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West Corporation Reports Fourth Quarter and Full Year 2014 Results and Provides 2015 Guidance

OMAHA, Neb., Jan. 28, 2015 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its fourth quarter and full year 2014 results.

On January 7, 2015, the Company announced it had entered into a definitive agreement to sell several of its agent services businesses to Alorica Inc. for approximately $275 million in cash. The businesses being sold are reflected as discontinued operations in the Company's consolidated financial statements. The sale is expected to close in the first quarter of 2015, subject to regulatory approvals and other customary closing conditions. The Company has presented below its historical operating results, which includes discontinued operations, as well as its results from continuing operations, which excludes discontinued operations. The assets and liabilities of the businesses being sold have been reflected as held for sale for the periods presented.

Key Quarterly Highlights:

HISTORICAL (1)
Unaudited, in millions except per share amounts Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Consolidated Revenue $ 716.2 $ 687.6 4.2% $2,796.7 $2,685.9 4.1%
Platform-based Revenue2 497.0 495.8 0.2% 2,001.4 1,955.2 2.4%
Adjusted EBITDA4 187.0 178.4 4.8% 715.4 704.4 1.5%
EBITDA4 179.2 175.8 2.0% 694.2 664.7 4.4%
Adjusted Operating Income4 151.3 144.9 4.4% 573.9 575.3 -0.2%
Operating Income 119.4 128.8 -7.3% 484.1 480.2 0.8%
Adjusted Net Income4 99.3 63.6 56.0% 285.2 229.3 24.3%
Net Income 48.3 50.3 -4.1% 158.4 143.2 10.6%
Adjusted Earnings per Share - Diluted4 1.15 0.75 53.3% 3.33 2.86 16.4%
Earnings per Share - Diluted 0.56 0.59 -5.1% 1.85 1.78 3.9%
Free Cash Flow4,5 95.4 66.9 42.6% 312.0 255.7 22.0%
Cash Flows from Operations 132.5 107.4 23.4% 462.7 384.1 20.5%
Cash Flows used in Investing (43.8) (46.3) NM (544.9) (135.5) NM
Cash Flows used in Financing (135.9) (42.7) NM (25.0) (196.8) NM
CONTINUING OPERATIONS
Unaudited, in millions except per share amounts Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Consolidated Revenue $ 562.9 $ 537.0 4.8% $2,218.6 $2,121.0 4.6%
Adjusted EBITDA4 173.4 163.7 5.9% 668.3 655.6 1.9%
EBITDA4 167.0 161.1 3.7% 649.2 616.1 5.4%
Adjusted Operating Income4 141.2 134.5 4.9% 541.5 544.1 -0.5%
Operating Income 116.7 119.0 -1.9% 461.4 451.3 2.2%
Adjusted Net Income4 68.1 55.4 22.9% 247.2 207.7 19.0%
Net Income 34.9 42.5 -18.0% 134.6 123.1 9.4%
Adjusted Earnings per Share - Diluted4 0.79 0.65 21.5% 2.89 2.59 11.6%
Earnings per Share - Diluted 0.41 0.50 -18.0% 1.57 1.53 2.6%
Free Cash Flow4,5 279.2 204.5 36.5%
Cash Flows from Operations 409.5 318.8 28.5%
Cash Flows used in Investing (524.4) (121.9) NM
Cash Flows used in Financing (25.0) (196.8) NM

"In 2014, we delivered on our operational goals by achieving our revenue guidance, positioning the company for a reacceleration of growth and effectively deploying our capital," said Tom Barker, chairman and chief executive officer of West Corporation. "We began 2015 by announcing the divestiture of several of our agent services businesses which should result in a faster growing, more profitable and ultimately more valuable company."

Dividend

The Company today also announced a $0.225 per common share dividend. The dividend is payable February 19, 2015, to shareholders of record as of the close of business on February 9, 2015.

Consolidated Operating Results (Historical1)

For the fourth quarter of 2014, revenue was $716.2 million compared to $687.6 million for the same quarter of the previous year, an increase of 4.2 percent. Revenue from acquired entities3 was $35.6 million during the fourth quarter of 2014.

For the year ended December 31, 2014, revenue was $2,796.7 million compared to $2,685.9 million for 2013, an increase of 4.1 percent. Revenue from acquired entities3 was $74.7 million during 2014.

The Unified Communications segment had revenue of $395.4 million in the fourth quarter of 2014, a decrease of 1.9 percent compared to the same quarter of the previous year. The Communication Services segment had revenue of $336.3 million in the fourth quarter of 2014, an increase of 12.5 percent compared to the same quarter of the previous year. For 2014, the Unified Communications segment had revenue of $1,616.8 million, an increase of 0.8 percent compared to 2013. The Communication Services segment had revenue of $1,239.4 million in 2014, an increase of 10.7 percent compared to 2013.

Adjusted EBITDA4 for the fourth quarter of 2014 was $187.0 million compared to $178.4 million for the fourth quarter of 2013, an increase of 4.8 percent. EBITDA4 was $179.2 million in the fourth quarter of 2014 compared to $175.8 million in the fourth quarter of 2013. Adjusted EBITDA for 2014 was $715.4 million, or 25.6 percent of revenue, compared to $704.4 million, or 26.2 percent of revenue, in 2013. EBITDA was $694.2 million in 2014 compared to $664.7 million in 2013, an increase of 4.4 percent.

Adjusted operating income4 for the fourth quarter of 2014 was $151.3 million, or 21.1 percent of revenue, compared to $144.9 million, or 21.1 percent of revenue in the same quarter of 2013, an increase of 4.4 percent. Operating income was $119.4 million for the fourth quarter of 2014 compared to $128.8 million in the fourth quarter of 2013, a decrease of 7.3 percent. The decrease in 2014 operating income was due primarily to higher amortization and share-based compensation expense. For the full year 2014, adjusted operating income was $573.9 million compared to $575.3 million in 2013. Operating income for 2014 was $484.1 million compared to 2013 operating income of $480.2 million.

Adjusted net income4 was $99.3 million in the fourth quarter of 2014, an increase of 56.0 percent from the same quarter of 2013. Net income decreased 4.1 percent to $48.3 million in the fourth quarter of 2014, compared to $50.3 million in the same quarter of 2013. This decrease was mainly due to $21.6 million of debt call premium and accelerated amortization of deferred financing costs associated with the Company's November 15, 2014 redemption of its 7.875 percent Senior Notes due 2019 (the "2019 Notes"). In 2014, adjusted net income was $285.2 million, an increase of 24.3 percent compared to 2013. Net income in 2014 was $158.4 million compared to net income of $143.2 million in 2013, an increase of 10.6 percent. The improvement in profitability was driven by higher operating income and lower effective income tax rates.

Consolidated Operating Results (Continuing Operations)

For the fourth quarter of 2014, revenue was $562.9 million compared to $537.0 million for the same quarter of the previous year, an increase of 4.8 percent. Revenue from acquired entities3 was $35.6 million during the fourth quarter of 2014.

For the year ended December 31, 2014, revenue was $2,218.6 million compared to $2,121.0 million for 2013, an increase of 4.6 percent. Revenue from acquired entities3 was $74.7 million during 2014.

The Unified Communications segment had revenue of $395.4 million in the fourth quarter of 2014, a decrease of 1.9 percent compared to the same quarter of the previous year. The Communication Services segment had revenue of $180.8 million in the fourth quarter of 2014, an increase of 24.0 percent compared to the same quarter of the previous year. For 2014, the Unified Communications segment had revenue of $1,616.8 million, an increase of 0.8 percent compared to 2013. The Communication Services segment had revenue of $653.6 million in 2014, an increase of 19.7 percent compared to 2013. The growth in revenue for the Communication Services segment in the fourth quarter and full year 2014 was primarily due to the acquisition of Health Advocate in June 2014.

Adjusted EBITDA4 for the fourth quarter of 2014 was $173.4 million compared to $163.7 million for the fourth quarter of 2013, an increase of 5.9 percent. EBITDA4 was $167.0 million in the fourth quarter of 2014 compared to $161.1 million in the fourth quarter of 2013. Adjusted EBITDA for 2014 was $668.3 million, or 30.1 percent of revenue, compared to $655.6 million, or 30.9 percent of revenue, in 2013. EBITDA was $649.2 million in 2014 compared to $616.1 million in 2013.

Adjusted operating income4 for the fourth quarter of 2014 was $141.2 million, or 25.1 percent of revenue, compared to $134.5 million, or 25.1 percent of revenue in the same quarter of 2013, an increase of 4.9 percent. Operating income was $116.7 million in the fourth quarter of 2014 compared to $119.0 million in the fourth quarter of 2013. For the full year 2014, adjusted operating income was $541.5 million compared to $544.1 million in 2013. Operating income for 2014 was $461.4 million compared to 2013 operating income of $451.3 million.

Adjusted net income4 was $68.1 million in the fourth quarter of 2014, an increase of 22.9 percent from the same quarter of 2013. Net income decreased 18.0 percent to $34.9 million in the fourth quarter of 2014, compared to $42.5 million in the same quarter of 2013. This decrease was mainly due to $21.6 million of debt call premium and accelerated amortization of deferred financing costs associated with the Company's November 15, 2014 redemption of its 2019 Notes. In 2014, adjusted net income was $247.2 million, an increase of 19.0 percent compared to 2013. Net income in 2014 was $134.6 million compared to net income of $123.1 million in 2013, an increase of 9.4 percent. The improvement in profitability was driven by higher operating income and lower effective income tax rates.

Balance Sheet, Cash Flow and Liquidity

At December 31, 2014, West Corporation had cash and cash equivalents totaling $115.1 million and working capital of $369.8 million. Interest expense was $42.9 million during the three months ended December 31, 2014 compared to $51.4 million during the comparable period the prior year. Interest expense was $188.1 million in 2014 compared to $232.9 million in 2013. The reduction in interest expense was due to refinancing of debt completed by the Company during 2014.

The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities6 and using historical1 adjusted EBITDA, was 4.59x at December 31, 2014. This ratio would be 4.56x using the Company's adjusted EBITDA from continuing operations and proceeds from the sale of the Company's agent services businesses.

On November 15, 2014, the Company redeemed the remaining $450 million of its outstanding 2019 Notes. The redemption price for the 2019 Notes was $467.7 million, including the call premium.

Cash flows from operations on a historical1 basis were $462.7 million for the twelve months ended December 31, 2014 compared to $384.1 million in 2013. Free cash flow4,5 on a historical1 basis increased 22.0 percent to $312.0 million in 2014 compared to $255.7 million in 2013.

"West had significant growth in cash flow in 2014," said Paul Mendlik, chief financial officer of West Corporation. "Our accounts receivable days sales outstanding at year end were 57 days, compared to 60 days at the end of 2013. This contributed $28 million to the improvement in cash flows from operations for the year."

Cash flows from operations on a continuing operations basis were $409.5 million for the twelve months ended December 31, 2014 compared to $318.8 million in 2013. Free cash flow4,5 on a continuing operations basis increased 36.5 percent to $279.2 million in 2014 compared to $204.5 million in 2013.

During the fourth quarter of 2014, on a historical1 basis, the Company invested $55.2 million, or 7.7 percent of revenue, in capital expenditures primarily for software and computer equipment. For the full year 2014, the Company invested $155.8 million, or 5.6 percent of revenue, in capital expenditures. On a continuing operations basis, the Company invested $136.3 million, or 6.1 percent of revenue, in capital expenditures during 2014.

Acquisitions

On November 3, 2014, the Company completed the previously announced acquisition of the assets of GroupCast, L.L.C., a provider of alert and notification services for corporations, government entities and K-12 school districts that operates under two brands, GroupCast and SchoolReach ("SchoolReach"). SchoolReach is an award-winning provider of notification systems for thousands of smaller public school districts and private schools throughout the U.S. The purchase price was approximately $12.6 million, net of working capital, and was funded with cash on hand. SchoolReach will be combined with the Company's SchoolMessenger business in the Unified Communication operating segment.

2015 Guidance

For 2015, the Company expects the results presented below. This guidance assumes no acquisitions or changes in the current operating environment, capital structure or exchange rates. The two most significant exchange rates used for 2015 guidance are the British Pound Sterling at 1.55 and the Euro at 1.19. The Company expects foreign exchange rates to negatively impact 2015 revenue by approximately $32 million and 2015 adjusted EBITDA by approximately $9 million.

The 2015 guidance does not include the gain the Company expects to report on the sale of its agent services businesses.

The 2015 guidance does not include any interest reduction associated with the proceeds from the sale of the agent services businesses or proceeds from the previously disclosed planned sale of real estate associated with the Company's agent services businesses. The Company estimates the total cash it will realize from the sale of the businesses and real estate, net of fees and taxes, will be approximately $285 million.

The 2015 leverage ratio guidance range includes the net cash the Company expects to receive for the sale of its agent services businesses.

The 2015 operating income guidance includes approximately $15 million in stranded and rebranding costs and an increase in share-based compensation of approximately $9 million. Adjusted operating income includes approximately $12 million of stranded and rebranding costs.

The 2015 capital expenditure guidance includes several one-time items. The Company expects to invest approximately $27 million on data center consolidation activities, including approximately $8 million which was carried over from what was expected to be spent on these activities in 2014. Additionally, the Company expects to invest approximately $8 million to replace systems being sold along with its agent services businesses. The Company also expects approximately $4 to $5 million of capital expenditures for discontinued operations which is not included in the guidance range below.

The Company's 2015 guidance for Adjusted EBITDA includes approximately $6 to $7 million that the Company expects to receive from discontinued operations during the first quarter of 2015.

In millions except per share and leverage ratio CONTINUING OPERATIONS
2014 Actual 2015 Guidance Growth
Consolidated Revenue $ 2,218.6 $2,295 - $2,340 3.4% - 5.5%
Adjusted Operating Income4 $ 541.5 $536 - $560 -1.0% - 3.4%
Operating Income $ 461.4 $445 - $470 -3.6% - 1.9%
Adjusted Net Income4 $ 247.2 $257 - $267 4.0% - 8.0%
Net Income $ 134.6 $190 - $200 41.1% - 48.6%
Adjusted Earnings per Share - Diluted4 $ 2.89 $2.96 - $3.08 2.4% - 6.6%
Earnings per Share - Diluted $ 1.57 $2.20 - $2.31 40.1% - 47.1%
Cash Flows from Operations $ 409.5 $420 - $460 2.6% - 12.3%
Capital Expenditures $ 136.3 $150 - $170 10.1% - 24.7%
Free Cash Flow4,5 $ 279.2 $270 - $300 -3.3% - 7.5%
Net Debt to pro forma Adjusted EBITDA ratio6 4.59x 4.30x - 4.50x
Full year average diluted share count 85.5 86.6 - 86.8
Company will report actual EBITDA and Adjusted EBITDA for 2015
2014 Actual 2015 Guidance Growth
Adjusted EBITDA4 $ 668.3 $680 - $703 1.8% - 5.2%
EBITDA4 $ 649.2 $653 - $678 0.6% - 4.4%

"This year we intend to further invest in our highest growth businesses and will be carefully evaluating our options for reinvesting the divestiture proceeds upon closing," said Tom Barker. "We expect very strong growth in net income this year due to the debt restructuring we completed in 2014."

Conference Call

The Company will hold a conference call to discuss these topics on Thursday, January 29, 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, West's ability to complete the announced divestiture of several of its agent services businesses, competition in West's highly competitive industries; 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)
HISTORICAL (1) CONTINUING OPERATIONS
Three Months Ended December 31, Three Months Ended December 31,
2014 2013 2014 2014 2013 2014
Actual Actual % Change Adjusted (4) Actual Actual % Change Adjusted (4)
Revenue $ 716,243 $ 687,570 4.2% $ 716,243 $ 562,938 $ 536,954 4.8% $ 562,938
Cost of services 333,888 329,040 1.5% 333,888 234,419 230,699 1.6% 234,419
Selling, general and administrative expenses 262,984 229,770 14.5% 231,027 211,809 187,302 13.1% 187,341
Operating income 119,371 128,760 -7.3% 151,328 116,710 118,953 -1.9% 141,178
Interest expense, net 42,911 51,296 -16.3% 37,836 42,911 51,296 -16.3% 37,836
Debt call premium and accelerated amortization of deferred financing costs 21,574 -- NM -- 21,574 -- NM --
Other expense (income), net (569) (703) NM (569) (1,493) (683) NM (1,493)
Income before tax 55,455 78,167 -29.1% 114,061 53,718 68,340 -21.4% 104,835
Income tax expense 7,197 27,836 -74.1% 14,804 18,834 25,798 -27.0% 36,755
Net income $ 48,258 $ 50,331 -4.1% $ 99,257 $ 34,884 $ 42,542 -18.0% $ 68,080
Weighted average shares outstanding:
Basic 84,178 83,627 84,178 84,178 83,627 84,178
Diluted 86,033 85,088 86,033 86,033 85,088 86,033
Earnings per share:
Basic $ 0.57 $ 0.60 -5.0% $ 1.18 $ 0.41 $ 0.51 -19.6% $ 0.81
Diluted $ 0.56 $ 0.59 -5.1% $ 1.15 $ 0.41 $ 0.50 -18.0% $ 0.79
SELECTED SEGMENT DATA:
Revenue:
Unified Communications $ 395,449 $ 403,150 -1.9% $ 395,449 $ 403,150 -1.9%
Communication Services 336,301 298,841 12.5% 180,782 145,777 24.0%
Intersegment eliminations (15,507) (14,421) NM (13,293) (11,973) NM
Total $ 716,243 $ 687,570 4.2% $ 562,938 $ 536,954 4.8%
Depreciation:
Unified Communications $ 19,901 $ 18,841 5.6% $ 19,901 $ 18,841 5.6%
Communication Services 12,595 10,686 17.9% 8,285 6,341 30.7%
Total $ 32,496 $ 29,527 10.1% $ 28,186 $ 25,182 11.9%
Amortization:
Unified Communications - SG&A $ 7,424 $ 6,337 17.2% $ 7,424 $ 6,337 17.2%
Communication Services - COS 3,221 2,676 20.4% 3,221 2,676 20.4%
Communication Services - SG&A 16,807 7,166 134.5% 10,616 6,660 59.4%
Corporate - deferred financing costs 5,075 4,536 11.9% 5,075 4,536 11.9%
Corporate - accelerated amortization of deferred financing costs 3,853 -- NM 3,853 -- NM
Total $ 36,380 $ 20,715 75.6% $ 30,189 $ 20,209 49.4%
Share-based Compensation
Unified Communications $ 3,069 $ 1,310 134.3% $ 3,069 $ 1,310 134.3%
Communication Services 2,480 1,091 127.3% 2,450 1,044 134.7%
Total $ 5,549 $ 2,401 131.1% $ 5,519 $ 2,354 134.5%
Cost of services:
Unified Communications $ 164,946 $ 170,143 -3.1% $ 164,946 $ 170,143 -3.1%
Communication Services 182,279 171,839 6.1% 80,836 71,321 13.3%
Intersegment eliminations (13,337) (12,942) NM (11,363) (10,765) NM
Total $ 333,888 $ 329,040 1.5% $ 234,419 $ 230,699 1.6%
Selling, general and administrative expenses:
Unified Communications $ 137,650 $ 132,555 3.8% $ 138,968 $ 133,256 4.3%
Communication Services 127,504 98,694 29.2% 74,771 55,254 35.3%
Intersegment eliminations (2,170) (1,479) NM (1,930) (1,208) NM
Total $ 262,984 $ 229,770 14.5% $ 211,809 $ 187,302 13.1%
Operating income:
Unified Communications $ 92,853 $ 100,452 -7.6% $ 104,062 $ 91,535 $ 99,751 -8.2% $ 102,744
Communication Services 26,518 28,308 -6.3% 47,266 25,175 19,202 31.1% 38,434
Total $ 119,371 $ 128,760 -7.3% $ 151,328 $ 116,710 $ 118,953 -1.9% $ 141,178
Operating margin:
Unified Communications 23.5% 24.9% 26.3% 23.1% 24.7% 26.0%
Communication Services 7.9% 9.5% 14.1% 13.9% 13.2% 21.3%
Total 16.7% 18.7% 21.1% 20.7% 22.2% 25.1%
SELECTED OPERATING DATA2:
Revenue from platform-based services $ 496,988 $ 495,807 0.2% $ 496,988 $ 495,807 0.2%
Revenue from agent services $ 223,665 $ 195,623 14.3% $ 68,146 $ 42,559 60.1%
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
HISTORICAL (1) CONTINUING OPERATIONS
Twelve Months Ended December 31, Twelve Months Ended December 31,
2014 2013 2014 2014 2013 2014
Actual Actual % Change Adjusted (4) Actual Actual % Change Adjusted (4)
Revenue $ 2,796,659 $ 2,685,855 4.1% $ 2,796,659 $ 2,218,594 $ 2,120,972 4.6% $ 2,218,594
Cost of services 1,319,716 1,260,579 4.7% 1,319,716 943,331 894,628 5.4% 943,331
Selling, general and administrative expenses 992,851 945,062 5.1% 903,022 813,856 775,050 5.0% 733,797
Operating income 484,092 480,214 0.8% 573,921 461,407 451,294 2.2% 541,466
Interest expense, net 187,834 232,606 -19.2% 167,799 187,834 232,606 -19.2% 167,799
Debt call premium and accelerated amortization of deferred financing costs 73,309 23,105 217.3% -- 73,309 23,105 217.3% --
Other expense (income), net (5,966) (2,258) NM (5,966) (7,026) (2,159) NM (7,026)
Income before tax 228,915 226,761 0.9% 412,088 207,290 197,742 4.8% 380,693
Income tax expense 70,510 83,559 -15.6% 126,927 72,679 74,651 -2.6% 133,471
Net income $ 158,405 $ 143,202 10.6% $ 285,161 $ 134,611 $ 123,091 9.4% $ 247,222
Weighted average shares outstanding:
Basic 84,007 78,875 84,007 84,007 78,875 84,007
Diluted 85,507 80,318 85,507 85,507 80,318 85,507
Earnings per share:
Basic $ 1.89 $ 1.82 3.8% $ 3.39 $ 1.60 $ 1.56 2.6% $ 2.94
Diluted $ 1.85 $ 1.78 3.9% $ 3.33 $ 1.57 $ 1.53 2.6% $ 2.89
SELECTED SEGMENT DATA:
Revenue:
Unified Communications $ 1,616,777 $ 1,603,311 0.8% $ 1,616,777 $ 1,603,311 0.8%
Communication Services 1,239,437 1,119,809 10.7% 653,571 545,850 19.7%
Intersegment eliminations (59,555) (37,265) NM (51,754) (28,189) NM
Total $ 2,796,659 $ 2,685,855 4.1% $ 2,218,594 $ 2,120,972 4.6%
Depreciation:
Unified Communications $ 77,838 $ 72,388 7.5% $ 77,838 $ 72,388 7.5%
Communication Services 45,150 42,311 6.7% 29,465 24,720 19.2%
Total $ 122,988 $ 114,699 7.2% $ 107,303 $ 97,108 10.5%
Amortization:
Unified Communications - SG&A $ 28,873 $ 26,488 9.0% $ 28,873 $ 26,488 9.0%
Communication Services - COS 12,216 10,247 19.2% 12,216 10,247 19.2%
Communication Services - SG&A 39,845 28,850 38.1% 32,145 26,826 19.8%
Corporate - deferred financing costs 20,035 18,246 9.8% 20,035 18,246 9.8%
Corporate - accelerated amortization of deferred financing costs 11,601 6,603 75.7% 11,601 6,603 75.7%
Total $ 112,570 $ 90,434 24.5% $ 104,870 $ 88,410 18.6%
Share-based Compensation
Unified Communications $ 8,739 $ 5,877 48.7% $ 8,739 $ 5,877 48.7%
Communication Services 6,989 4,678 49.4% 6,835 4,506 51.7%
Total $ 15,728 $ 10,555 49.0% $ 15,574 $ 10,383 50.0%
Cost of services:
Unified Communications $ 680,916 $ 663,835 2.6% $ 680,916 $ 663,835 2.6%
Communication Services 691,251 628,872 9.9% 307,765 255,004 20.7%
Intersegment eliminations (52,451) (32,128) NM (45,350) (24,211) NM
Total $ 1,319,716 $ 1,260,579 4.7% $ 943,331 $ 894,628 5.4%
Selling, general and administrative expenses:
Unified Communications $ 550,822 $ 539,655 2.1% $ 555,129 $ 545,791 1.7%
Communication Services 449,133 410,544 9.4% 265,131 233,237 13.7%
Intersegment eliminations (7,104) (5,137) NM (6,404) (3,978) NM
Total $ 992,851 $ 945,062 5.1% $ 813,856 $ 775,050 5.0%
Operating income:
Unified Communications $ 385,039 $ 399,821 -3.7% $ 425,131 $ 380,732 $ 393,685 -3.3% $ 420,823
Communication Services 99,053 80,393 23.2% 148,790 80,675 57,609 40.0% 120,643
Total $ 484,092 $ 480,214 0.8% $ 573,921 $ 461,407 $ 451,294 2.2% $ 541,466
Operating margin:
Unified Communications 23.8% 24.9% 26.3% 23.5% 24.6% 26.0%
Communication Services 8.0% 7.2% 12.0% 12.3% 10.6% 18.5%
Total 17.3% 17.9% 20.5% 20.8% 21.3% 24.4%
SELECTED OPERATING DATA2:
Revenue from platform-based services $ 2,001,363 $ 1,955,203 2.4% $ 2,001,363 $ 1,955,203 2.4%
Revenue from agent services $ 810,487 $ 744,304 8.9% $ 224,621 $ 170,345 31.9%
WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31, December 31, %
2014 2013 Change
Current assets:
Cash and cash equivalents $ 115,061 $ 230,041 -50.0%
Trust and restricted cash 18,573 19,400 -4.3%
Accounts receivable, net 355,625 357,588 -0.5%
Prepaid assets 45,242 31,235 44.8%
Other current assets 95,892 90,462 6.0%
Assets held for sale 304,605 300,049 1.5%
Total current assets 934,998 1,028,775 -9.1%
Net property and equipment 350,030 331,904 5.5%
Goodwill 1,884,920 1,671,205 12.8%
Other assets 648,127 464,760 39.5%
Total assets $ 3,818,075 $ 3,496,644 9.2%
Current liabilities $ 480,436 $ 421,359 14.0%
Liabilities held for sale 84,788 75,628 12.1%
Long-term obligations 3,642,540 3,513,470 3.7%
Other liabilities 269,952 226,359 19.3%
Total liabilities 4,477,716 4,236,816 5.7%
Stockholders' deficit (659,641) (740,172) 10.9%
Total liabilities and stockholders' deficit $ 3,818,075 $ 3,496,644 9.2%

Supplemental Financial Information

The following is a summary of the unaudited quarterly results from continuing operations for the two years ended December 31, 2014 and 2013, in thousands.

Three Months Ended Year Ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2014 2014 2014 2014 2014
Revenue $ 535,140 $ 552,319 $ 568,197 $ 562,938 $ 2,218,594
Cost of services 225,511 239,695 243,706 234,419 943,331
Gross profit 309,629 312,624 324,491 328,519 1,275,263
Selling, general and administrative expenses 195,439 197,063 209,545 211,809 813,856
Operating income 114,190 115,561 114,946 116,710 461,407
Net income from continuing operations $ 42,097 $ 44,527 $ 13,103 $ 34,884 $ 134,611
Earnings per share from continuing operations:
Basic $ 0.50 $ 0.53 $ 0.16 $ 0.41 $ 1.60
Diluted $ 0.49 $ 0.52 $ 0.15 $ 0.41 $ 1.57
Three Months Ended Year Ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2013 2013 2013 2013 2013
Revenue $ 521,601 $ 536,716 $ 525,701 $ 536,954 $ 2,120,972
Cost of services 219,287 225,308 219,334 230,699 894,628
Gross profit 302,314 311,408 306,367 306,255 1,226,344
Selling, general and administrative expenses 215,914 183,310 188,524 187,302 775,050
Operating income 86,400 128,098 117,843 118,953 451,294
Net income (loss) from continuing operations $ (1,438) $ 39,410 $ 42,577 $ 42,542 $ 123,091
Earnings (loss) per share from continuing operations:
Basic $ (0.02) $ 0.47 $ 0.51 $ 0.51 $ 1.56
Diluted $ (0.02) $ 0.46 $ 0.50 $ 0.50 $ 1.53

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 IPO-related expenses, expenses terminated in connection with the IPO, M&A 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 to operating income.

Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
HISTORICAL (1) CONTINUING OPERATIONS
Three Months Ended Dec. 31, Three Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Operating income $ 119,371 $ 128,760 -7.3% $ 116,710 $ 118,953 -1.9%
Amortization of acquired intangible assets 24,231 13,503 18,040 12,997
Share-based compensation 5,549 2,401 5,519 2,354
M&A and acquisition related costs 2,177 234 909 233
Adjusted operating income $ 151,328 $ 144,898 4.4% $ 141,178 $ 134,537 4.9%
Twelve Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Operating income $ 484,092 $ 480,214 0.8% $ 461,407 $ 451,294 2.2%
Amortization of acquired intangible assets 68,718 55,338 61,018 53,314
Share-based compensation 15,728 10,555 15,574 10,383
Sponsor management/termination fee -- 25,000 -- 25,000
IPO bonus -- 2,975 -- 2,975
M&A and acquisition related costs 5,383 1,172 3,467 1,172
Adjusted operating income $ 573,921 $ 575,254 -0.2% $ 541,466 $ 544,138 -0.5%

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 IPO-related expenses, expenses terminated in connection with the IPO, bond redemption premiums, M&A 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 to net income.

Reconciliation of Adjusted Net Income from Net Income
Unaudited, in thousands except per share
HISTORICAL (1) CONTINUING OPERATIONS
Three Months Ended Dec. 31, Three Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Net income $ 48,258 $ 50,331 -4.1% $ 34,884 $ 42,542 -18.0%
Amortization of acquired intangible assets 24,231 13,503 18,040 12,997
Amortization of deferred financing costs 5,075 4,536 5,075 4,536
Accelerated amortization of deferred financing costs 3,853 -- 3,853 --
Share-based compensation 5,549 2,401 5,519 2,354
Debt call premiums 17,721 -- 17,721 --
M&A and acquisition related costs 2,177 234 909 233
Pre-tax total 58,606 20,674 51,117 20,120
Income tax expense on adjustments 7,607 7,362 17,921 7,247
Adjusted net income $ 99,257 $ 63,643 56.0% $ 68,080 $ 55,415 22.9%
Diluted shares outstanding 86,033 85,088 86,033 85,088
Adjusted EPS - diluted $ 1.15 $ 0.75 53.3% $ 0.79 $ 0.65 21.5%
Twelve Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Net income $ 158,405 $ 143,202 10.6% $ 134,611 $ 123,091 9.4%
Amortization of acquired intangible assets 68,718 55,338 61,018 53,314
Amortization of deferred financing costs 20,035 18,246 20,035 18,246
Accelerated amortization of deferred financing costs 11,601 6,603 11,601 6,603
Share-based compensation 15,728 10,555 15,574 10,383
Sponsor management/termination fee -- 25,000 -- 25,000
IPO bonus -- 2,975 -- 2,975
Debt call premiums 61,708 16,502 61,708 16,502
M&A and acquisition related costs 5,383 1,172 3,467 1,172
Pre-tax total 183,173 136,391 173,403 134,195
Income tax expense on adjustments 56,417 50,260 60,792 49,586
Adjusted net income $ 285,161 $ 229,333 24.3% $ 247,222 $ 207,700 19.0%
Diluted shares outstanding 85,507 80,318 85,507 80,318
Adjusted EPS - diluted $ 3.33 $ 2.86 16.4% $ 2.89 $ 2.59 11.6%

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 operations 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 operations 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 to cash flows from operations.

Reconciliation of Free Cash Flow from Operating Cash Flow
Unaudited, in thousands
HISTORICAL (1)
Three Months Ended Dec. 31,
2014 2013 % Change
Cash flows from operations $ 132,473 $ 107,358 23.4%
Cash capital expenditures 37,034 40,418 -8.4%
Free cash flow $ 95,439 $ 66,940 42.6%
CONTINUING OPERATIONS
Twelve Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2014 2013 % Change 2014 2013 % Change
Cash flows from operations $ 462,723 $ 384,087 20.5% $ 409,491 $ 318,769 28.5%
Cash capital expenditures 150,716 128,398 17.4% 130,318 114,260 14.1%
Free cash flow $ 312,007 $ 255,689 22.0% $ 279,173 $ 204,509 36.5%

EBITDA and Adjusted EBITDA Reconciliation

The common definition of EBITDA is "earnings before interest expense, taxes, depreciation and amortization." In evaluating liquidity and performance, the Company uses earnings before interest expense, share based compensation, taxes, depreciation and amortization, M&A and acquisition-related costs and one-time IPO-related expenses, or "adjusted EBITDA." EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP. EBITDA and adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations or other income or cash flows data prepared in accordance with GAAP. EBITDA and adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. EBITDA and adjusted EBITDA are used by certain investors as measures to assess the Company's ability to service debt. Adjusted EBITDA is also used in the Company's debt covenants, although the precise adjustments used to calculate adjusted EBITDA included in the Company's credit facility and indentures vary in certain respects among such agreements and from those presented below. Certain adjustments to adjusted EBITDA were excluded from the calculations below consistent with the adjustments made for adjusted operating income and adjusted net income. Set forth below is a reconciliation of EBITDA and adjusted EBITDA to cash flows from operations and net income.

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow
Unaudited, in thousands
HISTORICAL (1)
Three Months Ended Dec. 31, Year Ended Dec. 31,
2014 2013 2014 2013
Cash flows from operating activities $ 132,473 $ 107,358 $ 462,723 $ 384,087
Income tax expense 7,197 27,836 70,510 83,559
Deferred income tax benefit 4,519 6,193 29,146 2,525
Interest expense and other financing charges 63,825 51,904 261,404 257,696
Provision for share-based compensation (5,549) (2,401) (15,728) (10,555)
Amortization of deferred financing costs (5,075) (4,536) (20,035) (18,246)
Accelerated amortization of deferred financing costs (3,853) -- (11,601) (6,603)
Other 321 (6) 312 (99)
Changes in operating assets and liabilities, net of business acquisitions (14,630) (10,571) (82,490) (27,623)
EBITDA 179,228 175,777 694,241 664,741
Provision for share-based compensation 5,549 2,401 15,728 10,555
Sponsor management/termination fee -- -- -- 25,000
IPO bonus -- -- -- 2,975
M&A and acquisition related costs 2,177 234 5,383 1,172
Adjusted EBITDA $ 186,954 $ 178,412 $ 715,352 $ 704,443
Cash flows from operating activities $ 132,473 $ 107,358 $ 462,723 $ 384,087
Cash flows used in investing activities $ (43,774) $ (46,349) $ (544,906) $ (135,508)
Cash flows used in financing activities $ (135,882) $ (42,666) $ (25,027) $ (196,828)
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
HISTORICAL (1)
Three Months Ended Dec. 31, Year Ended Dec. 31,
2014 2013 2014 2013
Net income $ 48,258 $ 50,331 $ 158,405 $ 143,202
Interest expense and other financing charges 63,825 51,904 261,404 257,696
Depreciation and amortization 59,948 45,706 203,922 180,284
Income tax expense 7,197 27,836 70,510 83,559
EBITDA 179,228 175,777 694,241 664,741
Provision for share-based compensation 5,549 2,401 15,728 10,555
Sponsor management/termination fee -- -- -- 25,000
IPO bonus -- -- -- 2,975
M&A and acquisition related costs 2,177 234 5,383 1,172
Adjusted EBITDA $ 186,954 $ 178,412 $ 715,352 $ 704,443
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow
Unaudited, in thousands
CONTINUING OPERATIONS
Year Ended Dec. 31,
2014 2013
Cash flows from operating activities $ 409,491 $ 318,769
Income tax expense 72,679 74,651
Deferred income tax benefit 26,632 6,827
Interest expense and other financing charges 261,404 257,696
Provision for share-based compensation (15,574) (10,383)
Amortization of deferred financing costs (20,035) (18,246)
Accelerated amortization of deferred financing costs (11,601) (6,603)
Other 316 (13)
Changes in operating assets and liabilities, net of business acquisitions (74,081) (6,592)
EBITDA 649,231 616,106
Provision for share-based compensation 15,574 10,383
Sponsor management/termination fee -- 25,000
IPO bonus -- 2,975
M&A and acquisition related costs 3,467 1,172
Adjusted EBITDA $ 668,272 $ 655,636
Cash flows from operating activities $ 409,491 $ 318,769
Cash flows used in investing activities $ (524,376) $ (121,882)
Cash flows used in financing activities $ (25,027) $ (196,828)
Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
CONTINUING OPERATIONS
Three Months Ended Dec. 31, Year Ended Dec. 31,
2014 2013 2014 2013
Net income $ 34,884 $ 42,542 $ 134,611 $ 123,091
Interest expense and other financing charges 63,825 51,904 261,404 257,696
Depreciation and amortization 49,447 40,855 180,537 160,668
Income tax expense 18,834 25,798 72,679 74,651
EBITDA 166,990 161,099 649,231 616,106
Provision for share-based compensation 5,519 2,354 15,574 10,383
Sponsor management/termination fee -- -- -- 25,000
IPO bonus -- -- -- 2,975
M&A and acquisition related costs 909 233 3,467 1,172
Adjusted EBITDA $ 173,418 $ 163,686 $ 668,272 $ 655,636

____________________________________________________________

1 Historical includes the results of both continuing operations and discontinued operations.

2 Platform-based businesses include the Unified Communications segment and public safety and telecom services within our Communication Services segment. Platform-based and agent services revenue are presented prior to intercompany eliminations.

3 Revenue from acquired entities includes SchoolMessenger after April 21, 2014, Health Advocate after June 13, 2014, 911 Enable after September 2, 2014 and SchoolReach after November 3, 2014.

4 See Reconciliation of Non-GAAP Financial Measures below.

5 Free cash flow is calculated as cash flows from operations less cash capital expenditures.

6 Based on loan covenants except that the leverage ratio presented includes adjusted EBITDA from discontinued operations. Covenant leverage ratio is net of cash and excludes accounts receivable securitization debt.

NM: Not Meaningful

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

Source:West Corporation