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West Corporation Reports Third Quarter 2015 Results

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

Key Quarterly Highlights:

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

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

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

Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable November 25, 2015 to shareholders of record as of the close of business on November 16, 2015.
Operating Results Reflect Previous Divestiture
As previously disclosed, on March 3, 2015, the Company completed the sale of several of its agent-based services businesses. The operating results for the businesses that were sold have been reflected as discontinued operations in the Company’s consolidated financial statements for all periods presented. Unless otherwise noted, the Company has presented herein its operating results from continuing operations, which excludes discontinued operations.

Consolidated Operating Results
For the third quarter of 2015, revenue was $574.4 million compared to $568.2 million for the same quarter of the previous year, an increase of 1.1 percent. Adjusted organic revenue growth was 3.9 percent for the quarter. Revenue from acquired entities3 was $5.4 million during the third quarter of 2015, contributing 0.9 percent to the Company’s revenue growth. The Company’s revenue growth rate was partially offset by $21.4 million, or 3.8 percent, from the impact of foreign currency exchange rates and two previously disclosed client losses. Details of the Company’s revenue growth are presented in the statements of operations below.

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

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

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

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

Interest expense was $38.4 million during the third quarter of 2015 compared to $47.6 million during the comparable period the prior year. The decrease in interest expense is a result of the Company’s debt refinancing in 2014.

The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities4, was 4.66x at September 30, 2015.

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

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

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

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

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

Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, November 3, 2015 at 11:00 AM Eastern Time (10:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company’s website at www.west.com.

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

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

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

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

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


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

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

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income Reconciliation

Adjusted operating income is not a measure of financial performance under generally accepted accounting principles ("GAAP"). The Company believes adjusted operating income provides a relevant measure of operating profitability and a useful basis for evaluating the ongoing operations of the Company. Adjusted operating income is used by the Company to assess operating income before the impact of acquisitions and acquisition-related costs and certain non-cash items. Adjusted operating income should not be considered in isolation or as a substitute for operating income or other profitability data prepared in accordance with GAAP. Adjusted operating income, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of adjusted operating income from operating income.

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

Adjusted Net Income and Adjusted Earnings per Share Reconciliation

Adjusted net income and adjusted earnings per share (EPS) are non-GAAP measures. The Company believes these measures provide a useful indication of profitability and basis for assessing the operations of the Company without the impact of bond redemption premiums, acquisitions and acquisition-related costs and certain non-cash items. Adjusted net income should not be considered in isolation or as a substitute for net income or other profitability metrics prepared in accordance with GAAP. Adjusted net income, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of adjusted net income from net income.

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


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


Free Cash Flow Reconciliation

The Company believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Company’s ability to fund its activities, including the financing of acquisitions, debt service, stock repurchases and distribution of earnings to shareholders. Free cash flow is calculated as cash flows from operating activities less cash capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Free cash flow should not be considered in isolation or as a substitute for cash flows from operating activities or other liquidity measures prepared in accordance with GAAP. Free cash flow, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of free cash flow from cash flows from operating activities.

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


EBITDA and Adjusted EBITDA Reconciliation

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

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


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

1 See Reconciliation of Non-GAAP Financial Measures below.
2 Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.
3 Revenue growth attributable to acquired entities for the third quarter of 2015 includes 911 Enable through September 2, 2015 and full quarter results of SchoolReach and SharpSchool. Revenue growth attributable to acquired entities for the nine months ended September 30, 2015 includes School Messenger through April 21, 2015; Health Advocate through June 13, 2015; 911 Enable through September 2, 2015; SchoolReach for the entire period; and SharpSchool after June 1, 2015.
4 Based on loan covenants. Covenant leverage ratio is debt net of cash and excludes accounts receivable securitization debt.
5 To obtain a copy of the Gartner report, visit westipc.com/gartner_ucaas/
NM: Not Meaningful

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

Source:West Corporation