WEST CORP - FORM 8-K - EX-99.1

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8-K - 8-K - WEST CORP	d859732d8k.htm

Exhibit 99.1

LOGO


West Corporation		AT THE COMPANY:
11808 Miracle Hills Drive		David Pleiss
Omaha, NE 68154		Investor Relations
		(402) 963-1500
		dmpleiss@west.com

West Corporation Reports Fourth Quarter and Full Year 2014 Results

and Provides 2015 Guidance

Company Declares Quarterly Dividend

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

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

Key Quarterly Highlights:


*Unaudited, in millions except per share amounts*	HISTORICAL (1)
	Three Months Ended Dec. 31,									Twelve Months Ended Dec. 31,
	2014			2013			% Change			2014			2013			% Change
Consolidated Revenue	$	716.2		$	687.6			4.2	%	$	2,796.7		$	2,685.9			4.1	%
Platform-based Revenue²		497.0			495.8			0.2	%		2,001.4			1,955.2			2.4	%
Adjusted EBITDA⁴		187.0			178.4			4.8	%		715.4			704.4			1.5	%
EBITDA⁴		179.2			175.8			2.0	%		694.2			664.7			4.4	%
Adjusted Operating Income⁴		151.3			144.9			4.4	%		573.9			575.3			-0.2	%
Operating Income		119.4			128.8			-7.3	%		484.1			480.2			0.8	%
Adjusted Net Income⁴		99.3			63.6			56.0	%		285.2			229.3			24.3	%
Net Income		48.3			50.3			-4.1	%		158.4			143.2			10.6	%
Adjusted Earnings per Share - Diluted⁴		1.15			0.75			53.3	%		3.33			2.86			16.4	%
Earnings per Share - Diluted		0.56			0.59			-5.1	%		1.85			1.78			3.9	%
Free Cash Flow^4,5		95.4			66.9			42.6	%		312.0			255.7			22.0	%
Cash Flows from Operations		132.5			107.4			23.4	%		462.7			384.1			20.5	%
Cash Flows used in Investing		(43.8	)		(46.3	)		NM			(544.9	)		(135.5	)		NM
Cash Flows used in Financing		(135.9	)		(42.7	)		NM			(25.0	)		(196.8	)		NM

	CONTINUING OPERATIONS
*Unaudited, in millions except per share amounts*	Three Months Ended Dec. 31,									Twelve Months Ended Dec. 31,
*Unaudited, in millions except per share amounts*	2014			2013			% Change			2014			2013			% Change
Consolidated Revenue	$	562.9		$	537.0			4.8	%	$	2,218.6		$	2,121.0			4.6	%
Adjusted EBITDA⁴		173.4			163.7			5.9	%		668.3			655.6			1.9	%
EBITDA⁴		167.0			161.1			3.7	%		649.2			616.1			5.4	%
Adjusted Operating Income⁴		141.2			134.5			4.9	%		541.5			544.1			-0.5	%
Operating Income		116.7			119.0			-1.9	%		461.4			451.3			2.2	%
Adjusted Net Income⁴		68.1			55.4			22.9	%		247.2			207.7			19.0	%
Net Income		34.9			42.5			-18.0	%		134.6			123.1			9.4	%
Adjusted Earnings per Share - Diluted⁴		0.79			0.65			21.5	%		2.89			2.59			11.6	%
Earnings per Share - Diluted		0.41			0.50			-18.0	%		1.57			1.53			2.6	%
Free Cash Flow^4,5											279.2			204.5			36.5	%
Cash Flows from Operations											409.5			318.8			28.5	%
Cash Flows used in Investing											(524.4	)		(121.9	)		NM
Cash Flows used in Financing											(25.0	)		(196.8	)		NM

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

Dividend

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

Consolidated Operating Results (Historical¹)

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

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

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

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

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

Adjusted net income⁴ was $99.3 million in the fourth quarter of 2014, an increase of 56.0 percent from the same quarter of 2013. Net income decreased 4.1 percent to $48.3 million in the fourth quarter of 2014, compared to $50.3 million in the same quarter of 2013. This decrease was mainly due to $21.6 million of debt call premium and accelerated amortization of deferred financing costs associated with

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

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

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

⁴	See Reconciliation of Non-GAAP Financial Measures below.

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

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

the Company’s November 15, 2014 redemption of its 7.875 percent Senior Notes due 2019 (the “2019 Notes”). In 2014, adjusted net income was $285.2 million, an increase of 24.3 percent compared to 2013. Net income in 2014 was $158.4 million compared to net income of $143.2 million in 2013, an increase of 10.6 percent. The improvement in profitability was driven by higher operating income and lower effective income tax rates.

Consolidated Operating Results (Continuing Operations)

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

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

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

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

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

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

Balance Sheet, Cash Flow and Liquidity

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

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

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

Cash flows from operations on a historical¹ basis were $462.7 million for the twelve months ended December 31, 2014 compared to $384.1 million in 2013. Free cash flow^4,5 on a historical¹ basis increased 22.0 percent to $312.0 million in 2014 compared to $255.7 million in 2013.

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

Cash flows from operations on a continuing operations basis were $409.5 million for the twelve months ended December 31, 2014 compared to $318.8 million in 2013. Free cash flow^4,5 on a continuing operations basis increased 36.5 percent to $279.2 million in 2014 compared to $204.5 million in 2013.

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

Acquisitions

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

2015 Guidance

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

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

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

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

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

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

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


*In millions except per share and leverage ratio*	CONTINUING OPERATIONS
*In millions except per share and leverage ratio*	2014 Actual		2015 Guidance		Growth
Consolidated Revenue	$	2,218.6		$2,295 - $2,340	3.4% - 5.5%
Adjusted Operating Income⁴	$	541.5		$536 - $560	-1.0% - 3.4%
Operating Income	$	461.4		$445 - $470	-3.6% - 1.9%
Adjusted Net Income⁴	$	247.2		$257 - $267	4.0% - 8.0%
Net Income	$	134.6		$190 - $200	41.1% - 48.6%
Adjusted Earnings per Share - Diluted⁴	$	2.89		$2.96 - $3.08	2.4% - 6.6%
Earnings per Share - Diluted	$	1.57		$2.20 - $2.31	40.1% - 47.1%
Cash Flows from Operations	$	409.5		$420 - $460	2.6% - 12.3%
Capital Expenditures	$	136.3		$150 - $170	10.1% - 24.7%
Free Cash Flow^4,5	$	279.2		$270 - $300	-3.3% - 7.5%
Net Debt to pro forma Adjusted EBITDA ratio⁶		4.59x		4.30x - 4.50x
Full year average diluted share count		85.5		86.6 - 86.8

Company will report actual EBITDA and Adjusted EBITDA for 2015
	2014 Actual		2015 Guidance		Growth
Adjusted EBITDA⁴	$	668.3	$	680 - $703	1.8% - 5.2%
EBITDA⁴	$	649.2	$	653 - $678	0.6% - 4.4%

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

Conference Call

The Company will hold a conference call to discuss these topics on Thursday, January 29, 2015 at 11:00 AM Eastern Time (10:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company’s website at www.west.com.

About West Corporation

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

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

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue” or similar terminology. The statements contained in the 2015 guidance and other statements concerning the Company’s prospects are forward-looking statements. These statements reflect only

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

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

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)


	HISTORICAL (1) Three Months Ended December 31,												CONTINUING OPERATIONS Three Months Ended December 31,
	2014 Actual			2013 Actual			% Change			2014 Adjusted (4)			2014 Actual			2013 Actual			% Change			2014 Adjusted (4)
Revenue	$	716,243		$	687,570			4.2	%	$	716,243		$	562,938		$	536,954			4.8	%	$	562,938
Cost of services		333,888			329,040			1.5	%		333,888			234,419			230,699			1.6	%		234,419
Selling, general and administrative expenses		262,984			229,770			14.5	%		231,027			211,809			187,302			13.1	%		187,341

Operating income		119,371			128,760			-7.3	%		151,328			116,710			118,953			-1.9	%		141,178
Interest expense, net		42,911			51,296			-16.3	%		37,836			42,911			51,296			-16.3	%		37,836
Debt call premium and accelerated amortization of deferred financing costs		21,574			—			NM			—			21,574			—			NM			—
Other expense (income), net		(569	)		(703	)		NM			(569	)		(1,493	)		(683	)		NM			(1,493	)

Income before tax		55,455			78,167			-29.1	%		114,061			53,718			68,340			-21.4	%		104,835
Income tax expense		7,197			27,836			-74.1	%		14,804			18,834			25,798			-27.0	%		36,755

Net income	$	48,258		$	50,331			-4.1	%	$	99,257		$	34,884		$	42,542			-18.0	%	$	68,080


Weighted average shares outstanding:
Basic		84,178			83,627						84,178			84,178			83,627						84,178
Diluted		86,033			85,088						86,033			86,033			85,088						86,033

Earnings per share:
Basic	$	0.57		$	0.60			-5.0	%	$	1.18		$	0.41		$	0.51			-19.6	%	$	0.81
Diluted	$	0.56		$	0.59			-5.1	%	$	1.15		$	0.41		$	0.50			-18.0	%	$	0.79

SELECTED SEGMENT DATA:
Revenue:
Unified Communications	$	395,449		$	403,150			-1.9	%				$	395,449		$	403,150			-1.9	%
Communication Services		336,301			298,841			12.5	%					180,782			145,777			24.0	%
Intersegment eliminations		(15,507	)		(14,421	)		NM						(13,293	)		(11,973	)		NM

Total	$	716,243		$	687,570			4.2	%				$	562,938		$	536,954			4.8	%


Depreciation:
Unified Communications	$	19,901		$	18,841			5.6	%				$	19,901		$	18,841			5.6	%
Communication Services		12,595			10,686			17.9	%					8,285			6,341			30.7	%

Total	$	32,496		$	29,527			10.1	%				$	28,186		$	25,182			11.9	%


Amortization:
Unified Communications - SG&A	$	7,424		$	6,337			17.2	%				$	7,424		$	6,337			17.2	%
Communication Services - COS		3,221			2,676			20.4	%					3,221			2,676			20.4	%
Communication Services - SG&A		16,807			7,166			134.5	%					10,616			6,660			59.4	%
Corporate - deferred financing costs		5,075			4,536			11.9	%					5,075			4,536			11.9	%
Corporate - accelerated amortization of deferred financing costs		3,853			—			NM						3,853			—			NM

Total	$	36,380		$	20,715			75.6	%				$	30,189		$	20,209			49.4	%


Share-based Compensation
Unified Communications	$	3,069		$	1,310			134.3	%				$	3,069		$	1,310			134.3	%
Communication Services		2,480			1,091			127.3	%					2,450			1,044			134.7	%

Total	$	5,549		$	2,401			131.1	%				$	5,519		$	2,354			134.5	%


Cost of services:
Unified Communications	$	164,946		$	170,143			-3.1	%				$	164,946		$	170,143			-3.1	%
Communication Services		182,279			171,839			6.1	%					80,836			71,321			13.3	%
Intersegment eliminations		(13,337	)		(12,942	)		NM						(11,363	)		(10,765	)		NM

Total	$	333,888		$	329,040			1.5	%				$	234,419		$	230,699			1.6	%


Selling, general and administrative expenses:
Unified Communications	$	137,650		$	132,555			3.8	%				$	138,968		$	133,256			4.3	%
Communication Services		127,504			98,694			29.2	%					74,771			55,254			35.3	%
Intersegment eliminations		(2,170	)		(1,479	)		NM						(1,930	)		(1,208	)		NM

Total	$	262,984		$	229,770			14.5	%				$	211,809		$	187,302			13.1	%


Operating income:
Unified Communications	$	92,853		$	100,452			-7.6	%	$	104,062		$	91,535		$	99,751			-8.2	%	$	102,744
Communication Services		26,518			28,308			-6.3	%		47,266			25,175			19,202			31.1	%		38,434

Total	$	119,371		$	128,760			-7.3	%	$	151,328		$	116,710		$	118,953			-1.9	%	$	141,178


Operating margin:
Unified Communications		23.5	%		24.9	%					26.3	%		23.1	%		24.7	%					26.0	%
Communication Services		7.9	%		9.5	%					14.1	%		13.9	%		13.2	%					21.3	%

Total		16.7	%		18.7	%					21.1	%		20.7	%		22.2	%					25.1	%


SELECTED OPERATING DATA²:
Revenue from platform-based services	$	496,988		$	495,807			0.2	%				$	496,988		$	495,807			0.2	%
Revenue from agent services	$	223,665		$	195,623			14.3	%				$	68,146		$	42,559			60.1	%

NM: Not Meaningful

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)


	HISTORICAL (1) Twelve Months Ended December 31,												CONTINUING OPERATIONS Twelve Months Ended December 31,
	2014 Actual			2013 Actual			% Change			2014 Adjusted (4)			2014 Actual			2013 Actual			% Change			2014 Adjusted (4)
Revenue	$	2,796,659		$	2,685,855			4.1	%	$	2,796,659		$	2,218,594		$	2,120,972			4.6	%	$	2,218,594
Cost of services		1,319,716			1,260,579			4.7	%		1,319,716			943,331			894,628			5.4	%		943,331
Selling, general and administrative expenses		992,851			945,062			5.1	%		903,022			813,856			775,050			5.0	%		733,797

Operating income		484,092			480,214			0.8	%		573,921			461,407			451,294			2.2	%		541,466
Interest expense, net		187,834			232,606			-19.2	%		167,799			187,834			232,606			-19.2	%		167,799
Debt call premium and accelerated amortization of deferred financing costs		73,309			23,105			217.3	%		—			73,309			23,105			217.3	%		—
Other expense (income), net		(5,966	)		(2,258	)		NM			(5,966	)		(7,026	)		(2,159	)		NM			(7,026	)

Income before tax		228,915			226,761			0.9	%		412,088			207,290			197,742			4.8	%		380,693
Income tax expense		70,510			83,559			-15.6	%		126,927			72,679			74,651			-2.6	%		133,471

Net income	$	158,405		$	143,202			10.6	%	$	285,161		$	134,611		$	123,091			9.4	%	$	247,222


Weighted average shares outstanding:
Basic		84,007			78,875						84,007			84,007			78,875						84,007
Diluted		85,507			80,318						85,507			85,507			80,318						85,507

Earnings per share:
Basic	$	1.89		$	1.82			3.8	%	$	3.39		$	1.60		$	1.56			2.6	%	$	2.94
Diluted	$	1.85		$	1.78			3.9	%	$	3.33		$	1.57		$	1.53			2.6	%	$	2.89

SELECTED SEGMENT DATA:
Revenue:
Unified Communications	$	1,616,777		$	1,603,311			0.8	%				$	1,616,777		$	1,603,311			0.8	%
Communication Services		1,239,437			1,119,809			10.7	%					653,571			545,850			19.7	%
Intersegment eliminations		(59,555	)		(37,265	)		NM						(51,754	)		(28,189	)		NM

Total	$	2,796,659		$	2,685,855			4.1	%				$	2,218,594		$	2,120,972			4.6	%


Depreciation:
Unified Communications	$	77,838		$	72,388			7.5	%				$	77,838		$	72,388			7.5	%
Communication Services		45,150			42,311			6.7	%					29,465			24,720			19.2	%

Total	$	122,988		$	114,699			7.2	%				$	107,303		$	97,108			10.5	%


Amortization:
Unified Communications - SG&A	$	28,873		$	26,488			9.0	%				$	28,873		$	26,488			9.0	%
Communication Services - COS		12,216			10,247			19.2	%					12,216			10,247			19.2	%
Communication Services - SG&A		39,845			28,850			38.1	%					32,145			26,826			19.8	%
Corporate - deferred financing costs		20,035			18,246			9.8	%					20,035			18,246			9.8	%
Corporate - accelerated amortization of deferred financing costs		11,601			6,603			75.7	%					11,601			6,603			75.7	%

Total	$	112,570		$	90,434			24.5	%				$	104,870		$	88,410			18.6	%


Share-based Compensation
Unified Communications	$	8,739		$	5,877			48.7	%				$	8,739		$	5,877			48.7	%
Communication Services		6,989			4,678			49.4	%					6,835			4,506			51.7	%

Total	$	15,728		$	10,555			49.0	%				$	15,574		$	10,383			50.0	%


Cost of services:
Unified Communications	$	680,916		$	663,835			2.6	%				$	680,916		$	663,835			2.6	%
Communication Services		691,251			628,872			9.9	%					307,765			255,004			20.7	%
Intersegment eliminations		(52,451	)		(32,128	)		NM						(45,350	)		(24,211	)		NM

Total	$	1,319,716		$	1,260,579			4.7	%				$	943,331		$	894,628			5.4	%


Selling, general and administrative expenses:
Unified Communications	$	550,822		$	539,655			2.1	%				$	555,129		$	545,791			1.7	%
Communication Services		449,133			410,544			9.4	%					265,131			233,237			13.7	%
Intersegment eliminations		(7,104	)		(5,137	)		NM						(6,404	)		(3,978	)		NM

Total	$	992,851		$	945,062			5.1	%				$	813,856		$	775,050			5.0	%


Operating income:
Unified Communications	$	385,039		$	399,821			-3.7	%	$	425,131		$	380,732		$	393,685			-3.3	%	$	420,823
Communication Services		99,053			80,393			23.2	%		148,790			80,675			57,609			40.0	%		120,643

Total	$	484,092		$	480,214			0.8	%	$	573,921		$	461,407		$	451,294			2.2	%	$	541,466


Operating margin:
Unified Communications		23.8	%		24.9	%					26.3	%		23.5	%		24.6	%					26.0	%
Communication Services		8.0	%		7.2	%					12.0	%		12.3	%		10.6	%					18.5	%

Total		17.3	%		17.9	%					20.5	%		20.8	%		21.3	%					24.4	%


SELECTED OPERATING DATA²:
Revenue from platform-based services	$	2,001,363		$	1,955,203			2.4	%				$	2,001,363		$	1,955,203			2.4	%
Revenue from agent services	$	810,487		$	744,304			8.9	%				$	224,621		$	170,345			31.9	%

WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


	December 31, 2014			December 31, 2013			% Change
Current assets:
Cash and cash equivalents	$	115,061		$	230,041			-50.0	%
Trust and restricted cash		18,573			19,400			-4.3	%
Accounts receivable, net		355,625			357,588			-0.5	%
Prepaid assets		45,242			31,235			44.8	%
Other current assets		95,892			90,462			6.0	%
Assets held for sale		304,605			300,049			1.5	%

Total current assets		934,998			1,028,775			-9.1	%
Net property and equipment		350,030			331,904			5.5	%
Goodwill		1,884,920			1,671,205			12.8	%
Other assets		648,127			464,760			39.5	%

Total assets	$	3,818,075		$	3,496,644			9.2	%


Current liabilities	$	480,436		$	421,359			14.0	%
Liabilities held for sale		84,788			75,628			12.1	%
Long-term obligations		3,642,540			3,513,470			3.7	%
Other liabilities		269,952			226,359			19.3	%

Total liabilities		4,477,716			4,236,816			5.7	%

Stockholders’ deficit		(659,641	)		(740,172	)		10.9	%

Total liabilities and stockholders’ deficit	$	3,818,075		$	3,496,644			9.2	%

Supplemental Financial Information

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


	Three Months Ended									Year Ended
	March 31, 2014			June 30, 2014		Sept. 30, 2014		Dec. 31, 2014		Dec. 31, 2014
Revenue	$	535,140		$	552,319	$	568,197	$	562,938	$	2,218,594
Cost of services		225,511			239,695		243,706		234,419		943,331

Gross profit		309,629			312,624		324,491		328,519		1,275,263
Selling, general and administrative expenses		195,439			197,063		209,545		211,809		813,856

Operating income		114,190			115,561		114,946		116,710		461,407

Net income from continuing operations	$	42,097		$	44,527	$	13,103	$	34,884	$	134,611


Earnings per share from continuing operations:
Basic	$	0.50		$	0.53	$	0.16	$	0.41	$	1.60

Diluted	$	0.49		$	0.52	$	0.15	$	0.41	$	1.57


	Three Months Ended									Year Ended
	March 31, 2013			June 30, 2013		Sept. 30, 2013		Dec. 31, 2013		Dec. 31, 2013
Revenue	$	521,601		$	536,716	$	525,701	$	536,954	$	2,120,972
Cost of services		219,287			225,308		219,334		230,699		894,628

Gross profit		302,314			311,408		306,367		306,255		1,226,344
Selling, general and administrative expenses		215,914			183,310		188,524		187,302		775,050

Operating income		86,400			128,098		117,843		118,953		451,294

Net income (loss) from continuing operations	$	(1,438	)	$	39,410	$	42,577	$	42,542	$	123,091


Earnings (loss) per share from continuing operations:
Basic	$	(0.02	)	$	0.47	$	0.51	$	0.51	$	1.56

Diluted	$	(0.02	)	$	0.46	$	0.50	$	0.50	$	1.53

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income Reconciliation

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

Reconciliation of Adjusted Operating Income from Operating Income


*Unaudited, in thousands*
	HISTORICAL (1)							CONTINUING OPERATIONS
	Three Months Ended Dec. 31,							Three Months Ended Dec. 31,
	2014		2013		% Change			2014		2013		% Change
Operating income	$	119,371	$	128,760		-7.3	%	$	116,710	$	118,953		-1.9	%
Amortization of acquired intangible assets		24,231		13,503					18,040		12,997
Share-based compensation		5,549		2,401					5,519		2,354
M&A and acquisition related costs		2,177		234					909		233

Adjusted operating income	$	151,328	$	144,898		4.4	%	$	141,178	$	134,537		4.9	%


	Twelve Months Ended Dec. 31,							Twelve Months Ended Dec. 31,
	2014		2013		% Change			2014		2013		% Change
Operating income	$	484,092	$	480,214		0.8	%	$	461,407	$	451,294		2.2	%
Amortization of acquired intangible assets		68,718		55,338					61,018		53,314
Share-based compensation		15,728		10,555					15,574		10,383
Sponsor management/termination fee		—		25,000					—		25,000
IPO bonus		—		2,975					—		2,975
M&A and acquisition related costs		5,383		1,172					3,467		1,172

Adjusted operating income	$	573,921	$	575,254		-0.2	%	$	541,466	$	544,138		-0.5	%

Adjusted Net Income and Adjusted Earnings per Share Reconciliation

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

Reconciliation of Adjusted Net Income from Net Income


*Unaudited, in thousands except per share*
	HISTORICAL (1)							CONTINUING OPERATIONS
	Three Months Ended Dec. 31,							Three Months Ended Dec. 31,
	2014		2013		% Change			2014		2013		% Change
Net income	$	48,258	$	50,331		-4.1	%	$	34,884	$	42,542		-18.0	%

Amortization of acquired intangible assets		24,231		13,503					18,040		12,997
Amortization of deferred financing costs		5,075		4,536					5,075		4,536
Accelerated amortization of deferred financing costs		3,853		—					3,853		—
Share-based compensation		5,549		2,401					5,519		2,354
Debt call premiums		17,721		—					17,721		—
M&A and acquisition related costs		2,177		234					909		233

Pre-tax total		58,606		20,674					51,117		20,120
Income tax expense on adjustments		7,607		7,362					17,921		7,247

Adjusted net income	$	99,257	$	63,643		56.0	%	$	68,080	$	55,415		22.9	%


Diluted shares outstanding		86,033		85,088					86,033		85,088
Adjusted EPS - diluted	$	1.15	$	0.75		53.3	%	$	0.79	$	0.65		21.5	%

	Twelve Months Ended Dec. 31,							Twelve Months Ended Dec. 31,
	2014		2013		% Change			2014		2013		% Change
Net income	$	158,405	$	143,202		10.6	%	$	134,611	$	123,091		9.4	%

Amortization of acquired intangible assets		68,718		55,338					61,018		53,314
Amortization of deferred financing costs		20,035		18,246					20,035		18,246
Accelerated amortization of deferred financing costs		11,601		6,603					11,601		6,603
Share-based compensation		15,728		10,555					15,574		10,383
Sponsor management/termination fee		—		25,000					—		25,000
IPO bonus		—		2,975					—		2,975
Debt call premiums		61,708		16,502					61,708		16,502
M&A and acquisition related costs		5,383		1,172					3,467		1,172

Pre-tax total		183,173		136,391					173,403		134,195
Income tax expense on adjustments		56,417		50,260					60,792		49,586

Adjusted net income	$	285,161	$	229,333		24.3	%	$	247,222	$	207,700		19.0	%


Diluted shares outstanding		85,507		80,318					85,507		80,318
Adjusted EPS - diluted	$	3.33	$	2.86		16.4	%	$	2.89	$	2.59		11.6	%

Free Cash Flow Reconciliation

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

Reconciliation of Free Cash Flow from Operating Cash Flow


*Unaudited, in thousands*
	HISTORICAL (1)
	Three Months Ended Dec. 31,
	2014		2013		% Change
Cash flows from operations	$	132,473	$	107,358		23.4	%
Cash capital expenditures		37,034		40,418		-8.4	%

Free cash flow	$	95,439	$	66,940		42.6	%


								CONTINUING OPERATIONS
	Twelve Months Ended Dec. 31,							Twelve Months Ended Dec. 31,
	2014		2013		% Change			2014		2013		% Change
Cash flows from operations	$	462,723	$	384,087		20.5	%	$	409,491	$	318,769		28.5	%
Cash capital expenditures		150,716		128,398		17.4	%		130,318		114,260		14.1	%

Free cash flow	$	312,007	$	255,689		22.0	%	$	279,173	$	204,509		36.5	%

EBITDA and Adjusted EBITDA Reconciliation

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

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow


*Unaudited, in thousands*
	HISTORICAL (1)
	Three Months Ended Dec. 31,						Year Ended Dec. 31,
	2014			2013			2014			2013
Cash flows from operating activities	$	132,473		$	107,358		$	462,723		$	384,087
Income tax expense		7,197			27,836			70,510			83,559
Deferred income tax benefit		4,519			6,193			29,146			2,525
Interest expense and other financing charges		63,825			51,904			261,404			257,696
Provision for share-based compensation		(5,549	)		(2,401	)		(15,728	)		(10,555	)
Amortization of deferred financing costs		(5,075	)		(4,536	)		(20,035	)		(18,246	)
Accelerated amortization of deferred financing costs		(3,853	)		—			(11,601	)		(6,603	)
Other		321			(6	)		312			(99	)
Changes in operating assets and liabilities, net of business acquisitions		(14,630	)		(10,571	)		(82,490	)		(27,623	)

EBITDA		179,228			175,777			694,241			664,741
Provision for share-based compensation		5,549			2,401			15,728			10,555
Sponsor management/termination fee		—			—			—			25,000
IPO bonus		—			—			—			2,975
M&A and acquisition related costs		2,177			234			5,383			1,172

Adjusted EBITDA	$	186,954		$	178,412		$	715,352		$	704,443


Cash flows from operating activities	$	132,473		$	107,358		$	462,723		$	384,087
Cash flows used in investing activities	$	(43,774	)	$	(46,349	)	$	(544,906	)	$	(135,508	)
Cash flows used in financing activities	$	(135,882	)	$	(42,666	)	$	(25,027	)	$	(196,828	)

Reconciliation of EBITDA and Adjusted EBITDA from Net Income


*Unaudited, in thousands*
	HISTORICAL (1)
	Three Months Ended Dec. 31,				Year Ended Dec. 31,
	2014		2013		2014		2013
Net income	$	48,258	$	50,331	$	158,405	$	143,202
Interest expense and other financing charges		63,825		51,904		261,404		257,696
Depreciation and amortization		59,948		45,706		203,922		180,284
Income tax expense		7,197		27,836		70,510		83,559

EBITDA		179,228		175,777		694,241		664,741
Provision for share-based compensation		5,549		2,401		15,728		10,555
Sponsor management/termination fee		—		—		—		25,000
IPO bonus		—		—		—		2,975
M&A and acquisition related costs		2,177		234		5,383		1,172

Adjusted EBITDA	$	186,954	$	178,412	$	715,352	$	704,443

Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow


*Unaudited, in thousands*
	CONTINUING OPERATIONS
	Year Ended Dec. 31,
	2014			2013
Cash flows from operating activities	$	409,491		$	318,769
Income tax expense		72,679			74,651
Deferred income tax benefit		26,632			6,827
Interest expense and other financing charges		261,404			257,696
Provision for share-based compensation		(15,574	)		(10,383	)
Amortization of deferred financing costs		(20,035	)		(18,246	)
Accelerated amortization of deferred financing costs		(11,601	)		(6,603	)
Other		316			(13	)
Changes in operating assets and liabilities, net of business acquisitions		(74,081	)		(6,592	)

EBITDA		649,231			616,106
Provision for share-based compensation		15,574			10,383
Sponsor management/termination fee		—			25,000
IPO bonus		—			2,975
M&A and acquisition related costs		3,467			1,172

Adjusted EBITDA	$	668,272		$	655,636


Cash flows from operating activities	$	409,491		$	318,769
Cash flows used in investing activities	$	(524,376	)	$	(121,882	)
Cash flows used in financing activities	$	(25,027	)	$	(196,828	)

Reconciliation of EBITDA and Adjusted EBITDA from Net Income


*Unaudited, in thousands*
	CONTINUING OPERATIONS
	Three Months Ended Dec. 31,				Year Ended Dec. 31,
	2014		2013		2014		2013
Net income	$	34,884	$	42,542	$	134,611	$	123,091
Interest expense and other financing charges		63,825		51,904		261,404		257,696
Depreciation and amortization		49,447		40,855		180,537		160,668
Income tax expense		18,834		25,798		72,679		74,651

EBITDA		166,990		161,099		649,231		616,106
Provision for share-based compensation		5,519		2,354		15,574		10,383
Sponsor management/termination fee		—		—		—		25,000
IPO bonus		—		—		—		2,975
M&A and acquisition related costs		909		233		3,467		1,172

Adjusted EBITDA	$	173,418	$	163,686	$	668,272	$	655,636

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WEST CORP - FORM 8-K - EX-99.1 - January 28, 2015

Attached files

WEST CORP Reports