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West Corporation Reports Third Quarter 2016 Results

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 entities3 was $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

Source:West Corporation