. Adjusted organic growth⁵ for 2015 was 3.3 percent. Details of the Company’s revenue growth are presented in the selected financial data table below.

The Unified Communications segment had revenue of $357.8 million in the fourth quarter of 2015, a 0.9 percent decrease compared to the same quarter of 2014. This decrease was partially due to $16.0 million from the two previously disclosed lost telecom services and conferencing clients and was offset by $1.4 million in revenue from Magnetic North, which was acquired on October 31, 2015.

The Safety Services segment had revenue of $72.9 million in the fourth quarter of 2015, a decrease of 1.9 percent from the fourth quarter of 2014.

The Interactive Services segment had revenue of $71.3 million in the fourth quarter of 2015, 13.5 percent higher than the same quarter last year. This increase included $3.8 million from the acquisitions of SchoolReach, SharpSchool and ClientTell.

The Specialized Agent Services segment had revenue of $73.1 million in the fourth quarter of 2015, an increase of 7.3 percent compared to the same quarter of 2014.

Adjusted EBITDA¹ for the fourth quarter of 2015 was $165.1 million compared to $173.4 million for the fourth quarter of 2014, a decrease of 4.8 percent. EBITDA¹ was $158.0 million in the fourth quarter of 2015 compared to $167.0 million in the fourth quarter of 2014. Adjusted EBITDA for 2015 was $676.1 million, or 29.7 percent of revenue, compared to $668.3 million, or 30.1 percent of revenue, in 2014. EBITDA was $649.3 million in 2015 compared to $649.2 million in 2014.

Adjusted operating income¹ for the fourth quarter of 2015 was $131.0 million, or 23.0 percent of revenue, compared to $141.2 million, or 25.1 percent of revenue, in the same quarter of 2014, a decrease of 7.2 percent. Operating income was $105.0 million in the fourth quarter of 2015 compared to $116.7 million in the fourth quarter of 2014. For the full year 2015, adjusted operating income was $551.8 million compared to $541.5 million in 2014. Operating income for 2015 was $456.5 million compared to 2014 operating income of $461.4 million.

Adjusted income from continuing operations¹ was $63.7 million in the fourth quarter of 2015, a decrease of 6.5 percent from the same quarter of 2014. Income from continuing operations increased 21.4 percent to $42.3 million in the fourth quarter of 2015 compared to $34.9 million in the same quarter of 2014. In 2015, adjusted income from continuing operations was $265.9 million, an increase of 7.5 percent compared to 2014. Income from continuing operations in 2015 was $190.9 million compared to $134.6 million in 2014, an increase of 41.8 percent. The growth in 2015 net income was primarily due to decreased interest expense as a result of the Company’s debt repayment in 2015 and refinancing activities in 2014.

Balance Sheet, Cash Flow and Liquidity

At December 31, 2015, West Corporation had cash and cash equivalents totaling $182.3 million and working capital of $243.1 million. Interest expense was $38.4 million during the three months ended December 31, 2015 compared to $42.9 million during the comparable period the prior year. Interest expense was $154.3 million in 2015 compared to $188.1 million in 2014.

The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities⁴, was 4.68x at December 31, 2015.

Cash flows from operations were $410.8 million for the twelve months ended December 31, 2015 compared to $409.5 million in 2014. Free cash flow^1,2 decreased 1.9 percent to $274.0 million in 2015 compared to $279.2 million in 2014.

During the fourth quarter of 2015, the Company closed on a new $250 million term loan due 2021. The loan will bear interest at a rate of LIBOR + 3.50% with a 0.75% LIBOR floor. Proceeds of the new term loan, together with cash on hand, were used to retire in full the $250 million remaining outstanding on the term loan due July 2016.

“We ended 2015 in a strong financial position, with more than $180 million of cash on our balance sheet and no funded debt maturities until mid-2018. During the year we generated more than $400 million of cash from operations and reduced our debt by nearly $260 million while lowering our interest expense by nearly $34 million,” said Jan Madsen, chief financial officer.

During the fourth quarter of 2015, the Company invested $40.6 million, or 7.1 percent of revenue, in capital expenditures, primarily for software and computer equipment. For the full year 2015, the Company invested $136.8 million, or 6.0 percent of revenue, in capital expenditures.

2016 Guidance

For 2016, the Company expects the results presented in the table below. This guidance assumes no acquisitions or changes in the current operating environment, capital structure or exchange rates. The two most significant exchange rates used for 2016 guidance are the British Pound Sterling at 1.43 and the Euro at 1.05. These foreign currency exchange rates, reflected in the guidance below, would negatively impact 2016 revenue by approximately $24 million and 2016 adjusted diluted earnings per share by $0.05 as compared to 2015 actual rates.


*In millions except per share and leverage ratio*
	2015 Actual		2016 Guidance
Revenue	$	2,280.3	$2,276 - $2,346
Adjusted EBITDA from Continuing Operations¹	$	676.1	$653 - $679
EBITDA from Continuing Operations¹	$	649.3	$627 - $653
Adjusted Operating Income¹	$	551.8	$524 - $551
Operating Income	$	456.5	$433 - $458
Adjusted Income from Continuing Operations¹	$	265.9	$249 - $264
Income from Continuing Operations	$	190.9	$177 - $191
Adjusted Earnings per Share from Continuing Operations - Diluted¹	$	3.11	$2.93 - $3.09
Earnings per Share from Continuing Operations - Diluted	$	2.24	$2.08 - $2.24
Cash Flows from Continuing Operating Activities	$	410.8	$390 - $420
Capital Expenditures	$	136.8	$135 - $160
Free Cash Flow from Continuing Operating Activities^1,2	$	274.0	$235 - $265
Net Debt to pro forma Adjusted EBITDA ratio		4.68x	4.48x - 4.68x
Full year average diluted share count		85.4	84.8 - 85.2

“We expect the Company to generate significant free cash flow again this year. We plan to use this cash, along with the $180 million in cash on our balance sheet, to make West Corporation more valuable with acquisitions, debt reduction, dividends and buybacks, while continuing to invest in the core business. We currently expect to use $75 million for dividends, $100-$150 million to pay down debt and an equal amount for acquisitions and stock buybacks in 2016. We expect to end the year with an improving growth profile, a more diverse stream of revenue and less debt,” said Tom Barker.

“The previously disclosed lost telecom services client is expected to negatively impact 2016 revenue by approximately $45 million, primarily in the first half of the year,” continued Mr. Barker.

Share Repurchase Program

The Company’s Board of Directors has approved a share repurchase program under which the Company may repurchase up to an aggregate of $75 million of its outstanding common stock. Purchases under the program may be made from time to time through open market purchases, block transactions or privately negotiated transactions. The Company expects to fund the program using its cash on hand and cash generated from operations. The program may be suspended or discontinued at any time without prior notice.

Conference Call

The Company will hold a conference call to discuss these topics on Tuesday, February 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 (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 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. The statements contained in the 2016 guidance and other statements concerning the Company’s prospects and potential uses of cash 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; 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 OPERATIONS

(Unaudited, in thousands except per share data)


	Three Months Ended December 31,
	2015 Actual			2014 Actual			% Change			2015 Adjusted (1)
Revenue	$	568,430		$	562,938			1.0	%	$	568,430
Cost of services		239,389			234,419			2.1	%		239,389
Selling, general and administrative expenses		224,071			211,809			5.8	%		198,043

Operating income		104,970			116,710			-10.1	%		130,998
Interest expense, net		38,411			42,911			-10.5	%		33,787
Debt call premium and accelerated amortization of deferred financing costs		2,304			21,574			-89.3	%		—
Other expense (income), net		(1,178	)		(1,493	)		NM			(1,178	)

Income from continuing operations before tax		65,433			53,718			21.8	%		98,389
Income tax expense attributed to continuing operations		23,093			18,834			22.6	%		34,723

Income from continuing operations		42,340			34,884			21.4	%		63,666
Income from discontinued operations, net of income taxes		19,935			13,374			49.1	%		19,935

Net income	$	62,275		$	48,258			29.0	%	$	83,601


Weighted average shares outstanding:
Basic		83,243			84,178						83,243
Diluted		84,809			86,033						84,809

Earnings per share - Basic:
Continuing operations	$	0.51		$	0.41			24.4	%	$	0.76
Discontinued operations		0.24			0.16			50.0	%		0.24

Total Earnings Per Share - Basic	$	0.75		$	0.57			31.6	%	$	1.00


Earnings per share - Diluted:
Continuing operations	$	0.50		$	0.41			22.0	%	$	0.75
Discontinued operations		0.24			0.15			60.0	%		0.24

Total Earnings Per Share - Diluted	$	0.74		$	0.56			32.1	%	$	0.99


SELECTED FINANCIAL DATA:

Changes in Revenue - 4Q15 compared to 4Q14:				Contribution to Rev. Growth
Revenue for the three months ended Dec. 31, 2014	$	562,938
Revenue from acquired entities³		5,163			0.9	%
Revenue from previously disclosed lost conferencing client		(2,400	)		-0.4	%
Revenue from previously disclosed lost telecom services client		(13,600	)		-2.4	%
Estimated impact of foreign currency exchange rates		(6,680	)		-1.2	%
Adjusted organic growth, net		23,009			4.1	%

Revenue for the three months ended Dec. 31, 2015	$	568,430			1.0	%


	Three Months Ended December 31,
SELECTED REPORTABLE SEGMENT DATA:	2015 Actual			2014 Actual			% Change
Revenue:
Unified Communications	$	357,780		$	361,001			-0.9	%
Safety Services		72,863			74,264			-1.9	%
Interactive Services		71,332			62,839			13.5	%
Specialized Agent Services		73,143			68,146			7.3	%
Intersegment eliminations		(6,688	)		(3,312	)		NM

Total	$	568,430		$	562,938			1.0	%


Depreciation:
Unified Communications	$	17,713		$	18,338			-3.4	%
Safety Services		5,027			5,202			-3.4	%
Interactive Services		3,978			3,303			20.4	%
Specialized Agent Services		2,566			1,343			91.1	%

Total	$	29,284		$	28,186			3.9	%


Amortization:
Unified Communications - SG&A	$	3,618		$	3,968			-8.8	%
Safety Services - SG&A		5,436			4,816			12.9	%
Safety Services - COS		3,088			3,219			-4.1	%
Interactive Services - SG&A		4,512			3,922			15.0	%
Specialized Agent Services - SG&A		5,411			5,336			1.4	%
Deferred financing costs		4,624			5,075			-8.9	%
Accelerated deferred financing costs		2,304			3,853			-40.2	%

Total	$	28,993		$	30,189			-4.0	%


Share-based compensation:
Unified Communications	$	3,399		$	3,516			-3.3	%
Safety Services		973			982			-0.9	%
Interactive Services		611			606			0.8	%
Specialized Agent Services		1,157			415			178.8	%

Total	$	6,140		$	5,519			11.3	%


Cost of services:
Unified Communications	$	163,296		$	163,629			-0.2	%
Safety Services		27,441			26,790			2.4	%
Interactive Services		15,926			13,097			21.6	%
Specialized Agent Services		37,400			32,216			16.1	%
Intersegment eliminations		(4,674	)		(1,313	)		NM

Total	$	239,389		$	234,419			2.1	%


Selling, general and administrative expenses:
Unified Communications	$	107,346		$	108,951			-1.5	%
Safety Services		39,986			38,005			5.2	%
Interactive Services		48,968			40,292			21.5	%
Specialized Agent Services		29,785			26,560			12.1	%
Intersegment eliminations		(2,014	)		(1,999	)		0.8	%

Total	$	224,071		$	211,809			5.8	%


Operating income:
Unified Communications	$	87,138		$	88,421			-1.5	%
Safety Services		5,436			9,469			-42.6	%
Interactive Services		6,438			9,450			-31.9	%
Specialized Agent Services		5,958			9,370			-36.4	%

Total	$	104,970		$	116,710			-10.1	%


Operating margin:
Unified Communications		24.4	%		24.5	%
Safety Services		7.5	%		12.8	%
Interactive Services		9.0	%		15.0	%
Specialized Agent Services		8.1	%		13.7	%

Total		18.5	%		20.7	%

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)


	Year Ended December 31,
	2015 Actual			2014 Actual			% Change			2015 Adjusted (1)
Revenue	$	2,280,259		$	2,218,594			2.8	%	$	2,280,259
Cost of services		970,693			943,331			2.9	%		970,693
Selling, general and administrative expenses		853,116			813,856			4.8	%		757,804

Operating income		456,450			461,407			-1.1	%		551,762
Interest expense, net		154,068			187,834			-18.0	%		134,427
Debt call premium and accelerated amortization of deferred financing costs		2,304			73,309			NM			—
Other expense (income), net		1,405			(7,026	)		NM			1,405

Income from continuing operations before tax		298,673			207,290			44.1	%		415,930
Income tax expense attributed to continuing operations		107,757			72,679			48.3	%		150,063

Income from continuing operations		190,916			134,611			41.8	%		265,867
Income from discontinued operations, net of income taxes		50,924			23,794			114.0	%		52,942

Net income	$	241,840		$	158,405			52.7	%	$	318,809


Weighted average shares outstanding:
Basic		83,420			84,007						83,420
Diluted		85,394			85,507						85,394

Earnings per share - Basic:
Continuing operations	$	2.29		$	1.60			43.1	%	$	3.19
Discontinued operations		0.61			0.29			110.3	%		0.62

Total Earnings Per Share - Basic	$	2.90		$	1.89			53.4	%	$	3.81


Earnings per share - Diluted:
Continuing operations	$	2.24		$	1.57			42.7	%	$	3.11
Discontinued operations		0.59			0.28			110.7	%		0.62

Total Earnings Per Share - Diluted	$	2.83		$	1.85			53.0	%	$	3.73


SELECTED FINANCIAL DATA:

Changes in Revenue - 2015 compared to 2014:				Contribution to Rev. Growth
Revenue for the fiscal year 2014	$	2,218,594
Revenue from acquired entities³		71,905			3.2	%
Revenue from previously disclosed lost conferencing client		(28,600	)		-1.3	%
Revenue from previously disclosed lost telecom services client		(18,600	)		-0.8	%
Estimated impact of foreign currency exchange rates		(36,720	)		-1.7	%
Adjusted organic growth, net		73,680			3.3	%

Revenue for the fiscal year 2015	$	2,280,259			2.8	%


	Year Ended December 31,
SELECTED REPORTABLE SEGMENT DATA:	2015 Actual			2014 Actual			% Change
Revenue:
Unified Communications	$	1,467,711		$	1,491,639			-1.6	%
Safety Services		281,391			278,317			1.1	%
Interactive Services		265,664			235,481			12.8	%
Specialized Agent Services		276,983			224,621			23.3	%
Intersegment eliminations		(11,490	)		(11,464	)		NM

Total	$	2,280,259		$	2,218,594			2.8	%


Depreciation:
Unified Communications	$	69,769		$	71,677			-2.7	%
Safety Services		18,847			19,217			-1.9	%
Interactive Services		14,385			12,167			18.2	%
Specialized Agent Services		8,213			4,242			93.6	%

Total	$	111,214		$	107,303			3.6	%


Amortization:
Unified Communications - SG&A	$	13,414		$	17,771			-24.5	%
Safety Services - SG&A		19,055			16,682			14.2	%
Safety Services - COS		12,592			12,216			3.1	%
Interactive Services - SG&A		16,210			12,908			25.6	%
Specialized Agent Services - SG&A		19,779			13,657			44.8	%
Deferred financing costs		19,641			20,035			-2.0	%
Accelerated deferred financing costs		2,304			11,601			-80.1	%

Total	$	102,995		$	104,870			-1.8	%


Share-based compensation:
Unified Communications	$	13,119		$	9,649			36.0	%
Safety Services		3,697			3,002			23.2	%
Interactive Services		2,328			1,822			27.8	%
Specialized Agent Services		3,781			1,101			243.4	%

Total	$	22,925		$	15,574			47.2	%


Cost of services:
Unified Communications	$	673,475		$	685,593			-1.8	%
Safety Services		108,742			103,752			4.8	%
Interactive Services		59,125			49,118			20.4	%
Specialized Agent Services		135,672			109,584			23.8	%
Intersegment eliminations		(6,321	)		(4,716	)		NM

Total	$	970,693		$	943,331			2.9	%


Selling, general and administrative expenses:
Unified Communications	$	415,815		$	441,912			-5.9	%
Safety Services		150,064			144,092			4.1	%
Interactive Services		181,384			151,132			20.0	%
Specialized Agent Services		111,022			83,468			33.0	%
Intersegment eliminations		(5,169	)		(6,748	)		-23.4	%

Total	$	853,116		$	813,856			4.8	%


Operating income:
Unified Communications	$	378,421		$	364,134			3.9	%
Safety Services		22,585			30,473			-25.9	%
Interactive Services		25,155			35,231			-28.6	%
Specialized Agent Services		30,289			31,569			-4.1	%

Total	$	456,450		$	461,407			-1.1	%


Operating margin:
Unified Communications		25.8	%		24.4	%
Safety Services		8.0	%		10.9	%
Interactive Services		9.5	%		15.0	%
Specialized Agent Services		10.9	%		14.1	%

Total		20.0	%		20.8	%

WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


	December 31, 2015			December 31, 2014			% Change
Assets:
Current assets:
Cash and cash equivalents	$	182,338		$	115,061			58.5	%
Trust and restricted cash		19,829			18,573			6.8	%
Accounts receivable, net		373,087			355,625			4.9	%
Income taxes receivable		19,332			—			NM
Prepaid assets		43,093			45,242			-4.8	%
Deferred expenses		65,781			65,317			0.7	%
Other current assets		22,040			30,575			-27.9	%
Assets held for sale		17,672			304,605			-94.2	%

Total current assets		743,172			934,998			-20.5	%
Property and Equipment:
Property and equipment		1,053,678			1,045,769			0.8	%
Accumulated depreciation and amortization		(718,834	)		(695,739	)		3.3	%

Net property and equipment		334,844			350,030			-4.3	%
Goodwill		1,915,690			1,884,920			1.6	%
Intangible assets		370,021			388,166			-4.7	%
Other assets		248,552			259,961			-4.4	%

Total assets	$	3,612,279		$	3,818,075			-5.4	%

Liabilities and Stockholders’ Deficit:
Current Liabilities:
Accounts payable	$	92,935		$	91,353			1.7	%
Deferred revenue		161,828			144,413			12.1	%
Accrued expenses		220,926			228,424			-3.3	%
Current maturities of long-term debt		24,375			16,246			50.0	%
Liabilities held for sale		—			84,788			NM

Total current liabilities		500,064			565,224			-11.5	%
Long-term obligations		3,375,750			3,642,540			-7.3	%
Deferred income taxes		102,530			96,632			6.1	%
Other long-term liabilities		186,073			173,320			7.4	%

Total liabilities		4,164,417			4,477,716			-7.0	%

Stockholders’ Deficit:
Common stock		85			84			1.2	%
Additional paid-in capital		2,193,193			2,155,864			1.7	%
Retained deficit		(2,607,415	)		(2,772,775	)		-6.0	%
Accumulated other comprehensive loss		(72,736	)		(37,506	)		93.9	%
Treasury stock at cost		(65,265	)		(5,308	)		NM

Total stockholders’ deficit		(552,138	)		(659,641	)		-16.3	%

Total liabilities and stockholders’ deficit	$	3,612,279		$	3,818,075			-5.4	%

Supplemental Financial Information

The following is a summary of the unaudited quarterly results by reportable segment for the year ended December 31, 2015 and annual results for the previous three years.


	Year Ended Dec. 31, 2013			Year Ended Dec. 31, 2014			Three Months Ended												Year Ended Dec. 31, 2015
SELECTED SEGMENT DATA:	Year Ended Dec. 31, 2013			Year Ended Dec. 31, 2014			March 31, 2015			June 30, 2015			Sept. 30, 2015			Dec. 31, 2015			Year Ended Dec. 31, 2015
Revenue:
Unified Communications	$	1,475,016		$	1,491,639		$	369,458		$	374,651		$	365,822		$	357,780		$	1,467,711
Safety Services		259,120			278,317			68,578			66,138			73,812			72,863			281,391
Interactive Services		224,440			235,481			62,467			63,628			68,237			71,332			265,664
Specialized Agent Services		170,345			224,621			67,078			68,566			68,196			73,143			276,983
Intersegment eliminations		(7,949	)		(11,464	)		(2,091	)		(1,092	)		(1,619	)		(6,688	)		(11,490	)

Total	$	2,120,972		$	2,218,594		$	565,490		$	571,891		$	574,448		$	568,430		$	2,280,259


Cost of services:
Unified Communications	$	672,407		$	685,593		$	168,315		$	173,127		$	168,737		$	163,296		$	673,475
Safety Services		94,464			103,752			26,505			26,678			28,118			27,441			108,742
Interactive Services		46,465			49,118			13,662			13,569			15,968			15,926			59,125
Specialized Agent Services		84,551			109,584			31,571			32,462			34,239			37,400			135,672
Intersegment eliminations		(3,259	)		(4,716	)		(352	)		(570	)		(725	)		(4,674	)		(6,321	)

Total	$	894,628		$	943,331		$	239,701		$	245,266		$	246,337		$	239,389		$	970,693


Selling, general and administrative expenses:
Unified Communications	$	444,018		$	441,912		$	107,230		$	103,324		$	97,915		$	107,346		$	415,815
Safety Services		140,750			144,092			39,122			36,411			34,545			39,986			150,064
Interactive Services		134,421			151,132			43,405			43,552			45,459			48,968			181,384
Specialized Agent Services		60,551			83,468			27,078			27,427			26,732			29,785			111,022
Intersegment eliminations		(4,690	)		(6,748	)		(1,739	)		(522	)		(894	)		(2,014	)		(5,169	)

Total	$	775,050		$	813,856		$	215,096		$	210,192		$	203,757		$	224,071		$	853,116


Operating income:
Unified Communications	$	358,590		$	364,134		$	93,913		$	98,200		$	99,170		$	87,138		$	378,421
Safety Services		23,907			30,473			2,951			3,049			11,149			5,436			22,585
Interactive Services		43,554			35,231			5,400			6,507			6,810			6,438			25,155
Specialized Agent Services		25,243			31,569			8,429			8,677			7,225			5,958			30,289

Total	$	451,294		$	461,407		$	110,693		$	116,433		$	124,354		$	104,970		$	456,450


Operating margin:
Unified Communications		24.3	%		24.4	%		25.4	%		26.2	%		27.1	%		24.4	%		25.8	%
Safety Services		9.2	%		10.9	%		4.3	%		4.6	%		15.1	%		7.5	%		8.0	%
Interactive Services		19.4	%		15.0	%		8.6	%		10.2	%		10.0	%		9.0	%		9.5	%
Specialized Agent Services		14.8	%		14.1	%		12.6	%		12.7	%		10.6	%		8.1	%		10.9	%

Total		21.3	%		20.8	%		19.6	%		20.4	%		21.6	%		18.5	%		20.0	%

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 December 31,
	2015			2014		% Change
Operating income	$	104,970		$	116,710		-10.1	%
Amortization of acquired intangible assets		18,977			18,040
Share-based compensation		6,140			5,519
Secondary equity offering expense		(186	)		—
M&A and acquisition-related costs		1,097			909

Adjusted operating income	$	130,998		$	141,178		-7.2	%


	Year Ended December 31,
	2015			2014		% Change
Operating income	$	456,450		$	461,407		-1.1	%
Amortization of acquired intangible assets		68,458			61,018
Share-based compensation		22,925			15,574
Secondary equity offering expense		855			—
M&A and acquisition-related costs		3,074			3,467

Adjusted operating income	$	551,762		$	541,466		1.9	%

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.

Reconciliation of Adjusted Net Income from Net Income

Unaudited, in thousands except per share data


*CONTINUING OPERATIONS*	Three Months Ended December 31,
	2015			2014			% Change
Income from continuing operations	$	42,340		$	34,884			21.4	%

Amortization of acquired intangible assets		18,977			18,040
Amortization of deferred financing costs		4,624			5,075
Accelerated amortization of deferred financing costs		2,304			3,853
Share-based compensation		6,140			5,519
Debt call premiums		—			17,721
Secondary equity offering expense		(186	)		—
M&A and acquisition-related costs		1,097			909

Pre-tax total		32,956			51,117
Income tax expense on adjustments		11,630			17,921

Adjusted income from continuing operations	$	63,666		$	68,080			-6.5	%


Diluted shares outstanding		84,809			86,033
Adjusted EPS from continuing operations - diluted	$	0.75		$	0.79			-5.1	%

*DISCONTINUED OPERATIONS*	Three Months Ended December 31,
	2015			2014			% Change
Income from discontinued operations	$	19,935		$	13,374			49.1	%

Amortization of acquired intangible assets		—			6,191
Share-based compensation		—			30
M&A and acquisition-related costs		—			1,268

Pre-tax total		—			7,489
Income tax benefit on adjustments		—			(10,314	)

Adjusted income from discontinued operations	$	19,935		$	31,177			-36.1	%


Diluted shares outstanding		84,809			86,033
Adjusted EPS from discontinued operations - diluted	$	0.24		$	0.36			-33.3	%

*CONSOLIDATED*	Three Months Ended December 31,
	2015			2014			% Change
Net income	$	62,275		$	48,258			29.0	%

Amortization of acquired intangible assets		18,977			24,231
Amortization of deferred financing costs		4,624			5,075
Accelerated amortization of deferred financing costs		2,304			3,853
Share-based compensation		6,140			5,549
Debt call premiums		—			17,721
Secondary equity offering expense		(186	)		—
M&A and acquisition-related costs		1,097			2,177

Pre-tax total		32,956			58,606
Income tax expense on adjustments		11,630			7,607

Adjusted net income	$	83,601		$	99,257			-15.8	%


Diluted shares outstanding		84,809			86,033
Adjusted EPS - diluted	$	0.98		$	1.15			-14.8	%

Reconciliation of Adjusted Net Income from Net Income

Unaudited, in thousands except per share data


*CONTINUING OPERATIONS*	Year Ended December 31,
	2015			2014			% Change
Income from continuing operations	$	190,916		$	134,611			41.8	%

Amortization of acquired intangible assets		68,458			61,018
Amortization of deferred financing costs		19,641			20,035
Accelerated amortization of deferred financing costs		2,304			11,601
Share-based compensation		22,925			15,574
Debt call premiums		—			61,708
Secondary equity offering expense		855			—
M&A and acquisition-related costs		3,074			3,467

Pre-tax total		117,257			173,403
Income tax expense on adjustments		42,306			60,792

Adjusted income from continuing operations	$	265,867		$	247,222			7.5	%


Diluted shares outstanding		85,394			85,507
Adjusted EPS from continuing operations - diluted	$	3.11		$	2.89			7.6	%

*DISCONTINUED OPERATIONS*	Year Ended December 31,
	2015			2014			% Change
Income from discontinued operations	$	50,924		$	23,794			114.0	%

Amortization of acquired intangible assets		41			7,700
Share-based compensation		1,576			154
M&A and acquisition-related costs		386			1,916

Pre-tax total		2,003			9,770
Income tax benefit on adjustments		(15	)		(4,375	)

Adjusted income from discontinued operations	$	52,942		$	37,939			39.5	%


Diluted shares outstanding		85,394			85,507
Adjusted EPS from discontinued operations - diluted	$	0.62		$	0.44			40.9	%

*CONSOLIDATED*	Year Ended December 31,
	2015			2014			% Change
Net income	$	241,840		$	158,405			52.7	%

Amortization of acquired intangible assets		68,499			68,718
Amortization of deferred financing costs		19,641			20,035
Accelerated amortization of deferred financing costs		2,304			11,601
Share-based compensation		24,501			15,728
Debt call premiums		—			61,708
Secondary equity offering expense		855			—
M&A and acquisition-related costs		3,460			5,383

Pre-tax total		119,260			183,173
Income tax expense on adjustments		42,291			56,417

Adjusted net income	$	318,809		$	285,161			11.8	%


Diluted shares outstanding		85,394			85,507
Adjusted EPS - diluted	$	3.73		$	3.33			12.0	%

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 December 31,							Year Ended December 31,
	2015		2014		% Change			2015		2014		% Change
Cash flows from operating activities	$	127,547	$	106,899		19.3	%	$	410,768	$	409,491		0.3	%
Cash capital expenditures		40,628		31,432		29.3	%		136,810		130,318		5.0	%

Free cash flow	$	86,919	$	75,467		15.2	%	$	273,958	$	279,173		-1.9	%


*DISCONTINUED OPERATIONS*	Three Months Ended December 31,							Year Ended December 31,
	2015		2014					2015		2014
Cash flows from operating activities	$	15,419	$	25,574				$	7,222	$	53,232
Cash capital expenditures		—		5,602					1,930		20,398

Free cash flow	$	15,419	$	19,972				$	5,292	$	32,834


*CONSOLIDATED*	Three Months Ended December 31,							Year Ended December 31,
	2015		2014		% Change			2015		2014		% Change
Cash flows from operating activities	$	142,966	$	132,473		7.9	%	$	417,990	$	462,723		-9.7	%
Cash capital expenditures		40,628		37,034		9.7	%		138,740		150,716		-7.9	%

Free cash flow	$	102,338	$	95,439		7.2	%	$	279,250	$	312,007		-10.5	%

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 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. 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 operating activities and net income.

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow

Unaudited, in thousands


*CONTINUING OPERATIONS*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Cash flows from operating activities	$	127,547		$	106,899		$	410,768		$	409,491
Income tax expense		23,093			18,834			107,757			72,679
Deferred income tax benefit (expense)		(14,888	)		(1,052	)		(8,930	)		26,632
Interest expense and other financing charges		41,236			63,825			158,356			261,404
Provision for share-based compensation		(6,140	)		(5,519	)		(22,925	)		(15,574	)
Amortization of deferred financing costs		(4,624	)		(5,075	)		(19,641	)		(20,035	)
Accelerated amortization of deferred financing costs		(2,304	)		(3,853	)		(2,304	)		(11,601	)
Other		(448	)		323			(672	)		316
Changes in operating assets and liabilities, net of business acquisitions		(5,454	)		(7,392	)		26,884			(74,081	)

EBITDA		158,018			166,990			649,293			649,231
Provision for share-based compensation		6,140			5,519			22,925			15,574
Secondary equity offering expense		(186	)		—			855			—
M&A and acquisition-related costs		1,097			909			3,074			3,467

Adjusted EBITDA	$	165,069		$	173,418		$	676,147		$	668,272


Cash flows from operating activities	$	127,547		$	106,899		$	410,768		$	409,491
Cash flows used in investing activities	$	(118,651	)	$	(38,438	)	$	(232,433	)	$	(524,376	)
Cash flows used in financing activities	$	(23,453	)	$	(135,882	)	$	(388,243	)	$	(25,027	)

*DISCONTINUED OPERATIONS*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Cash flows from operating activities	$	15,419		$	25,574		$	7,222		$	53,232
Income tax expense		(19,717	)		(11,637	)		(372	)		(2,169	)
Deferred income tax expense		4,516			5,571			2,223			2,514
Provision for share-based compensation		—			(30	)		(1,576	)		(154	)
Other		—			(2	)		29,596			(4	)
Changes in operating assets and liabilities, net of business acquisitions		—			(7,238	)		13,500			(8,409	)

EBITDA		218			12,238			50,593			45,010
Provision for share-based compensation		—			30			1,576			154
M&A and acquisition-related costs		—			1,268			386			1,916
Gain on sale of business		(182	)		—			(46,838	)		—

Adjusted EBITDA	$	36		$	13,536		$	5,717		$	47,080


Cash flows from operating activities	$	15,395		$	25,574		$	7,222		$	53,232
Cash flows from (used in) investing activities	$	—		$	(5,336	)	$	275,815		$	(20,530	)
Cash flows used in financing activities	$	—		$	—		$	—		$	—

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


*CONSOLIDATED*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Cash flows from operating activities	$	142,966		$	132,473		$	417,990		$	462,723
Income tax expense		3,376			7,197			107,385			70,510
Deferred income tax benefit (expense)		(10,372	)		4,519			(6,707	)		29,146
Interest expense and other financing charges		41,236			63,825			158,356			261,404
Provision for share-based compensation		(6,140	)		(5,549	)		(24,501	)		(15,728	)
Amortization of deferred financing costs		(4,624	)		(5,075	)		(19,641	)		(20,035	)
Accelerated amortization of deferred financing costs		(2,304	)		(3,853	)		(2,304	)		(11,601	)
Other		(448	)		321			28,924			312
Changes in operating assets and liabilities, net of business acquisitions		(5,454	)		(14,630	)		40,384			(82,490	)

EBITDA		158,236			179,228			699,886			694,241
Provision for share-based compensation		6,140			5,549			24,501			15,728
Secondary equity offering expense		(186	)		—			855			—
M&A and acquisition-related costs		1,097			2,177			3,460			5,383
Gain on sale of business		(182	)		—			(46,838	)		—

Adjusted EBITDA	$	165,105		$	186,954		$	681,864		$	715,352


*CONSOLIDATED*
Cash flows from operating activities	$	142,966		$	132,473		$	417,990		$	462,723
Cash flows from (used in) investing activities	$	(118,651	)	$	(43,774	)	$	43,382		$	(544,906	)
Cash flows used in financing activities	$	(23,453	)	$	(135,882	)	$	(388,243	)	$	(25,027	)

Reconciliation of EBITDA and Adjusted EBITDA from Net Income

Unaudited, in thousands


*CONTINUING OPERATIONS*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Income from continuing operations	$	42,340		$	34,884		$	190,916		$	134,611
Interest expense and other financing charges		41,236			63,825			158,356			261,404
Depreciation and amortization		51,349			49,447			192,264			180,537
Income tax expense		23,093			18,834			107,757			72,679

EBITDA		158,018			166,990			649,293			649,231
Provision for share-based compensation		6,140			5,519			22,925			15,574
Secondary equity offering expense		(186	)		—			855			—
M&A and acquisition-related costs		1,097			909			3,074			3,467

Adjusted EBITDA	$	165,069		$	173,418		$	676,147		$	668,272


*DISCONTINUED OPERATIONS*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Income from discontinued operations	$	19,935		$	13,374		$	50,924		$	23,794
Depreciation and amortization		—			10,501			41			23,385
Income tax expense		(19,717	)		(11,637	)		(372	)		(2,169	)

EBITDA		218			12,238			50,593			45,010
Provision for share-based compensation		—			30			1,576			154
M&A and acquisition-related costs		—			1,268			386			1,916
Gain on sale of business		(182	)		—			(46,838	)		—

Adjusted EBITDA	$	36		$	13,536		$	5,717		$	47,080


*CONSOLIDATED*	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2015			2014			2015			2014
Net income	$	62,275		$	48,258		$	241,840		$	158,405
Interest expense and other financing charges		41,236			63,825			158,356			261,404
Depreciation and amortization		51,349			59,948			192,305			203,922
Income tax expense		3,376			7,197			107,385			70,510

EBITDA		158,236			179,228			699,886			694,241
Provision for share-based compensation		6,140			5,549			24,501			15,728
Secondary equity offering expense		(186	)		—			855			—
M&A and acquisition-related costs		1,097			2,177			3,460			5,383
Gain on sale of business		(182	)		—			(46,838	)		—

Adjusted EBITDA	$	165,105		$	186,954		$	681,864		$	715,352

###

AT THE COMPANY:

Dave Pleiss

Investor Relations

West Corporation

(402) 963-1500

DMPleiss@west.com

WEST CORP - FORM 8-K - EX-99.1 - February 1, 2016

Attached files

WEST CORP Reports