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West Corporation Reports Fourth Quarter and Full Year 2016 Results and Provides 2017 Guidance

OMAHA, Neb., Feb. 01, 2017 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a global provider of communication and network infrastructure services, today announced its fourth quarter and full year 2016 results.

Select Financial Information
Unaudited, in millions except per share amounts Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 % Change 2016 2015 % Change
Revenue$ 567.4 $ 568.4 -0.2% $ 2,292.0 $ 2,280.3 0.5%
Operating Income 102.7 105.0 -2.2% 444.2 456.5 -2.7%
Income from Continuing Operations 68.3 42.3 61.4% 193.4 190.9 1.3%
Earnings per Share from Continuing Operations - Diluted 0.80 0.50 60.0% 2.29 2.24 2.2%
Cash Flows from Continuing Operating Activities 126.7 127.5 -0.7% 428.3 410.8 4.3%
Cash Flows used in Continuing Investing Activities (41.2) (118.7) -65.3% (108.3) (232.4) -53.4%
Cash Flows used in Continuing Financing Activities (88.4) (23.5) 276.8% (311.9) (388.2) -19.7%
Select Non-GAAP Financial Information1
Unaudited, in millions except per share amounts Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 % Change 2016 2015 % Change
EBITDA from Continuing Operations$ 151.8 $ 158.0 -4.0% $ 640.7 $ 649.3 -1.3%
Adjusted EBITDA from Continuing Operations 164.9 165.1 -0.1% 664.1 676.1 -1.8%
Adjusted Operating Income 132.3 131.0 1.0% 534.2 551.8 -3.2%
Adjusted Income from Continuing Operations 64.5 63.7 1.4% 256.9 265.9 -3.4%
Adjusted Earnings per Share from Continuing Operations - Diluted 0.76 0.75 1.3% 3.04 3.11 -2.3%
Free Cash Flow from Continuing Operating Activities2 99.4 86.9 14.4% 301.7 274.0 10.1%

Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable on March 2, 2017 to shareholders of record as of the close of business on February 21, 2017.

Fourth Quarter Operating Results
For the fourth quarter of 2016, revenue was $567.4 million, a decrease of 0.2 percent. Adjusted organic revenue growth5 slowed in the fourth quarter to 0.7 percent, primarily due to a decline in conferencing revenue.

Fourth quarter operating income was $102.7 million, a decrease of 2.2 percent. EBITDA1 declined 4.0 percent to $151.8 million. Operating income and EBITDA were negatively impacted by an $8.4 million restructuring charge due to a workforce reduction plan implemented in the quarter as part of strategic and cost savings initiatives. Adjusted operating income1 increased 1.0 percent to $132.2 million and Adjusted EBITDA1 was nearly flat at $164.9 million.

Income from continuing operations increased 61.4 percent to $68.3 million, primarily due to a decrease in the fourth quarter effective tax rate to negative 1.8 percent. This change resulted from a fourth quarter restructuring of foreign legal entities that lowered income tax expense (primarily deferred) on unremitted foreign earnings. Adjusted income from continuing operations1 was $64.5 million, an increase of 1.4 percent.

“West Corporation finished the year with a fourth quarter that was stronger than we expected,” said Tom Barker, chairman and chief executive officer. “Our consolidated revenue was down slightly primarily due to a decline in conferencing revenue. However, our four growth businesses (UCaaS, Safety Services, Interactive Services and Specialized Agent Services) grew 5.5 percent on an organic basis in the fourth quarter. Additionally, we had double-digit growth in free cash flow in the fourth quarter and full year. During the fourth quarter we also made changes to our cost structure that we expect to positively impact our results in 2017 and further strengthen West for the future.”

Fourth quarter results by segment were as follows:

  • Unified Communications Services revenue decreased 5 percent; adjusted organic growth5 was negative 2.8 percent due to price compression and fewer minutes in conferencing, partially offset by low double-digit growth in the UCaaS business. Operating income decreased 20.7 percent due to the revenue decline and a restructuring charge incurred to better align expenses with expected revenue. Adjusted operating income1 decreased 14.5 percent.
  • Safety Services revenue increased 3.9 percent; excluding acquisitions, revenue increased 3.5 percent, primarily due to growth from clients adopting new technologies, partially offset by lower equipment sales in the quarter. Operating income increased $11.0 million to $16.7 million due to revenue growth and cost savings initiatives, partially offset by a restructuring charge incurred as part of a strategic realignment of resources around growth initiatives. Adjusted operating income1 increased $11.6 million to $23.7 million.
  • Interactive Services revenue increased 11.2 percent; excluding acquisitions, revenue increased 8.0 percent due to increased volumes from new and existing clients. Operating income increased 37.0 percent to $9.1 million and adjusted operating income1 increased 21.2 percent to $15.0 million primarily due to revenue growth.
  • Specialized Agent Services revenue increased 3.1 percent primarily due to growth in healthcare advocacy services partially offset by slower than historical recoveries in cost management services. Operating income declined $1.6 million to $4.6 million and adjusted operating income1 declined $2.1 million primarily due to revenue mix and higher labor costs.

Full Year Operating Result Highlights
For the year ended December 31, 2016, revenue was $2,292.0 million, an increase of 0.5 percent. Adjusted organic revenue growth5 for 2016 was 2.3 percent.

Operating income in 2016 was $444.2 million, a decrease of 2.7 percent. EBITDA1 was $640.7 million, a decrease of 1.3 percent. Adjusted operating income1 was $534.2 million, a decrease of 3.2 percent.

Full year 2016 revenue results by segment were as follows:

  • Unified Communications Services revenue decreased 2.9 percent; adjusted organic growth5 was 1.0 percent.
  • Safety Services revenue increased 5.3 percent; excluding acquisitions, revenue increase 5.2 percent.
  • Interactive Services revenue increased 13.2 percent; excluding acquisitions, revenue increased 6.9 percent.
  • Specialized Agent Services revenue increased 1.6 percent.

Balance Sheet, Cash Flow and Liquidity – 2016 Highlights

  • Cash flow from operations were $428.3 million, an increase of 4.3 percent, primarily due to lower cash tax payments.
  • Free cash flow1,2 increased 10.1 percent to $301.7 million due to the increase in cash flows from operations and lower capital expenditures. The Company invested $126.6 million, or 5.5 percent of revenue, in capital expenditures.
  • 4.45x net leverage (net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities4) down from 4.68x at December 31, 2015.
  • Repaid $191.1 million in debt; cash balance of $183.1 million at December 31, 2016.

“In 2016, West generated record operating cash flow. We deployed this cash toward repaying $191 million of our long-term debt, making two acquisitions for approximately $20 million and returning nearly $100 million to our shareholders in the form of dividends and stock repurchases,” said Jan Madsen, chief financial officer. “We also took steps to refinance our debt, ending the year with a more attractive maturity profile and decreased leverage ratio. We believe each of these steps is consistent with our focus on driving shareholder value and enhancing West’s financial flexibility.”

2017 Guidance
For 2017, the Company expects the results presented in the table 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 2017 guidance are the British Pound Sterling at 1.25 and the Euro at 1.06. These foreign currency exchange rates, reflected in the guidance below, would negatively impact 2017 revenue by approximately $14 million and 2017 adjusted diluted earnings per share by $0.02 compared to 2016 rates.

In millions except per share amounts and leverage ratio
2016 Actual 2017 Guidance
Revenue$ 2,292.0 $2,286 - $2,362
Operating Income 444.2 $413 - $446
Net Income 193.4 $175 - $196
Earnings per Share - Diluted 2.29 $2.07 - $2.31
Cash Flows from Operating Activities 428.3 $380 - $420
Capital Expenditures 126.6 $100 - $130
Non-GAAP Metrics1
In millions except per share amounts
2016 Actual 2017 Guidance
Adjusted EBITDA$ 664.1 $639 - $672
Adjusted Operating Income 534.2 $500 - $532
Adjusted Net Income 256.9 $234 - $255
Adjusted Earnings per Share - Diluted 3.04 $2.76 - $3.00

“For 2017, including the negative impact of foreign currency exchange rates, we expect revenue in our conferencing and collaboration business to decrease 3-5 percent and revenue in our non-conferencing businesses to have mid- to high–single-digit growth. We expect double-digit growth in our UCaaS business; high-single-digit growth in Safety Services and Telecom Services; and mid- to high-single-digit growth in Interactive Services and Specialized Agent Services. Included across segments, we expect our healthcare practice to have high-single-digit growth,” said Tom Barker.

Conference Call
The Company will hold a conference call to discuss these topics on February 2, 2017 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 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 Dec. 31,
2016 2015 % Change
Revenue$ 567,380 $ 568,430 -0.2%
Cost of services 243,533 239,389 1.7%
Selling, general and administrative expenses 221,157 224,071 -1.3%
Operating income 102,690 104,970 -2.2%
Interest expense, net 35,290 38,411 -8.1%
Accelerated amortization of deferred financing costs 63 2,304 NM
Other expense (income), net 210 (1,178) NM
Income from continuing operations before tax 67,127 65,433 2.6%
Income tax (benefit) expense attributed to continuing operations (1,193) 23,093 NM
Income from continuing operations 68,320 42,340 61.4%
Income from discontinued operations, net of income taxes - 19,935 NM
Net income$ 68,320 $ 62,275 9.7%
Weighted average shares outstanding:
Basic 83,254 83,243
Diluted 84,967 84,809
Earnings per share - Basic:
Continuing operations$ 0.82 $ 0.51 60.8%
Discontinued operations - 0.24 NM
Total Earnings Per Share - Basic$ 0.82 $ 0.75 9.3%
Earnings per share - Diluted:
Continuing operations$ 0.80 $ 0.50 60.0%
Discontinued operations - 0.24 NM
Total Earnings Per Share - Diluted$ 0.80 $ 0.74 8.1%



SELECTED SEGMENT FINANCIAL DATA:
Three Months Ended Dec. 31,
2016 2015 % Change
Revenue:
Unified Communications Services$ 340,033 $ 357,780 -5.0%
Safety Services 75,672 72,863 3.9%
Interactive Services 79,339 71,332 11.2%
Specialized Agent Services 75,414 73,143 3.1%
Intersegment eliminations (3,078) (6,688) NM
Total$ 567,380 $ 568,430 -0.2%
Depreciation:
Unified Communications Services$ 17,128 $ 17,713 -3.3%
Safety Services 4,424 5,027 -12.0%
Interactive Services 4,360 3,978 9.6%
Specialized Agent Services 3,222 2,566 25.6%
Total$ 29,134 $ 29,284 -0.5%
Amortization:
Unified Communications Services - SG&A$ 2,910 $ 3,618 -19.6%
Safety Services - SG&A 3,625 5,436 -33.3%
Safety Services - COS 3,365 3,088 9.0%
Interactive Services - SG&A 5,306 4,512 17.6%
Specialized Agent Services - SG&A 4,605 5,411 -14.9%
Deferred financing costs 1,834 6,928 -73.5%
Total$ 21,645 $ 28,993 -25.3%
Share-based compensation:
Unified Communications Services$ 3,074 $ 3,399 -9.6%
Safety Services 865 973 -11.1%
Interactive Services 538 611 -11.9%
Specialized Agent Services 982 1,157 -15.1%
Total$ 5,459 $ 6,140 -11.1%
Cost of services:
Unified Communications Services$ 162,720 $ 163,296 -0.4%
Safety Services 24,379 27,441 -11.2%
Interactive Services 18,440 15,926 15.8%
Specialized Agent Services 39,603 37,400 5.9%
Intersegment eliminations (1,609) (4,674) NM
Total$ 243,533 $ 239,389 1.7%
Selling, general and administrative expenses:
Unified Communications Services$ 107,354 $ 106,302 1.0%
Safety Services 34,582 39,718 -12.9%
Interactive Services 51,831 48,786 6.2%
Specialized Agent Services 31,169 29,544 5.5%
Corporate Other (2,310) 1,735 NM
Intersegment eliminations (1,469) (2,014) NM
Total$ 221,157 $ 224,071 -1.3%
Operating income:
Unified Communications Services$ 69,959 $ 88,182 -20.7%
Safety Services 16,711 5,704 193.0%
Interactive Services 9,068 6,620 37.0%
Specialized Agent Services 4,642 6,199 -25.1%
Corporate Other 2,310 (1,735) NM
Total$ 102,690 $ 104,970 -2.2%
Operating margin:
Unified Communications Services 20.6% 24.6%
Safety Services 22.1% 7.8%
Interactive Services 11.4% 9.3%
Specialized Agent Services 6.2% 8.5%
Total 18.1% 18.5%
SELECTED FINANCIAL DATA:
Contribution
Changes in Revenue - 4Q16 compared to 4Q15: to Rev. Growth
Revenue for the three months ended Dec. 31, 2015$ 568,430
Revenue from acquired entities3 3,244 0.6%
Revenue from previously disclosed lost client (1,200) -0.2%
Estimated impact of foreign currency exchange rates (7,122) -1.3%
Adjusted organic growth, net5 4,028 0.7%
Revenue for the three months ended Dec. 31, 2016$ 567,380 -0.2%


WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except per share data)
Year Ended Dec. 31,
2016 2015 % Change
Revenue$ 2,291,963 $ 2,280,259 0.5%
Cost of services 981,788 970,693 1.1%
Selling, general and administrative expenses 865,961 853,116 1.5%
Operating income 444,214 456,450 -2.7%
Interest expense, net 148,279 154,068 -3.8%
Accelerated amortization of deferred financing costs 36,532 2,304 NM
Other expense (income), net (409) 1,405 NM
Income from continuing operations before tax 259,812 298,673 -13.0%
Income tax expense attributed to continuing operations 66,423 107,757 -38.4%
Income from continuing operations 193,389 190,916 1.3%
Income from discontinued operations, net of income taxes - 50,924 NM
Net income$ 193,389 $ 241,840 -20.0%
Weighted average shares outstanding:
Basic 82,969 83,420
Diluted 84,599 85,394
Earnings per share - Basic:
Continuing operations$ 2.33 $ 2.29 1.7%
Discontinued operations - 0.61 NM
Total Earnings Per Share - Basic$ 2.33 $ 2.90 -19.7%
Earnings per share - Diluted:
Continuing operations$ 2.29 $ 2.24 2.2%
Discontinued operations - 0.59 NM
Total Earnings Per Share - Diluted$ 2.29 $ 2.83 -19.1%
SELECTED SEGMENT FINANCIAL DATA:
Year Ended Dec. 31,
2016 2015 % Change
Revenue:
Unified Communications Services$ 1,425,281 $ 1,467,711 -2.9%
Safety Services 296,320 281,391 5.3%
Interactive Services 300,739 265,664 13.2%
Specialized Agent Services 281,542 276,983 1.6%
Intersegment eliminations (11,919) (11,490) NM
Total$ 2,291,963 $ 2,280,259 0.5%
Depreciation:
Unified Communications Services$ 69,371 $ 69,769 -0.6%
Safety Services 17,481 18,847 -7.2%
Interactive Services 16,390 14,385 13.9%
Specialized Agent Services 11,861 8,213 44.4%
Total$ 115,103 $ 111,214 3.5%
Amortization:
Unified Communications Services - SG&A$ 13,000 $ 13,414 -3.1%
Safety Services - SG&A 14,139 19,055 -25.8%
Safety Services - COS 13,048 12,592 3.6%
Interactive Services - SG&A 21,005 16,210 29.6%
Specialized Agent Services - SG&A 18,387 19,779 -7.0%
Deferred financing costs 48,342 21,945 120.3%
Total$ 127,921 $ 102,995 24.2%
Share-based compensation:
Unified Communications Services$ 14,330 $ 13,119 9.2%
Safety Services 4,061 3,697 9.8%
Interactive Services 2,533 2,328 8.8%
Specialized Agent Services 4,464 3,781 18.1%
Total$ 25,388 $ 22,925 10.7%
Cost of services:
Unified Communications Services$ 673,735 $ 673,475 0.0%
Safety Services 103,304 108,742 -5.0%
Interactive Services 68,348 59,125 15.6%
Specialized Agent Services 142,880 135,672 5.3%
Intersegment eliminations (6,479) (6,321) NM
Total$ 981,788 $ 970,693 1.1%
Selling, general and administrative expenses:
Unified Communications Services$ 424,351 $ 416,386 1.9%
Safety Services 138,313 150,241 -7.9%
Interactive Services 201,760 181,495 11.2%
Specialized Agent Services 122,224 110,843 10.3%
Corporate Other (15,247) (680) NM
Intersegment eliminations (5,440) (5,169) NM
Total$ 865,961 $ 853,116 1.5%
Operating income:
Unified Communications Services$ 327,195 $ 377,850 -13.4%
Safety Services 54,703 22,408 144.1%
Interactive Services 30,631 25,044 22.3%
Specialized Agent Services 16,438 30,468 -46.0%
Corporate Other 15,247 680 NM
Total$ 444,214 $ 456,450 -2.7%
Operating margin:
Unified Communications Services 23.0% 25.7%
Safety Services 18.5% 8.0%
Interactive Services 10.2% 9.4%
Specialized Agent Services 5.8% 11.0%
Total 19.4% 20.0%
SELECTED FINANCIAL DATA:
Contribution
Changes in Revenue - 2016 compared to 2015: to Rev. Growth
Revenue for the year 2015$ 2,280,259
Revenue from acquired entities3 24,194 1.1%
Revenue from two previously disclosed lost clients (45,700) -2.0%
Estimated impact of foreign currency exchange rates (18,546) -0.8%
Adjusted organic growth, net5 51,756 2.3%
Revenue for the year 2016$ 2,291,963 0.5%


WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31, December 31, %
2016 2015 Change
Assets:
Current assets:
Cash and cash equivalents$ 183,059 $ 182,338 0.4%
Trust and restricted cash 20,141 19,829 1.6%
Accounts receivable, net 369,068 373,087 -1.1%
Income taxes receivable 4,366 19,332 -77.4%
Prepaid assets 40,886 43,093 -5.1%
Deferred expenses 44,886 65,781 -31.8%
Other current assets 31,889 22,040 44.7%
Assets held for sale - 17,672 NM
Total current assets 694,295 743,172 -6.6%
Property and Equipment:
Property and equipment 1,088,205 1,053,678 3.3%
Accumulated depreciation and amortization (755,754) (718,834) 5.1%
Net property and equipment 332,451 334,844 -0.7%
Goodwill 1,916,192 1,915,690 0.0%
Intangible assets, net 315,474 370,021 -14.7%
Other assets 182,426 191,490 -4.7%
Total assets$ 3,440,838 $ 3,555,217 -3.2%
Liabilities and Stockholders' Deficit:
Current Liabilities:
Accounts payable$ 78,881 $ 92,935 -15.1%
Deferred revenue 151,148 161,828 -6.6%
Accrued expenses 224,871 219,234 2.6%
Current maturities of long-term debt 39,709 24,375 62.9%
Total current liabilities 494,609 498,372 -0.8%
Long-term obligations 3,129,963 3,318,688 -5.7%
Deferred income taxes 88,864 104,222 -14.7%
Other long-term liabilities 169,251 186,073 -9.0%
Total liabilities 3,882,687 4,107,355 -5.5%
Stockholders' Deficit:
Common stock 86 85 1.2%
Additional paid-in capital 2,223,379 2,193,193 1.4%
Retained deficit (2,490,455) (2,607,415) -4.5%
Accumulated other comprehensive loss (87,633) (72,736) 20.5%
Treasury stock at cost (87,226) (65,265) 33.6%
Total stockholders' deficit (441,849) (552,138) -20.0%
Total liabilities and stockholders' deficit$ 3,440,838 $ 3,555,217 -3.2%

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.

Please note: Adjustments were made to third quarter 2016 M&A and acquisition-related costs for the Safety Services and Specialized Agent Services segments. On a consolidated basis, these adjustments totaled $0.1 million. Full year results shown in the tables below reflect these adjustments.

Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
Three Months Ended Dec. 31,
Consolidated: 2016 2015 % Change
Operating income$ 102,690 $ 104,970 -2.2%
Amortization of acquired intangible assets 16,446 18,977 -13.3%
Share-based compensation 5,459 6,140 -11.1%
Secondary equity offering expense - (186) NM
Significant restructuring 8,423 - NM
Gain on sale of real estate (1,101) - NM
M&A and acquisition-related costs 375 1,097 -65.8%
Adjusted operating income$ 132,292 $ 130,998 1.0%
Adjusted operating income margin 23.3% 23.0%
Unified Communications Services:
Operating income$ 69,959 $ 88,182 -20.7%
Amortization of acquired intangible assets 2,910 3,618 -19.6%
Share-based compensation 3,074 3,399 -9.6%
Secondary equity offering expense - (94) NM
Significant restructuring 5,482 - NM
M&A and acquisition-related costs 347 483 -28.2%
Adjusted operating income$ 81,772 $ 95,588 -14.5%
Adjusted operating income margin 24.0% 26.7%
Safety Services:
Operating income$ 16,711 $ 5,704 193.0%
Amortization of acquired intangible assets 3,625 5,436 -33.3%
Share-based compensation 865 973 -11.1%
Secondary equity offering expense - (59) NM
Significant restructuring 2,373 - NM
M&A and acquisition-related costs 80 - NM
Adjusted operating income$ 23,654 $ 12,054 96.2%
Adjusted operating income margin 31.3% 16.5%
Interactive Services:
Operating income$ 9,068 $ 6,620 37.0%
Amortization of acquired intangible assets 5,306 4,512 17.6%
Share-based compensation 538 611 -11.9%
Secondary equity offering expense - (13) NM
Significant restructuring 97 - NM
M&A and acquisition-related costs (52) 612 NM
Adjusted operating income$ 14,957 $ 12,342 21.2%
Adjusted operating income margin 18.9% 17.3%
Specialized Agent Services:
Operating income$ 4,642 $ 6,199 -25.1%
Amortization of acquired intangible assets 4,605 5,411 -14.9%
Share-based compensation 982 1,157 -15.1%
Secondary equity offering expense - (19) NM
Significant restructuring 433 - NM
Adjusted operating income$ 10,662 $ 12,748 -16.4%
Adjusted operating income margin 14.1% 17.4%
Corporate Other:
Operating income (loss)$ 2,310 $ (1,735)
Secondary equity offering expense - (1)
Gain on sale of real estate (1,101) -
Significant restructuring 38 -
M&A and acquisition-related costs - 2
Adjusted operating income (loss)$ 1,247 $ (1,734)


Reconciliation of Adjusted Operating Income from Operating Income
Unaudited, in thousands
Year Ended Dec. 31,
Consolidated: 2016 2015 % Change
Operating income$ 444,214 $ 456,450 -2.7%
Amortization of acquired intangible assets 66,531 68,458 -2.8%
Share-based compensation 25,388 22,925 10.7%
Secondary equity offering expense - 855 NM
Significant restructuring 8,423 - NM
Gain on sale of real estate (14,064) - NM
M&A and acquisition-related costs 3,745 3,074 21.8%
Adjusted operating income$ 534,237 $ 551,762 -3.2%
Adjusted operating income margin 23.3% 24.2%
Unified Communications Services:
Operating income$ 327,195 $ 377,850 -13.4%
Amortization of acquired intangible assets 13,000 13,414 -3.1%
Share-based compensation 14,330 13,119 9.2%
Secondary equity offering expense - 153 NM
Significant restructuring 5,482 - NM
M&A and acquisition-related costs 1,659 485 NM
Adjusted operating income$ 361,666 $ 405,021 -10.7%
Adjusted operating income margin 25.4% 27.6%
Safety Services:
Operating income$ 54,703 $ 22,408 144.1%
Amortization of acquired intangible assets 14,139 19,055 -25.8%
Share-based compensation 4,061 3,697 9.8%
Secondary equity offering expense - 19 NM
Significant restructuring 2,373 - NM
M&A and acquisition-related costs 3,653 - NM
Adjusted operating income$ 78,929 $ 45,179 74.7%
Adjusted operating income margin 26.6% 16.1%
Interactive Services:
Operating income$ 30,631 $ 25,044 22.3%
Amortization of acquired intangible assets 21,005 16,210 29.6%
Share-based compensation 2,533 2,328 8.8%
Secondary equity offering expense - 22 NM
Significant restructuring 97 - NM
M&A and acquisition-related costs 2,122 2,353 -9.8%
Adjusted operating income$ 56,388 $ 45,957 22.7%
Adjusted operating income margin 18.7% 17.3%
Specialized Agent Services:
Operating income$ 16,438 $ 30,468 -46.0%
Amortization of acquired intangible assets 18,387 19,779 -7.0%
Share-based compensation 4,464 3,781 18.1%
Secondary equity offering expense - 31 NM
Significant restructuring 433 - NM
M&A and acquisition-related costs (3,689) 150 NM
Adjusted operating income$ 36,033 $ 54,209 -33.5%
Adjusted operating income margin 12.8% 19.6%
Corporate Other:
Operating income$ 15,247 $ 680
Secondary equity offering expense - 630
Gain on sale of real estate (14,064) -
Significant restructuring 38 -
M&A and acquisition-related costs - 86
Adjusted operating income$ 1,221 $ 1,396

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, significant restructuring 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.

Please note: Adjustments were made to third quarter 2016 M&A and acquisition-related costs for the Safety Services and Specialized Agent Services segments. On a consolidated basis, these adjustments totaled $0.1 million. Full year results shown in the tables below reflect these adjustments.

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 Dec. 31,
2016 2015 % Change
Income from continuing operations$ 68,320 $ 42,340 61.4%
Amortization of acquired intangible assets 16,446 18,977
Amortization of deferred financing costs 1,834 6,928
Interest rate swap ineffectiveness (1,130) -
Share-based compensation 5,459 6,140
Secondary equity offering expense - (186)
Gain on sale of real estate (1,101) -
Significant restructuring 8,423 -
M&A and acquisition-related costs 375 1,097
Pre-tax total 30,306 32,956
Income tax expense on adjustments 11,049 11,630
Foreign entity restructuring tax benefit (23,046) -
Adjusted income from continuing operations$ 64,531 $ 63,666 1.4%
Diluted shares outstanding 84,967 84,809
Adjusted EPS from continuing operations - diluted$ 0.76 $ 0.75 1.3%
DISCONTINUED OPERATIONS Three Months Ended Dec. 31,
2016 2015
Income from discontinued operations$ - $ 19,935
Adjusted income from discontinued operations$ - $ 19,935
Diluted shares outstanding 84,967 84,809
Adjusted EPS from discontinued operations - diluted$ - $ 0.24
CONSOLIDATED Three Months Ended Dec. 31,
2016 2015 % Change
Net income$ 68,320 $ 62,275 9.7%
Amortization of acquired intangible assets 16,446 18,977
Amortization of deferred financing costs 1,834 6,928
Interest rate swap ineffectiveness (1,130) -
Share-based compensation 5,459 6,140
Secondary equity offering expense - (186)
Gain on sale of real estate (1,101) -
Significant restructuring 8,423 -
M&A and acquisition-related costs 375 1,097
Pre-tax total 30,306 32,956
Income tax expense on adjustments 11,049 11,630
Foreign entity restructuring tax benefit (23,046) -
Adjusted net income $ 64,531 $ 83,601 -22.8%
Diluted shares outstanding 84,967 84,809
Adjusted EPS - diluted$ 0.76 $ 0.99 -23.2%


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 Year Ended Dec. 31,
2016 2015 % Change
Income from continuing operations$ 193,389 $ 190,916 1.3%
Amortization of acquired intangible assets 66,531 68,458
Amortization of deferred financing costs 48,342 21,945
Interest rate swap ineffectiveness (1,130) -
Share-based compensation 25,388 22,925
Secondary equity offering expense - 855
Gain on sale of real estate (14,064) -
Significant restructuring 8,423 -
M&A and acquisition-related costs 3,745 3,074
Pre-tax total 137,235 117,257
Income tax expense on adjustments 50,634 42,306
Foreign entity restructuring tax benefit (23,046) -
Adjusted income from continuing operations$ 256,944 $ 265,867 -3.4%
Diluted shares outstanding 84,599 85,394
Adjusted EPS from continuing operations - diluted$ 3.04 $ 3.11 -2.3%
DISCONTINUED OPERATIONS Year Ended Dec. 31,
2016 2015
Income from discontinued operations$ - $ 50,924
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 - (15)
Adjusted income from discontinued operations$ - $ 52,942
Diluted shares outstanding 84,599 85,394
Adjusted EPS from discontinued operations - diluted$ - $ 0.62
CONSOLIDATED Year Ended Dec. 31,
2016 2015 % Change
Net income$ 193,389 $ 241,840 -20.0%
Amortization of acquired intangible assets 66,531 68,499
Amortization of deferred financing costs 48,342 21,945
Interest rate swap ineffectiveness (1,130) -
Share-based compensation 25,388 24,501
Secondary equity offering expense - 855
Gain on sale of real estate (14,064) -
Significant restructuring 8,423 -
M&A and acquisition-related costs 3,745 3,460
Pre-tax total 137,235 119,260
Income tax expense on adjustments 50,634 42,291
Foreign entity restructuring tax benefit (23,046) -
Adjusted net income $ 256,944 $ 318,809 -19.4%
Diluted shares outstanding 84,599 85,394
Adjusted EPS - diluted$ 3.04 $ 3.73 -18.5%

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 Dec. 31, Year Ended Dec. 31,
2016 2015 % Change 2016 2015 % Change
Cash flows from operating activities$ 126,673 $ 127,547 -0.7% $ 428,275 $ 410,768 4.3%
Cash capital expenditures 27,278 40,628 -32.9% 126,581 136,810 -7.5%
Free cash flow$ 99,395 $ 86,919 14.4% $ 301,694 $ 273,958 10.1%
DISCONTINUED OPERATIONS Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Cash flows from (used in) operating activities $ - $ 15,419 $ - $ 7,222
Cash capital expenditures - - - 1,930
Free cash flow$ - $ 15,419 $ - $ 5,292
CONSOLIDATED Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 % Change 2016 2015 % Change
Cash flows from operating activities$ 126,673 $ 142,966 -11.4% $ 428,275 $ 417,990 2.5%
Cash capital expenditures 27,278 40,628 -32.9% 126,581 138,740 -8.8%
Free cash flow$ 99,395 $ 102,338 -2.9% $ 301,694 $ 279,250 8.0%


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.

Please note: Adjustments were made to third quarter 2016 M&A and acquisition-related costs for the Safety Services and Specialized Agent Services segments. On a consolidated basis, these adjustments totaled $0.1 million. Full year results shown in the tables below reflect these adjustments.

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow
Unaudited, in thousands
CONTINUING OPERATIONS Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Cash flows from operating activities$ 126,673 $ 127,547 $ 428,275 $ 410,768
Income tax expense (benefit) (1,193) 23,093 66,423 107,757
Deferred income tax benefit (expense) 14,828 (14,888) 30,211 (8,930)
Interest expense and other financing charges 35,685 41,236 186,160 158,356
Provision for share-based compensation (5,459) (6,140) (25,388) (22,925)
Amortization of deferred financing costs (1,834) (6,928) (48,342) (21,945)
Gain on sale of real estate 1,101 - 14,064 -
Other (322) (448) (1,512) (672)
Changes in operating assets and liabilities,
net of business acquisitions (17,722) (5,454) (9,237) 26,884
EBITDA 151,757 158,018 640,654 649,293
Provision for share-based compensation 5,459 6,140 25,388 22,925
Secondary equity offering expense - (186) - 855
Gain on sale of real estate (1,101) - (14,064) -
Significant restructuring 8,423 - 8,423 -
M&A and acquisition-related costs 375 1,097 3,745 3,074
Adjusted EBITDA$ 164,913 $ 165,069 $ 664,146 $ 676,147
Cash flows from operating activities$ 126,673 $ 127,547 $ 428,275 $ 410,768
Cash flows used in investing activities$ (41,196) $ (118,651) $ (108,263) $ (232,433)
Cash flows used in financing activities$ (88,376) $ (23,453) $ (311,911) $ (388,243)
DISCONTINUED OPERATIONS Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Cash flows from operating activities$ - $ 15,419 $ - $ 7,222
Income tax expense - (19,717) - (372)
Deferred income tax expense - 4,516 - 2,223
Provision for share-based compensation - - - (1,576)
Other - - - 29,596
Changes in operating assets and liabilities,
net of business acquisitions - - - 13,500
EBITDA - 218 - 50,593
Provision for share-based compensation - - - 1,576
M&A and acquisition-related costs - - - 386
Gain on sale of business - (182) - (46,838)
Adjusted EBITDA$ - $ 36 $ - $ 5,717
Cash flows used in operating activities$ - $ 15,419 $ - $ 7,222
Cash flows from investing activities$ - $ - $ - $ 275,815
Cash flows used in financing activities$ - $ - $ - $ -
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.
CONSOLIDATED Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Cash flows from operating activities$ 126,673 $ 142,966 $ 428,275 $ 417,990
Income tax expense (benefit) (1,193) 3,376 66,423 107,385
Deferred income tax expense 14,828 (10,372) 30,211 (6,707)
Interest expense and other financing charges 35,685 41,236 186,160 158,356
Provision for share-based compensation (5,459) (6,140) (25,388) (24,501)
Amortization of deferred financing costs (1,834) (6,928) (48,342) (21,945)
Gain on sale of real estate 1,101 - 14,064 -
Other (322) (448) (1,512) 28,924
Changes in operating assets and liabilities,
net of business acquisitions (17,722) (5,454) (9,237) 40,384
EBITDA 151,757 158,236 640,654 699,886
Provision for share-based compensation 5,459 6,140 25,388 24,501
Secondary equity offering expense - (186) - 855
Gain on sale of real estate (1,101) - (14,064) -
Significant restructuring 8,423 - 8,423 -
M&A and acquisition-related costs 375 1,097 3,745 3,460
Gain on sale of business - (182) - (46,838)
Adjusted EBITDA$ 164,913 $ 165,105 $ 664,146 $ 681,864
CONSOLIDATED
Cash flows from operating activities$ 126,673 $ 142,966 $ 428,275 $ 417,990
Cash flows from (used in) investing activities$ (41,196) $ (118,651) $ (108,263) $ 43,382
Cash flows used in financing activities$ (88,376) $ (23,453) $ (311,911) $ (388,243)


Reconciliation of EBITDA and Adjusted EBITDA from Net Income
Unaudited, in thousands
CONTINUING OPERATIONS Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Income from continuing operations$ 68,320 $ 42,340 $ 193,389 $ 190,916
Interest expense and other financing charges 35,685 41,236 186,160 158,356
Depreciation and amortization 48,945 51,349 194,682 192,264
Income tax expense (benefit) (1,193) 23,093 66,423 107,757
EBITDA 151,757 158,018 640,654 649,293
Provision for share-based compensation 5,459 6,140 25,388 22,925
Secondary equity offering expense - (186) - 855
Gain on sale of real estate (1,101) - (14,064) -
Significant restructuring 8,423 - 8,423 -
M&A and acquisition-related costs 375 1,097 3,745 3,074
Adjusted EBITDA$ 164,913 $ 165,069 $ 664,146 $ 676,147
DISCONTINUED OPERATIONS Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Income from discontinued operations$ - $ 19,935 $ - $ 50,924
Depreciation and amortization - - - 41
Income tax expense - (19,717) - (372)
EBITDA - 218 - 50,593
Provision for share-based compensation - - - 1,576
M&A and acquisition-related costs - - - 386
Gain on sale of business - (182) - (46,838)
Adjusted EBITDA$ - $ 36 $ - $ 5,717
CONSOLIDATED Three Months Ended Dec. 31, Year Ended Dec. 31,
2016 2015 2016 2015
Net income$ 68,320 $ 62,275 $ 193,389 $ 241,840
Interest expense and other financing charges 35,685 41,236 186,160 158,356
Depreciation and amortization 48,945 51,349 194,682 192,305
Income tax expense (benefit) (1,193) 3,376 66,423 107,385
EBITDA 151,757 158,236 640,654 699,886
Provision for share-based compensation 5,459 6,140 25,388 24,501
Secondary equity offering expense - (186) - 855
Gain on sale of real estate (1,101) - (14,064) -
Significant restructuring 8,423 - 8,423 -
M&A and acquisition-related costs 375 1,097 3,745 3,460
Gain on sale of business - (182) - (46,838)
Adjusted EBITDA$ 164,913 $ 165,105 $ 664,146 $ 681,864

Non-GAAP Metrics used in 2017 Guidance

Ranges are shown for each line item. Totals may not foot.

In millions except per share amounts
Reconciliation of Adjusted EBITDA from Operating Income
2017 Guidance
Min (low) Max (high)
Operating income$ 413 - $ 446
Depreciation and amortization 195 - 196
Other income 2 - 2
EBITDA$ 610 - $ 644
Provision for share-based compensation 27 - 27
M&A and acquisition-related costs 2 - 2
Adjusted EBITDA$ 639 - $ 672
Reconciliation of Adj. Operating Income from Operating Income
2017 Guidance
Min (low) Max (high)
Operating income$ 413 - $ 446
Amortization of acquired intangible assets 57 - 57
Provision for share-based compensation 27 - 27
M&A and acquisition-related costs 2 - 2
Adjusted operating income$ 500 - $ 532
Reconciliation of Adj. Net Income and Adj. EPS from Net Income
2017 Guidance
Min (low) Max (high)
Net income$ 175 - $ 196
Amortization of acquired intangible assets 57 - 57
Amortization of deferred financing costs 8 - 8
Provision for share-based compensation 27 - 27
M&A and acquisition-related costs 2 - 2
Pre-tax total 269 - 290
Income tax expense on adjustments (35) - (35)
Adjusted net income $ 234 - $ 255
Adjusted EPS - diluted$ 2.76 - $ 3.00

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 fourth quarter of 2016 includes Magnetic North, ClientTell, Synrevoice and 911 ETC. Revenue growth attributable to acquired entities for the full year 2016 includes SharpSchool, Magnetic North, ClientTell, Synrevoice and 911 ETC.
4 Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.
5 Adjusted organic growth, a non-GAAP metric, 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 growth provides a useful measure of growth in its ongoing business. Details of the Company’s revenue growth are presented in the Selected Financial Data table.
NM: Not Meaningful

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

Source:West Corporation