West Corporation
Nov 1, 2016

West Corporation Reports Third Quarter 2016 Results

Company to Explore Financial and Strategic Alternatives

OMAHA, Neb., Nov. 01, 2016 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a global provider of communication and network infrastructure services, today announced its third quarter 2016 results.

 Select Financial Information           
Unaudited, in millions except per share amounts Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015  % Change  2016   2015  % Change
Revenue$571.4  $574.4   -0.5% $1,724.6  $1,711.8   0.7%
Operating Income 109.5   124.4   -11.9%  341.5   351.5   -2.8%
Income from Continuing Operations 47.5   50.7   -6.3%  125.1   148.6   -15.8%
Earnings per Share from Continuing Operations - Diluted 0.56   0.60   -6.7%  1.48   1.74   -14.9%
Cash Flows from Continuing Operating Activities 104.1   126.7   -17.8%  301.6   283.2   6.5%
Cash Flows used in Continuing Investing Activities (24.5)  (30.1)  -18.6%  (67.1)  (113.8)  -41.1%
Cash Flows used in Continuing Financing Activities (111.0)  (74.0)  49.9%  (223.5)  (364.8)  -38.7%
            
            
Select Non-GAAP Financial Information1           
Unaudited, in millions except per share amounts Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015  % Change  2016   2015  % Change
EBITDA from Continuing Operations$158.5  $165.5   -4.3% $488.9  $491.3   -0.5%
Adjusted EBITDA from Continuing Operations 165.3   171.3   -3.5%  499.2   511.1   -2.3%
Adjusted Operating Income 133.3   146.6   -9.1%  402.1   420.8   -4.4%
Adjusted Income from Continuing Operations 64.3   68.1   -5.6%  193.7   202.3   -4.2%
Adjusted Earnings per Share from Continuing Operations - Diluted 0.76   0.80   -5.0%  2.29   2.36   -3.0%
Free Cash Flow from Continuing Operating Activities2 78.7   95.4   -17.5%  202.3   187.0   8.2%
            

"Our non-conferencing businesses grew 5.3 percent, with particularly strong results in our UCaaS, healthcare advocacy and interactive services businesses," said Tom Barker, chairman and chief executive officer. "Conferencing revenue declined in the third quarter driving our consolidated revenue down 0.5 percent. Our adjusted organic revenue growth was 1 percent. We expect to finish the year with revenue and adjusted earnings per share within our original guidance ranges, albeit the low end, despite the decrease in conferencing revenue."

Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable on November 23, 2016 to shareholders of record as of the close of business on November 14, 2016.

Operating Results
For the third quarter of 2016, revenue was $571.4 million compared to $574.4 million for the same quarter of the previous year, a decrease of 0.5 percent. Revenue from acquired entitieswas $6.5 million during the third quarter of 2016. The Company had strong growth in its Unified Communications as a Services ("UCaaS"), healthcare advocacy and Interactive Services businesses. The Company's revenue was negatively impacted by $5.3 million from foreign currency exchange rate fluctuations and by $10.3 million from a lost Telecom Services client previously disclosed in 2015. Adjusted organic growth5 for the third quarter was 1.0 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 $352.4 million in the third quarter of 2016, a 3.7 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $10.3 million from the previously disclosed lost Telecom Services client, $5.3 million from the impact of foreign currency exchange rates and a decline in conferencing revenue, partially offset by growth in the UCaaS business and $2.1 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth5 for the Unified Communications Services segment was flat for the third quarter of 2016.

During the third quarter, the Company had lower than expected revenue from its automated conferencing business, with July being the weakest month of the quarter. Conferencing clients also used fewer operator assisted calls and add-on services such as call recording and transcription in the third quarter.

Revenue in the Company's UCaaS line of business was up over 25 percent on an organic basis in the third quarter compared to the same quarter last year. This growth was partially due to higher than expected equipment sales during the quarter.

The Safety Services segment had revenue of $75.1 million in the third quarter of 2016, an increase of 1.7 percent from the third quarter of 2015. The increase in revenue was primarily due to clients adopting new technologies, partially offset by price compression and lower equipment sales compared to the same quarter last year.

The Interactive Services segment had revenue of $76.4 million in the third quarter of 2016, 12.0 percent higher than the same quarter last year. This increase included $4.4 million from the acquisitions of ClientTell and Synrevoice. Adjusted organic revenue5 growth for the Interactive Services segment was 5.5 percent for the third quarter of 2016. Organic revenue growth was primarily due to new clients and increased volumes from existing clients.

The Specialized Agent Services segment had revenue of $70.3 million in the third quarter of 2016, an increase of 3.0 percent compared to the same quarter of the previous year. The increase in revenue was primarily due to double-digit revenue growth in the healthcare advocacy business, partially offset by slower than historical recoveries in the cost management services business.

Operating income was $109.5 million in the third quarter of 2016 compared to $124.4 million in the third quarter of 2015, a decrease of 11.9 percent. This decrease was primarily due to a decline in minute growth as well as price compression in the conferencing and collaboration business, an increase in SG&A expenses related to acquisitions and higher labor-related costs, partially offset by cost savings initiatives. Adjusted operating income1 was $133.3 million in the third quarter of 2016 compared to $146.6 million in the third quarter of 2015. Adjusted operating income as a percentage of revenue was 23.3 percent in the third quarter of 2016 compared to 25.5 percent in the same quarter of 2015.

Income from continuing operations decreased 6.3 percent to $47.5 million in the third quarter of 2016 compared to $50.7 million in the same quarter of 2015. Adjusted income from continuing operations1 was $64.3 million in the third quarter of 2016, a decrease of 5.6 percent from the same quarter of 2015.

EBITDA1 was $158.5 million in the third quarter of 2016 compared to $165.5 million in the third quarter of 2015. Adjusted EBITDA1 for the third quarter of 2016 was $165.3 million compared to $171.3 million for the third quarter of 2015, a decrease of 3.5 percent. Adjusted EBITDA margin was 29 percent for the third quarter of 2016, compared to 30 percent for the third quarter of 2015.

Balance Sheet, Cash Flow and Liquidity
At September 30, 2016, West Corporation had cash and cash equivalents totaling $191.3 million and working capital of $228.5 million. Interest expense and other financing charges were $38.2 million during the third quarter of 2016 compared to $38.6 million during the comparable period of the prior year.

"During the third quarter, we repaid $91.3 million of debt, bringing the total for the year to $123.2 million, consistent with our guidance at the beginning of the year. This drove our debt covenant leverage ratio down to the lowest level since our IPO," said Jan Madsen, chief financial officer.

The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities4, was 4.46x at September 30, 2016, down from 4.68x at December 31, 2015.

Cash flows from operations were $104.1 million for the third quarter of 2016 compared to $126.7 million in the same period of 2015, a decrease of 17.8 percent. Free cash flow1,2 decreased 17.5 percent to $78.7 million in the third quarter of 2016 compared to $95.4 million in the third quarter of 2015. This decrease was primarily from timing differences in cash interest and working capital variances, partially offset by lower cash taxes.

During the third quarter of 2016, the Company invested $25.4 million, or 4.5 percent of revenue, in capital expenditures. 

Exploration of Financial and Strategic Alternatives
West also announced today the commencement of a process to explore the Company's range of financial and strategic alternatives, including, but not limited to, the sale or separation of one or more of its operating businesses, or a sale of the Company. West has retained Centerview Partners LLC as its financial advisor and Sidley Austin LLP as its legal advisor in connection with the analysis.

Mr. Barker added: "We are excited about our portfolio of industry-leading assets, both individually and as a component of our overall strategy. At the same time, as part of our ongoing evaluation of our portfolio of assets, we have decided to engage advisors to help us evaluate possible alternatives and strategies to maximize long-term shareholder value."

No decision has been made to enter into any transaction. There can be no assurance that this exploration will result in any transaction being announced or consummated or, if a transaction does occur, the terms or timing thereof. The Company does not intend to discuss or disclose further developments during this process unless and until the Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.

Conference Call
The Company will hold a conference call to discuss these topics on Wednesday, November 2, 2016 at 8:00 AM Eastern Time (7:00 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 services. West helps its clients more effectively communicate, collaborate and connect with their audiences through a diverse portfolio of solutions that include unified communications services, safety services, interactive services such as automated notifications, telecom services and specialized agent services.

For 30 years, West has provided reliable, high-quality voice and data services. West has sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information, 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, the strategic alternatives available to the Company and the ability to execute on strategic alternatives, competition in West's highly competitive markets; increases in the cost of voice and data services or significant interruptions in these services; West's ability to keep pace with its clients' needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West's clients; the non-exclusive nature of West's client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West's businesses; West's ability to protect its proprietary information or technology; service interruptions to West's data and operation centers; West's ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West's ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; and future impairments of our substantial goodwill, intangible assets, or other long-lived assets. In addition, West is subject to risks related to its level of indebtedness. Such risks include West's ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West's ability to comply with covenants contained in its debt instruments; West's ability to obtain additional financing; the incurrence of significant additional indebtedness by West and its subsidiaries; and the ability of West's lenders to fulfill their lending commitments. West is also subject to other risk factors described in documents filed by the Company with the United States Securities and Exchange Commission. 

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

  
 WEST CORPORATION  
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited, in thousands except per share data) 
       
  Three Months Ended Sept. 30,  
   2016     2015   % Change 
Revenue$571,407  $574,448   -0.5% 
Cost of services 247,817   246,337   0.6% 
Selling, general and administrative expenses 214,091   203,757   5.1% 
Operating income 109,499   124,354   -11.9% 
Interest expense, net 36,794   38,382   -4.1% 
Accelerated amortization of deferred financing costs 1,234   -   NM  
Other expense (income), net (445)  6,322   NM  
Income from continuing operations before tax 71,916   79,650   -9.7% 
Income tax expense attributed to continuing operations 24,381   28,931   -15.7% 
Income from continuing operations 47,535   50,719   -6.3% 
Income from discontinued operations, net of income taxes -   (1,235)  NM  
Net income$47,535  $49,484   -3.9% 
       
Weighted average shares outstanding:      
Basic 82,870   82,931    
Diluted 84,607   84,834    
       
Earnings (loss) per share - Basic:      
Continuing operations$0.57  $0.61   -6.6% 
Discontinued operations -   (0.01)  NM  
Total Earnings Per Share - Basic$0.57  $0.60   -5.0% 
       
Earnings (loss) per share - Diluted:      
Continuing operations$0.56  $0.60   -6.7% 
Discontinued operations -   (0.01)  NM  
Total Earnings Per Share - Diluted*$0.56  $0.58   -3.4% 
       
*Does not foot due to rounding      
       
SELECTED SEGMENT FINANCIAL DATA:      
  Three Months Ended Sept. 30,  
   2016     2015   % Change 
Revenue:      
Unified Communications Services$352,377  $365,822   -3.7% 
Safety Services 75,061   73,812   1.7% 
Interactive Services 76,439   68,237   12.0% 
Specialized Agent Services 70,255   68,196   3.0% 
Intersegment eliminations (2,725)  (1,619)  NM  
Total$571,407  $574,448   -0.5% 
       
Depreciation:      
Unified Communications Services$17,407  $17,477   -0.4% 
Safety Services 4,008   4,448   -9.9% 
Interactive Services 4,087   3,652   11.9% 
Specialized Agent Services 3,009   2,160   39.3% 
Total$28,511  $27,737   2.8% 
       
Amortization:      
Unified Communications Services - SG&A$3,319  $3,257   1.9% 
Safety Services - SG&A 3,559   4,468   -20.3% 
Safety Services - COS 3,035   3,002   1.1% 
Interactive Services - SG&A 5,317   4,018   32.3% 
Specialized Agent Services - SG&A 4,594   4,770   -3.7% 
Deferred financing costs 2,455   5,008   -51.0% 
Total$22,279  $24,523   -9.2% 
       
Share-based compensation:      
Unified Communications Services$3,435  $3,006   14.3% 
Safety Services 976   854   14.3% 
Interactive Services 614   538   14.1% 
Specialized Agent Services 1,063   976   8.9% 
Total$6,088  $5,374   13.3% 
       
Cost of services:      
Unified Communications Services$171,168  $168,737   1.4% 
Safety Services 24,921   28,118   -11.4% 
Interactive Services 16,838   15,968   5.4% 
Specialized Agent Services 36,366   34,239   6.2% 
Intersegment eliminations (1,476)  (725)  NM  
Total$247,817  $246,337   0.6% 
       
Selling, general and administrative expenses:      
Unified Communications Services$101,803  $101,253   0.5% 
Safety Services 32,992   35,446   -6.9% 
Interactive Services 49,804   46,049   8.2% 
Specialized Agent Services 29,517   27,215   8.5% 
Corporate Other 1,224   (5,312)  NM  
Intersegment eliminations (1,249)  (894)  NM  
Total$214,091  $203,757   5.1% 
       
Operating income:      
Unified Communications Services$79,406  $95,832   -17.1% 
Safety Services 17,148   10,248   67.3% 
Interactive Services 9,797   6,220   57.5% 
Specialized Agent Services 4,372   6,742   -35.2% 
Corporate Other (1,224)  5,312   NM  
Total$109,499  $124,354   -11.9% 
       
Operating margin:      
Unified Communications Services 22.5%  26.2%   
Safety Services 22.8%  13.9%   
Interactive Services 12.8%  9.1%   
Specialized Agent Services 6.2%  9.9%   
Total 19.2%  21.6%   
       
SELECTED FINANCIAL DATA:      
       
    Contribution    
Changes in Revenue - 3Q16 compared to 3Q15:   to Rev. Growth    
Revenue for the three months ended Sept. 30, 2015$574,448      
Revenue from acquired entities3 6,547   1.1%   
Revenue from previously disclosed lost client (10,300)  -1.8%   
Estimated impact of foreign currency exchange rates (5,290)  -0.9%   
Adjusted organic growth, net5 6,002   1.0%   
Revenue for the three months ended Sept. 30, 2016$571,407   -0.5%   
       


 WEST CORPORATION  
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited, in thousands except per share data) 
       
  Nine Months Ended Sept. 30,  
   2016     2015   % Change 
Revenue$1,724,583  $1,711,829   0.7% 
Cost of services 738,255   731,304   1.0% 
Selling, general and administrative expenses 644,804   629,045   2.5% 
Operating income 341,524   351,480   -2.8% 
Interest expense, net 112,989   115,657   -2.3% 
Accelerated amortization of deferred financing costs 36,469   -   NM  
Other expense (income), net (619)  2,583   NM  
Income from continuing operations before tax 192,685   233,240   -17.4% 
Income tax expense attributed to continuing operations 67,616   84,664   -20.1% 
Income from continuing operations 125,069   148,576   -15.8% 
Income from discontinued operations, net of income taxes -   30,989   NM  
Net income$125,069  $179,565   -30.3% 
       
Weighted average shares outstanding:      
Basic 82,873   83,479    
Diluted 84,486   85,554    
       
Earnings per share - Basic:      
Continuing operations$1.51  $1.78   -15.2% 
Discontinued operations -   0.37   NM  
Total Earnings Per Share - Basic$1.51  $2.15   -29.8% 
       
Earnings per share - Diluted:      
Continuing operations$1.48  $1.74   -14.9% 
Discontinued operations -   0.36   NM  
Total Earnings Per Share - Diluted$1.48  $2.10   -29.5% 
       
       
SELECTED SEGMENT FINANCIAL DATA:      
  Nine Months Ended Sept. 30,  
   2016     2015   % Change 
Revenue:      
Unified Communications Services$1,085,248  $1,109,931   -2.2% 
Safety Services 220,648   208,528   5.8% 
Interactive Services 221,400   194,332   13.9% 
Specialized Agent Services 206,128   203,840   1.1% 
Intersegment eliminations (8,841)  (4,802)  NM  
Total$1,724,583  $1,711,829   0.7% 
       
Depreciation:      
Unified Communications Services$52,243  $52,050   0.4% 
Safety Services 13,057   13,814   -5.5% 
Interactive Services 12,030   10,408   15.6% 
Specialized Agent Services 8,639   5,659   52.7% 
Total$85,969  $81,931   4.9% 
       
Amortization:      
Unified Communications Services - SG&A$10,090  $9,794   3.0% 
Safety Services - SG&A 10,514   13,618   -22.8% 
Safety Services - COS 9,683   9,504   1.9% 
Interactive Services - SG&A 15,699   11,698   34.2% 
Specialized Agent Services - SG&A 13,782   14,370   -4.1% 
Deferred financing costs 46,508   15,017   209.7% 
Total$106,276  $74,001   43.6% 
       
Share-based compensation:      
Unified Communications Services$11,256  $9,711   15.9% 
Safety Services 3,196   2,730   17.1% 
Interactive Services 1,995   1,721   15.9% 
Specialized Agent Services 3,482   2,623   32.7% 
Total$19,929  $16,785   18.7% 
       
Cost of services:      
Unified Communications Services$511,015  $510,179   0.2% 
Safety Services 78,925   81,301   -2.9% 
Interactive Services 49,908   43,199   15.5% 
Specialized Agent Services 103,277   98,272   5.1% 
Intersegment eliminations (4,870)  (1,647)  NM  
Total$738,255  $731,304   1.0% 
       
Selling, general and administrative expenses:      
Unified Communications Services$316,997  $310,084   2.2% 
Safety Services 103,731   110,523   -6.1% 
Interactive Services 149,929   132,709   13.0% 
Specialized Agent Services 91,055   81,299   12.0% 
Corporate Other (12,937)  (2,415)  NM  
Intersegment eliminations (3,971)  (3,155)  NM  
Total$644,804  $629,045   2.5% 
       
Operating income:      
Unified Communications Services$257,236  $289,668   -11.2% 
Safety Services 37,992   16,704   127.4% 
Interactive Services 21,563   18,424   17.0% 
Specialized Agent Services 11,796   24,269   -51.4% 
Corporate Other 12,937   2,415   NM  
Total$341,524  $351,480   -2.8% 
       
Operating margin:      
Unified Communications Services 23.7%  26.1%   
Safety Services 17.2%  8.0%   
Interactive Services 9.7%  9.5%   
Specialized Agent Services 5.7%  11.9%   
Total 19.8%  20.5%   
       
       
SELECTED FINANCIAL DATA:      
       
    Contribution    
Changes in Revenue - 3Q16 YTD compared to 3Q15 YTD:   to Rev. Growth    
Revenue for the nine months ended Sept. 30, 2015$1,711,829      
Revenue from acquired entities3 20,950   1.2%   
Revenue from two previously disclosed lost clients (44,500)  -2.6%   
Estimated impact of foreign currency exchange rates (11,426)  -0.7%   
Adjusted organic growth, net5 47,730   2.8%   
Revenue for the nine months ended Sept. 30, 2016$1,724,583   0.7%   
       

 

WEST CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS 
(Unaudited, in thousands)
      
  September 30,   December 31,  %
   2016     2015   Change
Assets:     
Current assets:     
Cash and cash equivalents$191,317  $182,338   4.9%
Trust and restricted cash 16,398   19,829   -17.3%
Accounts receivable, net 388,165   373,087   4.0%
Income taxes receivable -   19,332   NM 
Prepaid assets 45,976   43,093   6.7%
Deferred expenses 49,515   65,781   -24.7%
Other current assets 29,800   22,040   35.2%
Assets held for sale -   17,672   NM 
Total current assets 721,171   743,172   -3.0%
Property and Equipment:     
Property and equipment 1,114,214   1,053,678   5.7%
Accumulated depreciation and amortization (780,039)  (718,834)  8.5%
Net property and equipment 334,175   334,844   -0.2%
Goodwill 1,920,742   1,915,690   0.3%
Intangible assets, net 325,262   370,021   -12.1%
Other assets 175,990   191,490   -8.1%
Total assets$3,477,340  $3,555,217   -2.2%
Liabilities and Stockholders' Deficit:     
Current Liabilities:     
Accounts payable$71,682  $92,935   -22.9%
Deferred revenue 165,147   161,828   2.1%
Accrued expenses 220,202   219,234   0.4%
Current maturities of long-term debt 35,675   24,375   46.4%
Total current liabilities 492,706   498,372   -1.1%
Long-term obligations 3,203,575   3,318,688   -3.5%
Deferred income taxes 97,335   104,222   -6.6%
Other long-term liabilities 174,675   186,073   -6.1%
Total liabilities 3,968,291   4,107,355   -3.4%
      
Stockholders' Deficit:     
Common stock 86   85   1.2%
Additional paid-in capital 2,215,695   2,193,193   1.0%
Retained deficit (2,539,651)  (2,607,415)  -2.6%
Accumulated other comprehensive loss (79,855)  (72,736)  9.8%
Treasury stock at cost (87,226)  (65,265)  33.6%
Total stockholders' deficit (490,951)  (552,138)  -11.1%
      
Total liabilities and stockholders' deficit$3,477,340  $3,555,217   -2.2%
      

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 is used by the Company as a benchmark for performance and compensation by certain executives. 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 Sept. 30, 
Consolidated: 2016   2015  % Change
Operating income$109,499  $124,354   -11.9%
Amortization of acquired intangible assets 16,789   16,513   1.7%
Share-based compensation 6,088   5,374   13.3%
Gain on sale of real estate (115)  -   NM 
M&A and acquisition-related costs 997   397   151.1%
Adjusted operating income$133,258  $146,638   -9.1%
Adjusted operating income margin 23.3%  25.5%  
      
Unified Communications Services:     
Operating income$79,406  $95,832   -17.1%
Amortization of acquired intangible assets 3,319   3,257   1.9%
Share-based compensation 3,435   3,006   14.3%
M&A and acquisition-related costs 434   2   NM 
Adjusted operating income$86,594  $102,097   -15.2%
Adjusted operating income margin 24.6%  27.9%  
      
Safety Services:     
Operating income$17,148  $10,248   67.3%
Amortization of acquired intangible assets 3,559   4,468   -20.3%
Share-based compensation 976   854   14.3%
Adjusted operating income$21,683  $15,570   39.3%
Adjusted operating income margin 28.9%  21.1%  
      
Interactive Services:     
Operating income$9,797  $6,220   57.5%
Amortization of acquired intangible assets 5,317   4,018   32.3%
Share-based compensation 614   538   14.1%
M&A and acquisition-related costs 563   396   42.2%
Adjusted operating income$16,291  $11,172   45.8%
Adjusted operating income margin 21.3%  16.4%  
      
Specialized Agent Services:     
Operating income$4,372  $6,742   -35.2%
Amortization of acquired intangible assets 4,594   4,770   -3.7%
Share-based compensation 1,063   976   8.9%
Adjusted operating income$10,029  $12,488   -19.7%
Adjusted operating income margin 14.3%  18.3%  
      
Corporate Other:     
Operating income (loss)$(1,224) $5,312   
Gain on sale of real estate (115)  -   
M&A and acquisition-related costs -   (1)  
Adjusted operating income (loss)$(1,339) $5,311   


      
 Reconciliation of Adjusted Operating Income from Operating Income 
Unaudited, in thousands      
  Nine Months Ended Sept. 30, 
Consolidated: 2016   2015  % Change
Operating income$341,524  $351,480   -2.8%
Amortization of acquired intangible assets 50,085   49,480   1.2%
Share-based compensation 19,929   16,785   18.7%
Secondary equity offering expense -   1,041   NM 
Gain on sale of real estate (12,963)  -   NM 
M&A and acquisition-related costs 3,486   1,977   76.3%
Adjusted operating income$402,061  $420,763   -4.4%
Adjusted operating income margin 23.3%  24.6%  
      
Unified Communications Services:     
Operating income$257,236  $289,668   -11.2%
Amortization of acquired intangible assets 10,090   9,794   3.0%
Share-based compensation 11,256   9,711   15.9%
Secondary equity offering expense -   247   NM 
M&A and acquisition-related costs 1,312   2   NM 
Adjusted operating income$279,894  $309,422   -9.5%
Adjusted operating income margin 25.8%  27.9%  
      
Safety Services:     
Operating income$37,992  $16,704   127.4%
Amortization of acquired intangible assets 10,514   13,618   -22.8%
Share-based compensation 3,196   2,730   17.1%
Secondary equity offering expense -   78   NM 
Adjusted operating income$51,702  $33,130   56.1%
Adjusted operating income margin 23.4%  15.9%  
      
Interactive Services:     
Operating income$21,563  $18,424   17.0%
Amortization of acquired intangible assets 15,699   11,698   34.2%
Share-based compensation 1,995   1,721   15.9%
Secondary equity offering expense -   35   NM 
M&A and acquisition-related costs 2,174   1,741   24.9%
Adjusted operating income$41,431  $33,619   23.2%
Adjusted operating income margin 18.7%  17.3%  
      
Specialized Agent Services:     
Operating income$11,796  $24,269   -51.4%
Amortization of acquired intangible assets 13,782   14,370   -4.1%
Share-based compensation 3,482   2,623   32.7%
Secondary equity offering expense -   50   NM 
M&A and acquisition-related costs -   150   NM 
Adjusted operating income$29,060  $41,462   -29.9%
Adjusted operating income margin 14.1%  20.3%  
      
Corporate Other:     
Operating income$12,937  $2,415   
Secondary equity offering expense -   631   
Gain on sale of real estate (12,963)  -   
M&A and acquisition-related costs -   84   
Adjusted operating income (loss)$(26) $3,130   
      

Adjusted Net Income, Adjusted Income from Continuing Operations and Adjusted Earnings per Share Reconciliation
Adjusted net income, adjusted income from continuing operations 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 and adjusted income from continuing operations 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 and adjusted income from continuing operations, as presented, may not be comparable to similarly titled measures of other companies. The Company utilizes these non-GAAP measures to make decisions about the use of resources, analyze performance, measure management's performance with stated objectives and compensate management relative to the achievement of such objectives. Set forth below is a reconciliation of adjusted income from continuing operations from income from continuing operations and adjusted net income from net income.

      
 Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops 
 and Adjusted Net Income from Net Income 
Unaudited, in thousands except per share data     
CONTINUING OPERATIONS Three Months Ended Sept. 30, 
  2016   2015  % Change
Income from continuing operations$47,535  $50,719   -6.3%
      
Amortization of acquired intangible assets 16,789   16,513   
Amortization of deferred financing costs 2,455   5,008   
Share-based compensation 6,088   5,374   
Gain on sale of real estate (115)  -   
M&A and acquisition-related costs 881   397   
Pre-tax total 26,098   27,292   
Income tax expense on adjustments 9,343   9,912   
Adjusted income from continuing operations$64,290  $68,099   -5.6%
      
Diluted shares outstanding 84,607   84,834   
Adjusted EPS from continuing operations - diluted$0.76  $0.80   -5.0%
      
      
DISCONTINUED OPERATIONS Three Months Ended Sept. 30, 
  2016   2015   
Income from discontinued operations$-  $(1,235)  
      
Adjusted income from discontinued operations$-  $(1,235)  
      
Diluted shares outstanding 84,607   84,834   
Adjusted EPS from discontinued operations - diluted$0.00  $(0.01)  
      
      
CONSOLIDATED Three Months Ended Sept. 30, 
  2016   2015  % Change
Net income$47,535  $49,484   -3.9%
      
Amortization of acquired intangible assets 16,789   16,513   
Amortization of deferred financing costs 2,455   5,008   
Share-based compensation 6,088   5,374   
Gain on sale of real estate (115)  -   
M&A and acquisition-related costs 881   397   
Pre-tax total 26,098   27,292   
Income tax expense on adjustments 9,343   9,912   
Adjusted net income$64,290  $66,864   -3.8%
      
Diluted shares outstanding 84,607   84,834   
Adjusted EPS - diluted$0.76  $0.79   -3.8%


      
 Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops 
 and Adjusted Net Income from Net Income 
Unaudited, in thousands except per share data     
CONTINUING OPERATIONS Nine Months Ended Sept. 30, 
  2016   2015  % Change
Income from continuing operations$125,069  $148,576   -15.8%
      
Amortization of acquired intangible assets 50,085   49,480   
Amortization of deferred financing costs 46,508   15,017   
Share-based compensation 19,929   16,785   
Secondary equity offering expense -   1,041   
Gain on sale of real estate (12,963)  -   
M&A and acquisition-related costs 3,370   1,977   
Pre-tax total 106,929   84,300   
Income tax expense on adjustments 38,281   30,601   
Adjusted income from continuing operations$193,717  $202,275   -4.2%
      
Diluted shares outstanding 84,486   85,554   
Adjusted EPS from continuing operations - diluted$2.29  $2.36   -3.0%
      
      
DISCONTINUED OPERATIONS Nine Months Ended Sept. 30, 
  2016   2015   
Income from discontinued operations$-  $30,989   
      
Amortization of acquired intangible assets -   41   
Share-based compensation -   1,576   
M&A and acquisition-related costs -   386   
Pre-tax total -   2,003   
Income tax benefit on adjustments -   767   
Adjusted income from discontinued operations$-  $32,225   
      
Diluted shares outstanding 84,486   85,554   
Adjusted EPS from discontinued operations - diluted$0.00  $0.38   
      
      
CONSOLIDATED Nine Months Ended Sept. 30, 
  2016   2015  % Change
Net income$125,069  $179,565   -30.3%
      
Amortization of acquired intangible assets 50,085   49,521   
Amortization of deferred financing costs 46,508   15,017   
Share-based compensation 19,929   18,361   
Secondary equity offering expense -   1,041   
Gain on sale of real estate (12,963)  -   
M&A and acquisition-related costs 3,370   2,363   
Pre-tax total 106,929   86,303   
Income tax expense on adjustments 38,281   31,368   
Adjusted net income$193,717  $234,500   -17.4%
      
Diluted shares outstanding 84,486   85,554   
Adjusted EPS - diluted$2.29  $2.74   -16.4%

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 Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015  % Change  2016   2015  % Change
Cash flows from operating activities$104,115  $126,697   -17.8% $301,602  $283,221   6.5%
Cash capital expenditures 25,439   31,319   -18.8%  99,303   96,182   3.2%
Free cash flow$78,676  $95,378   -17.5% $202,299  $187,039   8.2%
            
            
DISCONTINUED OPERATIONS Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015     2016   2015   
Cash flows from (used in) operating activities$-  $(1,235)   $-  $(8,197)  
Cash capital expenditures -   -     -   1,930   
Free cash flow$-  $(1,235)   $-  $(10,127)  
            
            
CONSOLIDATED Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015  % Change  2016   2015  % Change
Cash flows from operating activities$104,115  $125,462   -17.0% $301,602  $275,024   9.7%
Cash capital expenditures 25,439   31,319   -18.8%  99,303   98,112   1.2%
Free cash flow$78,676  $94,143   -16.4% $202,299  $176,912   14.4%
            

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, gain on assets held for sale 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 and performance, 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.

        
 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, 
  2016   2015   2016   2015 
Cash flows from operating activities$104,115  $126,697  $301,602  $283,221 
Income tax expense 24,381   28,931   67,616   84,664 
Deferred income tax expense 11,628   8,160   15,383   5,958 
Interest expense and other financing charges 38,223   38,642   150,475   117,120 
Provision for share-based compensation (6,088)  (5,374)  (19,929)  (16,785)
Amortization of deferred financing costs (2,455)  (5,008)  (46,508)  (15,017)
Gain on sale of real estate 115   -   12,963   - 
Other (304)  (4)  (1,190)  (224)
Changes in operating assets and liabilities,       
net of business acquisitions (11,141)  (26,500)  8,485   32,338 
EBITDA 158,474   165,544   488,897   491,275 
Provision for share-based compensation 6,088   5,374   19,929   16,785 
Secondary equity offering expense -   -   -   1,041 
M&A and acquisition-related costs 881   397   3,370   1,977 
Gain on sale of real estate (115)  -   (12,963)  - 
Adjusted EBITDA$165,328  $171,315  $499,233  $511,078 
        
        
Cash flows from operating activities$104,115  $126,697  $301,602  $283,221 
Cash flows used in investing activities$(24,483) $(30,061) $(67,067) $(113,782)
Cash flows used in financing activities$(110,989) $(74,048) $(223,535) $(364,790)
        
        
DISCONTINUED OPERATIONS Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015   2016   2015 
Cash flows from operating activities$-  $(1,235) $-  $(8,197)
Income tax expense -   (665)  -   19,345 
Deferred income tax expense -   -   -   (2,293)
Provision for share-based compensation -   -   -   (1,576)
Other -   -   -   29,596 
Changes in operating assets and liabilities,       
net of business acquisitions -   -   -   13,500 
EBITDA -   (1,900)  -   50,375 
Provision for share-based compensation -   -   -   1,576 
M&A and acquisition-related costs -   -   -   386 
Gain on sale of business -   -   -   (46,656)
Adjusted EBITDA$-  $(1,900) $-  $5,681 
        
        
Cash flows used in operating activities$-  $(1,235) $-  $(8,197)
Cash flows from investing activities$-  $6,275  $-  $275,815 
Cash flows used in financing activities$-  $-  $-  $- 
        
 Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont. 
CONSOLIDATED Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015   2016   2015 
Cash flows from operating activities$104,115  $125,462  $301,602  $275,024 
Income tax expense 24,381   28,266   67,616   104,009 
Deferred income tax expense 11,628   8,160   15,383   3,665 
Interest expense and other financing charges 38,223   38,642   150,475   117,120 
Provision for share-based compensation (6,088)  (5,374)  (19,929)  (18,361)
Amortization of deferred financing costs (2,455)  (5,008)  (46,508)  (15,017)
Gain on sale of real estate 115   -   12,963   - 
Other (304)  (4)  (1,190)  29,372 
Changes in operating assets and liabilities,       
net of business acquisitions (11,141)  (26,500)  8,485   45,838 
EBITDA 158,474   163,644   488,897   541,650 
Provision for share-based compensation 6,088   5,374   19,929   18,361 
Secondary equity offering expense -   -   -   1,041 
M&A and acquisition-related costs 881   397   3,370   2,363 
(Gain) loss on sale of business and real estate (115)  1,900   (12,963)  (46,656)
Adjusted EBITDA$165,328  $171,315  $499,233  $516,759 
        
CONSOLIDATED       
Cash flows from operating activities$104,115  $125,462  $301,602  $275,024 
Cash flows from (used in) investing activities$(24,483) $(23,786) $(67,067) $162,033 
Cash flows used in financing activities$(110,989) $(74,048) $(223,535) $(364,790)
        


        
 Reconciliation of EBITDA and Adjusted EBITDA from Net Income 
Unaudited, in thousands        
CONTINUING OPERATIONS Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015   2016   2015 
Income from continuing operations$47,535  $50,719  $125,069  $148,576 
Interest expense and other financing charges 38,223   38,642   150,475   117,120 
Depreciation and amortization 48,335   47,252   145,737   140,915 
Income tax expense 24,381   28,931   67,616   84,664 
EBITDA 158,474   165,544   488,897   491,275 
Provision for share-based compensation 6,088   5,374   19,929   16,785 
Secondary equity offering expense -   -   -   1,041 
M&A and acquisition-related costs 881   397   3,370   1,977 
Gain on sale of real estate (115)  -   (12,963)  - 
Adjusted EBITDA$165,328  $171,315  $499,233  $511,078 
        
        
DISCONTINUED OPERATIONS Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015   2016   2015 
Income from discontinued operations$-  $(1,235) $-  $30,989 
Depreciation and amortization -   -   -   41 
Income tax expense -   (665)  -   19,345 
EBITDA -   (1,900)  -   50,375 
Provision for share-based compensation -   -   -   1,576 
M&A and acquisition-related costs -   -   -   386 
Gain on sale of business -   -   -   (46,656)
Adjusted EBITDA$-  $(1,900) $-  $5,681 
        
        
CONSOLIDATED Three Months Ended Sept. 30,   Nine Months Ended Sept. 30, 
  2016   2015   2016   2015 
Net income$47,535  $49,484  $125,069  $179,565 
Interest expense and other financing charges 38,223   38,642   150,475   117,120 
Depreciation and amortization 48,335   47,252   145,737   140,956 
Income tax expense 24,381   28,266   67,616   104,009 
EBITDA 158,474   163,644   488,897   541,650 
Provision for share-based compensation 6,088   5,374   19,929   18,361 
Secondary equity offering expense -   -   -   1,041 
M&A and acquisition-related costs 881   397   3,370   2,363 
(Gain) loss on sale of business and real estate (115)  1,900   (12,963)  (46,656)
Adjusted EBITDA$165,328  $171,315  $499,233  $516,759 
        

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 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 revenue growth is provided on the Selected Financial Data tables and excludes revenue from acquired entities, revenue from previously disclosed lost clients and the estimated impact of foreign currency exchange rates. The Company believes adjusted organic revenue growth provides a useful measure of growth in its ongoing business.

NM: Not Meaningful

AT THE COMPANY:	
Dave Pleiss
Investor Relations
West Corporation
(402) 963-1500
DMPleiss@west.com