News: $WSTC – West Corporation Reports Third Quarter 2015 Results

OMAHA, Neb., Nov. 02, 2015 (GLOBE NEWSWIRE) — West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its third quarter 2015 results.

Key Quarterly Highlights:

 

                       
Unaudited, in millions except per share amounts  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014     % Change     2015       2014     % Change
Revenue $ 574.4     $ 568.2       1.1 %   $ 1,711.8     $ 1,655.7       3.4 %
Adjusted EBITDA from Continuing Operations1   171.3       171.2       0.1 %     511.1       494.9       3.3 %
EBITDA from Continuing Operations1   165.5       166.2       -0.4 %     491.3       482.2       1.9 %
Adjusted Operating Income1   146.6       137.7       6.5 %     420.8       400.3       5.1 %
Operating Income   124.4       114.9       8.2 %     351.5       344.7       2.0 %
Adjusted Income from Continuing Operations1   68.1       67.0       1.6 %     202.3       177.6       13.9 %
Income from Continuing Operations   50.7       13.1       287.1 %     148.6       99.7       49.0 %
Adjusted Earnings per Share from Continuing Operations – Diluted1   0.80       0.78       2.6 %     2.36       2.08       13.5 %
Earnings per Share from Continuing Operations – Diluted   0.60       0.15       300.0 %     1.74       1.17       48.7 %
Free Cash Flow from Continuing Operating Activities1,2   95.4       85.7       11.2 %     187.0       203.7       -8.2 %
Cash Flows from Continuing Operating Activities   126.7       118.3       7.1 %     283.2       302.6       -6.4 %
Cash Flows used in Continuing Investing Activities   (30.1 )     (77.1 )     -61.0 %     (113.8 )     (485.9 )     -76.6 %
Cash Flows from (used in) Continuing Financing Activities   (74.0 )     (33.9 )     118.5 %     (364.8 )     110.9       NM  
                       

 

“The Company was once again able to modestly grow its revenue base, successfully overcoming some previously disclosed near-term headwinds,” said Tom Barker, chairman and chief executive officer of West Corporation. “West generated double-digit growth in free cash flow during the quarter and continued to invest in future growth with the acquisitions of ClientTell and Magnetic North.”

“During the quarter, Gartner released its annual Unified Communications-as-a-Services (UCaaS) report and named West as one of three firms positioned in its Leader’s Quadrant. Gartner evaluates providers based on the completeness of their vision and their ability to execute. We are proud to be named a Leader by Gartner for the fourth consecutive year and appreciative of the recognition of our industry-leading solutions,” Barker continued.5

Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable November 25, 2015 to shareholders of record as of the close of business on November 16, 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 third quarter of 2015, revenue was $574.4 million compared to $568.2 million for the same quarter of the previous year, an increase of 1.1 percent. Adjusted organic revenue growth was 3.9 percent for the quarter. Revenue from acquired entities3 was $5.4 million during the third quarter of 2015, contributing 0.9 percent to the Company’s revenue growth. The Company’s revenue growth rate was partially offset by $21.4 million, or 3.8 percent, from the impact of foreign currency exchange rates and two previously disclosed client losses. Details of the Company’s revenue growth are presented in the statements of operations below.

During the second quarter of 2015, the Company disclosed the loss of a large client in its telecom services line of business. The impact of this client loss to the Company’s third quarter 2015 revenue was $5.0 million. The Company expects its revenue in the fourth quarter to be negatively impacted by approximately $13-$14 million and 2016 revenue to be negatively impacted by approximately $40 million.

Adjusted EBITDA1 for the third quarter of 2015 was $171.3 million compared to $171.2 million for the third quarter of 2014. Adjusted EBITDA margin was 29.8 percent for the third quarter of 2015 compared to 30.1 percent in the same quarter last year. EBITDA1 was $165.5 million in the third quarter of 2015 compared to $166.2 million in the third quarter of 2014. EBITDA margin was 28.8 percent for the third quarter of 2015 compared to 29.3 percent in the same quarter last year.

Adjusted income from continuing operations1 was $68.1 million in the third quarter of 2015 compared to $67.0 million for the third quarter of 2014, an increase of 1.6 percent. Income from continuing operations increased 287.1 percent to $50.7 million in the third quarter of 2015 compared to $13.1 million in the same quarter of 2014. This increase was primarily due to $51.7 million of debt call premiums and accelerated amortization of deferred financing costs incurred when the Company repurchased a portion of its senior notes in the third quarter of 2014.

Balance Sheet, Cash Flow and Liquidity
At September 30, 2015, West Corporation had cash and cash equivalents totaling $182.5 million and working capital of $(6.6) million. Working capital was negatively impacted by the Company’s Senior Secured Term Loan Facility balance of $250.0 million becoming current during the third quarter of 2015. The facility is due in July 2016.

Interest expense was $38.4 million during the third quarter of 2015 compared to $47.6 million during the comparable period the prior year. The decrease in interest expense is a result of the Company’s debt refinancing 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 4.66x at September 30, 2015.

Cash flows from continuing operating activities were $126.7 million in the third quarter of 2015 compared to $118.3 million in the same period of 2014. Free cash flow1,2 increased 11.2 percent to $95.4 million in the third quarter of 2015 compared to $85.7 million in the third quarter of 2014. During the third quarter of 2015, the Company invested $31.3 million, or 5.5 percent of revenue, in capital expenditures primarily for software and computer equipment.

“West’s third quarter 2015 cash flows from continuing operating activities were very strong at $126.7 million. We repaid $57.4 million of our 2016 term debt facility during the quarter and ended the quarter with a cash balance of $182.5 million,” said Jan Madsen, chief financial officer of West Corporation. “We continue to prioritize a balanced approach to capital allocation that includes strategic acquisitions, investing in our core business, reducing our outstanding debt and repurchasing shares.”

Acquisitions
The Company announced it had completed the acquisition of ClientTell, Inc., a provider of automated notifications and lab reporting services to the healthcare industry. ClientTell will become part of the Company’s interactive services line of business. The initial purchase price was approximately $38 million and was funded with cash on hand. Up to an additional $10.5 million in cash will be paid based on achievement of certain financial objectives over the next five years.

The Company also announced the acquisition of Magnetic North, Ltd., a leading U.K.-based provider of proprietary hosted customer contact center and unified communications solutions to enterprises. Magnetic North offers its international client base complete multi-channel, cloud-based solutions via a fully integrated, feature-rich platform. The technology that Magnetic North has developed will be used across West to provide clients with the capability to deliver seamless and contextual multi-channel consumer experiences. The purchase price was approximately $39 million and was funded with cash on hand.

“Both ClientTell and Magnetic North boast double digit revenue growth and Adjusted EBITDA margins exceeding our Company average,” added Barker. “Additionally, these highly strategic acquisitions enhance our solutions in growing markets and demonstrate our commitment to investing in leading technologies.”

Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, November 3, 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, telecom services and specialty agent services.

For over 25 years, West has provided reliable, high-quality, voice and data services. West serves clients in a variety of industries including telecommunications, retail, financial services, public safety, technology and healthcare. West has a global organization with sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information on West Corporation, please call 1-800-841-9000 or visit www.west.com.

Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue” or similar terminology. These statements reflect only West’s current expectations and are not guarantees of future performance or results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition in West’s highly competitive markets; increases in the cost of voice and data services or significant interruptions in these services; West’s ability to keep pace with its clients’ needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West’s clients; the non-exclusive nature of West’s client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West’s businesses; West’s ability to protect its proprietary information or technology; service interruptions to West’s data and operation centers; West’s ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West’s ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; and future impairments of our substantial goodwill, intangible assets, or other long-lived assets. In addition, West is subject to risks related to its level of indebtedness.  Such risks include West’s ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West’s ability to comply with covenants contained in its debt instruments; 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.

 WEST CORPORATION   
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   
(Unaudited, in thousands except per share data)  
                 
   Three Months Ended September 30,   
     2015         2014             2015     
   Actual     Actual    % Change    Adjusted (1)   
Revenue $ 574,448     $ 568,197       1.1 %   $ 574,448    
Cost of services   246,337       243,706       1.1 %     246,337    
Selling, general and administrative expenses   203,757       209,545       -2.8 %     181,473    
Operating income   124,354       114,946       8.2 %     146,638    
Interest expense, net   38,382       47,615       -19.4 %     33,374    
Debt call premium and accelerated amortization of                
deferred financing costs         51,735     NM        
Other expense (income), net   6,322       (2,336 )   NM     6,322    
Income from continuing operations before tax   79,650       17,932       344.2 %     106,942    
Income tax expense attributed to continuing operations   28,931       4,829       499.1 %     38,843    
Income from continuing operations   50,719       13,103       287.1 %     68,099    
Income (loss) from discontinued operations, net of income taxes   (1,235 )     3,007       NM       (1,235 )  
Net income $ 49,484     $ 16,110       207.2 %   $ 66,864    
                 
Weighted average shares outstanding:                
Basic   82,931       84,090           82,931    
Diluted   84,834       85,611           84,834    
                 
Earnings (loss) per share – Basic:                
Continuing operations $ 0.61     $ 0.15       306.7 %   $ 0.82    
Discontinued operations   (0.01 )     0.04       NM       (0.01 )  
Total Earnings Per Share – Basic $ 0.60     $ 0.19       215.8 %   $ 0.81    
                 
Earnings (loss) per share – Diluted:                
Continuing operations $ 0.60     $ 0.15       300.0 %   $ 0.80    
Discontinued operations   (0.01 )     0.04       NM       (0.01 )  
Total Earnings Per Share – Diluted** $ 0.58     $ 0.19       205.3 %   $ 0.79    
                 
                 
SELECTED FINANCIAL DATA:                
                 
       Contribution           
Changes in Revenue – 3Q15 compared to 3Q14:      to Rev. Growth           
Revenue for the three months ended Sept. 30, 2014 $ 568,197                
Revenue from acquired entities3   5,376       0.9 %          
Revenue from previously disclosed lost conferencing client   (6,700 )     -1.2 %          
Revenue from previously disclosed lost telecom services client   (5,000 )     -0.9 %          
Estimated impact of foreign currency exchange rates   (9,706 )     -1.7 %          
Adjusted organic growth, net   22,281       3.9 %          
Revenue for the three months ended Sept. 30, 2015 $ 574,448       1.1 %          
                 
                 
Depreciation and Amortization:  3Q15     3Q14    % Change      
Depreciation $ 27,737     $ 27,765       -0.1 %      
Amortization – SG&A   16,513       17,817       -7.3 %      
Amortization – COS   3,002       3,078       -2.5 %      
Amortization – Deferred financing costs   5,008       5,206       -3.8 %      
Amortization – Accelerated deferred financing costs         7,748       NM        
Total depreciation and amortization $ 52,260     $ 61,614       -15.2 %      
                 
Share-based Compensation $ 5,374     $ 3,908       37.5 %      
                 
                 
** 3Q15 Earnings Per Share does not foot due to rounding                

 WEST CORPORATION   
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   
 (Unaudited, in thousands except per share data)   
                 
   Nine Months Ended September 30,   
     2015         2014             2015     
   Actual     Actual    % Change    Adjusted (1)   
Revenue $   1,711,829     $   1,655,656       3.4 %   $   1,711,829    
Cost of services     731,304         708,912       3.2 %       731,304    
Selling, general and administrative expenses     629,045         602,047       4.5 %       559,762    
Operating income     351,480         344,697       2.0 %       420,763    
Interest expense, net     115,657         144,952       -20.2 %       100,640    
Debt call premium and accelerated amortization of                
deferred financing costs     –          51,735       NM         –     
Other expense (income), net     2,583         (5,562 )     NM         2,583    
Income from continuing operations before tax     233,240         153,572       51.9 %       317,540    
Income tax expense attributed to continuing operations     84,664         53,845       57.2 %       115,265    
Income from continuing operations     148,576         99,727       49.0 %       202,275    
Income from discontinued operations, net of income taxes     30,989         10,420       197.4 %       32,225    
Net income $   179,565     $   110,147       63.0 %   $   234,500    
                 
Weighted average shares outstanding:                
Basic     83,479         83,950             83,479    
Diluted     85,554         85,400             85,554    
                 
Earnings per share – Basic:                
Continuing operations $   1.78     $   1.19       49.6 %   $   2.42    
Discontinued operations     0.37         0.12       208.3 %       0.38    
Total Earnings Per Share – Basic $   2.15     $   1.31       64.1 %   $   2.80    
                 
Earnings per share – Diluted:                
Continuing operations $   1.74     $   1.17       48.7 %   $   2.36    
Discontinued operations     0.36         0.12       200.0 %   $   0.38    
Total Earnings Per Share – Diluted $   2.10     $   1.29       62.8 %   $   2.74    
                 
                 
SELECTED FINANCIAL DATA:                
                 
       Contribution           
Changes in Revenue – YTD 3Q15 compared to YTD 3Q14:      to Rev. Growth           
Revenue for the nine months ended Sept. 30, 2014 $   1,655,656                
Revenue from acquired entities3     66,742       4.0 %          
Revenue from previously disclosed lost conferencing client     (26,200 )     -1.6 %          
Revenue from previously disclosed lost telecom services client     (5,000 )     -0.3 %          
Estimated impact of foreign currency exchange rates     (30,040 )     -1.8 %          
Adjusted organic growth, net     50,671       3.1 %          
Revenue for the nine months ended Sept. 30, 2014 $   1,711,829       3.4 %          
                 
                 
Depreciation and Amortization:  3Q15 YTD     3Q14 YTD    % Change      
Depreciation $   81,931     $   79,116       3.6 %      
Amortization – SG&A     49,480         42,978       15.1 %      
Amortization – COS     9,504         8,995       5.7 %      
Amortization – Deferred financing costs     15,017         14,960       0.4 %      
Amortization – Accelerated deferred financing costs     –          7,748       NM        
Total depreciation and amortization $   155,932     $   153,797       1.4 %      
                 
Share-based Compensation $   16,785     $   10,055       66.9 %      
                 

 

WEST CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS 
(Unaudited, in thousands)
           
   September 30,     December 31,    %
     2015         2014      Change
Assets:          
Current assets:          
Cash and cash equivalents $ 182,538     $ 115,061       58.6 %
Trust and restricted cash   18,878       18,573       1.6 %
Accounts receivable, net   387,639       355,625       9.0 %
Prepaid assets   44,580       45,242       -1.5 %
Deferred expenses   68,952       65,317       5.6 %
Other current assets   25,919       30,575       -15.2 %
Assets held for sale   17,541       304,605       -94.2 %
Total current assets   746,047       934,998       -20.2 %
Property and Equipment:          
Property and equipment   1,025,279       1,045,769       -2.0 %
Accumulated depreciation and amortization   (695,604 )     (695,739 )     0.0 %
Net property and equipment   329,675       350,030       -5.8 %
Goodwill   1,880,662       1,884,920       -0.2 %
Intangible assets   346,483       388,166       -10.7 %
Other assets   254,074       259,961       -2.3 %
Total assets $ 3,556,941     $ 3,818,075       -6.8 %
Liabilities and Stockholders’ Deficit:          
Current Liabilities:          
Accounts payable $ 87,933     $ 91,353       -3.7 %
Deferred revenue   157,688       144,413       9.2 %
Accrued expenses   241,734       228,424       5.8 %
Current maturities of long-term debt   265,313       16,246       1533.1 %
Liabilities held for sale         84,788       NM  
Total current liabilities   752,668       565,224       33.2 %
Long-term obligations   3,134,812       3,642,540       -13.9 %
Deferred income taxes   90,343       96,632       -6.5 %
Other long-term liabilities   174,622       173,320       0.8 %
Total liabilities   4,152,445       4,477,716       -7.3 %
           
Stockholders’ Deficit:          
Common stock   85       84       1.2 %
Additional paid-in capital   2,187,197       2,155,864       1.5 %
Retained deficit   (2,650,579 )     (2,772,775 )     -4.4 %
Accumulated other comprehensive loss   (66,942 )     (37,506 )     78.5 %
Treasury stock at cost   (65,265 )     (5,308 )     NM  
Total stockholders’ deficit   (595,504 )     (659,641 )     -9.7 %
           
Total liabilities and stockholders’ deficit $ 3,556,941     $ 3,818,075       -6.8 %
           

 

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 September 30, 
    2015       2014     % Change
Operating income $ 124,354     $ 114,946       8.2 %
Amortization of acquired intangible assets   16,513       17,817      
Share-based compensation   5,374       3,908      
M&A and acquisition-related costs   397       1,044      
Adjusted operating income $ 146,638     $ 137,715       6.5 %
           
   Nine Months Ended September 30, 
    2015       2014     % Change
Operating income $ 351,480     $ 344,697       2.0 %
Amortization of acquired intangible assets   49,480       42,978      
Share-based compensation   16,785       10,055      
Secondary equity offering expense   1,041            
M&A and acquisition-related costs   1,977       2,558      
Adjusted operating income $ 420,763     $ 400,288       5.1 %
           

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 September 30,   
    2015       2014     % Change  
Income from continuing operations $ 50,719     $ 13,103       287.1 %  
             
Amortization of acquired intangible assets   16,513       17,817        
Amortization of deferred financing costs   5,008       5,206        
Accelerated amortization of deferred financing costs         7,748        
Share-based compensation   5,374       3,908        
Debt call premiums         43,987        
M&A and acquisition-related costs   397       1,044        
Pre-tax total   27,292       79,710        
Income tax expense on adjustments   9,912       25,803        
Adjusted net income from continuing operations $ 68,099     $ 67,010       1.6 %  
             
Diluted shares outstanding   84,834       85,611        
Adjusted EPS from continuing operations – diluted $ 0.80     $ 0.78       2.6 %  
             
             
DISCONTINUED OPERATIONS  Three Months Ended September 30,   
    2015       2014     % Change  
Income (loss) from discontinued operations $ (1,235 )   $ 3,007       NM    
             
Amortization of acquired intangible assets         495        
Share-based compensation         67        
M&A and acquisition-related costs         440        
Pre-tax total         1,002        
Income tax expense on adjustments         501        
Adjusted net income (loss) from discontinued operations $ (1,235 )   $ 3,508       NM    
             
Diluted shares outstanding   84,834       85,611        
Adjusted earnings (loss) per share            
from discontinued operations – diluted $ (0.01 )   $ 0.04       NM    
             
             
CONSOLDIATED  Three Months Ended September 30,   
    2015       2014     % Change  
Net income $ 49,484     $ 16,110       207.2 %  
             
Amortization of acquired intangible assets   16,513       18,312        
Amortization of deferred financing costs   5,008       5,206        
Accelerated amortization of deferred financing costs         7,748        
Share-based compensation   5,374       3,975        
Debt call premiums         43,987        
M&A and acquisition-related costs   397       1,484        
Pre-tax total   27,292       80,712        
Income tax expense on adjustments   9,912       26,304        
Adjusted net income $ 66,864     $ 70,518       -5.2 %  
             
Diluted shares outstanding   84,834       85,611        
Adjusted EPS – diluted $ 0.79     $ 0.82       -4.9 %  

             
 Reconciliation of Adjusted Net Income from Net Income   
Unaudited, in thousands except per share data            
CONTINUING OPERATIONS  Nine Months Ended September 30,   
    2015       2014     % Change  
Income from continuing operations $   148,576     $   99,727       49.0 %  
             
Amortization of acquired intangible assets     49,480         42,978        
Amortization of deferred financing costs     15,017         14,960        
Accelerated amortization of deferred financing costs     –          7,748        
Share-based compensation     16,785         10,055        
Debt call premiums     –          43,987        
Secondary equity offering expense     1,041         –         
M&A and acquisition-related costs     1,977         2,558        
Pre-tax total     84,300         122,286        
Income tax expense on adjustments     30,601         44,368        
Adjusted net income from continuing operations $   202,275     $   177,645       13.9 %  
             
Diluted shares outstanding     85,554         85,400        
Adjusted EPS from continuing operations – diluted $   2.36     $   2.08       13.5 %  
             
             
DISCONTINUED OPERATIONS  Nine Months Ended September 30,   
    2015       2014     % Change  
Income from discontinued operations $   30,989     $   10,420       197.4 %  
             
Amortization of acquired intangible assets     41         1,509        
Share-based compensation     1,576         124        
M&A and acquisition-related costs     386         648        
Pre-tax total     2,003         2,281        
Income tax expense on adjustments     767         1,099        
Adjusted net income from discontinued operations $   32,225     $   11,602       177.8 %  
             
Diluted shares outstanding     85,554         85,400        
Adjusted EPS from discontinued operations – diluted $   0.38     $   0.14       171.4 %  
             
             
CONSOLDIATED  Nine Months Ended September 30,   
    2015       2014     % Change  
Net income $   179,565     $   110,147       63.0 %  
             
Amortization of acquired intangible assets     49,521         44,487        
Amortization of deferred financing costs     15,017         14,960        
Accelerated amortization of deferred financing costs     –          7,748        
Share-based compensation     18,361         10,179        
Debt call premiums     –          43,987        
Secondary equity offering expense     1,041         –         
M&A and acquisition-related costs     2,363         3,206        
Pre-tax total     86,303         124,567        
Income tax expense on adjustments     31,368         45,467        
Adjusted net income $   234,500     $   189,247       23.9 %  
             
Diluted shares outstanding     85,554         85,400        
Adjusted EPS – diluted $   2.74     $   2.22       23.4 %  

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 September 30,     Nine Months Ended September 30, 
    2015       2014     % Change     2015       2014     % Change
Cash flows from operating activities $ 126,697     $ 118,302       7.1 %   $ 283,221     $ 302,592       -6.4 %
Cash capital expenditures   31,319       32,557       -3.8 %     96,182       98,886       -2.7 %
Free cash flow $ 95,378     $ 85,745       11.2 %   $ 187,039     $ 203,706       -8.2 %
                       
                       
DISCONTINUED OPERATIONS  Three Months Ended September 30,     Nine Months Ended September 30, 
    2015       2014           2015       2014      
Cash flows from (used in) operating activities $ (1,235 )   $ 10,120         $ (8,197 )   $ 27,658      
Cash capital expenditures         5,691           1,930       14,796      
Free cash flow $ (1,235 )   $ 4,429         $ (10,127 )   $ 12,862      
                       
                       
CONSOLIDATED  Three Months Ended September 30,     Nine Months Ended September 30, 
    2015       2014     % Change     2015       2014     % Change
Cash flows from operating activities $ 125,462     $ 128,422       -2.3 %   $ 275,024     $ 330,250       -16.7 %
Cash capital expenditures   31,319       38,248       -18.1 %     98,112       113,682       -13.7 %
Free cash flow $ 94,143     $ 90,174       4.4 %   $ 176,912     $ 216,568       -18.3 %
                       

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 Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Cash flows from operating activities $ 126,697     $ 118,302     $ 283,221     $ 302,592  
Income tax expense   28,931       4,829       84,664       53,845  
Deferred income tax benefit   8,160       17,915       5,958       27,684  
Interest expense and other financing charges   38,642       99,644       117,120       197,579  
Provision for share-based compensation   (5,374 )     (3,908 )     (16,785 )     (10,055 )
Amortization of deferred financing costs   (5,008 )     (5,206 )     (15,017 )     (14,960 )
Accelerated amortization of deferred financing costs         (7,748 )           (7,748 )
Other   (4 )           (224 )     (6 )
Changes in operating assets and liabilities,              
net of business acquisitions   (26,500 )     (57,591 )     32,338       (66,690 )
EBITDA   165,544       166,237       491,275       482,241  
Provision for share-based compensation   5,374       3,908       16,785       10,055  
Secondary equity offering expense               1,041        
M&A and acquisition-related costs   397       1,044       1,977       2,558  
Adjusted EBITDA $ 171,315     $ 171,189     $ 511,078     $ 494,854  
               
               
Cash flows from operating activities $ 126,697     $ 118,302     $ 283,221     $ 302,592  
Cash flows used in investing activities $ (30,061 )   $ (77,111 )   $ (113,782 )   $ (485,938 )
Cash flows from (used in) financing activities $ (74,048 )   $ (33,882 )   $ (364,790 )   $ 110,855  
               
               
DISCONTINUED OPERATIONS  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Cash flows from (used in) operating activities $ (1,235 )   $ 10,120     $ (8,197 )   $ 27,658  
Income tax expense   (665 )     2,959       19,345       9,467  
Deferred income tax expense         (2,837 )     (2,293 )     (3,057 )
Provision for share-based compensation         (67 )     (1,576 )     (124 )
Other         (2 )     29,596       (2 )
Changes in operating assets and liabilities,              
net of business acquisitions         (3 )     13,500       (1,170 )
EBITDA   (1,900 )     10,170       50,375       32,772  
Provision for share-based compensation         67       1,576       124  
M&A and acquisition-related costs         440       386       648  
(Gain) loss on sale of business   1,900             (46,656 )      
Adjusted EBITDA $     $ 10,677     $ 5,681     $ 33,544  
               
               
Cash flows from (used in) operating activities $ (1,235 )   $ 10,120     $ (8,197 )   $ 27,658  
Cash flows from (used in) investing activities $ 6,275     $ (5,792 )   $ 275,815     $ (15,194 )
Cash flows used in financing activities $     $     $     $  
               
 Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, continued 
CONSOLIDATED  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Cash flows from operating activities $ 125,462     $ 128,422     $ 275,024     $ 330,250  
Income tax expense   28,266       7,788       104,009       63,312  
Deferred income tax benefit   8,160       15,078       3,665       24,627  
Interest expense and other financing charges   38,642       99,644       117,120       197,579  
Provision for share-based compensation   (5,374 )     (3,975 )     (18,361 )     (10,179 )
Amortization of deferred financing costs   (5,008 )     (5,206 )     (15,017 )     (14,960 )
Accelerated amortization of deferred financing costs         (7,748 )           (7,748 )
Other   (4 )     (2 )     29,372       (8 )
Changes in operating assets and liabilities,              
net of business acquisitions   (26,500 )     (57,594 )     45,838       (67,860 )
EBITDA   163,644       176,407       541,650       515,013  
Provision for share-based compensation   5,374       3,975       18,361       10,179  
Secondary equity offering expense               1,041        
M&A and acquisition-related costs   397       1,484       2,363       3,206  
(Gain) loss on sale of business   1,900             (46,656 )      
Adjusted EBITDA $ 171,315     $ 181,866     $ 516,759     $ 528,398  
               
CONSOLIDATED              
Cash flows from operating activities $ 125,462     $ 128,422     $ 275,024     $ 330,250  
Cash flows from (used in) investing activities $ (23,786 )   $ (82,903 )   $ 162,033     $ (501,132 )
Cash flows from (used in) financing activities $ (74,048 )   $ (33,882 )   $ (364,790 )   $ 110,855  
               

               
 Reconciliation of EBITDA and Adjusted EBITDA from Net Income 
Unaudited, in thousands              
CONTINUING OPERATIONS  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Income from continuing operations $ 50,719     $ 13,103     $ 148,576     $ 99,727  
Interest expense and other financing charges   38,642       99,644       117,120       197,579  
Depreciation and amortization   47,252       48,661       140,915       131,090  
Income tax expense   28,931       4,829       84,664       53,845  
EBITDA   165,544       166,237       491,275       482,241  
Provision for share-based compensation   5,374       3,908       16,785       10,055  
Secondary equity offering expense               1,041        
M&A and acquisition-related costs   397       1,044       1,977       2,558  
Adjusted EBITDA $ 171,315     $ 171,189     $ 511,078     $ 494,854  
               
               
DISCONTINUED OPERATIONS  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Income from discontinued operations $ (1,235 )   $ 3,007     $ 30,989     $ 10,420  
Depreciation and amortization         4,204       41       12,885  
Income tax expense   (665 )     2,959       19,345       9,467  
EBITDA   (1,900 )     10,170       50,375       32,772  
Provision for share-based compensation         67       1,576       124  
M&A and acquisition-related costs         440       386       648  
(Gain) loss on sale of business   1,900             (46,656 )      
Adjusted EBITDA $     $ 10,677     $ 5,681     $ 33,544  
               
               
CONSOLIDATED  Three Months Ended Sept. 30,     Nine Months Ended Sept. 30, 
    2015       2014       2015       2014  
Net income $ 49,484     $ 16,110     $ 179,565     $ 110,147  
Interest expense and other financing charges   38,642       99,644       117,120       197,579  
Depreciation and amortization   47,252       52,865       140,956       143,975  
Income tax expense   28,266       7,788       104,009       63,312  
EBITDA   163,644       176,407       541,650       515,013  
Provision for share-based compensation   5,374       3,975       18,361       10,179  
Secondary equity offering expense               1,041        
M&A and acquisition-related costs   397       1,484       2,363       3,206  
(Gain) loss on sale of business   1,900             (46,656 )      
Adjusted EBITDA $ 171,315     $ 181,866     $ 516,759     $ 528,398  
               

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 for the third quarter of 2015 includes 911 Enable through September 2, 2015 and full quarter results of SchoolReach and SharpSchool. Revenue growth attributable to acquired entities for the nine months ended September 30, 2015 includes School Messenger through April 21, 2015; Health Advocate through June 13, 2015; 911 Enable through September 2, 2015; SchoolReach for the entire period; 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.
5 To obtain a copy of the Gartner report, visit westipc.com/gartner_ucaas/
NM: Not Meaningful

CONTACT: AT THE COMPANY:	
David Pleiss
Investor Relations
(402) 963-1500
dmpleiss@west.com

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