Exhibit 99.1
West Corporation Reports First Quarter 2016 Results
Company Acquires Synrevoice, Declares Quarterly Dividend
OMAHA, NE, May 2, 2016 –West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its first quarter 2016 results.
Key Quarterly Highlights:
| | • | | Adjusted organic revenue grew5 3.5 percent |
| | • | | Free cash flow1,2 grew 7.3 percent |
| | • | | Announced long-term agreement with AT&T in Safety Services |
| | • | | Acquired Synrevoice to expand K-12 footprint |
| | • | | Reduced debt by $30.9 million |
| | • | | Repurchased one million shares |
“Growth in our core services along with expense management led to better than expected results this quarter,” said Tom Barker, chairman and chief executive officer. “One of the highlights of the first quarter was announcing a significant long-term agreement with AT&T in our Safety Services segment. We expect this partnership to drive faster adoption of next generation 9-1-1 across the country over the next several years.”
Select Financial Information
| | | | | | | | | | | | |
| Unaudited, in millions except per share amounts | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
Revenue | | $ | 570.8 | | | $ | 565.5 | | | | 0.9 | % |
Adjusted EBITDA from Continuing Operations1 | | | 165.6 | | | | 169.1 | | | | -2.0 | % |
EBITDA from Continuing Operations1 | | | 156.9 | | | | 162.1 | | | | -3.2 | % |
Adjusted Operating Income1 | | | 134.1 | | | | 134.1 | | | | 0.0 | % |
Operating Income | | | 108.9 | | | | 110.7 | | | | -1.6 | % |
Adjusted Income from Continuing Operations1 | | | 63.9 | | | | 66.9 | | | | -4.5 | % |
Income from Continuing Operations | | | 44.6 | | | | 48.6 | | | | -8.4 | % |
Adjusted Earnings per Share from Continuing Operations - Diluted1 | | | 0.75 | | | | 0.78 | | | | -3.8 | % |
Earnings per Share from Continuing Operations - Diluted | | | 0.53 | | | | 0.56 | | | | -5.4 | % |
Free Cash Flow from Continuing Operating Activities1,2 | | | 23.7 | | | | 22.1 | | | | 7.3 | % |
Cash Flows from Continuing Operating Activities | | | 60.1 | | | | 58.4 | | | | 2.8 | % |
Cash Flows used in Continuing Investing Activities | | | (39.5 | ) | | | (38.4 | ) | | | 2.8 | % |
Cash Flows used in Continuing Financing Activities | | | (70.2 | ) | | | (234.5 | ) | | | -70.0 | % |
Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable on May 26, 2016, to shareholders of record as of the close of business on May 16, 2016.
1
Operating Results
For the first quarter of 2016, revenue was $570.8 million compared to $565.5 million for the same quarter of the previous year, an increase of 0.9 percent. Revenue from acquired entities3 was $7.3 million during the first quarter of 2016. Organic revenue for the quarter decreased by 0.3 percent. The Company’s revenue was negatively impacted by $3.7 million from foreign currency exchange rate fluctuations and by $18.2 million from two lost clients previously disclosed in 2014 and 2015. Adjusted organic growth5 for the first quarter was 3.5 percent. Details of the Company’s revenue growth are presented in the selected financial data table below.
The Unified Communications Services segment had revenue of $362.7 million in the first quarter of 2016, a 1.8 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $18.2 million from the two previously disclosed lost clients and $3.7 million from the impact of foreign currency exchange rates, offset by $2.2 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth5 for the Unified Communications Services segment was 3.5 percent for the first quarter of 2016.
The Safety Services segment had revenue of $71.2 million in the first quarter of 2016, an increase of 3.8 percent from the first quarter of 2015. The increase in revenue was primarily due to sales to clients adopting new technologies, partially offset by price compression.
The Interactive Services segment had revenue of $71.7 million in the first quarter of 2016, 14.8 percent higher than the same quarter last year. This increase included $5.1 million from the acquisitions of SharpSchool, ClientTell and Synrevoice. Adjusted organic growth for the Interactive Services segment was 6.7 percent for the first quarter of 2016. Organic growth was primarily due to new clients in the education and healthcare markets and increased volumes from existing clients, partially offset by price compression.
The Specialized Agent Services segment had revenue of $68.4 million in the first quarter of 2016, an increase of 1.9 percent compared to the same quarter of the previous year. Growth in this segment was primarily driven by the Company’s revenue generation and healthcare advocacy businesses.
Adjusted EBITDA1 for the first quarter of 2016 was $165.6 million compared to $169.1 million for the first quarter of 2015, a decrease of 2.0 percent. EBITDA1 was $156.9 million in the first quarter of 2016 compared to $162.1 million in the first quarter of 2015.
Adjusted operating income1 was $134.1 million in both the first quarter of 2016 and 2015. Adjusted operating income as a percent of revenue was 23.5 percent in the first quarter of 2016 compared to 23.7 percent in the same quarter of 2015. Operating income was $108.9 million in the first quarter of 2016 compared to $110.7 million in the first quarter of 2015.
Adjusted income from continuing operations1 was $63.9 million in the first quarter of 2016, a decrease of 4.5 percent from the same quarter of 2015. Income from continuing operations decreased 8.4 percent to $44.6 million in the first quarter of 2016 compared to $48.6 million in the same quarter of 2015.
Balance Sheet, Cash Flow and Liquidity
At March 31, 2016, West Corporation had cash and cash equivalents totaling $133.3 million and working capital of $231.2 million. Interest expense and other financing charges were $39.0 million during the three months ended March 31, 2016 compared to $39.5 million during the comparable period of the prior year.
| 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 growth attributable to acquired entities includes SharpSchool, Magnetic North, ClientTell and Synrevoice. |
| 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 the two previously disclosed lost clients and the estimated impact of foreign currency exchange rates. |
2
The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities4, was 4.72x at March 31, 2016.
Cash flows from operations were $60.1 million for the first quarter of 2016 compared to $58.4 million in the same period of 2015. Free cash flow1,2 increased 7.3 percent to $23.7 million in the first quarter of 2016 compared to $22.1 million in the first quarter of 2015. This growth was driven by an increase in cash flows from operating activities which was positively impacted by net improvements in working capital partially offset by a decrease in income from continuing operations, higher days sales outstanding and the funding of one additional payroll in the first quarter of 2016 compared to the first quarter of 2015.
“West Corporation started 2016 with another strong quarter of free cash flow,” said Jan Madsen, chief financial officer. “We deployed the cash the Company generated last quarter to make West more valuable. In the first quarter, we paid down $30.9 million in debt and we invested $22.0 million to buy back stock and $9.3 million for the acquisition of Synrevoice.”
During the first quarter of 2016, the Company invested $36.4 million, or 6.4 percent of revenue, in capital expenditures, primarily for software, computer equipment and to support the AT&T ESInet partnership.
AT&T Partnership
During the first quarter, the Company announced a long-term agreement with AT&T to deploy a standardized, scalable nationwide architecture designed to support IP communications for public safety answering points (AT&T ESInet). This platform will be the next generation 9-1-1 offering for AT&T’s 21-state footprint and elsewhere in the U.S.
Revenue expected in 2016 from this agreement is included in the Company’s guidance which was provided with its fourth quarter results in February.
Acquisition
On March 14, 2016, the Company acquired substantially all of the assets of Synrevoice Technologies, Inc. (“Synrevoice”), a leading provider of K-12 notifications in Canada.Synrevoice serves approximately three million K-12 students in Canada and approximately 1.2 million students in the U.S. Synrevoice will be combined with the Company’s SchoolMessenger solutions in the Education group of its Interactive Services operating segment. The purchase price was approximately $9.3 million and was funded with cash on hand.
Share Repurchase Program
During the first quarter of 2016, the Company’s Board of Directors 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.
3
During the first quarter of 2016, the Company repurchased one million shares of common stock for an aggregate purchase price of approximately $22.0 million, funded with cash on hand.
Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, May 3, 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 technology-enabled communication services. West helps manage or support essential enterprise communications with services that include unified communications services, safety services, interactive services such as automated notifications, telecom services and specialty agent services.
For over 25 years, West has provided reliable, high-quality, voice and data services. West serves clients in a variety of industries including telecommunications, retail, financial services, public safety, technology and healthcare. West has a global organization with sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information on West Corporation, please call 1-800-841-9000 or visitwww.west.com.
Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue” or similar terminology. These statements reflect only West’s current expectations and are not guarantees of future performance or results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition in West’s highly competitive markets; increases in the cost of voice and data services or significant interruptions in these services; West’s ability to keep pace with its clients’ needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West’s clients; the non-exclusive nature of West’s client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West’s businesses; West’s ability to protect its proprietary information or technology; service interruptions to West’s data and operation centers; West’s ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West’s ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; and future impairments of our substantial goodwill, intangible assets, or other long-lived assets. In addition, West is subject to risks related to its level of indebtedness. Such risks include West’s ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West’s ability to comply with covenants contained in its debt instruments; West’s ability to obtain additional financing; the incurrence of significant additional indebtedness by West and its
4
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 INCOME
(Unaudited, in thousands except per share data)
| | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | | |
| | | Actual | | | Actual | | | % Change | |
Revenue | | $ | 570,779 | | | $ | 565,490 | | | | 0.9 | % |
Cost of services | | | 241,012 | | | | 239,701 | | | | 0.5 | % |
Selling, general and administrative expenses | | | 220,843 | | | | 215,096 | | | | 2.7 | % |
| | | | | | | | | | | | |
Operating income | | | 108,924 | | | | 110,693 | | | | -1.6 | % |
Interest expense, net | | | 38,483 | | | | 38,842 | | | | -0.9 | % |
Other expense (income), net | | | 1,040 | | | | (3,839 | ) | | | NM | |
| | | | | | | | | | | | |
Income from continuing operations before tax | | | 69,401 | | | | 75,690 | | | | -8.3 | % |
Income tax expense attributed to continuing operations | | | 24,846 | | | | 27,056 | | | | -8.2 | % |
| | | | | | | | | | | | |
Income from continuing operations | | | 44,555 | | | | 48,634 | | | | -8.4 | % |
Income from discontinued operations, net of income taxes | | | — | | | | 31,866 | | | | — | |
| | | | | | | | | | | | |
Net income | | $ | 44,555 | | | $ | 80,500 | | | | -44.7 | % |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 83,149 | | | | 84,125 | | | | | |
Diluted | | | 84,615 | | | | 86,226 | | | | | |
Earnings per share - Basic: | | | | | | | | | | | | |
Continuing operations | | $ | 0.54 | | | $ | 0.58 | | | | -6.9 | % |
Discontinued operations | | | — | | | | 0.38 | | | | — | |
| | | | | | | | | | | | |
Total Earnings Per Share - Basic | | $ | 0.54 | | | $ | 0.96 | | | | -43.8 | % |
| | | | | | | | | | | | |
Earnings per share - Diluted: | | | | | | | | | | | | |
Continuing operations | | $ | 0.53 | | | $ | 0.56 | | | | -5.4 | % |
Discontinued operations | | | — | | | | 0.37 | | | | — | |
| | | | | | | | | | | | |
Total Earnings Per Share - Diluted | | $ | 0.53 | | | $ | 0.93 | | | | -43.0 | % |
| | | | | | | | | | | | |
| | | |
SELECTED FINANCIAL DATA: | | | | | | | | | | | | |
| | | |
| | | | | | Contribution | | | | |
| | | | | | to Rev. Growth | | | | |
Changes in Revenue - 1Q16 compared to 1Q15: | | | | | | | | | | | | |
Revenue for the three months ended Mar. 31, 2015 | | $ | 565,490 | | | | | | | | | |
Revenue from acquired entities3 | | | 7,336 | | | | 1.3 | % | | | | |
Revenue from two previously disclosed lost clients | | | (18,200 | ) | | | -3.2 | % | | | | |
Estimated impact of foreign currency exchange rates | | | (3,690 | ) | | | -0.7 | % | | | | |
Adjusted organic growth, net | | | 19,843 | | | | 3.5 | % | | | | |
| | | | | | | | | | | | |
Revenue for the three months ended Mar. 31, 2016 | | $ | 570,779 | | | | 0.9 | % | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | | |
| | | Actual | | | Actual | | | % Change | |
SELECTED REPORTABLE SEGMENT DATA: | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | |
Unified Communications Services | | $ | 362,713 | | | $ | 369,458 | | | | -1.8 | % |
Safety Services | | | 71,164 | | | | 68,578 | | | | 3.8 | % |
Interactive Services | | | 71,729 | | | | 62,467 | | | | 14.8 | % |
Specialized Agent Services | | | 68,378 | | | | 67,078 | | | | 1.9 | % |
Intersegment eliminations | | | (3,205 | ) | | | (2,091 | ) | | | NM | |
| | | | | | | | | | | | |
Total | | $ | 570,779 | | | $ | 565,490 | | | | 0.9 | % |
| | | | | | | | | | | | |
Depreciation: | | | | | | | | | | | | |
Unified Communications Services | | $ | 17,543 | | | $ | 17,229 | | | | 1.8 | % |
Safety Services | | | 4,554 | | | | 4,867 | | | | -6.4 | % |
Interactive Services | | | 3,920 | | | | 3,359 | | | | 16.7 | % |
Specialized Agent Services | | | 2,784 | | | | 1,647 | | | | 69.0 | % |
| | | | | | | | | | | | |
Total | | $ | 28,801 | | | $ | 27,102 | | | | 6.3 | % |
| | | | | | | | | | | | |
Amortization: | | | | | | | | | | | | |
Unified Communications Services - SG&A | | $ | 3,393 | | | $ | 3,255 | | | | 4.2 | % |
Safety Services - SG&A | | | 3,383 | | | | 4,649 | | | | -27.2 | % |
Safety Services - COS | | | 3,269 | | | | 3,293 | | | | -0.7 | % |
Interactive Services - SG&A | | | 5,055 | | | | 3,795 | | | | 33.2 | % |
Specialized Agent Services - SG&A | | | 4,594 | | | | 4,827 | | | | -4.8 | % |
Deferred financing costs | | | 4,909 | | | | 5,002 | | | | -1.9 | % |
| | | | | | | | | | | | |
Total | | $ | 24,603 | | | $ | 24,821 | | | | -0.9 | % |
| | | | | | | | | | | | |
Share-based compensation: | | | | | | | | | | | | |
Unified Communications Services | | $ | 4,328 | | | $ | 3,271 | | | | 32.3 | % |
Safety Services | | | 1,227 | | | | 919 | | | | 33.5 | % |
Interactive Services | | | 761 | | | | 581 | | | | 31.0 | % |
Specialized Agent Services | | | 1,350 | | | | 658 | | | | 105.2 | % |
| | | | | | | | | | | | |
Total | | $ | 7,666 | | | $ | 5,429 | | | | 41.2 | % |
| | | | | | | | | | | | |
Cost of services: | | | | | | | | | | | | |
Unified Communications Services | | $ | 166,196 | | | $ | 168,315 | | | | -1.3 | % |
Safety Services | | | 27,315 | | | | 26,505 | | | | 3.1 | % |
Interactive Services | | | 16,152 | | | | 13,662 | | | | 18.2 | % |
Specialized Agent Services | | | 33,151 | | | | 31,571 | | | | 5.0 | % |
Intersegment eliminations | | | (1,802 | ) | | | (352 | ) | | | NM | |
| | | | | | | | | | | | |
Total | | $ | 241,012 | | | $ | 239,701 | | | | 0.5 | % |
| | | | | | | | | | | | |
Selling, general and administrative expenses: | | | | | | | | | | | | |
Unified Communications Services | | $ | 107,449 | | | $ | 106,265 | | | | 1.1 | % |
Safety Services | | | 34,876 | | | | 38,871 | | | | -10.3 | % |
Interactive Services | | | 49,769 | | | | 43,231 | | | | 15.1 | % |
Specialized Agent Services | | | 30,709 | | | | 26,972 | | | | 13.9 | % |
Corporate Other | | | (557 | ) | | | 1,496 | | | | NM | |
Intersegment eliminations | | | (1,403 | ) | | | (1,739 | ) | | | -19.3 | % |
| | | | | | | | | | | | |
Total | | $ | 220,843 | | | $ | 215,096 | | | | 2.7 | % |
| | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | |
Unified Communications Services | | $ | 89,068 | | | $ | 94,878 | | | | -6.1 | % |
Safety Services | | | 8,973 | | | | 3,202 | | | | 180.2 | % |
Interactive Services | | | 5,808 | | | | 5,574 | | | | 4.2 | % |
Specialized Agent Services | | | 4,518 | | | | 8,535 | | | | -47.1 | % |
Corporate Other | | | 557 | | | | (1,496 | ) | | | NM | |
| | | | | | | | | | | | |
Total | | $ | 108,924 | | | $ | 110,693 | | | | -1.6 | % |
| | | | | | | | | | | | |
Operating margin: | | | | | | | | | | | | |
Unified Communications Services | | | 24.6 | % | | | 25.7 | % | | | | |
Safety Services | | | 12.6 | % | | | 4.7 | % | | | | |
Interactive Services | | | 8.1 | % | | | 8.9 | % | | | | |
Specialized Agent Services | | | 6.6 | % | | | 12.7 | % | | | | |
| | | | | | | | | | | | |
Total | | | 19.1 | % | | | 19.6 | % | | | | |
| | | | | | | | | | | | |
7
WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
| | | | | | | | | | | | |
| | | March 31, | | | December 31, | | | % | |
| | | 2016 | | | 2015 | | | Change | |
Assets: | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 133,295 | | | $ | 182,338 | | | | -26.9 | % |
Trust and restricted cash | | | 13,638 | | | | 19,829 | | | | -31.2 | % |
Accounts receivable, net | | | 389,889 | | | | 373,087 | | | | 4.5 | % |
Income taxes receivable | | | 7,017 | | | | 19,332 | | | | -63.7 | % |
Prepaid assets | | | 55,942 | | | | 43,093 | | | | 29.8 | % |
Deferred expenses | | | 64,231 | | | | 65,781 | | | | -2.4 | % |
Other current assets | | | 26,851 | | | | 22,040 | | | | 21.8 | % |
Assets held for sale | | | 18,974 | | | | 17,672 | | | | 7.4 | % |
| | | | | | | | | | | | |
Total current assets | | | 709,837 | | | | 743,172 | | | | -4.5 | % |
Property and Equipment: | | | | | | | | | | | | |
Property and equipment | | | 1,080,267 | | | | 1,053,678 | | | | 2.5 | % |
Accumulated depreciation and amortization | | | (744,662 | ) | | | (718,834 | ) | | | 3.6 | % |
| | | | | | | | | | | | |
Net property and equipment | | | 335,605 | | | | 334,844 | | | | 0.2 | % |
Goodwill | | | 1,925,032 | | | | 1,915,690 | | | | 0.5 | % |
Intangible assets, net | | | 360,117 | | | | 370,021 | | | | -2.7 | % |
Other assets | | | 192,107 | | | | 191,490 | | | | 0.3 | % |
| | | | | | | | | | | | |
Total assets | | $ | 3,522,698 | | | $ | 3,555,217 | | | | -0.9 | % |
| | | | | | | | | | | | |
Liabilities and Stockholders’ Deficit: | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 90,284 | | | $ | 92,935 | | | | -2.9 | % |
Deferred revenue | | | 158,589 | | | | 161,828 | | | | -2.0 | % |
Accrued expenses | �� | | 203,169 | | | | 220,926 | | | | -8.0 | % |
Current maturities of long-term debt | | | 26,563 | | | | 24,375 | | | | 9.0 | % |
| | | | | | | | | | | | |
Total current liabilities | | | 478,605 | | | | 500,064 | | | | -4.3 | % |
Long-term obligations | | | 3,290,373 | | | | 3,318,688 | | | | -0.9 | % |
Deferred income taxes | | | 108,676 | | | | 102,530 | | | | 6.0 | % |
Other long-term liabilities | | | 181,258 | | | | 186,073 | | | | -2.6 | % |
| | | | | | | | | | | | |
Total liabilities | | | 4,058,912 | | | | 4,107,355 | | | | -1.2 | % |
Stockholders’ Deficit: | | | | | | | | | | | | |
Common stock | | | 86 | | | | 85 | | | | 1.2 | % |
Additional paid-in capital | | | 2,202,472 | | | | 2,193,193 | | | | 0.4 | % |
Retained deficit | | | (2,581,983 | ) | | | (2,607,415 | ) | | | -1.0 | % |
Accumulated other comprehensive loss | | | (69,563 | ) | | | (72,736 | ) | | | -4.4 | % |
Treasury stock at cost | | | (87,226 | ) | | | (65,265 | ) | | | 33.6 | % |
| | | | | | | | | | | | |
Total stockholders’ deficit | | | (536,214 | ) | | | (552,138 | ) | | | -2.9 | % |
| | | | | | | | | | | | |
Total liabilities and stockholders’ deficit | | $ | 3,522,698 | | | $ | 3,555,217 | | | | -0.9 | % |
| | | | | | | | | | | | |
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.
9
Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
| | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
Consolidated: | | | | | | | | | | | | |
Operating income | | $ | 108,924 | | | $ | 110,693 | | | | -1.6 | % |
Amortization of acquired intangible assets | | | 16,425 | | | | 16,526 | | | | -0.6 | % |
Share-based compensation | | | 7,666 | | | | 5,429 | | | | 41.2 | % |
Secondary equity offering expense | | | — | | | | 707 | | | | — | |
M&A and acquisition-related costs | | | 1,088 | | | | 778 | | | | 39.8 | % |
| | | | | | | | | | | | |
Adjusted operating income | | $ | 134,103 | | | $ | 134,133 | | | | 0.0 | % |
| | | | | | | | | | | | |
Adjusted operating income margin | | | 23.5 | % | | | 23.7 | % | | | | |
Unified Communications Services: | | | | | | | | | | | | |
Operating income | | $ | 89,068 | | | $ | 94,878 | | | | -6.1 | % |
Amortization of acquired intangible assets | | | 3,393 | | | | 3,255 | | | | 4.2 | % |
Share-based compensation | | | 4,328 | | | | 3,271 | | | | 32.3 | % |
Secondary equity offering expense | | | — | | | | 45 | | | | — | |
M&A and acquisition-related costs | | | 491 | | | | — | | | | — | |
| | | | | | | | | | | | |
Adjusted operating income | | $ | 97,280 | | | $ | 101,449 | | | | -4.1 | % |
| | | | | | | | | | | | |
Adjusted operating income margin | | | 26.8 | % | | | 27.5 | % | | | | |
Safety Services: | | | | | | | | | | | | |
Operating income | | $ | 8,973 | | | $ | 3,202 | | | | 180.2 | % |
Amortization of acquired intangible assets | | | 3,383 | | | | 4,649 | | | | -27.2 | % |
Share-based compensation | | | 1,227 | | | | 919 | | | | 33.5 | % |
Secondary equity offering expense | | | — | | | | 15 | | | | — | |
| | | | | | | | | | | | |
Adjusted operating income | | $ | 13,583 | | | $ | 8,785 | | | | 54.6 | % |
| | | | | | | | | | | | |
Adjusted operating income margin | | | 19.1 | % | | | 12.8 | % | | | | |
Interactive Services: | | | | | | | | | | | | |
Operating income | | $ | 5,808 | | | $ | 5,574 | | | | 4.2 | % |
Amortization of acquired intangible assets | | | 5,055 | | | | 3,795 | | | | 33.2 | % |
Share-based compensation | | | 761 | | | | 581 | | | | 31.0 | % |
Secondary equity offering expense | | | — | | | | 7 | | | | — | |
M&A and acquisition-related costs | | | 552 | | | | 628 | | | | -12.1 | % |
| | | | | | | | | | | | |
Adjusted operating income | | $ | 12,176 | | | $ | 10,585 | | | | 15.0 | % |
| | | | | | | | | | | | |
Adjusted operating income margin | | | 17.0 | % | | | 16.9 | % | | | | |
Specialized Agent Services: | | | | | | | | | | | | |
Operating income | | $ | 4,518 | | | $ | 8,535 | | | | -47.1 | % |
Amortization of acquired intangible assets | | | 4,594 | | | | 4,827 | | | | -4.8 | % |
Share-based compensation | | | 1,350 | | | | 658 | | | | 105.2 | % |
Secondary equity offering expense | | | — | | | | 9 | | | | — | |
M&A and acquisition-related costs | | | — | | | | 150 | | | | — | |
| | | | | | | | | | | | |
Adjusted operating income | | $ | 10,462 | | | $ | 14,179 | | | | -26.2 | % |
| | | | | | | | | | | | |
Adjusted operating income margin | | | 15.3 | % | | | 21.1 | % | | | | |
Corporate Other: | | | | | | | | | | | | |
Operating income (loss) | | $ | 557 | | | $ | (1,496 | ) | | | | |
Secondary equity offering expense | | | — | | | | 631 | | | | | |
M&A and acquisition-related costs | | | 45 | | | | — | | | | | |
| | | | | | | | | | | | |
Adjusted operating income (loss) | | $ | 602 | | | $ | (865 | ) | | | | |
| | | | | | | | | | | | |
10
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. 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 adjusted net income from net income.
11
Reconciliation of Adjusted Net Income from Net Income
Unaudited, in thousands except per share data
| | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
CONTINUING OPERATIONS | | | | | | | | | | | | |
Income from continuing operations | | $ | 44,555 | | | $ | 48,634 | | | | -8.4 | % |
Amortization of acquired intangible assets | | | 16,425 | | | | 16,526 | | | | | |
Amortization of deferred financing costs | | | 4,909 | | | | 5,002 | | | | | |
Share-based compensation | | | 7,666 | | | | 5,429 | | | | | |
Secondary equity offering expense | | | — | | | | 707 | | | | | |
M&A and acquisition-related costs | | | 1,088 | | | | 778 | | | | | |
| | | | | | | | | | | | |
Pre-tax total | | | 30,088 | | | | 28,442 | | | | | |
Income tax expense on adjustments | | | 10,772 | | | | 10,168 | | | | | |
| | | | | | | | | | | | |
Adjusted income from continuing operations | | $ | 63,871 | | | $ | 66,908 | | | | -4.5 | % |
| | | | | | | | | | | | |
Diluted shares outstanding | | | 84,615 | | | | 86,226 | | | | | |
Adjusted EPS from continuing operations - diluted | | $ | 0.75 | | | $ | 0.78 | | | | -3.8 | % |
| |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | | |
DISCONTINUED OPERATIONS | | | | | | | | | | | | |
Income from discontinued operations | | $ | — | | | $ | 31,866 | | | | | |
Amortization of acquired intangible assets | | | — | | | | 41 | | | | | |
Share-based compensation | | | — | | | | 1,576 | | | | | |
M&A and acquisition-related costs | | | — | | | | 356 | | | | | |
| | | | | | | | | | | | |
Pre-tax total | | | — | | | | 1,973 | | | | | |
Income tax benefit on adjustments | | | — | | | | 756 | | | | | |
| | | | | | | | | | | | |
Adjusted income from discontinued operations | | $ | — | | | $ | 33,083 | | | | | |
| | | | | | | | | | | | |
Diluted shares outstanding | | | 84,615 | | | | 86,226 | | | | | |
Adjusted EPS from discontinued operations - diluted | | $ | — | | | $ | 0.38 | | | | | |
| |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
CONSOLIDATED | | | | | | | | | | | | |
Net income | | $ | 44,555 | | | $ | 80,500 | | | | -44.7 | % |
Amortization of acquired intangible assets | | | 16,425 | | | | 16,567 | | | | | |
Amortization of deferred financing costs | | | 4,909 | | | | 5,002 | | | | | |
Share-based compensation | | | 7,666 | | | | 7,005 | | | | | |
Secondary equity offering expense | | | — | | | | 707 | | | | | |
M&A and acquisition-related costs | | | 1,088 | | | | 1,134 | | | | | |
| | | | | | | | | | | | |
Pre-tax total | | | 30,088 | | | | 30,415 | | | | | |
Income tax expense on adjustments | | | 10,772 | | | | 10,924 | | | | | |
| | | | | | | | | | | | |
Adjusted net income | | $ | 63,871 | | | $ | 99,991 | | | | -36.1 | % |
| | | | | | | | | | | | |
Diluted shares outstanding | | | 84,615 | | | | 86,226 | | | | | |
Adjusted EPS - diluted | | $ | 0.75 | | | $ | 1.16 | | | | -35.3 | % |
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.
12
Reconciliation of Free Cash Flow from Operating Cash Flow
Unaudited, in thousands
| | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
CONTINUING OPERATIONS | | | | | | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 58,396 | | | | 2.8 | % |
Cash capital expenditures | | | 36,357 | | | | 36,307 | | | | 0.1 | % |
| | | | | | | | | | | | |
Free cash flow | | $ | 23,695 | | | $ | 22,089 | | | | 7.3 | % |
| | | | | | | | | | | | |
| |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | | |
DISCONTINUED OPERATIONS | | | | | | | | | | | | |
Cash flows from (used in) operating activities | | $ | — | | | $ | (5,279 | ) | | | | |
Cash capital expenditures | | | — | | | | 1,930 | | | | | |
| | | | | | | | | | | | |
Free cash flow | | $ | — | | | $ | (7,209 | ) | | | | |
| | | | | | | | | | | | |
| |
| | | Three Months Ended March 31, | |
| | | 2016 | | | 2015 | | | % Change | |
CONSOLIDATED | | | | | | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 53,117 | | | | 13.1 | % |
Cash capital expenditures | | | 36,357 | | | | 38,237 | | | | -4.9 | % |
| | | | | | | | | | | | |
Free cash flow | | $ | 23,695 | | | $ | 14,880 | | | | 59.2 | % |
| | | | | | | | | | | | |
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. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operating activities and net income.
13
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow
Unaudited, in thousands
| | | | | | | | |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
CONTINUING OPERATIONS | | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 58,396 | |
Income tax expense | | | 24,846 | | | | 27,056 | |
Deferred income tax expense | | | (2,377 | ) | | | (2,961 | ) |
Interest expense and other financing charges | | | 38,985 | | | | 39,537 | |
Provision for share-based compensation | | | (7,666 | ) | | | (5,429 | ) |
Amortization of deferred financing costs | | | (4,909 | ) | | | (5,002 | ) |
Other | | | (434 | ) | | | (216 | ) |
Changes in operating assets and liabilities, net of business acquisitions | | | 48,384 | | | | 50,767 | |
| | | | | | | | |
EBITDA | | | 156,881 | | | | 162,148 | |
Provision for share-based compensation | | | 7,666 | | | | 5,429 | |
Secondary equity offering expense | | | — | | | | 707 | |
M&A and acquisition-related costs | | | 1,088 | | | | 778 | |
| | | | | | | | |
Adjusted EBITDA | | $ | 165,635 | | | $ | 169,062 | |
| | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 58,396 | |
Cash flows used in investing activities | | $ | (39,460 | ) | | $ | (38,403 | ) |
Cash flows used in financing activities | | $ | (70,245 | ) | | $ | (234,482 | ) |
| |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
DISCONTINUED OPERATIONS | | | | | | | | |
Cash flows from operating activities | | $ | — | | | $ | (5,279 | ) |
Income tax expense | | | — | | | | 19,817 | |
Deferred income tax expense | | | — | | | | (4,334 | ) |
Provision for share-based compensation | | | — | | | | (1,576 | ) |
Other | | | — | | | | 29,596 | |
Changes in operating assets and liabilities, net of business acquisitions | | | — | | | | 13,500 | |
| | | | | | | | |
EBITDA | | | — | | | | 51,724 | |
Provision for share-based compensation | | | — | | | | 1,576 | |
M&A and acquisition-related costs | | | — | | | | 356 | |
Gain on sale of business | | | — | | | | (48,556 | ) |
| | | | | | | | |
Adjusted EBITDA | | $ | — | | | $ | 5,100 | |
| | | | | | | | |
Cash flows from operating activities | | $ | — | | | $ | (5,279 | ) |
Cash flows from (used in) investing activities | | $ | — | | | $ | 263,806 | |
Cash flows used in financing activities | | $ | — | | | $ | — | |
14
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.
| | | | | | | | |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
CONSOLIDATED | | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 53,117 | |
Income tax expense | | | 24,846 | | | | 46,873 | |
Deferred income tax expense | | | (2,377 | ) | | | (7,295 | ) |
Interest expense and other financing charges | | | 38,985 | | | | 39,537 | |
Provision for share-based compensation | | | (7,666 | ) | | | (7,005 | ) |
Amortization of deferred financing costs | | | (4,909 | ) | | | (5,002 | ) |
Other | | | (434 | ) | | | 29,380 | |
Changes in operating assets and liabilities, net of business acquisitions | | | 48,384 | | | | 64,267 | |
| | | | | | | | |
EBITDA | | | 156,881 | | | | 213,872 | |
Provision for share-based compensation | | | 7,666 | | | | 7,005 | |
Secondary equity offering expense | | | — | | | | 707 | |
M&A and acquisition-related costs | | | 1,088 | | | | 1,134 | |
Gain on sale of business | | | — | | | | (48,556 | ) |
| | | | | | | | |
Adjusted EBITDA | | $ | 165,635 | | | $ | 174,162 | |
| | | | | | | | |
CONSOLIDATED | | | | | | | | |
Cash flows from operating activities | | $ | 60,052 | | | $ | 53,117 | |
Cash flows from (used in) investing activities | | $ | (39,460 | ) | | $ | 225,403 | |
Cash flows used in financing activities | | $ | (70,245 | ) | | $ | (234,482 | ) |
15
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
| | | | | | | | |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
CONTINUING OPERATIONS | | | | | | | | |
Income from continuing operations | | $ | 44,555 | | | $ | 48,634 | |
Interest expense and other financing charges | | | 38,985 | | | | 39,537 | |
Depreciation and amortization | | | 48,495 | | | | 46,921 | |
Income tax expense | | | 24,846 | | | | 27,056 | |
| | | | | | | | |
EBITDA | | | 156,881 | | | | 162,148 | |
Provision for share-based compensation | | | 7,666 | | | | 5,429 | |
Secondary equity offering expense | | | — | | | | 707 | |
M&A and acquisition-related costs | | | 1,088 | | | | 778 | |
| | | | | | | | |
Adjusted EBITDA | | $ | 165,635 | | | $ | 169,062 | |
| | | | | | | | |
| |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
DISCONTINUED OPERATIONS | | | | | | | | |
Income from discontinued operations | | $ | — | | | $ | 31,866 | |
Depreciation and amortization | | | — | | | | 41 | |
Income tax expense | | | — | | | | 19,817 | |
| | | | | | | | |
EBITDA | | | — | | | | 51,724 | |
Provision for share-based compensation | | | — | | | | 1,576 | |
M&A and acquisition-related costs | | | — | | | | 356 | |
Gain on sale of business | | | — | | | | (48,556 | ) |
| | | | | | | | |
Adjusted EBITDA | | $ | — | | | $ | 5,100 | |
| | | | | | | | |
| |
| | | Three Months Ended Mar. 31, | |
| | | 2016 | | | 2015 | |
CONSOLIDATED | | | | | | | | |
Net income | | $ | 44,555 | | | $ | 80,500 | |
Interest expense and other financing charges | | | 38,985 | | | | 39,537 | |
Depreciation and amortization | | | 48,495 | | | | 46,962 | |
Income tax expense | | | 24,846 | | | | 46,873 | |
| | | | | | | | |
EBITDA | | | 156,881 | | | | 213,872 | |
Provision for share-based compensation | | | 7,666 | | | | 7,005 | |
Secondary equity offering expense | | | — | | | | 707 | |
M&A and acquisition-related costs | | | 1,088 | | | | 1,134 | |
Gain on sale of business | | | — | | | | (48,556 | ) |
| | | | | | | | |
Adjusted EBITDA | | $ | 165,635 | | | $ | 174,162 | |
| | | | | | | | |
###
AT THE COMPANY:
Dave Pleiss
Investor Relations
West Corporation
(402) 963-1500
DMPleiss@west.com
16
