West Corporation
Aug 3, 2015

West Corporation Reports Second Quarter 2015 Results

Company Declares Quarterly Dividend and Updates 2015 Guidance

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

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

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

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

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

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

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

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

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

Cash flows from continuing operating activities were $98.1 million for the second quarter of 2015 compared to $106.5 million in the same period of 2014. Tax payments related to the divestiture gain and the timing of interest payments drove the reduction in cash flows from operations for the most recent quarter. Free cash flow1,2 decreased 3.9 percent to $69.6 million in the second quarter of 2015 compared to $72.4 million in the second quarter of 2014. This decrease was due to the reduction in cash flows from operating activities described above slightly offset by a decrease in capital expenditures. During the second quarter of 2015, the Company invested $28.6 million, or 5.0 percent of revenue, in capital expenditures primarily for software and computer equipment.

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

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

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

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

  • The change in foreign currency exchange rates between the original guidance provided in January and current rates. In January, the Company expected foreign currency exchange rates to negatively impact 2015 revenue by approximately $32 million. The Company now expects foreign currency exchange rates to negatively impact 2015 revenue by approximately $42 million.
  • The loss of a client in the Company's Telecom Services operating segment. This client has made the decision to consolidate its business with a single network provider. The Company expects this loss to negatively impact second half 2015 revenue by approximately $15 million. The client expects the transition to begin in the third quarter of 2015 and be completed by November 2015.

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

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

Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, August 4, 2015 at 11:00 AM Eastern Time (10:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company's website at www.west.com.

About West Corporation
West Corporation (Nasdaq:WSTC) is a global provider of communication and network infrastructure solutions. West helps manage or support essential enterprise communications with services that include unified communication services, public safety services, interactive services such as automated notifications, carrier services and agent services.

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

Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "continue" or similar terminology. The statements contained in the 2015 guidance and other statements concerning the Company's prospects are forward-looking statements. These statements reflect only West's current expectations and are not guarantees of future performance or results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition in West's highly competitive markets; increases in the cost of voice and data services or significant interruptions in these services; West's ability to keep pace with its clients' needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West's clients; the non-exclusive nature of West's client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West's businesses; West's ability to protect its proprietary information or technology; service interruptions to West's data and operation centers; West's ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West's ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; and future impairments of our substantial goodwill, intangible assets, or other long-lived assets. In addition, West is subject to risks related to its level of indebtedness. Such risks include West's ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West's ability to comply with covenants contained in its debt instruments; the ability to obtain additional financing; the incurrence of significant additional indebtedness by West and its subsidiaries; and the ability of West's lenders to fulfill their lending commitments. West is also subject to other risk factors described in documents filed by the Company with the United States Securities and Exchange Commission.

These forward-looking statements speak only as of the date on which the statements were made. West undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

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.

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.

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.

EBITDA and Adjusted EBITDA Reconciliation

The common definition of EBITDA is "Earnings before Interest Expense, Taxes, Depreciation and Amortization." In evaluating liquidity and performance, the Company uses "Adjusted EBITDA." The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization and transaction costs. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. Although the Company uses Adjusted EBITDA as a measure of its liquidity, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate the business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operations or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here as the Company understands investors use it as a measure of its historical ability to service debt and compliance with covenants in its senior credit facilities. Further, Adjusted EBITDA is presented here as the Company uses it to measure its performance and to conduct and evaluate its business during its regular review of operating results for the periods presented. The Company utilizes this non-GAAP measure to make decisions about the use of resources, analyze performance and measure management's performance with stated objectives. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operations and net income.

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1 See Reconciliation of Non-GAAP Financial Measures below.
2 Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.
3 Revenue from acquired entities includes SchoolMessenger after April 21, 2014, Health Advocate after June 13, 2014, 911 Enable after September 2, 2014, SchoolReach after November 3, 2014 and SharpSchool after June 1, 2015.
4 Based on loan covenants. Covenant leverage ratio is debt net of cash and excludes accounts receivable securitization debt.
NM: Not Meaningful