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EX-32.02 - EX-32.02 - WEST CORPwstc-ex3202_6.htm
EX-32.01 - EX-32.01 - WEST CORPwstc-ex3201_7.htm
EX-31.02 - EX-31.02 - WEST CORPwstc-ex3102_8.htm
EX-31.01 - EX-31.01 - WEST CORPwstc-ex3101_9.htm
EX-15.01 - EX-15.01 - WEST CORPwstc-ex1501_10.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-35846

 

West Corporation

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

47-0777362

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

 

11808 Miracle Hills Drive, Omaha, Nebraska

68154

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (402) 963-1200

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

 

Accelerated filer

 

¨

 

 

 

 

 

 

 

Non-accelerated filer

 

¨

 

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

At July 29, 2016, 82,738,887 shares of the registrant’s common stock were outstanding.

 

 

 

 


INDEX

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Report of Independent Registered Public Accounting Firm

3

 

Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2016 and 2015

4

 

Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2016 and 2015

5

 

Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015

6

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2016 and 2015

7

 

Condensed Consolidated Statements of Stockholders’ Deficit - Six Months Ended June 30,
2016 and 2015

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

47

PART II. OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 6.

Exhibits

49

SIGNATURES

50

EXHIBIT INDEX

51

 

In this report, “West,” the “Company,” “we,” “us” and “our” refers to West Corporation and subsidiaries.

 

 

 

2


PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (Unaudited)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

West Corporation and subsidiaries

Omaha, Nebraska

 

We have reviewed the accompanying condensed consolidated balance sheet of West Corporation and subsidiaries (the “Company”) as of June 30, 2016, and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2016 and 2015 and of cash flows and stockholders’ deficit for the six-month periods ended June 30, 2016 and 2015. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of West Corporation and subsidiaries as of December 31, 2015, and the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated February 18, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2015 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ Deloitte & Touche LLP

 

Omaha, Nebraska

August 4, 2016

 

 

3


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

REVENUE

 

$

582,397

 

 

$

571,891

 

 

$

1,153,176

 

 

$

1,137,381

 

COST OF SERVICES

 

 

249,426

 

 

 

245,266

 

 

 

490,438

 

 

 

484,967

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

209,870

 

 

 

210,192

 

 

 

430,713

 

 

 

425,288

 

OPERATING INCOME

 

 

123,101

 

 

 

116,433

 

 

 

232,025

 

 

 

227,126

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of interest income of $20, $173, $290

   and $199

 

 

(37,712

)

 

 

(38,433

)

 

 

(76,195

)

 

 

(77,275

)

Accelerated amortization of deferred financing costs

 

 

(35,235

)

 

 

 

 

 

(35,235

)

 

 

 

Other, net

 

 

1,214

 

 

 

(100

)

 

 

174

 

 

 

3,739

 

Other expense

 

 

(71,733

)

 

 

(38,533

)

 

 

(111,256

)

 

 

(73,536

)

INCOME FROM CONTINUING OPERATIONS BEFORE

   INCOME TAX EXPENSE

 

 

51,368

 

 

 

77,900

 

 

 

120,769

 

 

 

153,590

 

INCOME TAX EXPENSE ATTRIBUTED TO CONTINUING

   OPERATIONS

 

 

18,389

 

 

 

28,677

 

 

 

43,235

 

 

 

55,733

 

INCOME FROM CONTINUING OPERATIONS

 

 

32,979

 

 

 

49,223

 

 

 

77,534

 

 

 

97,857

 

INCOME FROM DISCONTINUED OPERATIONS, NET OF

   INCOME TAXES

 

 

 

 

 

358

 

 

 

 

 

 

32,224

 

NET INCOME

 

$

32,979

 

 

$

49,581

 

 

$

77,534

 

 

$

130,081

 

EARNINGS PER COMMON SHARE—BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

0.40

 

 

$

0.59

 

 

$

0.94

 

 

$

1.17

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

0.38

 

Total Earnings Per Common Share—Basic

 

$

0.40

 

 

$

0.59

 

 

$

0.94

 

 

$

1.55

 

EARNINGS PER COMMON SHARE—DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

0.39

 

 

$

0.58

 

 

$

0.92

 

 

$

1.14

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

0.37

 

Total Earnings Per Common Share—Diluted

 

$

0.39

 

 

$

0.58

 

 

$

0.92

 

 

$

1.51

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Common

 

 

82,598

 

 

 

83,394

 

 

 

82,874

 

 

 

83,758

 

Diluted Common

 

 

84,281

 

 

 

85,592

 

 

 

84,425

 

 

 

85,920

 

DIVIDENDS DECLARED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.225

 

 

$

0.225

 

 

$

0.45

 

 

$

0.45

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

 

4


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

 

$

32,979

 

 

$

49,581

 

 

$

77,534

 

 

$

130,081

 

Foreign currency translation adjustments, net of tax

   of $4,779,  ($4,762), $3,010 and $12,371

 

 

(8,571

)

 

 

8,171

 

 

 

(5,398

)

 

 

(21,718

)

Comprehensive income

 

$

24,408

 

 

$

57,752

 

 

$

72,136

 

 

$

108,363

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

 

5


WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

 

 

June 30,

2016

 

 

December 31,

2015

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

223,415

 

 

$

182,338

 

Trust and restricted cash

 

 

17,205

 

 

 

19,829

 

Accounts receivable, net of allowance of $7,380 and $7,270

 

 

392,164

 

 

 

373,087

 

Income taxes receivable

 

 

 

 

 

19,332

 

Prepaid assets

 

 

52,279

 

 

 

43,093

 

Deferred expenses

 

 

54,130

 

 

 

65,781

 

Other current assets

 

 

27,020

 

 

 

22,040

 

Assets held for sale

 

 

 

 

 

17,672

 

Total current assets

 

 

766,213

 

 

 

743,172

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

 

Property and equipment

 

 

1,096,009

 

 

 

1,053,678

 

Accumulated depreciation and amortization

 

 

(757,383

)

 

 

(718,834

)

Total property and equipment, net

 

 

338,626

 

 

 

334,844

 

GOODWILL

 

 

1,920,707

 

 

 

1,915,690

 

INTANGIBLE ASSETS, net of accumulated amortization of $619,867 and $583,623

 

 

342,739

 

 

 

370,021

 

OTHER ASSETS

 

 

178,316

 

 

 

191,490

 

TOTAL ASSETS

 

$

3,546,601

 

 

$

3,555,217

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

78,513

 

 

$

92,935

 

Deferred revenue

 

 

152,397

 

 

 

161,828

 

Accrued expenses

 

 

227,867

 

 

 

219,234

 

Current maturities of long-term debt

 

 

37,918

 

 

 

24,375

 

Total current liabilities

 

 

496,695

 

 

 

498,372

 

LONG-TERM OBLIGATIONS, less current maturities

 

 

3,290,940

 

 

 

3,318,688

 

DEFERRED INCOME TAXES

 

 

103,062

 

 

 

104,222

 

OTHER LONG-TERM LIABILITIES

 

 

178,336

 

 

 

186,073

 

Total liabilities

 

 

4,069,033

 

 

 

4,107,355

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Common Stock $0.001 par value, 475,000 shares authorized, 85,707 and

   85,459 shares issued and 82,615 and 83,367 shares outstanding

 

 

86

 

 

 

85

 

Additional paid-in capital

 

 

2,210,910

 

 

 

2,193,193

 

Retained deficit

 

 

(2,568,068

)

 

 

(2,607,415

)

Accumulated other comprehensive loss

 

 

(78,134

)

 

 

(72,736

)

Treasury stock at cost (3,092 and 2,092 shares)

 

 

(87,226

)

 

 

(65,265

)

Total stockholders’ deficit

 

 

(522,432

)

 

 

(552,138

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

3,546,601

 

 

$

3,555,217

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

 

6


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

77,534

 

 

$

130,081

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

 

 

 

 

(32,224

)

Depreciation

 

 

57,458

 

 

 

54,194

 

Amortization

 

 

39,944

 

 

 

39,469

 

Provision for share-based compensation

 

 

13,841

 

 

 

11,411

 

Deferred income tax (benefit) expense

 

 

(3,755

)

 

 

2,202

 

Amortization of deferred financing costs

 

 

44,053

 

 

 

10,009

 

Increase in acquisition contingent consideration

 

 

644

 

 

 

 

(Gain) loss on sale of property and equipment

 

 

(12,607

)

 

 

220

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,957

)

 

 

(20,977

)

Other assets

 

 

6,852

 

 

 

(23,675

)

Accounts payable

 

 

(10,830

)

 

 

18,812

 

Accrued wages and benefits

 

 

4,168

 

 

 

(3,741

)

Accrued interest

 

 

(8,420

)

 

 

(19,524

)

Other liabilities and income tax payable

 

 

2,560

 

 

 

(9,733

)

Net cash flows from continuing operating activities

 

 

197,485

 

 

 

156,524

 

Net cash flows from discontinued operating activities

 

 

 

 

 

(6,962

)

Total net cash flows from operating activities

 

 

197,485

 

 

 

149,562

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Business acquisitions

 

 

(9,745

)

 

 

(17,296

)

Purchases of property and equipment

 

 

(73,864

)

 

 

(64,864

)

Proceeds from the sale of property and equipment

 

 

38,368

 

 

 

 

Other

 

 

2,657

 

 

 

(1,561

)

Net cash flows from continuing investing activities

 

 

(42,584

)

 

 

(83,721

)

Net cash flows from discontinued investing activities

 

 

 

 

 

269,540

 

Total net cash flows from investing activities

 

 

(42,584

)

 

 

185,819

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal repayments on long-term obligations

 

 

(2,286,906

)

 

 

(16,246

)

Proceeds from term loan facilities

 

 

1,780,000

 

 

 

 

Proceeds from issuance of notes

 

 

400,000

 

 

 

 

Proceeds from revolving credit facilities

 

 

85,000

 

 

 

139,000

 

Payments on revolving credit facilities

 

 

(10,000

)

 

 

(324,000

)

Payment of deferred financing and other debt-related costs

 

 

(25,273

)

 

 

(234

)

Proceeds from stock options and ESPP shares including excess tax benefits

 

 

3,927

 

 

 

8,462

 

Dividends paid

 

 

(37,333

)

 

 

(37,767

)

Repurchase of common stock

 

 

(21,961

)

 

 

(59,957

)

Net cash flows from continuing financing activities

 

 

(112,546

)

 

 

(290,742

)

Net cash flows from discontinued financing activities

 

 

 

 

 

 

Total net cash flows from financing activities

 

 

(112,546

)

 

 

(290,742

)

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

 

 

(1,278

)

 

 

(1,208

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

41,077

 

 

 

43,431

 

CASH AND CASH EQUIVALENTS, Beginning of period

 

 

182,338

 

 

 

115,061

 

CASH AND CASH EQUIVALENTS, End of period

 

$

223,415

 

 

$

158,492

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

 

7


WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

Stockholders’

Deficit

 

BALANCE, January 1, 2016

 

 

83,366,888

 

 

$

85

 

 

$

2,193,193

 

 

$

(2,607,415

)

 

$

(72,736

)

 

$

(65,265

)

 

$

(552,138

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,534

 

 

 

 

 

 

 

 

 

 

 

77,534

 

Dividends declared (cash dividend of

   $0.45 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,187

)

 

 

 

 

 

 

 

 

 

 

(38,187

)

Foreign currency translation adjustment,

   net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,398

)

 

 

 

 

 

 

(5,398

)

Purchase of stock at cost

 

 

(1,000,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,961

)

 

 

(21,961

)

Executive Deferred Compensation Plan

   activity

 

 

12,964

 

 

 

 

 

 

 

1,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,522

 

Shares issued from the Employee Stock

   Purchase Plan

 

 

182,285

 

 

 

1

 

 

 

3,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,460

 

Stock options exercised including related

   tax benefits

 

 

29,475

 

 

 

 

 

 

 

649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

649

 

Issuance of shares

 

 

23,975

 

 

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

12,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,150

 

BALANCE, June 30, 2016

 

 

82,615,587

 

 

$

86

 

 

$

2,210,910

 

 

$

(2,568,068

)

 

$

(78,134

)

 

$

(87,226

)

 

$

(522,432

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, January 1, 2015

 

 

84,179,806

 

 

$

84

 

 

$

2,155,864

 

 

$

(2,772,775

)

 

$

(37,506

)

 

$

(5,308

)

 

$

(659,641

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

130,081

 

 

 

 

 

 

 

 

 

 

 

130,081

 

Dividends declared (cash dividend of

   $0.45 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,369

)

 

 

 

 

 

 

 

 

 

 

(38,369

)

Foreign currency translation adjustment,

   net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,718

)

 

 

 

 

 

 

(21,718

)

Purchase of stock at cost

 

 

(2,000,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,957

)

 

 

(59,957

)

Executive Deferred Compensation Plan

   activity

 

 

49,307

 

 

 

 

 

 

 

4,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,042

 

Shares issued from the Employee Stock

   Purchase Plan

 

 

131,865

 

 

 

 

 

 

 

3,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,745

 

Stock options exercised including related

   tax benefits

 

 

251,943

 

 

1

 

 

 

5,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,632

 

Issuance of shares

 

 

16,042

 

 

 

 

 

 

 

(198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(198

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

10,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,461

 

BALANCE, June 30, 2015

 

 

82,628,963

 

 

$

85

 

 

$

2,179,545

 

 

$

(2,681,063

)

 

$

(59,224

)

 

$

(65,265

)

 

$

(625,922

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

 

 

8


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.

ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Business Description: West Corporation (the “Company” or “West”) is a global provider of technology-enabled communication services. “We,” “us” and “our” also refer to West and its consolidated subsidiaries, as applicable. We offer a broad range of communication and network infrastructure solutions that help manage or support essential communications. These solutions include unified communications services, safety services, interactive services such as automated notifications, specialized agent services and telecom services.

The scale and processing capacity of our technology platforms, combined with our expertise in managing multichannel interactions, enable us to provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients and help them build smarter, more meaningful connections. We are dedicated to delivering and improving upon new channels, new capabilities and new choices for how businesses and consumers collaborate, connect and transact.

Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, education, technology and healthcare. We have sales and/or operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.

Our Services

· Unified Communications Services. We provide our clients with a range of integrated unified communications services. We offer our clients a complete cloud-based unified communications solution which consists of enterprise voice, conferencing and collaboration, network management, unified messaging and presence, contact center and client application integration. We combine reliable technologies with experience and flexibility to provide solutions that are easy to use and scalable for every client’s specific needs. Our products and services can improve many aspects of business by enabling personalized engagement, meetings anywhere, enhanced productivity and immersive communication experiences.

· Telecom Services. We provide local and national tandem switching services that facilitate an efficient exchange of network traffic between originating and terminating networks throughout the U.S. We connect people and unite networks by delivering interconnection services for all types of providers, including wireless, wireline, cable and voice over internet protocol (“VoIP”). We operate a next-generation technology-agnostic national network providing a cost effective means for time-division multiplexing to internet protocol (“IP”) conversion for IP networks that require access to the public switched telephone network. We provide carrier-grade interconnections that reduce cost and merge traditional telecom, mobile and IP technologies onto a common, efficient backbone. Telecom Services also provides much of the telecommunications network infrastructure that supports our conferencing and collaboration business.

· Safety Services. We provide 9-1-1 call routing, call location creation and delivery, and call delivery and accuracy compliance tools to the majority of U.S.-based telecommunications service providers. We provide technology solutions for wireline and wireless carriers; satellite, telematics and cable operators; VoIP providers; alarm/security companies; as well as public safety, government agencies and enterprises. West services the public and personal safety ecosystem with networks and an understanding of safety needs. We continue to innovate and develop next-generation industry solutions that match new technologies. We connect people to first responders—firefighters, law enforcement, ambulance services, and the telecommunicators answering calls in public safety answering points. Our seamless and fault tolerant infrastructure along with our data management experience and expertise are the underpinning for individuals’ requests for assistance that require the ability to be located, and have calls routed and delivered to the correct public safety agency.

· Interactive Services. We design, integrate, deliver, manage and optimize applications, services, platforms and networks that aim to create a better customer experience, strengthen customer engagement and drive efficiencies for our clients. We specialize in cloud-based communication solutions that drive a smart, personalized and convenient customer experience, including interactive voice response (“IVR”) self-service, proactive notifications and mobility, cloud contact center and comprehensive professional services. Our technology uses an omni-channel approach that brings together voice, text, email, push notification, fax, video, web, social media, hosted contact center and mobile to create a connected customer experience across channels. Our high-capacity and high-availability platform can be deployed in a number of ways and integrated with other inbound and outbound communication channels. In most cases, our technology also directly interfaces with our clients’ internal systems, including customer relationship management, private branch exchange and enterprise reporting platforms.

9


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

· Specialized Agent Services. We provide our clients a combination of highly skilled subject matter experts with proven analytics and technology to provide solutions for the fast-growing healthcare market. We believe we are the leading provider of healthcare advocacy products and services to employees of large organizations. We also help health insurance payers, third-party administrators and self-insured employers improve cash flow and reduce healthcare costs by identifying and recovering overpaid and third-party liability claims. Additionally, we offer business-to-business sales across multiple vertical markets with a focus on increasing our clients’ market share and improving customer relationships.

Our five operating segments (Unified Communications Services, Telecom Services, Safety Services, Interactive Services and Specialized Agent Services) are aggregated into four reportable segments as follows:

· Unified Communications Services, which includes conferencing and collaboration services, unified communications as a service (“UCaaS”) solutions and telecom services;

· Safety Services, including 9-1-1 network services, 9-1-1 telephony systems and services, 9-1-1 solutions for enterprises and database management;

· Interactive Services, including proactive notifications and mobility, IVR self-service, cloud contact center and professional services; and

· Specialized Agent Services, which includes healthcare advocacy services, cost management services and revenue generation services.

Discontinued Operations—On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014.

Basis of Consolidation—The unaudited condensed consolidated financial statements include the accounts of West and its wholly-owned subsidiaries and reflect all adjustments (all of which are normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim periods. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2015. All intercompany balances and transactions have been eliminated in the consolidated financial statements. Our results for the three and six months ended June 30, 2016 are not necessarily indicative of what our results will be for other interim periods or for the full fiscal year.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition—Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. Amounts billed in advance of providing service are deferred and recorded as deferred revenue or other long-term liabilities on the balance sheet until service has been provided.

Dividend—We funded the dividends paid in 2015 and the first six months of 2016 with cash generated by our operations and we anticipate funding future dividends with cash generated by our operations. The declaration and payment of all future dividends, if any, will be at the sole discretion of our Board of Directors. On each of March 3, 2016 and May 26, 2016, we paid a $0.225 per common share quarterly dividend. The total dividend paid was approximately $18.8 million and $18.6 million to stockholders of record as of the close of business on February 22, 2016 and May 16, 2016, respectively. On August 1, 2016, we announced a $0.225 per common share quarterly dividend. The dividend is payable September 1, 2016 to stockholders of record as of the close of business on August 22, 2016.

10


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Share Repurchase—Under a share repurchase program approved by the Company’s Board of Directors during the first quarter of 2016 authorizing the repurchase of up to an aggregate of $75 million of outstanding common stock, the Company purchased 1,000,000 shares of common stock through the open market during the first six months of 2016 for an aggregate purchase price of approximately $22.0 million, which was funded with cash on hand.

Assets Held for Sale—On June 21, 2016, we completed the sale of land, buildings and improvements which were previously classified as held for sale and primarily used by the agent-based businesses we divested in 2015.  Proceeds from the sale were $38.8 million, excluding related expenses. In connection with this sale, we realized a pre-tax gain of approximately $19.0 million.  We also entered into a twelve year leaseback agreement for one of the buildings.  This lease is classified as an operating lease and the related $6.1 million gain, included in the $19.0 million realized gain, is being deferred and will be recognized over the lease term.

Recently Implemented Accounting Pronouncements—In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires capitalized debt issuance costs to be presented as a reduction to the carrying value of debt instead of being classified as a deferred charge, as previously required. This ASU became effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, and interim periods within those annual periods. We adopted this guidance as of January 1, 2016, and as a result have recast the December 31, 2015 consolidated balance sheet to conform to the current period presentation. The adoption of this standard reduced previously presented other assets and long-term debt by $57.1 million each, based upon the balance of unamortized debt issuance costs relating to our senior secured term loan facilities and senior notes recorded as of December 31, 2015.

In November 2015, the FASB issued ASU 2015-017, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes the presentation of deferred income taxes in the balance sheet. Under the new guidance, deferred tax assets and liabilities will be classified as non-current in the balance sheet. The guidance is effective for annual periods beginning after December 15, 2016. The new guidance allows for prospective or retrospective application and early adoption is permitted. We adopted this guidance as of April 1, 2016, and elected retrospective application recasting the December 31, 2015 consolidated balance sheet to conform to the current period presentation. The adoption of this standard reduced previously presented accrued expenses and increased deferred income taxes by $1.7 million each, as of December 31, 2015.

Recent Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326).  The amendments in this update will require a financial asset (or a group of financial assets) measured on an amortized cost basis to be presented at the net amount expected to be collected. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018.  Adoption of this update is required through a cumulative-effect adjustment to retained deficit as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is in the process of assessing the impact of this standard on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). The amendments in this update will simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This amendment is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact of this standard on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented.  The Company is in the process of assessing the impact of this standard on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The new standard will become effective for the Company beginning with the first quarter of 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of assessing the impact and adoption transition options of this standard on its financial statements.

11


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

2.

DISCONTINUED OPERATIONS

On March 3, 2015, we divested several of our agent-based businesses for $275.0 million in cash. The divestiture resulted in a 2015 gain of $48.2 million on an after-tax basis which was included within income from discontinued operations. The $48.2 million gain included a $21.6 million tax benefit in 2015 due to the deferred tax benefit associated with excess outside basis over financial reporting basis.

The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2015:

 

(Amounts in thousands)

 

Three months ended

June 30, 2015

 

 

Six months ended

June 30, 2015

 

Revenue

 

$

 

 

$

102,251

 

Operating income

 

 

551

 

 

 

3,851

 

Gain on disposal

 

 

 

 

 

48,556

 

Income before income tax expense

 

 

551

 

 

 

52,234

 

Income tax expense

 

 

193

 

 

 

20,010

 

Income from discontinued operations

 

$

358

 

 

$

32,224

 

 

There was no income or loss from discontinued operations during the first half of 2016.

We have agreed to indemnify the buyer, up to the full purchase price, with respect to the equity interests of the companies we sold, title to the equity and assets sold and the authority of the Company to sell the equity and assets. The Company has also agreed to indemnify the buyer for breaches of other representations and warranties in the purchase agreement for up to $13.75 million in losses.

 

 

3.

ACQUISITIONS

Synrevoice

On March 14, 2016, we completed the acquisition of substantially all of the assets of Synrevoice Technologies, Inc. (“Synrevoice”). Synrevoice, based in Markham, Ontario, is a provider of messaging and notification services to the K-12 education and commercial markets in North America. The purchase price was approximately $9.3 million and was funded with cash on hand. This business is included in the Interactive Services reportable segment.

In the preliminary purchase price allocation, approximately $4.9 million was allocated to goodwill, which is partially deductible for income tax purposes, and $6.5 million was allocated to other intangible assets. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of Synrevoice were the expansion of our interactive services further into the education vertical market and anticipated synergies which are expected to result in a more efficient and faster growing K-12 business in North America.

ClientTell

On November 2, 2015, we completed the acquisition of ClientTell, Inc., and ClientTell Labs, LLC (collectively “ClientTell”), which provide automated notifications and lab reporting services in the healthcare industry. The purchase price was approximately $38.4 million in cash, plus assumed liabilities, and was funded with cash on hand. Up to an additional $10.5 million in cash may be paid based on achievement of certain financial objectives during the five years ending December 31, 2020. The fair value of this contingent consideration arrangement was $5.4 million as of the date of acquisition and $5.3 million, net of a $1.0 million payment made in the first half of 2016, as of June 30, 2016.

Approximately $15.0 million of the purchase price was allocated to goodwill and $26.3 million to other intangible assets. The goodwill is deductible for income tax purposes. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of ClientTell were the expansion of our interactive services further into the healthcare vertical market, anticipated synergies and other intangibles that do not qualify for separate recognition. This business has been integrated into the Interactive Services reportable segment.

12


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Magnetic North

On October 31, 2015, we completed the acquisition of Magnetic North Software Limited (“Magnetic North”) for approximately $39.2 million in cash net of cash acquired, plus assumed liabilities, which was funded with cash on hand. Magnetic North is a U.K.-based provider of inbound/outbound/blended, multi-channel customer engagement technology solutions with multi-media routing, advanced analytics and compliance functionality and integrated, hosted voice and unified communications platforms to customers throughout Europe, the Middle East and Africa (“EMEA”) and the Americas.

In the preliminary purchase price allocation, approximately $25.1 million was allocated to goodwill and $16.4 million to other intangible assets. The goodwill is not deductible for income tax purposes. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of Magnetic North were its portfolio of complementary customer contact center and unified communications solutions, anticipated synergies and other intangibles that do not qualify for separate recognition. This business has been integrated into the Unified Communications Services reportable segment.

SharpSchool

Effective June 1, 2015, we completed the acquisition of substantially all of the assets of Intrafinity, Inc., doing business as SharpSchool (“SharpSchool”), a leading provider of website and content management system software-as-a-service solutions for the K-12 education market. The purchase price was approximately $17.2 million and was funded with cash on hand.

In the purchase price allocation, goodwill of $8.3 million, partially deductible for tax purposes under Canadian tax rules governing asset acquisitions, and finite-lived intangible assets of $9.1 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of SharpSchool were the expansion of our interactive services further into the education vertical market and anticipated synergies which are expected to result in a more efficient and faster growing K-12 business for West. SharpSchool has been integrated into the Interactive Services reportable segment.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for Synrevoice and Magnetic North and the final fair value of assets acquired and liabilities assumed for ClientTell and SharpSchool.

 

(Amounts in thousands)

 

Synrevoice

 

 

ClientTell

 

 

Magnetic North

 

 

SharpSchool

 

Working Capital

 

$

(2,118

)

 

$

501

 

 

$

212

 

 

$

(1,042

)

Property and equipment

 

 

21

 

 

 

429

 

 

 

574

 

 

 

782

 

Other assets, net

 

 

 

 

 

2

 

 

 

 

 

 

77

 

Intangible assets

 

 

6,455

 

 

 

26,300

 

 

 

16,361

 

 

 

9,092

 

Goodwill

 

 

4,893

 

 

 

15,004

 

 

 

25,060

 

 

 

8,254

 

Total assets acquired

 

 

9,251

 

 

 

42,236

 

 

 

42,207

 

 

 

17,163

 

Non-current deferred taxes

 

 

 

 

 

 

 

 

3,050

 

 

 

 

Long-term liabilities

 

 

 

 

 

3,828

 

 

 

 

 

 

 

Total liabilities assumed

 

 

 

 

 

3,828

 

 

 

3,050

 

 

 

 

Net assets acquired

 

$

9,251

 

 

$

38,408

 

 

$

39,157

 

 

$

17,163

 

 

Acquisition costs incurred for prospective acquisitions and completed acquisitions for the three months ended June 30, 2016 and 2015 of $1.4 million and $0.8 million, respectively, are included in selling, general and administrative expenses.  Acquisition costs incurred for prospective acquisitions and completed acquisitions for the six months ended June 30, 2016 and 2015 of $2.5 million and $1.6 million, respectively, are included in selling, general and administrative expenses.

The excess of the acquisition costs over the fair value of the assets acquired and liabilities assumed for the purchase of Magnetic North and Synrevoice were assigned to goodwill based on preliminary estimates. We are in the process of completing the acquisition accounting for certain intangible assets and liabilities. The process of completing the acquisition accounting involves numerous time consuming steps for information gathering, verification and review. We expect to finalize this process within twelve months following the respective acquisition dates.

13


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Pro forma

The following unaudited pro forma financial information presents the combined results of operations as if the acquisitions of Synrevoice, ClientTell, Magnetic North, and SharpSchool (collectively, the acquirees) occurred as of the beginning of the period presented. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles, finance and acquisition costs as well as related income taxes.

 

 

 

Three Months Ended

 

 

Six Months Ended June 30,

 

 

 

June 30, 2015

 

 

2016

 

 

2015

 

Revenue

 

$

579,541

 

 

$

1,154,081

 

 

$

1,153,098

 

Income from continuing operations

 

$

48,370

 

 

$

77,406

 

 

$

96,431

 

Income per common share from continuing operations—

   basic

 

$

0.58

 

 

$

0.93

 

 

$

1.15

 

Income per common share from continuing operations—

   diluted

 

$

0.57

 

 

$

0.92

 

 

$

1.12

 

 

The pro forma results above are not necessarily indicative of the operating results that would have actually occurred if the acquisitions had been in effect on the dates indicated, nor are they necessarily indicative of future results of operations.

Our acquisitions completed in 2016 and 2015 were included in the consolidated results of operations from their respective dates of acquisition and included revenue of $7.1 million and $14.4 million for the three and six months ended June 30, 2016, respectively, and $0.4 million for both the three and six months ended June 30, 2015. The net income impact of these acquisitions for the three and six months ended June 30, 2016 and 2015 was not material.

 

 

4.

GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2015 and the six months ended June 30, 2016:

 

(Amounts in thousands)

 

Unified

Communications

Services

 

 

Safety

Services

 

 

Interactive

Services

 

 

Specialized

Agent

Services

 

 

Total

 

Balance at January 1, 2015

 

$

864,568

 

 

$

507,588

 

 

$

223,014

 

 

$

289,750

 

 

$

1,884,920

 

Acquisitions

 

 

24,579

 

 

 

 

 

 

23,221

 

 

 

 

 

 

47,800

 

Foreign currency translation adjustment

 

 

 

 

 

1,091

 

 

 

(44

)

 

 

(1,400

)

 

 

(353

)

Acquisition accounting adjustments

 

 

(15,365

)

 

 

 

 

 

(1,312

)

 

 

 

 

 

(16,677

)

Balance at December 31, 2015

 

 

873,782

 

 

 

508,679

 

 

 

244,879

 

 

 

288,350

 

 

 

1,915,690

 

Acquisitions

 

 

 

 

 

 

 

 

4,893

 

 

 

 

 

 

4,893

 

Acquisition accounting adjustments

 

 

481

 

 

 

 

 

 

(13

)

 

 

 

 

 

468

 

Foreign currency translation adjustments

 

 

(1,059

)

 

 

 

 

 

715

 

 

 

 

 

 

(344

)

Balance at June 30, 2016

 

$

873,204

 

 

$

508,679

 

 

$

250,474

 

 

$

288,350

 

 

$

1,920,707

 

 

Other intangible assets

Below is a summary of the major intangible assets for each identifiable intangible asset:

 

 

 

As of  June 30, 2016

 

(Amounts in Thousands)

 

Acquired

Cost

 

 

Accumulated

Amortization

 

 

Net Intangible

Assets

 

Client Relationships

 

$

656,459

 

 

$

(463,933

)

 

$

192,526

 

Technology & Patents

 

 

179,370

 

 

 

(104,087

)

 

 

75,283

 

Trade names and trademarks (finite-lived)

 

 

103,555

 

 

 

(34,297

)

 

 

69,258

 

Other intangible assets

 

 

23,222

 

 

 

(17,550

)

 

 

5,672

 

Total

 

$

962,606

 

 

$

(619,867

)

 

$

342,739

 

14


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

As of December 31, 2015

 

 

 

Acquired

Cost

 

 

Accumulated

Amortization

 

 

Net Intangible

Assets

 

Client Relationships

 

$

649,494

 

 

$

(440,163

)

 

$

209,331

 

Technology & Patents

 

 

178,027

 

 

 

(96,774

)

 

 

81,253

 

Trade names and trademarks (finite-lived)

 

 

103,398

 

 

 

(30,470

)

 

 

72,928

 

Other intangible assets

 

 

22,725

 

 

 

(16,216

)

 

 

6,509

 

Total

 

$

953,644

 

 

$

(583,623

)

 

$

370,021

 

 

Amortization expense for finite-lived intangible assets was $16.9 million and $16.4 million for the three months ended June 30, 2016 and 2015, respectively, and $33.3 million and $33.0 million for the six months ended June 30, 2016 and 2015, respectively. Estimated amortization expense for the intangible assets noted above for 2016 and the next five years is as follows:

 

2016

 

$ 64.7 million

2017

 

$ 55.0 million

2018

 

$ 48.7 million

2019

 

$ 42.7 million

2020

 

$ 36.0 million

2021

 

$ 28.2 million

 

The acquisition of Synrevoice on March 14, 2016 included other intangible assets consisting of client relationships ($5.3 million, with a 12-year life amortization period), technology ($0.9 million, with a 2-year amortization period), non-compete agreements ($0.2 million, with a 3-year amortization period), and a trademark ($0.1 million, with a 2-year amortization period).

 

 

5.

ACCRUED EXPENSES

Accrued expenses consisted of the following as of:

 

(Amounts in thousands)

 

June 30,

2016

 

 

December 31,

2015

 

Accrued wages

 

$

60,665

 

 

$

55,799

 

Accrued phone

 

 

52,515

 

 

 

42,549

 

Accrued other taxes (non-income related)

 

 

35,863

 

 

 

39,267

 

Interest payable

 

 

28,020

 

 

 

36,440

 

Acquisition obligation for a net operating loss

   carryforward claim

 

 

4,670

 

 

 

5,536

 

Accrued employee benefit costs

 

 

3,622

 

 

 

3,970

 

Accrued lease expense

 

 

3,448

 

 

 

2,616

 

Outside commissions

 

 

2,132

 

 

 

1,673

 

Income taxes payable

 

 

1,688

 

 

 

 

Acquisition contingent consideration

 

 

1,103

 

 

 

2,075

 

Accrued licensing costs

 

 

693

 

 

 

2,418

 

Other current liabilities

 

 

33,448

 

 

 

26,891

 

 

 

$

227,867

 

 

$

219,234

 

 

 

15


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

6.

LONG-TERM OBLIGATIONS 

Long-term obligations are carried at amortized cost. Long-term obligations consisted of the following as of:

 

 

 

June 30,

 

 

December 31,

 

(Amounts in thousands)

 

2016

 

 

2015

 

Senior Secured Term Loans due 2018

 

$

34,405

 

 

$

1,813,250

 

Accounts Receivable Securitization Facility

 

 

75,000

 

 

 

 

Senior Secured Term Loans due 2019

 

 

78,814

 

 

 

336,875

 

Senior Secured A Term Loans due 2021

 

 

650,000

 

 

 

 

Senior Secured B Term Loans due 2021

 

 

260,000

 

 

 

250,000

 

4 3/4% Senior Secured Notes due 2021

 

 

400,000

 

 

 

 

5 3/8% Senior Notes due 2022

 

 

1,000,000

 

 

 

1,000,000

 

Senior Secured B Term Loans due 2023

 

 

870,000

 

 

 

 

Unamortized value of debt issuance costs (1)

 

 

(39,361

)

 

 

(57,062

)

Net carrying value

 

 

3,328,858

 

 

 

3,343,063

 

Less: current maturities

 

 

(37,918

)

 

 

(24,375

)

Long-term obligations, net of debt issuance costs

 

$

3,290,940

 

 

$

3,318,688

 

 

(1)

Includes the reclassification of debt issuance costs from “Other assets” as a result of the Company adopting ASU 2015-03. See Note 1.

Senior Secured Credit Facilities

Our term and revolving senior secured credit facilities (“Senior Secured Credit Facilities”) are governed by the Amended and Restated Credit Agreement dated as of October 5, 2010 (as amended from time to time, the “Credit Agreement”) among West Corporation, certain of our domestic subsidiaries, Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the various lenders party thereto.  

On June 17, 2016 (the “Seventh Amendment Effective Date”), the Company, certain domestic subsidiaries of the Company, as subsidiary borrowers, Wells Fargo and the various lenders party thereto modified the Senior Secured Credit Facilities by entering into Amendment No. 7 to Amended and Restated Credit Agreement (the “Seventh Amendment”), amending the Credit Agreement.

The Seventh Amendment:

 

·

extended the maturity of a portion of the existing A-1 term loans (“2019 Maturity Term Loans”), which mature July 1, 2019, to June 17, 2021 by converting such existing A-1 term loans into A-2 term loans (the “2021 Maturity A Term Loans”);

 

·

extended the maturity of a portion of the existing B-10 term loans (the “2018 Maturity Term Loans”), which mature June 30, 2018, to June 17, 2023 by converting such existing B-10 term loans into B-12 term loans (the “2023 Maturity Term Loans”);

 

·

extended the maturity of a portion of the existing revolving credit commitments to June 17, 2021 (the “Extended Revolving Credit Commitments”), with non-extending revolving credit commitments being terminated as of the Seventh Amendment Effective Date;

 

·

provided for an increase of 2021 Maturity A Term Loans with incremental 2021 Maturity A Term Loans, which were added to and constitute a single class of term loans with the 2021 Maturity A Term Loans, such that the aggregate amount of 2021 Maturity A Term Loans (after giving effect to the incurrence of the incremental 2021 Maturity A Term Loans) is $650.0 million;

 

·

provided for an increase of 2023 Maturity Term Loans with incremental 2023 Maturity Term Loans, which were added to and constitute a single class of term loans with the 2023 Maturity Term Loans, such that the aggregate amount of 2023 Maturity Term Loans (after giving effect to the incurrence of the incremental 2023 Maturity Term Loans) is $870.0 million;

16


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

·

provided for an increase of Extended Revolving Credit Commitments with incremental revolving commitments, which constitute a single class of commitments with the Extended Revolving Credit Commitments and mature on June 17, 2021, such that the aggregate amount of Extended Revolving Credit Commitments (after giving effect to the incurrence of the incremental revolving commitments) is $300.0 million; 

 

·

provided for new B-14 term loans (the “2021 Maturity B Term Loans”) in an aggregate amount of $260.0 million with a maturity date of June 17, 2021;

 

·

provided for annual amortization (payable in quarterly installments) in respect of the 2023 Maturity Term Loans in an amount equal to 1.0% of the original aggregate principal amount of the 2023 Maturity Term Loans outstanding on the Seventh Amendment Effective Date until the maturity date, at which point all remaining outstanding 2023 Maturity Term Loans shall become due and payable;

 

·

provided for annual amortization (payable in quarterly installments) in respect of the 2021 Maturity B Term Loans in an amount equal to 1.0% of the original aggregate principal amount of the 2021 Maturity B Term Loans outstanding on the Seventh Amendment Effective Date until the maturity date, at which point all remaining outstanding 2021 Maturity B Term Loans shall become due and payable;

 

·

provided for annual amortization (payable in quarterly installments and based on the original aggregate principal amount of the 2021 Maturity A Term Loans outstanding on the Seventh Amendment Effective Date) in respect of the 2021 Maturity A Term Loans payable at a 2.5% annual rate for the three fiscal quarters in the nine month period ending March 31, 2017, a 5.0% annual rate for the four fiscal quarters in the year ending March 31, 2018, a 7.5% annual rate for the four fiscal quarters in the year ending March 31, 2019, a 10.0% annual rate for the four fiscal quarters in the year ending March 31, 2020 and a 2.5% quarterly rate thereafter until the maturity date, at which point all remaining outstanding 2021 Maturity A Term Loans shall become due and payable;

 

·

provided for an interest rate margin applicable to the 2021 Maturity A Term Loans and Extended Revolving Credit Commitments that is based on the Company’s total leverage ratio and ranges from 1.75% to 2.50% for LIBOR rate loans (2.50%, as of June 30, 2016), subject to a 0.0% interest rate floor for the LIBOR component of LIBOR rate loans, and from 0.75% to 1.50% for base rate loans (1.50%, as of June 30, 2016);

 

·

provided for an interest rate margin applicable to the 2023 Maturity Term Loans equal to 3.00% for LIBOR rate loans and 2.00% for base rate loans, subject to a 0.75% interest rate floor for the LIBOR component of LIBOR rate 2023 Maturity Term Loans, and subject to a 1.75% interest rate floor for the base rate component of base rate 2023 Maturity Term Loans; and

 

·

provided for an interest rate margin applicable to the 2021 Maturity B Term Loans equal to 2.75% for LIBOR rate loans, and 1.75% for base rate loans, subject to a 0.75% interest rate floor for the LIBOR component of LIBOR rate 2021 Maturity B Term Loans, and subject to a 1.75% interest rate floor for the base rate component of base rate 2021 Maturity B Term Loans.

Proceeds of the 2021 Maturity A Term Loans, 2023 Maturity Term Loans and 2021 Maturity B Term Loans were used on the Seventh Amendment Effective Date, together with proceeds from the senior secured notes offering described below, to partially prepay existing non-extending 2019 Maturity Term Loans and existing non-extending 2018 Maturity Term Loans and to fully prepay existing non-extending B-11 term loans due 2021 (“B-11 Term Loans”).

In connection with the Seventh Amendment, we incurred refinancing expenses of approximately $20.2 million, which will be amortized into interest expense over the remaining life of the Senior Secured Credit Facilities. In addition, we recorded accelerated amortization of deferred financing costs of $33.9 million in connection with the terminated non-extended revolving credit commitments and Extended Revolving Credit Commitments, partial repayment of existing non-extending 2019 Maturity Term Loans and 2018 Maturity Term Loans and the prepayment in full of B-11 Term Loans.

During the six months ended June 30, 2016, in addition to the payments described above, we repaid $25.9 million on our 2018 Maturity Term Loans, based on an excess cash flow calculation provision in the Credit Agreement and a $75.0 million voluntary prepayment. Also, during the six months ended June 30, 2016, we repaid our scheduled amortization of $5.4 million and $0.6 million on the 2019 Maturity Term Loans and the B-11 Term Loans, respectively.

17


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

2021 Senior Secured Notes

On June 17, 2016, we issued $400.0 million aggregate principal amount of 4.750% senior secured notes that mature on July 15, 2021 (the “2021 Senior Secured Notes”).  The 2021 Senior Secured Notes were offered in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.  We used the net proceeds from the issue and the sale of the 2021 Senior Secured Notes, together with proceeds from the Seventh Amendment, to partially repay certain outstanding term loans under our Senior Secured Credit Facilities as described above.

At any time prior to July 15, 2018, we may redeem all or a part of the 2021 Senior Secured Notes at a redemption price equal to 100% of the principal amount of 2021 Senior Secured Notes redeemed plus the applicable premium (as defined in the indenture governing the 2021 Senior Secured Notes) as of, and accrued and unpaid interest, if any, to, the date of redemption, subject to the rights of holders of 2021 Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date.

On or after July 15, 2018, we may redeem the 2021 Senior Secured Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the 2021 Senior Secured Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable date of redemption, subject to the right of holders of record of 2021 Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the 12-month period beginning on July 15 of each of the years indicated below:

 

Year

 

Percentage

 

2018

 

 

102.375%

 

2019

 

 

101.188%

 

2020 and thereafter

 

 

100.000%

 

 

In connection with the 2021 Senior Secured Notes, we incurred refinancing expenses of approximately $6.0 million, which will be amortized into interest expense over the remaining life of the 2021 Senior Secured Notes.

Securitization Facility

At June 30, 2016 and December 31, 2015, the principal balance outstanding on the revolving trade accounts receivable financing facility among the Company, certain of our originating domestic subsidiaries, West Receivables Holding LLC, West Receivables LLC and Wells Fargo (“Securitization Facility”) was $75.0 million and $0, respectively. We used the $75.0 million of proceeds from the Securitization Facility to prepay $75.0 million on the 2018 Maturity Term Loans. The highest outstanding balance during the six months ended June 30, 2016 and year ended December 31, 2015 was $75.0 million and $185.0 million, respectively.

At June 30, 2016, we were in compliance with our financial debt covenants.

 

7.

FAIR VALUE DISCLOSURES

FASB guidance establishes a three-level fair value hierarchy based upon assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:

· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

· Level 2 – Observable inputs other than those included within Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and

· Level 3 – Unobservable inputs for assets or liabilities reflecting our assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

18


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Trading Securities (Asset). The assets held in the West Corporation Executive Retirement Savings Plan and the West Corporation Nonqualified Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with the provisions of Accounting Standards Codification 320 Investments—Debt and Equity Securities considering the employee’s ability to change the investment allocation of their deferred compensation at any time. Quoted market prices are available for these securities in an active market; therefore the fair value of these securities is determined by Level 1 inputs.

We evaluate classification within the fair value hierarchy each reporting period. There were no transfers between any levels of the fair value hierarchy during the periods presented.

The carrying amount of the trading securities of $62.3 million and $60.1 million at June 30, 2016 and December 31, 2015, respectively, were equal to the quoted prices in active markets for identical assets.

The fair value of our 2021 Senior Secured Notes, issued on June 17, 2016, based on market quotes, which we determined to be Level 2 inputs, at June 30, 2016 was approximately $399.0 million, compared to the carrying amount of $400.0 million. The fair value of our 2022 Senior Notes based on market quotes, which we determined to be Level 2 inputs, at June 30, 2016 and December 31, 2015 was approximately $932.5 million and $862.5 million, respectively, compared to the carrying amount of $1.0 billion.

The fair value of our senior secured term loan facilities was estimated using current market quotes on comparable debt securities from various financial institutions. All of the inputs used to determine the fair market value of our senior secured term loan facilities are Level 2 inputs and obtained from an independent source. The fair value of our senior secured term loan facilities at June 30, 2016 was approximately $1,161.0 million compared to the carrying amount of $1,164.4 million. The fair value of our senior secured term loan facilities at December 31, 2015 was approximately $2,033.2 million compared to the carrying amount of $2,063.3 million.

The fair value of our senior secured A term loans based on recent trading activity, which we determined to be Level 2 inputs, at June 30, 2016 was approximately $715.7 million compared to the carrying amount of $728.8 million. The fair value of our 2019 Maturity Term Loans at December 31, 2015, was approximately $323.4 million compared to the carrying amount of $336.9 million.

A Level 3 liability of $5.3 million and $5.6 million was recognized as of June 30, 2016 and December 31, 2015, respectively, for contingent consideration related to the acquisition of ClientTell (see Note 3). The liability was measured at fair value using a Monte Carlo simulation approach and was based on estimated revenues and the present value of related payments over the earn-out period.

 

 

8.

STOCK-BASED COMPENSATION

2006 Executive Incentive Plan

Stock options granted under the West Corporation 2006 Executive Incentive Plan (“2006 EIP”) prior to 2012 vest over a period of five years, with 20% of the stock option becoming exercisable on each of the first through fifth anniversaries of the grant date. Stock options granted under the 2006 EIP in 2012 and 2013 vest over a period of four years, with 25% of the stock option becoming exercisable on each of the first through fourth anniversaries of the grant date. Once an option has vested, it generally remains exercisable until the tenth anniversary of the grant date so long as the participant continues to provide services to the Company.

2013 Long-Term Incentive Plan

Prior to the completion of our initial public offering, we adopted, and subsequently amended, the 2013 Long-Term Incentive Plan (as amended, “2013 LTIP”), which is intended to provide our officers, employees, non-employee directors and consultants with added incentive to remain employed by or perform services for us and align such individuals’ interests with those of our stockholders. Under the terms of the 2013 LTIP, 8,500,000 shares of common stock were made available for stock options, restricted stock or other types of equity awards, subject to adjustment for stock splits and other similar changes in capitalization. The number of available shares under the 2013 LTIP is reduced by the aggregate number of shares underlying each award. To the extent that shares subject to an outstanding award granted under the 2013 LTIP are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of such award in cash, then such shares will again be available under the 2013 LTIP (excluding shares withheld by the Company to pay withholding taxes related to an award under the 2013 LTIP).

19


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock options granted under the 2013 LTIP vest over a period of four years, with 25% of the stock option becoming exercisable on each of the first through fourth anniversaries of the grant date. Once an option has vested, it generally remains exercisable until the tenth anniversary of the grant date so long as the participant continues to provide services to the Company. Restricted stock granted under the 2013 LTIP, which is time-vested, vests over a period of three or four years (excluding awards to directors which vest over a six to twelve month period), with a ratable portion of the restricted stock award vested on each anniversary of the grant date until fully vested, unless earlier forfeited as a result of termination of service to the Company prior to the applicable vesting date. Dividends are payable in respect of shares of unvested restricted stock either at the time the dividend is paid to stockholders or upon vesting of the restricted stock in accordance with the terms of the applicable restricted stock award agreement.

2006 Executive Incentive Plan and 2013 Long-Term Incentive Plan – Stock Options

The following table presents the stock or stock option activity under the 2006 EIP and 2013 LTIP for the six months ended June 30, 2016.

 

 

 

 

 

 

 

Options Outstanding

 

 

 

Stock or

Options

Available

for Grant

 

 

Number

of Shares

 

 

Weighted

Average

Exercise Price

 

Balance at January 1, 2016

 

 

5,868,283

 

 

 

2,280,030

 

 

$

27.08

 

Options exercised

 

 

 

 

 

(29,475

)

 

 

13.12

 

Options canceled or forfeited (2013 LTIP)

 

 

9,074

 

 

 

(9,074

)

 

 

23.40

 

Options canceled or forfeited (2006 EIP)

 

 

 

 

 

(17,807

)

 

 

33.27

 

Restricted stock granted

 

 

(625,389

)

 

 

 

 

 

 

Restricted stock canceled

 

 

52,604

 

 

 

 

 

 

 

Balance at June 30, 2016

 

 

5,304,572

 

 

 

2,223,674

 

 

$

27.23

 

 

At June 30, 2016, we expect that approximately 2.2 million options granted and outstanding will vest.

At June 30, 2016, the intrinsic value of options vested and exercisable was approximately $0.3 million. The aggregate intrinsic value of options outstanding at June 30, 2016 was approximately $0.3 million. The aggregate intrinsic value of options outstanding, vested and expected to vest at June 30, 2016 was approximately $0.3 million.

The following table presents information regarding the options granted under the 2006 EIP and 2013 LTIP at June 30, 2016:

 

Outstanding

 

 

Exercisable

 

Range of

Exercise Prices

 

Number of

Options

 

 

Weighted Average

Remaining

Contractual

Life (years)

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

$0.00 - $13.12

 

 

39,661

 

 

 

0.43

 

 

$

13.12

 

 

 

39,661

 

 

$

13.12

 

13.13 - 28.88

 

 

1,674,014

 

 

 

5.98

 

 

 

25.10

 

 

 

1,481,267

 

 

 

25.30

 

28.89 - 50.88

 

 

492,626

 

 

 

5.08

 

 

 

33.81

 

 

 

492,626

 

 

 

33.81

 

50.89 - 84.80

 

 

17,373

 

 

 

4.15

 

 

 

77.48

 

 

 

17,373

 

 

 

77.48

 

$0.00 - $84.80

 

 

2,223,674

 

 

 

5.67

 

 

$

27.23

 

 

 

2,030,927

 

 

$

27.57

 

 

No stock options have been awarded since April 1, 2014.

Restricted Shares, Restricted Stock Units and Performance-Based Restricted Stock Units

During the six months ended June 30, 2016, pursuant to agreements with our non-employee directors who are not affiliated with our former sponsors, we issued 17,889 shares of common stock with an aggregate fair value of approximately $400,000. These shares vest on the six-month anniversary of the date of grant in the case of initial awards and on the one-year anniversary for all other awards.

20


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the six months ended June 30, 2016, we issued 408,000 restricted stock awards and restricted stock units to certain key employees. These awards vest ratably with 25% of the award vesting on each of the first through fourth anniversaries of the award date. The fair value of these awards at the date of grant was approximately $9.2 million and will be recognized over the remaining vesting period of approximately 3.7 years as of June 30, 2016.

During the six months ended June 30, 2016, we issued 199,500 performance-based restricted stock units to certain key executives. Each performance-based restricted stock unit represents a contingent right to receive between zero and 1.75 shares of West common stock. These performance-based restricted stock units will vest based on the Company’s total shareholder return (“TSR”) percentile ranking over the applicable performance period as compared to the TSR of companies included in the Russell 2000 on both the first and last day of the performance period, which began on March 1, 2016 and ends on February 28, 2019. The fair value of these awards at the date of grant was approximately $4.5 million and will be recognized over the remaining vesting period of approximately 2.7 years as of June 30, 2016.

2013 Employee Stock Purchase Plan

During the fourth quarter of 2013, we implemented the 2013 Employee Stock Purchase Plan (“ESPP”), under which the sale of 1.0 million shares of our common stock has been authorized and reserved. On January 28, 2016 the Board approved an amendment to the ESPP to increase the number of shares available under the ESPP by an additional 1.0 million shares of common stock. The amendment was approved by a vote of the stockholders at our May 17, 2016 annual meeting.  Employees may designate up to 50% of their annual compensation for the purchase of stock, subject to a per person limit of 2,000 shares in any offering period or calendar year. The price for shares purchased under the ESPP is 85% of the market closing price on the last day of the quarterly purchase period. No employee will be authorized to purchase common stock through the ESPP if, immediately after the purchase, the employee (or any other person whose stock would be attributed to such employee under U.S. tax law) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any parent of the Company or any subsidiary. In addition, no participant will be entitled to purchase stock under the ESPP at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company and its subsidiaries, exceeds $25,000 in fair market value, determined as of the date of grant (or such other limit as may be imposed by U.S. tax law), for each calendar year in which any option granted to the participant under any such plans is outstanding at any time. During the six months ended June 30, 2016, 182,285 shares were issued under the ESPP. As of June 30, 2016, 739,681 shares had been issued under the ESPP since the plan’s inception.  For the three and six months ended June 30, 2016 and 2015, we recognized compensation expense for this plan of $0.3 million and $0.7 million, respectively.

Share-Based Compensation Expense

For the three and six months ended June 30, 2016, share-based compensation expense was $6.2 million and $13.8 million, respectively. For the three and six months ended June 30, 2015, share-based compensation expense was $6.0 million and $11.4 million, respectively.

At June 30, 2016 and 2015, there was approximately $0.7 million and $4.7 million, respectively, of unrecorded and unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested share-based compensation on stock options under the 2006 EIP and 2013 LTIP, which will be recognized over the remaining vesting period of approximately 1.3 years as of June 30, 2016.

At June 30, 2016 and 2015, there was approximately $45.5 million and $38.0 million, respectively, of unrecorded and unrecognized compensation expense, related to unvested share-based compensation on restricted stock under the 2013 LTIP, which will be recognized over the remaining vesting period of approximately 2.6 years as of June 30, 2016.

 

 

21


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

9.

EARNINGS PER SHARE 

Diluted earnings per share reflects the potential dilution that could result if options or other contingently issuable shares were exercised or converted into common stock and notional shares from the Nonqualified Deferred Compensation Plan were granted. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method.

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

(Amounts in thousands, except per share amounts)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Earnings per common share-basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.40

 

 

$

0.59

 

 

$

0.94

 

 

$

1.17

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

0.38

 

Total earnings per common share-basic

 

$

0.40

 

 

$

0.59

 

 

$

0.94

 

 

$

1.55

 

Earnings per common share- diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.39

 

 

$

0.58

 

 

$

0.92

 

 

$

1.14

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

0.37

 

Total earnings per common share-diluted

 

$

0.39

 

 

$

0.58

 

 

$

0.92

 

 

$

1.51

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic common

 

 

82,598

 

 

 

83,394

 

 

 

82,874

 

 

 

83,758

 

Dilutive impact of Equity Incentive Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

1,683

 

 

 

2,198

 

 

 

1,551

 

 

 

2,162

 

Diluted common shares

 

 

84,281

 

 

 

85,592

 

 

 

84,425

 

 

 

85,920

 

 

Diluted earnings per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method that has a dilutive effect on earnings per share. At June 30, 2016 and 2015, 2,177,738 and 579,995 stock options, respectively, were outstanding with an exercise price equal to or exceeding the market value of our common stock and were therefore excluded from the computation of shares contingently issuable upon exercise of the options.

 

 

22


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

10.

ACCUMULATED OTHER COMPREHENSIVE LOSS 

Activity within accumulated other comprehensive loss for the three and six months ended June 30, 2016 and 2015, was for foreign currency translation of our foreign subsidiaries and is presented net of tax.

 

(Amounts in thousands)

 

Accumulated

Other

Comprehensive

Loss

 

BALANCE, April 1, 2016

 

$

(69,563

)

Foreign currency translation adjustment, net

   of tax of $4,779

 

 

(8,571

)

BALANCE, June 30, 2016

 

$

(78,134

)

 

 

 

 

 

BALANCE, January 1, 2016

 

$

(72,736

)

Foreign currency translation adjustment, net

   of tax of $3,010

 

 

(5,398

)

BALANCE, June 30, 2016

 

$

(78,134

)

 

 

 

 

 

 

 

Accumulated

Other

Comprehensive

Loss

 

BALANCE, April 1, 2015

 

$

(67,395

)

Foreign currency translation adjustment, net

   of tax of $(4,762)

 

 

8,171

 

BALANCE, June 30, 2015

 

$

(59,224

)

 

 

 

 

 

BALANCE, January 1, 2015

 

$

(37,506

)

Foreign currency translation adjustment, net

   of tax of $12,371

 

 

(21,718

)

BALANCE, June 30, 2015

 

$

(59,224

)

 

 

11.

SEGMENT REPORTING, GEOGRAPHIC AND CUSTOMER INFORMATION

Our five operating segments (Unified Communications Services, Telecom Services, Safety Services, Interactive Services, and Specialized Agent Services) are aggregated into four reportable segments as follows:

 

·

Unified Communications Services which includes conferencing and collaboration services, UCaaS solutions and telecom services;

 

·

Safety Services, including 9-1-1 network services, 9-1-1 telephony systems and services, 9-1-1 solutions for enterprises and database management;

 

·

Interactive Services, including proactive notifications and mobility, IVR self-service, cloud contact center and professional services; and

 

·

Specialized Agent Services which includes healthcare advocacy services, revenue generation services and cost management services.

23


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

For the three months ended

June 30,

 

 

For the six months ended

June 30,

 

(Amounts in Thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

370,158

 

 

$

374,651

 

 

$

732,871

 

 

$

744,109

 

Safety Services

 

 

74,423

 

 

 

66,138

 

 

 

145,587

 

 

 

134,716

 

Interactive Services

 

 

73,232

 

 

 

63,628

 

 

 

144,961

 

 

 

126,095

 

Specialized Agent Services

 

 

67,495

 

 

 

68,566

 

 

 

135,873

 

 

 

135,644

 

Intersegment eliminations

 

 

(2,911

)

 

 

(1,092

)

 

 

(6,116

)

 

 

(3,183

)

Total

 

$

582,397

 

 

$

571,891

 

 

$

1,153,176

 

 

$

1,137,381

 

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Included in Operating Income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

20,671

 

 

$

20,625

 

 

$

41,607

 

 

$

41,108

 

Safety Services

 

 

11,446

 

 

 

12,210

 

 

 

22,652

 

 

 

25,019

 

Interactive Services

 

 

9,350

 

 

 

7,282

 

 

 

18,325

 

 

 

14,436

 

Specialized Agent Services

 

 

7,440

 

 

 

6,625

 

 

 

14,818

 

 

 

13,099

 

Total

 

$

48,907

 

 

$

46,742

 

 

$

97,402

 

 

$

93,662

 

Operating Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

88,762

 

 

$

98,958

 

 

$

177,830

 

 

$

193,836

 

Safety Services

 

 

11,871

 

 

 

3,254

 

 

 

20,844

 

 

 

6,456

 

Interactive Services

 

 

5,958

 

 

 

6,630

 

 

 

11,766

 

 

 

12,204

 

Specialized Agent Services

 

 

2,906

 

 

 

8,992

 

 

 

7,424

 

 

 

17,527

 

Corporate other—unallocated

 

 

13,604

 

 

 

(1,401

)

 

 

14,161

 

 

 

(2,897

)

Total

 

$

123,101

 

 

$

116,433

 

 

$

232,025

 

 

$

227,126

 

Cash Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

13,337

 

 

$

12,341

 

 

$

26,370

 

 

$

32,240

 

Safety Services

 

 

11,764

 

 

 

6,387

 

 

 

22,482

 

 

 

12,304

 

Interactive Services

 

 

6,350

 

 

 

4,478

 

 

 

10,149

 

 

 

8,470

 

Specialized Agent Services

 

 

2,603

 

 

 

3,104

 

 

 

5,560

 

 

 

5,880

 

Corporate

 

 

3,453

 

 

 

2,247

 

 

 

9,303

 

 

 

5,970

 

Total

 

$

37,507

 

 

$

28,557

 

 

$

73,864

 

 

$

64,864

 

 

 

 

As of June 30,

2016

 

 

As of December 31,

2015

 

Assets:

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

1,492,257

 

 

$

1,525,890

 

Safety Services

 

 

771,599

 

 

 

786,447

 

Interactive Services

 

 

449,626

 

 

 

430,793

 

Specialized Agent Services

 

 

474,077

 

 

 

491,449

 

Corporate

 

 

359,042

 

 

 

302,966

 

Total from continuing operations

 

 

3,546,601

 

 

 

3,537,545

 

Assets held for sale

 

 

 

 

 

17,672

 

Total

 

$

3,546,601

 

 

$

3,555,217

 

 

24


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenues from non-U.S. countries were approximately 21% of consolidated revenue for both the three and six months ended June 30, 2016 and 2015.  Revenue from the United Kingdom accounted for 13% of consolidated revenue for both the three and six months ended June 30, 2016 and 12% of consolidated revenue for both the three and six months ended June 30, 2015. The United Kingdom was the only foreign country which accounted for greater than 10% of revenue. Revenue is attributed to the legal entity that has the contractual obligation with the customer regardless of the customer’s location or the currency used for billing purposes. Geographic information by organizational region, is noted below:

 

 

 

For the three months ended

June 30,

 

 

For the six months ended

June 30,

 

(Amounts in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas—United States

 

$

459,330

 

 

$

454,656

 

 

$

911,760

 

 

$

901,869

 

Europe, Middle East & Africa (EMEA)

 

 

81,430

 

 

 

77,250

 

 

 

160,825

 

 

 

155,227

 

Asia Pacific

 

 

36,473

 

 

 

37,800

 

 

 

71,129

 

 

 

72,311

 

Americas—Other

 

 

5,164

 

 

 

2,185

 

 

 

9,462

 

 

 

7,974

 

Total

 

$

582,397

 

 

$

571,891

 

 

$

1,153,176

 

 

$

1,137,381

 

 

 

 

 

 

As of June

30, 2016

 

 

As of December

31, 2015

 

Long-Lived Assets:

 

 

 

 

 

 

 

 

 

 

Americas—United States

 

 

 

$

2,567,467

 

 

$

2,593,739

 

Europe, Middle East & Africa (EMEA)

 

 

 

 

185,955

 

 

 

195,203

 

Asia Pacific

 

 

 

 

19,697

 

 

 

21,151

 

Americas—Other

 

 

 

 

7,269

 

 

 

1,952

 

Total

 

 

 

$

2,780,388

 

 

$

2,812,045

 

 

The aggregate gain (loss) on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately $1.1 million and ($1.5) million for the three months ended June 30, 2016 and 2015, respectively.  For the six months ended June 30, 2016 and 2015, the aggregate loss on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately ($1.0) million and ($0.2) million, respectively.

 

 

12.

COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we and certain of our subsidiaries are defendants in various litigation matters and are subject to claims from our clients for indemnification, some of which may involve claims for damages that are substantial in amount.

Accruals have been made with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. The Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company. The matters discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in liability material to the Company’s financial condition and/or results of operations.

There are asserted claims against the Company where an unfavorable outcome is considered to be reasonably possible. These claims can generally be categorized in the following areas: (l) commercial disputes with customers or other business partners, which may involve assertion of a breach of the Company’s legal or contractual obligations to the customer or a claim for indemnification for third-party losses; and (2) other matters which may include issues such as employment related claims. The Company’s estimates of the range of reasonably possible losses in excess of any amounts accrued for such claims is $0 to $20 million for all of the matters described above. The estimated range of reasonably possible losses is based on information currently available and involves elements of judgment and significant uncertainties. As additional information becomes available and the resolution of the uncertainties becomes more apparent, it is possible that actual losses may exceed even the high end of the estimated range.

25


WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In connection with the sale of certain of our agent-based businesses to Alorica Inc., we agreed to indemnify the buyer, up to the full purchase price of $275.0 million, with respect to the equity interests of the companies we sold, title to the equity and assets sold and the authority of the Company to sell the equity and assets. The Company has also agreed to indemnify the buyer for breaches of other representations and warranties in the purchase agreement for up to $13.75 million in losses and for certain other matters.

 

 

13.SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes, in thousands, supplemental information about our cash flows for the six months ended June 30, 2016 and 2015:

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

75,684

 

 

$

86,314

 

Cash paid during the period for income taxes, net of

   refunds of $3,703 and $939

 

$

23,939

 

 

$

63,727

 

SUPPLEMENTAL DISCLOSURE OF NONCASH

   INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Accrued obligations for the purchase of property and

   equipment

 

$

(4,849

)

 

$

(13,628

)

SUPPLEMENTAL DISCLOSURE OF NONCASH

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accrued dividends

 

$

854

 

 

$

602

 

Accrued deferred financing costs

 

$

1,079

 

 

$

 

 

 

14.

SUBSEQUENT EVENTS

On July 26, 2016, the Company entered into two interest rate swaps, a 1-month LIBOR swap and a 3-month LIBOR swap, both with a beginning notional value of $275.0 million and maturity date of July 17, 2021.  The 1-month LIBOR swap is effective July 29, 2016, with no amortization or variable interest rate floor.  The 3-month LIBOR swap is effective June 30, 2017, with 1% amortization per year and a 75 basis points LIBOR floor.

As required under ASC 815, Derivatives and Hedging, we will record the interest rate swaps on the balance sheet at fair value.  The interest rate swaps are considered cash flow hedges. We have elected to apply hedge accounting and believe the designated hedging relationship and terms of the interest rate swaps have satisfied the criteria necessary to apply hedge accounting.

The effective portion of changes in the fair value of the interest rate swaps will be recorded in Accumulated Other Comprehensive Loss and will be subsequently reclassified into earnings in the period that the hedged transactions affect earnings. The ineffective portion of the change in fair value of the interest rate swaps, if any, will be recognized in earnings.

 

 

 

26


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

The following discussion and analysis of our financial condition and results of continuing operations should be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and the Notes thereto.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or other similar words.

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have described in the “Risk Factors” section contained in our Annual Report on Form 10-K for the year ended December 31, 2015 the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

The forward-looking statements in this report represent our views as of the date of this report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this report.

Business Overview

We are a global provider of technology-enabled communication services. “We,” “us” and “our” also refer to West and its consolidated subsidiaries, as applicable. We offer a broad range of communication and network infrastructure solutions that help manage or support essential communications. These solutions include unified communications services, safety services, interactive services such as automated notifications, specialized agent services and telecom services.

The scale and processing capacity of our technology platforms, combined with our expertise in managing multichannel interactions, enable us to provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients and help them build smarter, more meaningful connections. We are dedicated to delivering and improving upon new channels, new capabilities and new choices for how businesses and consumers collaborate, connect and transact. Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, education, technology and healthcare. We have sales and/or operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.

Since our founding in 1986, we have invested significantly to expand our technology platforms and develop our operational processes to meet the complex communications needs of our clients. We have evolved our business mix from labor-intensive communication services to predominantly diversified technology-driven services.

Investing in technology and developing specialized expertise in the industries we serve are critical components to our strategy of enhancing our services and delivering operational excellence. In 2015, we managed approximately 65 billion telephony minutes and approximately 167 million conference calls, facilitated approximately 290 million 9-1-1 calls and received or delivered over 6.5 billion multichannel messages. We believe our platforms provide scale and flexibility to handle greater transaction volume than our competitors, offer superior service and develop new offerings. Our technology-driven platforms allow us to provide a broad range of service offerings to our diverse client base.

27


 

Financial Operations Overview

Revenue

Services in Unified Communications Services are generally billed and revenue recognized, on a per participant minute basis or, in the case of license arrangements, generally billed in advance and revenue recognized ratably over the service life period. We also charge clients for additional features, such as conference call recording, transcription services or professional services. Some Unified Communications Services revenue is recognized on a “Per User Per Month” or network circuit basis. Telecom Services revenue is primarily comprised of switched access charges for toll-free origination services, which are paid primarily by interexchange carriers. Revenue is billed monthly and revenue recognized based on usage.

Safety Services revenue is generated primarily from monthly fees and recognized as billed, based on the number of billing telephone numbers or population and cell towers covered under contract. In addition, product sales that may include hardware, software, and professional services (installation, training and project management) are generally recognized when shipment of the hardware and software has occurred and for professional services when client acceptance of a fully functional system is received. Contracts for annual recurring services such as support and maintenance agreements and contracts where guaranteed minimums exist are generally billed in advance and are recognized as revenue ratably (on a monthly basis) over the contractual periods.

Services in Interactive Services are generally billed, and revenue recognized, on a per call, per message or per minute basis, or in the case of subscription arrangements, generally billed in advance and revenue recognized ratably over the contract term.

Services in Specialized Agent Services are generally billed based on hours of input, number of contacts, number of personnel assigned, on a contingent basis or recognized in the month collection payments are received based upon a percentage of cash collected or other agreed upon contractual parameters. Revenue for health advocacy services is generally based on “Per Employee Per Month” fees charged under prepayment agreements for services and is recognized ratably over the service period.

For all of our reportable segments, fees received for future service periods are deferred until the service is performed.

Cost of Services

The principal component of cost of services is our variable telephone expense, labor related expenses and commissions for our sales force.

Selling, General and Administrative Expenses

The principal component of our selling, general and administrative expenses (“SG&A”) is salary and benefits for our sales force, client support staff, technology and development personnel, senior management and other personnel involved in business support functions. SG&A also includes certain fixed telephone costs as well as other expenses that support the ongoing operation of our business, such as facilities costs, certain service contract costs, depreciation, maintenance and amortization of finite-lived intangible assets.

Key Drivers Affecting Our Financial Position and Results of Operations

Divestiture Activities. On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014.

The divestiture resulted in a $48.2 million after-tax gain in 2015 which was included within income from discontinued operations. The $48.2 million gain included a $21.6 million tax benefit in 2015 due to the deferred tax benefit associated with excess outside basis over financial reporting basis. The total after-tax gain realized on the sale was $56.8 million, including the $8.6 million tax benefit associated with a higher tax basis than book basis that we were required to recognize in the fourth quarter of 2014.

Factors Related to our Indebtedness. On June 17, 2016, we completed a partial refinancing of our outstanding indebtedness through an amendment to our term and revolving senior secured credit facilities (“Senior Secured Credit Facilities”) and a private offering of $400 million aggregate principal amount of 4.75% senior secured notes due 2021.  The amendment to our Senior Secured Credit Facilities, among other things, established commitments for a new seven-year senior secured term loan B-12 facility in an aggregate principal amount of $870 million (the “2023 Maturity Term Loans”), a new five-year senior secured term loan A-2 facility in an aggregate principal amount of $650 million (the “2021 Maturity A Term Loans”), and a new five-year senior secured term loan B-14 facility in an aggregate principal amount of $260 million (the “2021 Maturity B Term Loans”). We used the proceeds of the new

28


 

notes and new facilities, together with cash on hand, to repay $1,678 million of our existing term loan B-10 facility (the “2018 Maturity Term Loans”) and $252.6 million on the term A-1 facility (the “2019 Maturity Term Loans”) and to repay in full, $249.4 million on the term loan B-11 facility (“B-11 Term Loans”). In addition, the amendment provided for an extended senior secured revolving credit facility with a maturity date of June 17, 2021 in an aggregate amount of $300 million (the Extended Revolving Credit Commitments”).  

 

The refinancing and use of proceeds resulted in the following benefits:

 

·

we extended our weighted average length of maturity from 3.7 years to 5.75 years, while maintaining an attractively priced cost of capital, with a weighted average cost of debt of 4.10%, an increase from 3.90% as of March 31, 2016, excluding amortization of deferred financing fees and unused commitment fees; and

 

·

we increased our percentage of fixed rate debt from 30% to 42% of our total debt portfolio.

Acquisition Activities. Identifying and successfully integrating acquisitions of value-added service providers has been a key component of our growth strategy. We will continue to seek opportunities to expand our suite of communication services across industries, geographies and end-markets. We have developed an internal capability to source, evaluate and integrate acquisitions that we believe has created value for stockholders. Since 2002, we have invested approximately $3.0 billion in strategic acquisitions. We believe there are acquisition candidates that will enable us to expand our capabilities and markets and intend to continue to evaluate acquisitions in a disciplined manner and pursue those that provide attractive opportunities to enhance our growth and profitability.

Overview of 2016 Results

The following overview highlights the areas we believe are important in understanding the results of our continuing operations for the three and six months ended June 30, 2016. This summary is not intended as a substitute for the detail provided elsewhere in this quarterly report or for our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report. Unless otherwise stated, financial results discussed herein refer to continuing operations.

 

·

Our revenue increased $10.5 million, or 1.8%, during the three months ended June 30, 2016 compared to revenue during the three months ended June 30, 2015.

 

·

Our revenue increased $15.8 million, or 1.4%, during the six months ended June 30, 2016 compared to revenue during the six months ended June 30, 2015.

 

·

Our operating income increased $6.7 million, or 5.7%, during the three months ended June 30, 2016 compared to operating income during the three months ended June 30, 2015.

 

·

Our operating income increased $4.9 million, or 2.2%, during the six months ended June 30, 2016 compared to operating income during the six months ended June 30, 2015.

 

·

On March 14, 2016, we completed the acquisition of substantially all of the assets of Synrevoice, a provider of messaging and notification services to the K-12 education and commercial markets in North America. The purchase price was approximately $9.3 million and was funded with cash on hand. This business is included in the Interactive Services reportable segment.

 

·

On June 17, 2016, we amended our Senior Secured Credit Facilities and completed a private offering of $400 million aggregate principal amount of 4.75% senior secured notes due 2021.  The proceeds from the amendment and new notes were used to repay $1,678 million of our 2018 Maturity Term Loans and $252.6 million of our 2019 Maturity Term Loans and to repay in full, $249.4 million of our B-11 Term Loans. In addition, the amendment to the credit agreement provided for an extended senior secured revolving credit facility with a maturity date of June 17, 2021 in an aggregate amount of $300 million.  In connection with these refinancing activities we recorded $35.2 million of accelerated amortization of deferred financing costs.

 

·

On June 21, 2016, we completed the sale of land, buildings and improvements which were previously classified as held for sale for $38.8 million, excluding related expenses. In connection with this sale, we realized a pre-tax gain of approximately $19.0 million.  We also entered into a twelve year leaseback agreement for one of the buildings.  This lease is classified as an operating lease and the related $6.1 million gain, included in the $19.0 million realized gain, is being deferred and will be recognized over the lease term.

29


 

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2016 and 2015

Revenue: The tables below summarize the changes in our revenue for the three and six months ended June 30, 2016 compared to the revenue for the three and six months ended June 30, 2015.

 

 

 

Amounts in millions

 

 

Contribution to

Growth %

 

Revenue for the three months ended June 30, 2015

 

$

571.9

 

 

 

 

 

Revenue from acquired entities

 

 

7.1

 

 

 

1.2

%

Estimated impact of foreign exchange rates

 

 

(2.4

)

 

 

(0.4

)%

Revenue from previously disclosed lost client

 

 

(16.0

)

 

 

(2.8

)%

Adjusted organic growth, net

 

 

21.8

 

 

 

3.8

%

Revenue for the three months ended June 30, 2016

 

$

582.4

 

 

 

1.8

%

 

Total revenue for the three months ended June 30, 2016 increased approximately $10.5 million, or 1.8%, to $582.4 million from $571.9 million for the three months ended June 30, 2015. This increase included revenue of $7.1 million from the acquisitions of Synrevoice, ClientTell, Magnetic North and SharpSchool.

The loss of a previously disclosed large Telecom Services client negatively impacted our revenue growth by approximately $16.0 million during the quarter.

Foreign exchange rates had a negative impact of approximately $2.4 million on our revenue for the three months ended June 30, 2016 when comparing the foreign exchange rates in place during this quarter to those in place during the three months ended June 30, 2015.

Adjusted organic growth is a non-GAAP measure that excludes revenue from acquired entities, revenue from previously disclosed lost clients and the estimated impact of foreign currency exchange rates.  We believe adjusted organic revenue growth provides a useful measure of growth in our ongoing business.

 

 

 

Amounts in millions

 

 

Contribution to

Growth %

 

Revenue for the six months ended June 30, 2015

 

$

1,137.4

 

 

 

 

 

Revenue from acquired entities

 

 

14.4

 

 

 

1.3

%

Estimated impact of foreign exchange rates

 

 

(6.1

)

 

 

(0.5

)%

Revenue from two previously disclosed lost clients

 

 

(34.2

)

 

 

(3.0

)%

Adjusted organic growth, net

 

 

41.7

 

 

 

3.7

%

Revenue for the six months ended June 30, 2016

 

$

1,153.2

 

 

 

1.4

%

 

Total revenue for the six months ended June 30, 2016 increased approximately $15.8 million, or 1.4%, to $1,153.2 million from $1,137.4 million for the six months ended June 30, 2015. This increase included revenue of $14.4 million from the acquisitions of Synrevoice, ClientTell, Magnetic North, and SharpSchool.

The loss of two previously disclosed large clients negatively impacted our revenue growth by approximately $34.2 million.

Foreign exchange rates had a negative impact of approximately $6.1 million on our revenue for the six months ended June 30, 2016 when comparing the foreign exchange rates in place during this quarter to those in place during the six months ended June 30, 2015.

30


 

Revenue by reportable segment:

 

 

 

For the three months ended June 30,

 

 

 

2016

 

 

% of Total

Revenue

 

 

2015

 

 

% of Total

Revenue

 

 

Change

 

 

% Change

 

Revenue (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

370,158

 

 

 

63.5

%

 

$

374,651

 

 

 

65.5

%

 

$

(4,493

)

 

 

-1.2

%

Safety Services

 

 

74,423

 

 

 

12.8

%

 

 

66,138

 

 

 

11.6

%

 

 

8,285

 

 

 

12.5

%

Interactive Services

 

 

73,232

 

 

 

12.6

%

 

 

63,628

 

 

 

11.1

%

 

 

9,604

 

 

 

15.1

%

Specialized Agent Services

 

 

67,495

 

 

 

11.6

%

 

 

68,566

 

 

 

12.0

%

 

 

(1,071

)

 

 

-1.6

%

Intersegment eliminations

 

 

(2,911

)

 

 

-0.5

%

 

 

(1,092

)

 

 

-0.2

%

 

 

(1,819

)

 

NM

 

Total

 

$

582,397

 

 

 

100.0

%

 

$

571,891

 

 

 

100.0

%

 

$

10,506

 

 

 

1.8

%

 

NM—Not Meaningful

During the three months ended June 30, 2016, Unified Communications Services revenue decreased $4.5 million, or 1.2%, to $370.2 million from $374.7 million for the three months ended June 30, 2015. Negative impacts of foreign exchange rates of approximately $2.4 million and the large Telecom Services client loss of $16.0 million were partially offset by revenue from new sales, client volume growth and revenue of $2.2 million from the acquisition of Magnetic North. Adjusted organic growth for Unified Communications Services was 3.1% for the three months ended June 30, 2016.

The volume of minutes used for our reservationless conferencing services, which accounts for just over half of the Unified Communications Services revenue, grew approximately 3.4% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, while the average rate per minute for reservationless services declined by approximately 5.6%. Using constant currency foreign exchange rates, our average rate per minute for reservationless conferencing services declined by approximately 4.7% for the three months ended June 30, 2016.

During the three months ended June 30, 2016, Safety Services revenue increased $8.3 million, or 12.5%, to $74.4 million from $66.1 million for the three months ended June 30, 2015. The increase was primarily due to sales to customers adopting new technologies and higher equipment sales, which can fluctuate quarter to quarter, partially offset by price compression.

During the three months ended June 30, 2016, Interactive Services revenue increased $9.6 million, or 15.1%, to $73.2 million from $63.6 million for the three months ended June 30, 2015. The acquisitions of Synrevoice, ClientTell and SharpSchool contributed $4.9 million of the increase in revenue. The remaining increase was primarily due to new clients and increased volumes from existing clients, largely in the education market, partially offset by price compression.

During the three months ended June 30, 2016, Specialized Agent Services revenue decreased $1.1 million, or 1.6%, to $67.5 million from $68.6 million for the three months ended June 30, 2015. This decrease in revenue was primarily due to expected customer churn, delayed program implementations due to challenging labor markets in our revenue generation services and slower than historical recoveries from our cost management services. The decrease in revenue in the revenue generation and cost management businesses was partially offset by double-digit revenue growth in our healthcare advocacy services due to increased volume as well as expanded product offerings.

During the three months ended June 30, 2016, international revenue was $123.1 million, an increase of 5.0% over the three months ended June 30, 2015. Excluding acquisitions, the percentage increase in international revenue was 1.4%. Using constant currency foreign exchange rates, international revenue would have increased 7.1% during the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

31


 

During the three months ended June 30, 2016 and 2015, our largest 100 clients accounted for approximately 41% and 48% of our total revenue, respectively. In each of these periods, no client accounted for more than 10% of our aggregate revenue.

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

% of Total

Revenue

 

 

2015

 

 

% of Total

Revenue

 

 

Change

 

 

% Change

 

Revenue (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

732,871

 

 

 

63.5

%

 

$

744,109

 

 

 

65.4

%

 

$

(11,238

)

 

 

-1.5

%

Safety Services

 

 

145,587

 

 

 

12.6

%

 

 

134,716

 

 

 

11.8

%

 

 

10,871

 

 

 

8.1

%

Interactive Services

 

 

144,961

 

 

 

12.6

%

 

 

126,095

 

 

 

11.1

%

 

 

18,866

 

 

 

15.0

%

Specialized Agent Services

 

 

135,873

 

 

 

11.8

%

 

 

135,644

 

 

 

11.9

%

 

 

229

 

 

 

0.2

%

Intersegment eliminations

 

 

(6,116

)

 

 

-0.5

%

 

 

(3,183

)

 

 

-0.3

%

 

 

(2,933

)

 

NM

 

Total

 

$

1,153,176

 

 

 

100.0

%

 

$

1,137,381

 

 

 

100.0

%

 

$

15,795

 

 

 

1.4

%

 

NM—Not Meaningful

During the six months ended June 30, 2016, Unified Communications Services revenue decreased $11.2 million, or 1.5%, to $732.9 million from $744.1 million for the six months ended June 30, 2015. Negative impacts of foreign exchange rates of approximately $6.1 million and the two large client losses of $34.2 million were partially offset by revenue from new sales, client volume growth and revenue of $4.4 million from the acquisition of Magnetic North. Adjusted organic growth for Unified Communications Services was 3.3% for the six months ended June 30, 2016.

The volume of minutes used for our reservationless conferencing services, which accounts for just over half of the Unified Communications Services revenue, grew approximately 3.3% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, while the average rate per minute for reservationless services declined by approximately 5.7%. Adjusting for the impact of the loss of a large conferencing client, the volume of minutes used for our reservationless conferencing services grew by approximately 3.9% and our average rate per minute for reservationless conferencing services declined by approximately 5.1% for the six months ended June 30, 2016.

During the six months ended June 30, 2016, Safety Services revenue increased $10.9 million, or 8.1%, to $145.6 million from $134.7 million for the six months ended June 30, 2015. The increase was primarily due to sales to customers adopting new technologies and higher equipment sales, which can fluctuate period to period, partially offset by price compression.

During the six months ended June 30, 2016, Interactive Services revenue increased $18.9 million, or 15.0%, to $145.0 million from $126.1 million for the six months ended June 30, 2015. The acquisitions of Synrevoice, ClientTell and SharpSchool contributed $10.0 million of the increase in revenue. The remaining increase was primarily due to new clients as well as increased volumes from existing clients, largely in the education and healthcare markets, partially offset by price compression.

During the six months ended June 30, 2016, Specialized Agent Services revenue increased $0.2 million, or 0.2%, to $135.9 million from $135.6 million for the six months ended June 30, 2015. The increase in revenue is primarily the result of double-digit revenue growth in our healthcare advocacy services due to increased volume as well as expanded product offerings. This increase in revenue was partially offset by customer churn, delayed program implementations due to challenging labor markets in our revenue generation services and slower than historical recoveries from our cost management services.

During the six months ended June 30, 2016, international revenue was $241.4 million, an increase of 2.5% over the six months ended June 30, 2015. Excluding acquisitions, the percentage decrease in international revenue was 1.1%. Using constant currency foreign exchange rates, international revenue would have increased 5.1% during the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

During the six months ended June 30, 2016 and 2015, our largest 100 clients accounted for approximately 42% and 45% of our total revenue, respectively. In each of these periods, no client accounted for more than 10% of our aggregate revenue.

Cost of Services: Cost of services consists of direct labor, telephone expense, commissions and other costs directly related to providing services to our clients. Cost of services increased approximately $4.2 million, or 1.7%, in the three months ended June 30, 2016, to $249.4 million, from $245.3 million for the three months ended June 30, 2015. The increase in cost of services during the three months ended June 30, 2016 included $1.3 million from the acquisitions completed in 2016 and 2015. The remaining net increase of $2.9 million was primarily driven by increased service volume which was partially offset by cost savings initiatives. As a percentage of revenue, cost of services decreased to 42.8% for the three months ended June 30, 2016, from 42.9% for the three months ended June 30, 2015.

32


 

Cost of Services by reportable segment:

 

 

 

For the three months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

Cost of services (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

173,651

 

 

 

46.9

%

 

$

173,127

 

 

 

46.2

%

 

$

524

 

 

 

0.3

%

Safety Services

 

 

26,689

 

 

 

35.9

%

 

 

26,678

 

 

 

40.3

%

 

 

11

 

 

 

0.0

%

Interactive Services

 

 

16,918

 

 

 

23.1

%

 

 

13,569

 

 

 

21.3

%

 

 

3,349

 

 

 

24.7

%

Specialized Agent Services

 

 

33,760

 

 

 

50.0

%

 

 

32,462

 

 

 

47.3

%

 

 

1,298

 

 

 

4.0

%

Intersegment eliminations

 

 

(1,592

)

 

NM

 

 

 

(570

)

 

NM

 

 

 

(1,022

)

 

 

179.3

%

Total

 

$

249,426

 

 

 

42.8

%

 

$

245,266

 

 

 

42.9

%

 

$

4,160

 

 

 

1.7

%

 

NM—Not Meaningful

During the three months ended June 30, 2016, Unified Communications Services cost of services increased $0.5 million, or 0.3%, to $173.7 million from $173.1 million for the three months ended June 30, 2015. Using constant currency foreign exchange rates, cost of services for the three months ended June 30, 2016 would have been approximately $1.8 million higher. As a percentage of this segment’s revenue, Unified Communications Services cost of services during the three months ended June 30, 2016 increased to 46.9% from 46.2% for the three months ended June 30, 2015. The increase in cost of services as a percentage of revenue was due primarily to the loss of a large telecom services customer which had an above average gross margin, product mix and price compression for reservationless conferencing services.

During the three months ended June 30, 2016, Safety Services cost of services increased less than $0.1 million from $26.7 million for the three months ended June 30, 2015. Cost savings initiatives offset the expense increases in telecom expenses associated with new technologies and volume related increases. As a percentage of revenue, Safety Services cost of services during the three months ended June 30, 2016 decreased to 35.9% from 40.3% for the three months ended June 30, 2015 due to product mix.

During the three months ended June 30, 2016, Interactive Services cost of services increased $3.3 million, or 24.7%, to $16.9 million from $13.6 million for the three months ended June 30, 2015. The increase in cost of services included $0.9 million from acquisitions made in 2016 and 2015. As a percentage of revenue, Interactive Services cost of services during the three months ended June 30, 2016 increased to 23.1% from 21.3% for the three months ended June 30, 2015. The increase in cost of services as a percentage of revenue is due primarily to product mix.

During the three months ended June 30, 2016, Specialized Agent Services cost of services increased $1.3 million, or 4.0%, to $33.8 million from $32.5 million for the three months ended June 30, 2015. The increase in cost of services was primarily due to increased labor rates. As a percentage of revenue, Specialized Agent Services cost of services during the three months ended June 30, 2016 increased to 50.0% from 47.3% for the three months ended June 30, 2015. The increase in cost of services as a percentage of revenue is due to increased labor rates and product mix.

Cost of services increased approximately $5.5 million, or 1.1%, in the six months ended June 30, 2016, to $490.4 million, from $485.0 million for the six months ended June 30, 2015. The increase in cost of services during the six months ended June 30, 2016 included $2.3 million from the acquisitions completed in 2016 and 2015. The remaining net increase of $3.2 million was primarily driven by increased service volume, which was partially offset by cost savings initiatives. As a percentage of revenue, cost of services decreased to 42.5% for the six months ended June 30, 2016, from 42.6% for the six months ended June 30, 2015.

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

Cost of services (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

339,847

 

 

 

46.4

%

 

$

341,442

 

 

 

45.9

%

 

$

(1,595

)

 

 

-0.5

%

Safety Services

 

 

54,004

 

 

 

37.1

%

 

 

53,183

 

 

 

39.5

%

 

 

821

 

 

 

1.5

%

Interactive Services

 

 

33,070

 

 

 

22.8

%

 

 

27,231

 

 

 

21.6

%

 

 

5,839

 

 

 

21.4

%

Specialized Agent Services

 

 

66,911

 

 

 

49.2

%

 

 

64,033

 

 

 

47.2

%

 

 

2,878

 

 

 

4.5

%

Intersegment eliminations

 

 

(3,394

)

 

NM

 

 

 

(922

)

 

NM

 

 

 

(2,472

)

 

 

268.1

%

Total

 

$

490,438

 

 

 

42.5

%

 

$

484,967

 

 

 

42.6

%

 

$

5,471

 

 

 

1.1

%

 

NM—Not Meaningful

33


 

During the six months ended June 30, 2016, Unified Communications Services cost of services decreased $1.6 million, or 0.5%, to $339.8 million from $341.4 million for the six months ended June 30, 2015. Using constant currency foreign exchange rates, cost of services for the six months ended June 30, 2016 would have been approximately $3.8 million higher. As a percentage of this segment’s revenue, Unified Communications Services cost of services during the six months ended June 30, 2016 increased to 46.4% from 45.9% for the six months ended June 30, 2015. The increase in cost of services as a percentage of revenue was due primarily to the loss of a large telecom services customer which had an above average gross margin and the loss of a large conferencing customer, product mix and price compression for reservationless conferencing services.

During the six months ended June 30, 2016, Safety Services cost of services increased $0.8 million, or 1.5%, to $54.0 million from $53.2 million for the six months ended June 30, 2015. The increase in cost of services was primarily due to volume increases and an increase in telecom expenses associated with new technologies, partially offset by cost savings initiatives. As a percentage of revenue, Safety Services cost of services during the six months ended June 30, 2016 decreased to 37.1% from 39.5% for the six months ended June 30, 2015 due to product mix.

During the six months ended June 30, 2016, Interactive Services cost of services increased $5.8 million, or 21.4%, to $33.1 million from $27.2 million for the six months ended June 30, 2015. The increase in cost of services included $1.5 million from acquisitions made in 2016 and 2015. As a percentage of revenue, Interactive Services cost of services during the six months ended June 30, 2016 increased to 22.8% from 21.6% for the six months ended June 30, 2015. The increase in cost of services as a percentage of revenue is due primarily to product mix.

During the six months ended June 30, 2016, Specialized Agent Services cost of services increased $2.9 million, or 4.5%, to $66.9 million from $64.0 million for the six months ended June 30, 2015. The increase in cost of services was primarily due to increased labor rates. As a percentage of revenue, Specialized Agent Services cost of services during the six months ended June 30, 2016 increased to 49.2% from 47.2% for the six months ended June 30, 2015. The increase in cost of services as a percentage of revenue is due to increased labor rates and product mix.

SG&A expenses: SG&A expenses decreased by approximately $0.3 million, or 0.2%, to $209.9 million for the three months ended June 30, 2016 from $210.2 million for the three months ended June 30, 2015. The decrease in SG&A expenses during the three months ended June 30, 2016 included a $12.8 million gain on the sale of buildings that were previously occupied by the businesses we divested in 2015.  Partially offsetting this reduction in SG&A expenses were $7.5 million from the acquisitions completed in 2016 and 2015, an increase in labor rates and an increase of $1.4 million in severance expenses. The $7.5 million of SG&A from acquired entities includes $2.4 million of amortization of acquired intangible assets. As a percentage of revenue, SG&A expenses decreased to 36.0% for the three months ended June 30, 2016 from 36.8% for the three months ended June 30, 2015.

SG&A expenses by reportable segment:

 

 

 

For the three months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

SG&A (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

107,745

 

 

 

29.1

%

 

$

102,566

 

 

 

27.4

%

 

$

5,179

 

 

 

5.0

%

Safety Services

 

 

35,863

 

 

 

48.2

%

 

 

36,206

 

 

 

54.7

%

 

 

(343

)

 

 

-0.9

%

Interactive Services

 

 

50,356

 

 

 

68.8

%

 

 

43,429

 

 

 

68.3

%

 

 

6,927

 

 

 

16.0

%

Specialized Agent Services

 

 

30,829

 

 

 

45.7

%

 

 

27,112

 

 

 

39.5

%

 

 

3,717

 

 

 

13.7

%

Corporate other - unallocated

 

 

(13,604

)

 

NM

 

 

 

1,401

 

 

NM

 

 

 

(15,005

)

 

NM

 

Intersegment eliminations

 

 

(1,319

)

 

NM

 

 

 

(522

)

 

NM

 

 

 

(797

)

 

NM

 

Total

 

$

209,870

 

 

 

36.0

%

 

$

210,192

 

 

 

36.8

%

 

$

(322

)

 

 

-0.2

%

 

NM—Not Meaningful

During the three months ended June 30, 2016, Unified Communications Services SG&A expenses increased $5.2 million, or 5.0%, to $107.7 million from $102.6 million for the three months ended June 30, 2015. Using constant currency foreign exchange rates, SG&A expenses for Unified Communications Services during the three months ended June 30, 2016 would have been approximately $2.9 million higher. The increase was primarily due to increased expenses to support growth in the UCaaS market and $2.6 million from the acquisition of Magnetic North, partially offset by cost savings initiatives. As a percentage of this segment’s revenue, Unified Communications Services SG&A expenses during the three months ended June 30, 2016 increased to 29.1% compared to 27.4% for the three months ended June 30, 2015.

34


 

During the three months ended June 30, 2016, Safety Services SG&A expenses decreased $0.3 million, or 0.9%, to $35.9 million from $36.2 million for the three months ended June 30, 2015. The decrease in SG&A expenses during the three months ended June 30, 2016, was due primarily to lower amortization expense and the results of cost savings initiatives. As a percentage of this segment’s revenue, Safety Services SG&A expenses during the three months ended June 30, 2016 decreased to 48.2% compared to 54.7% for the three months ended June 30, 2015.

During the three months ended June 30, 2016, Interactive Services SG&A expenses increased $6.9 million, or 16.0%, to $50.4 million from $43.4 million for the three months ended June 30, 2015. The increase in SG&A expenses during the three months ended June 30, 2016 included $4.9 million from acquisitions made in 2016 and 2015. The remaining increase in SG&A expenses was primarily due to increased headcount levels to meet current and expected customer demand. As a percentage of this segment’s revenue, Interactive Services SG&A expenses during the three months ended June 30, 2016, increased to 68.8% compared to 68.3% for the three months ended June 30, 2015.

During the three months ended June 30, 2016, Specialized Agent Services SG&A expenses increased $3.7 million, or 13.7%, to $30.8 million from $27.1 million for the three months ended June 30, 2015. This increase in SG&A expense was driven by increased labor rates and severance costs and costs of product enhancements to accelerate revenue growth. As a percentage of this segment’s revenue, Specialized Agent Services SG&A expenses during the three months ended June 30, 2016 increased to 45.7% compared to 39.5% for the three months ended June 30, 2015.

During the three months ended June 30, 2016, Corporate other unallocated SG&A expenses consisted of the $12.8 million gain recognized on the sale of buildings that were previously occupied by the businesses we divested in 2015, $1.8 million of unallocated foreign currency gains on third-party transactions denominated in currencies other than the functional currency and $1.1 million of mark-to-market gains on investments in our non-qualified retirement plans. During the three months ended June 30, 2015, there were $1.6 million of unallocated foreign currency losses. In addition, the three months ended June 30, 2015 included $0.2 million of mark-to-market losses on investments in our non-qualified retirement plans. These mark-to-market losses result in a decrease in SG&A and a corresponding decrease in other non-operating income. All other corporate expenses are allocated to our four reportable segments.

SG&A expenses increased by approximately $5.4 million, or 1.3%, to $430.7 million for the six months ended June 30, 2016 from $425.3 million for the six months ended June 30, 2015. The increase in SG&A expenses during the six months ended June 30, 2016 included $14.5 million from the acquisitions completed in 2016 and 2015. The $14.5 million of SG&A from acquired entities includes $4.7 million of amortization of acquired intangible assets. Share-based compensation contributed $2.4 million to the increase in SG&A due to annual restricted stock awards made in September 2015 and March 2016. Increased labor rates and severance costs also contributed to the increase in SG&A expenses. These increases in SG&A expenses were partially offset by the $12.8 million gain on the sale of buildings that were previously occupied by the businesses we divested in 2015. As a percentage of revenue, SG&A expenses were 37.4% for the six months ended June 30, 2016 and the six months ended June 30, 2015.

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

SG&A (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

215,194

 

 

 

29.4

%

 

$

208,831

 

 

 

28.1

%

 

$

6,363

 

 

 

3.0

%

Safety Services

 

 

70,739

 

 

 

48.6

%

 

 

75,077

 

 

 

55.7

%

 

 

(4,338

)

 

 

-5.8

%

Interactive Services

 

 

100,125

 

 

 

69.1

%

 

 

86,660

 

 

 

68.7

%

 

 

13,465

 

 

 

15.5

%

Specialized Agent Services

 

 

61,538

 

 

 

45.3

%

 

 

54,084

 

 

 

39.9

%

 

 

7,454

 

 

 

13.8

%

Corporate other - unallocated

 

 

(14,161

)

 

NM

 

 

 

2,897

 

 

NM

 

 

 

(17,058

)

 

NM

 

Intersegment eliminations

 

 

(2,722

)

 

NM

 

 

 

(2,261

)

 

NM

 

 

 

(461

)

 

NM

 

Total

 

$

430,713

 

 

 

37.4

%

 

$

425,288

 

 

 

37.4

%

 

$

5,425

 

 

 

1.3

%

 

NM—Not Meaningful

During the six months ended June 30, 2016, Unified Communications Services SG&A expenses increased $6.4 million, or 3.0%, to $215.2 million from $208.8 million for the six months ended June 30, 2015. Using constant currency foreign exchange rates, SG&A expenses for Unified Communications Services during the six months ended June 30, 2016 would have been approximately $5.1 million higher. The increase was primarily due to increased expenses to support growth in the UCaaS market and $5.1 million from the acquisition of Magnetic North, partially offset by cost savings initiatives. As a percentage of this segment’s revenue, Unified Communications Services SG&A expenses during the six months ended June 30, 2016 increased to 29.4% compared to 28.1% for the six months ended June 30, 2015.

35


 

During the six months ended June 30, 2016, Safety Services SG&A expenses decreased $4.3 million, or 5.8%, to $70.7 million from $75.1 million for the six months ended June 30, 2015. The decrease in SG&A expenses during the six months ended June 30, 2016, was due primarily to lower amortization expense and the results of cost savings initiatives. As a percentage of this segment’s revenue, Safety Services SG&A expenses during the six months ended June 30, 2016 decreased to 48.6% compared to 55.7% for the six months ended June 30, 2015.

During the six months ended June 30, 2016, Interactive Services SG&A expenses increased $13.5 million, or 15.5%, to $100.1 million from $86.7 million for the six months ended June 30, 2015. The increase in SG&A expenses during the six months ended June 30, 2016 included $9.5 million from acquisitions made in 2016 and 2015. The remaining increase in SG&A expenses was primarily due to increased headcount levels to meet current and expected customer demand. As a percentage of this segment’s revenue, Interactive Services SG&A expenses during the six months ended June 30, 2016, increased to 69.1% compared to 68.7% for the six months ended June 30, 2015.

During the six months ended June 30, 2016, Specialized Agent Services SG&A expenses increased $7.5 million, or 13.8%, to $61.5 million from $54.1 million for the six months ended June 30, 2015. This increase in SG&A expense was driven by the need for additional resources that were previously shared with the agent businesses we divested on March 3, 2015, increased labor rates and severance costs and costs of product enhancements to accelerate revenue growth. As a percentage of this segment’s revenue, Specialized Agent Services SG&A expenses during the six months ended June 30, 2016 increased to 45.3% compared to 39.9% for the six months ended June 30, 2015.

During the six months ended June 30, 2016, Corporate other unallocated SG&A expenses consisted of the $12.8 million gain recognized on the sale of buildings that were previously occupied by the businesses we divested in 2015, $2.4 million of unallocated foreign currency gains on third-party transactions denominated in currencies other than the functional currency and $1.1 million of mark-to-market gains on investments in our non-qualified retirement plans. During the six months ended June 30, 2015, there were $1.8 million of unallocated foreign currency losses. In addition, the six months ended June 30, 2015 included $1.1 million of mark-to-market gains on investments in our non-qualified retirement plans. These mark-to-market gains result in an increase in SG&A and a corresponding increase in other non-operating income. All other corporate expenses are allocated to our four reportable segments.

Operating income: Operating income increased $6.7 million, or 5.7%, to $123.1 million for the three months ended June 30, 2016 from $116.4 million for the three months ended June 30, 2015. As a percentage of revenue, operating income increased to 21.1% for the three months ended June 30, 2016 from 20.4% for the three months ended June 30, 2015. The increase in operating margin is primarily due to the sale of the buildings previously discussed and cost savings initiatives, partially offset by revenue mix and the higher than average operating margin associated with the lost telecom services customer.

Operating income by reportable segment:

 

 

 

For the three months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

Operating income (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

88,762

 

 

 

24.0

%

 

$

98,958

 

 

 

26.4

%

 

$

(10,196

)

 

 

-10.3

%

Safety Services

 

 

11,871

 

 

 

16.0

%

 

 

3,254

 

 

 

4.9

%

 

 

8,617

 

 

 

264.8

%

Interactive Services

 

 

5,958

 

 

 

8.1

%

 

 

6,630

 

 

 

10.4

%

 

 

(672

)

 

 

-10.1

%

Specialized Agent Services

 

 

2,906

 

 

 

4.3

%

 

 

8,992

 

 

 

13.1

%

 

 

(6,086

)

 

 

-67.7

%

Corporate other unallocated

 

 

13,604

 

 

NM

 

 

 

(1,401

)

 

NM

 

 

 

15,005

 

 

NM

 

Total

 

$

123,101

 

 

 

21.1

%

 

$

116,433

 

 

 

20.4

%

 

$

6,668

 

 

 

5.7

%

 

NM—Not Meaningful

Operating income increased $4.9 million, or 2.2%, to $232.0 million for the six months ended June 30, 2016 from $227.1 million for the six months ended June 30, 2015. As a percentage of revenue, operating income increased to 20.1% for the six months ended June 30, 2016 from 20.0% for the six months ended June 30, 2015. The increase in operating margin is primarily due to the sale of the buildings, partially offset by revenue mix and the higher than average operating margin associated with the lost telecom services client.

36


 

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

% of

Revenue

 

 

2015

 

 

% of

Revenue

 

 

Change

 

 

% Change

 

Operating income (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified Communications Services

 

$

177,830

 

 

 

24.3

%

 

$

193,836

 

 

 

26.0

%

 

$

(16,006

)

 

 

-8.3

%

Safety Services

 

 

20,844

 

 

 

14.3

%

 

 

6,456

 

 

 

4.8

%

 

 

14,388

 

 

 

222.9

%

Interactive Services

 

 

11,766

 

 

 

8.1

%

 

 

12,204

 

 

 

9.7

%

 

 

(438

)

 

 

-3.6

%

Specialized Agent Services

 

 

7,424

 

 

 

5.5

%

 

 

17,527

 

 

 

12.9

%

 

 

(10,103

)

 

 

-57.6

%

Corporate other unallocated

 

 

14,161

 

 

NM

 

 

 

(2,897

)

 

NM

 

 

 

17,058

 

 

NM

 

Total

 

$

232,025

 

 

 

20.1

%

 

$

227,126

 

 

 

20.0

%

 

$

4,899

 

 

 

2.2

%

 

NM—Not Meaningful

Other income (expense): Other income (expense) includes interest expense from borrowings under credit facilities and outstanding notes, the aggregate foreign exchange gain (loss) on affiliate transactions denominated in currencies other than the functional currency, expenses, net of recoveries, of transition service agreements in connection with the sale of certain of our agent-based businesses and interest income from short-term investments.

Other expense for the three months ended June 30, 2016 was $71.7 million compared to $38.5 million for the three months ended June 30, 2015. Other expense for the six months ended June 30, 2016 was $111.3 million compared to $73.5 million for the six months ended June 30, 2015.  Other expense for the three and six months ended June 30, 2016 included $35.2 million of accelerated amortization of deferred financing costs as a result of our refinancing and accelerated debt principal prepayments. Interest expense for the three and six months ended June 30, 2016 was $37.7 million and $76.5 million, respectively, compared to $38.6 million and $77.5 million, respectively, for the three and six months ended June 30, 2015.  

During the three and six months ended June 30, 2016, we recognized losses of $0.7 million and $3.3 million, respectively, on affiliate transactions denominated in foreign currencies.  During the three and six months ended June 30, 2015, we recognized gains of $0.1 million and $1.5 million, respectively, on affiliate transactions denominated in foreign currencies.

During the three and six months ended June 30, 2016, we recognized a gain of $1.1 million, in marking the investments in our non-qualified retirement plans to market. During the three and six months ended June 30, 2015 we recognized a loss of $0.2 million and a gain of $1.1 million, respectively, in marking the investments in our non-qualified retirement plans to market. Mark-to-market gains or losses, recognized in other income, on the investments in our non-qualified retirement plans are offset by additional or reduced compensation expense related to the non-qualified retirement plans that is recorded in Corporate other unallocated SG&A expense.

During the three and six months ended June 30, 2016, revenue from transition service agreements, net of transition service expenses, and related rental income associated with the divestiture of several of our agent-based businesses in the first quarter of 2015 was $0.7 million and $2.3 million, respectively. During the three and six months ended June 30, 2015, expense from transition service agreements, net of transition service revenue, and related rental income was $0.2 million and $0.1 million, respectively.

Income from continuing operations: Our income from continuing operations decreased $16.2 million for the three months ended June 30, 2016 to $33.0 million from $49.2 million for the three months ended June 30, 2015. The decrease in income from continuing operations was driven primarily by $35.2 million of accelerated amortization of deferred financing costs as a result of our refinancing and accelerated debt principal prepayments. This decrease was partially offset by the $12.8 million gain recognized on the sale of buildings. The net impact on income from continuing operations from the accelerated amortization and sale of the buildings was a reduction of $14.3 million. Income from continuing operations includes a provision for income tax expense at an effective rate of approximately 35.8% for the three months ended June 30, 2016 compared to 36.8% for the three months ended June 30, 2015.

Our income from continuing operations decreased $20.3 million for the six months ended June 30, 2016 to $77.5 million from $97.9 million for the six months ended June 30, 2015. The net impact on income from continuing operations from the accelerated amortization and sale of the buildings was a reduction of $14.3 million. Income from continuing operations includes a provision for income tax expense at an effective rate of approximately 35.8% for the six months ended June 30, 2016 compared to 36.3% for the six months ended June 30, 2015.

Earnings per common share from continuing operations: Earnings per common share-basic and diluted from continuing operations for the three months ended June 30, 2016 were $0.40 and $0.39, respectively. Earnings per common share-basic and diluted from continuing operations for the three months ended June 30, 2015 were $0.59 and $0.58, respectively. Earnings per common share-

37


 

basic and diluted from continuing operations for the six months ended June 30, 2016 were $0.94 and $0.92, respectively. Earnings per common share-basic and diluted from continuing operations for the six months ended June 30, 2015 were $1.17 and $1.14, respectively.

Discontinued Operations

On March 3, 2015, we divested several of our agent-based businesses for $275.0 million in cash. This divestiture resulted in a first quarter 2015 gain on disposal of $48.6 million on a pre-tax basis and $29.6 million on an after-tax basis which was included within income from discontinued operations.

For additional information, see Note 2 to the Condensed Consolidated Financial Statements - DISCONTINUED OPERATIONS.

Liquidity and Capital Resources

We have historically financed our operations and capital expenditures primarily through cash flows from operations supplemented by borrowings under our senior secured credit facilities, revolving credit facilities and asset securitization facilities. In March 2015, we filed a registration statement with the Securities and Exchange Commission using a shelf registration process. As permitted under the registration statement, we may, from time to time, sell shares of our common stock, as market conditions permit, to finance our operations and capital expenditures or provide additional liquidity.

The Company’s Board of Directors has approved a share repurchase program under which the Company may repurchase up to an aggregate of $75.0 million of its outstanding common stock of which $53.0 million remains unused. Purchases under the program may be made from time to time through open market purchases, block transactions or privately negotiated transactions. The Company expects to fund the program using its cash on hand and cash generated from operations. The program may be suspended or discontinued at any time without prior notice.

Our current and anticipated uses of our cash, cash equivalents and marketable securities are to fund operating expenses, acquisitions, capital expenditures, interest payments, tax payments and quarterly dividends, repurchase common stock and repay principal on debt.

The following table summarizes our net cash flows by category from continuing operations for the periods presented:

 

 

 

For the six months ended June 30,

 

(Amounts in thousands)

 

2016

 

 

2015

 

 

Change

 

 

% Change

 

Net cash flows from continuing operating activities

 

$

197,485

 

 

$

156,524

 

 

$

40,961

 

 

 

26.2

%

Net cash flows used in continuing investing activities

 

$

(42,584

)

 

$

(83,721

)

 

$

41,137

 

 

 

-49.1

%

Net cash flows used in continuing financing activities

 

$

(112,546

)

 

$

(290,742

)

 

$

178,196

 

 

 

-61.3

%

 

Net cash flows from continuing operating activities increased $41.0 million, or 26.2%, to $197.5 million for the six months ended June 30, 2016 compared to net cash flows from continuing operating activities of $156.5 million for the six months ended June 30, 2015. The increase in net cash flows from continuing operations is primarily due to lower income tax and interest payments compared to last year.  Last year’s tax payments were impacted by the gain on the divestiture of our agent-based businesses, while 2016 tax payments are reduced further due to accelerated amortization expense associated with the debt refinancing and an overpayment of 2015 tax being applied to 2016.  These improvements in cash flows from continuing operations were partially offset by a decrease in income from continuing operations and the timing of payments to vendors and a one day increase in the days sales outstanding (“DSO”). DSO, a key performance indicator that we utilize to monitor the accounts receivable average collection period and assess overall collection risk, was 61 days at June 30, 2016, compared to 60 days at June 30, 2015. The increase in DSO of approximately one day decreased our net cash flows from continuing operating activities by approximately $6.4 million.

Net cash flows used in continuing investing activities decreased $41.1 million to $42.6 million for the six months ended June 30, 2016 compared to net cash flows used in continuing investing activities of $83.7 million for the six months ended June 30, 2015. The primary cause of this reduction in net cash flows used in continuing investing activities was the $38.4 million net proceeds we received in connection with the sale of buildings previously occupied by the businesses we divested in 2015. During the six months ended June 30, 2016, cash used for capital expenditures, primarily for the purchase of software and computer equipment for product enhancements and new contracts or clients, was $73.9 million compared to $64.9 million for the six months ended June 30, 2015. Net cash flows used for business acquisitions during the six months ended June 30, 2016 was $7.6 million less than the six months ended June 30, 2015. The timing of cash collections on behalf of certain Specialized Agent Services Cost Management clients and the subsequent remittance of cash to those clients resulted in a $4.2 million increase in other cash flows from investing activities during the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

38


 

Net cash flows used in continuing financing activities decreased $178.2 million to $112.5 million for the six months ended June 30, 2016 compared to net cash flows used in continuing financing activities of $290.7 million for the six months ended June 30, 2015. The decrease in cash used for continuing financing activities is primarily due to reduced repayments, net of proceeds, on our various credits facilities during the six months ended June 30, 2016 of $169.3 million compared to the six months ended June 30, 2015.  The reduction in repayments is primarily due to the repayment of $185.0 million on our Securitization Facility during the six months ended June 30, 2015. In connection with our refinancing during the six months ended June 30, 2016 we paid $25.3 million of deferred financing and other debt-related costs. During the six months ended June 30, 2016, we completed the repurchase of one million shares of our common stock in the open market for an aggregate purchase price of approximately $22.0 million. During the six months ended June 30, 2015, we completed the repurchase of two million shares of common stock in two private transactions for an aggregate purchase price of approximately $60.0 million.

As of June 30, 2016, the amount of cash and cash equivalents held by our foreign subsidiaries was $76.8 million. We have accrued U.S. taxes on $185.3 million of unremitted foreign earnings and profits. We have determined foreign earnings of approximately $231 million will be indefinitely reinvested. Based on our current projected capital needs and the current amount of cash and cash equivalents held by our foreign subsidiaries, we do not anticipate incurring any material tax costs beyond our accrued tax position in connection with such repatriation, but we may be required to accrue for unanticipated additional tax costs in the future if our expectations or the amount of cash held by our foreign subsidiaries change.

Subject to legally available funds, we presently intend to pay a quarterly cash dividend at a rate equal to approximately $19.0 million per quarter (or an annual rate of $76.0 million). Based on approximately 84.5 million shares of common stock subject to dividends, this implies a quarterly dividend of approximately $0.225 per share (or an annual dividend of approximately $0.90 per share). We anticipate funding our dividend with cash generated by our operations. The declaration and payment of all future dividends, if any, will be at the sole discretion of our Board of Directors. On August 1, 2016, we announced a $0.225 per common share quarterly dividend. The dividend is payable on September 1, 2016 to stockholders of record as of the close of business on August 22, 2016.

Given the Company’s current levels of cash on hand, anticipated cash flows from operations and available borrowing capacity, the Company believes it has sufficient liquidity to conduct its normal operations and pursue its business strategy in the ordinary course.

Long-term Obligations

Our long-term obligations are comprised of the following:

 

(i)

Senior Secured Credit Facilities;

 

(ii)

5.375 percent notes due 2022 (the “2022 Senior Notes”) issued under an indenture;

 

(iii)

4.75 percent notes due 2021 (the “2021 Senior Secured Notes”) issued under an indenture; and

 

(iv)

the Securitization Facility.

We and our subsidiaries, affiliates or significant stockholders may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities (including any publicly issued debt or equity securities), in privately negotiated or open market transactions, by tender offer or otherwise.

Senior Secured Credit Facilities

Term Loans

We have five tranches of term loans outstanding under our Senior Secured Credit Facilities: the 2018 Maturity Term Loans, the 2019 Maturity Term Loans, the 2021 Maturity A Term Loans, the 2021 Maturity B Term Loans and the 2023 Maturity Term Loans.  As of June 30, 2016, we had outstanding approximately $34.4 million of 2018 Maturity Term Loans, $78.8 million of 2019 Maturity Term Loans, $650 million of 2021 Maturity A Term Loans, $260.0 million of 2021 Maturity B Term Loans and $870.0 million of 2023 Maturity Term Loans.

On June 17, 2016 (the “Seventh Amendment Effective Date”), the Company, certain domestic subsidiaries of the Company, as subsidiary borrowers, Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the various lenders party thereto modified the Senior Secured Credit Facilities by entering into Amendment No. 7 to Amended and Restated Credit Agreement (the “Seventh Amendment”), amending the Company’s Amended and Restated Credit Agreement, dated as of October 5, 2010, by and among the Company, Wells Fargo, as administrative agent, and the various lenders and other parties party thereto from time to time

39


 

(as previously amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 15, 2012, Amendment No. 2 to Amended and Restated Credit Agreement, dated as of October 24, 2012, Amendment No. 3 to Amended and Restated Credit Agreement, dated as of February 20, 2013, Amendment No. 4 to Amended and Restated Credit Agreement, dated as of January 24, 2014, Amendment No. 5 to Amended and Restated Credit Agreement, dated as of July 1, 2014, and Amendment No. 6 to Amended and Restated Credit Agreement, dated as of November 24, 2015, and, as further amended by the Seventh Amendment, the “Credit Agreement”).

With respect to our term loans, the Seventh Amendment:

 

·

extended the maturity of a portion of the 2019 Maturity Term Loans, which mature July 1, 2019, to June 17, 2021 by converting such existing term loans into 2021 Maturity A Term Loans;

 

·

extended the maturity of a portion of the 2018 Maturity Term Loans, which mature June 30, 2018, to June 17, 2023 by converting such existing term loans into 2023 Maturity Term Loans;

 

·

provided for an increase of 2021 Maturity A Term Loans with incremental 2021 Maturity A Term Loans, which were added to and constitute a single class of term loans with the 2021 Maturity A Term Loans, such that the aggregate amount of 2021 Maturity A Term Loans (after giving effect to the incurrence of the incremental 2021 Maturity A Term Loans) is $650.0 million;

 

·

provided for an increase of 2023 Maturity Term Loans with incremental 2023 Maturity Term Loans, which were added to and constitute a single class of term loans with the 2023 Maturity Term Loans, such that the aggregate amount of 2023 Maturity Term Loans (after giving effect to the incurrence of the incremental 2023 Maturity Term Loans) is $870.0 million;

 

·

provided for new 2021 Maturity B Term Loans in an aggregate amount of $260.0 million with a maturity date of June 17, 2021;

 

·

provided for annual amortization (payable in quarterly installments) in respect of the 2023 Maturity Term Loans in an amount equal to 1.0% of the original aggregate principal amount of the 2023 Maturity Term Loans outstanding on the Seventh Amendment Effective Date until the maturity date, at which point all remaining outstanding 2023 Maturity Term Loans shall become due and payable;

 

·

provided for annual amortization (payable in quarterly installments) in respect of the 2021 Maturity B Term Loans in an amount equal to 1.0% of the original aggregate principal amount of the 2021 Maturity B Term Loans outstanding on the Seventh Amendment Effective Date until the maturity date, at which point all remaining outstanding 2021 Maturity B Term Loans shall become due and payable; and

 

·

provided for annual amortization (payable in quarterly installments and based on the original aggregate principal amount of the 2021 Maturity A Term Loans outstanding on the Seventh Amendment Effective Date) in respect of the 2021 Maturity A Term Loans payable at a 2.5% annual rate for the three fiscal quarters in the nine month period ending March 31, 2017, a 5.0% annual rate for the four fiscal quarters in the year ending March 31, 2018, a 7.5% annual rate for the four fiscal quarters in the year ending March 31, 2019, a 10.0% annual rate for the four fiscal quarters in the year ending March 31, 2020 and a 2.5% quarterly rate thereafter until the maturity date, at which point all remaining outstanding 2021 Maturity A Term Loans shall become due and payable.

Proceeds of the 2021 Maturity A Term Loans, 2023 Maturity Term Loans and 2021 Maturity B Term Loans were used on the Seventh Amendment Effective Date, together with proceeds from the 2021 Senior Secured Notes offering described below, to partially prepay existing non-extending 2019 Maturity Term Loans and existing non-extending 2018 Maturity Term Loans and to fully prepay existing non-extending B-11 Term Loans.

The Seventh Amendment included a soft call option applicable to the 2021 Maturity B Term Loans and the 2023 Maturity Term Loans. The soft call option provides for the payment of a premium equal to 1.0% of the amount of the repricing payment in the event that, on or prior to December 17, 2016, the six-month anniversary of the Seventh Amendment Effective Date, West or its subsidiary borrowers enter into certain repricing transactions.

40


 

Our Senior Secured Credit Facilities bear interest at variable rates. The effective annual interest rate, inclusive of debt amortization costs, on the Senior Secured Credit Facilities, but excluding accelerated debt amortization costs in connection with the terminated non-extended and extended revolving credit commitments and repayment of existing non-extending 2019 Maturity Term Loans, 2018 Maturity Term Loans and B-11 Term Loans, for the six months ended June 30, 2016 was 4.25% compared to 3.91% during the six months ended June 30, 2015.  With respect to the interest rates for our term loans, the Seventh Amendment provided for:

 

·

an interest rate margin applicable to the 2021 Maturity A Term Loans that is based on the Company’s total leverage ratio and ranges from 1.75% to 2.50% for LIBOR rate loans (2.50%, as of June 30, 2016), subject to a 0.0% interest rate floor for the LIBOR component of LIBOR rate 2021 Maturity A Term Loans, and from 0.75% to 1.50% for base rate loans (1.50%, as of June 30, 2016);

 

·

an interest rate margin applicable to the 2023 Maturity Term Loans equal to 3.00% for LIBOR rate loans and 2.00% for base rate loans, subject to a 0.75% interest rate floor for the LIBOR component of LIBOR rate 2023 Maturity Term Loans, and subject to a 1.75% interest rate floor for the base rate component of base rate 2023 Maturity Term Loans; and

 

·

an interest rate margin applicable to the 2021 Maturity B Term Loans equal to 2.75% for LIBOR rate loans, and 1.75% for base rate loans, subject to a 0.75% interest rate floor for the LIBOR component of LIBOR rate 2021 Maturity B Term Loans, and subject to a 1.75% interest rate floor for the base rate component of base rate 2021 Maturity B Term Loans.

The Company may request additional committed term loan debt or increase the commitment amount to the revolving credit facility in an aggregate amount not to exceed $500.0 million, plus the aggregate principal payments made in respect of the term loans under the Credit Agreement following June 17, 2016 (excluding such payments made with proceeds of term loans issued in connection with the Seventh Amendment and the 2021 Senior Secured Notes offering). Availability of such additional tranches of term loans or increases to the revolving credit facility is subject to the absence of any default and pro forma compliance with financial covenants and, among other things, the receipt of commitments by existing or additional financial institutions.

Senior Secured Revolving Credit Facility

On June 17, 2016, we amended the Credit Agreement to provide for an extended senior secured revolving credit facility (the “Senior Secured Revolving Credit Facility”) in an aggregate principal amount of $300.0 million. The Senior Secured Revolving Credit Facility matures on June 17, 2021.  The proceeds of the Senior Secured Revolving Credit Facility may be used for working capital and general corporate purposes (including dividends and distributions and acquisitions).

The interest rate margins applicable to the Senior Secured Revolving Credit Facility are based on the Company’s total leverage ratio and range from 1.75% to 2.50% for LIBOR rate loans, subject to a 0.0% interest rate floor for the LIBOR component of LIBOR rate loans, and from 0.75% to 1.50% for base rate loans. As of June 30, 2016, the interest rate margins applicable to the Senior Secured Revolving Credit Facility were 2.50% for LIBOR rate loans and 1.50% for base rate loans. We are required to pay each non-defaulting lender a commitment fee of 0.375% in respect of any unused commitments under the Senior Secured Revolving Credit Facility, which fee is subject to adjustment based upon our total leverage ratio.

The Senior Secured Revolving Credit Facility was undrawn at June 30, 2016 and its predecessor senior secured revolving credit facility was undrawn at December 31, 2015. The Senior Secured Revolving Credit Facility and its predecessor senior secured revolving credit facility were undrawn during the six months ended June 30, 2016. The average daily outstanding balance on our senior secured revolving credit facility during the six months ended June 30, 2015 was $10.0 million.

Senior Notes

2021 Senior Secured Notes

On June 17, 2016, we issued $400.0 million 2021 Senior Secured Notes.  The 2021 Senior Secured Notes mature on June 17, 2021 and were issued at par. The 2021 Senior Secured Notes are secured, subject to certain exceptions and permitted liens, by a first-priority security interest in substantially all of our and our subsidiary guarantors’ property and assets which constitutes collateral under our Senior Secured Credit Facilities.  The 2021 Senior Secured Notes were offered in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

At any time prior to July 15, 2018, we may redeem all or a part of the 2021 Senior Secured Notes at a redemption price equal to 100% of the principal amount of 2021 Senior Secured Notes redeemed plus the applicable premium (as defined in the indenture governing the 2021 Senior Secured Notes) as of, and accrued and unpaid interest, if any, to, the date of redemption, subject to the rights of holders of 2021 Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date.

41


 

At any time (which may be more than once) before July 15, 2018, we can choose to redeem up to 40% of the outstanding notes with proceeds from one or more equity offerings, as long as (i) we pay 104.750% of the face amount of the notes, plus accrued and unpaid interest; (ii) we redeem the notes within 90 days after completing the equity offering; and (iii) at least 60% of the aggregate principal amount of the notes issued remains outstanding afterwards.  We may also redeem, during any 12-month period commencing from July 15, 2016 until July 15, 2018, up to 10% of the original principal amount of the notes at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the applicable redemption date.

On or after July 15, 2018, we may redeem the 2021 Senior Secured Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the 2021 Senior Secured Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable date of redemption, subject to the right of holders of record of 2021 Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the 12-month period beginning on July 15 of each of the years indicated below:

 

Year

 

Percentage

 

2018

 

 

102.375

 

2019

 

 

101.188

 

2020 and thereafter

 

 

100.000

 

2022 Senior Notes

On July 1, 2014, we issued $1.0 billion aggregate principal amount of 2022 Senior Notes. The 2022 Senior Notes mature on July 15, 2022 and were issued at par. The 2022 Senior Notes were offered in a private offering exempt from the registration requirements of the Securities Act.

At any time prior to July 15, 2017, we may redeem all or a part of the 2022 Senior Notes at a redemption price equal to 100% of the principal amount of 2022 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2022 Senior Notes) as of the redemption date plus accrued and unpaid interest to the redemption date, subject to the right of holders of 2022 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

At any time (which may be more than once) before July 15, 2017, we can choose to redeem up to 40% of the outstanding notes with proceeds from one or more equity offerings, as long as (i) we pay 105.375% of the face amount of the notes, plus accrued and unpaid interest; (ii) we redeem the notes within 90 days after completing the equity offering; and (iii) at least 60% of the aggregate principal amount of the notes issued remains outstanding afterwards.

On and after July 15, 2017, we may redeem the 2022 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2022 Senior Notes to be redeemed) set forth below plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of 2022 Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the 12-month period beginning on July 15 of each of the years indicated below:

 

Year

 

Percentage

 

2017

 

 

104.031

 

2018

 

 

102.688

 

2019

 

 

101.344

 

2020 and thereafter

 

 

100.000

 

 

Securitization Facility

Under our revolving trade accounts receivable financing facility among the Company, certain of our originating domestic subsidiaries, West Receivables Holding LLC, West Receivables LLC and Wells Fargo (“Securitization Facility”), trade receivables originated by certain of our domestic subsidiaries are sold or contributed to West Receivables Holdings LLC. West Receivables Holdings LLC sells or contributes such trade receivables to West Receivables LLC, which sells undivided interests in the purchased or contributed trade receivables for cash to one or more financial institutions. The availability of the funding is subject to the level of eligible receivables after deducting certain concentration limits and reserves. The proceeds of the facility are available for general corporate purposes. The Securitization Facility provides a LIBOR spread on borrowings of 1.35% and for an unused commitment fee of 0.45% at any time the average daily borrowings during the month were less than 25% of the average daily available funding during such month and 0.25% at all other times.

42


 

The Securitization Facility has been amended from time to time to add originators, modify eligibility criteria for receivables and clarify the facility’s reporting metrics.

West Receivables LLC and West Receivables Holdings LLC are consolidated in our unaudited condensed consolidated financial statements included elsewhere in this report. At June 30, 2016, $75.0 million was drawn under the Securitization Facility.  At December 31, 2015, the Securitization Facility was undrawn. The highest outstanding balance during the six months ended June 30, 2016 was $75.0 million.

Debt Covenants

Senior Secured Credit Facilities and Senior Secured Revolving Credit Facility—We are required to comply on a quarterly basis with a maximum total leverage ratio covenant and a minimum interest coverage ratio covenant. Pursuant to the Credit Agreement, the total leverage ratio of consolidated total debt to Consolidated EBITDA (as defined in our Credit Agreement) may not exceed 6.00 to 1.0 at June 30, 2016, and the interest coverage ratio of Consolidated EBITDA to the sum of consolidated interest expense must be not less than 1.85 to 1.0. The total leverage ratio will become more restrictive over time (adjusted annually until the maximum leverage ratio reaches 5.5 to 1.0 as of December 31, 2017). Both ratios are measured on a rolling four-quarter basis. We were in compliance with these financial covenants at June 30, 2016. Our ratio of total debt to Consolidated EBITDA (as defined in our Credit Agreement) was 4.47x and 4.68x at June 30, 2016 and December 31, 2015, respectively. The Credit Agreement also contains various negative covenants, including limitations on indebtedness, liens, mergers and consolidations, asset sales, dividends and distributions (excluding dividends and distributions to other restricted subsidiaries) or repurchases of our capital stock, investments, loans and advances, capital expenditures, payment of other debt, transactions with affiliates and changes in our lines of business. Each of the negative covenants is subject to specified exceptions. The Company has sufficient capacity under applicable exceptions included in the Credit Agreement to complete a dividend in excess of the Company’s net income for the six months ended June 30, 2016.

The Credit Agreement includes certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the documentation with respect to the Senior Secured Credit Facilities, the failure of collateral under the security documents for the Senior Secured Credit Facilities, the failure of the Senior Secured Credit Facilities to be senior debt under the subordination provisions of certain subordinated debt we may have outstanding from time to time and a change of control of us. If an event of default occurs, the lenders under the Senior Secured Credit Facilities will be entitled to take certain actions, including the acceleration of all amounts due under the Senior Secured Credit Facilities and all actions permitted to be taken by a secured creditor. We believe that for the foreseeable future, the Senior Secured Credit Facilities and the Senior Secured Revolving Credit Facility offer us sufficient capacity for our indebtedness financing requirements and we do not anticipate that the limitations on incurring additional indebtedness included in the Credit Agreement will materially impair our financial condition or results of operations.

2021 Senior Secured Notes and 2022 Senior Notes—The indentures governing the 2021 Senior Secured Notes and the 2022 Senior Notes, respectively, contain covenants limiting, among other things, our ability and the ability of our restricted subsidiaries to: incur additional debt or issue certain preferred shares, pay dividends on or make distributions in respect of our capital stock or make other restricted payments (excluding dividends, distributions and restricted payments to other restricted subsidiaries), make certain investments, sell certain assets, create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets, enter into certain transactions with our affiliates and designate our subsidiaries as unrestricted subsidiaries. Each of the negative covenants is subject to specified exceptions. We were in compliance with these financial covenants at June 30, 2016. The Company has sufficient capacity under applicable exceptions included in the indentures governing the 2021 Senior Secured Notes and the 2022 Senior Notes, respectively, to complete a dividend in excess of the Company’s net income for the six months ended June 30, 2016.

Securitization Facility—The Securitization Facility contains various customary affirmative and negative covenants and also contains customary default and termination provisions which provide for acceleration of amounts owed under the program upon the occurrence of certain specified events, including, but not limited to, failure to pay yield and other amounts due, defaults on certain indebtedness, certain judgments, changes in control, certain events negatively affecting the overall credit quality of collateralized accounts receivable, bankruptcy and insolvency events and failure to meet financial tests requiring maintenance of certain leverage and coverage ratios, similar to those under our Senior Secured Credit Facilities.

43


 

Our failure to comply with these debt covenants may result in an event of default which, if not cured or waived, could accelerate the maturity of our indebtedness. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. If our cash flows and capital resources are insufficient to fund our debt service obligations and keep us in compliance with the covenants under our Credit Agreement or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness including the notes. We cannot ensure that we would be able to take any of these actions, that these actions would be successful and would permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our Senior Secured Credit Facilities and the indentures that govern the 2021 Senior Secured Notes and the 2022 Senior Notes. The Credit Agreement and the indentures that govern the 2021 Senior Secured Notes and the 2022 Senior Notes restrict our ability to dispose of assets and use the proceeds from the disposition. As a result, we may not be able to consummate those dispositions or use the proceeds to meet our debt service or other obligations, and any proceeds that are available may not be adequate to meet any debt service or other obligations then due.

If we cannot make scheduled payments on our debt, we will be in default, and as a result:

 

·

our debt holders could declare all outstanding principal and interest to be due and payable;

 

·

the lenders under our Senior Secured Credit Facilities and the Senior Secured Revolving Credit Facility could terminate their commitments to lend us money and, together with the holders of our 2021 Senior Secured Notes, foreclose against the assets securing our borrowings; and

 

·

we could be forced into bankruptcy or liquidation.

Contractual Obligations

We have contractual obligations that may affect our financial condition. However, based on management’s assessment of the underlying provisions and circumstances of our material contractual obligations, management believes there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on our financial condition or results of operations.

The following table summarizes our contractual obligations, in thousands, at June 30, 2016:

 

 

 

Payment due by period

 

Contractual Obligations

 

Total

 

 

Less than

1 year

 

 

1 - 3 years

 

 

4 - 5 years

 

 

After 5 years

 

Senior Secured Term Loans due 2018

 

$

34,405

 

 

$

 

 

$

34,405

 

 

$

 

 

$

 

Asset Securitization Facility, due 2018

 

 

75,000

 

 

 

 

 

 

75,000

 

 

 

 

 

 

 

Senior Secured Term Loans due 2019

 

 

78,814

 

 

 

6,305

 

 

 

14,712

 

 

 

57,797

 

 

 

 

 

Senior Secured A Term Loans due 2021

 

 

650,000

 

 

 

20,313

 

 

 

89,375

 

 

 

540,312

 

 

 

 

Senior Secured B Term Loans due 2021

 

 

260,000

 

 

 

2,600

 

 

 

5,200

 

 

 

252,200

 

 

 

 

4 3/4% Senior Secured Notes due 2021

 

 

400,000

 

 

 

 

 

 

 

 

 

400,000

 

 

 

 

5 3/8% Senior Notes due 2022

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

Senior Secured B Term Loans due 2023

 

 

870,000

 

 

 

8,700

 

 

 

17,400

 

 

 

17,400

 

 

 

826,500

 

Interest payments on fixed rate debt

 

 

444,058

 

 

 

64,411

 

 

 

145,500

 

 

 

153,522

 

 

 

80,625

 

Estimated interest payments on variable rate debt (1)

 

 

409,376

 

 

 

68,472

 

 

 

138,094

 

 

 

129,376

 

 

 

73,434

 

Operating leases

 

 

133,994

 

 

 

24,642

 

 

 

38,897

 

 

 

24,052

 

 

 

46,403

 

Contractual minimums under telephony agreements (2)

 

 

12,500

 

 

 

10,500

 

 

 

2,000

 

 

 

 

 

 

 

Purchase obligations (3)

 

 

50,320

 

 

 

42,117

 

 

 

7,378

 

 

 

825

 

 

 

 

Total contractual cash obligations

 

$

4,418,467

 

 

$

248,060

 

 

$

567,961

 

 

$

1,575,484

 

 

$

2,026,962

 

 

(1)

Interest rate assumptions based on July 12, 2016 LIBOR U.S. dollar swap rate curves for the next five years.

(2)

Minimum payments over the contract life are based on projected telephony minutes. The contractual minimum is usage based and could vary based on actual usage.

(3)

Represents future obligations for capital and expense projects that are in progress or are committed.

The table above excludes amounts to be paid for taxes and long-term obligations under our Executive Retirement Savings Plan and the Deferred Compensation Plan. The table also excludes amounts to be paid for income tax contingencies because the timing thereof is highly uncertain. At June 30, 2016, we had accrued $46.5 million, including interest and penalties for uncertain tax positions.

44


 

Capital Expenditures

Our continuing operations require significant capital expenditures for technology, capacity expansion and upgrades. Capital expenditures were $73.9 million for the six months ended June 30, 2016 compared to $64.9 million for the six months ended June 30, 2015. We currently estimate our capital expenditures for 2016 to be between $135.0 million and $160.0 million, primarily for capacity expansion, product enhancements, development of new products and services, upgrades at existing facilities and data center consolidations.

Off-Balance Sheet Arrangements

Performance obligations of several of our subsidiaries are supported by performance bonds and letters of credit. These obligations will expire at various dates through 2017 and are renewed as required. The outstanding commitment on these obligations at June 30, 2016 was $6.7 million.

Effects of Inflation

We do not believe that inflation has had a material effect on our financial position or results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results of operations and require significant or complex judgment on the part of management. The accounting policies we consider critical are our accounting policies with respect to revenue recognition, allowance for doubtful accounts, goodwill and other intangible assets, income taxes, property and equipment, capitalization of internal costs and share-based compensation.

For additional discussion of these critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2015. There have not been any significant changes with respect to these policies during the six months ended June 30, 2016.

 

 

Item  3.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments. The effect of inflation on our variable interest rate debt is discussed below in “Interest Rate Risk.”

Interest Rate Risk

As of June 30, 2016, we had $1,893.2 million outstanding under our Senior Secured Credit Facilities, $400.0 million outstanding under our 2021 Senior Secured Notes, $1.0 billion outstanding under our 2022 Senior Notes and $75.0 million outstanding under our Securitization Facility. Our total variable-rate debt was $1,968.2 million, or 58%, and total fixed-rate debt was $1,400.0 million or 42%.  

At June 30, 2016, the 30 and 90 day LIBOR rates were approximately 0.4603% and 0.6311%, respectively. An additional 50 basis point increase to LIBOR rates as of June 30, 2016 would have resulted in a quarterly increase in interest expense of approximately $2.1 million on our variable-rate debt, including the 2018 Maturity Term Loans, 2021 Maturity B Term Loans and 2023 Maturity Term Loans, each subject to a LIBOR interest rate floor of 75 basis points, and the 2019 Maturity Term Loans,2021 Maturity A Term Loans and Securitization Facility, neither of which include a LIBOR interest rate floor.

 

On July 26, 2016, we entered into a 5-year $550 million interest rate hedge program consisting of a $275 million 1-month LIBOR swap effective July 29, 2016 and a $275 million 3-month LIBOR swap with a forward starting effective date commencing June 30, 2017.  As a result of prevailing LIBOR rates, material rate increases on our variable rate debt are possible, albeit at a less impactful pace as a result of the aforementioned hedge program and implementation timeframe. .

 

45


 

On a pro forma basis with the hedge program in effect, our fixed-rate debt as of June 30, 2016 would have been 58 percent compared to 30 percent as of March 31, 2016 and 42 percent as of June 30, 2016 without pro forma effect of the hedge program. For every 50 basis point increase in variable interest rates above the LIBOR interest rate floor, our quarterly interest expense would increase by approximately $2.5 million on an unhedged basis, or $1.8 million on a hedged basis

Foreign Currency Risk

Revenue and expenses from our foreign operations are typically denominated in local currency, thereby creating exposure to changes in exchange rates. Generally, we do not hedge our foreign currency transactions. Changes in exchange rates may positively or negatively affect our revenue and net income attributed to these subsidiaries. Based on our level of operating activities in foreign operations during the three months ended June 30, 2016, a ten percent change in the value of the U.S. dollar relative to the Euro and British Pound Sterling would have positively or negatively affected our net operating income by approximately 1.1%.

For the three and six months ended June 30, 2016, revenues from non-U.S. countries were approximately 21%, of consolidated revenues in both periods.   For both the three and six months ended June 30, 2015, revenues from non-U.S. countries were also approximately 21% of consolidated revenues. For both the three and six months ended June 30, 2016, revenue from the United Kingdom accounted for 13% of consolidated revenues. The United Kingdom was the only foreign country which accounted for greater than 10% of revenue.  At June 30, 2016 and December 31, 2015, long-lived assets from non-U.S. countries were approximately 8% of consolidated long-lived assets.  We have generally not entered into forward exchange or option contracts for transactions denominated in foreign currency to hedge against foreign currency risk.  We are exposed to translation risk because our foreign operations are in local currency and must be translated into U.S. dollars. As currency exchange rates fluctuate, translation of our Statements of Operations of non-U.S. businesses into U.S. dollars affects the comparability of revenue, expenses and operating income between periods.

Investment Risk

Periodically, we have entered into interest rate swap agreements (also referred to as cash flow hedges) to convert variable long-term debt to fixed rate debt. At June 30, 2016, we had no hedges outstanding.

On July 26, 2016, we entered into two interest rate swaps, a 1-month LIBOR swap and a 3-month LIBOR swap, both with a beginning notional value of $275.0 million and maturity date of July 17, 2021.  The 1-month LIBOR swap is effective July 29, 2016, with no amortization or variable interest rate floor.  The 3-month LIBOR Swap is effective June 30, 2017, with 1% amortization per year and a 75bps LIBOR floor.

Our objective in using interest rate swaps is to add stability to interest expense and to manage exposure to interest rate movements. The interest rate swaps will be used to hedge the variable cash flows associated with existing variable-rate debt.  As a result of the interest rate swaps, our debt portfolio has synthetically changed from 42% fixed-rate debt as of June 30, 2016 to 50% as of July 29, 2016.  With the impact of the 3-month LIBOR Swap, the fixed-rate debt will be 58%.

As required under ASC 815, Derivatives and Hedging, we will record the interest rate swaps on the balance sheet at fair value.  The interest rate swaps are considered cash flow hedges. We have elected to apply hedge accounting and believe the designated hedging relationship and terms of the interest rate swaps have satisfied the criteria necessary to apply hedge accounting.

The effective portion of changes in the fair value of the interest rate swaps will be recorded in Accumulated Other Comprehensive Loss and will be subsequently reclassified into earnings in the period that the hedged transactions affect earnings. The ineffective portion of the change in fair value of the interest rate swaps, if any, will be recognized in earnings.

 

 

46


 

Item  4.

Controls and Procedures 

Evaluation of disclosure controls and procedures. Our management team continues to review our internal controls and procedures and the effectiveness of those controls. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer and Treasurer concluded that, as of June 30, 2016, our disclosure controls and procedures are effective in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and (ii) that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting or in other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. No corrective actions were required or taken.

 

47


 

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

In the ordinary course of business, we and certain of our subsidiaries are defendants in various litigation matters and are subject to claims from our clients for indemnification, some of which may involve claims for damages that are substantial in amount. We do not believe the disposition of claims currently pending will have a material adverse effect on our financial position, results of operations or cash flows.

 

 

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risks described under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2015. If any of the risks described therein occur, our business, financial condition, liquidity and results of operations could be materially affected.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows our purchases of our common stock during the six months ended June 30, 2016:

 

Period

 

(a)

Total Number of

Shares Purchased

 

 

(b)

Average Price

Paid per Share

 

 

(c)

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

(d)

Approximate

Dollar Value of

Shares that May

Yet be Purchased

Under the Plans

or Programs (1)

 

January 1, 2016 to January 31, 2016

 

 

 

 

$

 

 

 

 

 

$

 

February 1, 2016 to February 29, 2016

 

 

376,931

 

 

 

20.66

 

 

 

376,931

 

 

$

67,206,910

 

March 1, 2016 to March 31, 2016

 

 

623,069

 

 

 

22.72

 

 

 

623,069

 

 

$

53,039,122

 

April 1, 2016 to April 30, 2016

 

 

 

 

 

 

 

 

 

 

$

53,039,122

 

May 1, 2016 to May 31, 2016

 

 

 

 

 

 

 

 

 

 

$

53,039,122

 

June 1, 2016 to June 30, 2016

 

 

 

 

 

 

 

 

 

 

$

53,039,122

 

Total

 

 

1,000,000

 

 

$

21.94

 

 

 

1,000,000

 

 

 

 

 

 

(1)

On February 1, 2016, the Company announced that our Board of Directors had approved a share repurchase program under which the Company may repurchase up to an aggregate of $75.0 million of our outstanding common stock. Purchases under the program may be made from time to time through open market purchases, block transactions or privately negotiated transactions. In February 2016, we began to repurchase shares of our common stock in open market transactions.

During the six months ended June 30, 2016, 3,289 shares of our common stock were withheld to satisfy tax withholding obligations. These shares are permanently removed from the 2013 Long-Term Incentive Plan reserve.

 

 

48


 

Item 6. Exhibits

 

  4.01

 

Indenture, dated as of June 17, 2016, among West Corporation, the guarantors named on the signature pages thereto, U.S. Bank National Association, as Trustee, and U.S. Bank National Association, as Collateral Agent, with respect to the 4.750% senior secured notes due July 15, 2021(incorporated by reference to Exhibit 4.01 to Form 8-K filed June 21, 2016)

 

 

 

10.01

 

Amendment No. 7 to Amended and Restated Credit Agreement, dated as of June 17, 2016, by and among West Corporation, the Subsidiary Borrowers party thereto, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, to the amended and restated credit agreement, dated as of October 5, 2010, by and among West Corporation, the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.01 to Form 8-K filed June 21, 2016)

 

 

 

10.02

 

Security Agreement dated, as of June 17, 2016, among West Corporation, the other grantors identified therein and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.02 to Form 8-K filed June 21, 2016)

 

 

 

10.03

 

Intellectual Property Security Agreement, dated as of June 17, 2016, among West Corporation, the other grantors identified therein and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.03 to Form 8-K filed June 21, 2016)

 

 

 

10.04

 

First Lien Intercreditor Agreement, dated as of June 17, 2016, among West Corporation, the other grantors party thereto, Wells Fargo Bank, National Association, as Credit Agreement Collateral Agent, and U.S. Bank National Association, as the Initial Other Authorized Representative (incorporated by reference to Exhibit 10.04 to Form 8-K filed June 21, 2016)

10.05

 

Amendment No. 2 to West Corporation 2013 Employee Stock Purchase Plan, as amended and restated effective September 10, 2013 (incorporated by reference to Exhibit 10.1 to Form 8-K filed May 20, 2016)(1)

 

 

 

15.01

 

Awareness letter of Independent Registered Public Accounting Firm

 

 

 

31.01

 

Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.02

 

Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.01

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.02

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

Financial statements from the quarterly report on Form 10-Q of West Corporation for the quarter ended June 30, 2016, filed on August 4, 2016, formatted in XBRL: (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) the Condensed Consolidated Statements of Stockholders’ Deficit; and (vi) the Notes to Condensed Consolidated Financial Statements

 

(1)

Indicates management contract or compensation plan or arrangement.

 

 

49


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

WEST CORPORATION

 

 

 

By:

 

/s/ Thomas B. Barker

 

 

Thomas B. Barker

 

 

Chief Executive Officer

 

 

 

By:

 

/s/ Jan D. Madsen

 

 

Jan D. Madsen

 

 

Chief Financial Officer and Treasurer

 

 

 

By:

 

/s/ R. Patrick Shields

 

 

R. Patrick Shields

 

 

Senior Vice President -

 

 

Chief Accounting Officer

 

Date: August 4, 2016

 

 

50


 

Exhibit Index

 

Exhibit

Number 

 

 

 

 

 

 4.01

 

Indenture, dated as of June 17, 2016, among West Corporation, the guarantors named on the signature pages thereto, U.S. Bank National Association, as Trustee, and U.S. Bank National Association, as Collateral Agent, with respect to the 4.750% senior secured notes due July 15, 2021(incorporated by reference to Exhibit 4.01 to Form 8-K filed June 21, 2016)

 

 

 

10.01

 

Amendment No. 7 to Amended and Restated Credit Agreement, dated as of June 17, 2016, by and among West Corporation, the Subsidiary Borrowers party thereto, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, to the amended and restated credit agreement, dated as of October 5, 2010, by and among West Corporation, the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.01 to Form 8-K filed June 21, 2016)

 

 

 

10.02

 

Security Agreement dated, as of June 17, 2016, among West Corporation, the other grantors identified therein and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.02 to Form 8-K filed June 21, 2016)

 

 

 

10.03

 

Intellectual Property Security Agreement, dated as of June 17, 2016, among West Corporation, the other grantors identified therein and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.03 to Form 8-K filed June 21, 2016)

 

 

 

10.04

 

First Lien Intercreditor Agreement, dated as of June 17, 2016, among West Corporation, the other grantors party thereto, Wells Fargo Bank, National Association, as Credit Agreement Collateral Agent, and U.S. Bank National Association, as the Initial Other Authorized Representative (incorporated by reference to Exhibit 10.04 to Form 8-K filed June 21, 2016)

 

 

 

10.05

 

Amendment No. 2 to West Corporation 2013 Employee Stock Purchase Plan, as amended and restated effective September 10, 2013 (incorporated by reference to Exhibit 10.1 to Form 8-K filed May 20, 2016)(1)

 

 

 

 

15.01

 

Awareness letter of Independent Registered Public Accounting Firm

 

 

 

31.01

 

Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.02

 

Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.01

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.02

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

Financial statements from the quarterly report on Form 10-Q of West Corporation for the quarter ended June 30, 2016, filed on August 4, 2016, formatted in XBRL: (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) the Condensed Consolidated Statements of Stockholders’ Deficit; and (vi) the Notes to Condensed Consolidated Financial Statements

 

(1)

Indicates management contract or compensation plan or arrangement.

 

 

51